This piece ran in today's LA Times and was one of three based on the same data:
Oil Prices Ignite Wall Street Sell-Off
The Dow falls 120 amid evidence that rising gasoline costs are crimping consumer spending and cutting into corporate earnings.
By Josh Friedman, Times Staff Writer
Evidence that high oil prices were stoking inflation and cutting into corporate earnings ignited a broad sell-off Tuesday on Wall Street, slamming the Dow Jones industrial average to a 120-point loss.
The consumer price index for July came in at a higher-than-expected 0.5%, fueled in part by soaring energy costs, the government reported. Economists had expected a 0.4% increase.
Shares of Wal-Mart Stores weighed on the Dow after the retail giant warned that its profit this quarter would come in lighter than expected, partly because rising gasoline costs were crimping consumer spending. Prices at the pump are up about 36% in the last year, according to AAA.
How broad is the energy cost problem? Every aspect of your life is touched by energy prices. Employers will trim payrolls in response to the higher cost of doing business, lighting and heating your home of heating water to do your laundry/dishes also becomes more expensive.
Where does this hit the hardest, the only place in people's personal budgets where they can make cuts...food. When the cost of living goes up, you eat less.
"The market is really gun-shy because of the run-up in oil prices," said Gary Schlossberg, senior economist at Wells Capital Management in San Francisco. "There's a sense of foreboding as oil continues to rise."
After reaching record highs last week, near-term crude oil futures eased Tuesday for the second straight session but remained above $66 a barrel, sliding 19 cents to $66.08 on the New York Mercantile Exchange.
It seems earlier projections that the price of crude could reach $100 a barrel are no longer so far fetched as they first appeared to be.
Our entire way of life relies on cheap, abundant energy. When energy is no longer cheap it throws everything else out of whack. The hyperinflation of the Seventies was due to a sudden spike in oil prices/availability.
Let it be said that there is more than one noose tied around your neck. One of them is money and the other is energy. If you can't afford the rising cost of energy you can't afford to participate in our society. If you can't get to work you won't keep the job and it's all downhill from there.
On Wall Street, retailers Home Depot and J.C. Penney slumped despite strong profit reports, while earnings warnings from farm equipment maker Deere and others heightened concerns about the health of the U.S. economy.
In a sell-off that gained steam late in the day, the Dow sank 120.93 points, or 1.1%, to 10,513.45, and the broader Standard & Poor's 500 index slid 14.53 points, or 1.2%, to 1,219.34, its biggest drop since April 20. The technology-heavy Nasdaq composite lost 29.98 points, or 1.4%, to 2,137.06.
Losers swamped winners by nearly 5 to 2 on the New York Stock Exchange and by almost 3 to 1 on Nasdaq. Volume was moderate.
Treasury yields fell as the weakness on Wall Street sent investors into fixed-income securities. Bond yields move in the opposite direction from their prices. The yield on the benchmark 10-year T-note eased to 4.21% from 4.29% on Monday.
In currency trading, the dollar strengthened against the euro and the Japanese yen. The dollar fetched 109.50 yen, up from 109.28 on Monday, while the euro fell to $1.235 from $1.236.
Prices paid by consumers last month posted their biggest jump since April, the Labor Department said, raising the specter of higher inflation.
I want to put a finer point on what happened the last time our society faced the crisis of `hyper-inflation'. Wages doubled and the cost of living quadrupled.
We'll all be making more money but we'll have less purchasing power. This is what happens when the powers that be reshuffle the deck on you.
And there isn't a friggin thing you can do about it.
Excluding the volatile energy and food categories, consumer prices climbed just 0.1% in July, compared with expectations of a 0.2% rise, but investors focused on the overall number of 0.5%. With oil prices up sharply this year, the inflationary effect of energy costs was hard to ignore.
