The State of the Nation

If one was so inclined -- and there are many that are -- one would get the impression that God is exercising a bit of his wrath. And he doesn’t seem to be letting up. Scoff if you must at Revelations, at End of Days and Armageddon, at the Second Coming or the four horsemen of the apocalypse, a cynic can’t deny the inherent eeriness of this past summer.

The city of Toronto officially acquired the all-too-realistic nickname Smoke City, literally becoming an emissions and carbon monoxide swelter. Gas prices -- or where to begin with gas prices! -- have defied comprehension while supply, instead of diminishing, has increased marginally. How to explain this discrepancy has everything to do with the psychological motive of fear—or more clearly, speculative fear. All summer long investors have been afraid of Iraq, of reforms in Saudi Arabia and Egypt and Lebanon and how hegemony over oil is diminishing.

Similarly, investors have been afraid of China and Indian, both evolving economies that will soon eclipse the U.S economy. And somehow dollar-per-barrel became the demotic tongue of all. $30 dpb sometime in 2004, it was ridiculous to think, when they joked, that oil would reach $50 dpb. When it reached $70 dpb and looked as though it wasn’t planning on moving much, either up or down, the grousing and the bristling was no longer inaudible. Welcome to the Information Age, truly.

The Markets have learned to ‘price-in’ anticipated imbalances, and have subsequently begun operating on ‘attitudes’ and sentiments. A sentence from a Federal Reserve press release is parsed exegetically and the Markets move. A storm report from the The National Hurricane Center is issued and the Markets move. We are so awash with technical information, often times contradictory and conflicting, that we’ve settled into a catatonic paralysis. The risk premium, which is necessarily a portent for scarcity, or worse, collapse, has priced-up the one commodity that is sine non qua to the world economy: Oil.

It turns out that fear isn’t only a serviceable tactic in terrorism or electoral politics but also profit-taking. As cringe-worthy as arguments for nationalization of vital oil resources are, the notion has once again become far more appealing than the current scenario. Rita will wreck its havoc and the United States will be writing another $200 billion dollar cheque – on top of the $200 billion for Katrina and the $200 billion for Iraq; which isn’t even to speak of billions for Medicaid/Medicare. And although this financing is long-term, the horizon is closing in fast and liabilities are mounting. I pray for the U.S economy; if only for the fate of the Canadian economy.