What a day, Wall Street sees worst day in 7 years. So….not only did Hurricane Ike devastate the coastal regions of Texas, Galveston being hit the worst, but Lehman Brothers declares bankruptcy and Merrill Lynch is being bought out by the Bank of America. This is over and on top of last weeks government bailout of Fannie Mae and Freddie Mac. I have never seen such market conditions sparking fears among the investment community. And to add to all this uncertainty; the restructuring plans made public in the afternoon by AIG.
Investor response to such situations are always over-exaggerated, but this is a fact of life. Investor response will always be exponential in nature when there is bad news, however, you don’t get reciprocal behavior with good news. What will happen in the coming days, specifically Tuesday? Well, it is normal to see investors looking to get under-valued stocks at bargain prices. Also, by end of the week, I have a feeling that the DOW will likely be only down 200 points compared to price at closing on Friday. Again, this is based on observation of past behavior only, so don’t hold me accountable.
Now, the thing that puzzles me is that the price of oil has dropped below $100/barrel. One would think that our local fuel prices would drop, but nope. There were fears that Hurricane Ike would knock some of the Texan refineries out of commission, however, according to the same CNN article, “early reports showed Hurricane Ike didn’t do as much damage to oil rigs and refineries in the Texas Gulf region as expected.”
If this is the case, why do we not see relief at the pump? Why did they raise prices in the first place when the price of crude oil didn’t really change over the past week? As the prices of crude oil goes up, our local pump prices increase, so the reverse should “in theory” hold true. We may yet see some relief, but I doubt the local gas providers will reduce the price to the levels typically associated to $100/barrel. That would just make too much sense, wouldn’t it. 
Well….I have to head out shortly for my Ultimate game in Vanier….so let me know your thoughts on the above…..
Paul
Bill McEachern says:
Read this article:
Oil closes below $100 for first time in 6 months
http://www.theglobeandmail.com/servlet/story/RTGAM.20080915.woilprices0915/BNStory/energy/home
Basically there were disruptions in refining capacity from the last 2 hurricanes. The gulf refines 25% of the gasoline in NA. If those refineries go offline you can end up with lots of crude oil and low prices for it, but a shortage of gasoline and high prices for that. It is one US/Canada market for gasoline and gas prices are influenced by gasoline commodity futures. So the 25% of the refining capacity went offline and will be down for days … but there was no major damage so it should be back online soon and gas prices here should drop to $110/L by the end of the month.
P.S:
I can’t post to your blog via Firefox … the kaputcha does not show up so you can’t type it in.