Thursday, December 4, 2008

Denial (revisited)

How would I describe the market action today?  The market's tried to shrug off news bad enough to scare the snot out of Frankenstein.  Then they came to their senses.  The Mad Scientist thinks things are not as bad as media describes, while I think things are much worse than they appear.  That's how market's work, for every buyer there is a seller - and only one of them gets to be right.  

Merrill's analyst freaked the market out today by saying $25 oil was possible next year.  You bet its possible.  Oil is the lifeblood of the economy, and the world economy is bleeding, profusely, from every orifice in its allegorical body.  Merrill mentioned that $25 was possible IF China entered recession.  IF?  We will be lucky if China is not in the midst of a F&^%$##! revolution this time next year, never mind a recession.  

$25 oil is very possible, but $40 accomplishes the same thing - the destablization of a number of regimes around the world.  Think Saudi Arabia can withstand $40 Oil?  Mexico?  Russia? Venezuela?   Let the House of Saud fall and oil might trade in a $25 - $250 range in a week.

Life's funny sometimes.  The Mad Scientist pointed out to me that while we thought the world would end in fire, it appears now to be ice.  Go figure.

Every action has unintended consequences, as we are witnessing first hand.  It does not matter how we got here (although I could make a strong argument).  We are "HERE":  in a subsidized form of capitalism employing a fractional reserve system for money creation.  The collateral for that money creation/lending is homes, a buildings, and vehicles (for the most part).  These collateral items have been expanded into critical overcapacity, and now that collateral base is deflating, and along with it our ability to create money.  So the Fed and the Treasury have stepped into to fight this phenomenon - known as deflation - and they will fail.  Rather I should say they will not succeed until it is too late, and the unintended consequences of that are an entirely different discussion.

The point is, that the U.S. and world economy is going to get a great deal worse before it gets better.  A great deal worse.  

There will come a point, and believe me... that moment will not be readily apparent, when Oil will have reached its apogee in this cycle.  The slope of the futures delivery contracts should flatten, maybe even reach backwardation (currently Oil is in contango for about 50% in 24 months - UNHEARD of.  Then again everything about this market is unheard of).  Until then, it is time to survive, and hope that some other "black swan" event does not materialize to f%$# up the plan.

The price of Oil in the front month contract reflects underlying economic activity (read this excellent link by career CIA analyst Tom Whipple.  Tom and I seem to see things in the same light so no point repeating it here).  No one could have imagined just 4 months ago how quickly our economy would self-destruct.  I don't think most can imagine just how much more it will do so, and I worry that I am not negative enough, or may be I see ghosts and goblins where there aren't any.  Still, I think discretion is the better part of valor for the rest of the 2008 and Q 1 2009.

Mentatt (at) yahoo (d0t) com


bureaucrat said...

With all this stock market/economy stuff blowing up all around us, some of us who read the bloggers got out of stocks in 2007 and went to Treasuries. NOW, even that isn't a defensive play anymore cause the government is doing all it can to push down short and long term Treasury rates to zero! I guess they are trying to push us back into stocks and commodities, whether we like it or not. Bastards.

Anonymous said...

Welcome Jeffers. The League of Doomsters salutes you.

But hey call it like you see it.


Nikola Tesla did not solve energy crisis- Nor Albert Einstein- SOLOMON AZAR HAS-period!
I took the ideas of many scientists the world has grown and finalized an ideology and experiment to end the global energy crisis with no greenhouse

gases-That was the easy part-now i find myself trying to gain FAITH of my fellowman to spread this story-WHY-

for i did everything alone-a garage scientists who is successful- and now i need to be proven correct- so i come upon the fantastic invention called the

net- invented after thousands of years- if not millions of the monkey race of man only to be ridiculed and bullied- like the jackasses that harassed

several teenagers to suicide-

what i have found is disgusting and the reason why innocence is raped killed and beaten- why man goes to war over and over again- YOU DESERVE IT-

Truly- as a scientists and observer- i have found the reason for mans madness at times- it is meant to be- to antagonize and harrass each other- hardly

any time to just relax in life- always on guard- WHY-

go live one day in nature and see how hard it is- technology is great and makes life far more stable- so get your head out your ass and understand there

are still many grandparents alive right now that remember when the automobile first came out- the refrigerator- the television- medicine for this

ailment and so forth-

and to this day half the children of the earth still die from simple drinking water untreated-


wars have always come and gone- a natural part of life to keep a civilzation the strongest- or die by your neighbors hands that keeps the torch brighter

than another to find answers-

and now in a century man declars war to end all wars forever since ww1-ONE CENTURY NOW-

when will it end-

I am your messenger- over one year i state these words- you will never give me an ear to listen or an eye to witness until i give you a miracle- for

part of your animal ways is giving someone attention ONLY after they do something for you-


you care not to help me or investigate my science deeds because i say messenger of god- thus- only true solution will never be uncovered as YOU are an

ignorant and selfish creature that says you love god by majority in the world- yet- does nothing when a disciple asks for help-or anyone for truth- and

this is part of my message- i have much to say- and you will surely understand if total economy crumbles and you lose your jobs-and go off to war- for

many look for answers why afterwards-

but for first time in human history- a chance comes for peace without global war- your window closes very fast as the military pawns have been set and

iran russia pakistan and many others are ready-

ONLY a messenger can create peace between the nations without global war- but it seems man is still a savage monkey race-not children of god- thus- let

the lessons continue