Posts
April 6, 2010
Peak oil man shifts focus to peak price, demand
"Peak oil drives prices up in the first place. It has its own mechanism. We're sort of at peak demand right now," Campbell told Reuters from his home in the village of Ballydehob, West Cork. "I think presently the price limit is about $100."
For what it is worth, I similarly shifted my mindset back in November. I'm not embracing the stagflation story all that much these days. I do think the stagnation story is alive and well though.
November 9, 2009
I'm Deflationary
As such, I am changing my short-term inflation mood in the upper left hand corner of my blog to show my deflationary bias. That doesn't mean that I think oil can't make it to $100. Who knows? I don't think it will stay there if it does though, any more than it could stay at $140 the last time.
It eventually all comes down to supply and demand. We built a supply side based on never ending debt-based demand. Now we're watching it all fall apart.
The WTI spot price was $79.44 that day. We're trading slightly below that level right now. In my opinion, the ride up is probably about over.
I have added a 2nd order polynomial trend line in the spirit of previous stimulus physics thoughts. I would argue that the price of oil has certainly been stimulated. The trend line shows one possible outcome out of many. I'm certainly not trying to predict the future price of oil based on a trend line. Even if I am right to think the price of oil is high, it could simply trend sideways for many years.
July 23, 2010
Brent oil price hangs at $77 as analysts expect declines
“We are now at the upper end of the oil futures trading range and should come off, unless something unexpected happens,” said Carsten Fritsch, a Commerzbank AG analyst in Germany. “Fundamentals still look pretty poor and don’t justify oil prices close to $80 a barrel.”
Knowing the future price of oil would certainly help out my investment decisions. If the price of oil was to crash from these levels (again), then it would have far reaching consequences for all those who felt hoarding commodities was a great wealth protection strategy. Take this person for instance.
He doesn't even mention the power of modern mining equipment in his analysis. In 2008, the world produced 15,400,000 metric tons of copper. That's 5 pounds of copper produced in just one year for every man, woman, and child on this planet. The United States consumed 2,220,000 metric tons in 1966. It consumed just 2,020,000 metric tons in 2008. Copper is part of the Chinese economic miracle story. In order to invest at these prices, you better believe in the miracle. I do not.
I share my disbelief with Jim Chanos, the investor who built a large fortune by betting against Enron.
April 08, 2010
Anglo American Says Copper ‘Vulnerable’ to Surprises (Update3)
China is “on a treadmill to hell,” said Chanos, the founder of Kynikos Associates Ltd. “They can’t afford to get off this heroin of property development. It is the only thing keeping the economic growth numbers growing.”
See Also:
Trend Line Disclaimer
Source Data:
EIA: Crude Oil Product Supplied
EIA: Spot Prices
St. Louis Fed: Population
14 comments:
Stagflationary news:
http://www.telegraph.co.uk/finance/globalbusiness/7909557/India-warned-of-stagflation-risk-as-price-of-food-soars.html
And here's another piece by The Blessed Ambrose:
http://www.telegraph.co.uk/finance/comment/ambroseevans_pritchard/7909432/The-Death-of-Paper-Money.html
dearieme,
Thanks for the links. I may do a summary post in honor of Ambrose Evans-Pritchard soon. Here's another link.
Stress-testing Europe's banks won't stave off a deflationary vortex
http://www.telegraph.co.uk/finance/comment/ambroseevans_pritchard/7897304/Stress-testing-Europes-banks-wont-stave-off-a-deflationary-vortex.html
Heaven help us all if I adding deflationary vortex trend lines to my charts, lol. Sigh.
If India slams on the brakes to control the price of food (as seen in your links) and China hits the real estate wall, things will get interesting.
That said, I only lean towards deflation. I'd be a fool to think I know for sure. It isn't like I've ditched the limited inflation protection that TIPS and I-Bonds offer.
P.S. I found no comfort in the books being reprinted in your links, nor did I find comfort in grand pianos being a form of currency should it all hit the fan. That said, I do have a piano. Too bad it won't fit in my "Apocalypse Pantry".
