n case you passed over this article today in the WSJ: "OPEC Says Market Woes Cloud Output View", OPEC just told you that they cannot increase oil production. Here is the lead to the story:
Dubai, United Arab Emirates – “Damping expectations that it will pump more crude to ease high prices, the Organization of Petroleum Exporting Countries said uncertainties over world economic growth were clouding the outlook for oil demand.” The Wall Street Journal August 14, 2007
OPEC went on to say that they expect demand for their oil to be DOWN next year by 239,000 bpd compared to forecast demand in 2007 (which they have not met), and that the sub-prime problems in the U.S., Blah, Blah, Blah, etc… Prices are over $73 per barrel, U.S. commercial inventories are down about 5% in the past 3 weeks, OECD total inventories as measured in days of supply is nothing short of ALARMING - but we don’t need more oil production because of the sub-prime issues! This would be hilarious if it wasn’t so serious.
I wanted to ask (to whom?) if there was any chance that the decline in world wide oil supplies contributed to the real estate declines and subsequent mortgage defaults… you know, who came first -the chicken or the egg - but at this point I think the subject quite moot.
I have never said this in my blog before, but there is only one conclusion that I can draw from the past 2 years of production data, price signals, and OPEC claiming that we do not need more oil, and it is this: Peak Oil is here.
Mentatt (at) yahoo (dot) com
Wednesday, August 15, 2007
Sunday, August 12, 2007
The U.S. dollar, not so almighty anymore (and it could get MUCH worse)
Central Banks around the world added over $400 billion of “liquidity” (they printed money or bought securities) to the system.
Gold is up 6.8% this year; amazing, considering that gold has increased in price each and every year for the past 6 years. Gold is just another “hard currency”, so said another way the U.S. dollar is down about 6.8% (not exactly, but you get the point) against gold this year, and has been down versus gold for each of the 6 previous years.
Americans bought much less gold bullion, as measured by American Gold Eagle sales, in the first half of 2007 than they did in the first half of 2006. This is not true in the rest of the world (or gold prices would have fallen). The best explanation I have heard for this phenomenon is that American’s have far more faith in their government than citizens of other countries. I do not believe that faith is warranted regarding the American currency. Consequently, it is difficult to believe that the bull market in gold is over when the citizens of the largest economy do not own the metal in proportion to the rest of the world. As a matter of fact, I do not think the bull market in gold will be over until you see people waiting in lines trying to exchange their falling currency for gold.
The Federal Reserve is in a uniquely tough position. If they cut rates to support real estate (and the banking system, the Fed’s only true client) without the concerted effort of the other central banks, the dollar will fall, setting off a round of import inflation, and remember, we import oil, lots of it – at least for now. At some point the Fed is going to stop trying to pay for asset bubbles with a new bubble. Let me refresh your memory: 1998’s Asian Contagion and the Long Term Capital hedge fund crisis brought forth a spigot of liquidity from the Fed which led to the doubling of the NASDAQ stock market over the following 18 months and its subsequent crash. At which point the Fed began to add liquidity until the events of 9/11 at which time the Fed really poured it on, creating the housing bubble of 2001-2006. Now, here we are again but with a BIG difference. The U.S. dollar is going down like a whiskey shot, and the U.S. continues to borrow over $1.1 BILLION per day just to buy oil, and printing more money every day to do so with no hope of getting off this treadmill. The Fed’s past behavior made some real estate speculators very wealthy at the expense of the poor suckers stuck in those previously overvalued homes with mortgages they cannot pay. What a country! Now, what asset are they going to inflate in order to bail out real estate?
This is not to say that gold prices could not fall in the near term with the rest of the markets – it certainly could as investors might need to raise cash to pay for margin calls and sell their precious metals to do so. I do not sell gold bullion, and this is not a recommendation to buy gold bullion. Any investment decision you make you do so entirely on your own. I am precluded from giving specific investment advice in this forum. That is why I do not discuss individual stocks or bonds or make market calls. I can continue to speak in general terms – so let me start with my loathing of the U.S. dollar as a store of value. This disclosure and disclaimer aside, let us move on.
