We have a possibility of oil attempting what would look like an inverted head and shoulders if it plays out right.
I took the chart and inverted to try to see what you mean. Maybe, I think it is too early to tell. I wouldn't rule it out.
I suspect this will be the catalyst for a US/Global Recession by 2006.
Damn, this has been postponed another year!?
Fundamentally oil supply - or at least what can be processed - is not meeting demand.
What makes you think this? There is still no ten year period where oil has risen in real terms. If it were becoming more scarce I'd expect it's price to rise in constant dollars.
The recent news of China and India aggressively securing energy needs is compelling.
Whenever you hear of rationing and energy shortages you look for the likely culprit, price controls. If price is allowed to adjust to supply/demand, individuals and companies self ration. Needless to say both of these countries will have energy requirements far above what they have now as they become more developed.
Oil by virtue of its importance is virtually inelastic. Even at $100/barrel, don't expect people to drive less or change their lives significantly.
Heard something similar back in 1979. Go look at oil consumption in the US for the following decade. Both demand and supply turned out to be far more elastic than anyone thought they ever could be. Exploration and increases in production capacity are influenced by the cost of money as well as the price of oil since exploration is so costly and ties up money for so long. One has to have faith that oil prices will remain higher for an extended period or that interest rates will remain low to take on the risk of exploration. Additional supply is simply a function of higher prices but higher prices are never neutral to demand.
As to conservation, every year I calculate the cost/benefit of buying a hybrid. It still doesn't make sense for me even with the tax incentive. They will at gas prices that are double or hybrids that are only maybe 10-20% above similar models.
Quite simply rocketing oil prices will be deflationary as they will probably catalyze massive deleveraging for the millions with with weak personal balance sheets.
Debt service is still within historical levels unless interest rates rise sharply from these levels. For the past four to five years inflation has been at a low rate but relentless. I think wages have not risen at that same low relentless rate. The effect of rising gas prices and this relentless rate of inflation has eroded the value of wages. People continue to buy those things they feel they have to buy (insurance, gasoline, college tuition, healthcare, drugs) but anything which can be construed as slightly discretionary can't pass through cost increases at the rate of inflation; restaurants, cars, airline travel and even groceries. This is having a depressing effect on a whole host of industries unless they can make it up with increases in efficiency. I expect a big consolidation in the retail space.
Hence we currently see stable bond yields, shaky base metals, falling cyclical stocks, weak leading indicators, yada, yada
Stable bond yields? I've been thinking things have been more than a little bit exciting in bonds in the past year. -ggg- Gold got hit because there are signs that inflation is accelerating which means the Fed may need to get a lot more serious about tightening not just raising incrementally all the while doing astronomical coupon passes and cranking up the RPs to the stratosphere to keep the patient from dying from the medicine.
Our Achilles Heel is oil and the markets have a funny way of exploiting that.
The market seems to agree with you. I'm not convinced.
Unlike Mish, I am in the "deflation is bad for gold camp".
The kind of deflationary scenario to make gold go also means you'd do just as well in guns and ammo.
But that's a long while (if ever), so I'd much rather hold dollars or oil dollars until then.
I hold dollars defensively, to give me flexibility. I sold my oil services and exploration stocks a little while back. So far I'm not sorry. |
