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Peak Economy (was Oil Price Softening)

Discussions about the economic and financial ramifications of PEAK OIL

Peak Economy (was Oil Price Softening)

Unread postby Pops » Wed 04 May 2011, 21:37:58

I'm a little surprised, I gotta admit, oil and commodities are looking soft today and the expansion seems to be fizzling out. I really hoped the economy would hold tough till oil got up at least to where it was last time before growth choked.

Not a very good sign I'm afraid if the world can't stomach $120 oil (OPEC Basket) for a month. I wondered whether we might actually be more resilient after the punctuated evolution event we saw at $147 killed off some of the weaker consumers and we could stand $160 or $180 for a while. Looks like that idea may turn out to be wrong.

Compounding the problem this time around, the housing ATM has shorted out and there's the knock-on effects of the commodities bubble last time as meat & dairy producers have gone bust and the resulting fewer animals increasing prices - and of course we're still mandating the burning of subsidized food in our bailed-out cars, 40% of our corn crop now. One little hiccup in the weather and corn could easily go to $10/bu. and corn is in everything. And that's on top of an already bad wheat year.

Rents aren't going down, food is going crazy, all FF products of course are going up... and wages?
Real average hourly earnings fell by 1.0 percent, seasonally adjusted, from March 2010 to March 2011.
A 0.6 percent increase in average weekly hours combined with the decrease in real average hourly earnings resulted in a 0.4 percent decrease in real average weekly earnings during this period.
Link


Wouldn't it be a kick in the pants if everyone were wrong and the world economy pooped out at $125/bbl? And wouldn't it be even crazier if instead of the oil price stair-stepping up with each cycle, the economy just kept getting less resilient...
and each go around the high price was actually lower than the last time?
And so instead of higher prices enabling greater efforts at extraction and encouraging alternatives, we wound up going in the other direction and simply couldn't afford the cost of deploying 10,000 fallout generating plants or hundreds of square miles of thermal solar ovens or even the development cost of deep water or kerogen cooking or any other "unconventional" oil source for that matter...

naw

.
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Re: The 2011 PO.com Oil Price Challenge

Unread postby Outcast_Searcher » Wed 04 May 2011, 22:38:22

Pops wrote:Not a very good sign I'm afraid if the world can't stomach $120 oil (OPEC Basket) for a month. I wondered whether we might actually be more resilient after the punctuated evolution event we saw at $147 killed off some of the weaker consumers and we could stand $160 or $180 for a while. Looks like that idea may turn out to be wrong.

Pops, to this and your entire post -- that's what make economics so tough, and why it is such a poor predictor of what happens in the real world (IMO).

It's NEVER just about X (like oil prices), as much as this site focuses on that. All the other stuff you mentioned (plus thousands of other things including emotions) factor into these things.

Then we (and all the other pundits in the world) want to look at a handful of variables, correlate some things from previous cycles, and say -- "Wala -- the world is thus".

Don't get me wrong -- I make no claims I have any more idea than anyone else willing to look at things with some reasonable level of rationality and awareness of personal biases.

....

It would make economics an actual testable science if we could put little people into a special world-like lab where we could change one thing at a time (like oil prices), and do repeatable experiments to figure out what happens.

Unless I'm missing something, we can't do that. Until we can, it's all just speculation and of course Keynesians vs. Free Marketeers yelling at each other on your favorite media outlets... Dismal science indeed!
Given the track record of the perma-doomer blogs, I wouldn't bet a fast crash doomer's money on their predictions.
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Re: The 2011 PO.com Oil Price Challenge

Unread postby careinke » Thu 05 May 2011, 11:33:14

Pops,

I fear your assessment may be correct. Oil prices seem to be collapsing for the last few days. Today alone we are down over 5%. Maybe oil is a leading indicator for an upcoming depression.
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Re: The 2011 PO.com Oil Price Challenge

Unread postby ColossalContrarian » Thu 05 May 2011, 12:40:10

careinke wrote:Pops,

I fear your assessment may be correct. Oil prices seem to be collapsing for the last few days. Today alone we are down over 5%. Maybe oil is a leading indicator for an upcoming depression.


I would say it definitely an indicator for a deflationary depression which would justify QE3 thus sending commodities back up!

Looks like Ben is on a rollercoaster of inflation and deflation but he's always a few steps behind the curve. The moment he thinks of ending QE early everything deflates, then when inflation rears it's head he's forced to continue QE.