If you believe that the real estate market and the stock market have finished their gyrations and put in a long term bottom and are ready to resume their inexorable climb to “infinity and beyond”, have I got a tooth fairy for you…
Oil prices have slipped from their highs in the upper $70’s, but look at the trend. Oil continues to make higher highs and higher lows, and we are one event, one headline, from $100 - $150 per barrel oil. That won’t do much for housing, but it will do wonders for energy companies of all stripes. I continue to advocate buying energy companies on dips and sell offs and pruning the top performers on rally’s, redeploying to sectors in the energy complex that have not kept the pace. In the near term this is going to take courage, and will at times be met with “buyers remorse” as the housing and mortgage crisis plays out. Due to S.E.C. regulation, I cannot be more specific than this. This is not a recommendation to buy or sell oil futures or options. If you want to talk to me, you know where to reach me.
Important things to know for the next week:
• August 15, 2007 is a big day on Wall Street. That is the day investors must inform the big hedge funds that they intend to withdraw money from their funds.
• Oil inventories and Natural Gas inventory reports from the U.S. E.I.A. will increase in their importance each week through the OPEC meetings. Oil inventories are report each Wednesday and Natural Gas each Thursday, both at 10:30 am
• PPI, CPI, Housing Starts, and Building Permits are all on the economic calendar
Remember, the OPEC meeting is September 11, 2007. If I am correct, they will give some kind of excuse as to why it is not necessary for them to raise oil production - perhaps OPEC will use the U.S. Housing down turn or the market’s recent gyrations as the raison du jour. The bottom line: OPEC will not be able to meet the IEA and EIA call for a 2.2 – 2.5mm bpd increase in production. My bet is 500k at most, and for perhaps 6 months. Considering the declines within non-OPEC producers such as Mexico, Norway, and the U.K. that 500k is the proverbial "drop in the bucket".
Lastly, Chairman Bernake, Secretary Paulson, etc… are all out on the airwaves trying to manipulate you. Remember a couple weeks ago when both of these guys said the mortgage problem was, what was the word? “Contained”? Yes, that was it, “contained”. Now the word on Wall Street is “Contagion”. Announcements come on the front page, retractions on page 33 – and in small print.
Yours for a better world,
Mentatt (at) yahoo (dot) com
Central Banks around the world added over $400 billion of “liquidity” (they printed money or bought securities) to the system.
Gold is up 6.8% this year; amazing, considering that gold has increased in price each and every year for the past 6 years. Gold is just another “hard currency”, so said another way the U.S. dollar is down about 6.8% (not exactly, but you get the point) against gold this year, and has been down versus gold for each of the 6 previous years.
Americans bought much less gold bullion, as measured by American Gold Eagle sales, in the first half of 2007 than they did in the first half of 2006. This is not true in the rest of the world (or gold prices would have fallen). The best explanation I have heard for this phenomenon is that American’s have far more faith in their government than citizens of other countries. I do not believe that faith is warranted regarding the American currency. Consequently, it is difficult to believe that the bull market in gold is over when the citizens of the largest economy do not own the metal in proportion to the rest of the world. As a matter of fact, I do not think the bull market in gold will be over until you see people waiting in lines trying to exchange their falling currency for gold.
The Federal Reserve is in a uniquely tough position. If they cut rates to support real estate (and the banking system, the Fed’s only true client) without the concerted effort of the other central banks, the dollar will fall, setting off a round of import inflation, and remember, we import oil, lots of it – at least for now. At some point the Fed is going to stop trying to pay for asset bubbles with a new bubble. Let me refresh your memory: 1998’s Asian Contagion and the Long Term Capital hedge fund crisis brought forth a spigot of liquidity from the Fed which led to the doubling of the NASDAQ stock market over the following 18 months and its subsequent crash. At which point the Fed began to add liquidity until the events of 9/11 at which time the Fed really poured it on, creating the housing bubble of 2001-2006. Now, here we are again but with a BIG difference. The U.S. dollar is going down like a whiskey shot, and the U.S. continues to borrow over $1.1 BILLION per day just to buy oil, and printing more money every day to do so with no hope of getting off this treadmill. The Fed’s past behavior made some real estate speculators very wealthy at the expense of the poor suckers stuck in those previously overvalued homes with mortgages they cannot pay. What a country! Now, what asset are they going to inflate in order to bail out real estate?
