If people have cried wolf, then that's their ignorance.
I wasn't referring to a plain vanilla recession, but the worldwide one in your comment. I have a book, written by a rather well known economic historian, sitting next to me that gave a fully documented and supported case for worldwide depression in the mid nineties, using some of your exact reasons. I also have a paper documenting a case for one in the sixties and one in the seventies. This worldwide depression everyone sees over the next horizon just keeps getting postponed. Frankly, I think that warning of one is a great way to sell books and financial newsletters. It's worked for over half a century.
Plus the yield curve continues to flatten and the long-end near 52 highs.
I agree it is flattening, but not by much. My yield charts show a historically steep curve. A steep curve at these low rates is more significant than one at higher interest rates because of the way compound interest accumulates.
That's precisely why oil can go a lot higher because demand patterns won't change until much higher price points.
Most of the fall in demand in oil consumption in the US after the 70s oil shocks occurred not as a result of drops in consumer demand but primarily from a drop in commercial demand. From Rees-Mogg:
The 1986 Collapse
A 12 percent reduction in oil consumption, combined with a modest increase in non-OPEC output, sent prices reeling below ten dollars a barrel in early 1986. The reduction in demand was quite gradual because it was largely attributable to capital investment. As much as 80 percent of the drop between 1979 and 1986 was due to substitution of coal, nuclear power, and natural gas for oil in electricity generation and industrial boilers.
He adds a note: This may slightly overstate the importance of fuel substitution because demand for energy in all forms fell per unit of GNP, thanks to substantial increases in the energy efficiency.
It takes years and years for alternative energies to become competitive.
Not years, higher prices... for oil and other traditional fuels.
The fact is that as a non-renewable energy source, oil supply will eventually run out.
Everything on the Earth is finite. What is recoverable and at what cost is a more important consideration when you are talking about energy resources. Far more oil is recoverable than what is in the known reserves at higher prices as long as the cost of exploration has a competitive return to alternative uses for the capital needed to do the exploration and recovery. What effects the return is not only time, but the risk of not finding any or enough to cover the expense. The cost is what you could earn putting the capital in an alternative investment. Oil exploration is highly dependent on the perceived risk/return elsewhere. What killed exploration in the late 80s and 90s wasn't just the low price for oil, but the great returns in the equity and bond markets.
growth is far outstripping supply growth and that's a fact.
Some of that is a currency effect. As the dollar weakened, lower oil costs in local currencies helps sustain demand outside the US. Plus, the higher energy costs are not being passed on in countries which try to sustain their economic growth rates by fixing the price of energy at a price below the market clearing rate. They try to do the rationing of scarce resources using political controls instead of free market forces. Political controls are always subject to corruption and real costs being shifted to other individuals or companies.
I don't believe it for a second.
It very rarely gets out of historical levels. Don't believe me, go look at the stats. There will always be those individuals who will be on the tails of distribution and will wind up in BK. It is the fallacy of composition to look at 2 friends (or 100 friends) and assume debt levels represent a macro risk. You have to look at the economy as a whole. Captitalism always has losers who push the limits and end up with losses, in BK. How fast do we clear the losses and redistribute the remaining assets of banks who will lend to poor credit risks to those banks with strong balance sheets? This is what is important. I love credit shakeouts because they tend to hit the price of even strong banks and then I can buy at a fraction of book value instead of a multiple.
But what does it matter, the bulls will tell you that all the debt is at fixed rates so interest rates are irrelavant
Interest rates are never irrelevant but neither is debt service. Debt service determines whether or not you can pay the debt according to terms. You can have low absolute levels of debt and still go BK if you can't service it. You'd assume that people would walk away from absolute debt levels which are higher than asset prices but in practice you'll find only a small percentage willing to do that in regards to a house if they can still service the debt. The reason is because good credit is a valued asset in and of itself.
Deflation is a manifestation of high absolute debt levels - not debt-service.
Funny I always thought deflation was a contraction in the money supply and credit.
As far as I am concerned, gold is silly "investment" unless one believes inflation or armageddon is imminent
Inflation is ALWAYS a risk with the Fed at the helm.
Seems to me I remember a rather brash young man once betting me that his gold miner would out perform any other investment I could name over any period I wished to pick! How did you get converted from that view? -gggg- |
