Oil Prices Soar, Stocks Plummet: How Bad Is Our Economy?; Hillary Clinton Accepts Defeat
DAN SIMON, CNN ANCHOR: Good morning from the CNN Center here in Atlanta. I'm Dan Simon in today for T.J. Holmes. This is CNN Saturday morning. And it is June 7th.</s>BETTY NGUYEN, CNN ANCHOR: Already a busy day. Glad to have you here, Dan.</s>SIMON: Thank you very much.</s>NGUYEN: You're doing a great job. I'm Betty Nguyen. Oil prices, they go up and the stocks, they plummet.</s>UNIDENTIFIED MALE: I think that things can have the potential to get very, very bad if we don't do anything.</s>NGUYEN: Foreclosures and jobless rates up as well. So just how bad is the economy? It is our issue number one.</s>SIMON: And we are three hours away now from Senator Hillary Clinton's rally in Washington where, of course, she is expected to ask her supporters to back Senator Barack Obama. The best political team on television is bringing it to you live here on CNN. Well, gasoline averaging now $3.98 a gallon; in San Francisco where I live it is well over $4.</s>NGUYEN: Yes, here it's about $4.10.</s>SIMON: Here's the thing, you can probably say, bye-bye. You know why? It is going to go up.</s>NGUYEN: That's the sad news. It is not bye-bye in a good way. Crude oil shot up nearly $11 yesterday to $138 per barrel. That has never happened before, and it is bound to have a ripple effect at the pump.</s>SIMON: CNN business correspondent Stephanie Elam, she is in New York where the stock market just absolutely tanked on this development. Stephanie, it was sort of like a perfect storm of bad economic news. What's going on here?</s>STEPHANIE ELAM, CNN BUSINESS CORRESPONDENT: Yes, that's true. It's definitely two things that we had here. We had some bad economic data as far as the jobs report showing that we had almost 50,000 jobs lost in May; that was one part of it. But then you take a look at oil. Oil was up $11 yesterday; and the day before that it was up $5. So to give you some perspective here, we are talking about $16 gained since Wednesday. So on Wednesday the oil was at $122 a barrel. So obviously this was a huge run up; something we haven't seen anytime soon. This is just like random. This just does not normally happen obviously. And there were a couple things factored in here. There was a report saying that oil could be up to $150 a barrel by the fourth of July. And then there were tensions between Iran and Israel and that factored into oil and that is what shot everything up yesterday, Dan.</s>SIMON: You know, when you consider the price of oil and how it went up 13 percent over something like two days, the question is is gasoline -- is it going to go up 13 percent as well?</s>ELAM: Yes, I think a lot of people are worried about that. If that did happen, that would be another 52 cents a gallon that we'd be looking at here. But the thing is, oil and gas they don't rise the same. It's not like oil goes up, gas goes up the exact same amount. They don't move in tandem but this does mean bigger shipping costs for people who are trying to stock their stores, especially for like mom- and-pop operations. That's a lot; we'll be looking for those kinds of things. That's where it factors in. But one good thing here, Dan, it's going to be really hot in a lot of the country, so they won't have to buy heating oil today. So I had to find something positive.</s>SIMON: Yes, but you are going to use your air conditioner. Your electricity bill is going to go up.</s>ELAM: Yes, there is that.</s>SIMON: All right. So here's the question. When does the cost of gasoline and heating oil get so high that you actually change your lifestyle? CNN's Deborah Feyerick, she met one schoolteacher in Maine who believes the U.S. is actually at that tipping point right now.</s>DEBORAH FEYERICK, CNN CORRESPONDENT: Iver Lofving is convinced the world is running out of oil. He spent the last ten years getting ready for that day. A mainstream survivalist, chopping his own wood, installing solar panels, growing vegetables, even driving a solar- powered car; all of it geared to becoming self-sufficient.</s>IVER LOFVING, PEAK OIL SURVIVALIST: Call me crazy, but I'm crazy like a fox. This household makes half of its own energy. I mean, half the -- two-thirds of the hot water, half the heat right there, small part of the electricity, half the gasoline.</s>FEYERICK: Lofving is a high school teacher who lives in Skowhegan, Maine, roughly two hours north of Portland. He believes the world driven by cheap oil is coming to an end. How does peak oil play into the changes you're making in your life?</s>LOFVING: Peak oil has everything to do with it.</s>FEYERICK: Peak oil is the point when global oil production peaks then goes down. The remaining supply is limited and will be harder to get at, and that means fewer barrels a day. Some oil experts say that day is here, others predict it is 20 to 30 years away. But as gas prices rise, Web sites like peakoil.com and survivalblog are getting more and more visitors talking about the end of cheap oil and the possible threat of political and economic instability around the world. And peak oil groups like Lofving's are seeing a spike in members.