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EJ
10-20-07, 12:18 AM
http://www.itulip.com/images/recessionQ42007.jpgPowers Vow to Limit Credit Crisis Damage (http://biz.yahoo.com/ap/071019/finance_meetings.html)
October 19, 2007 (Jeannine Aversa - AP Economics Writer)

World's Top Finance Officials Pledge to Limit Economic Fallout From Credit Crisis

Finance officials from the world's top economic powers pledged Friday to do all they can to limit damage to the global economy from a jarring credit crisis as Wall Street took another plunge.

"We remained committed to doing our part in sustaining strong global growth," the finance officials said in a joint statement. While saying the functioning of global financial markets was improving somewhat, they warned that "uneven conditions are likely to persist for some time and will require close monitoring."

"Powers" vow to fix the economy? My but that sounds ominous, in a black and white movie reel from the 1930s kind of way.

We were led to believe that the markets had all the power. Who are these powers who are going to fix the economy? Certainly not the same ones who broke it, we hope. Reminds us of this tidbit from our 1999 research for Ka-Poom Theory.
"Reflation" (http://www.time.com/time/magazine/article/0,9171,743610-2,00.html)


Apr. 25, 1932 (Time)



Plans for a third enormous national credit pump lay last week before the House Banking & Currency Committee. In January this committee helped design Reconstruction Finance Corp. to pump $2,000,000,000 of Federal funds through the nation's banks into Industry. In February, with the Glass-Steagall bill, it went to the rescue of the banks themselves by giving them a bigger & better pipe line into the Federal Reserve System. It was now proposed to pump Federal Reserve credit into the commodity markets— wheat, corn, beef, cotton, coffee, sugar. The bill was introduced by Representative Thomas Alan Goldsborough, Maryland Democrat. It required the Federal Reserve "to take all available steps to raise the present deflated wholesale level of commodity prices as speedily as possible to the level existing before the present deflation, and afterward to use all available means to maintain such wholesale commodity level of prices." Just how the Federal Reserve was to accomplish this large order nobody was sure.



George Leslie Harrison, governor of the Federal Reserve Bank of New York and Eugene Meyer, governor of the Federal Reserve Board, appeared before the Committee. Both opposed the Goldsborough bill. Their objections were similar: the Federal Reserve was now doing all it could to support the commodity markets; by itself it could not execute such a legislative mandate. Declared plump Governor Meyer: "I would not want to be peremptorily ordered to run 100 yards in ten seconds flat." The Federal Reserve, according to its chief, was now "holding the line" and "if you can hold the line, you can turn it eventually."



To specify what the Government had already done Mr. Meyer revealed that R. F. C. has helped out of trouble 1,319 banks of which 76% were in towns of 10,000 population or less.* Likewise since Feb. 1, $250,000,000 in currency had been returned to circulation by hoarders.†



But it remained for pipe-smoking Governor Harrison to lay the biggest piece of fiscal news down before the House Committee—namely, that the Federal Reserve was in the market for U. S. securities as never before. Its purchases were part of the Government's new determination to pump credit into the country—a process its friends call "reflation" instead of inflation—under the provisions of the Glass-Steagall bill. Not until its statement was issued later in the week was the full extent of the Federal Reserve's pumpings evident to the country.



The Glass-Steagall bill permits Federal Reserve banks to use Treasury obligations for part of their currency coverage, thereby releasing gold above the 40% minimum requirement. Open market operations in the U. S. securities have always been part of the Federal Reserve's function. Last autumn the Federal Reserve began a credit-pressure move of the kind now undertaken. England's gold crisis halted that move, but since the Glass-Steagall bill's enactment (Feb. 27), the Reserve has been quietly purchasing in the open market Federal securities at the rate of $25,000,000 per week. Last week it was buying them at the rate of $100,000,000 per week. Total purchases: $245,000,000. The U. S. security market fairly boomed, imparting strength down the line to the rest of the bond market.



The result of this new Government credit policy was to increase the funds at the disposal of Reserve member banks for commercial loans in the following manner: Bank A receives from a customer $500,000 in Government securities to sell. It turns them into the Federal Reserve bank which credits Bank A with $500,000. Bank A credits its customer with a $500,000 deposit on which it must pay interest. But it gets no interest on its own $500,000 Reserve deposit. Until it draws its Reserve deposit and puts it to profitable work at the service of commerce or industry, it is losing money.



Last week, as a result of open-market purchases by the Reserve banks, the system's member bank balance increased $69,000,000 to $2,011,000,000. In effect the Federal Reserve was stacking this pile of $69,000,000 (worth approximately $690,000,000 in new credit) in its front window and inviting member banks to come and get it for "reflationary"' purposes rather than to call loans to raise money.



*Last week the Treasury gave R. F. C. the last $150,000,000 of its $500,000,000 allotment. Hereafter to raise money R. F. C. will have to sell its own securities.



† Last week, after subscriptions of $30,000,000 the Treasury ceased selling "baby bonds" to absorb hoarded funds.
In the 1930s they had no idea how bad things were going to get if they waited too long to react to the post-credit bubble debt deflation. Plus the Fed, by even a casual reading of the minutes, was clearly composed of a pack of perfect dimwits.

No such errors this time, but new ones. The key lesson the Fed learned: don't wait until the money supply has imploded and the banking system is crippled before acting. But no two circumstances are alike, and in the fullness of time the current FOMC will likely be seen as just as dimwitted but in a way unique to our times, such is the folly of trying to be a "power" over the markets.

Another lesson learned: a sure fire way to keep us all from "hoarding funds" is to take away the funds–in those days gold–as FDR did in 1933 by executive order, and raise the price by 30%. Presto, 30% monetary inflation. Oops, I mean "reflation," a more polite word invented at the time, and the one we chose to use in our Ka-Poom Theory of post-bubble disinflation/reflation cycles. Today, without gold backing, the Fed is free to simply print more fiat money to create inflation, I mean, reflation. The resulting mass behavior modification is to cause us all at once to think of hoarding old newspapers before government money. Better spend it while we can. So while the jobless claims numbers surprise four out of five economists on the upside by a factor of four (http://www.reuters.com/article/businessNews/idUSN1141029220071018), and living paycheck to paycheck is getting nearly impossible (http://biz.yahoo.com/ap/071019/stretching_paychecks.html), the malls are jammed with shoppers eager to spend their paychecks before they're sent to reflation heaven by the latest round of bonar depreciation.

Our crusty old 2001 recession forecast (http://www.itulip.com/recession2001.htm) is looking more every day like it should have been made for the approaching recession. In it we said:
"The fiscal 'surplus' of the past few years will turn out to be due primarily to capital gains tax receipts. As tax payers take capital gains losses against gains in 2001, tax receipts will fall by a greater extent than expected. Tax cuts, blessed by Greenspan last week and enacted to help the economy will create an enormous fiscal deficit for 2001."
Our 2001 recession forecast was about half right. The good news: the important half was correct: "The first stage of the depression is deflationary, the second inflationary."

Those of us who invested in gold and other inflation hedges in 2001 did better than those who listened to the deflationists, legion at the time, and made deflation bets. That holds true today.

Next week, we review our now year old forecast of a post housing bubble recession starting in Q4 2007. We've learned a thing or two since 2000 and expect this forecast to be better than half right. Evidence is that this will be, without a doubt, the most peculiar recession ever, with some sectors of the economy booming while others are crashing, some geographic areas of the US contracting while others are still growing. On a whole, we figure the Alternative Energy and Infrastructure bubbles need to get cranked up and boosting demand in 18 to 24 months to keep the US from running into Japan 1990s style debt deflation cycle.

See also:
Bubbles in Everything... Sort of (subscription) Janszen - 10/19/07 (http://itulip.com/forums/showthread.php?p=18005#post18005)
Why oil and gold price increases are not bubbles but rather reflect monetary inflation.

The End of the Debt and Delusion (subscription) Janszen - 10/17/07 (http://itulip.com/forums/showthread.php?p=17861#post17861)
This is one of those pieces that EJ occasionally writes to help align readers' thinking more in line with long term historical processes versus consumed by the short term market news discussion in the mainstream business press that is designed to keep investors trading and generating fees for brokers and readership for their financial market publications, web sites, and blogs.

iTulip Select (http://www.itulip.com/forums/showthread.php?t=1032): The Investment Thesis for the Next Cycle™
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Ed
10-20-07, 01:53 PM
Two bubbles!! We’d better let only one deflate at a time!

The two are here (first chart):
“Real Dow & Real Homes & Personal Saving” at
http://homepage.mac.com/ttsmyf/RD_RJShomes_PSav.html
(And last chart shows real homes later -- down further.)

The manipulable one is stock prices:
From SAM report, “Move Over, Adam Smith: The Visible Hand of Uncle Sam”, 8/2005, 39 pages, 119 footnotes,
at
http://www.sprott.com/pdf/TheVisibleHand.pdf
“This report examines information indicating that the U.S. government has surreptitiously intervened in the American stock market. ... Given the available information, we do not believe there can be any doubt that the U.S. government has intervened to support the stock market.”
IN PARTICULAR, Heller (1989) (H. Robert Heller, who three months earlier was a Federal Reserve Board Governor!!!), writing a column in The Wall Street Journal, “suggested that the central bank be empowered to stabilize plunging stock markets by purchasing stock index futures contracts.”, WHICH IMPLIES the existence of an intervention MEANS to negate LARGE-scale momentum, which surely allows the existence of an intervention MEANS to do stock market price manipulation in general.

