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Page added on February 2, 2016
Oil-based Economies Collapsing And That’s Great For America
With oil hovering around $30 a barrel, commodities prices in free fall, and China continuing to confront a series of market-rattling growing pains, global equities have entered full correction mode. The commodities-based global economy that has developed over the past 20 plus years is collapsing, and that’s a great thing over the long run for America and investors.
Indeed, what we are seeing today could be the first phase of an eventual return to normality: A return to a time before China’s unsustainable economic surge, combined with its thirst for commodities, enormously distorted the prices of raw materials and energy resources, helping to prop up a host of troublesome regimes around the world, from Russia, to Saudi Arabia, to Venezuela while giving China outsize influence in world affairs.
Think about it this way: Who are some of the biggest immediate and long-term losers out of this collapse of global commodities prices?
- Vladimir Putin
- Repressive regimes across the Middle East and Africa.
- Shale oil companies using environmentally damaging processes like fracking.
- Commodities-focused hedge-fund investors
- Wall Street investment banks holding large bond issuances from commodity-based economies and companies
Does anyone feel sorry for these people? Hardly.
The collapse of the commodities-based economic model means that markets can once again more fully reward those who deserve it the most: The people and companies that, inspired by a unique vision, create innovative products and services that transform our everyday lives. We’re moving back to a global economic model that is more purely driven by skills, knowledge, innovation and technology, packaged under a transparent rule of law and supported by educated consumers.
At the same time, unstable nations and despots that owe their influence to the simple fact that they have access to large oil and commodity reserves will see their power considerably diminished.
A good illustration of this is a story that was a bit of an afterthought as markets raged in recent weeks. The U.S. recently delivered its first oil shipment to Europe in over 40 years, an important development, since Europe is almost totally reliant on Russia for energy sources. This dependence has tilted the balance of power in Russia’s favor, filling its coffers with oil money and fueling Putin’s increasingly aggressive posture, as evidenced by the bloodshed in Ukraine and the annexation of Crimea. If Europe has other energy options, Putin becomes marginalized, which is undoubtedly a positive development.
China’s slowdown, meanwhile, is also driving this potential return to normality. Make no mistake, the Chinese growth story is still intact, but it’s very clearly entering a new era, one characterized by lower, slower and more modest growth rates. Some of the reasons behind this are well-documented, from a struggle to transition from an export-based to a consumption-based economy, to real estate bubbles caused by rampant overbuilding.
Another, largely unnoticed factor has played a part as well. China has systematically sought to drive away its wealthiest citizens. This effort, ostensibly, flows from an anti-corruption crackdown aimed at reducing bribery and other forms of abuse of power. Whether such a crackdown is genuine or an excuse to further consolidate power at the government’s highest levels is an interesting question. Whatever the case, it has resulted in a huge, destabilizing capital flight out of China, with the rich leaving and finding homes in Europe or the U.S.
For capitalism to work effectively economic stratifications must exist. They give many segments of the population upward social mobility goals, and in the process, drive a greater level of innovation, productivity and hard work from the bottom up. By eliminating its super-rich, China might become a ‘fairer’ society, but it certainly won’t become a more productive one, which will continue to result in a drag on “one-trick pony” commodity-producing markets like Saudi Arabia, Venezuela, Brazil, India and Russia, among others, that rely on runaway Chinese economic growth.
The obvious winners under the new normal we are transitioning to will the Amazons, Apple AAPL +0.00%, Netflix NFLX -3.30%, Facebook FB -0.88% andGoogles of the world, entrepreneurial businesses that transform the way we consume goods and services across the board, and redefine how we live.
The biggest winner, however, will be the United States. Despite its flaws and deep political divisions, America is and will continue to be the premier destination for capital, consumption and game-changing technological innovations. Investors should consider taking advantage of this temporary period of market dislocation to re-align their portfolios to reflect this new reality.
Ross Gerber is CEO and president of Santa Monica, Calif-based Gerber Kawasaki, an investment advisory with approximately $410 million in assets under advisement. Clients and employees may own positions in various companies mentioned in the article, but readers shouldn’t buy anything without doing their own research.
26 Comments on "Oil-based Economies Collapsing And That’s Great For America"
Davy on Tue, 2nd Feb 2016 3:01 pm
I felt like sticking my finger down my throat and causing a vomit reflex after reading this. This is ugly American propaganda at its best.
