Gasoline’s “Danger Zone”

Interesting commentary here via Business Insider and Jeffrey Kleintop of LPL Financial with regards to the recent surge in gasoline prices and how that might influence the economy going forward:

Danger Zone

Watching the Daytona 500 from the “danger zone,” where cars whip by at high speeds of around 175 to 200mph—but can also burst through the walls in a crash — can be a thrill. But gasoline’s “danger zone” may be just plain scary. At $3.75, retail gasoline prices are nearly back in the “danger zone” marked by the highs of around $3.85 to $4.10 per gallon seen over the past five years, as you can see in Figure 1. This range has marked a “danger zone” for market participants. When gasoline prices reached this range in the past, it preceded the stock market slides experienced in 2008, 2011, and 2012.

While high gasoline prices were certainly not the driving factor in the 2008 U.S. financial crisis-driven plunge in the stock market, the high prices did add to stress on the economy as they did again in the springs of 2011 and 2012, when concerns over a European financial crisis rattled investors. Again in the fall of 2012, high energy prices weighed on investor sentiment and helped to fuel a pullback driven by the election and fiscal cliff concerns.

In short, high energy prices can make the economy and markets more vulnerable to a negative event that drives stocks lower.

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Cullen Roche

Mr. Roche is the Founder of Orcam Financial Group, LLC. Orcam is a financial services firm offering research, private advisory, institutional consulting and educational services.

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Comments

  1. THE PERFECT STORM

    Dr. Tim Morgan is a respected economist and head of research at Tullet Prebon a major british financial firm. He has just published an extremely interesting and well documented research about… the end of growth. Of course most of the readers here will not like it because… we are not running out of money and will not even read it because don’t like the argument; being in denial is the worldwide favourite sport these days.

    “The economy as we know it is facing a lethal confluence of four critical factors – the fall-out from the biggest debt bubble in history; a disastrous experiment with globalisation; the massaging of data to the point where economic trends are obscured; and, most important of all, the approach of an energy-returns cliff-edge.”

    http://www.tullettprebon.com/Documents/strategyinsights/TPSI_009_Perfect_Storm_009.pdf

  2. This is my biggest Bitch about sectoral balances and having the Govt step up and spend in a balance sheet recession.
    Because the Govt spending artificially keeps the economy AND GAS/commodity prices higher, I think the middle class is harmed more.

    Commodity Prices have no natural levels anymore.

  3. At least we had a little relief for the election.
    Writer is a little late on this story. Many were writing about pump price impact when it blew through $3.50.

  4. If you can swing it, walk the Inca trail to Machu Picchu and do the 3 day hike through Colca Canyon. If in Cuzco, visit the Sacred Valley and Sacsayhuamán, and consider going on a horseback trip around the hills surrounding the city, and try guinea (called coy by the locals), alpaca, and lama. Visit Lake Titicaca, you won’t be disappointed. If you are in Lima for any length of time, eat as much ceviche as possible. Also buy alpaca knit sweaters, they are ridiculously cheap, just make sure you haggle with the pan handler (around 35 sols seems to be the lowest they will go).

  5. Gasoline prices are going up in spite of lower US demand, and higher US supply not because the US gov has run deficits, but because of what the Chinese are doing…. non-stop stimulus for years, mega inflation, massive growth in gasoline usage, etc.

    So if the US didn’t deficit spend we would have a far worse economy, with equally high gas and commodity prices. If you’re looking to blame a gov and sectoral balances, we should be looking at China’s

  6. As a trading chart this looks like a place to short gas prices… maybe not coincidentely the likely short term top for US equities too

  7. As Hangemhi pointed out, “Gasoline prices are going up in spite of lower US demand”, part of what is happening is that folks are driving less and gradually buying more efficient vehicles. The average car lasts about 10 years. Over the next two decades, inflation adjusted, the danger zone will slope upward because we’ve gotten more efficient and can do with less. It may well be that the danger zone has now risen to $5.00 per gallon.

  8. I would suggest as much data as possible. Even though it’s inclusive, thanks for the near term info.

  9. “Watching the Daytona 500 from the “danger zone,” where cars whip by at high speeds of around 175 mph to 200 mph — but can also burst through the walls in a crash — can be a thrill -”

    This is – obviously, a mentally sick individual. Or else, he’s from the ELite, where such horriblew things, gives theym a high.