Jim Nickerson
10-20-07, 02:06 PM
Our crusty old 2001 recession forecast (http://www.itulip.com/recession2001.htm) is looking more every day like it should have been made for the approaching recession. In it we said:
"The fiscal 'surplus' of the past few years will turn out to be due primarily to capital gains tax receipts. As tax payers take capital gains losses against gains in 2001, tax receipts will fall by a greater extent than expected. Tax cuts, blessed by Greenspan last week and enacted to help the economy will create an enormous fiscal deficit for 2001."Our 2001 recession forecast was about half right. The good news: the important half was correct: "The first stage of the depression is deflationary, the second inflationary."

Those of us who invested in gold and other inflation hedges in 2001 did better than those who listened to the deflationists, legion at the time, and made deflation bets. That holds true today.

Next week, we review our now year old forecast of a post housing bubble recession starting in Q4 2007. We've learned a thing or two since 2000 and expect this forecast to be better than half right. Evidence is that this will be, without a doubt, the most peculiar recession ever, with some sectors of the economy booming while others are crashing, some geographic areas of the US contracting while others are still growing. On a whole, we figure the Alternative Energy and Infrastructure bubbles need to get cranked up and boosting demand in 18 to 24 months to keep the US from running into Japan 1990s style debt deflation cycle.



http://online.barrons.com/article/SB119283369555665403.html?mod=9_0031_b_this_weeks_ magazine_columns

From Barron's Alan Abelson, 10/22/07





STEVE ROACH, WHO NOW sports the somewhat weighty title of chairman, Morgan Stanley Asia, doesn't sound off on how the world's turning with anything like the frequency he did for so many years when he was that's firm's No. 1 commentator on markets, the economy and the like. Frankly, we miss his level-headed, original and contrarian take.

So it was with no little pleasure last week, with the market celebrating the 20th anniversary of the Crash of '87 with a swoon, oil prices topping $90 a barrel and the bruised dollar under fresh siege, that we espied an e-mail from Steve bearing the title "A Subprime Outlook for the Global Economy."

As that suggests, he's less than sanguine about the economy, mostly because he sees real trouble ahead as asset-dependent U. S. consumers struggle to negotiate a post-bubble adjustment that's bound to stifle their insatiable yen to consume. And he doesn't buy the widely popular notion that the rest of the world will manage just fine no matter what happens here.

He notes that the bursting of the dot-com bubble seven years ago caused a mild recession but, more importantly, a collapse in business capital spending both in the U.S. and abroad. The subprime-mortgage fiasco, he warns, is only the tip of a much larger iceberg.

The consumer, who has indulged in the greatest spending binge in modern history, now accounts for 72% of our GDP. Steve reckons that's five times the share of capital spending seven years ago. Reason enough to suspect the impact of a sharp contraction in consumer spending could be considerably more pronounced than the damage wrought by the end of the capital- investment boom at the turn of the century.

Of the two forces that spark consumer demand, wealth and income, it's no contest which has provided the impetus for the mighty surge in Jane and John Q.'s spending. Since the mid-1990s, Steve points out, income has taken a back seat: In the past 69 months, Steve reports, private-sector compensation has edged up a mere 17%, after inflation, which "falls nearly $480 billion short of the 28% average increase of the past four business cycle expansions."

More than taking up the slack, however, has been the appreciation in housing assets. But with this source of wealth dramatically running dry with the bursting of the housing bubble, he sees no way that "saving-short, overly-indebted American consumers" can continue to spend with wild abandon. And for an economy like ours, so lopsidedly dependent on such spending, "consumer capitulation spells high and rising recession risk.''

Even a moderate slump in growth could prove strictly bad news for "the earnings optimism still embedded in global equity markets," and obviously for the markets themselves. Recent action of our own juiced-up stock markets, we might interject, strongly hints that such optimism is beginning to wear a tad thin.

No mystery how we got into this bind. Following the end of the equity bubble, scared stiff of deflation, central bankers opened the monetary floodgates and liquidity poured into the global asset markets.

As Steve relates, "Aided and abetted by the explosion of new financial instruments -- especially what is now over $440 trillion of derivatives -- the world embraced a new culture of debt and leverage. Yield-hungry investors, fixated on the retirement imperatives of aging households, acted as if they had nothing to fear. Risk was not a concern in an era of open-ended monetary accommodation..."

Steve plainly has doubts whether Fed chief Ben Bernanke's recent rate cuts can stem "the current rout in still-overvalued credit markets." He worries that the actions were strategically flawed in failing to address the "moral-hazard dilemma that continues to underpin asset-dependent economies."

And he asks, "Is this any way to run a modern-day world economy?" All those who think it is, please raise your hand, and then lie down and wait for the fever to pass.

bart
10-20-07, 02:29 PM
Truly interesting on the specifics noted in that Time article from 1932.

I can't imagine even the Time magazine of only 20 years ago going that deep into Fed actions and stats.


Here's another quote from Time from 1933:

"Dollars sank last week to the lowest level since the U.S. quit the gold standard, 63 cents. Because President Roosevelt had not yet seen fit to devalue the dollar, the price is determined by supply and demand in international exchange. And because the U.S. has a favorable trade balance, demand is normally greater than supply.

Whence the dollar flood has eaten away 35 cents of every 100 cents in each U.S. dollar since last April. Continental money-changers, canniest of whom are reputed to be ‘the Greeks,’ delight in selling dollars short, but bankers know that accounted for only a fraction of the drop. Last week from the British Commonwealth Relations Conference in Toronto came confirmation of what Wall Street has long suspected; that U.S. citizens have exported their dollars by the hundreds of millions.

"‘One of our problems,’ droned Viscount Cecil of Chelwood, chairman of Britain’s delegation, ‘is the flood of unwanted money that is pouring into our banks. These funds, deposited in the main by U.S. investors, are subject to withdrawal at 24- hour notice and are of little or no value, though it has not yet been discovered how to get rid of them.’

"Standard Statistics Co., Inc., world’s largest figure factory, estimated that $1,000,000,000 had flown the Atlantic, the bulk of it to London. France, whose tie to gold is none too secure, has received little, but Holland and Switzerland have been drowned in dollars. Unlike exports of gold which is strictly banned (for private citizens) the flight from the dollar has been quietly encouraged by Washington; it pushed down the price without requiring devaluation by Presidential decree."


-- Time magazine, September 25, 1933 edition

FRED
10-20-07, 02:47 PM
Truly interesting on the specifics noted in that Time article from 1932.

I can't imagine even the Time magazine of only 20 years ago going that deep into Fed actions and stats.


Here's another quote from Time from 1933:

"Dollars sank last week to the lowest level since the U.S. quit the gold standard, 63 cents. Because President Roosevelt had not yet seen fit to devalue the dollar, the price is determined by supply and demand in international exchange. And because the U.S. has a favorable trade balance, demand is normally greater than supply.

Whence the dollar flood has eaten away 35 cents of every 100 cents in each U.S. dollar since last April. Continental money-changers, canniest of whom are reputed to be ‘the Greeks,’ delight in selling dollars short, but bankers know that accounted for only a fraction of the drop. Last week from the British Commonwealth Relations Conference in Toronto came confirmation of what Wall Street has long suspected; that U.S. citizens have exported their dollars by the hundreds of millions.

"‘One of our problems,’ droned Viscount Cecil of Chelwood, chairman of Britain’s delegation, ‘is the flood of unwanted money that is pouring into our banks. These funds, deposited in the main by U.S. investors, are subject to withdrawal at 24- hour notice and are of little or no value, though it has not yet been discovered how to get rid of them.’

"Standard Statistics Co., Inc., world’s largest figure factory, estimated that $1,000,000,000 had flown the Atlantic, the bulk of it to London. France, whose tie to gold is none too secure, has received little, but Holland and Switzerland have been drowned in dollars. Unlike exports of gold which is strictly banned (for private citizens) the flight from the dollar has been quietly encouraged by Washington; it pushed down the price without requiring devaluation by Presidential decree."


-- Time magazine, September 25, 1933 edition



Great catch. More eerie similarities between the 2003 to 2007 and 1933 to 1937 periods.

zoog
10-20-07, 05:48 PM
Great catch. More eerie similarities between the 2003 to 2007 and 1933 to 1937 periods.

This is curious proposal from EJ & Co - comparing the past few years to the middle of the Great Depression - while so many Chicken Little's (and some not so hysterical;)) fret about a soon and future Great Depression II, with the assumption that it will be preceded by a major market collapse.

Was the big collapse back in 2000 and since then we've been muddling through a remarkably mild depression? Or this time have we put the cart before horse and we're having the depression first, then the market crash?:confused::rolleyes:

There have been numerous discussions and warnings on iTulip about how everything in this FIRE economy is inter-related and teetering on the edge of a domino fall. The idea that some areas will suffer while others prosper seems a contradiction, at least on the surface.