Apneaman on Tue, 2nd Feb 2016 3:07 pm
Do us a favor and shove your whole arm in there……permanently.
Davy on Tue, 2nd Feb 2016 3:18 pm
Looks like the fed is gearing up for something worse:
http://www.zerohedge.com/news/2016-02-02/negative-interest-rates-already-fed’s-official-scenario
Bob Owens on Tue, 2nd Feb 2016 3:24 pm
What a glorious dream! Too bad it isn’t real. While all this chaos is going on, the poor working slob will rise up and arrive in a shiny new world with eternal peace – NOT!
paulo1 on Tue, 2nd Feb 2016 3:26 pm
Wow, I assume Aps comment is simply a wholehearted, “Well said, Davy. The article was so bad one really needs to shove an arm down one’s throat to do it justice”. I agree.
Davy, it is very ugly propaganda. I assume Forbes readers won’t vacation or ski in Canada this year because we are one of those ‘bad countries’ getting hurt. Or, should we just wait until it gets ugly down there and folks want to emigrate the hell out? Who needs enemies when we have Forbes readers.?
regards
shortonoil on Tue, 2nd Feb 2016 4:04 pm
The US pumps just a little less oil that the awful, ungrateful Mr. Putin, and he has one fifth the debt per GDP $. No who is it exactly that is getting killed?
http://www.zerohedge.com/news/2016-02-02/retail-apocalypse-2016-brings-empty-shelves-and-store-closings-all-across-america
http://www.zerohedge.com/news/2016-02-02/truth-emerges-i-never-thought-i-would-wish-or-pray-higher-oil-prices-i-am
One would have to be seriously brain dead to believe one word that these hucksters put out.
Boat on Tue, 2nd Feb 2016 4:10 pm
The world marketplace will always need more efficient machines that slowly but surely replace FF. Cheap nat gas is replacing coal. Cheap renewables will eventually replace oil and nat gas. The US is positioned to compete with any and all nations. This is not good news to the haters but a reality.
Davy on Tue, 2nd Feb 2016 4:19 pm
Paulo, thanks for the bounce. Ape man likes me he just has a hard time showing it.
GregT on Tue, 2nd Feb 2016 4:32 pm
“The US pumps just a little less oil that the awful, ungrateful Mr. Putin, and he has one fifth the debt per GDP $. No who is it exactly that is getting killed?”
Debt? Again? Who are the creditors, and where did they get all of the ‘money’ from in the first place? Space aliens? Did they grow it on trees? Or did they print it out of thin air with interest attached?
twocats on Tue, 2nd Feb 2016 5:17 pm
Debt? Again? Who are the creditors, and where did they get all of the ‘money’ from in the first place? Space aliens? Did they grow it on trees? Or did they print it out of thin air with interest attached? [gregt]
and that is the crux of the debate. this artificial marker of wealth (debt/creditor relationship) is just a thin illusion. If it crumbles and collapses, so what? … not so fast, the global economic system, for all its frailty and the amount its been manipulated in the past 8 years is still PLAN A, and its got rules (like the Matrix you can bend some, and break others). But unless they want to RESET the whole shebang, they’ve got to honor most of these frail illusions. Doesn’t matter that they are phony baloney. My manufactured dollar is worth just as much as your “hard earned” dollar. Who is going to arbitrate between “good loans and bad loans”??
Anonymous on Tue, 2nd Feb 2016 6:42 pm
If all those ‘bad’,’repressive'(and supposedly hurtn) regimes he lists, are oil-based economies, then what exactly is the united snakes again? Well, we know it is a *war and waste* based economy, but what is it that fuels this again? Remind me forbes…
https://www.youtube.com/watch?v=XxN50gpdUG4
Dilithium crystals? Pixie dust? Algae? lol.
Apneaman on Tue, 2nd Feb 2016 7:09 pm
Thoroughly terrifying and well supported essay on just how far the cancer has progressed.
