Ah, but this is my last "examination" by these folks. I am withdrawing my membership. From now on I will run a hedge fund, they can keep the brokerage business. I simply cannot justify the expense and aggravation any more. Root canals are more fun.
Here, Oil is back above $80, the US$ is crashing, unemployment is near 10%, and I am not trading because I am making copies!!!! AGHAGHGAHAGHAGHGAHGHGHG!!!!!
But I digress.
Oil imports are CRASHING (petroleum imports into the U.S. are down 9.1% this year, after an 8%+ decline last year) along with the value of the US$. Those g-d d*mn doomers might be right yet. We have real unemployment of 17% and $80 Oil. Who'd a thunk it?! In fact, if it weren't for the 6.1% increase in domestic production we would REALLY be in the soup. Thank goodness for some level of a free market.
This is serious. I have spoken about the "Incredulity Response" in the past. That's when perfectly normal people walk down into a burning subway platform and asphyxiate because they just could not believe what their own eyes were seeing.
The U.S. equity markets have not gone ANYWHERE in Australian Dollars, and are up modestly from the bottom in Euro's and Canadian Dollars. The sad truth is that our government is trying to devalue itself to prosperity, and while there's always a first... its never been done before.
Let me cut to the chase. The U.S. economy cannot withstand $80 - $100 Oil. Either Oil comes in or the economy sh*t's the bed. Simple. Like. That. How do people in Detroit pay their heating oil bills this winter with 22% unemployment and $100 oil? (Even more unbelievably, I am citing NPR as a source. Good grief, what's next?)
Look for a massive double dip recession. Massive (or look for Oil prices to come in HARD). The U.S. economy is still utterly dependent upon Oil, and Oil DOMINATES our trade deficit. We all know that the US$ must seek a level that balances the current account deficit and our silly social program spending (and yes, I will admit, our outrageous military spending).
This is the SHOULDER PERIOD for Oil prices. Will they firm higher in the HEAD PERIOD? If they do, look out below.
Libertariananimal (at) gmail (d0t) com
15 comments:
Missed you Greg.
I have nothing of substance to add. I would highly recommend the Archdruid report blog- Love to have your take on this pretty darn good thinker. His archive is pretty interesting.
It's time for the people who "get" energy to put aside petty ideological differences and start trying to cooperate to create some kind of system that will keep us alive and trading in the future. Local/alt currencies, community gardens, a renaissance of local agriculture, etc.
I am glad you're back Greg. I too see a problem with oil in this range but without this range I don't see the investment in new fields or research. I am investing in one thing only right now. Food and farm infrastructure is getting all my extra cash. I will sink my money into our apiary and our orchard and I am enlarging the garden to include a truck garden to supply our local market. I am considering investing in that local market as it is the only food supplier in town. I don't consider this doomer. I consider this realistic. Oil can't go anywhere, up or down, that works for everybody.
I see this as more of a financial/economic/political risk. I feel this way because people ARE making intelligent adjustments - not the government. People.
As in, "We the People".
Unfortunately, its more than oil. Our political system, much of it born of the 1960's (loved the music and the parties, but their politics has been an unmitigated disaster), has created a nation of "empowered victims" (my phrase), and these empowered victims got their powers from special interest groups that likely had a different agenda - but all revolutions eat their children.
The U.S. has ONLY been able to compete because we controlled the world's reserve currency - for better or worse, people will use whatever weapon is at hand to get what they want - filing false disability, OSHA, sexual harassment, discrimination, etc... claims makes our work places much less productive than they could be. Our courts are clogged with frivolous claims, regulators and bureaucrats run governments, and we are subject FAR MORE to regulation, which nobody votes for, than LAWS, where we might have some say.
Oil was the ingredient that allowed this silly state of affairs to come about. That ingredient is being withdrawn as we speak.
Detroit doesn't have heating oil. They have natural gas, just like Chicago (no?). And natural gas, as we've talked about, is currently overflowing and priced cheaply from the contribution from unconventional gas sources (as to how long that will last is unclear -- unconventional may have no "there" there, as was discussed at the ASPO conference this month.) Demand has taken on a much more significant role in the peak oil debate (OECD demand will be flat while rest-of-world is increasing -- supply is supply). However, if China can't find more fools to by their plasma TVs, they aren't going to be building their navy or much else for very long. $80 a barrel is the new third rail -- the world economy exceeds it, and then the world economy dies.
Bur:
You can't buy NG either, if you are unemployed.
There has NEVER been a time when Oil prices rose to 4% of GDP that the US did not enter recession.
We are back on that cusp.
An unresolved experiment underwritten by fossil fuels.
We seem to be in agreement that this new $80 a barrel/4-5% of GDP spent on oil line is the new divider. I infer from that that we are never going to have oil surge beyond $100/barrel for long, because ... if oil/gasoline prices go up, it adversely affects the economy to such a degree that demand for "everything" goes down (from lost economic productivity and lost jobs). Then, oil prices drop back from lack of demand. We will never exceed $100/barrel for long, it follows. I think the economists pieced that logic together in 2008 when oil surged to $147 and it knocked the world economy off its rails (massive debt and credit contraction didn't help either).
And, there is a new piece of logic just put together by Bank of America listed on the ASPO site a couple of weeks ago. BofA seems to think that to keep this economy above water, all we need are the wealthy people (upper 20%, like me) to keep spending what they usually spend. Who gives a damn about the other 80% of people who are middle/poor! All we need to keep the economy on life support is to concentrate on the top 20% of income earners. It's heartless to say the lower 80% don't mean anything, economically-speaking, but from a heartless perspective, perhaps BofA is right.
Bur:
Its not the PRICE its the percentage of GDP. If volume goes down, price can go up until the 4% line is crossed and then the cycle repeats itself.