This is not to say that gold prices could not fall in the near term with the rest of the markets – it certainly could as investors might need to raise cash to pay for margin calls and sell their precious metals to do so. I do not sell gold bullion, and this is not a recommendation to buy gold bullion. Any investment decision you make you do so entirely on your own. I am precluded from giving specific investment advice in this forum. That is why I do not discuss individual stocks or bonds or make market calls. I can continue to speak in general terms – so let me start with my loathing of the U.S. dollar as a store of value. This disclosure and disclaimer aside, let us move on.
If you believe that the real estate market and the stock market have finished their gyrations and put in a long term bottom and are ready to resume their inexorable climb to “infinity and beyond”, have I got a tooth fairy for you…
Oil prices have slipped from their highs in the upper $70’s, but look at the trend. Oil continues to make higher highs and higher lows, and we are one event, one headline, from $100 - $150 per barrel oil. That won’t do much for housing, but it will do wonders for energy companies of all stripes. I continue to advocate buying energy companies on dips and sell offs and pruning the top performers on rally’s, redeploying to sectors in the energy complex that have not kept the pace. In the near term this is going to take courage, and will at times be met with “buyers remorse” as the housing and mortgage crisis plays out. Due to S.E.C. regulation, I cannot be more specific than this. This is not a recommendation to buy or sell oil futures or options. If you want to talk to me, you know where to reach me.
Important things to know for the next week:
• August 15, 2007 is a big day on Wall Street. That is the day investors must inform the big hedge funds that they intend to withdraw money from their funds.
• Oil inventories and Natural Gas inventory reports from the U.S. E.I.A. will increase in their importance each week through the OPEC meetings. Oil inventories are report each Wednesday and Natural Gas each Thursday, both at 10:30 am
• PPI, CPI, Housing Starts, and Building Permits are all on the economic calendar
Remember, the OPEC meeting is September 11, 2007. If I am correct, they will give some kind of excuse as to why it is not necessary for them to raise oil production - perhaps OPEC will use the U.S. Housing down turn or the market’s recent gyrations as the raison du jour. The bottom line: OPEC will not be able to meet the IEA and EIA call for a 2.2 – 2.5mm bpd increase in production. My bet is 500k at most, and for perhaps 6 months. Considering the declines within non-OPEC producers such as Mexico, Norway, and the U.K. that 500k is the proverbial "drop in the bucket".
Lastly, Chairman Bernake, Secretary Paulson, etc… are all out on the airwaves trying to manipulate you. Remember a couple weeks ago when both of these guys said the mortgage problem was, what was the word? “Contained”? Yes, that was it, “contained”. Now the word on Wall Street is “Contagion”. Announcements come on the front page, retractions on page 33 – and in small print.
Yours for a better world,
Mentatt (at) yahoo (dot) com
Wednesday, August 8, 2007
“Yes, but how was the play, Mrs. Lincoln?” - Bradley Fallon
The monthly production numbers for world oil production May 2007 were released yesterday by the U.S. Department of Energy. There is no need for hyperbole. The data are terrible. So without further ado:
Worldwide Crude & Condensate production averaged 73,063,000 bpd for May 2007. This is down from the peak month of May 2005 when production averaged 74,272,000
Worldwide “All Liquids” production averaged 84,175,000 for May 2007. This is down from the peak month of July 2006 (said month was an anomaly within 2006) when production averaged 85,392,000
To summarize:
Crude & Condensate
2005 average crude and condensate production = 73,791,000
2006 average crude and condensate production = 73,546,000
2007 average crude and condensate production = 73,282,000, January - May data
All Liquids
2005 All liquids = 84,542,000
2006 All liquids = 84,481,000
2007 All liquids = 84,171,000, January - May data
The trend remains – and it is ominous. We now have 2 full years of data. During this time prices have increased by 50% or more, depending upon the contract one uses as the measurement. Producers have been given great incentive, and yet have been unable to deliver increased production. Although we cannot know with certainty that OPEC has peaked until at least 1 more full year’s worth of data is available, the non-OPEC production certainly appears to have peaked indeed. Further, if the OPEC meetings of September 11, 2007 and December 5, 2007 do not result in an actual increase in production, for investment purposes at least one would have to assume, without certainty, that OPEC has in fact peaked. On the other hand, if 2.5 million additional barrels per day comes pouring out of Saudi Arabia in the coming months, as the EIA and the IEA are calling for but that many of us are saying is impossible... well, we would have a lot of egg on our faces - the truth will out in the next few months.