</s>LOFVING: I think that things can get -- have the potential to get very, very bad if we don't do anything. I really do.</s>FEYERICK: Unlike some survival lists, Lofving has not started raising chickens or stockpiling years' worth of food and ammunition, but he is thinking of a bigger garden and maybe a small boat just in case. Deborah Feyerick, CNN, Skowhegan, Maine.</s>NGUYEN: All right. So where is all of this heading? And what does the latest price spike mean for the cost of groceries and other items? With us from New York to talk about all of it is Bob O'Brien, stocks editor for Barron's online. All right. So let's review for just a second, Bob. Oil jumped 11 points yesterday to nearly $139 a barrel. We've never seen this before. Is there such thing as a ceiling or do we just expect this to continue over and over and over again?</s>BOB O'BRIEN, STOCKS EDITOR, BARRON'S ONLINE: Well, Betty, I think you can expect to see this replicated again because what happened the last two days in the oil market was really fundamentally very divorced from the underlying rational. It wasn't about the cause of drilling for oil and refining oil, it was about speculation on the part of traders who had been betting that oil prices were going lower.</s>NGUYEN: So you are telling me speculation and not consumption, not demand -- supply and demand is driving this, but instead speculation is driving this.</s>O'BRIEN: That's certainly what happened over the course of the last two days. Now, some of that was leveled off of the decline in the dollar. Every time the dollar goes down or the euro goes up, the oil price tends to rise because oil is denominated in dollars. And as the dollar weakens, it becomes more attractive for overseas investors using your own currencies to purchase oil in the futures market. That's a lot of what's going to take place the last couple of days. That's not to say that underlying all this, there's no fundamentals because there's a global demand story taking place right now.</s>NGUYEN: When we see oil go to $139 a barrel, jump 11 points in just one day, how long before that translates into higher gas prices at the pump? Is there a little bit of a lag time there?</s>O'BRIEN: Well, there's not just a lag time. Prices at the pump are determined more by demand for gasoline than they are by the underlying price of crude. As we saw over the Memorial Day holiday, demand actually pulled back 4 percent on the year over year basis. We have seen the airlines make capacity cuts, and the automakers are saying we can't sell an SUV or a light truck anymore. The ford F- 150 is no longer the most popular vehicle in America; the Toyota Camry has taken that place. So it's clear that consumers are pulling back a little bit, doing, taking some of the necessary steps that is going to result in lower prices down the road. However, over the short term, I think we're going to see a lot of volatility both in the crude markets and at the gas pump.</s>NGUYEN: Yes, I want to ask you about that because -- I mean, gasoline is $4 already. By the time we get to the fourth of July, how much is it going to cost then? Not only that, but by the time winter rolls around, can people afford to heat their homes?</s>O'BRIEN: Well, those are all certainly very legitimate questions right now. I suspect that by the time we get through the summer season we are actually going to see prices start to retreat just a little bit. I think that the demand is going to start to drain out of the market. High prices will disabuse people from being gas guzzlers that they've been in the past. Eventually it will pull back. I would expect to see though a tremendous amount of volatility over -- certainly between now and the Fourth of July and more likely than not a lot of volatility in these markets through Labor Day. I suspect prices are going to remain somewhere near about $4 a gallon.</s>NGUYEN: So we are now looking at $5 or $6 or $7 by the fourth of July?</s>O'BRIEN: Well, this is a hard market to predict because you are no longer in a market where the costs are related to -- where the prices that we are paying are related to the underlying costs. It is simply related to the price people are willing to pay for the products.</s>NGUYEN: Well, next time you come on, can you give us --</s>O'BRIEN: I wish I had better news.</s>NGUYEN: I was going to say, next time you come on we want some better news from you, ok?</s>O'BRIEN: I wish I could.</s>NGUYEN: Thank you for your honesty. Now, on Monday, your house, your job, your savings and debt, we bump issue number one up a notch; taking a day-long look at solutions oriented and served to your economic concerns. We'll be talking to credit counselors on Monday. So if you are in debt or you simply have questions regarding your credit, send us an e-mail. Here's the address -- issue1@cnn.com.</s>SIMON: And the troubled economy is also front and center in the presidential race; no surprise there. Republican John McCain took a boat ride through the Everglades yesterday to focus on the environment, but his attention was also on the rise in unemployment and the report on job losses.