Date: Thu Jan 27 2005 13:58
trotsky (Bleuler@oil) ID#248269:
Copyright © 2002 trotsky/Kitco Inc. All rights reserved
you may be surprised to learn that i once was a regular reader of the WSJ. that was long before it became neo-con central and began to spread economic bromides by the bucketfull.
that artcile on oil of course doesn't fail to frame what is really an economic and energy equation problem in political/ideological terms. the assertion that Saudi Arabia could torpedo the tar sands projects by simply 'opening the spigots' and that that is a result of its governance is ridiculous in the extreme. i note that OPEC has been producing at all-out capacity for two years running, and that hasn't stopped the oil price from rising. virtually all mainstream oil supply/demand forecasts rest on the dubious premise that Saudi output will more than DOUBLE over the next 15 years ( failing that, oil prices will make everyone dizzy one supposes ) . and that is assumed in spite of the fact that the Saudi discovery peak was 5 decades ago. all i can say is, good luck with those forecasts.
it is also a bit of a problem to simply count 'contained barrels' in non-conventional sources such as the tar sands. production from the sands requires natural gas, so the contstraints to production will depend on the availability of NG. most oil geologists estimate that about 10-15% of the resource will prove to be recoverable in energy equation terms ( i.e., this is the amount recoverable before it turns into an energy sink ) .
meanwhile, the political dispensation of Middle Eastern countries has very little to do with oil availability. it was found in hindsight that the Arab embargo of the 70's only had a psychological effect on the markets, but not a real one. oil is fungible, and thus it is immaterial to whom it is sold. this renders all the handwringing over Venezuela's intention to sell more oil to China completely moot as well.
lastly, the market works like this: the easily recoverable oil is always recovered first. it makes no economic sense to concentrate on and invest in oil that is difficult to recover as long as easily recoverable oil remains available.
it may make some perverted ideological sense at neo-con central, but it makes no economic sense.
Date: Thu Jan 27 2005 13:22
trotsky (WileE@bonds) ID#248269:
Copyright © 2002 trotsky/Kitco Inc. All rights reserved
you're of course right that the risks are more pronounced in LT debt paper. but the bond is too risky compared to what? certainly not stocks.
i just heard that the short interest ratio in the Lehman listed government bond fund TLT is 21. it would take 21 days to cover all those shorts. so there's no shortage of bond bears, that much is for sure.
i expect any short term victories they may celebrate will continue to be overshadowed by the long term trend's direction, which clearly remains up.
Date: Thu Jan 27 2005 12:15
trotsky (frustrated, 11:53) ID#248269:
Copyright © 2002 trotsky/Kitco Inc. All rights reserved
it is the treasury that decides what the maturity spectrum of the government's outstanding debt looks like, not the Fed. and so far, they've been ratcheting it down like never before. which is a potentially dangerous game i might add.
whether that will change, we'll see...probably depends on how serious the Fed turns out to be about its rate hike campaign.
Date: Thu Jan 27 2005 12:10
trotsky (WileE@bonds) ID#248269:
Copyright © 2002 trotsky/Kitco Inc. All rights reserved
i agree this may be a short term top. but i doubt we've seen a long term top yet. i actually expect the LT top to eventuate in about 8 to 10 years time, when the K-winter is roughly scheduled to bottom out.
but that's not what Gross contends - he's not making comments on the short term, he has advised people to shun the market for quite some time, and it was a long term type of argument.
meanwhile, it is the short dated paper that has produced losses over the past year or so, while the long dated one has produced gains. in short, keeping ones exposure at the short end of the maturity spectrum has so far been a mistake.
that will likely change as soon as the Fed's rate hike campaign ends.
Date: Thu Jan 27 2005 12:00
trotsky (frustrated) ID#248269:
Copyright © 2002 trotsky/Kitco Inc. All rights reserved
" the bid to cover on the auctions has been down
over the past year...and you have seen the foreign
fund flows to the US...I believe the US rate needs
to be sufficiently above that of Euroland....
at the moment I think Greenie does at least two
more rate hikes... "
you may have a point there. also, i continue to believe that a major motive of the hikes is the desire to gather ammunition for future cuts when the housing bubble falters. and when that happens, i believe it will take precedence over foreign investment flows. FDI has already collapsed by 90% since 2000, so the private sector isn't a buyer of dollar denominated investments anyhow ( which blows out of the water the often heard contention that the capital account 'proves' what a desirable destination for foreign investment the US is. the only significant source of inflows appear to be foreign central banks, i.e. other bureaucrats ) .
certainly the upcoming FOMC meeting will bring us one more hike, and i agree the chances of yet another one at the following meeting can't be dismissed out of hand. it depends on how quickly the various extant bubbles decide to deflate.
note that e.g. the mini bubble in spread product ( i.e., in non-USG debt paper, from corporate to emerging market debt ) has been raging for quite a while now, and may be on the verge of being aborted, simply because everybody's in already - while the risk inherent in the requisite bonds has not really decreased a whole lot if one analyzes the situation carefully ( e.g. corporate debt remains in the aggregate close to a record high vs. GDP.