The decline in worldwide production of oil also seems to be showing up in various inventory reports. U.S. commercial stocks declined over 6,000,000 barrels last week and over 4,000,000 barrels in this morning’s weekly report. A few more weeks like that and there won't be much for me to talk about on this blog anymore. Remember all those guys on CNBC claiming we’ve got too much inventory sloshing around? Where are they now? I guess their 15 minutes of fame is up.
What does it all mean? No matter how you, or the EIA, or OPEC, or CERA or I spin this, there are 371,000 fewer barrels per day available to the import market, or roughly 1%, than 2 years ago. Considering that the importing nations expect supplies to increase 2% per year, this is a significant event. If this continues, this is going to make some people quite wealthy, but will be an unmitigated financial disaster for most folks. To my mind, in the absence of a worldwide recession the U.S. import crisis could come at any moment, and if you aren’t worried about supplies next winter, you should be. Either that or it is an egg facial for me.
Yours for a better world,
Mentatt (at) yahoo (dot) com
The monthly production numbers for world oil production May 2007 were released yesterday by the U.S. Department of Energy. There is no need for hyperbole. The data are terrible. So without further ado:
Worldwide Crude & Condensate production averaged 73,063,000 bpd for May 2007. This is down from the peak month of May 2005 when production averaged 74,272,000
Worldwide “All Liquids” production averaged 84,175,000 for May 2007. This is down from the peak month of July 2006 (said month was an anomaly within 2006) when production averaged 85,392,000
To summarize:
Crude & Condensate
2005 average crude and condensate production = 73,791,000
2006 average crude and condensate production = 73,546,000
2007 average crude and condensate production = 73,282,000, January - May data
All Liquids
2005 All liquids = 84,542,000
2006 All liquids = 84,481,000
2007 All liquids = 84,171,000, January - May data
The trend remains – and it is ominous. We now have 2 full years of data. During this time prices have increased by 50% or more, depending upon the contract one uses as the measurement. Producers have been given great incentive, and yet have been unable to deliver increased production. Although we cannot know with certainty that OPEC has peaked until at least 1 more full year’s worth of data is available, the non-OPEC production certainly appears to have peaked indeed. Further, if the OPEC meetings of September 11, 2007 and December 5, 2007 do not result in an actual increase in production, for investment purposes at least one would have to assume, without certainty, that OPEC has in fact peaked. On the other hand, if 2.5 million additional barrels per day comes pouring out of Saudi Arabia in the coming months, as the EIA and the IEA are calling for but that many of us are saying is impossible... well, we would have a lot of egg on our faces - the truth will out in the next few months.
The decline in worldwide production of oil also seems to be showing up in various inventory reports. U.S. commercial stocks declined over 6,000,000 barrels last week and over 4,000,000 barrels in this morning’s weekly report. A few more weeks like that and there won't be much for me to talk about on this blog anymore. Remember all those guys on CNBC claiming we’ve got too much inventory sloshing around? Where are they now? I guess their 15 minutes of fame is up.
What does it all mean? No matter how you, or the EIA, or OPEC, or CERA or I spin this, there are 371,000 fewer barrels per day available to the import market, or roughly 1%, than 2 years ago. Considering that the importing nations expect supplies to increase 2% per year, this is a significant event. If this continues, this is going to make some people quite wealthy, but will be an unmitigated financial disaster for most folks. To my mind, in the absence of a worldwide recession the U.S. import crisis could come at any moment, and if you aren’t worried about supplies next winter, you should be. Either that or it is an egg facial for me.
Yours for a better world,
Mentatt (at) yahoo (dot) com
Monday, August 6, 2007
Food and Fuel
Wheat hit a new record today:
“Wheat rose to a record in Chicago on speculation that demand for U.S. inventories will climb after unfavorable weather hurt crops in Europe.” - Bloomberg News, 8.6.07
Soybeans fell 1.3% today, but are still up 42% in the past year.