Evidence is that this will be, without a doubt, the most peculiar recession ever, with some sectors of the economy booming while others are crashing, some geographic areas of the US contracting while others are still growing.Most peculiar indeed.

FRED
10-20-07, 06:37 PM
This is curious proposal from EJ & Co - comparing the past few years to the middle of the Great Depression - while so many Chicken Little's (and some not so hysterical;)) fret about a soon and future Great Depression II, with the assumption that it will be preceded by a major market collapse.

Nothing new about this. Do a google search on "modern depression" and welcome to our world!

zoog
10-20-07, 06:53 PM
Nothing new about this. Do a google search on "modern depression" and welcome to our world!

Ok ok.:rolleyes::p iTulip is information overload, hard for me to remember all these essays.


...[The credit system] has served to compensate the middle class' loss in income but also to provide billions for leverage in the private equity markets. This era’s post bubble bust “poor” are poor only on paper. They have few assets net of liabilities and a lot of debt, but they still have their homes and lots of consumer goods, and in fact continue to pile them on, on the assumption that access to credit will continue as far as the eye can see. (This is in fact what consumer confidence is actually measuring today, expectations of future access to credit.) Today we don’t have soup lines but we do have millions of middle class households who have been breaking up the household financial assets “furniture,” so to speak, by selling the equity in their homes and consuming their credit to maintain the standard of living to which they have become accustomed.

bart
10-20-07, 07:47 PM
Great catch. More eerie similarities between the 2003 to 2007 and 1933 to 1937 periods.


Thanks. :)
Here's another "interesting" (in the sense of the old Chinese curse) chart comparing the two general periods... from the bart chart dark closet department... which is not unlike the dungeon at Finster's Manor. ;)



http://www.nowandfutures.com/download/dow1929_2000cpi_adjusted.png

jk
10-20-07, 07:54 PM
This is curious proposal from EJ & Co - comparing the past few years to the middle of the Great Depression - while so many Chicken Little's (and some not so hysterical;)) fret about a soon and future Great Depression II, with the assumption that it will be preceded by a major market collapse.

Was the big collapse back in 2000 and since then we've been muddling through a remarkably mild depression? Or this time have we put the cart before horse and we're having the depression first, then the market crash?:confused::rolleyes:

There have been numerous discussions and warnings on iTulip about how everything in this FIRE economy is inter-related and teetering on the edge of a domino fall. The idea that some areas will suffer while others prosper seems a contradiction, at least on the surface.

Most peculiar indeed.
i guess finster is otherwise occupied, so i'll chime in that these observations rest on the premise of firmly ignoring our shrinking measuring stick, the dollar. first, if you believe john williams' shadowstats, or what bart likes to call "cpi+lies," and subtract THAT from nominal gdp growth you see that we've been in recession for a while. similarly, the stock market never really recovered from its swoon early in the decade. just look at the dow in euros [or in gold], or the dow multiplied by the dollar index.

the "mild depression" you reference has been deferred by our borrowings against our assets, especially our homes. and the debt is coming due. of course asset prices may fall, but debt doesn't go away unless it is repaid or defaulted. ej linked somewhere or other to an article about how people were finding it hard to live from payday to payday, as their checks just didn't go as far. with food and heat and transportation costs all sharply higher, the cost of necessities may be beyond the reach of a growing number of families. [good thing they're not inflationary at the core.] so we may get to see more soup lines yet. just set your digital camera on black-and-white and it will look quite authentic.

bart
10-20-07, 08:30 PM
i guess finster is otherwise occupied, so i'll chime in that these observations rest on the premise of firmly ignoring our shrinking measuring stick, the dollar. first, if you believe john williams' shadowstats, or what bart likes to call "cpi+lies," and subtract THAT from nominal gdp growth you see that we've been in recession for a while. similarly, the stock market never really recovered from its swoon early in the decade. just look at the dow in euros [or in gold], or the dow multiplied by the dollar index.
...



I know how big of a shock it is, but it just so happens that I have a chart with GDP adjusted by CPI+lies.

http://www.nowandfutures.com/images/real_gdp_williams.png

zoog
10-20-07, 08:34 PM
Thanks guys. If you beat this stuff into my head enough times, eventually I remember it long enough to put pieces together and reach some level of understanding.:D

jk
10-20-07, 08:42 PM
The idea that some areas will suffer while others prosper seems a contradiction, at least on the surface.
think software engineers versus mortgage brokers from 2000-2005. think detroit versus phoenix over the same period.

GRG55
10-21-07, 12:42 AM
think software engineers versus mortgage brokers from 2000-2005. think detroit versus phoenix over the same period.

Think investment bankers over anything 1995-2006...

GRG55
10-21-07, 12:54 AM
Nothing new about this. Do a google search on "modern depression" and welcome to our world!

I'm starting to get the impression that either you folks are flirting with the dark side deflationists, or everyone including iTulip, Doug Casey, Mish, Rick Ackerman and Bob Prechter will be able to claim victory by pointing to the part of the country/economy that supports their case... :rolleyes:

bart
10-21-07, 12:59 AM
I'm starting to get the impression that either you folks are flirting with the dark side deflationists, or everyone including iTulip, Doug Casey, Mish, Rick Ackerman and Bob Prechter will be able to claim victory by pointing to the part of the country/economy that supports their case... :rolleyes:

Yawn... (http://www.nowandfutures.com/grins/yawn.wav)


Straw Man (Fallacy Of Extension): attacking an exaggerated or caricatured version of your opponent's position.

For example, the claim that "evolution means a dog giving birth to a cat (http://www.don-lindsay-archive.org/creation/dogcat.html)."


Another example: "Senator Jones says that we should not fund the attack submarine program. I disagree entirely. I can't understand why he wants to leave us defenseless like that."

GRG55
10-21-07, 01:06 AM
Yawn... (http://www.nowandfutures.com/grins/yawn.wav)


Straw Man (Fallacy Of Extension): attacking an exaggerated or caricatured version of your opponent's position.

For example, the claim that "evolution means a dog giving birth to a cat (http://www.don-lindsay-archive.org/creation/dogcat.html)."


Another example: "Senator Jones says that we should not fund the attack submarine program. I disagree entirely. I can't understand why he wants to leave us defenseless like that."

I still think a "victory for all" party is in the works (Mish isn't going to give up that easily). Sort of a Red States, Blue States thing.

Good thing internet bandwidth keeps going up...we're gonna need it to handle the onslaught.

bart
10-21-07, 01:26 AM
I still think a "victory for all" party is in the works (Mish isn't going to give up that easily). Sort of a Red States, Blue States thing.


Perhaps, but the bottom line is whose actual positions and recommendations out perform over the months and years.

Mish has recommended gold since almost day one so he'll at least do better than the Wall St. shills and many/most US citizens.

GRG55
10-21-07, 06:03 AM
Perhaps, but the bottom line is whose actual positions and recommendations out perform over the months and years.

Mish has recommended gold since almost day one so he'll at least do better than the Wall St. shills and many/most US citizens.

That's because, unlike most US citizens, he's paying attention and trying (like we all are) to understand the implications of what is going on... :p

metalman
10-21-07, 08:52 AM
Perhaps, but the bottom line is whose actual positions and recommendations out perform over the months and years.

Mish has recommended gold since almost day one so he'll at least do better than the Wall St. shills and many/most US citizens.

i've followed all these guys, read prubear and prechter and mish and ackerman, been reading itulip since 1999. itulip recommended gold in 2001 and has been stubbornly on the inflation trail since 2000 as i recall. mish has been 100% in the deflation camp since he started out... when was that, anyway? 2002 or something? it was easier to recommend gold after the price had already been rising. itulip recommended it in 2001 when everyone still hated it. mish's and prechter's recommendations on gold and calls for deflation don't make sense to me. my sense is that itulip does as well as it has on these bubble calls because it's been around for nearly 10 years and they have a better handle on how the world works than most out there... they rely too much on analytics, charts, and academic type thinking.

GRG55
10-21-07, 10:11 AM
Perhaps, but the bottom line is whose actual positions and recommendations out perform over the months and years.

Mish has recommended gold since almost day one so he'll at least do better than the Wall St. shills and many/most US citizens.


Just so there's no confusion I have a good deal of respect for the Mish's work, and try to keep an open mind on the possible outcomes we are facing bart:
http://www.itulip.com/forums/showthread.php?p=17661#poststop

EJ
10-21-07, 10:54 AM
Just so there's no confusion I have a good deal of respect for the Mish's work, and try to keep an open mind on the possible outcomes we are facing bart:
http://www.itulip.com/forums/showthread.php?p=17661#poststop

The source of confusion here is that in Mish's world, a debt deflation means commodity price deflation ala 1930s. In the iTulip world, since day one, a debt deflation means dollar depreciation and commodity price inflation.

I recently offered Mike the opportunity to debate me again on this topic. He turned me down, stating that his position and mine on deflation are close.

I disagree. Our positions on deflation, in fact, could not be more at odds and have always been so.

Mike has been very clear on his expectations of commodity price deflation, as in this piece that turns up in a google search on Mish and deflation: Deflation is in the Cards (http://www.safehaven.com/article-3010.htm)

You have never seen in nearly 10 years nor will you ever see on iTulip a prediction of commodity price deflation because it's never, ever going to happen.

