Tuesday, September 23, 2008

What you don't know/see can really hurt

I was speaking with our resident mad scientist last night, the good Doctor Lalani, and he mentioned a liability that I had not considered, but which I think was must be.

What if gasoline prices, for whatever reason, rise to $6.50 + per gallon?  What would that do to suburban home values?  I think it would CRUSH them.  And the government's rescue plan is NOT taking this issue into its calculations.  After all, for ANY plan to succeed, home prices must not collapse outright, and they likely would if people could not get back and forth to their home.

The $6.50 number does not have to happen overnight.  The process of unwinding this disaster is going to take YEARS.  If the intersection of the X & Y graph happens before most of the unwinding is complete, the bailout could fail - with predictable consequences.

Got Gold?

Mentatt (at) yahoo (d0t) com


Bureaucrat said...

As you know, everyone reading this blog knows what is going to happen energy-wise, and we've told our family and friends (the ones still speaking to us) about the risk of owning a house in a suburb. For true peak oilers, we've already written the suburbs off. Whatever bailout plan comes out, everybody is going to be on the hook, especially the kids. That's why I have my basement loaded with white rice and my gold and silver stored underneath it. :) What will happen, will happen. The prepared people will eat a little better for awhile longer than the world in general -- that's all.

Donal Lang said...

As you know, I've been trumpeting $200 oil by Xmas for months now (since last January!). That would give you $8 gas in the US. Here are the reasons:
Winter is coming and THAT market isn't as elastic as summer driving.
Lots of petrol stations, truckers, and house-owners have been de-stocking; putting off filling their oil tanks, hoping prices will keep falling. Now they HAVE to buy.
Oil is the ONLY real hedge, because its effectively outside the dollar economy and internationally traded. Better than gold because....
Demand is inexorably rising and supply is inexorably flat or falling (especially oil available to market).
The dollar will tank because of all the bail-outs (even if the latest one doesn't work out).
Russia or the Middle East can 'punish' the West by tweaking the supply tap, increasing its revenues every time it does so.
And most of all, China holds loads of dollars they want to get out of before their value tanks. What better than buying oil futures?

Oil is trigger-happy; a small undersupply means a big increase in price (and the reverse, as we recently saw). I actually think I was wrong about $200 by Xmas - I think it'll be a lot more!!

Anonymous said...

Der Speigel is describing the bailout plan as "a scream for help".

The German govt has refused to help fund the bailout. They figure they have already lost too many billions in toxic US investments. And they feel that the bailout will be counterproductive.

Anybody want to go long the USD?

Bureaucrat said...

I thought my man Obama was the cry for help. He certainly wasn't picked for his experience. We can get a "negotiator" anywhere.

Anonymous said...

At least Obama has the sense to think hard about starting new and potentially bankrupting foreign wars.

Or maybe the idea of John McCain setting the ME ablaze and putting national default on the fast track sounds like a fun plan to you? Even McCains old supporters will openly state this as a good possibility.

National bankruptcy means forced withdrawal from ME (oil) wars
with oil import cuts soon to follow.

Viv said...

It could easily go to 6.50, if the bailout is passed, it will be HIGHLY inflationary, meaning the dollar will fall against other currencies and oil will rise. Depending on how inflationary, this will lead to sharper increases in oil prices.

Btw in the short term it still is deflation, theh bill hasn't been passed yet, and gold IS money. So it should do well in the long run, in inflation OR deflation.