Corn has been down of late, but look for corn to catch up over the next several months – unless the federal government takes away its ethanol subsidies (I have a better chance of pinch-hitting for A. Rod).
You see, farmers planted more acres of corn than at anytime in the past 63 years to take advantage of that subsidy and the anticipated demand from the ethanol plants due to come on line. Thoses extra corn acres came at the expense of other food crops.
Am I the only person concerned about this? Government subsidies are “incentivising” farmers to grow more corn (animal feed) for fuel while “disincentivising” farmers from growing food for people. Does anyone at the Department of Agriculture have the temerity to stand up to the Department of Energy? We pay them for this, don’t we?
Look, I am a hardcore capitalist and a life long Republican (once upon a time I even held a local elective office – ouch!), but doesn’t anybody have a problem with subsidizing billionaire’s jet fuel (indirectly, I know but there it is, just the same) at the expense of poor folk’s bread, milk, and eggs? This is an unqualified disgrace.
And it won’t do thing about our long term energy problems.
Yours for a better world,
Mentatt (at) yahoo(dot).com
Wheat hit a new record today:
“Wheat rose to a record in Chicago on speculation that demand for U.S. inventories will climb after unfavorable weather hurt crops in Europe.” - Bloomberg News, 8.6.07
Soybeans fell 1.3% today, but are still up 42% in the past year.
Corn has been down of late, but look for corn to catch up over the next several months – unless the federal government takes away its ethanol subsidies (I have a better chance of pinch-hitting for A. Rod).
You see, farmers planted more acres of corn than at anytime in the past 63 years to take advantage of that subsidy and the anticipated demand from the ethanol plants due to come on line. Thoses extra corn acres came at the expense of other food crops.
Am I the only person concerned about this? Government subsidies are “incentivising” farmers to grow more corn (animal feed) for fuel while “disincentivising” farmers from growing food for people. Does anyone at the Department of Agriculture have the temerity to stand up to the Department of Energy? We pay them for this, don’t we?
Look, I am a hardcore capitalist and a life long Republican (once upon a time I even held a local elective office – ouch!), but doesn’t anybody have a problem with subsidizing billionaire’s jet fuel (indirectly, I know but there it is, just the same) at the expense of poor folk’s bread, milk, and eggs? This is an unqualified disgrace.
And it won’t do thing about our long term energy problems.
Yours for a better world,
Mentatt (at) yahoo(dot).com
Food and Fuel
Wheat hit a new record today:
“Wheat rose to a record in Chicago on speculation that demand for U.S. inventories will climb after unfavorable weather hurt crops in Europe.” - Bloomberg News, 8.6.07
Soybeans fell 1.3% today, but are still up 42% in the past year.
Corn has been down of late, but look for corn to catch up over the next several months – unless the federal government takes away its ethanol subsidies (I have a better chance of pinch-hitting for A. Rod).
You see, farmers planted more acres of corn than at anytime in the past 63 years to take advantage of that subsidy and the anticipated demand from the ethanol plants due to come on line. Thoses extra corn acres came at the expense of other food crops.
Am I the only person concerned about this? Government subsidies are “incentivising” farmers to grow more corn (animal feed) for fuel while “disincentivising” farmers from growing food for people. Does anyone at the Department of Agriculture have the temerity to stand up to the Department of Energy? We pay them for this, don’t we?
Look, I am a hardcore capitalist, but doesn’t anybody have a problem with subsidizing billionaire’s jet fuel (indirectly, I know, but there it is just the same) at the expense of poor folk’s bread, milk, and eggs? This is an unqualified disgrace.
And it won’t do a thing about our long term energy problems.
Yours for a better world,
Mentatt (at) yahoo(dot).com
Wheat hit a new record today:
“Wheat rose to a record in Chicago on speculation that demand for U.S. inventories will climb after unfavorable weather hurt crops in Europe.” - Bloomberg News, 8.6.07
Soybeans fell 1.3% today, but are still up 42% in the past year.
Corn has been down of late, but look for corn to catch up over the next several months – unless the federal government takes away its ethanol subsidies (I have a better chance of pinch-hitting for A. Rod).
You see, farmers planted more acres of corn than at anytime in the past 63 years to take advantage of that subsidy and the anticipated demand from the ethanol plants due to come on line. Thoses extra corn acres came at the expense of other food crops.
