THE Energy Recession Thread (merged)

shady28 · **Joined:** Wed Jul 06, 2005 12:00 am **Posts:** 416

marko wrote:

shady28 wrote:

I'm pretty sure Greenspan has been around so long because he has been determined to use monetary policy to push the economy forward under any administration.

I don't know about pushing the economy "forward," but Greenspan has been good at creating conditions that inflate profits, protect financial speculators, and maximize the portion of economic output that ends up in the hands of the rich.

As an example of Greenspan's partisanship, I cite his strident calls for fiscal restraint and spending cuts to end the deficit under Clinton. Earlier, he called for raising the social security payroll tax under Bush I. However, once Bush II was in office, Greenspan was all in favor of his tax cuts for the rich, even though they were fairly certain to lead to the kind of deficits that he opposed under Clinton. Funny, isn't it, that those income tax cuts for the rich are partly financed by the money that he wanted taken away from middle class people as payroll taxes. Now that we have the largest federal budget deficits in history, Greenspan has little to say about them. The difference this time is that a Republican is in office.

That ignores the circumstances surrounding his decisions. In 2000/2001 Greenspan was attempting to reflate one of the biggest bubble bursts in history, barely 2 years after one of the worst multinational currency crisis in history.

Greenspan may not admit it, but he is clearly a closet Keynesian. However, he did make it clear that the cuts would help kick-start the economy. He has become more critical of the deficit as the economy has appeared healthy again. Again, I don't think he cares who is in office, he just wanted the tax cuts to help him with reflating. I look at greenspan as sort of an economic hacker, he enjoys the challenge and he doesn't like to lose. Technically, I suppose Greenspan didn't lose - that honor will be reserved for Ben Bernanke.

MrBean · **Joined:** Sun Sep 26, 2004 12:00 am **Posts:** 1226

marko wrote:

This is what happens when the currency collapses. I do not foresee an immediate collapse of the dollar. Too many Asian countries are prepared to defend the dollar. No one wanted to defend the Argentine peso.

I have argued that, during the initial year or two of the recession, Asian central banks are going to be desperately buying dollars and US Treasury bills in an effort to support the dollar and the US economy, on which they are heavily dependent. Only after Asian money creation spins out of control and leads to hyperinflation there will they be forced to give up this policy. Then the dollar will drop like a stone, leading to hyperinflation in the US.

Asian central banks have allready more or less stepped out. Japan might still be game, given that it is semi-independent US vassal, and maybe Taiwan too, but China has depegged from dollar and is (together with Russia and many others) in the process of balancing their portfolio of currency reserves. Iranian Oil Bourse may quite likely force also Japan to start seriously rethinking their geopolitical strategy.

According latest stat I saw, only foreigners seriously buying US debt were Caribbian banks. Guess who that last straw for US might be? Illegal drug trade (protected by the DEA and al-CIAda mafias) is still bigger than oil trade, only second to arms trade, and US is the biggest single market for drug trade and US financial papers is where most of launderd drug money is invested. Why do you think keeping drugs illegal is main element of US foreign policy? Follow the money! :twisted:

CARVER · **Posted:** Tue Aug 23, 2005 1:14 pm

threadbear wrote:

Yes, very temporary deflation in the SUV type market. This makes perfect sense. If it's already sitting in your lot, deteriorating in value, why not sell at firesale prices? Hell, they may even give them away!

I guess when it comes to getting rid of inventory of any kind, the economy could throw a big garage sale. :lol:

It's just extrapolating from there to draw conclusions about an on-going deflation, isn't likely to play out.

I even question hyperinflation, as wages aren't going to go up commensurate to the amount of money that the fed prints or wants to print.If you look at past hyperinflations, wages rose to accomodate rising prices.

Banks won't lend to indigents, and demand and desire are two very different things. The entire economy rests on a mountain of debt, but that rests on the expectation that the debt will be paid back. You don't need a gold backed system for this,--you can have a paper system that will function using these paramters. You could use cowrie shells, bird feathers, little glass marbles, beads, or sticks and accomplish the same.

The problem arises when banks start to assume that they won't be paid back, by many they previously lent to. Then the system locks up, for those in the middle and lower end of the spectrum with prices high, but not spiralling out of control.

What makes you think oil markets will crash? Smoke and mirrors?

