Dear Deflationists:
(In case you didn't notice...) Your head is rolling down the street, leaving a bloody trail all the way up to the bloody sword still in the hand of the various Central Banks. You had your day in the sun, but you're done. Toast. Kaput.
Remember, it was you guys that said that the Fed, the ECB, the Bank of Japan, etc... would not be able to reinflate, that they were pushing on a string - you had me going, too. I would make some money, take my profits and leverage a short trade, cover, lose money... rinse and repeat. I have heard the arguement for a double dip - and I even buy it - but that has not done me any favors.
Turns out, the Central Banks still have some mojo left.
I get very little satisfaction out of missing the funeral and then get lost trying to get to the wedding. It is supposded to be the other way around - "if you don't get an invite to the wedding, don't go to the funeral".
Oh, and the US$? You know, the currency that was supposed to sparkle in a deflationary environement? The US$ ain't twinkling folks, it tinkeling - all over itself. So, although the Central Banks still have "the power", said power does not seem to extend to currency valualtion.
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Well, I did not think thet could do it this quickly. The Central Banks have pulled off a marvelous success in their effort to reinflate.
Here's the rub:
Oil is over $72 while the world's largest consumer of Oil is at the tail end of a miserable recession. What will the price of oil be if the Reinflation effort continues to work? $100? $150? $200?
This is the Conundrum. The American Consumer's ability to pay their TAXES, let alone necessities, goes out the window with gasoline at $4.00 per gallon, and at $5.00 they are flat on their backs. Any recovery at all - ANYTHING - and Oil is back over $100 per barell. Then... POOF!! That's the end of the recovery, with its concomitant decline in tax revenues (collections) yielding ever increasing budget deficits, which puts more pressure on the US$, which causes Oil prices to rise in US$ terms, repeating, ad infinitum. After all, the Central Banks CAN inflate asset prices, but employment is a very different animal. Asset prices are abstract, employment is real.
This process has begun, and each successive cylce will jerk us around like a puppy on the end of a leash held by Michael Vick's Dark Side.
Here is a link to the U.S. Department of Energy's weekly petroleum status report. Please note that the US has been drawing down its inventory in recent weeks as imports continue to decline and while it appears that we CAN reinflate, it seems it will be so at the expense of destroying the US$. This will no doubt make many American debtor's happy in the short term, but it will certainly accelerate the decline in Oil imports into the U.S.
And we all know what that means.
So, here we are again. The housing/financial issue put the energy energy issue on the back burner for perhaps 15 months.
"They're baaaaaaack!"
Greg