Am I the only person concerned about this? Government subsidies are “incentivising” farmers to grow more corn (animal feed) for fuel while “disincentivising” farmers from growing food for people. Does anyone at the Department of Agriculture have the temerity to stand up to the Department of Energy? We pay them for this, don’t we?
Look, I am a hardcore capitalist, but doesn’t anybody have a problem with subsidizing billionaire’s jet fuel (indirectly, I know, but there it is just the same) at the expense of poor folk’s bread, milk, and eggs? This is an unqualified disgrace.
And it won’t do a thing about our long term energy problems.
Yours for a better world,
Mentatt (at) yahoo(dot).com
Friday, August 3, 2007
Ka-BOOM!!
The U.S. equity market had a rough day today, to say the least. Just when we thought it was safe to go back in the water…
It is starting to dawn on the market that the housing bubble’s bursting is going to get a lot of us wet. But some we will be drier than others.
Oil & Natural Gas (“NG”) producers, and especially energy service companies, have been beaten down with the rest of the crowd. The fear is that oil demand will decline with an economic contraction. Egh! Wrong! Thanks for playing. For better or worse, energy demand is going to be limited by supply, not world economic growth.
As the holder of a securities license, and as head of a NASD member firm, I am prohibited from making specific recommendations in this forum. I CAN say that it is my opinion that energy companies are being priced as if oil was already $40 - $45 per barrel, when in fact oil is $75 per barrel. Some of this is because NG is, in fact, trading at little more than $40 a barrel of oil equivalent (“BEO”) and uranium is priced even worse – at $3 BOE, but even though we will heading into year end with NG reservoirs full, I will tell you one absolute, unequivocal truth: Winter is coming. And, in fact, oil prices in the spot market may have gotten ahead of themselves; but take a look out several months in the oil futures market and see if the commodity market thinks the sell off in energy equities is warranted.
Energy consumption is higher in the 3rd quarter than the 2nd, and higher in the 4th quarter than the 3rd. It is my opinion that 2007 will be no different, housing bubble or no housing bubble, and that OPEC will not be able to meet the EIA and IEA calls in the 4th quarter. Energy, precious metals, and agricultural assets are attractive (and they are more so today), and everything even remotely related to housing is doomed for the next generation or so, and I mean that very literally.
Keep your eye on the barrel, er, ball.
Mentatt (at) yahoo.com
The U.S. equity market had a rough day today, to say the least. Just when we thought it was safe to go back in the water…
It is starting to dawn on the market that the housing bubble’s bursting is going to get a lot of us wet. But some we will be drier than others.
Oil & Natural Gas (“NG”) producers, and especially energy service companies, have been beaten down with the rest of the crowd. The fear is that oil demand will decline with an economic contraction. Egh! Wrong! Thanks for playing. For better or worse, energy demand is going to be limited by supply, not world economic growth.
As the holder of a securities license, and as head of a NASD member firm, I am prohibited from making specific recommendations in this forum. I CAN say that it is my opinion that energy companies are being priced as if oil was already $40 - $45 per barrel, when in fact oil is $75 per barrel. Some of this is because NG is, in fact, trading at little more than $40 a barrel of oil equivalent (“BEO”) and uranium is priced even worse – at $3 BOE, but even though we will heading into year end with NG reservoirs full, I will tell you one absolute, unequivocal truth: Winter is coming. And, in fact, oil prices in the spot market may have gotten ahead of themselves; but take a look out several months in the oil futures market and see if the commodity market thinks the sell off in energy equities is warranted.
Energy consumption is higher in the 3rd quarter than the 2nd, and higher in the 4th quarter than the 3rd. It is my opinion that 2007 will be no different, housing bubble or no housing bubble, and that OPEC will not be able to meet the EIA and IEA calls in the 4th quarter. Energy, precious metals, and agricultural assets are attractive (and they are more so today), and everything even remotely related to housing is doomed for the next generation or so, and I mean that very literally.
Keep your eye on the barrel, er, ball.
Mentatt (at) yahoo.com
Thursday, August 2, 2007
The Four Kinds of Lies, cont… But first,
Quote of the day:
“Some people worry about peak oil. I worry more about peak grain.” - Niall Ferguson, Professor of History at Harvard University
As I have posted before, there are now 4 kinds of lies: Mine, yours, statistics, and OPEC’s.