The only choices we have offered our readers over the years is from the following menu:

A) Fed succeeds in managing the post-credit bubble debt deflation: gradual dollar depreciation with a controlled commodity price inflation.

B) Fed fails to manage the post-credit bubble debt deflation: rapid and uncontrolled dollar depreciation with spiking commodity price inflation and interest rates.

Readers see the word "deflation" in the term "debt deflation" and immediately associate it with commodity price deflation. But we are talking about asset price deflation within the FIRE Economy, not commodity price deflation within the Production/Consumption Economy.

This is a common area of confusion in this debate, but since the US went off the gold standard, and especially since the US became a net debtor versus a creditor, the possibility of a commodity price deflation in the US has been zero.

At this point in the debt deflation process, the remaining policy tool available to fight debt deflation is dollar depreciation. It is being used with "good results" so far. The US has so far avoided recession, at the price of making oil and other imports expensive. However, dollar depreciation as a policy tool even has Larry Kudlow worried, who recently wrote:

Sometime in the latter half of the 1990s I coined the phrase “King Dollar.” This was back in the post-Soviet collapse period when the U.S. greenback ruled the world currency roost. As the Berlin Wall came down, taking totalitarian socialism with it, global investors and businesses sought the U.S. dollar as their currency of choice. They also chose the American model of free-market capitalism — including supply-side reductions in marginal tax rates — as their economic reform of choice...

However, there comes a point in this transition when the U.S. must begin to stabilize the dollar. I believe we are at that point now. It is time to think about reviving King Dollar. If we don’t, there may well be negative consequences for U.S. inflation, the stock market, and economic growth. I’m not worried about too much foreign investment, but I am concerned about too little foreign investment. I do not want to see a collapse of the worldwide demand for dollars.
Note to Larry: The hog is in the tunnel. We are over the top of major credit and economic cycles. Anything we do to try to restore the dollar now risks sending the US economy into an uncontrolled debt deflation. Such a move will cause capital flight a dollar crash. It's lose or lose big, and we are betting that our trade partners, by continuing to buy agency and other capital goods from us, will allow us to merely lose versus lose big. If that fails, next step is to start selling domestic assets directly.

bart
10-21-07, 11:26 AM
Just so there's no confusion I have a good deal of respect for the Mish's work, and try to keep an open mind on the possible outcomes we are facing bart:
http://www.itulip.com/forums/showthread.php?p=17661#poststop


That's pretty much my take too, and Mish & I do disagree on the eventual outcome and many other aspects. I don't think we'll see actual deflation for any significant period of time in the US, and do believe that the Fed and other central banks, etc., will succeed in reflating.

Ka-poom and the FIRE economy concepts of iTulip are quite close to my basic views. The differences are basically quibbles in the big picture.

Contemptuous
10-21-07, 12:57 PM
Commodity deflation? 1930's redux?

I am surprised someone as erudite as Mish gets taken in year after year on this. The real trend in natural resources in the early 2000's is profoundly, structurally inflationary - whether due only to monetary aggregates or not - it IS inflationary.

This should be apparent to anyone not blinded by the fearsome light of the "1930's deflationist's" argument.

Mish's insight on this topic seems a bit of a "wavering candle" in the dark.

89

_________________

What is necessary, particularly for Americans, and for anyone else overwhelmed by the gruesome analysis of unsustainable debt within the US, is to be very wary, and to avoid America-centric thinking, as it's now invalid for the new century. An America centric global economy is by no means an axiom in 2007, and won't be true at all in another 5-10 years, with a good degree of probability.

Whenever these industrious but obtuse, apparently erudite "commodities down" market watchers (global deflationists) conclude the "US and with it the industrialised world must collapse from debt into a massive deflation", they are employing an unpardonably fuzzy global focus for so-called "market pundits" that increasingly appears at odds with the global reality.

This "global deflationary collapse" conclusion is something they've apparently derived from years of observations which have been totally engrossed in the gruesome details of the US economic decline alone. All other global growth trends are assumed to be tethered to the US locomotive - and this assumption lazily employs the same paradigm which held for the past 40 years. It does not hold any more - if not completely, then this trend is emerging at lightning speed (five more years of 10% - 15% annual growth in a bloc of 3++ billion people will effectively complete the transition).

The US will shortly be free to fail, without fully HALF the global economy, let alone the commodity consumption fueling the build out of that 3 billion person economic bloc, compliantly being required to fail right alongside the US.

The crime here, for an investment advisor who purports to provide actionable long term signals, is to be far too complacent - complacent that the flagging of US consumption will lock up global growth. This is a canard. There will be a resulting recession - and equities markets will certainly amplify that correction even harshly, but the decade long trend for commodities is tethered to the largest global build-out in 300 years (now well past the startup phase), and any investment analyst who misses this concept, no matter how sophisticated the rest of their analysis may sound, should be fired, for having missed the biggest actionable trend to appear in at least a century.

Jim Rogers = 100%
Mish et. al. = 0%

For these "specialist" market watchers to provide such exquisite detail regarding all aspects of American financial bloat, but who fail miserably to connect this with an incresingly powerful growth trend throughout Asia where the demographic size of this trend and it's unbelievably bullish mid term fundamentals, exceeds the 19th Century industrial demographic by a factor of 20, displays an analytic ability which ends up merely floundering.

It appears increasingly implausible that fully ONE HALF of the world presently industrialising (3 billion people = almost half the entire globe's population) will simply fold up it's furious pace of growth, as the US slides into asset deflation, and meekly deflate their real economies right alongside the US FIRE economy.

This deflationist view is therefore trapped within a naivete about the massive global shift. Deflationists will nominally recognise it, but they don't "get it" in the sense that it's changed the ground rules of US led global growth right out from under their 20th Century conclusions.

This is the primary error - to be US centric in thinking this all through. This is the largest wave of global industrialisation in 150 years - equivalent in global significance to the industrialisation which transformed the global economy in the late 19th Century, but 10 to 15 times larger. To be an economist / market analyst who's very job consists of scouring the world for clear global trends, and to miss that entirely by becoming ensnared in the conceit that the US's collapse into insolvency will cause global commodities to collapse under the strain of the US's demise is a quite astonishing bit of America-centric delusion.

iTulip's position on the commodity boom is that this remains most significantly a monetarily driven phenomenon. I don't buy it's the sole cause, and I absolutely don't buy that monetary abuse will remain the primary cause, ten years out from now. However, apart from this small difference with iTulip's position, I think iTulip certainly has got the call right. The deflationists arguments on commodities and global deflation truly are all wet.

GRG55
10-21-07, 01:33 PM
Commodity deflation? 1930's redux?

I am surprised someone as erudite as Mish gets taken in year after year on this. The real trend in natural resources in the early 2000's is profoundly, structurally inflationary - whether due only to monetary aggregates or not - it IS inflationary.

This should be apparent to anyone not blinded by the fearsome light of the "1930's deflationist's" argument.

Mish's insight on this topic seems a bit of a "wavering candle" in the dark!

89

On the topic of commodity deflation Mish isn't alone. About mid-2006 as oil rolled over and started down there were quite a few commentators talking about the end of the "commodity bubble" including, as just one influential example, Stephen Roach, Morgan Stanley's then Chief Economist.

My wife kept reading his stuff and asking when I was going to sell the oil stocks, but everywhere I travelled I couldn't see anybody using less energy...;)

metalman
10-21-07, 08:39 PM
Commodity deflation? 1930's redux?

I am surprised someone as erudite as Mish gets taken in year after year on this. The real trend in natural resources in the early 2000's is profoundly, structurally inflationary - whether due only to monetary aggregates or not - it IS inflationary.

This should be apparent to anyone not blinded by the fearsome light of the "1930's deflationist's" argument.

Mish's insight on this topic seems a bit of a "wavering candle" in the dark.

89

_________________

What is necessary, particularly for Americans, and for anyone else overwhelmed by the gruesome analysis of unsustainable debt within the US, is to be very wary, and to avoid America-centric thinking, as it's now invalid for the new century. An America centric global economy is by no means an axiom in 2007, and won't be true at all in another 5-10 years, with a good degree of probability.

Whenever these industrious but obtuse, apparently erudite "commodities down" market watchers (global deflationists) conclude the "US and with it the industrialised world must collapse from debt into a massive deflation", they are employing an unpardonably fuzzy global focus for so-called "market pundits" that increasingly appears at odds with the global reality.

This "global deflationary collapse" conclusion is something they've apparently derived from years of observations which have been totally engrossed in the gruesome details of the US economic decline alone. All other global growth trends are assumed to be tethered to the US locomotive - and this assumption lazily employs the same paradigm which held for the past 40 years. It does not hold any more - if not completely, then this trend is emerging at lightning speed (five more years of 10% - 15% annual growth in a bloc of 3++ billion people will effectively complete the transition).

The US will shortly be free to fail, without fully HALF the global economy, let alone the commodity consumption fueling the build out of that 3 billion person economic bloc, compliantly being required to fail right alongside the US.

