A lot has been going on in the arena of US politics, but it’s important to keep an eye on the economic numbers as well. Long term, whoever is President in 2008 is facing an American crisis not seen since the days of Roosevelt and Hoover.
Today’s grim news is that oil has tripped the $130 mark and is heading even higher.
Oil climbed to a life-time high above $130 a barrel on Wednesday, driven higher by a combination of long-term production worries and a near-term focus on tight fuel supplies.
A U.S. government report later on Wednesday was expected to show crude inventories rose for a fifth straight week.
Stocks of refined products were also forecast to have increased slightly, but the market is concerned distillates, which include heating oil and gasoline, could run short.
U.S. light crude for July hit $130.41.
London Brent crude gained.
“This market refuses to lie down,” said Robert Laughlin of MF Global. “There is fresh length coming into the market even at these lofty levels.”
Financial analysts are beginning to talk about a long-term sea change in the US economy, a change where the US is no longer the determining factor in the global money game, and instead is just another player on the board.
How far the US falls in economic stature has everything to do with oil and where oil ends up in the next couple of years.
Arjun N. Murti remembers the pain of the oil shocks of the 1970s. But he is bracing for something far worse now: He foresees a “super spike” — a price surge that will soon drive crude oil to $200 a barrel.
Mr. Murti, who has a bit of a green streak, is not bothered much by the prospect of even higher oil prices, figuring it might finally prompt America to become more energy efficient.
An analyst at Goldman Sachs , Mr. Murti has become the talk of the oil market by issuing one sensational forecast after another. A few years ago, rivals scoffed when he predicted oil would breach $100 a barrel. Few are laughing now. Oil shattered yet another record on Tuesday, touching $129.60 on the New York Mercantile Exchange. Gas at $4 a gallon is arriving just in time for those long summer drives.
Mr. Murti, 39, argues that the world’s seemingly unquenchable thirst for oil means prices will keep rising from here and stay above $100 into 2011. Others disagree, arguing that prices could abruptly tumble if speculators in the market rush for the exits. But the grim calculus of Mr. Murti’s prediction, issued in March and reconfirmed two weeks ago, is enough to give anyone pause: in an America of $200 oil, gasoline could cost more than $6 a gallon.
Oh, and Murti’s ultimate boss at the time of his now infamous 2005 prediction? You guessed it, Goldman Sachs CEO Hank Paulson, now Happy-Talk Hank, our Secretary of the Treasury.
Yes, oil could crash back to $70 a barrel. It could also go to $150 or $200 a barrel. I’ve already said that gas at $6-$8 a gallon would break the US economy. Anything worse then that would obliterate us.
Think of how many jobs and services you use every day that depend on cheap fuel. Do you live in a city where there is mass transit that can get you and your family to work, school, and where else you need to go if you couldn’t afford your car? What about the costs of the good and services you consume daily, what about the people who work there?
The cost of everything goes up. People will cut back sharply on spending. People will start going our of business. We’re on the upward slope of a mass increase in inflation. It will be followed by a sharp deflationary drop that will wipe out millions of jobs, from pizza delivery drivers to CEOs.
Some people believe that where we are headed is much, much worse then that. Keep an eye on fund manager David Tice. Wall Street has long ignored him and laughed at his doom and gloom predictions. They stopped laughing about 9 months ago. He’s betting big that we’re headed for far worse than a recession.
Tice, founder of the Prudent Bear Fund, is in his element as short sellers savor a rare advantage in their tug of war with Wall Street’s bulls. Tice, an economic history addict who lines his office bookshelves with volumes on the Great Depression, is the most bearish of bears. He’s been preaching for almost a decade that runaway mortgage lending would blow up.
Tice blames former Federal Reserve Chairman Alan Greenspan, who led the central bank as it ratcheted down the benchmark U.S. interest rate to 1 percent in June 2003 from 5 percent in March 2001 and held it there for a year. Borrowers rushed in and mortgage debt soared to $1.4 trillion in 2006, double the $708 billion in 2001, according to Fed data.
Tice is somebody to pay attention to. But watch what he’s saying now.
Now, Tice says the Standard & Poor’s 500 Index may tumble 40 percent during the next 12-24 months as the credit crisis undermines the economy, bankrupts households and companies and whacks profits. The drop would be worse than the 37 percent plunge in the index from 2000 through 2002.
That’s bad. The next paragraph should scare you shitless.
Tice predicts U.S. equities will enter a bear market that may exceed the 15-year slump from 1965 to 1980. Moreover, he says if the Fed and Wall Street don’t break their addiction to easy credit, the economy will eventually crash in a depression — a condition marked by reduced purchasing power, unemployment and corporate failures.
Mark today’s date, May 21, 2008. The financial press is printing predictions of not just recession, mild, severe, prolonged, or otherwise. It has used the “D” word. Depression.
If the guy who called the current economic disaster is warning of a fifteen-year bear market and a depression, I’d listen to him. Has Wall Street really made any efforts to get away from the cheap credit fixes that Tice is warning about? Of course not. What has been the Fed’s answer to today’s problems? MORE CHEAP CREDIT. Cutting rates. Giving banks sweetheart deals on borrowing taxpayer dollars at a pittance. A dollar that has plummeted into the abyss and shows almost zero signs of turning around long-term. The Fed has learned precisely nothing.
The Fed is trying to inflate the bubble when there’s a massive hole in it. It will eventually run out of currency to inflate with, and when that happens, kaboom.
Tice continues. He’s made a mint betting short on the US consumer and long on commodities.
“We’ve become a country of drunken sailors” he says, snapping his fingers as he makes his point. “If you spend, spend, spend, there are going to be consequences to that — you can’t borrow your way to prosperity.”