What is the timescale of a new car from design till the end of its production, a couple of years at least I think. So lets say a company has designed a new model, created the factory, has signed the contracts for the supply of materials, and has just started production, all under the assumption demand will stay high. At this point unexpected the consumers stop buying (demand drops a lot). They can't raise the prices because that would cut demand even more (still competing with other car manufacturers). So they propose a paycut for the employees: you're fired or you agree on a paycut. It will be hard to get a job, so better take the paycut. As long as they can sell the cars for more than they have to spend to build the car from now on, it makes sense to make the cars. So prices drop. Now they have to decide how long they are going to keep this up. Are they going to invest in designing new models and smaller factories, or will they just keep extracting money from the old model as long as they can. I think they will try to extract money now, instead of investing money now, so I think this deflation could last a couple of years, while we try to extract as much of the money out of it as we can. You can't sell the factory and the machines, because nobody wants to buy it, so better use them while they still work. When the time comes that they (machines, factory, etc.) need to be replaced (don't work anymore, repair to costly/impossible) then they might decide to focus on the small rich group. I think it will take a couple of years, before they start investing again.

A lot of the industry is focussed on producing lots of products for a lot of buyers. You won't get the richest 20% to buy 10 SUVs each and all that other stuff, and these industries won't be able to compete with the companies that are already making the high quality customized products for the rich, without making more investments. So I think deflation will take a while and we won't skip it.

About the oil price, I think a lot of speculators will enter the market when peak oil becomes mainstream, which together with some hype over another refinery burn/shutdown could drive up the price of oil in a short time to over $100 per barrel for light sweet. For the western/rich world $100 per barrel of light sweet is not an oil crisis, but it is for all the other oil importing countries. In those places you will get demand destruction, like we are already seeing today. In the western world we also get demand destruction, because we will make and buy less stuff and, carpool more and other energy savings. When we see that we don't get shortages here (yet) the price of light sweet will crash from around $100 to say $30-$40 (I consider that to be a crash), because there is now an oversupply of oil. After that the price will go up again a bit because demand will go up a bit at those prices and production might be lowered. Due to oil production declining over time oil will become more and more a product only the rich (including companies) can afford. (Untill oil production stabilizes). This is how I think it will go.

oilluber · **Joined:** Sun Jul 03, 2005 12:00 am **Posts:** 489

CARVER wrote:

threadbear wrote:

Yes, very temporary deflation in the SUV type market. This makes perfect sense. If it's already sitting in your lot, deteriorating in value, why not sell at firesale prices? Hell, they may even give them away!

I guess when it comes to getting rid of inventory of any kind, the economy could throw a big garage sale. :lol:

It's just extrapolating from there to draw conclusions about an on-going deflation, isn't likely to play out.

I even question hyperinflation, as wages aren't going to go up commensurate to the amount of money that the fed prints or wants to print.If you look at past hyperinflations, wages rose to accomodate rising prices.

Banks won't lend to indigents, and demand and desire are two very different things. The entire economy rests on a mountain of debt, but that rests on the expectation that the debt will be paid back. You don't need a gold backed system for this,--you can have a paper system that will function using these paramters. You could use cowrie shells, bird feathers, little glass marbles, beads, or sticks and accomplish the same.

The problem arises when banks start to assume that they won't be paid back, by many they previously lent to. Then the system locks up, for those in the middle and lower end of the spectrum with prices high, but not spiralling out of control.

What makes you think oil markets will crash? Smoke and mirrors?

What is the timescale of a new car from design till the end of its production, a couple of years at least I think. So lets say a company has designed a new model, created the factory, has signed the contracts for the supply of materials, and has just started production, all under the assumption demand will stay high. At this point unexpected the consumers stop buying (demand drops a lot). They can't raise the prices because that would cut demand even more (still competing with other car manufacturers). So they propose a paycut for the employees: you're fired or you agree on a paycut. It will be hard to get a job, so better take the paycut. As long as they can sell the cars for more than they have to spend to build the car from now on, it makes sense to make the cars. So prices drop. Now they have to decide how long they are going to keep this up. Are they going to invest in designing new models and smaller factories, or will they just keep extracting money from the old model as long as they can. I think they will try to extract money now, instead of investing money now, so I think this deflation could last a couple of years, while we try to extract as much of the money out of it as we can. You can't sell the factory and the machines, because nobody wants to buy it, so better use them while they still work. When the time comes that they (machines, factory, etc.) need to be replaced (don't work anymore, repair to costly/impossible) then they might decide to focus on the small rich group. I think it will take a couple of years, before they start investing again.

A lot of the industry is focussed on producing lots of products for a lot of buyers. You won't get the richest 20% to buy 10 SUVs each and all that other stuff, and these industries won't be able to compete with the companies that are already making the high quality customized products for the rich, without making more investments. So I think deflation will take a while and we won't skip it.