</s>SEN. JOHN MCCAIN, (R-AZ) PRESUMPTIVE PRESIDENTIAL NOMINEE: I probably should have mentioned that in my opening comments, because these numbers are very disturbing. They are the worst in 22 years, I'm told. Americans are hurting, American families are hurting. American homeowners are hurting. And this is a very, very serious situation. We have to do a number of things.</s>SIMON: McCain says the figures are a stark reminder of the current economic challenges he pledges to turn the economy around.</s>NGUYEN: Well, the presumptive Democratic presidential nominee is also making the economy a key issue as he makes stops around the country campaigning in Virginia. Senator Barack Obama said middle- class working Americans need help during these tough times.</s>SEN. BARACK OBAMA, (D-IL) PRESUMPTIVE PRESIDENTIAL NOMINEE: Changing is rebuilding an economy that rewards not just wealth, but rewards work, and the workers who create wealth. It is understanding the struggles that face working families. It can't be solved by giving billions of dollars in tax breaks to corporations and CEOs as John McCain has proposed, but instead involves giving middle class folks a tax break to offset the rising cost of gas.</s>NGUYEN: Obama called the latest unemployment figures deeply troubling.</s>SIMON: Well, about three hours from now, Senator Hillary Clinton -- she is going to be holding that big rally today in Washington where she is expected to announce the suspension of her campaign and to publicly throw her support behind Barack Obama. CNN's senior political producer Sasha Johnson is live at the National Building Museum this morning where Senator Clinton is going to be holding that rally. Some big questions here, but first of all, what do you think we'll hear in Senator Clinton's speech? If you are Barack Obama and his supporters watching the speech, what does she have to say for this to be considered a home run?</s>SASHA JOHNSON, CNN SENIOR POLITICAL PRODUCER: Well, I think as you have been hearing all morning, you are going to be hearing unity, unity, unity. And I think that what Barack Obama supporters need to hear is some conviction behind those words. I mean, leading up to Tuesday, all we heard from Hillary Clinton was that she was the stronger candidate, she would win in the fall; Barack Obama couldn't. So I think his supporters need to hear her really mean it. And her supporters need to hear her say all of this so they can get behind Barack Obama.</s>SIMON: And both Clintons are known for choosing their words very carefully. Everybody is going to be scrutinizing every single syllable. And her body language, of course, all those things are going to be analyzed closely. You have been on the road with the senator for a long time. The question is is this 180 degrees from what she's been saying the last year?</s>JOHNSON: Sure. I mean, you know, her aids and Hillary Clinton herself, as I just said, have been saying Barack Obama is not ready to be president. It is interesting to hear her come out and put her support behind him, but Hillary Clinton is a good Democrat. She wants a Democrat in the White House. She wants to be a senator with a Democratic president to get her issues forward. She is coming forward as a good Democrat. I don't know that she -- I think she personally would rather be the nominee, but she is not and I think she's accepted that and she's moving on.</s>SIMON: They put off this announcement to Saturday, so a lot of her supporters could be there. Are you seeing people show up? Are the crowds going to be big today?</s>JOHNSON: Sure. We are seeing people line up right now, but what's interesting is the way that they are building the set up, there are going to be a lot of people behind Hillary Clinton, which is something that the Clinton people wanted. They wanted to show that Democrats -- that Hillary Clinton supporters were getting behind Barack Obama. So she didn't want to be up there by herself on stage. She wanted to show she is bringing supporters along. You will see a bunch of people seated behind her on bleachers and also there's as lot of room for people to stand. So they are expecting a big crowd.</s>SIMON: Well, so much anticipation for it and Sasha, thank you so much. And here's the thing. Keep your eye on CNN for special coverage of Senator Clinton's speech. Wolf Blitzer and the best political team on television -- they're going to be bringing it to you live at 11:00 a.m. Eastern time. Then tonight John Roberts and Campbell Brown examine the next president. A look at what the candidates will do to get elected and what they will do once they are in office. That's tonight at 8:00 Eastern, only on CNN, of course, your home for politics.</s>NGUYEN: This story is disturbing and you'll know why once you see the pictures; a young girl with her finger on the trigger. Now the police are taking a closer look.</s>SIMON: Also ahead, the Midwest battered again by severe weather. More severe weather may be on the way. We're going to take look at that when "CNN SATURDAY MORNING" continues.