Bulls & Bears

Will Mideast chaos spike gas prices at home?

Fears that violence abroad could have US economy running on empty

 

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Violence in oil-rich region fueling fears of gas price spike

Todd Schoenberger: It's going to get horrible right now Brenda and I'll tell you why. First of all like you said at the top we're already at a record high for this time of the year then you start talking about the violence that's taking place In Libya, also some other oil based countries right know and you have to only assume that this is going to spread this is going to continue to move higher and this is something the U.S. economy cannot afford right now. When you look at the higher prices at the pump which means less money to go out and spend.

Steve Murphy: First, of all supply has not been disrupted it's not likely to be disrupted and the golf stage Saudi Arabia especially the emirates are pumping oil like crazy because they want us to stand up to Iran. Secondly, demand goes down in the fall, it always does. Gas prices are a little bit high for this exact point in the year, but we know what the trend line is and it's going to do down in the fall. This is not the biggest threat to our economy. It is the softening demand and the downturn in Europe and the emerging economies.

Tobin Smith: Well, I do on two points. One is obviously we know from six months ago that the cure for high gasoline prices or oil prices is high oil prices. We're on this part where fundamentals have separated from fear. There is no question that there is a higher fear premium, but I sort of ask Americans and people around the world to look at this with the context of don't let these guys scare you. I mean, yes, it's fearful this film we're seeing is fearful but the fact is that A we are in a slower economy we are using about six and a half percent less oil than gasoline this time this year than we did two years ago. I wouldn't change my behavior and I wouldn't worry in front about our economy falling off the cliff because you know this is a new cycle and these guys are going to be out of bombs and bullets hearing about the next four, five days.

Gary B. Smith: Look there's two issues. Toby pointed out that gas prices are primarily for the short term drive by emotions, that's the futures that's what you see. You saw it during the Arab Spring, gas prices rose almost thirty percent, but the other point is that the supply and demand as Steve points out is not disrupted right now in the emirates and Saudi Arabia, but here's the problem. Back to the beginning of the financial crisis I know I for one thought, "Oh, it'll just be limited to just a few banks," and I'm sure it steam rolled until it hit the entire financial sector. That's the concern here, that's what I think Todd is alluding to. Sure, if it's just contained to the Yemen's of the world yes that won't be an impact on supply and demand. If this spreads and this is the kind of viral thing that could spread then we will have serious problems.

Jonas Max Ferris: Most of the world's really gettable reserves are in or around people who don't take much of a reason to a huge Anti-American craze. It can always happen, it's always been like that it's probably getting worse, but the bottom line is that these countries have no real economies but selling oil, and they want to get that all in the market. These countries are largely run by kingdoms and dictators because that's the best way to get the oil out of the country, people like that who don't like Americans and they will shoot people who try to blow up oil infrastructure and throw them in jails and prisons and all of the crazy stuff that Saddam used to do and everybody else. So, unless the governments are overthrown I don't see a risk of major oil infrastructure not hitting the market essentially.

Fears of new financial crisis mount 4 years after Lehman collapse

Tobin Smith: Well, I don't know how to predict Arab stuff, but I can tell you this. When you take the amount of cash that they're putting in and this is not just the forty-five billion that he talked about, this is an unlimited number. I talked to Todd before the show, unlimited number until we see an effective movement in the economy which is jobs, let's call that seven percent. For us to get there he would have to put into the economy somewhere near two and a half additional trillion dollars to the eleven or twelve that we put in. That means that not only do we have inflation on the side, but the dollar goes down in value, oil prices go up because of that a lot of other issue, commodities etcetera and that's a disaster that is sitting. It's not going to happen in three weeks, three months but it's absolutely down the road because nobody is going to stop and nobody is going to quit until the thing blows up.

Todd Schoenberger: Let's give a round of applause because he's the only guy that's being proactive in Washington right now whereas everyone else is being reactive. Toby's right, the economy is definitely going to be in dire straits down the road but I have to tell you something guys, had big ben not pulled the trigger on this further accommodation it'd be happening sooner because look this economy is already currently headed into a recession if it's not already there and we're drowning in quick sand, he had to do something.

