cost of energy
i paid 4.29 for diesel yesterday. sucks watching the meter spin up to 140$ in a flash. its really easy to hate the oil companies on this. there are several things causing what we are all seeing right now. the futures market determines the price. its just that simple. causes of what we are seeing are:
-current energy policy
-devaluation of the dollar, oil is traded in USD. part of the problem is that our money is buying less.
-food for fuel, i.e. corn ethanol
-current monetary policy
-the information age
-investment, investment, investment.
-deficit
corn ethanol and monetary policy are the main culprits. there are several factors at work here. it actually gets very complex when you think about all of it.
lets start with monetary policy from the federal reserve. they want to keep things rolling. so interest stays very low. too low. they are trying to prevent a market collapse. why is this important? if anyone followed what happenend with the bear stearns implosion, the company essentally had 8 billiion dollars in a week evaporate because of a rumor and everyone pulled out. they took some very risky positions on derivatives. they were bought for 200-300 million if i remeber right.............. just the skyscraper that they reside in is worth 1 billion...........food for thought...... back to the main point. nearly everyone who works has a ROTH IRA or a 401K plan of some kind right? where does all this money go? it eventually goes to investment funds like bear stearns, prudential, goldman sachs just to name a few. to make the system work they need to earn a yeild right? this is the core of the investment driven economy. what happens if it fails? every joe lunchbucket in town could lose his retirement. now that is a very very very big problem.
now back to oil and commodities. currency is a loser right now. right? so what do investment funds do to try to obtain yeild to keep it all going? they invest elsewhere. that happens to be in oil, commodities, precious metals, and farm realestate right now. i just saw a farm get bought for 6k per acre. that same farm in 98' was worth 650$ per acre. crazy huh.
oil is a good bet because the perception is that it will go higher. so more investors buy oil futures. that in turn drives the pricing up.
same thing is happeing with corn futures. that in turn affects all other commodites. barley, wheat, canola, etc.......
also with gold, silver and other precious metals.
and to cap it all of the new Tier III emission standard consumes more energy. ask anyone who owns or operates anything that is Tier III.
Big John is 100% correct about the whole E85 sham. there are so many logistical issues with it. there is less energy per gallon once burned. so it takes more to do the same work.
-you cant pipe line ethanol fuels like traditional petroleum products because the ethanol blends with the water block used to serperate shipments in the line. there for it has to be transported everywhere. unless you had a dedicated line.
-plus the corn and energy it takes to produce ethanol.
-back on logistics, you see all of these ethanol plants popping up everywhere. a small one can take 100 train cars of corn per week. at about 100 tons per car. you also have to unload the train. that takes about 24 hrs. so now you have a train thats about 1.5 miles long thats gonna sit on the tracks to unload corn in the middle of town.......
i work regularly with a company that actually has seats on the CME (chicago mercantile exchange) their analysts say as long as corn ethanol is in the game, expect to see what your seeing now to continue. they arent' anticpating any governement policy shift in at least a year and a half. maybe more. wait till all of the guys who bought grain contracts for 10-18$ per bushel send their product to market this fall. everyone will have a whole new defintion of expensive in the grocery store.
i encourage anyone and everyone to visit the CME sometime. we all get to live and die by the paper trade.......
. thats what determines the price of gas at your local pump. some hedge fund guy on a trading floor somewhere. they never see a barrel of oil. they never touch a bushel of corn. they never touch a barrel of cheese. its all a paper trade.
so whats wrong with it? well........it is the greatest system on earth. but, its just paper. a very small percentge of what gets traded on paper actually gets delivered to the buyer. meaning the guys who trades oil futures, doesnt actually touch the oil. he trades paper and numbers on a big digital bill board on the floor.
so how do we fix all of this? i dont know.........lol..... i have some ideas. as long as this endless money perception continues and we still have career politcians, i dont know that we can fix it. dumping corn ethanol and telling the EPA to get F'ed would be a start. let the freee market develop the solutions. the government buerecrats/career lawyers dont get it. but they would like us to think they do.
anyone ever actually talk to people in congress? it will really shake your faith in their ability if you do....