I don't think the wild swings are by design but if it get's Obama re elected and GS big bonuses he's doing his job.
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Re: The 2011 PO.com Oil Price Challenge

Unread postby sparky » Thu 05 May 2011, 14:53:29

.
It looks like the economy is on an undulating plateau ,
any improvement see a sharp oil price rise ,
any sharp oil price rise deflate growth
some push and pull semi stable system with about nine months frequency

Some silly " herd traders " are going to be creamed .....AGAIN :lol: :lol: :lol:
a lot of positions will have to be closed in a panic
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Re: The 2011 PO.com Oil Price Challenge

Unread postby TheDude » Thu 05 May 2011, 15:16:13

Cool, a selloff. Love watching these lemmings go over a cliff. Seems they just heard about Bin Laden, Reuters says now that he's sleeping with the fishes "the market is adjusting the geopolitical risk premium down accordingly. Given this, speculative money is being taking off the table." OK, market, whatever.

Pops - 2008 = punk eek is an interesting analogy. But we're still here; who went extinct, exactly? Yuppies who foreclosed and had to sell McMansion(s) and SUVs and are currently living under a bridge? But, theoretically anyway, they'll be back in the rat race if given the chance. Who evolved, too? People with new bicycles? Or bicycles bought on Craig's List, more likely.

How about comparing consumers to the stomata in plants? Larger in times of plentiful CO2, it's how they measure CO2 in the geologic record. Sort of like motorists - or cars - during epochs of plentiful cheap fuel.
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Re: The 2011 PO.com Oil Price Challenge

Unread postby Pops » Thu 05 May 2011, 15:36:31

TheDude wrote:Pops - 2008 = punk eek is an interesting analogy. But we're still here; who went extinct, exactly?

I was thinking of the 99ers mainly, now the structurally unemployed who've added maybe a couple percent more to the "natural" unemployment number. Mostly upper middle-aged men that will never regain their earlier income levels, maybe tradesmen, middle management, car salesmen. I'm sure they'll find something or momma might have a job, maybe they'll move into the kids basement...
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Re: The 2011 PO.com Oil Price Challenge

Unread postby Daniel_Plainview » Thu 05 May 2011, 16:04:00

ColossalContrarian wrote:
careinke wrote:Pops,

I fear your assessment may be correct. Oil prices seem to be collapsing for the last few days. Today alone we are down over 5%. Maybe oil is a leading indicator for an upcoming depression.


I would say it definitely an indicator for a deflationary depression which would justify QE3 thus sending commodities back up!

Looks like Ben is on a rollercoaster of inflation and deflation but he's always a few steps behind the curve. The moment he thinks of ending QE early everything deflates, then when inflation rears it's head he's forced to continue QE.

I don't think the wild swings are by design but if it get's Obama re elected and GS big bonuses he's doing his job.


We're in the same deflationary depression that began in September 2008. This 2008 Depression was never allowed to cure itself due to unprecedented govt/Fed intervention. The govt/Fed has now created a massively distorted economy which, like a heroin junkie, must remain on drugs lest a fast-crash happen. Except now, in 2011, the US is saddled with 14.4T in debt and cannot afford further massive bailouts and expensive govt stimulus. The US will respond with more money printing (QE3) which eventually will lead to a Wiemar Germany meltdown.
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Re: Oil Price Softening? (from Challenge Thread)

Unread postby thuja » Thu 05 May 2011, 16:37:41

I really doubt this correction in oil priices will be anything like 2008. Oil went from @150 to @30. For the equivalent to happen oil would have to drop to 22 a barrel...not gonna happen. Will we see 75 o 80? Very possible. But that would present a buying opportunity. I don't think we are on the precipice of a deflationary depression...yet. Yes maybe in a couple few years. I would just call this a strong correction.
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Re: Oil Price Softening? (from Challenge Thread)

Unread postby Pops » Thu 05 May 2011, 16:53:27

thuja wrote: a buying opportunity.

I just gotta :lol:
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Re: Oil Price Softening? (from Challenge Thread)

Unread postby Lore » Thu 05 May 2011, 17:04:59

This is going to go on for a while, with higher highs and higher lows. None of the fundamentals have really changed. It is nearly impossible for oil to stay at some historical low unless we have a complete unwinding of world economies. In which case we would have some bigger problems to figure out. All we are seeing right now is institutional players getting out of the commodity markets.

