Mark Faber surprised Click to enlargeCNBC's Fast Money with a 100% recession forecast in 2012/13. Disposable Energy affirms his forecast.
Disposable Energy (family disposable income's ability to buy oil) measures how much energy can be applied to keep the economic flywheel growing. Life requires energy. Less affordable energy, less life.
Unlike GDP Growth, Disposable Energy accurately indicated the 2008 banking collapse. As gasoline prices increased from $1.39 in 2002 to $3.30 in 2008, families diverted mortgage payments to pay for energy. Life requires energy. Energy to pay for commutes, to keep jobs, to stay alive trumps all out cash outlays. In Sept 2008 foreclosures exposed policy excesses and collapsed the banking system.
Since 2009 Disposable Energy has been crashing. Exactly how this will manifest is uncertain. Recession is certain, less affordable energy reduces work being applied to the economic flywheel.
Here is a longer term view of US Peak Oil and Disposable Energy. The scale of the current decline in Disposable Energy exceeds that of the 1973 Oil Embargo.
There is extreme fragility in the oil supply system:
- First named storm hitting the US in May.
- Political instability in Mexico, Iran, Arab Spring.
- Refinery closing and PetroPlus bankruptcy.
- US East Coast dependence on gasoline from EU refineries.
Gasoline futures (NYMEX RBOB) and natural gas futures (NYMEX NG) for Fall 2008 have significant upside potential. In the "1970 US Peak Oil, Debt for Imports" graph above, note the large spike in oil imports after the 1973 Oil Embargo. Re-tooling for greater efficiency after an oil supply shock and/or mandates additional energy at what ever price is necessary. My guess is that natural gas will be used in new and creative ways.
Disclosure: I have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours.