Response to Eric on oil: I am not an oil analyst in any way shape or form. I could not tell you enough about oil to be considered useful in any sense except one: the big picture. And here is the big picture:
1. In our collective (herd-like) desire to believe that technology alone is what matters, we tend to ignore other factors.
2. Oil is a great example of a factor that we do not appreciate as contributing to the very foundation of our current economic success. Others, like Sarmad, are quite right to say that eventually this needs to be, and will be, supplanted by other means of powering a more efficient economy. But right here and right now, cheap oil has done more to underwrite the cost of building the "new economy" than anybody dares admit. Think of cheap oil as similar to the "peace dividend". It freed up capital to finance technology investment which was in turn driven by economic growth led by consumers who had more money for stuff cause oil was cheap.
3. The dynamics of cyclical markets do not tell a story of smooth, gliding transitions when shifts occur in the supply/demand balance. You would see this easily if we talk about semi-conductors -- oil is similar. For example, semi prices can soar when there is not enough capacity. And everybody knows that with more capital and a little time, an endless glut of semis is possible -- even likely. But tell that to somebody waiting to take delivery "today" and they are not helped by semis two or three years from now -- or oil in the ground in this case.
4. Oil is THE #1 factor correlated with the business cycle. Interest rates are second -- and both are driving influences in increasing and decreasing growth rates in the economy.
5. The Fed did a great job in steering a sensible course on interest rates. But oil is now screwing up all that careful work -- oil is the wild card that nobody expected to kick in and keep going.
6. With the prospects of much slower growth, a tapped-out consumer, fuel costs of every kind getting passed along directly and indirectly, the impact on the global economy, and the implications for the current account deficit, the economy is in for a much harder landing than we had hoped. The landing gear is jammed.
7. The smart money came back from vacation and started selling -- despite healthy inflows into equity funds.
8. The rest of us should move to higher ground. Do whatever you do to protect yourself. For some people, that is just to get off margin. For others, it is raising 10% cash. For a few, it will mean a bigger paring of their exposure. This is a personal decision.
9. Don't underestimate the impact of oil, or the difficult nature of getting supply back up to where demand is not outstripping supply -- and don't underestimate the connection to the "new economy".
As always Eric, I enjoy your contributions and have a great deal of respect for you -- with no apology for taking the "other" side of the argument from time-to-time. By the way -- I have no idea where the truck is registered, its color, or its gross vehicle weight -- all I know is that it is a truck. |