Even so, the turmoil has been good for Prudent Bear. After five years of trailing the S&P 500 with an annualized 0.9 percent loss compared with the index’s 11 percent annual gain, the tables have turned for Tice’s mutual fund. Prudent Bear, which has $1.1 billion in assets, has returned 9.5 percent from June 30, 2007, to May 20. That’s almost 14 percentage points better than the 4.3 percent decline in the S&P 500.
Tice, a short seller who profits when prices fall by borrowing and selling shares and then repaying at a lower price, bet correctly that Citigroup Inc. and Merrill Lynch & Co. would be hammered by mortgage losses.
He shorted companies that consumers were likely to avoid in a declining economy, such as Bed Bath & Beyond Inc. and Harley-Davidson Inc., according to Prudent Bear’s annual report released on Sept. 30, 2007.
Prudent Bear went long on metals with Capstone Mining Corp. and other ore producers. Shares of the Vancouver-based silver, copper and zinc miner jumped 81 percent during the past year through May 20 thanks to the commodities boom and the falling dollar.
He knew what was coming all along. Nobody believed him then. They are lining up to shake his hand now. Most of Wall Street is still betting the opposite, that the stock market is poised for a record run just around the corner, and that the worst is over.
Who do you honestly believe, as you see your friends and neighbors losing their jobs, cars, and homes? Who do you honestly believe as you’re plunking down a Benjamin to fill the gas tank in the family SUV and seeing your food prices skyrocket at the store?
Sure, the stock market has picked its face up off the floor. But it’s always darkest just before it turns pitch black.
Be prepared.
What’s really sad is that there’s no reason for this state of affairs. Realigning the west’s infrastructure to meet the demands of post-cheap-oil could be the biggest economic engine since the Industrial Revolution. But Wall Street and most western governments (all parties) refuse to even consider it, as it doesn’t fit their ideology.
as recently as 1997, the u.s. was the leader in solar energy technology, with 40 percent of global solar production…last year, we were less than 8 percent, and even most of that was manufacturing for overseas markets…almost entirely due to the abandonment of the the alternative energy initiatives that were first initiated by jimmy carter in the 70’s, then systematically dismantled by reagan, and subsequent administrations, with the help of a compliant congress at the direction of big energy cos.
even thomas friedman, whom l am not particularly fond of, gets it:
for more see rf69’s previous diary: layman’s view of the texas solar forum.
Oil spiked above $134/bbl
At this level, gas $4.32
speculation froth going to target $150
$7.50 gasoline soon and rationing
For many: No heat this winter.
Credit may be cheap but tight
dead dollar.
Indeed. Oil is a runaway train right now, and we’re all strapped to the tracks.
Something’s going to break soon.
It’s a Bubble-Oil’s perfect storm may blow over
as those paper contracts recede.
and there are cap wells out there – capped during the past 25 years. Peak oil, not so much. It’s a money grab.
Who cares how much oil is capped? We CAN’T BURN OIL ANY LONGER!
CO2.
CO2.
Let’s use oil for plastics and such, but we can’t burn it any longer. We’re killing our planet with CO2 emissions and the mindless destruction of forests which absorb the carbon burden.
You can have your oil, keep it, cap it, it’s not a valuable commodity any longer, it’s a great liability.
in the interim, how will you run your vehicle, heat the houses, food delivery, go to work until another replacement liquid is developed? Or don’t you eat? Are you one of those who’d rather grow corn, use oil to convert to ethanol to feed the vehicle instead of feeding the people?
“Let’s use oil for plastics and such, but we can’t burn it any longer. We’re killing our planet with CO2 emissions and the mindless destruction of forests which absorb the carbon burden.”
By what technical process do you convert oil to plastics and other essential stuff without emitting CO2?
Is CO2 the new bogey? That’s the problem, let’s just stop the planet from rotating.
CO2 will be reduced when we get off the treadmill of conspicuous consumption – 5 cars per same household, a new toy every six months – built-in obsolescence.
A year and a half ago I wrote this. Production of light sweet crude oil had already peaked a year earlier, as some guessed at the time. I was certainly not the first to predict what would happen, nor the first to assemble the pieces of why the trend was what it was.
And is.
The people who could divert us from the trend don’t want to–it’s not profitable. The rest of us will have to take our own lives into our own hands.
The trend is a crash from which there is no recovery.
“Green energy” was never–at least not after 1980–intended for the masses, except as a scam. There is no time to make the conversion anyway. In the absence of functioning, lawful government, even the re-implementation of known and proven technologies (like railroads) is beyond our capabilities.
What to do? Start composting. Plant a garden. Buy locally. Stock your pantry to weather spot crises and shortages. Get to know your neighbors. Learn where your water comes from, and start thinking about where it WILL come from when the grid goes down. Once you start doing these things, you will think of other things to do. There is really too much to do and not enough time, but what of that?
Use what time you have to do what you can.
This scenario is already acting out in my small business. I have several successful months from September 2007 to March 2008, but now, business is slumping off, I’ll probably be unable to meet my expenses, and will have to close my business and return to graphic design.
I know my clients can’t afford to come in and see me. Being an acupuncturist doing private pay, I can’t compete with their health insurance: they pay lots of money into their insurance every month, and there’s none left in their health budget for me.
For those who don’t have insurance, they are so pinched financially that they hesitate to come in for health care and would rather stay home sick or carry around their injuries until they “heal.”
It’s a crime, it didn’t have to get like this, but the greedy promotion of capitalist thought throughout America destroyed any sense of community welfare long ago.
Dumb to dumber: First they proposed suing OPEC over the price of oil, now this
U.S. Congress could ban speculators from commodities
when there’s no practical solution, litigate or legislate.