JasonC

Oil Breaks Below $60

In any sane world, the price would have peaked in early 2006 and retraced 50% of the long move, which would have put it back at $50 or so by the start of this year, instead of $100. We'd never have made the trip to $147. There was never any shortage, the entire move from mid 2006 to the top was pure bubble speculation driven by the apparent 25% a year uptrend in the rear view mirror. It destroyed demand completely.

As it is, instead, we will have volatility and continued downward pressure for some time. The long dated contracts have yet to join the near term ones, a sign that the diehard inflation thesis has not yet capitulated --- but it will. Those will all be priced at $40 within a year. Watch.

Has the Dollar Topped Out?

The dollar has not peaked, it remains bid at rates to zero and will continue doing so. For the simplest reason - dollar debts will be repaid, many others will not be. Yen likewise, even more so, as a source of savings capital to the entire system. Oil will not be saved by OPEC, it could easily fall by half from here. This is about where it should have *peaked* even in the boom and bubble --- all the rest higher was utter craziness from the start, and merely destroyed about 10 years of future demand growth for oil.

As for what central banks are up to and what is behind the epic move in the Yen, the run has moved from first world banks, secured by now, to the third world and periphery, where destruction of bubble commodity prices and the reversal of speculative flows are smashing overleveraged borrowers. Argentina set it off, CDS on sovereign credits are the proximate fear of loss vehicle, and submerging markets generally will be smashed by this wave.

The IMF has already done deals for Iceland and Pakistan, and it has 3 others begging outside, and more behind them. The IMF has capital of around $200 billion to lend out, and individual cases are looking for $25 billion. You can survey the wreckage and do the math, but the long and short of it is, the IMF can only reliquify the sovereigns and keep the world trade system functioning, if its creditor-contributors pony up.

And Japan will lead the way on that. Japanese savings will go to the IMF, the IMF will lend to the likes of Poland, the loans will enable them to stay alive on their currencies and their sovereign debts without pulling boneheaded stunts like Argentina's or Iceland's. That will keep the sovereign CDS market from exploding.

Meanwhile, the true hard currencies that make it possible will continue to be bid. Dollar bonds even have rates on them --- just look at the state general obligations, or the financials (debt and therefore senior to even Uncle Sam's preferrred). Until all of those get back to well bid status, nothing else is worth anything.

Why Oil and Gold Are Headed Much Higher

The objective exchange value of money is soaring, and idiot ideologues can only predict inflation. They are wrong by a factor of two and by a sign.

Why Oil and Gold Are Headed Much Higher

"Turn thosee machines back on!"

They were bubbles, they've burst, they aren't coming back. No amount of spin can revive them.

Oil: Long-Term Bull Still Intact; Short-Term Weakness Should Persist

The oil bubble is busted and it is not coming back. It was based on the completely unfounded premise that central banks would just hyperinflate to let any price quote stick, and they flat haven't. None of the bubble prices will stick. None. South Sea isn't coming back either. The finite resource of tulips with interesting colors aren't worth infinity either. Buy a clue already.

5 Reasons Why the $700B Bailout Could Translate to $250 Oil

All the bubbles go smash. All of them. It is deflation, people, deadly persistent and huge.

Crazy Move in Front-Month Crude

Short people got, no reason...
Short people got, no reason...
Short people got, ...

Will the Saudis Break Ranks with OPEC? And Will It Matter to Oil Pricing?

It doesn't matter what quotas they set or what any of them say, they are all cheating like crazy and pumping like mad. Oil is going back to $70, then sideways a little to see if that will hold. Only green luddites in the west can save even that level, and if they are sent packing it is back to $50 or even $30. The bubble, is over.

Interview: Kevin Kerr On the Commodities Pull Back

Commodities bulls in deep denial 3-6 months into a raging bear market in commodities, with all the major items down 25 to 30%, descending and accelerating.

Just clueless. Folks, it was a bubble, same as dotcoms or real estate, and it has burst. It isn't coming back, for a decade.

Russian Oil Exports: Dropping, But Why?

The production curve of any individual oil well shows a steep drop from the time it is drilled. Production is maintained by continually adding new wells to the fields. That takes reinvestment in the industry.

In Russia, reinvestment in the energy sector is severely hampered by its ownership structure - nearly all state owned. The incentive for the political class is to skim off as much as possible for their other uses, treating the whole thing as a cash cow. Not to build for long term capacity.

When foreign majors came in to invest in their fields, the state let them and then took the resulting assets with minimal compensation.

Thieves are lousy capitalists. Bottom line.

Which Way for the Prices of Oil and Gold?

Petervankan - go to Fred II and look up the M1 series. That is the narrow money supply the Fed directly controls through the size of its own balance sheet - banks only have fractional reserve requirements against M1 categories, not against the broader measures that include savings rather than transactions accounts.

And it hasn't moved an inch since the spring of 2005.

That's right Virginia, this oh so accomodative Fed hasn't expanded its balance sheet since the start of its tightening cycle, that broke the real estate bubble.

The whole drop in rates over the last year only kept the money supply from contracting rapidly, as commercial paper ran off at trillion a year annual rates. Yes the Fed extended all sorts of accomodation to the banks. But it sold treasuries into the market dollar for dollar as it did so. It's total balance sheet is no bigger today than this time last year.

The dollar was oversold on financial meltdown fears, and it has been moving higher since Bear Stearns day. Up 8% vs the Yen. Gold has been falling at a double digit annual rate since then. Oil had a speculative blow off as it decoupled from the dollar, but there was no way to sustain such high prices. There aren't more dollar chasing the same amount of oil - there was just overpriced oil smashing demand to atoms. So it is coming back down.

The people who believe we are in some epic inflation are ideologues, not empirical, and looking in a rear view mirror. The banks are reining in their lending as hard as they can, forcing strong cash flows in their own direction instead of supplying the world with more cash. And that cash flow is disappearing, into loss reserves and balance sheet shrinkage. M2 has been contracting outright since March.

It's deflation, not inflation.

GM May Hit $200 Before Oil Does

The article is all on the money. The places where it departs from the conventional wisdom are all notable and sound. As for the secular bear, it began in 2000 and they typically last not 1-2 years (the immediate down you read about in the financial press) but more like 15 years, to the last passage of the previous bull peak. Examples 1929 to 1947, 1968 to 1982 (a real drop of 3/4 - nominally sideways with high inflation for an extended period). 2000 was an epic peak. It will take a decade minimum to pass it for good.

But against the opinions of the short sighted momentum cheerleaders the article rightly derides, that makes it a fine time to gradually accumulate stocks. Cost averaging works if you avoid the peaks themselves. When the average retail investor can't see a single line on his mutual fund past performance statements without a minus sign in front of it, the next bull can begin.

Will the World's Central Banks Successfully Fight Inflation?

China's oil demand is not rising as fast as the whole economy, remotely. Demand growth there is about 7%, and China is about 9% of global oil demand. For India the figures are 3% and 3.5% respectively. Combined, they require a production increase of only 0.75% in world oil output. Which they readily get - world wide demand is only growing 1%.

Oil is in a typical bubble of a kind we have seen several times in its past. Real term moves of a factor of 4 in oil prices have been a recurrent item clear back to the US civil war. In the 70s the biggest one went 8 times, 4 in the first oil shock and a final factor of 2 in the second.

We might duplicate the last in the next year or two, or not. Tulips got expensive once, too. Then they weren't.