GM and F owe the world more money than Argentina prior to its default, and their businesses s*ck wind. it doesn't strike me as rational that their bonds have found so many buyers. a denouement is certain to come, the only question is when exactly ) .
Date: Thu Jan 27 2005 11:34
trotsky (@Tim Woods) ID#248269:
Copyright © 2002 trotsky/Kitco Inc. All rights reserved
let's not forget that this is the guy who was bearish all the way up. it is only natural that he now revels in renewed bearishness after a bearish trend has actually persisted for a while.
but that doesn't mean his new forecasts are worth any more than his old ones.
in all likelihood the attention he's now getting serves as a short term bottoming indicator.
keep in mind that money flow analysis shows that the big traders have been buying this most recent decline, while flows out of gold related mutual funds show the public has been selling.
so Woods is basically aligned with the fools here.
Date: Thu Jan 27 2005 10:58
trotsky (Frustrated@Roach) ID#248269:
Copyright © 2002 trotsky/Kitco Inc. All rights reserved
" The answer, he said, lies with the Federal Reserve, which he said would have to raise rates aggressively to curb the spending binge."
well, it's true that if the central bank arrests the artificial credit boom by tightening credit availability, the spending binge will stop. but it might also stop on account of exhaustion, since household debt service is at a record high even though interest rates remain at generational lows. the best thing the Fed could do is abolish itself, and leave interest rates to the market.
"Whether it could do that without triggering a recession is an open question."
he can't be serious. why should that be an 'open question'? there can be absolutely no doubt that a recession would result, probably one of the worst ones in history. but that would actually be a good thing, longer term. the economy needs to heal by cleaning out the massive malinvestments the credit boom has created. the end of all the wealth-consuming activities that have sprung up on the back of EZ credit will produce a recession, but leaving those activities intact only will lead to an even worse recession down the road. the sooner they are ended, the better.
where Roach errs is in his belief that the Fed will actually go for it. as usual, it will back down.
Date: Thu Jan 27 2005 10:43
trotsky (the US economy and its soothsayers) ID#248269:
Copyright © 2002 trotsky/Kitco Inc. All rights reserved
as we're all aware, the business-as-usual, polyannish rosy forecasts on the economy once again predominate mainstream discourse this year.
in this, the 'economists' ( charlatans would describe them better, or if you want to be charitable, call them clowns ) take their cue from the bureaucracy, which bases its sanguine views on the misleading data produced by itself.
the picture painted by Commerce's and BLS's data is however an incredibly distorted one...an embellishment of reality on which to rely amounts to forecasting suicide.
the only questions worthy of investigation should be:
when will the house of cards created by the biggest credit bubble in mankind's history collapse? and what shape will the collapse take?
it is not even 'what can be done about it?', because it's way too late to 'do something' ( however, the question of what to do is still an important one for individuals...it is only a useless question in terms of macro-economic policy, and it is the policy which has brought us to the point of no return in the first place ) .
it is amazing how thoroughly the virtue of independent thought has been erased in modern day economic debate - statist views are all that is proffered, even by those few prominent economists who dare to suggest that there might indeed be a structural economic problem afoot.
a downright horrifying example of this tendency can be observed at the big bond fund PIMCO. Bill Gross's worst failing may be that he keeps being wrong about the direction of the bond market, but his colleagues, especially his boss Chris Dialynas and to a lesser extent Paul McCulley , are statist to the core of their being, worse enemies of liberty can hardly be imagined ( check their writings on the PIMCO site for confirmation ) . naturally, they are dangerous, since the State will use their intellectual backing as an excuse to implement drastic measures toward more collectivism when the crisis comes, just as politicians a few decades ago used the criminal mastermind Keynes to justify an unprecedented expansion of the welfare/warfare state as well as the entrenchment of the evil fiat money system.
it should be quite clear that the quickest - and indeed only - way to get us out of the mess is 'laissez faire'. allow things to play out, because the drama WILL play out whether we like it or not. but there's a choice between the terrifying interventionism proposed by the likes of Dialynas and the non-interference proposed by the Austrian school. the former will bring us Japan-like never-ending misery, while the latter would result in a lot of short term pain, but would bring the economy back on a solid footing in a much shorter time - and without the costs in terms of lost liberty that the interventionist agenda will incur.
we need a new breed of economists prepared to cast off the chains of state propaganda that bind the minds of the profession, and daring to think for themselves. we need a new vision in support of economic freedom. all the other roads will without a doubt lead to a long term disaster.
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