Apocalypse Delayed

Despite the mortgage meltdown and housing crash, the U.S. economy will likely not enter a terrible recession in 2008.

At the end of 2006 I wrote that 2007 would likely see a recession brought about by the housing crash and much higher oil prices. Perhaps we are in a recession right now or perhaps I was close, but no cigar.

So here is the deal for 2008:

For the U.S., it is all about OIL SUPPLIES, not oil prices. If oil in the world markets is there and available for the U.S. to import, there will likely be no recession and a decent gain in the stock market of between 8 and 12 %. At this moment, I would be willing to bet that the oil will be there for 2008, because we have some big projects coming on line around the world and the restarting of Thunder Horse in the Gulf of Mexico. I think these projects will yield more production than the decline in the established fields from depletion.

I am also assuming that 2008 will be the year that supplies of “All Liquids” (petroleum) will peak for purposes of establishing an investing and trading schematic. Perhaps the peak in crude and condensate will remain 2005, and perhaps not. I am not predicting nor forecasting. That is for the guys at organizations like ASPO and CERA to do. It had appeared that 2006 would be the peak in all liquids but a large increase in production of natural gas plant liquids (“NGPLs”) in November appears to have changed that, and, no I am not concerned with monthly “peaks” but yearly averages. Even if 2008 does not eclipse 2006 it will be close enough for our purposes here.

Unless, of course, I am wrong: If world oil production should actually decline in 2008, and/or if U.S. imports should decline, all bets are off. The U.S. would enter a steep recession, the markets would get clobbered, and oil prices would send you in to sticker shock.

Either way, housing will not recover in 2008, and housing in South Florida will NEVER recover. I live here in South Florida. I wrote to our clients in 2005 that the South Florida housing market was doomed to a 10 year correction. We are 2 years into that correction, and unfortunately, the energy crisis will strike the U.S. before South Florida has a chance to begin recovering. South Florida is entirely dependent upon cheap gasoline for commuting and tourism, and electricity for cooling of homes, workplaces, shopping malls, etc... Electricity is going to be rationed here before the last 8 years of the correction is complete. So I repeat: If you have an extra single family home or 2 in South Florida, get what you can NOW (in my humble opinion), because like it or not, things are going to enter the surreal over the next several years for housing in this market.

I would expect oil prices to be exceptionally volitile, with a range for front month contract between $70 and $130. If you are a trader, this is going to test your intestinal fortitude.

Now that I have waffled at least as well as any politician… We are in the “Land of the Philistines”, with the U.S. economy and financial markets entirely dependant on supplies of imported oil. This is the one crucial data point, and everything else you read, hear, or see in the financial media is a “puff piece”.

Mentatt (at) yahoo (d0t) come