The crime here, for an investment advisor who purports to provide actionable long term signals, is to be far too complacent - complacent that the flagging of US consumption will lock up global growth. This is a canard. There will be a resulting recession - and equities markets will certainly amplify that correction even harshly, but the decade long trend for commodities is tethered to the largest global build-out in 300 years (now well past the startup phase), and any investment analyst who misses this concept, no matter how sophisticated the rest of their analysis may sound, should be fired, for having missed the biggest actionable trend to appear in at least a century.

Jim Rogers = 100%
Mish et. al. = 0%

For these "specialist" market watchers to provide such exquisite detail regarding all aspects of American financial bloat, but who fail miserably to connect this with an incresingly powerful growth trend throughout Asia where the demographic size of this trend and it's unbelievably bullish mid term fundamentals, exceeds the 19th Century industrial demographic by a factor of 20, displays an analytic ability which ends up merely floundering.

It appears increasingly implausible that fully ONE HALF of the world presently industrialising (3 billion people = almost half the entire globe's population) will simply fold up it's furious pace of growth, as the US slides into asset deflation, and meekly deflate their real economies right alongside the US FIRE economy.

This deflationist view is therefore trapped within a naivete about the massive global shift. Deflationists will nominally recognise it, but they don't "get it" in the sense that it's changed the ground rules of US led global growth right out from under their 20th Century conclusions.

This is the primary error - to be US centric in thinking this all through. This is the largest wave of global industrialisation in 150 years - equivalent in global significance to the industrialisation which transformed the global economy in the late 19th Century, but 10 to 15 times larger. To be an economist / market analyst who's very job consists of scouring the world for clear global trends, and to miss that entirely by becoming ensnared in the conceit that the US's collapse into insolvency will cause global commodities to collapse under the strain of the US's demise is a quite astonishing bit of America-centric delusion.

iTulip's position on the commodity boom is that this remains most significantly a monetarily driven phenomenon. I don't buy it's the sole cause, and I absolutely don't buy that monetary abuse will remain the primary cause, ten years out from now. However, apart from this small difference with iTulip's position, I think iTulip certainly has got the call right. The deflationists arguments on commodities and global deflation truly are all wet.

well that's what these asia and european pols get for strapping their merchantile economies to our financial economy.

and you guys are more polite than i am re the guys who have been warning about deflation. gimme a break. the worry isn't that the dollar may get too valuable, is it? anyone who thinks that needs to get on a plane and see europe and asia. sure, they got problems. we got problems. question is, whose problems are bigger and who will handle them better.

confidence in china is waaaaay overstated. that place is a few giant show cities spotting a humungus 3rd world nation. usa won't lose all our friends the way germany did in the 1930s and the dollar going to zero. that's more likely to happen to russia (like in that little bbc video over on the other forum) and watch what they do then! and when china shits a hairball watch what they do.

inflation is monetary and hyperinflation is political. will all this if it happens at once make everyone long for dollars for a while? hell yes. but the usa has problems of its own that these events will make worse. and what can the fed do?

the next round of bail, print, bail, print, bail will be global like since 2001 but not only to save the usa's ass and a few european allies', but china's ass, and russia's, and latvia's, and so on. maybe instead of 2001 - 2004 with usa printing dollars and the rest following to support the dollar maybe it happens the other way around, with a rush to dollars followed by dollar printing. depends on who shits the hairball first and how the pols react. either way it happens, remember hudson's ratchet? CLICK. it takes another turn and then 1 oz gold = 2000 vs 750 proxy world currency units.

as for your comments on itulip seeing monetary causes only to the rise in asset prices, i recommend you look at bart's charts where he shows all these commodities going up at once... nickel, copper, silver, oil, etc. since 2004. so, what, coincidentally supply/demand for all of these became the same all at once starting in 2004? or maybe they all became correlated to the same thing when the global printed press started to crank?

now where's my mish pic. here it is...

http://i21.tinypic.com/ir7t6q.png

Contemptuous
10-21-07, 09:40 PM
Metalman -

I could swear this "No U-Turn" sign you've posted is a 50% larger image than last time it got posted. Seems to be ... expanding ...

Actually seems 100% larger or more. It's definitely growing ...

metalman
10-21-07, 09:54 PM
Metalman -

I could swear this "No U-Turn" sign you've posted is a 50% larger image than last time it got posted. Seems to be ... expanding ...

Actually seems 100% larger or more. It's definitely growing ...

really??? i'm not sure what you mean...

http://i24.tinypic.com/nltro3.png

Contemptuous
10-21-07, 11:02 PM
See, it did it again! I could swear Mish's "no U-Turn" sign just got a bit bigger ...

metalman
10-21-07, 11:16 PM
See, it did it again! I could swear Mish's "no U-Turn" sign just got a bit bigger ...
ok lukester this is as far as i'm gonna take this joke!!!

http://i23.tinypic.com/23tl8g2.png

Contemptuous
10-21-07, 11:53 PM
OK, I guess that's "expanded" enough to make the point clear. It's looking a little blurry close up though. :rolleyes:

GRG55
10-22-07, 04:26 AM
OK, I guess that's "expanded" enough to make the point clear. It's looking a little blurry close up though. :rolleyes:

Thanks Lukester; for a moment there I thought my eyesight was failing...

A supplement to the very interesting (and amusing) exchange above:

Commodity price behaviour is considerably more complex than many of the analyses on iTulip and elsewhere that I've seen. Using oil as an example, the price behaviour, up and down, has elements of all of:

US$ currency depreciation,
post-2001 global growth supply/demand dynamics,
rise in nationalization policies,
open economy tax and royalty policies,
supply region political instabilities,
"flavour-of-the-day" search for return by speculative money,
peak oil story, depletion trends, and other sentiment influences,
and so forthI have to chuckle every time I hear "analysts" (like the widely followed Dennis Gartman) make claims on TV such as "There's a $15 risk premium in oil". How do they "know" that? Who did they ask? How did they measure it? Who decides that its $15, or whatever number? People actually listen to this nonsense. The fact is nobody knows how much of the price on any given day/month/year is due to any one of all these factors in a complex interaction. Although some here have presented compelling charts that "it's all due to Fed inspired monetary inflation", I maintain a healthy degree of scepticism that is the "only" reason, or necessarily the dominant reason, for commodity price behaviour.

FRED
10-22-07, 10:21 AM
[quote=Lukester;18157]OK, I guess that's "expanded" enough to make the point clear. It's looking a little blurry close up though. :rolleyes:[/quote

Thanks Lukester; for a moment there I thought my eyesight was failing...

A supplement to the very interesting (and amusing) exchange above:

Commodity price behaviour is considerably more complex than many of the analyses on iTulip and elsewhere that I've seen. Using oil as an example, the price behaviour, up and down, has elements of all of:

US$ currency depreciation,
post-2001 global growth supply/demand dynamics,
rise in nationalization policies,
open economy tax and royalty policies,
supply region political instabilities,
"flavour-of-the-day" search for return by speculative money,
peak oil story, depletion trends, and other sentiment influences,
and so forthI have to chuckle every time I hear "analysts" (like the widely followed Dennis Gartman) make claims on TV such as "There's a $15 risk premium in oil". How do they "know" that? Who did they ask? How did they measure it? Who decides that its $15, or whatever number? People actually listen to this nonsense. The fact is nobody knows how much of the price on any given day/month/year is due to any one of all these factors in a complex interaction. Although some here have presented compelling charts that "it's all due to Fed inspired monetary inflation", I maintain a healthy degree of scepticism that is the "only" reason, or necessarily the dominant reason, for commodity price behaviour.

Our position is not that monetary inflation via global central banks is the only cause of commodity price inflation but is the primary cause of both the correlation of global assets since 2004 AND commodity price inflation.

Recent gains in oil and gold appear to be largely driven by the Turkey/Iran security story:


Kurdish Rebels in Iraq May Announce Cease-Fire, Talabani Says (http://www.bloomberg.com/apps/news?pid=20601087&sid=as862xFYTwWM&refer=home)

Oct. 22 (Bloomberg) -- Rebels from the Kurdistan Workers' Party, or PKK, may announce a cease-fire in their conflict with Turkey, Iraqi President Jalal Talabani said.

The fighters, who have bases in Iraq, may make the announcement ``soon,'' Talabani said in remarks made on Turkish television and carried on the Web site of his party, the Patriotic Union of Kurdistan.

To contact the reporters on this story: Camilla Hall in London at chall24@bloomberg.net
Which is, I believe, Tet's position on this.

GRG55
10-22-07, 10:51 AM
Our position is not that monetary inflation via global central banks is the only cause of commodity price inflation but is the primary cause of both the correlation of global assets since 2004 AND commodity price inflation.

Recent gains in oil and gold appear to be largely driven by the Turkey/Iran security story...

...Which is, I believe, Tet's position on this.

I think Gartman thinks the same...

Contemptuous
10-22-07, 11:24 AM
Fred -

This is one of the few components of iTulip's positions I do not believe.

To ascribe the movement of oil or gold spot prices at each two month turn in the market to a fleeting geopolitical event particularly, seems to create a patchwork sequence of rationales which begin to evidence "slippage" when reviewed over larger segments of time.