No One Gets Out Alive
“As China’s appetite for resources wanes with the bursting of its real estate bubble and America’s shale oil boom fueled by easy credit comes to an end, floundering petrostates are beginning to queue up for bail-outs. Financialization appears to have exacerbated the collapse in oil prices. Of course none of this capitalist boom-bust cycle negates the fundamentals of peak oil; prices will swing upwards again in a few years as marginal producers get weeded out. After all, the world still consumes nearly three million gallons of oil per minute, and only a relatively thin margin separates surplus from a shortage. Most of our energy usage does not involve electricity which is what alternative energies like wind and solar produce. Electricity comprises just 18% of the total global energy consumption of which alternatives make up a tiny sliver. 250 new human beings are added to the planet every minute; each born into a world of depleting resources and mounting pollution; each scrambling to secure the necessities of life. The black stuff will remain the primary fuel supporting this growing population of a globalized technological civilization.”
more
http://collapseofindustrialcivilization.com/2016/02/02/no-one-gets-out-alive/
roman on Tue, 2nd Feb 2016 7:50 pm
What is great for amerika and the rest of you is an 10 km asstroid. It will produce a lot off energy.
makati1 on Tue, 2nd Feb 2016 8:47 pm
This article exceeds the previous puke flowing out of Forbes’ mouth recently. Pure unadulterated propaganda from the land of debt and destruction, the FSA. Anyone who has not realized that this is proof that the end is fast approaching is brain dead. Collapse of the Empire cannot be far down the road. Maybe even this year. We can only hope.
GregT on Tue, 2nd Feb 2016 9:06 pm
Transforming our world: the 2030 Agenda for Sustainable Development
“We, the Heads of State and Government and High Representatives, meeting at the United Nations Headquarters in New York from 25-27 September 2015 as the Organization celebrates its seventieth anniversary, have decided today on new global Sustainable Development Goals.”
“We resolve, between now and 2030, to end poverty and hunger everywhere; to combat inequalities within and among countries; to build peaceful, just and inclusive societies; to protect human rights and promote gender equality and the empowerment of women and girls; and to ensure the lasting protection of the planet and its natural resources. We resolve also to create conditions for sustainable, inclusive and sustained economic growth, shared prosperity and decent work for all, taking into account different levels of national development and capacities.”
“This is an Agenda of unprecedented scope and significance. It is accepted by all countries and is applicable to all, taking into account different national realities, capacities and levels of development and respecting national policies and priorities. These are universal goals and targets which involve the entire world, developed and developing countries alike. They are integrated and indivisible and balance the three dimensions of sustainable development.”
https://sustainabledevelopment.un.org/post2015/transformingourworld
I think that’s is a rather safe bet that Agenda 30 will not be successful within the frameworks of our current systems.
Apneaman on Tue, 2nd Feb 2016 9:13 pm
Greg, they gonna start next week after the superbowl
How Americans Are Increasingly Turning Their Backs on the Poor
http://www.truthdig.com/report/item/how_american_are_increasingly_turning_their_backs_on_the_poor_20160128
makati1 on Tue, 2nd Feb 2016 10:08 pm
“Marines, Army: Time for women to sign up for draft”
http://www.stripes.com/news/marines-army-time-for-women-to-sign-up-for-draft-1.391782
Sign of the times…. World War 3 ahead!
Apneaman on Tue, 2nd Feb 2016 10:32 pm
Mak, A disaster in the making. Will never work. Better to form all female units and keep em separated. Brothers in arms means just that.
twocats on Tue, 2nd Feb 2016 11:41 pm
So he’s a boutique investment analysis company, and the stocks he points to are the last momo’s standing (FANGs), and even Amzn and Nflx have lost their momo mojo juice lately. I mean, its unbelievable how untalented these people are.
makati1 on Wed, 3rd Feb 2016 2:38 am
Ap, but you assume that TPTB actually care if it works or not. Maybe you forgot how they are creating chaos all over the world. Why would they not want it in the Us also? Have you noticed the increasing chaos in the lower 48? I have. It will only get worse, much worse, before it all explodes.
http://www.globalresearch.ca/imperialisms-migration-agenda-who-is-funding-the-refugees-transport-into-europe/5504056
Hint, the US, not to mention that they plan to import 100,000+ a year into the US heartland.
