Date: Thu Mar 31 2005 15:56
trotsky (Big Bob) ID#248269:
Copyright © 2002 trotsky/Kitco Inc. All rights reserved
i agree that eventually, China will see a surge in domestic consumer demand that will absorb the glut. but it's not a process that can be switched on and off at will simply by floating the currency, or some other type of state intervention.
before that can happen there has to be a liquidation of the malinvestments that linger due to China's enormous credit expansion in recent years...the economy's entire structure must realign with true demand, and that takes time and a bust, imo.
Date: Thu Mar 31 2005 15:52
trotsky (Carmack@coal to oil) ID#248269:
Copyright © 2002 trotsky/Kitco Inc. All rights reserved
i believe this is already viable at current prices. if i recall correctly, the $30 to $35 bbl. level is the threshold.
this highlights what seems to be a misunderstanding about so-called peak oil: the Hubbert peak does NOT mean we'll run out of oil - it only means we'll run out of CHEAP oil, the easy-to-produce low hanging fruit.
Date: Thu Mar 31 2005 15:28
trotsky (@Goldman Sachs oil prediction) ID#248269:
Copyright © 2002 trotsky/Kitco Inc. All rights reserved
it is not entirely unreasonable to expect such a big spike in the oil price - after all, oil demand is extremely inelastic ( mainly because 1. substitution is not a viable option, since all fossil fuel prices tend to rise in tandem, and 2. too many of the vital uses of oil can't be switched off just like that, just because the price is high ) . furthermore, both unexpectedly large Asian demand growth and increasingly visible supply constraints happen to coincide right here and now.
however, i don't really believe it'll happen NOW, or even soon. rather i would expect this forecast to coincide with short to medium term topping action - speculative long positions in oil futures are very large at the moment, and the recent reduction in global liquidity suggests an appreciable economic slowdown could begin anytime. the markets will likely discount it before it becomes obvious, and the risk of a slowdown turning into an outright bust is extraordinarily high. this is due to the unprecedented levels of indebtedness around the world, and the inflation in asset prices that has been misused to collateralize this debt expansion.
at the same time, the recovery from the last recessionary bout has been very fragile, as post-bubble inventory cycle led recoveries usually are. imo it is wrong to believe that e.g. China can simply absorb ever higher commodity prices without ill effects. it is already evident that profit margins are under severe pressure - the Shanghai stock index hasn't been falling for months without reason. there's a glut in manufacturing capacity in China - short to medium term at least. my guess is that the slowdown will be globally synchronized, just like last time...and that will bring on a cyclical downturn in industrial commodities. probably still in the context of a secular bull market, but nevertheless a sizeable retrenchment.
this doesn't necessarily mean that there won't be another price spike in the short term...commodity tops are usually put in via spikes and heightened volatility. i'd reconsider that view if we get a new high in the CRB confirmed by gold...that would indicate the party has still some life left medium term imo.
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