The price moves looked at collectively through any given year are not maintaining a clear or strict chronological coordination with their presumed geopolitical event cues. Some price movements appear early and some appear late, with many other geopolitical events evidencing zero corresponding price move with their presumed geopolitical event. In sum, accepting this as a significant cumulative factor to me does not seem at all a foregone conclusion.

Of course localized global events do affect spot prices, but I surmise a good deal less than is being ascribed in significance here as any clear cut or primary correlation.

Also, what such ascribing minimizes in importance is the fact that all these small localized "adjustments" in spot prices are very obviously sharply cumulative over five or seven years, as they've racked up 100's of percent in spot price gains.

In the context of 300% cumulative up-moves in a commodity across seven years, ascribing a recent sharp up-tick in oil prices as being "caused" by Turkey-Kurdistan tensions only serves to dilute the perception that this commodity is really rising primarily due to fundamental causes that have exerted by far the larger influence across those five to seven years than a mere sequence of small localized geopolitical events strung together.

The "mosaic of small geopolitical drivers" seems to me a definition who's prime characteristic as an explanation serves to obliquely mask some very large depletion derived causes instead.

I'm in fact expecting that in the end iTulip's view on this will be forced to adapt to the "primary depletion as primary mover" argument, as developing severe tightness in the petroleum market will make the fundamental causes irrefutable as the primary driver.

I have no doubt that this view of iTulip's analysis coming up short on this topic will considerably irritate some quarters here. As you know, to the point of encountering a migraine headache from reading me on this topic previously, this has been my one "beef" with the iTulip editorial position for a while. :D

Jim Nickerson
10-22-07, 11:32 AM
[quote=GRG55;18159]

Our position is not that monetary inflation via global central banks is the only cause of commodity price inflation but is the primary cause of both the correlation of global assets since 2004 AND commodity price inflation.

Recent gains in oil and gold appear to be largely driven by the Turkey/Iran security story:



Kurdish Rebels in Iraq May Announce Cease-Fire, Talabani Says (http://www.bloomberg.com/apps/news?pid=20601087&sid=as862xFYTwWM&refer=home)



Oct. 22 (Bloomberg) -- Rebels from the Kurdistan Workers' Party, or PKK, may announce a cease-fire in their conflict with Turkey, Iraqi President Jalal Talabani said.



The fighters, who have bases in Iraq, may make the announcement ``soon,'' Talabani said in remarks made on Turkish television and carried on the Web site of his party, the Patriotic Union of Kurdistan.



To contact the reporters on this story: Camilla Hall in London at chall24@bloomberg.net
Which is, I believe, Tet's position on this.

Ed. whoever you are.

You wrote, "Our position" is .....

Then you wrote "I believe is Tet's position."

The only person at iTulip of whom I am aware with any expertise in financial matters is Eric Janzen, aka EJ.

If "Ed." is Fred, then Fred ought to sign his posts, so that we can know it is the opinion being put forth by a computer geek.

Should not "Our position" be "Eric's position" and "I" be signed by a person rather than "Ed."?

Rajiv
10-22-07, 11:35 AM
Of course localized global events do affect spot prices, but I surmise a good deal less than is being ascribed in significance here as any clear cut or primary correlation.

Also, what such ascribing minimizes in importance is the fact that all these small localized "adjustments" in spot prices are very obviously sharply cumulative over five or seven years, as they've racked up 100's of percent in spot price gains.


It seems to me, that long term contract prices may be a better measure than the spot prices - since most oil trade gets done by medium to long term contracts, with price adjusters pegged to the spot price. Is there a data base for the long term contracts entered into by the various oil producers?

Contemptuous
10-22-07, 11:53 AM
Rajiv -

Gotta head out to work.

Long term oil contracts seem to have little predictive capacity either in our new paradigm petroleum market now hitting the outliers of terminal decline, as evidenced by this short post from 2004. As you read below, how far off this long term contract was on even remotely predicting the newr future of the market.

I submit if we locate a table of long term contracts today, they'll be projecting a price at maybe $90 - $120 a barrel, and some of the more "sober" commentary will extrapolate from there the contract prices will / must "trend" back down to $65 three to five years out beyond that $125 long term contract estimate.

It's amazing, but the price estimates quoted below represented the cumulative wisdom of some of the best minds in the futures market at that time. The wisdom of the "market consensus". It gives you an idea of the sheer scale of the psychological adjustment that must eventually arrive - on correctly estimating pricing in our future depletion governed environment. There seems a lot of resistance to this idea even among very seasoned market participants.

___________

Friday, December 03, 2004

<!-- Begin .post -->Long Term oil prices (viewed from 2007 - now a time capsule)



Oil prices are tumbling down to quarterly lows of only $43.00/bbl. (http://news.yahoo.com/news?tmpl=story&u=/ap/20041203/ap_on_bi_ge/oil_prices) These price drops are reflective of both speculators leaving the energy market (most likely moving over to currency) and the news that there is better than typical weather hitting high home heating oil burning markets, which will be reducing demand. It is also aided by the Saudi claims that they can bring more capacity on line in the near future.

However, let's look at the long term chart (http://charts3.barchart.com/chart.asp?sym=CLZ9&data=A&jav=adv&vol=Y&evnt=adv&grid=Y&code=BSTK&org=stk&fix=) for oil deliveries for Dec. 2009. These contracts are staying relatively stable at a price of $37.30/bbl. The high for the past six months was $40.10 on Oct. 28 and the low was $36.75 yesterday (Dec. 2). This is a relatively narrow trading range given that the short term contracts have fluctuated far more wildly.

It is interesting to me that the spread between the long term contracts and the short term contracts are shrinking despite the bond market's (http://angrybear.blogspot.com/2004/12/eye-on-bond-market.html)increasing expectation of inflation of 2.6% over the next five years. The long term future contract prices have a present, inflation adjusted value of $42.45, so that is about what I expect the floor on current prices will be for the winter.

UPDATE I am an idiot, I forgot to include the time value of the money paid for the future contract. Working off the yield of the 5year Treasury (non-inflation adjusted) of 3.6% as of this afternoon, the value of the futures contracts suggests a market price, today, of oil at $44.46

0tr
10-22-07, 12:33 PM
"Next week, we review our now year old forecast of a post housing bubble recession starting in Q4 2007. We've learned a thing or two since 2000 and expect this forecast to be better than half right. Evidence is that this will be, without a doubt, the most peculiar recession ever, with some sectors of the economy booming while others are crashing, some geographic areas of the US contracting while others are still growing. On a whole, we figure the Alternative Energy and Infrastructure bubbles need to get cranked up and boosting demand in 18 to 24 months to keep the US from running into Japan 1990s style debt deflation cycle. "

Question: In the past some comments about the effect of war and winding down a war on economy have appeared at itulip. Will you discuss how war/winding down war affect your prediction(s). And the timing thereof. It seems that war is adding something to the current peculiarities.

FRED
10-22-07, 12:37 PM
[quote=Fred;18169]

Ed. whoever you are.

You wrote, "Our position" is .....

Then you wrote "I believe is Tet's position."

The only person at iTulip of whom I am aware with any expertise in financial matters is Eric Janzen, aka EJ.

If "Ed." is Fred, then Fred ought to sign his posts, so that we can know it is the opinion being put forth by a computer geek.

Should not "Our position" be "Eric's position" and "I" be signed by a person rather than "Ed."?

Part of Fred's role is to remind readers of iTulip's long-standing editorial positions on certain topics, citing specific articles. Will try to use editorial "we" consistently but, hey, I'm only human! I think.

WDCRob
10-22-07, 01:07 PM
Aha! Or is it Eureka?

FIRE economy = deflating as credit dries up and overvalued assets are properly repriced/written off (trillions in imaginary value is destroyed).

Real economy/commodities = inflation, if Fed is successful; massive inflation if it is not. But no deflation possible in this sector of the economy (where I, and other mere mortals [but not Fred?] live).

I think I finally get it. So in the long term, be short the dollar and financial assets and long PMs/commodities.

[Sorry to simply restate a theme that's been said here several thousand times. Sad to say I just now understood it and couldn't curb my enthusiasm.]

EJ
10-22-07, 01:36 PM
Fred -

This is one of the few components of iTulip's positions I do not believe.

To ascribe the movement of oil or gold spot prices at each two month turn in the market to a fleeting geopolitical event particularly, seems to create a patchwork sequence of rationales which begin to evidence "slippage" when reviewed over larger segments of time.

The price moves looked at collectively through any given year are not maintaining a clear or strict chronological coordination with their presumed geopolitical event cues. Some price movements appear early and some appear late, with many other geopolitical events evidencing zero corresponding price move with their presumed geopolitical event. In sum, accepting this as a significant cumulative factor to me does not seem at all a foregone conclusion.

Of course localized global events do affect spot prices, but I surmise a good deal less than is being ascribed in significance here as any clear cut or primary correlation.

Also, what such ascribing minimizes in importance is the fact that all these small localized "adjustments" in spot prices are very obviously sharply cumulative over five or seven years, as they've racked up 100's of percent in spot price gains.

In the context of 300% cumulative up-moves in a commodity across seven years, ascribing a recent sharp up-tick in oil prices as being "caused" by Turkey-Kurdistan tensions only serves to dilute the perception that this commodity is really rising primarily due to fundamental causes that have exerted by far the larger influence across those five to seven years than a mere sequence of small localized geopolitical events strung together.

