naked capitalism

doc holiday says:

Re: prick hike

This is LHC economics and nothing makes sense!

mxq says:

arggg..nvrmnd..i missed that sentence in the article.

Yves Smith says:

Man oh man, at least this typo was funny….thanks!

Robertm73 says:

Let us for a moment ask one small question. If the Dollara falls what would happen to the price of oil? It would go up. In the long term Oil will go up.

xraymike79 says:

At some point within the next 4 to 6 months, one has to buy DXO. The supply side of oil is getting ravaged as much or more than the demand side. What will make the next oil spike even more acute is the credit crisis that has enveloped the world and is causing big oil projects to be mothballed left and right. The Canadian oil sands, once touted as having “more oil than Saudi Arabia” and which currently account for 2 MBPD of U.S. imports, have been the hardest hit by the credit crisis
and collapsing oil prices. Having a highly energy intensive production process, Canadian oil sands are not economically feasible when the price of a barrel sinks below $80 per barrel. As Qatar’s oil minister recently warned, oil prices below $70 a barrel will cause a new supply crisis. “Under this scenario, future demand will face a shortage and there will not be enough investment to cope with demand increases.” He is correct. We are setting ourselves up for major future supply constraints. The general public doesn’t understand this and most are not aware of the seeds being sown.
Exacerbating the situation for America in particular is that this energy crisis is building at a time when our national debt load is ballooning out of control. Unlike in the 1930’s, the U.S. is no longer a creditor nation nor energy independent. As RobertM73 alluded to, a dollar crash will cause oil to skyrocket.

Viv says:

Merrill Lynch put out a global economic report last week in which it dubbed Australia the riskiest economy in the world. Counter-intuitive as it seemed, Nigeria was rated the safest.

Titled “Everything you wanted to know about the world” the Merrill economics team drew on 62 indicators from the 60 countries.

Australia was ranked riskiest on a table of rankings deduced from seven indicators. These were the current account financing gap, foreign exchange reserves/short-term external debt ratio, exports to-GDP ratio, private credit-to-GDP ratio, private credit growth, loans-to deposits ratio and banks capital-to-assets ratio.

http://business.theage.com.au/business/deep-in-foreign-debt-20081112-5msv.html?page=fullpage#contentSwap2

macndub says:

Eduardo, your opinion that this is merely a lull in a long-run, secular bull oil commodity market is commonly held, I would say.

I do not agree with this assessment. The reason that I don’t agree is the natural gas supply situation, which is extremely bearish for prices. Oil and gas are not short-run substitutes, but they can substitute for each other in the long run (and they have). Over time, it makes no sense that BTUs (or GJs if you’re not American) can be priced differently (allowing for convenience, transportation, storage, and volatility).

2008 lower 48 natural gas production increased 8% year-over-year. We haven’t even come close to tapping out North American natural gas supply. Internationally, natural gas is even earlier in the growth curve. Liquified natural gas (LNG) growth will add another North America in the next five to ten years.

And when all else fails, there’s coal.

There is plenty of evidence that the world is running out of $20 oil. There is considerably less evidence that it’s run out of $40 or $60 oil.

Finally, as Yves has mentioned over and over again, the IEA “forecasts” are lagging indicators, both supply and demand. I use them to show where we’ve been, not where we’re going.

Matt Dubuque says:

Oil crashing is NOT inflationary. Gold also plunged today, as I have predicted in this forum to widespread disbelief.

Inflation expectations, as measured by the indicia most widely used, are clearly crashing. Look at the Michigan surveys recently and TIPS.

What most Americans cannot understand, including Ben Bernanke, is that deflation is EVERY bit as pernicious and difficult to eradicate as inflation. You CANNOT simply “reflate” it away at will.

Bernanke was wrong.

But they will surely learn.

Welcome to the Great Global Depression. It is now inevitable.

We can look forward to 12%-15% unemployment in the USA in 2010, far more than the overrated Roubini is willing to publicly commit to.

Stay away from gold. Turn off your television and learn. It’s a done deal. We can’t stop history.

Two chief causes: failed mathematical models (assuming Gaussian distributions on derivatives) coupled with HYPERleveraging of that catastrophic mistake.

Turn off your TV and learn.

Matt Dubuque

mxq says:

I understand that the dollar/oil is a great trade…but from a fundamental standpoint, i don’t see how/why they should should be inversely linked.