Quickly, I want to discuss statistics. Today, I read that housing prices have fallen 2.8% nationally, “the worst decline since the 1930’s”. I can’t measure the aforementioned quote, but I can take the 2.8% to task.
To arrive at the “2.8%” the authors compared median prices in May 2007 to My 2006. Median is defined as the point at which 50% sold for a higher price and 50% for a lower price. All else being equal, this is as proper a method as any. But, things are not equal. The sub-prime market has imploded in the last 6 months. The buyers that the sub-prime lenders financed were disproportionally represented within the lower 50%. Removing these moves the median point higher than it would otherwise be. However, the mainstream media is more than aware of the American public’s math phobia, and were at little risk of being found out.
Let us move on to the really important liar – OPEC.
OPEC is a cartel, and cartels are of little consequence if they cannot set prices in BOTH directions (up and down). The EIA and IEA both project that OPEC’s production will grow by roughly 2.5 MILLION BARRELS PER DAY IN THE FOURTH QUARTER, but this is very, very, very unlikely. From this point forward, OPEC is likely to use one of the 2 methods of price influence that it has left in its arsenal. Jawboning. OPEC is powerless to lower prices by increasing production, a political weapon they used so effectively against the Soviet Union. They do retain the power to cut production – but only in a perfect world. Prices are now so high that there is just too much incentive to cheat for each individual member. As Dr. Ken Deffeyes of Princeton University famously quipped:
“The good news is that OPEC no longer controls oil prices. The bad news is that NO ONE controls oil prices.” (Emphasis added.)
The world market is now fully in control of oil prices, not OPEC, and when the market comes to the full realization that OPEC can no longer raise production for any meaningful length of time (which could very well come this fall with the advent of the OPEC meetings and the OECD’s call for increased production unmet), and that production will begin to decline permanently, the reaction in the financial markets will be overwhelming.
The financial markets are priced, and our economies structured upon the expectation of continuous growth in the economy, money supply, earnings, consumption, oil supplies, inflation, etc… With oil supplies decreasing rather than increasing this expectation will be replaced by the reality of an environment in which corporate earnings and economic growth will no longer be possible. In such an environment would you pay 18X earnings for a stock? Would you even pay 1X book value? I think not. Markets will have to “re-price” this new condition - that GE, Microsoft, 3M, Ford, Pfizer, etc… will not only be unable to grow their earnings, but that their earnings will go into a sort of “terminal decline”. Not only will stock prices be “adjusted” to this new condition, but the debt markets - treasury, municipal, and corporate bonds – and real estate, will get an “adjustment” as well. Did I mention the U.S. Dollar? Those of you reading my rants for the past couple of years know how I feel about the Dollar. So far, my concerns have proved well founded.
Think about the political consequences of 95 million workers opening their 401k statements post Peak Oil… seeing the aforementioned “adjustment”… and then looking for someone to blame.
No, this will not happen all at once, and as it unfolds the various and sundry special interests will do everything within their power to manipulate the less informed (and in the short term it may work to some extent) with their particular standard program of denial (remember all those groups in the 1980’s and ‘90’s working the public’s perception of global warming?). Even after this adjustment period is underway there are some things you can do to improve your personal and financial circumstances. There will be a tremendous effort to manipulate you, and not a shred of that effort will be in your best interest, as the interests will be looking to sell assets to the uninformed without which there would not be a market. Think of the South Florida developer retaining the services of a public relations firm. The PR firm’s job is to plant stories in the media to manipulate the public, the developers job is to sell units – and it is your job not to be manipulated into doing things that are not in your best interests.
Remember, the definition of money as a: medium of exchange and standard and store of value. In the permanently contracting economy of the world’s largest debtor nation, what are the impacts upon the fiat currency (the U.S. Dollar) as a store value? When the U.S. Dollar loses its hegemony, what will th U.S. trade in the world markets in exchange for imported Oil? Will you wait until these circumstances overtake you and your life’s work or will you reject the attempts to manipulate you?