About the oil price, I think a lot of speculators will enter the market when peak oil becomes mainstream, which together with some hype over another refinery burn/shutdown could drive up the price of oil in a short time to over $100 per barrel for light sweet. For the western/rich world $100 per barrel of light sweet is not an oil crisis, but it is for all the other oil importing countries. In those places you will get demand destruction, like we are already seeing today. In the western world we also get demand destruction, because we will make and buy less stuff and, carpool more and other energy savings. When we see that we don't get shortages here (yet) the price of light sweet will crash from around $100 to say $30-$40 (I consider that to be a crash), because there is now an oversupply of oil. After that the price will go up again a bit because demand will go up a bit at those prices and production might be lowered. Due to oil production declining over time oil will become more and more a product only the rich (including companies) can afford. (Untill oil production stabilizes). This is how I think it will go.

So !!, to make this thesis make money, buy oil stocks now,
unload at above 80 bucks, wait for recession,
buy back oil stocks at 35 barrel level.
Finally, I have an answer to a complicated question.

CARVER · **Posted:** Wed Aug 24, 2005 5:07 am

oilluber wrote:

...
So !!, to make this thesis make money, buy oil stocks now,
unload at above 80 bucks, wait for recession,
buy back oil stocks at 35 barrel level.
Finally, I have an answer to a complicated question.

I'm no expert, but my bets are not on oil. I have a small investment in energy, which I'm planning to sell soon. I expected they would go up a bit longer, but I'm not sure anymore. My main investment is aiming at a market crash. I'm not gutsy enough to short the market, but instead I have bought put options. Over here the market seems to be going down already and faster then I expected, also dragging down the energy/oil stocks a bit. The idea was to sell the energy funds/options on a high and invest the money from that also in put options. I'm still in doubt now if I'm gonna wait for another spike up one more time, or switch them now because I'm not sure we're gonna see another upward spike anymore.

Timing is everything.

CARVER · **Posted:** Wed Aug 24, 2005 7:45 am

"Durable orders plunge"

Quote:

The report showed a wide-spread weakness in orders. Machinery orders were down 6.2 percent, while fabricated metal product orders dropped 4.4 percent.

Technology orders fell 5.9 percent, with computer and related products falling 8.3 percent as communication orders fell 7.1 percent.

Non-defense aircraft orders plunged 20.2 percent, but even excluding orders from the often volatile transportation sector, orders fell 3.2 percent. Reuters had forecast that excluding transportation orders would be off only 0.6 percent.

"The boom may be cooling" and "Mortgage applications edge lower"

Quote:

NEW YORK (Reuters) - Applications for U.S. home mortgages decreased last week, with purchasing activity falling for the first time in a month despite slightly lower interest rates, an industry group said Wednesday.

Is that the sound of an economy grinding to a halt? Maybe it is starting already?

oilluber · **Joined:** Sun Jul 03, 2005 12:00 am **Posts:** 489

does anyone have a link for oil price pattern during the1970's ??
I wanted to see what the recession did to the oil price ??I am trying to decide whether to hold oil stocks through what appears to be a 2006 US recession next year.

Also PE ratios were pretty low like in the 5's I believe for the averages during the 74 period.

oilluber · **Joined:** Sun Jul 03, 2005 12:00 am **Posts:** 489

i forgot to add that I found a chart of XOM
went from 3.2(1973) to about 1.75(1975),
so the oil stocks got hammered in that recession,
a supply crunch/inflation type recession.

shady28 · **Joined:** Wed Jul 06, 2005 12:00 am **Posts:** 416

CARVER wrote:

Is that the sound of an economy grinding to a halt? Maybe it is starting already?

I think so.

Beware of oil. If the markets begin to turn, hedge funds will get slaughtered and they control 60% of the oil futures market with assets near one trillion US $$.

S&P broke a H&S neckline today and failed a test of that neckline. DJIA made a solid break below its 200 day moving average.

I have a feeling we are going to see a mini crash before or just after Lbor day. Everything seems to be lining up for it. Markets topped in January, fell, and rose again until around Aug 2. Fed is having meetings with banks about derivatives. Cyclicals are pointing down for most of September. Getting a small but steady tickle of leading indicators turning down since July - retail first, now durables, i'd guess commodities next.

Fun times.

LadyRuby · **Posted:** Tue May 16, 2006 6:18 am

A short article on why a declining dollar is good for the world, by bringing about an economic slowdown or recession in the US, reducing energy demand, and making energy prices cheaper for the rest of the world.

