ExxonMobile has been running some "honest talk" style commercials talking about their engineers and technology and the search for new sources of energy (via a picture on the tv screen of the sun, windmills, etc). It's very hard to tell who the evil party is when it comes to rising oil, though reducing it to the usual suspects is probably not the means to solving the problem.
Needless to say, last week was not a good week. The BBC reports:
The spike in oil prices coincided with a dollar slump, plummeting share prices on Wall Street and US unemployment suffering its biggest rise in 20 years.
It also comes as energy officials from the world's biggest consuming nations meet in Japan to discuss fuel prices.
Officials and ministers from the Group of Eight key industrialised nations (G8), as well as China, India and South Korea, are meeting for two days in the northern city of Aomori, to plot a strategy to deal with volatility in oil, gas and coal markets.
On Friday light crude set a high of $139.12 in after-hours trading on the New York Mercantile Exchange after hitting $138.54 at the regular session.
And of course it is not merely oil prices rising, but all the derivative products and sectors of the economy that get knocked off balance as oil costs are factored into doing business. According to the N.Y. Times,
"Companies that make hard goods using raw materials derived from oil, like tires, toiletries, plastic packaging and computer screens, are watching their costs skyrocket, and they find themselves forced into unpleasant choices: Should they raise prices, shift to less costly procedures, cut workers, or all three?"
I am betting they do all three with the disastrous result of lowered income across the country combined with higher prices. That trend would also explain how Wal Mart is now basking in its capabilities, enjoying real growth. As Wal Mart goes, so goes the economy in the opposite direction, it would seem.
So far this year, the nation’s employers have been cutting jobs at an accelerating pace, particularly last month, when the unemployment rate jumped to 5.5 percent from 5 percent. But with the vise on corporate profits tightening and the price of oil continuing to climb, more dire action, including job cuts and higher prices, may be in store, economists say, although there is still room to avoid such steps.
(N.Y. Times)
And if this was not enough--the oil thing, the (un) employment thing, the inflation thing-- we are not nearly at a point when financial institutions have unwound their books, acknowledged all their losses, and stand at the ready to resume business as usual.
Whether it's Lehman seeking $5 or so billion in funding (and with the speculation that the funding will come from foreign sources, as has been the trend), or banks adding to the already "$213 billion raised last summer" (FT) to compensate for losses of equal size, there is clearly more hurt headed our way.
The Financial Times states that:
Accounting changes could force US banks to take thousands of billions of dollars back on to their balance sheets in the coming months in a move that is likely to curb further their lending and could push them into new capital raisings, analysts have warned.
And while you might be thinking, well thank goodness Wachovia and other banks are raising cash, we are reminded that, "Although many leading banks have strengthened their capital, these steps have been focused on repairing the damage wreaked by credit losses – rather than offsetting any impact of new assets rolling back on balance sheets." (FT).
Those accounting discussions that might force changes will not show up any time soon, but remain just one more bomb in a pipeline of easily flowing economic misery. Toss in various bank downgrades by Standard and Poors and things are shaky indeed, as each downgrade increases the collateral that counterparties might demand.
If the banks are too busy building capital and hoarding it to remain within regulartory guidelines and to sustain against unknown or "misaccurately" prepared valuations on the books, or to bolster against assets brought back on the books, then we will not see the type of environment necessary to lead the economy forward out of the slump.
Thus loans won't get made, deals won't get done, expansions will not happen, and things will grind right to a recession about the time the new president is smiling and swearing his way into the new job.
Eventually several someones will make a killing on a convergence trade that calls for a rise in fictional assets (meaning dealers of financial products) and a fall in hard assets (gold, oil, commodities), but mostly the average American seems to be in for a world of hurt for some time into the future.
On the upside, it's a good movie season and the best place to remove the real world from the brain is in the air-conditioned cool of a dark room. Get your snacks, get your woman (or man), and watchThe Dark Knight descend upon us all.
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