2/21/2013 3:15 AM ET|
Gas below $4, or Dow 14,000?
Central banks have fueled the markets with cheap money, but that means inflation -- and rising prices at the pump. The problem? For most of us, the gain isn't worth the pain.
We are in uncharted territory. And no, I'm not talking about a world in which "American Idol" no longer reigns supreme on the airwaves.
I'm talking about the fact that we're in our sixth calendar year of near-0% interest rates, with the Fed engaged in its fifth iteration of direct bond buying with an open-ended commitment to purchase $85 billion a month. I'm talking about the way the Japanese, who tend to lead the way on these things, are now talking about extreme forms of monetary-policy easing, unleashing fears of a global currency war.
I'm talking about easy money reigning supreme everywhere.
What has all this monetary malfeasance bought us? Sure, the Dow Jones Industrial Average ($INDU) 14,000. But we're also looking at shrinking returns from all this economic stimulation as rising prices pinch beleaguered consumers. Policymakers have a choice: They can use cheap money to keep the Dow pushing above 14,000, or they can have gas below $4 a gallon.
You can't have both for long, because cheap money means pricey gasoline, and the economy doesn't run well on premium. Here's why this choice is so critical.
Two roads diverge
The reason the Dow has surged is simple enough. As governments, companies and families try to get out of debt and control spending, policymakers are trying to keep the global economy moving. The effect is a stock market bubble.
It's a bubble not supported by the fundamentals. We've got an unemployment rate tracking back toward 8%, negative growth in the U.S. for the fourth quarter of 2012, new recessions in most of the rich-world economies and soaring government debt levels.
And now, gas prices have surged to new seasonal highs. Gas is pushing over $4 a gallon in much of the country and is already above $5 in California, and seasonality should push prices even higher.
While gas prices are only one of the many economic troubles we face -- add stagnant wages, record food stamp usage, depressed consumer sentiment, higher taxes and more – they're critical. Because, as we saw during similar energy price spikes in 2011 and 2012, the economy suffers when gas costs more than $4 a gallon, and so do stocks.
What central bankers are trying to do
I must admit, the central bankers and the politicians supporting them talk a good game. They say they are concerned about asset bubbles and financial instability. They say that if inflation gets out of control, they'll pull back.
Japan's new prime minister, Shinzo Abe, who set off talk about currency wars by aggressively pushing down the price of the Japanese yen by pressing for a higher inflation target out of the Bank of Japan, said over the weekend that policymakers must be vigilant against asset bubbles.
But he followed by saying the positive effects of monetary policy easing -- cheaper money -- include higher stock prices.
He added that if Japan doesn't get the results it's looking for, other unprecedented options might include the Bank of Japan printing yen and purchasing foreign bonds (such as U.S. Treasury debt) or using the money to directly affect the stock market. Both strategies would be designed to lower the value of the yen.
And if the Bank of Japan, which, like the Federal Reserve, is an institution largely independent of political influence, doesn't play along, Abe suggested it might lose that independence.
This is political meddling in currencies and interest rates on a scale not seen since the U.S. Federal Reserve separated from the Treasury in 1951.
VIDEO ON MSN MONEY
lets see.....4years ago oil was $150 a brrl, today its $94 a bbrl
4 years ago gas was $4.xx per gal, today its $4.xx per gallon
and I'm certain there's no greed here
and santa and the tooth-fairy agree
and yes, I'd like another glass of KOOLADE
Somewhere on the Net I read that refined gas (gasoline) is being exported at an increased rate from the US. We are also cutting back on domestic use of Coal, but our coal exports have gone up. We have drilled and fracked more Natural gas and oil than the rest of the world can even think about, but those exports are going up. The price here goes up because we cannot use our own fuel.
It is being shipped overseas.
KMP of which I own some shares, is building a second pipeline from Alberta's oil and gas fields to Canada's west coast along side the one they have in play today. KMP is attempting to control the State of Delaware's Port Wilmington which means more American natural resources being shipped overseas.
We are drilling more here, but it is not being used here. We are being fed the leftovers so the American people will turn to alternative "green" energy of which we don't have. This Administration will make you go to "green' energy kicking and screaming all the way. Even if it costs you your life's savings and some freedoms along the way.
Ahh, all the white trash repukes are out in full force today. Just a little reminder of the past 15 years. Bush starts two wars in the gulf. After eight years of Bush's policies the country slips into the worse recession in our history. Bush's reaction was to do nothing, just sit on his dead **** and pray that things got better. A black man wins the presidency and tries to pull us from this huge hole the GOP dug for us. Many are too racist to support our president, and I will never vote repuke again.
We all knew this time would come and now, finally, it's here. All the QE policies did was to artificially inflate the market- and to what end ? Our returns haven't been as profitable as they should have been given the amount of capital we've had to work with. Again- all due to cheap money- artificially inflated- relying on the government instead of relying on the FUNDAMENTALS of the investment.
Anthony is spot on with this article & as I have stated before, do not over extend yourselves - because today- if you have- you're going to be burned-BAD !
And while the $4 gas doesn't bother me as long as I use my Harley, It kills me with the wife's Escalade & it really puts a damper on my fun time 208 Dino Ferrari (10 miles/gallon).
why is gas 4.00 a gal it comes from the earth it was produced by mother nature for all to use
the same can be construed about any public utility mother nature doesnt charge anybody for her rivers to flow from one point to another
but it is the greed of man that is killing the economy step back out of the stock markets and begin to think more on the level of survival
wake up america we need to break the greed habit there needs to be a maximum wage in america instead of a minumum wage none of this would have got out of control you people need to stop letting those union reps tell you that you cant push that button for less than 20 /hr then we the people need to rein in all that government spending and we can have our great nation back again
Instead of gun control laws how about putting some laws on these "players" thats flushing the 3/4 of the populations economy down the crapper while they pad they're retirement. Their philosophy is screw everyone and everything and take as much as you can.
Copyright © 2014 Microsoft. All rights reserved.
Fundamental company data and historical chart data provided by Morningstar Inc. Real-time index quotes and delayed quotes supplied by Morningstar Inc. Quotes delayed by up to 15 minutes, except where indicated otherwise. Fund summary, fund performance and dividend data provided by Morningstar Inc. Analyst recommendations provided by Zacks Investment Research. StockScouter data provided by Verus Analytics. IPO data provided by Hoover's Inc. Index membership data provided by Morningstar Inc.
[BRIEFING.COM] The Nasdaq Composite (+0.5%) and S&P 500 (+0.2%) posted modest gains on Thursday, but not before enduring a morning dip into the red, which took place in reaction to reports indicating Russia has commenced military exercises on the Ukrainian border.
The news from Europe knocked the key indices from their early highs, while giving a boost to safe-haven assets like gold futures (+0.5% to $1290.80/ozt), Treasuries (10-yr yield -1 bps to 2.69%), and the Japanese yen (102.30 ... More
More Market News
|There’s a problem getting this information right now. Please try again later.|
MUST-SEE ON MSN
- Video: Easy DIY smoked meats at home
A charcuterie master shares his process for cold-smoking meat at home.
- Jetpacks about to go mainstream
- Weird things covered by home insurance
- Bing: 70 percent of adults report 'digital eye strain'