It's so simple, a child of four could understand -- but too difficult for Wall Street to get: High oil and high gas prices are BAD for consumers and business alike and bad for a struggling recovering economy.
Simple, right? No one needs an economics degree to understand that energy is the single most important input cost to more than 50% of manufacturing -- to processing food, for refrigeration, to making drugs and plastics and of course to all manner of transport; trains, planes, trucks. For you and me, we can't spend money with retailers that has already gone into our tanks to get us to work, or to heat our homes. Heck, we can't even keep the money we're spending on oil in this country, as it bleeds at a rate of $300 billion a year out of the US and into OPEC hands.
It's simple, and intuitive: Oil and the economy are at odds -- high oil prices equal a sluggish recovery, with less consumer spending, reduced hiring and slowed growth. Low oil prices free up capital for investment and jobs, for purchasing vacations and flat screens, for increased profits and optimistic forecasts.
But that's not how it works on Wall Street. Because of the investor and trading connections between oil and other asset classes, (that I describe in my book) , the correlation between oil and stocks -- the best indicator of economic health -- has been impossibly locked together for the last several years.
How stupid. We fight like crazy to avoid a depression, pour more than a trillion dollars into stimulus, bail out banks to ensure that credit will continue to flow, take on more debt than we've ever seen before and when finally we see some good results of increasing profits or some small unemployment improvements, we run into the oil wall.
Because oil has not so quietly been taking this recovery trip with us, eating the flesh of the recovery incentives, low interest rates and stimulus money and ratcheting up to bubblicious and economy destroying levels, reaching almost $120 a barrel in May.
Whoops, time to stop our recovery -- energy costs are too high now, almost all economists agree, people are buckling under the strain of $4 a gallon gas, corporate profit margins are getting eaten up, and domestic growth projections are revised downwards from 4%, to 3% to 2 1/2%.
People talk about double-dip recessions and unemployment stop improving. And guess what? The stock market goes down, losing most of its hard earned gains for the year.
And what are the economists saying is the silver lining in all this? That's right, as the markets fall, oil falls with it, giving the slim hope that maybe we can get this high price anchor off from around our necks, if only to start this silly game over again.
Crazy, right? Who doesn't see how crazy this is?
This Push-me Pullyu Doctor Doolittle beast of oil is just killing us. We've got to stop it.
My friend Jim Cramer suggested today that not everything deserves to be traded. He mentions oil in a passing way, but I'll do it much more directly: If we don't break this Wall Street blockade that oil trading has placed in front of our road to recovery, we'll just never get there.
My hope is fading. The CFTC, charged with trying to fix some of this, has been stopped in its tracks from regulatory action, is in fact fighting for its life with deep budget cuts being proposed at a time when its mandate and responsibilities are greater than ever.
All while one of the biggest roadblocks to economic recovery and success is so simple to see.
So easy, a child of four could see it -- while Wall Street clearly can't.