"Heaven help us all if I adding deflationary vortex trend lines to my charts, lol. Sigh."
Good grief. I was trying to decide between "add" and "start adding". I subconsciously opted for a combination of the two. D'oh!
Mish is in fine form this morning.
Money Supply Divergence - TMS1 vs. TMS2 vs. M2 - What does it Mean?
The question consumers face is whether to lock up deposits for a year at 1.5% or shift money to savings accounts at 1.3% as CDs expire. Is the .2% difference commensurate with the risk?
I do not think so even though I sit squarely on the deflation side. So, what's the average person to think?
Moreover, the same analysis holds true for 5 year CDs. Does anyone want to tie up money for 5 years at 3%?
Most don't. So instead of rolling over CDs the money goes into savings accounts hoping for better rates down the road.
"Hoping" has been a lousy strategy for the last decade. I opted for a bird in the hand when I bought the 30-year TIPS back in February. My "wall of worry" was that real yields could die just like they did on I-Bonds. You pretty much have to be a bear to lock in relative safety for 30 years. I've been a bear for 6 years so far though. Go figure.
You might enjoy a view from a British paper that isn't the Telegraph. From The Independent recently:
"...the current multinational crisis isn't a crisis of capitalism but a crisis of democracy. Everyone seems to want more democracy but that's what's got us into this mess. Over the last 100 years, the public has realised (as the old Scots economist had it) that it can vote itself largesse from the public purse.
dearieme,
Great quote. However...
Must we choose between a crisis in capitalism and a crisis in democracy? There seems to be pleny of crisis to go around!
Hmmm. I don't see it as a crisis in capitalism, nor do I see it as a crisis in democracy.
I see it as a crisis in corporatism and demagogy.
Crisis in demagogy...
It is true that we cannot depend on government alone to create jobs or long-term growth. But at this particular moment, only government can provide the short-term boost necessary to lift us from a recession this deep and severe. Only government can break the cycle that is crippling our economy, where a lack of spending leads to lost jobs, which leads to even less spending, where an inability to lend and borrow stops growth and leads to even less credit.
That's why we need to act boldly and act now to reverse these cycles. That's why we need to put money in the pockets of the American people, create new jobs, and invest in our future. That's why we need to restart the flow of credit and restore the rules of the road that will ensure a crisis like this never happens again. - Barack Obama, January 8, 2009
And how does the government put money in the pockets of the American people in the aftermath of a credit crisis you might ask? Simple! We'll borrow money from anyone and then offer the American people a portion of it back. There won't be any unintended consequences either! Woohoo!
WTI Crude Oil Spot Price
January 8, 2009: $41.68
July 26, 2010: $78.98
That's an 89% increase.
That's okay though because some American people have some money that they wouldn't normally have. There aren't more jobs yet and we haven't really invested in the future all that much, but I'm sure it is coming soon!
I just re-bought into my dividend paying strategy, a lot of that is Canadian oil and gas. So, of course, oil will tank instead of heading sideways...LOL.
Coba
Since I just want the divvies, I can always short the market to take some of the sting of any losses...(brave talk now, I will cry later.)
Coba,
The higher oil goes, the harder it can fall.
From this height, I think the downside is probably somewhat limited though. I certainly wouldn't heckle your dividend paying strategy based on this.
WTI crude price hit $145 in July 2008. It bottomed at about $30 in December 2008. The midpoint between the two extremes is actually higher than where we are now.
That said, the markets don't care about midpoints all that much. Anything can happen.
Cheery bugger, Ambrose, isn't he?
"As David Rosenberg at Gluskin Sheff reminds us eloquently every week, the bond markets are telling us that we are already in a deep and intractable depression – which does not preclude Japanese-style rallies, technical recoveries, and bursts of growth, all within a Kondratieff Winter.
....
....
....
Then sit in a deep leather arm-chair with a good Calvados, listen to Bach Fugues, and think."
dearieme,
That's it. My next post will honor the Ambrose's of the world.
Anonymous,
Interesting thought experiment. I like that it accounts for "most likely something would give far before that price level".
Post a Comment