Monday, March 7, 2011

Think You're Paying Too Much at the Pump Now?

Barring Desert Storm II in the Middle East or some major supply disruption due to a natural disaster, you can already expect to pay ~$3.80 for regular by April 1st -- just in time to ask yourself, who was the fool that wanted that big SUV?

If, or I should say, when regular gas is $4.00 at the pump, the average household will spend an additional $890 per year on gasoline over the previous year.

What impact will this have on household spending? Let's just say, some brick and mortar retailers like Best Buy, may end up going the way of Circuit City before the end of the year as high oil becomes a double whammy. Remember too, oil price spikes have preceded 5 of the last 6 recessions and the length and height are directly correlated to the length and depth of the recession. Could we be heading into a depression now, since we never left the recession to begin with if WTI oil remains above the threshold limit of $90? My calculations say yes.

If protesters have it their way in Saudi Arabia, sometime between now and the 20th of this month, their "Day of Rage" may turn into the "Day of $150 oil" if things start to get out of control. Only time will tell if the ruling elite of Saudi Arabia can keep the peace by selecting the "paper option" of throwing some fiat money (now that they've got some extra cash from the surge in oil) at the protesters, or just pull a Hosni Mubarak/Muammar Gaddifi and use the "lead (Pb) option." Whatever the case, things are getting interesting.

As far as silver is concerned, I have a short term target set at $40 but we very well could see $50+ if things continue as they are. I'm going to check the Federal Reserve's POMO schedule for the month of March and if they're planning any big stock market injection doublePOMOs, you might see another $2 daily jump in silver. Keep an eye on silver- it's the poor man's gold.


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