Yours for a better world,
Mentatt (at) yahoo.com
Quote of the day:
“Some people worry about peak oil. I worry more about peak grain.” - Niall Ferguson, Professor of History at Harvard University
As I have posted before, there are now 4 kinds of lies: Mine, yours, statistics, and OPEC’s.
Quickly, I want to discuss statistics. Today, I read that housing prices have fallen 2.8% nationally, “the worst decline since the 1930’s”. I can’t measure the aforementioned quote, but I can take the 2.8% to task.
To arrive at the “2.8%” the authors compared median prices in May 2007 to My 2006. Median is defined as the point at which 50% sold for a higher price and 50% for a lower price. All else being equal, this is as proper a method as any. But, things are not equal. The sub-prime market has imploded in the last 6 months. The buyers that the sub-prime lenders financed were disproportionally represented within the lower 50%. Removing these moves the median point higher than it would otherwise be. However, the mainstream media is more than aware of the American public’s math phobia, and were at little risk of being found out.
Let us move on to the really important liar – OPEC.
OPEC is a cartel, and cartels are of little consequence if they cannot set prices in BOTH directions (up and down). The EIA and IEA both project that OPEC’s production will grow by roughly 2.5 MILLION BARRELS PER DAY IN THE FOURTH QUARTER, but this is very, very, very unlikely. From this point forward, OPEC is likely to use one of the 2 methods of price influence that it has left in its arsenal. Jawboning. OPEC is powerless to lower prices by increasing production, a political weapon they used so effectively against the Soviet Union. They do retain the power to cut production – but only in a perfect world. Prices are now so high that there is just too much incentive to cheat for each individual member. As Dr. Ken Deffeyes of Princeton University famously quipped:
“The good news is that OPEC no longer controls oil prices. The bad news is that NO ONE controls oil prices.” (Emphasis added.)
The world market is now fully in control of oil prices, not OPEC, and when the market comes to the full realization that OPEC can no longer raise production for any meaningful length of time (which could very well come this fall with the advent of the OPEC meetings and the OECD’s call for increased production unmet), and that production will begin to decline permanently, the reaction in the financial markets will be overwhelming.
The financial markets are priced, and our economies structured upon the expectation of continuous growth in the economy, money supply, earnings, consumption, oil supplies, inflation, etc… With oil supplies decreasing rather than increasing this expectation will be replaced by the reality of an environment in which corporate earnings and economic growth will no longer be possible. In such an environment would you pay 18X earnings for a stock? Would you even pay 1X book value? I think not. Markets will have to “re-price” this new condition - that GE, Microsoft, 3M, Ford, Pfizer, etc… will not only be unable to grow their earnings, but that their earnings will go into a sort of “terminal decline”. Not only will stock prices be “adjusted” to this new condition, but the debt markets - treasury, municipal, and corporate bonds – and real estate, will get an “adjustment” as well. Did I mention the U.S. Dollar? Those of you reading my rants for the past couple of years know how I feel about the Dollar. So far, my concerns have proved well founded.
Think about the political consequences of 95 million workers opening their 401k statements post Peak Oil… seeing the aforementioned “adjustment”… and then looking for someone to blame.
No, this will not happen all at once, and as it unfolds the various and sundry special interests will do everything within their power to manipulate the less informed (and in the short term it may work to some extent) with their particular standard program of denial (remember all those groups in the 1980’s and ‘90’s working the public’s perception of global warming?). Even after this adjustment period is underway there are some things you can do to improve your personal and financial circumstances. There will be a tremendous effort to manipulate you, and not a shred of that effort will be in your best interest, as the interests will be looking to sell assets to the uninformed without which there would not be a market. Think of the South Florida developer retaining the services of a public relations firm. The PR firm’s job is to plant stories in the media to manipulate the public, the developers job is to sell units – and it is your job not to be manipulated into doing things that are not in your best interests.
Remember, the definition of money as a: medium of exchange and standard and store of value. In the permanently contracting economy of the world’s largest debtor nation, what are the impacts upon the fiat currency (the U.S. Dollar) as a store value? When the U.S. Dollar loses its hegemony, what will th U.S. trade in the world markets in exchange for imported Oil? Will you wait until these circumstances overtake you and your life’s work or will you reject the attempts to manipulate you?
Yours for a better world,
Mentatt (at) yahoo.com
Subscribe to:
Posts (Atom)