I would pay more attention to the frequency of the dips and highs as this seems to be getting shorter and shorter, indicating to me at least, that we are bumping up against the margins of limitation.
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Re: Oil Price Softening? (from Challenge Thread)

Unread postby pup55 » Thu 05 May 2011, 17:21:37

This almost smells like a bear trap..... is that the right terminology?

Here is how it works:

a. Breakthrough on the War on Terror
b. Saudi or other deep pockets dump oil onto the market... they are delighted to get the high 90's per barrel....
c. The short sellers like Phil Flynn come out of the woodwork.
d. Saudi goes long, the shorts are squeezed.....

We might be about at step B now...

The alternate scenario: the economy really is just about to go a-la 2008...

I wonder what the volume was today?
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Re: Oil Price Softening? (from Challenge Thread)

Unread postby thuja » Thu 05 May 2011, 17:22:34

Pops wrote:
thuja wrote: a buying opportunity.

I just gotta :lol:


Hey man I plan on buying a couple hundred barrels of light sweet to put in my backyard if it drops to 75. You in?
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Re: Oil Price Softening? (from Challenge Thread)

Unread postby Pops » Thu 05 May 2011, 17:24:10

thuja wrote:You in?

Let's do it buddy!
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Re: Oil Price Softening? (from Challenge Thread)

Unread postby Sixstrings » Thu 05 May 2011, 17:40:38

This was predicted as a consequence of OBL getting taken out. Some safety flight out of commodities and into the USD.. so the soft price you see is a bit of speculator money leaving.

Also bad news came out about China growth.. some more bad US economic data.

The commodity flight seemed to begin on silver.
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Re: Oil Price Softening? (from Challenge Thread)

Unread postby Plantagenet » Thu 05 May 2011, 17:45:14

I bought a lot oil service stocks, commodity stocks, oil industry mutual funds, etc. near the bottom in 2008. I thought about selling stocks on Monday when bin Laden was killed---the market has been looking for a top and I thought the baseless euphoria the bin Laden killing caused together with all the bad news on the economic front might just mark a turning point for Mr. Market. Then the silver bubble popped, and I sold off about 40% of my position on Tuesday.

Needless to say I'm happy Mr. Market is heading down today.
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Re: Oil Price Softening? (from Challenge Thread)

Unread postby pup55 » Thu 05 May 2011, 18:11:22

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Good work, Plant, you might get another opportunity later on...

It looks as though the fun started at about 5AM, which is noonish UK time.
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Re: Oil Price Softening? (from Challenge Thread)

Unread postby Pops » Thu 05 May 2011, 18:13:25

Actually reading OFs fairy tail thread and seeing how transparent even his fluffing had become these last couple weeks got me thinking the "recovery" is running outa steam - same with the OPEC basket price, look at the weekly and monthly chart here. It's looked like a top for a while. I have no doubt that the big dogs are going to play the emotions of the retail guy like a fine sitar and maybe that's what's happening today. Still, there's no doubt the economy has slowed.

Really I was just blabbin away when it struck me that it could be entirely possible the economy just keeps getting beat up to the point the ever-higher-price bit just can't happen.

We could even pass right over what would have been the "peak" without knowing it due to a retreating economy - we fall back to some slightly lessor but still massive production level and keep on a-pumpin the "spare capacity" away till we overhang what might have been a gentle slope - then we drop down a large amount fast.

I know, nothing new, I think my first post at po.com said something about "how long can we afford to prepare until we can't?
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Re: Oil Price Softening? (from Challenge Thread)

Unread postby Pops » Thu 05 May 2011, 18:15:38

Wow! That's some drop.
The legitimate object of government, is to do for a community of people, whatever they need to have done, but can not do, at all, or can not, so well do, for themselves -- in their separate, and individual capacities.
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Re: Oil Price Softening? (from Challenge Thread)

Unread postby sparky » Thu 05 May 2011, 19:11:47

.
Forget Bin Laden ,that's for the news
Quantitative easing mark 2 is going to stop in June ,
Mr Bernanke money was spend on the trading casino and undelined the bubbling of commodities trading ,on cheap borrowed money
now it's time to call in the cash and hang to it , there is some heavy distress selling
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