Don't despair the declining dollar

Quote:

...Commentators and policy luminaries have been predicting and even hoping for a fall in the dollar for years, and with it a rebalancing of the US economy away from imports and consumption. Now that it is happening, they are in a lather, worrying about collapsing stockmarkets, surging inflation and generally the end of the world as we know it.

But this is ridiculous. ...

Yes, a dollar crash could bring some bad news as well. The economies whose currencies are at the other end of the seesaw, particularly the euro and the yen, would find their exporters suddenly being priced out of markets. The interest yields demanded on American Treasury bonds could jump sharply higher, as people lending to America (recently, mainly the Chinese and Japanese central banks, and Middle Eastern oil producing countries) demand higher yields to compensate for greater currency risk. The US Federal Reserve might have to raise its short-term interest rates by more than it wished, to deal with the inflationary impact of rising import prices.

Yet a crash of that sort looks unlikely. ...A fairly steady fall is much likelier than a plummet. As it happens, it will bring several clear benefits. One is a certain economic rationality: world trade and capital flows have been grossly imbalanced in recent years, with China and others essentially lending billions to American consumers to allow them to buy their exports. Such vendor financing can go on for a while, as it has, but it can't keep increasing forever.

America needs to save more, to finance its own purchases, but also to export more and import less. As the dollar's fall will indeed bring with it some rise in long-term borrowing costs, through the bond markets, that will choke off growth in demand and investment in the American economy, producing the slowdown or even recession that readjustment requires. A second benefit is that as a falling dollar helps American exporters and hurts importers, it will soften the protectionist noise that has been growing in the US, especially against China and especially in the run-up to the mid-term congressional elections this November.

Finally, though, a falling dollar and an American slowdown or recession will make oil and gas cheaper for all of us. America is the world's biggest single consumer of energy. A slowdown or recession will cut its demand for energy. That is likely to prove the pin that bursts the bubble of $70 a barrel oil prices. Yes, supply is tight, thanks to war and political instability and under-investment. But demand matters too in energy markets. Pundits have been demanding for years that America should guzzle less energy. Well, if a dollar decline brings a recession, that is exactly what will happen. Be careful what you wish for.

AlCzervik · **Posted:** Tue May 16, 2006 8:15 am

Not to hijack your thread, but in that same vein, here is an awesome essay from Ron Paul on the dollar, gold, and a little bit about energy.
http://www.house.gov/paul/congrec/congr ... 042506.htm

Colorado-Valley · **Joined:** Mon Aug 16, 2004 12:00 am **Posts:** 746

In a regular time, this argument makes sense. But this writer doesn't understand oil depletion. He thinks the current high prices are just from global politics and lack of exploration.

What if there's a recession, but the price of oil doesn't drop because of increasingly tight supplies? His slow-down could become a full-blown depression.

As we've talked about, peak oil will probably show itself to be a series of deeper and deeper recessions. Every time an economy tries to recover, it will try to use more oil, then energy prices will escalate, throwing the economy into another, more serious recession.

And of course this would be the optimistic scenario ... if depletion is more than, say, 5 percent a year, then things get really, really weird.

NeoPeasant · **Joined:** Tue Oct 12, 2004 12:00 am **Posts:** 1016

I think it is quite likely that peak oil production will occur due to the effects of a recession dropping demand for an extended period, followed by the inability of the oil industry to reach previous production levels once demand begins to recover. This would mean peak would occur earlier and at a lower production rate than it would have if it had just been a matter of physical production limits.

I have been reading about the collapsing suburban housing market and it's implications for the greater economy (you know, that stuff Kunstler has been raving about all along) and the news hasn't been good. I think peak could be at hand not due to the inability to produce more, but due to a failing economy's inability to demand more. We could even see a substantial drop in oil prices due to falling demand.

Fishman · **Posted:** Thu Aug 24, 2006 2:17 pm

What you speak of may be true, it's also possible this is the beginning of a recession induced by the run up on prices as we may be peaking at present. Time will be the only way to judge which is correct. Either way, preparation for peak may help one with a recession and visaversa. It would be wise to minimize your energy costs whether that means more insulation or go all the way to alternative energy. Grow some food,would be wise. Find ways to save money (which makes a recession worse too)

lateStarter · **Posted:** Thu Aug 24, 2006 2:23 pm

I've been struggling with this recently. We may indeed, encounter a major recession in the near future that could drop oil all the way back to 'who knows what'. In my opinion, that would only prolong the agony. Better to get it over with ASAP (although I also think we won't be 'getting over it' anytime soon either). Bottom line: no matter what happens, people are just going to keep breeding, and the problems are only going to get worse. Overshoot is a bitch...

THE Energy Recession Thread (merged)

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