Doesn’t PPP neutralize this?

And even then, why not just do a boring old fx hedge if the dollar is depreciating?

In other words, while the correlation is a reality, i’m still not convinced the dollar’s movment and oil are inversely causal.

SlimCarlos says:

@ Matt Dubuque:

>> Gold also plunged today,

Gold was off today as measured in USD, you are correct here. However, it was flat as measured in Euros, flat as measured in Pound Sterling, up as measured in Roubles, up as measured in SA ZAR, up as measured in Aussie $'s, up as measured in Rupees, up as measured in Brasilian Reals, etc.

In other words, for most of the world, gold was either up today or flat. Indeed, for most of the world, gold has provided a quite stable store of value over the last 60 days, six months, one year, five year, ten year periods, 50 year, and 500 year periods. Which is what it is supposed to

The US dollar, of course, has been, in general, a terrible investment over most of these same time frames.

You can't see this because, presumably, you've got your head trapped in a US-centric worldview.

Such blinkered outlooks never bode well.

Edwardo says:

Consider this part of the previous post.

http://www.321energy.com/editorials/chaize/chaize110408.html

Simon says:

Matt Dubuque says: We can look forward to 12%-15% unemployment in the USA in 2010

We can also look forward to elections in 2010, and if unemployment is anywhere near 12%, you can bet Congress will cut taxes and raise spending so as to send the budget deficit surging past $2 trillion. We can also look forward to President Obama selecting a Fed chief then. If Bernanke wants to keep his job, then he will dutifully monetize much of this $2 trillion deficit. Anyone who doubts the combined powers of fiscal and monetary policy to combat deflation doesn’t understand anything about economics, and anyone who doubts the willingness of politicians to take the inflationary road out so as to avoid the pain of deflation doesn’t understand anything about politics.

BTW Japan is not an example of the failure of monetary/fiscal policy. The Japanese simply didn’t try hard enough. A debt/GDP ratio of 200% isn’t inflationary? Fine, try 300% or 500% or 1000%. Print enough money, and you’ll get inflation. The reason the Japanese didn’t try to generate inflation is that they had other ways of ameliorating the pain of deflation (such as allowing banks to keep bad loans hidden on their books for decades at a time, etc). We could similarly try to paper over the deflation, but that doesn’t seem to be likely. Just look at what the Fed and Treasury are doing right now, and extrapolate forwards. That $700 billion bailout is just the first step…

Yves Smith says:

Matt,

This is your LAST warning. I told you to quit making stuff up here.

Gold did not plunge today. It is now $736 an ounce. It has been slowly, if anything, basing higher and higher. When it went down in the recent past, the lows would be around $700 (it went as low at $680), then $720ish, then $730ish, now $735-40ish, The high on its trading range have also been moving up, even as oil has been trading down.

I am NOT advocating gold. I think many people buy it for reasons that may not make any sense. But I am NOT going to tolerate ANYONE dispensing false information out of narrow self-promotional interests. I also delete spam comments for various market timing services when I find them.

Hughson says:

The US Dollar is the new gold. When you look at trading in long term and the history of money, you will hopefully realize that gold and dollar share the same functionality in their ‘creation’ and use. However, since these are ‘created’ by persons and their value is controlled by both security and confidence (not what they can actually be used for beside their function as currency), dollar hold an edge over gold since the two great powers (USA and China) have selfish reasons to protect the value of the dollar. The gold is now viewed as only an insurance against Armageddon but even that I would question.

I stand to see what will be the reaction by the rest of the world (Central Banks). Will they accept the dollar or revert back to Gold (Unlikely). Then if so, the gold has absolutely no value as currency and should be value the same as other metals such as platinum.

I personally think Oil will take the place of gold (clique) as a new insurance against Armageddon. It is much more useful than gold.

Juan says:

Sorry, forgot to include last month’s Intl Labor Organization (ILO) 2008-09 estimates which expect global unemployment to increase by 20 million while “the number of working poor living on less than a dollar a day could rise by some 40 million – and those at 2 dollars a day by more than 100 million”. (Somavia, ILO, 20 October, 2008)

Given the still expanding/deepening of crisis, not unlikely the above cited numbers will prove extremely conservative and modern crisis management techniques prove their practical ineffectiveness.

Worth considering: What is a Crisis of Overproduction