The two most important items you need to survive in our society and they `exclude' them from the inflation index! A word to the wise, you may want to start negotiating with your siblings right now to figure out whose house you're all going to move into as it will take more than two incomes to keep a roof over all of your heads and food in your stomachs.
The data bolstered the view among economists that the Federal Reserve was likely to continue raising interest rates through the rest of the year.
"There are three risks to the stock market right now: higher interest rates, rising oil prices and a housing slowdown," said Doug Fabian, editor of the Successful Investing newsletter in Huntington Beach.
"Whether they are enough to bring the economy to a halt, we're going to find out in the weeks and months ahead," he added.
The Fed will raise the rates all right, that's how they reined in the last round of hyperinflation, by jacking rates up to eighteen percent for mortgages. $100 for a thirty-two gallon barrel of crude is going to bust our economy wide open. If you can't walk to work it's likely you won't be able to afford to go when the price per gallon at the pump is more than your hourly wage.
Federal minimum wage is only $5.25.
Wal-Mart fell $1.53 to $47.57 after saying it expected full-year earnings of $2.63 to $2.70 a share. In May, it forecast profit of as much as $2.74 a share.
The other two pieces on this particular topic cite the Wal-Mart earnings report as the primary red flag here. Who knew we'd sunk so low that economists would say, `as Wal-Mart goes, so goes the nation!'
Our fate is no longer tied to our nation's manufacturers but it's retailers! How ironic is it that the investors have done this to themselves (while totally screwing the rest of us)?
Shares of J.C. Penney and Home Depot were sold off even after the retailers posted better-than-expected results, as Wal-Mart's outlook cast a pall over the retail sector.
J.C. Penney sagged $2.16 to $49.74 although it exceeded second-quarter profit estimates and raised its targets for the current fiscal year.
Home Depot dropped 94 cents to $40.67 after it beat second-quarter earnings estimates. The company bumped up its full-year profit guidance but kept revenue targets steady.
Among other retailers, Dick's Sporting Goods tumbled $6.33 to $32.90 and clothing seller American Eagle Outfitters skidded $2.84 to $27.88 after they issued cautious profit forecasts.
In other highlights:
- Deere plunged $8.18 to $64.63 after it lowered its outlook for the year, citing Midwest drought conditions that had hurt farmers. Other makers of heavy equipment fell, including Caterpillar, which lost $1.57 to $53.69.
- Gateway fell 78 cents to $3.11 after the computer maker said its profit this year would be eroded by price competition and steeper component costs.
- Estee Lauder surged $3.40 to $40.80 after the cosmetics maker reported better-than-anticipated quarterly earnings.
- Goodyear Tire & Rubber slipped 60 cents to $16.91 after it said the Securities and Exchange Commission was prepared to sue the company over accounting irregularities.
So it begins. This article marks the coming of a crisis the likes of which no society before us has ever experienced.
Tragedy tomorrow? Nothing like that, it will be a gradual descent further down a slope, a slide that started thirty years ago with the first `energy crisis' a slide from which we, the working class, has never recovered.
But not so gradual that the crisis will take years to develop. We'll be feeling the first effects quite solidly by the Holiday season. Unemployment will hit ten percent, the vaunted GDP will fall to nearly zero and the price of everything will skyrocket.
And ding-dong will give the rich another tax cut! This also raises the very serious prospect that a war with Iran will be launched as a smoke screen, cover intended to distract us from the tanking economy.
Can you hear the noise machine now: `How DARE you question the economy when there's a war going on! What's the matter with you? Where's your patriotism?'
Went down the drain with my job and my house. I'm so broke I can't afford to pay attention.
If there was ever a time to abandon cash driven society with all of it's artificial barriers to prosperity, this is it.
The conversion to a labor driven social model instantly erases all debts, public and private.
Want a sustainable future with a clean slate? I think it's time for a change before a lot of us find ourselves faced with a situation that no parent should ever have to face, like watching your children starve.
Thanks for letting me inside your head,
Gegner