Of course, for short periods of time, prices can swing far from their moorings.
Hi Greg
Re; oil, here's a Guardian article that's relevant, and it refers to a Global Witness report, the second link;
http://www.guardian.co.uk/business/2009/oct/19/oil-prices-rise-supply-warning-report
and
http://www.globalwitness.org/media_library_detail.php/853/en/government_failure_to_acknowledge_oil_supply_crunch_risks_conflict_and_threatens_the_climate_
Bureaucrat, your suggestion about oil never getting above $100 is plain wrong, for three main reasons; oil price has climbed even though the US economy is tanking, because China has just declared 8.9% growth! The US economy is being sidelined into a cul-de-sac.
Secondly the dollar has no-where to go but down, so even if oil stayed the same price in gold/commodity terms, in US terms it would continue to climb in dollar price.
Lastly, a gallon of oil has the energy equivelent of 8 weeks of manual labour. A gallon is currently, what, $4? and 8 weeks of labour costs about $1,800 at your minimum wage, so you tell me the real value of the gallon of oil!
The real ceiling for the oil price is the cost of alternatives; for houses its solar, for transport its electric cars or railways and canals, for aviation its what the richest few will pay, and for the military, its whatever the government will (or can afford to) pay, which could be very high indeed.
Bur,
Bank of America is DEAD WRONG. They've got the liberal/finance view that the "rich" have all the money and if we can tax it or force them to spend it, all will be well. It is the biggest load of crap you will ever hear. Money is a abstract concept. It is a commodity and a medium of exchange that replaced the barter system. All the money is worth exactly what there is to buy with it, and we aren't producing enough value to make the money worth anything.
We haven't been producing enough for years, but the US government and the Big Fat Finance have been covering that fact since the 70s by blowing the real estate bubble. They have FAKED increased value by creating the conditions that have allow a huge inflation in real estate value. While there is no dollar inflation here, it is losing its value abroad, because there is nothing worth buying with it.
Everyone spent ahead and went into debt to buy real estate that is now worth 60 cents on the dollar. Most of that top 20% of the population has no money that isn't already spoken for. They have nothing left to spend. It IS the bottom 80% that is vitally important. The need to be provided with PRODUCTIVE jobs, making things that people need. They need better than flipping burgers and stocking shelves at Walmart.
Of the trillions already spent, how much is allocated to replacing oil, or building public transportation? Not much. Investments now in either area will make huge returns in the future. They will provide good high paying jobs for businesses that will make a profit right here in the US. Instead, they are digging up the roads like madmen, so that I can push my car down a nice smooth surface when the oil runs out.
Regards,
Coal Guy
1) China is full of nice people, but also full of corrupt, communist govt. They lie.
2) Last time I checked everyone around me (the restaurant, my lazy Mexican friends, Bank of America) all took U.S. dollars. Dollars are still worth something
3) There are no real alternatives to gasoline and diesel. I work with the "alternatives" every day. They are lesser fuels ("workable" fuels -- natgas and ethanol primarily) but lesser fuels nevertheless.
4) The top 20% of income earners have no money? You haven't met my parents! :) Not to mention I'm still blowing $2,500 a month. Perhaps the poor aren't all that important to economic life-support.
5) The good paying jobs all left the U.S. when we started borrowing at 375% of U.S. GDP (latest figure). For the same reasons Spain's empire came to an end, UK's empire came to an end, and we're next (to come to an end).
Sir,
Via Instapundit, I give you BizzyBlog's The Year of Going Galt:
http://www.bizzyblog.com/2009/10/23/year-end-deficit-report-part-2-aps-crutsinger-misses-the-year-of-going-galt/
Snippet - "...they took steps that businesspeople, entrepreneurs, and investors ordinarily take when a serious recession takes hold — not hiring, not expanding, letting people go and not replacing them, making worn-out equipment last longer instead of buying new, and others — before the serious recession took hold. They deliberately downsized in response to stated promises by powerful government officials Pelosi, Obama, and Reid to penalize and punish them and the economy as a whole, if and when they gained power.
In other words, enough high producers to make a difference preemptively “went Galt.”"
All I'm saying is that no one is addressing the structural issues. Lesser fuels are better than no fuels. Nat gas and coal can be turned into liquid fuel at a profit right now. We are burning them off in fixed applications (electricity and home heating ) when we should be doing that with solar, wind, nuclear power. There are 800,000,000,000 equivalent barrels of oil shale. That is a 40,000 day supply at the current consumption level. Obama shut down all oil shale research and development projects on public land about 20 milliseconds after he took office.
Dollars are not worthless, but they buy less imported goods (OIL) every day. Your parents have money because they did not spend it. They are the exception. Most of us have seen about 40% of our retirement savings disappear as well as 40% of the value of our houses. There are no pay increases in sight if you are lucky enough to still have a job. People are not going to go further into debt for a long time, so spending will not increase. There won't be a new bubble for a long time, because there much less collateral to borrow against. Absent the bubble to create new money, we are finding out how poor we really are.
If someone from BoA or anywhere else tells you that the answer to improve an economy burdened with debt at 375% of GDP is to create more debt, he is full of S#!T. P. T Barnum and that joker from BoA have a lot in common.
Regards,
Coal Guy
Greg-
Could you comment on what scenarios might arise if the USD collapses and reserve currency status evaporates....in terms of oil imports into the USA.
gaah
Anon @ 11:28
My educated guess:
I think that scenario will unfold over a 5 to 10 year period. The guys that sell us Oil still need us, but only until their domestic consumption overwhelms their ability to export. That will happen country by country, hence the time line.
And it ain't good for the US$ and import prices.
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