Tuesday, May 17, 2011

A WIder View - cont...

Before I get on with my rant, this article on why insider trading should be legalized appeared on the front page of Marketwatch.com. Laws regarding drugs, alcohol, tobacco, insider trading, etc... are ill considered and rarely, if ever, in the interests of The People.  That is, The People that don't enjoy a good "perp walk". (Nancy Grace and her merry band of fat jag-offs are only too happy to ditch the presumption of innocence... and Habeas Corpus while they are at it). Speaking of which... how embarrassing to our Constitution, particularly the 4th Amendment, is the "prep walk"? Its not just embarrassing - it is a disgrace. An action unworthy of our role in the world. No wonder Ruddy Giuliani invented it; Giuliani might be the worst excuse for a human being here in America since gold ol' Senator Joe McCarthy.

Ok. On to my rant.

Oil supply has proved particularly vexing to the Cassandra's, while Oil price predicting have been unkind, in the extreme, to the Cornucopians. As it turns out Matt Simmons was right about prices for all the wrong reasons, and Dan Yergin was wrong about Oil prices for all of the right reasons... or as we say on Wall Street: "A great call - with nothing to show for it".

Yes, Oil prices are up (and lately down) back around $100 per barrel, and are almost entirely at this lofty price due to the US$'s decline relative to the rest of the currencies AND the political situation in the MENA countries, with just a little "Peak Oil Light" thrown in to screw up the parade.  Oil exports might well have peaked, but ethanol, Nat Gas, and the Tar Sands have certainly lessened the blow.

See, that's the thing about the End of the Oil Age or even the End of the World. Industrious folks will try to profit from it. Maybe even call it off (for a while, anyway).  They will convert corn into ethanol, build nuclear plants, maybe poison all of Canada to convert the Tar Sands if necessary.

I have mentioned before how much I am impressed with the handling of the financial crisis by the American Fed and Treasury. I am equally impressed by the world Oil industry's ability to squeeze production from non-conventional sources. Think things are bad? If it were not for the motivated actions of these 2 groups they would have been infinitely worse.  Yes, I know gasoline is $4 or so, but that's a great deal better than the $6 I was thinking 2 or 3 years ago would be likely at this time.

As it turns out, the world doesn't want to end without a fight. It took 12 years for Oil to go from $10 glut with increasing production to $100 with relatively flat production. It might be another 10 or 15 years of price spikes and collapse before we know what's what with production. And that might be a good thing... because its all about the rate of change.

Everything is relative, and everybody's gotten this thing wrong. While the Cassandra's thought the world would end in 2010 and the Cornucopians said it was all tin-foil-hat B.S. my bet is most can't admit their own errors in calculation.  The trend is your friend, and the trend suggests a long, drawn out slug-fest. Said slug-fest will likely eliminate the middle, but not the have's and have not's.

to be continued -

6 comments:

Donal Lang said...

I agree that the success of the bailouts has been surprising, but all it has done is transfer private debt of bankrupt corporations (particularly banks) into public debt which has more cred, at least for the moment. But delaying the consequences hasn't changed the outcome.

Or maybe it has - the dollar collapse is widely forecast but the Euro and Pound aren't much better. Its increasingly hard to see how the Western fiat banking system can survive increasing default rates (although it may take 10 or 20 years to actually play out).

In the US people are already voting with their feet and walking away from underwater residential properties. Commercial property has to be next. Then pensions are bankrupt ponzi schemes - they'll collapse.

And at what point do banks and countries have to acknowledge that the interest payments on their debts can't be serviced by their declining GDP (as in real GDP without the bailout money boosting the numbers)?

The big Q is; how does a major economy fail? Is it financial; currency collapse? Is it economic; unable to sell bonds? Is it political; government disintegrates? Is it social; demonstrations and riots? Armed insurrection? At the moment my guess would be currency and banking collapse, but....?? Any thoughts?

We're getting used to the idea of $100 a barrel oil but that's still high enough to drive a 'normal' economy into deep recession. The move to alternative fuels with higher EROI actually boosts GDP for a while as all that money is spent on getting the alternatives out of the ground and processing it. But that's just turnover-there's little 'energy profit' in it.

But none of the above indicates other than desperate short term measures. 5 years? 10 years?? Who can tell, but the longer we put it off, the worse it'll be.

kathy said...

I spent Sunday afternoon conversing with my son's best friend, home for a brief visit. This is one smart kid. He graduated from an Ivy League college with top grades but bagged law school to study some odd little beetle that is devasting the western forests. He said something that has really haunted me. My husband asked what progress was being made in the battle against this invasive. Cal remarked that we like to believe that we are so smart and that there is always a solution. It's just a matter of finding it. But the that the truth is that nature always bats last and she always wins. We can put up a good fight but the oil will run out, the climate will change, the beetle will spread, the river will return to it's path, the dams will fail. We have yet to realize that our resilience comes not from our ability to control but from our ability to adapt. Those of us unable or unwilling to adapt will die. This is not some gloomy, end-of-the-world kid. This is one of the brightest and most cheerful young men I know. My orchard is in full bloom. The bees are poised to pollinate. But the rain falls. It has fallen all week and will fall for several more days. The bees won't work in this weather. Even the dependable Mason bees will wait. The brief time frame for the buds to set fruit may well come and go under the deluge. I can't change it. I can only hope the plums and berries set good crops.

Greg T. Jeffers said...

Kathy:

All true and all accurate. I can't help but look at this from a timing a profiting/benefitting perspective.

I am such a small and insignificant part of the process... so why not ry to improve the lot of me and mine during the process? No matter what, we have to play the hand... might as well play it well.

In the final analysis your beatle studying friend is correct... I might not live to see the final analysis!

Greg T. Jeffers said...

Donal & Kathy:

Stay with me... still trying to regurgitate all my thoughts on this.

westexas said...

The OECD “Thelma & Louise” Race to the Edge of the Cliff

“Thelma and Louise” is an American movie that ends with the two main characters committing suicide by driving off the edge of a cliff. I’ve often thought that this cinematic moment is an appropriate symbol for the actions of many developed OECD countries that are in effect borrowing money to maintain or increase current consumption.

The central problem with this approach is that as my frequent co-author, Samuel Foucher, and I have repeatedly discussed, the supply of global net oil exports has been flat to declining since 2005, with “Chindia” taking an ever greater share of what is (net) exported globally. Chindia’s combined net oil imports, as a percentage of global net exports, rose from 11% in 2005 to 17% in 2009. At precisely the point in time that developed countries should be taking steps to discourage consumption, many OECD countries, especially the US, are doing the exact opposite, by effectively encouraging consumption. Therefore, the actions by many OECD countries aimed at encouraging consumption in the face of declining available global net oil exports can be seen as the OECD “Thelma & Louise” Race to the Edge of the Cliff. I suppose that the “winner” could be viewed as the first country that can no longer borrow enough money, at affordable rates, to maintain their current lifestyle. So, based on this metric, Greece would appear to be currently in the lead, with many other countries not far behind them.

Greg T. Jeffers said...

Westexas:

No question that that's an accurate assessment.

I am merely examining why the world is holding together at this time. And why it is so difficult to accurately forecast the events we have been discussing.

BTW Jeff, I lost all my cell data. could you email me your number? mentatt at yahoo. I'd like to catch up