http://theeconomiccollapseblog.com/archives/why-is-obama-flooding-small-towns-in-the-most-conservative-parts-of-america-with-refugees
Third world here we come! This summer may be my last visit to the Land of Chaos. LMAO
ERRATA on Wed, 3rd Feb 2016 4:43 am
That clears up many things:
https://aleklett.wordpress.com/2016/01/20/is-the-world-drowning-in-oil
https://aleklett.files.wordpress.com/2016/01/13-3-original-600dpi-472.jpg?w=594
https://aleklett.files.wordpress.com/2016/01/oil-production-abqaiq.jpg?w=594
Davy on Wed, 3rd Feb 2016 6:21 am
We are seeing echo’s of the 08 crisis in the financial numbers. Energy and commodity related sectors are the key driver. Bank risk is soaring as a result. This situation is going to explode because all sectors have marginal players ready to default by the slightest change in the financial status quo. The markets are hugely overpriced. The global situation in Asia means there is not demand savior. We are now in the marker event period of “the shift”.
If we go into a pronounced recession which appears we are in, oil prices will not recover to levels that allow a healthy return to companies or nations. Expect the marginal oil nations to begin the failure process. The most important point is there is nothing to inflate. We may see drastic actions to stabilize but these efforts will likely only be a feint.
Time frame predictions are all over the place because we are entering the human nature phase where psychology will be a significant player. Confidence conditions and emotional responses will become more front and center. Will protest push leaders to irrational policies? No one wants to take the medicine but someone must. 2016 will be another great recession year and possibly without recovery.
“Moodys Warns Defaults Set To Rise As Liquidity, Financial, & Monetary Stress Soar”
http://www.zerohedge.com/news/2016-02-02/bank-japan-has-betrayed-its-people
“US monetary conditions are the tightest since 2009, financial conditions the tightest since 2009, and as Moody’s reports today Liquidity Stress is at its worst since February 2010 – all forewarning of a notable rise in defaults in 2016.”
“This is the first time in 10 years that monetary and financial conditions are tightening at the same time. In the past, a tightening of financial conditions has tended to be accompanied by monetary easing”
“Liquidity Stress Index (LSI) jumped to 6.8% at the end of December 2015 from 6.4% in November, reaching the index’s highest level since February 2010 forewarning of a rise in the default rate in 2016.”
“The LSI for oil and gas increased to 19.6% in December from 19.3% in November as low oil prices continued to weaken liquidity and raise default risk.”
“The ratio of all SGL liquidity downgrades to upgrades was 1.74 for 2015, with 141 downgrades to 81 upgrades — the highest since 2008 when the ratio was a record 2.96. Energy has been the key driver of liquidity downgrades, followed by metals and mining, amid weakening commodities demand in major developing countries such as China.”
“As borrowing rates rise and credit markets tighten, companies closer to the margin will find it challenging to cost-effectively refinance their upcoming debt maturities.”
“Which perhaps explains why US bank credit risk is soaring…”
steveo on Wed, 3rd Feb 2016 7:01 am
“China continuing to confront a series of market-rattling growing pains”
Is what you call it? Seriously?
JuanP on Wed, 3rd Feb 2016 7:53 am
Goodbye petrodollar, http://russia-insider.com/en/politics/saudi-arabia-has-lost-asia-russia-now-chinas-biggest-oil-partner/ri12611
sidzepp on Wed, 3rd Feb 2016 4:48 pm
“We resolve, between now and 2030, to end poverty and hunger everywhere; to combat inequalities within and among countries; to build peaceful, just and inclusive societies; to protect human rights and promote gender equality and the empowerment of women and girls; and to ensure the lasting protection of the planet and its natural resources. We resolve also to create conditions for sustainable, inclusive and sustained economic growth, shared prosperity and decent work for all, taking into account different levels of national development and capacities.”
They should have added “as long as it does not disrupt our status quo.”
Apneaman on Wed, 3rd Feb 2016 6:58 pm
Great For America
A Must Read: Jane Mayer’s ‘Dark Money’ Uncovers Hidden History of Billionaire Kochs
In her new book, the New Yorker writer considers the damage the Koch brothers’ network has done to our democracy.
http://billmoyers.com/story/a-must-read-jane-mayers-dark-money-uncovers-the-hidden-history-of-billionaires/
Jane Mayer and Koch Industries
Listen 16 min
http://www.wnyc.org/story/jane-mayer-and-koch-industries/