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    Danny Cardwell's picture

    Snowy Roofs And Cheap Oil

    A few years ago my wife and I had a new roof put on our house. During a casual conversation with one of the contractors I learned that snow can be much more damaging to a roof than rain. The heat that rises through the attic or crawl space can cause ice dams. Once ice dams are formed water seeps into the crevices of shingles and flashings. The picturesque snow that sits peacefully atop your house can do more damage than the heavy rains that accompany violent tropical storms and hurricanes. Our media does a great job covering the big storms that threaten to knock out power and delay travel, but it's often the innocuous run of the mill snow day that causes more damage your roof than a torrential down pour. This is analogous for what it means to be the working poor. Dramatic swings in the stock market get the headlines, but it's the daily economic grind that's eroding you from the inside out. 

     

    Since June of 2014, oil prices have steadily fallen. There are several reasons for this, some more right than others, but all worthy of consideration. If you do a Google search on dropping oil prices you'll find dozens of articles written by economists linking the precipitous drop in oil prices to declining demand in Europe and the shrinking Chinese economy. That same search will net articles written by foreign affairs experts who see the drop in oil prices as proof of the United States' and Saudi Arabia's micro-aggressions against the Russians, Syrians, Iranians, and/or Isis. I read one article that suggested the OPEC nations were allowing oil prices to fall so the fracking industry in the United States would be hurt. All of the these things could be true, but for the working poor none of them matter as much as the money they're saving. Often, it takes longer for Wall Street's bad news to affect someone who doesn't have a 401k. On a long enough timeline Wall Street's pain is always shifted to everyday people, but the early stages of a financial meltdown often go unnoticed by people happy heating oil and gasoline are cheaper this year than last year. 

     

    Oil futures closed at $32.30 today (January 27th), but that price remains in flux as OPEC nations and Russia try to negotiate a way to cut production without giving up market shares. A few months ago I remember reading an article that said $80 a barrel was the new normal for oil; today I read an article that said Oil could sell for $20 a barrel by the end of February. For what it's worth, last week, Jim Cramer said he thought oil could drop as low as $10 a barrel like it did in 1986. The truth is: no one really knows. There are people who, because of their access to information, are in a better position to guess what could happen next, but that doesn't equate to certainty. There have been numerous instances where leaked information or misinformation have caused wild swings in the price of a stock or a commodity. Information is often acted on so fast that due diligence is sacrificed for the sake of executing a well timed trade. A lie can be just as financially rewarding as the truth depending on the position you're holding. More of the experts have been flat out wrong than right when it comes to predicting trends in the market. At the center of so many bad predictions is uncertainty. 

     

    There are some, generally accepted, major causes behind the big sell off on Wall Street: dropping oil prices, questions about the Federal Reserves plans to raise interest rates, leveraged positions many investment banks hold in the shale oil industry, and the implosion of Chinese markets. The investment banks have held the Fed hostage over interest rates since Janet Yellen was sworn in; every time the Fed floats a trial balloon about raising the rate the market responds with massive selloffs. This reaction is so predictable that I can't believe it still works. Of the issues hampering the U.S. economy the Fed rate is the only one the investment banks can directly influence. They can't make people in the developing world spend money they don't have, they can't make OPEC reduce oil production, and they can't get out of the leveraged positions many of them have in fracking. I'm curious as to what could happen in March if the interest rate is finally raised.  

     

    Wall Street is setting up for what looks like a class 5 hurricane. I hope I'm wrong. If the market continues down this path it could hurt the Democrats chances of holding the White House in 2016. The positive jobs numbers we trot out as proof our economic policies are working will easily be forgotten by a public feeling the sting of economic hardship, and a media looking to sell an election. It would be a cruel twist of irony for the Democrats to be punished by the same kind of market instability that President Obama benefited from in 2008. While progressives, moderates, and neoliberals debate the electability of Bernie versus the inevitability of Hillary, economic forces beyond our control could dramatically impact this election. Theodore Adorno once said, "There is no history that leads from slavery to freedom, but there is a history that leads from the slingshot to the megaton bomb." In the spirit of his argument. I know the history that leads from feudalism to capitalism, but I don't know the history that leads us from market economy slavery to freedom. While the media is busy covering the massive selloffs that cause two hundred and three hundred point losses on an almost daily basis, no one is writing articles asking Kraft, Smithfield, Tyson, Kellogg, or any of the other multinationals why their prices haven't fallen at the same rate they were raised a few years ago when oil was trading at $110 dollars a barrel? The storm is over, the lights are on, and traffic is moving, but there's still snow on the roof. 

     

     

     

     

     

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    Comments

    Some food items have dropped in the last couple of weeks in Florida. It takes a while for it to work it's way through the system. We could be in a deflationary period.  The world market is driving some of it. 

    I know I am driving less.  After all the high cost of gas, I have trained my self not to run to the store when I am out of something but to wait and only go when I need many things. The cost of gas has gone down but I am still doing that. 


    Thanks for reading! You are correct. Some prices have gone down, but I don't give the manufacturers and distributors a break when it comes to these issues. I'm a butcher. I spend a ton of time submerged in commerce in the past when oil prices have spiked I've seen increases on items from the same bulk order. We all know companies pass on any new expenditures onto their customers, but I've seen blatant examples of gouging. You might be correct: this could be the beginning of a deflationary period; only time will tell.


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