The "mosaic of small geopolitical drivers" seems to me a definition who's prime characteristic as an explanation serves to obliquely mask some very large depletion derived causes instead.

I'm in fact expecting that in the end iTulip's view on this will be forced to adapt to the "primary depletion as primary mover" argument, as developing severe tightness in the petroleum market will make the fundamental causes irrefutable as the primary driver.

I have no doubt that this view of iTulip's analysis coming up short on this topic will considerably irritate some quarters here. As you know, to the point of encountering a migraine headache from reading me on this topic previously, this has been my one "beef" with the iTulip editorial position for a while. :D

You have a lot of company. This report came out today...
Steep decline in oil production brings risk of war and unrest, says new study (http://www.guardian.co.uk/oil/story/0,,2196435,00.html?gusrc=rss&feed=networkfront#article_continue)

Output peaked in 2006 and will fall 7% a year
Decline in gas, coal and uranium also predictedWorld oil production has already peaked and will fall by half as soon as 2030, according to a report which also warns that extreme shortages of fossil fuels will lead to wars and social breakdown.

The German-based Energy Watch Group will release its study in London today saying that global oil production peaked in 2006 - much earlier than most experts had expected. The report, which predicts that production will now fall by 7% a year, comes after oil prices set new records almost every day last week, on Friday hitting more than $90 (£44) a barrel.
EWG's web site states, "The Energy Watch Group is financed by funds, which flow into the Ludwig-Bölkow Foundation." We sent them a note today asking where the group's funds come from.

jk
10-22-07, 01:50 PM
http://www.lbst.de/_syspic/vario.gif <!-- InstanceBeginEditable name="Content" -->
http://www.lbst.de/_syspic/vario.gifThe Ludwig-Bolkow-Systemtechnik GmbH
http://www.lbst.de/_syspic/head_line.gif
Ludwig-Bolkow-Systemtechnik GmbH and Ludwig-Bolkow-Foundation have both been established by Dr. Ludwig Bolkow in 1982. Ludwig-Bolkow-Systemtechnik was created as a non-profit organisation in accordance to the charter of the Ludwig-Bolkow-Foundation.
In addition to the already existing organisations, in 1998 Dr. Bolkow founded the L-B-Systemtechnik GmbH. The aim of the company is to provide commercial consulting services. This new company took over the business and the employees of the non-profit company (which ceased to be active).
In 2004 the employees of L-B-Systemtechnik GmbH acquired the company from the heirs of Dr. Bolkow who had died in 2003. With effect from March 9th, 2006, the day of inscription into the Commercial Registry (HRB 120269) L-B-Systemtechnik GmbH has changed its name to Ludwig-Bolkow-Systemtechnik GmbH.
In 2006 further partners took an interest in LBST: LBST staff (29%), TÜV SÜD (47%), Ludwig Bolkow Stiftung (12%) and Mr. Gerhard Jochum (12%).
However, the company is still committed to the aims and the intellectual heir of Dr. Bolkow.
The main focus of the LBST work is on sustainable energy and transportation systems and related technologies.
Important fields of activity are: Renewable energies, energy efficiency, reduction of greenhouse gas emissions, introduction of hydrogen as an energy carrier produced by renewable energy sources, fuel cells, and future availability of fossil energies.http://www.lbst.de/index__e.html?http://www.lbst.de/about/company__e.html

i guess the question is whether this makes their statements more or less credible?

Contemptuous
10-22-07, 02:05 PM
E.J. -

Don't know if you agree with their idea or not - but if I were to provisionally assume you do not, there may be less to clarify by investigating this German research group's sources of funding today, than can be clarified by merely waiting another two years to examine the evidence they are sticking their necks out to announce.

Either way, whether their reported 7% decline rate in global production holds true (or does not), iTulip only needs to sit back for 24 months to confirm even more definitively than researching their funding now, whether their thesis is correct or not. A 7% global decline rate is extremely large - so they are really making an audacious call.

An accumulated 14% decline rate over the next 24 months, paired up against 6%+ - 12%+ growth rates in 1/3rd+ of the global economy, should bring about some notable fireworks in the energy markets.

If data strongly supports their finding in two years, whatever this German research group's source of funding and / or political stripe would then matter a good deal less?

If they turned out to be correct and global petroleum production decliined 14% by end of '09, might iTulip then be re-examining all factors in the inflationary thesis looking out to 2010?

Respectfully.

Jim Nickerson
10-22-07, 02:42 PM
[quote=Jim Nickerson;18176]

Part of Fred's role is to remind readers of iTulip's long-standing editorial positions on certain topics, citing specific articles. Will try to use editorial "we" consistently but, hey, I'm only human! I think.

It is still confusing and possibly misleading when anyone at iTulip who is not EJ posts opinions and assigns them a generic name--which as I understand could be any one of three or four Freds.

Contemptuous
10-22-07, 03:16 PM
Jim -

Fred wrote : << I'm only human! I think. >>

Maybe FRED is a BOT??!!

I just knew there were more of 'em around here ( :cool: !!?? )

I bet he's a BOT Jim. That explains everything - never sleeps, pops up 24/7 where iTulip discussions are getting fractious, squashes spammers to mush with all the sentimentality of a mallet at 3.00 AM, sounds 'different' every few months when they upgrade it's firmware, etc.

It's got to be a BOT! :eek:

GRG55
10-22-07, 06:52 PM
You have a lot of company. This report came out today...
Steep decline in oil production brings risk of war and unrest, says new study (http://www.guardian.co.uk/oil/story/0,,2196435,00.html?gusrc=rss&feed=networkfront#article_continue)

Output peaked in 2006 and will fall 7% a year
Decline in gas, coal and uranium also predictedWorld oil production has already peaked and will fall by half as soon as 2030, according to a report which also warns that extreme shortages of fossil fuels will lead to wars and social breakdown.




The German-based Energy Watch Group will release its study in London today saying that global oil production peaked in 2006 - much earlier than most experts had expected. The report, which predicts that production will now fall by 7% a year, comes after oil prices set new records almost every day last week, on Friday hitting more than $90 (£44) a barrel.EWG's web site states, "The Energy Watch Group is financed by funds, which flow into the Ludwig-Bölkow Foundation." We sent them a note today asking where the group's funds come from.

Well, a group dedicated to...

From jk's post: "The main focus of the LBST work is on sustainable energy and transportation systems and related technologies.
Important fields of activity are: Renewable energies, energy efficiency, reduction of greenhouse gas emissions, introduction of hydrogen as an energy carrier produced by renewable energy sources, fuel cells, and future availability of fossil energies."

...would say that sort of thing.

The 7% per annum initial decline rate smacks of sensationalism, and their forecast must assume Ghawar falls off a cliff. What may have peaked already is light, sweet crude oil production. Total global oil productive capability appears to still be capable of growing at least a bit more when lower grade sour crudes, and unconventional production are added. (However, productive capability, actual production, and available exports to consuming nations are three different things)

Khurais in Saudi Arabia (1.2 mm bbls/d) is the last major green field light oil development on the books, and it will require 168 producing wells and 184 injection wells at full development. Manifa (900 k bbls/d) is heavier than Khurais, but the average well productivity is expected to be twice the average of Khurais - a good indication of the reservoir quality differentials that Aramco is dealing with (the best of the light, sweet reservoirs were developed long ago). In sequence with the massive Khurais waterflood sourcing (sea water from the Gulf), Aramco plans to increase the injection capacity at Ghawar, which should arrest the decline somewhat for some years (how much and how long is largely conjecture as the information is simply not publicly available - something Matt Simmons keeps pointing out).

The decline rate in mature petroleum basins accelerates with time after peak production. This is due, in part, to typically more aggressive technology application, now including horizontal wells. These "enchanted recovery" techniques tend to flatten out the decline when first applied but often result in a much steeper decline later in the life of the reservoir. A good recent example of this sort of production behaviour is Mexico's Cantarell field (3rd largest oil field in the world based on peak production - declined more than 20% between Jan and Dec 2006). A focus on NPV economic parameters, instead of maximum reserves recovery, supports this type of investment behaviour, and at times of rising petroleum prices quite a few rate acceleration projects get funded. There is no reason to believe that didn't happen this time.

Jim Nickerson
10-22-07, 07:44 PM
Well, a group dedicated to...

From jk's post: "The main focus of the LBST work is on sustainable energy and transportation systems and related technologies.
Important fields of activity are: Renewable energies, energy efficiency, reduction of greenhouse gas emissions, introduction of hydrogen as an energy carrier produced by renewable energy sources, fuel cells, and future availability of fossil energies."

...would say that sort of thing.

