Will High Energy Prices Break The Markets Again?

Last night the Chinese economy reported a better than expected producers price index(PMI). This news obviously helped lift all the commodity stocks this morning. As we all know commodities and most commodity stocks have risen sharply since early July on positive economic data out of China. China is now the driving force of the world economy. If anyone remembers back in 2008 it was very high commodity prices that really caused the stock market to spiral lower. Crude oil was the leading cause of the deflationary spiral that took place in mid-2008. This morning December crude is trading sharply higher $2.25 to $83.67 a barrel. While this is not nearly as high as it was in 2008 when it traded as high as $147.00 a barrel, it is still high when it comes to the already hurting U.S. consumer. Remember when oil prices are high this is a direct tax on all who need and use the commodity. Just about every product used in the United States has some correlation to oil. This morning Cooper Tire & Rubber Co.CTB was the latest company to report that high commodity prices are hurting their business. What about the U.S. consumer that must use gasoline for his car and heating oil for the home? At what price does high oil adversely effect the U.S. consumer? This morning the United States Gasoline FundUGA is trading higher by $1.04 to $36.00. While this ETF is not at a new high for the year it is certainly nearing recent multi-month highs. The highly popular United States Oil FundUSO is trading higher by $1.01 to $36.17 this morning and that ETF is also nearing three month highs. At what price will high oil stop the current inflation rally that picked up steam in late August? The Federal Reserve is expected to announce the amount of their quantitative easing program on Wednesday November 3rd, 2010. Fed Chairman Ben Bernanke talked about this program in Jackson Hole, Wyoming on August 27, 2010 and the stock market has skyrocketed higher ever since. While the stock rally looks good on the surface there have been many negatives at the expense of a higher Dow Jones Industrial Average. The negatives have been the higher prices in all commodities including oil, copper, sugar, cotton, wheat, and coffee just to name a few. The U.S. Dollar Index has also declined by nearly 13.0 percent since June 7th, 2010. This is also a negative for all that use the U.S. Dollar, especially, for the people that are on fixed incomes such as senior citizens. So I guess we should all be happy that China is doing so well and helping to keep energy and commodity prices so high. However, it is important to remember at some point high energy and commodity prices are going to break the U.S. consumer again.