[Rob Hood]

http://www.autoextremist.com/current/2008/7/8/rants-453.html

Was listening to some newsradio today - many analysts are painting a bleak picture. Heard that Hummer and Saab were going to be let go, maybe more. I've already seen where Chevy is not sponsoring several NASCAR races next year.

Rick Wagoner is supposed to deliver an announcement tomorrow morning at 0830 EST. Should be worth listening to.

This post has been edited by Rob Hood: Jul 15 2008, 05:59 AM

[Rob Hood]

I think what surprises me is that the price of oil even caught the manufacturers off-guard. I would have thought that they would have been in some type of communication with the oil companies and attempted to avert or slow down the price increase. (That's just my conspiracy hat...) That only leads me to believe that either speculators or OPEC are controlling the cost of oil now.

[trackbird]

That only leads me to believe that either speculators and OPEC are controlling the cost of oil now.

Fixed that for you.

I was originally trying to believe it was supply and demand, but I've spoken to my friends in investment banking and I've been reading anything I can about the current situation. From what I'm seeing, we don't have a shortage. We have supply that may be barely keeping up with demand, but we have no rationing and there are not lines around the block. However, as the value of the dollar slides, crude gets more expensive. As the value of the dollar slides, hedge fund managers buy commodities because they tend to resist the losses associated with a sliding dollar. So, they buy oil to fight the slide of the dollar which runs the price up, which helps promote inflation which causes the dollar to slide. This is turning into a vicious cycle that may take something "signifigant" to climb out of. And, no, I surely don't know what that event will be...

Of course, I've been wrong before.

On the other hand, if I'd realized that we were going to wind up here, I'd have kept my 2002 Z28 as a driver and skipped buying a truck and a dedicated track car. Guess they weren't the only ones caught off guard.

[trackbird]

This is turning into a vicious cycle that may take something "signifigant" to climb out of. And, no, I surely don't know what that event will be...

Oddly, I think we are finding our answer.

http://money.cnn.com/2008/07/15/markets/oi...dex.htm?cnn=yes

Oil tumbles on Fed chief's bleak outlook
Bernanke indicates inflation and high fuel prices will cut in to U.S. demand for oil.

NEW YORK (CNNMoney.com) -- Oil prices plummeted Tuesday, down as much as $9.26 a barrel, as investors feared a further decline in U.S. demand after hearing comments from Federal Reserve Chairman Ben Bernanke.

Light, sweet crude fell $7.37 to $137.81 a barrel in electronic trading on the New York Mercantile Exchange. Earlier, prices dipped as low as $135.92, nearly $11 below the day's high.

"There's more demand destruction than people first perceived," said Neal Dingman, senior energy analyst at Dahlman Rose & Co.

Prices began to fall after Federal Reserve Chairman Ben Bernanke warned that high energy prices, coupled with serious problems in the financial sector, have sapped the purchasing power of U.S. households.

The mortgage crisis and high energy costs will remain a drag on the U.S. economy for the rest of the year, Bernanke told the Senate Banking Committee Tuesday.

Businesses may start pushing a greater percentage of their high fuel and commodity costs through to consumers, warned Bernanke.

Gasoline prices in the U.S. maintained record highs at $4.109 a gallon Tuesday, according to a daily survey from motorist group AAA.

Inflation: The weakened dollar, which Bernanke named as one of the reasons Americans can't spend as much, has been blamed for much of crude's runup.

Investors have been buying oil and other commodities to hedge against inflation, but that behavior may be changing as many begin to see it weighing on demand.

There's "definitely a reverse of what the rationale was even 2 to 3 weeks ago," said Peter Beutel, oil analyst with Cameron Hanover.

Federal Reserve: The Federal Reserve, which has the power to quell runaway inflation by raising a key interbank lending rate, has its hands tied, since the banks and other institutions that prop up the U.S. economy need the liquidity, according to Tom Orr, head of research at Weeden & Co.

In recent days, the government has unveiled a plan to bolster mortgage financing companies Fannie Mae and Freddie Mac, and has taken control of mortgage lender IndyMac Bank.

"They've got to keep rates as low as they can, though they really should be tightening... They know they need to tighten, but they just can't," said Orr.

"This is starting to feel like Jimmy Carter and the 1970s all over again," he added, describing a time when inflation was high due in large part to soaring energy prices.

OPEC demand: Internationally, the Organization of Petroleum Exporting Countries mirrored Bernanke's concerns. The oil cartel lowered its demand forecast for 2008 to an increase of 1.2% from 1.28%, blaming economic strife and high fuel prices.

Concerns about lower demand even overshadowed the tight supply picture, which has been at the forefront of oil's price surge.

Brazil: The five-day strike by Brazilian oil workers in the Campos basin at 33 offshore rigs operated by state-run oil company Petrobras entered its second day, cutting into supply.

Petrobras stated that only two rigs had been totally shut down, but that production had been reduced by 4%, according to the Associated Press.

Iran: Investors also remained concerned about tensions between Iran, the second-largest exporter in OPEC, and the United States and Israel over its nuclear program.

Iranian president Mahmoud Ahmadinejad blamed high oil prices on threats from the West in an interview with state television, according to reports. However, he said that talks with the United States were possible.

First Published: July 15, 2008: 9:22 AM EDT

So, they are finally getting smart enough to know that they can't keep pushing oil prices up (and impacting the dollar and inflation) indefinately. And, they are starting to see the end where they are about to wind up owning a bunch of oil they paid too much for and they can't easily sell (thus decreasing its value). Once the cycle collapses, it will have to eventually break. The bubble may be starting to pop based on this report and with any luck a slide will ensue. If that were the case, inflation should begin to ease (though I think much of the cost has yet to be passed on and we're still going to be on the hook for that much inflation already). Once the prices slide and inflation eases, the fed can begin to raise interest rates which will start to push the value of the dollar higher, which will ease prices, etc. We will wind up with higher interest rates, but a dollar that's back to being worth something. Getting the cycle to turn around is going to be key and this might be the first round of change.

Of course I'm not an economist and this information is worth just what you paid for it (even with the value of the dollar today).