I'm sure most people who know me, know I don't blog very often. Back at the end of April I posted a blog asking if people on Wall Street were stupid. Reading cnn.com today shows that the answer to that question is YES! Here is some of what I wrote in April:
The topic of interest to me today? The price of gas. I doubt I will find many people here who don't think the price is too high. As of this morning, the cheapest gas I can find is $3.59/Gallon. That is just rediculous. I read articles on CNNMoney.com saying that due to the weak dollar, investers are putting money into commodities like gas and oil as a hedge against inflation. I am not an economics expert, but this seems to be a really stupid way to think. Let's see, I am worried about inflation, so I am going to contribute to running up the price of gasoline. Now ordinary folks like myself have to spend more on gas, giving me less money to spend on other things. Well this is going to hurt the overall economy because I am not spending as much on stuff I don't really need as I used to so manufacturers and store owners will suffer. Additionally, to get products to the store, you need what? Trucks! Last I checked trucks use fuel to run them. Price goes up, well heck now it costs more to get stuff to the stores. You think retailers are just going to take a lower profit margin? Nope, the price of food and clothing, and other stuff will have to go up to cover this new expense. Prices go up, last time I checked that was called inflation. So much for that hedge against inflation.
Reading on cnn.com that oil prices dropped $6.45 per barrel based on comments made by the Fed Chairmen. Here is some of the article:
On Tuesday morning, Federal Reserve Chairman Ben Bernanke warned that high energy prices have helped to limit the purchasing power of U.S. households. 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.
That could result in businesses pushing a greater percentage of their high fuel and commodity costs through to consumers, he warned.
Immediately following Bernanke's speech, prices dropped more than $9, sinking below $136 a barrel, before recovering some.
"There's more demand destruction than people first perceived," said Neal Dingman, senior energy analyst at Dahlman Rose & Co. 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.Amazing, it took comments from the Fed Chairman that essentially state the same thing I did 3 months ago before they got it. I thought these guys were supposed to be smart!