Nice post. This point is especially important:
"as each $1 rise in the price of Oil has an exponential negative impact upon China's Economy and GDP Growth than it does the USA's."
I agree (generally) that the Chinese financial system is extremely overleveraged. This will continue as long as the rest of the world is willing to invest there, however. In fact, I'm not convinced that when the Dollar:Renmimbi peg is lifted that the Renmimbi will go up, in large part because of the systemic weaknesses and opacity of their financial system. That's one reason they are putting off revaluation...to buy time to "fix" their banks (though the fix may end up worse than what they start with!) However, in the meantime they have a strong incentive to buy gold (which the Chinese government is in effect encouraging it's citizens to do by allowing sales to citizens through banks), oil and other hard assets. While they still can, as it were, which puts a bid under crude for at least a while longer. I'm not an oil permabull, but the dynamics at this point of the cycle seem somewhat different from previous oil shocks. I agree that at 110 or 120/bbl that the price alone would be enough to kill demand, but that does leave a pretty decent run from here, no? "Peak oil" may not be here yet, but there's enough anecdotal evidence to suggest that it probably will be here within this decade, and I do agree that it's probable we will be in open conflict with China over energy resources within the next 10 years. Personally, I hope for higher energy prices as it's the only way that market forces can adjust to solve the problem (ie, better efficiency of utilization and in diversifying supply (LNG, clean coal and perhaps a return to nuclear power in the US).
Regards
Patron |
