Related: The Fed Goes Global
Today's $pin:
"As oil plunges, investors worry; But at gas pumps, the smiles abound" by Megan Woolhouse and Jack Newsham, Globe Staff and Globe Correspondent January 07, 2015
Plunging crude oil prices are driving down the cost of gasoline, putting billions of dollars into the pockets of US households and further boosting an improving US economy
Good news, right? Yes, except on Wall Street.
Stocks have plummeted along with crude prices this week — the Dow Jones industrial average lost more than 460 points over two days — as oil closed below $50 a barrel on Tuesday for the first time since April 2009. Even as consumers celebrated, investors worried that the worldwide oil glut is the result of a weakening global economy that is tamping down demand and threatening corporate profits.
“The stock market’s concerned this drop signals some bad things,” said Phil Flynn, senior market analyst at Price Futures Group, a Chicago commodities brokerage. “We’re seeing concern that with a slowdown in China, a slowdown in demand in Europe, it will eventually haunt us in the US. And it could.”
I was told we were insulated from it, but that was yesterday.
The different reactions in stock markets and gas stations show not only a disconnect between Wall Street and Main Street, but also that falling energy prices can be a two-edged sword, particularly when they fall so quickly. While the plunge in prices has provided relief to US workers who have struggled with stagnant wages in recent years, it also is spurring layoffs in energy producing states, where low prices have led to the shutdown of drilling operations.
Bloggers were saying this would happen months ago -- and were dismissed by the propaganda pre$$.
The sharp slide is the result of two factors: increased global production and softer global demand as major economies, such as those in Europe and China, slow. The controversial drilling technique known as fracking (hydraulic fracturing) has opened vast new oil reserves in the United States, and Libya and Iraq have increased production.
Yeah, right, it is supply and demand, not currencies. That argument was destroyed years ago, and everyone knows the price of oil is manipulated and rigged.
In China, meanwhile, rising wages, more competition from lower-cost nations, and a real estate slump have moderated once-spectacular growth and the country’s appetite for energy. Europe is teetering on the edge of a triple-dip recession, with the possibility that Greece will stop using the common European currency, the euro, adding to the eurozone’s economic worries.
We talked about that about that, but the pre$$ doesn't seem to worried.
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Chris Lafakis, an economist at Moody’s Analytics in West Chester, Pa. “But for US consumers, it’s something to be celebrated.”
Lafakis estimates that the plunge in US gas prices so far is equivalent to an annual tax cut of $165 billion. He noted that’s more than the $120 billion, two-year “Making Work Pay” stimulus program of 2009, which gave working individuals a $400 tax credit.
“That’s a really strong boost to the economy at a time when job growth is strong and the stock market is at an all-time high, with the exception of recent days,” Lafakis said.
It was just last week that the Dow buzzed past 18,000 as one of the longest bull markets seemed set to cruise to its sixth anniversary in March. Stock indexes have more than tripled since the market hit bottom in March 2009.
The events of the last few days have been enough to warrant some concern....
Quite a shift in tone from just a few days ago, huh?
Nariman Behravesh, chief economist at IHS Global Insight, a Lexington forecasting firm, said he does not expect the sell-off to last. Investors, with memories of the last recession still fresh, might be particularly skittish about falling oil prices and global economic problems, he said, but another crisis is not on the horizon.
“The energy sector is hurting, and that’s striking fear in the hearts of investors,” he said. “The markets seem to be overdoing their pessimism.”
Broken record, said same thing last time.
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Related: Strong dollar makes travelling the world cheaper for Americans
Not to get Nitpiketty about it, but:
"Thomas Piketty, the economist who criticized income inequality in a best-selling book, has refused to accept France’s highest decoration, saying the nation should focus on reviving economic growth rather than issuing awards. “It isn’t up to the government to decide who’s honorable,” Piketty told Agence France-Presse. His “Capital in the Twenty-First Century,” published in English last year, advocates progressive taxes to address income inequality, which the author says is growing rapidly. Piketty, 43, a professor at the Paris School of Economics, drew on economic data since the 18th century. The Legion d’honneur recognizes achievements in fields including public service, economics, research, and culture. Napoleon Bonaparte founded the decoration in 1802. Piketty’s book came under fire in a Financial Times article in May that alleged suspect statistics and incorrect calculations. Piketty posted a 4,400-word defense on his website, saying “the FT suggests that I made mistakes and errors in my computations, which is simply wrong.”
That's the way I approach a Globe every morning.
