Tuesday, February 22, 2011

PO now in the MSM

Watch this link at yahoo's tech ticker internet show.

Did you catch it? How do you like that?  The flippin' MSM is now speaking clearly about Peak Oil in the past tense.


Front Month Corn got creamed from its highs last night. Just whacked. I read with interest the attempts by certain political operatives to lay high grain prices on "climate change",  "global warming", or my favorite "global weirding". Not that I reject the science behind anthropogenic climate change... I don't. But if that was the culprit behind high crop prices then these markets would be in terrible Contango (much higher prices for later delivery months) when in fact these markets are in steep Backwardation (much lower prices for later delivery months).

For example: Front Month Corn (March 2011) is $6.71 per bushel tonight; Corn for December 2012 delivery is trading right now at $5.09. One would think that if the problem was climate change the December 2012 Corn would be somewhat higher than next month's $6.71.  Likewise, if the problem was all the Bernake Bucks being printed then December 2012 corn should be $6.71 plus the rate of expected inflation... but that's not the case. Ergo, something else is driving crop prices... that doesn't mean that markets don't f*** things up now and then.... they do... but you can't hang your hat on the market being wrong, any more than guessing next growing season's weather.


No regime in the MENA is safe.  All are in play, and any one of these can go off on a moment's notice. The peak in conventional crude production is almost certainly behind us, and the peak in exports is without any question (at least to my mind).  It then follows that the mother of all Oil shocks could come at anytime.


Recently, some high profile Peak Oil aware money managers postulated that perhaps the housing market had bottomed... something I said I was skeptical to agnostic about.  The most recent data supports my skepticism.  Just because the powers that be saved the U.S., an hence the world's, banking system from outright collapse does not mean that they have put the bottom into housing just yet. Housing prices, in the final analysis, will be determined as a multiple of average family income - no more, no less. To my mind, that would mean housing has not bottomed - especially if Oil has not topped.  Falling housing prices and rising oil prices may or may not be residents of the same coin... but they are certainly problematic for the banking industry... which probably has a bit of contracting left to do.


Dextred1 said...

shiller says he thinks we have another 25% to drop in housing. This is the 07-08 oil/housing thing all over again.

Donal Lang said...

Seems to me that if the average Joe's fuel bill has gone up, and his food costs have gone up, and his travel costs to work have gone up, and his wages have stagnated, then he can't pay the same level of rent or mortgage that he could 5 years ago.
Add to that a shortage of low-deposit mortgages and generally tight credit, and where is he going to get the money to buy anyway?
And for the potential landlord; who in their right mind would buy a property to rent out in the current market (unless it was at 20% of valuation)?
And who will all these babyboomers sell their high price houses to in order to finance their dream retirement (or medical bills!)?

All the long-term indicators, and all of the above, indicate downward house values. Long term balance is at 20 times rent and 4 times gross salary in any local market. Long way to go to there!