Gary B. Smith: If you're in the stock market you're happy right now, but Wall Street is the only one that should like this. Look, what is the fed doing? It's printing money to lower interest rates, that's the bottom line. First of all we're going to get inflation because the money is being printed, it's not like the fed has unlimited funds out there that it just has on its own. Second of all, wouldn't you say it does lower the interest rates and people then are having the incentive to go out and buy houses that they can't afford? We just had this scenario of people buying houses, so we have an over inflated housing market that is right for another bust. So when you say set us up for another fiscal crisis Toby has it exactly right. We want to do the same old thing again and this time we expect that it'll work because the fed is a lot smarter in central planning.

Jonas Max Ferris: First of all the fed is smarter than the White House or Congress that is a fact. Second of all, I have to agree with Todd here we have only have this version because the White House and Congress can't do anything else at all to do anything to the economy to lower the unemployment rate to get the job market going. What they're doing is creating money out of thin air and buying mortgage security. That would help the mortgage market home prices are low now so it's not a bubble in homes where this is a stupid thing to encourage. It's the only stimulus we have and if they can create money out of thin air and lower interest rates for mortgages without causing inflation which so far has been the case, why not, more power to them. If it causes inflation then we can talk about the dire problems there, but if they inflate the home prices then that's great too.

Steve Murphy: First of all, it worked last year and then they stopped doing it and the economy slowed down this year. The economy was growing far greater last year at this point in time than it was this year.

CONGRESS SET TO GO ON RECESS: NO "FISCAL CLIFF" FIX IN SIGHT

JONAS MAX FERRIS: I'm like the Fiscal Cliff's only supporter. You know what? This government needs to cut stuff and they need to raise taxes to balance the budget. This is the closest we're going to come to doing that with the current government we have. We need to cut stuff. These cuts aren't that big-you're talking a few percent to Medicare. I don't think there's one program getting cut over 10 percent. These cuts need to happen somewhere. Defense is not holy-we got to cut that. And we're going to need some tax increases because they're not going to cut that other stuff enough. But the bottom line is, we'll have a smaller deficit. It's not a cliff, it's a speed bump.

TODD SCHOENBERGER: Listen, Representative from Maryland Chris Van Hollen said back in June they didn't actually have this deal done before they went on summer recess it wouldn't get done-and clearly it's not. They're going into election recess and then they have to lame duck after the election. Look, here's the thing though-it's about defense. With everything that's taking place this week, all the turmoil, how can you possibly say Jonas that it's okay to cut on the defense sector?

STEVE MURPHY: Well, first of all, we went off the Fiscal Cliff 50-60 years ago. This is about opening a parachute maybe three seconds before we hit the rocks. I completely agree with Jonas. But on defense spending, the United States defense spending is more than all of the rest of the world combined. That's plenty. And riots in the Middle East-we have to protect of embassies. Obviously, in face of this kind of uprising, we've got to do better jobs importing more troops there. But our troops aren't going to have anything to do with that.

GARY B. SMITH: I agree with Steve and Todd is just silly with the whole defense spending. Look, we got to double to protect the embassies. I disagree with Jonas though. I like the aspect of the Fiscal Cliff of cutting spending. Why do we need to raise taxes? That's not going to work for crying out loud. To take money from the private sector and give it to the government that's already super bloated. The most bloated it's been since the last 200 years is ludicrous. Let's do it the right way like Regan did. Let's make sure that the government is actually shrinking a little bit and grow GDP.

TOBIN SMITH: You can yell and scream all you want guys. You obviously are smart enough to understand that we're going to have an extension for one year of this. They're going to all come back in November after the election. Andy they're going to magically say we haven't really been able to figure this out. So, let's just wait another year. The other thing is you're going to really want this economy to slow down and oil prices to slow down. Let's push the Fiscal Cliff off then we'll have this contraction into a real recession and we'll lower oil prices.

PREDICTIONS

JONAS MAX FERRIS: STAPLES (SPLS)

GARY B. SMITH: (PEP)

TODD SCHOENBERGER: APPLE (AAPL)

TOBIN SMITH: (QCOM)