Date: Tue Aug 16 2005 14:18
trotsky (Yorkie@oil) ID#248269:
Copyright © 2002 trotsky/Kitco Inc. All rights reserved
"Suppose oil goes up 5 to 10 times. " - not very likely from the current price level. it WAS likely when it traded at $10/bbl., but if prices were to rise five-fold from the current level, demand destruction would rein them in quickly. imo oil demand is set to fall even if prices rose to say $90-100 ( the old inflation-adjusted highs ) . demand growth has already slowed down considerably, and may end up below the long term average of 2% this year. the problem that the oil market is discounting is the fact that there is no capacity cushion, or only a very small one. thus any major supply disruption would quickly lead to inventory depletion and soaring prices. it is now widely held that demand from China can only grow, regardless of prices...this is obviously nonsense. China's oil demand growth has slowed down sharply this year, and is already well below expectations. since aanualized credit growth rates in China have collapsed by about 95% over the past two years ( they're on the verge of going negative actually ) , it is easy to imagine that China is careening toward a hard landing of sorts. if/when that happens, it will take oil demand growth right down with it, and the overoptimistic forecasts that became all the rage in late '04 will be proven wrong ( they've already been proven wrong as it were ) . note that the SAME agencies that consistently underestimated demand growth for several years running have hugely upped their estimates for this year and next - and there's no reason to believe that the always wrong forecasts will magically turn into correct forecasts only because they now exaggerate in the other direction.
lastly, i believe energy costs are already high enough to stop the global reflation recovery in its tracks. the major pointer is that it has become conventional wisdom that oil prices 'don't matter'. this is a ridiculous assertion of the 'this time it's different' kind. i'd be willing to bet that once an economic downturn becomes evident, oil prices will get the blame ( rightly or wrongly ) from the very same people who now assure us that they 'don't matter'.
Date: Tue Aug 16 2005 13:47
trotsky (@CPI) ID#248269:
Copyright © 2002 trotsky/Kitco Inc. All rights reserved
"The Fed ``is still going to be nervous about the potential for energy prices to spill over, but this has got to be comforting to them,'' said James Glassman, senior U.S. economist at JP Morgan Securities Inc. in New York."
and this comment actually comes from a 'senior economist' at a major US bank. it's unbelievable how deeply ingrained economic illiteracy has become. price inflation is an EFFECT of monetary inflation ( i.e., expansion of the money supply ) . the fact that an item, such as oil, is rising in price, can never become the 'cause' of inflation. the cause of inflation is the Fed's printing press, nothing else. if the Fed does not grow the money supply while oil prices rise, demand for energy as well as other goods and services will moderate, and prices will come under pressure elsewhere. of course it's a truism that the Fed NEVER fails to grow the money supply, but there are no signs that it is engaging in big scale 'monetization' of the oil price rise. money supply growth rates have in fact declined considerably compared to the period '95-'03.
in short, all this 'yadayada, Fed worried about oil prices, etc' is nothing but spin. |