The 7% per annum initial decline rate smacks of sensationalism, and their forecast must assume Ghawar falls off a cliff. What may have peaked already is light, sweet crude oil production. Total global oil productive capability appears to still be capable of growing at least a bit more when lower grade sour crudes, and unconventional production are added. (However, productive capability, actual production, and available exports to consuming nations are three different things)

Khurais in Saudi Arabia (1.2 mm bbls/d) is the last major green field light oil development on the books, and it will require 168 producing wells and 184 injection wells at full development. Manifa (900 k bbls/d) is heavier than Khurais, but the average well productivity is expected to be twice the average of Khurais - a good indication of the reservoir quality differentials that Aramco is dealing with (the best of the light, sweet reservoirs were developed long ago). In sequence with the massive Khurais waterflood sourcing (sea water from the Gulf), Aramco plans to increase the injection capacity at Ghawar, which should arrest the decline somewhat for some years (how much and how long is largely conjecture as the information is simply not publicly available - something Matt Simmons keeps pointing out).

The decline rate in mature petroleum basins accelerates with time after peak production. This is due, in part, to typically more aggressive technology application, now including horizontal wells. These "enchanted recovery" techniques tend to flatten out the decline when first applied but often result in a much steeper decline later in the life of the reservoir. A good recent example of this sort of production behaviour is Mexico's Cantarell field (3rd largest oil field in the world based on peak production - declined more than 20% between Jan and Dec 2006). A focus on NPV economic parameters, instead of maximum reserves recovery, supports this type of investment behaviour, and at times of rising petroleum prices quite a few rate acceleration projects get funded. There is no reason to believe that didn't happen this time.

Ramadan's over, isn't it, and yet you keep on showing up here, how is your marriage going? :) It's nice to have someone here with some, I take it, intimate knowledge about oil. You're not spoofing us are you?

Rajiv
10-22-07, 09:25 PM
Some interesting graphs (http://europe.theoildrum.com/node/3106) at theoildrum.com



http://www.theoildrum.com/files/OilPrices_Oct07_USDollar.png

http://www.theoildrum.com/files/OilPrices_Oct07_%E2%82%ACuro.png

http://www.theoildrum.com/files/OilPrices_Oct07_Gold.png

GRG55
10-23-07, 04:53 AM
Ramadan's over, isn't it, and yet you keep on showing up here, how is your marriage going? :) It's nice to have someone here with some, I take it, intimate knowledge about oil. You're not spoofing us are you?

iTulip may not be a religious experience (like Ramadan) but it is a bit addictive. 30th year in this goofy business Jim. Over that time have covered the spectrum from drilling & development and upstream production all the way to international product trading & transport. When I post something that is my opinion I try to make that clear.

Time availability is a function of location (where I currently live isn't exactly the center of the universe :eek:) and certain things transpiring on biz front that I may be able to share with the community later this year. Marriage fine, but wife still wishes she'd married a banker, 'cause that's where all the money is...;)

RebbePete
10-23-07, 11:29 AM
Alternate energy and infrastructure require large amounts of raw materials, unlike the FIRE economy or the tech bubble that preceeded it. This implies that commodities might be a good bet no matter how you look at it, yes?

This also would be a way to play into some government boondoggle in infrastructure construction like the CCC of the '30s instead of a private industry bubble.

- Pete

Contemptuous
10-23-07, 04:44 PM
Regarding the bid presumed to be underpinning commodities: I understand the iTulip position is price action in commodities is primarily an inflationary manifestation. I frankly don't however believe you can conjure demand for things like cement, grains or fuel solely by fanning monetary inflation..

According to iTulip's reasons, because monetary inflation is running strongly, a regional government in Indonesia builds large public utilities to accomodate a growing urban population, or a rancher in Argentina takes out a big loan and doubles his productive acreage to sell more cattle.

If all this demand for commodities were occurring instead because end-user countries are actually building out infrastructure as they turn into modern economies, the theory that currency inflation is "causing it all" would then be a partial explanation at best.

Seems iTulip concludes price action in raw materials is driven only minimally by what's happening in those many booming economies where these raw materials are actually being turned into industrial build-out. The perspective is turned upside down - the real booming involved in the industrialisation of these many countries, who are only following the well established industrialisation path the G7 follwed previously, is ascribed as primarily due to currency events.

So I'm told the "price action" in commodities is due to currency inflation. I'm told the price action in oil is due to currency inflation as well. What's not evident to me at all is that the inflation of currencies is the most relevant mover in terms of what's really occurring in the industrialisation of half the world. If these countries are industrialising at a rapid pace for reasons that have nothing to do with inflation, then demand for the materials they consume has little or nothing to do with inflation either.

It's been explained to me when you strip away decreased purchasing power due to inflation, only a minor real price action has occurred in commodities. So I am told if real price action was low or nothing adjusted for US dollar inflation, there's no larger story right there on the ground in 50 or 70 countries to derive ulterior conclusions from. Meanwhile I am looking around and it seems there is a very large story on the ground in these many countries, and it's all about growth, and much less about inflation.

All these same components hold as well in the price action in petroleum, and that is a touchy subject here insofar as 'depletion' causing any 'shortages' is the object of a marked amount of unecessary disparagement. Emerging evidence of flat production growth in petroleum, of potentially quite large significance, is discounted as a potential cause of future or past inflation.

What exactly is it, that prevents acknowledging it would be quite normal to find a principal cause for commodity prices right at the local infrastructure level, rather than high up the chain at the central banks? The reductive logic employed here is that fast growing demand for commodities at the local level cannot be a primary driver of price action, because primary status has already been assigned to fiat money instead. This exclusion of any other prime causes risks being merely dogmatic.

If you make a concentrated bet in the commodities area, according to this standard iTulip view, the safety of your bet is contingent on whether central banks keep expanding liquidity. Viewed from this angle, a bet on commodities is in fact speculative.

If you subscribe to Jim Roger's view, the biggest driver underpinning commodity prices has been, and will continue to be a a very large upturn in global industrialisation.

This is not supposed to be a larger inflationary force than central bank money printing? The depletion factor which is now accompanying this 'once in a century growth event', due to the G7 having already sucked up a lot of these raw materials in the previous century is instead dismissed as sensationalism for the consumption of the more naive among us.

Oil depletion? Declining petroleum production growth Vs. rapid industrialisation? Why should such questions meet with condescending smiles when they are in fact quite rational potential causes of inflation also? Is there not a large body of documentation out there now causing governments the world over to discuss the potential reality of depletion?

Unlike currency flows and central bank liquidity games, which require all kinds of sleuthing to uncover, industrialisation leaves a large footprint worldwide. Complex economic forensics are not even required to ascertain a runaway industrialisation, are they? It's obvious - it's large, growing daily - and it's all over the news. The world is building out at the same pace it did 125 - 150 years ago, but at multiples of that earlier scale. And that earlier industrialisation made the history books.

If you buy Jim Roger's thesis about a global infrastructure build out and large cycle of industrialisation, it's improbable that commodity prices would not keep rising merely due to the absence of high currency inflation.

Apparently we are in a post Soviet Bloc world. The thing that kept half the world from exploding into free market economies for 50 years is ended. All of Eastern Europe, all the central Asian nations, the Balkans, China, India, their commercial satellites are now industrialising to catch up to the West.

Nowhere have I read that Jim Rogers concludes commodities price growth must weaken notably due to austere monetary policies. He does not finesse this call, because you don't need to finesse a 150 year global scale event.

What Jim Roger's thesis apparently does not require, is the construction of a model that relies primarily on what the gnomes at the world's central banks are doing with the currency to govern the course of commodity inflation heading out another ten years..

Disagreeing with Mr. Janszen on this should be just fine. In fact a re-examination of all the one-way assumptions underlying the relationship between inflating commodity prices and all possible causes is a good thing to air here, as there seems too much conformity of opinion here anyway on the topic.

jk
10-23-07, 05:04 PM
i, for one, think there are many drivers of commodity prices and that the factors you mention, lukester, are relevant. i just don't care to engage in extended debates on the matter, as they seem fruitless in that no one ever seems to be persuaded to change an opinion. i'd rather focus discussion here on those matters of our economic and financial futures that we can all admit we are at least somewhat confused about.

Contemptuous
10-25-07, 03:20 PM
On the subject of US centric economic analysis - Found on an Agora website news feed today, an argument against the (appears to me) overused "US dollar inflation drives global commodity consumption" thesis :

____________


“After reading a number of your gloomy predictions,” writes another reader, “I have two major observations to make:

“1. While most of the world stock markets are indeed ‘U.S.-centric’ -- the major exception is Shanghai) -- the world economy has not been ‘U.S.-centric’ for some time.

“The prime example is Canada, which is tied economically to U.S. more than any other country: The Toronto Stock Exchange follows the U.S. markets with a five-minute delay (you must like this), but it does not have the housing crisis, the credit crunch or the current account deficit. Construction and houses prices are booming. [Heh-heh, for now.]


“2. Unfortunately, most opinions from the U.S. are very ‘U.S.-centric’ and suffer from reality ignorance and/or denial of monumental proportions. The underlying reasoning is something like this: ‘We are in really big trouble, but we are the best. Therefore, everybody else must be on the verge of collapse.’

“As another example, I can offer my other ‘home’ country, the Czech Republic: The economic growth, real income growth and optimism are unprecedented. In the last five years, the exchange rate has dropped from about 40 CK/US$ to 19 CK/US$, while the average income (in CK) has more than doubled… was this growth driven by the American consumer?

c1ue
10-25-07, 03:25 PM
People in Eastern European countries should behave as people living in glass houses...

The euro strengthening has helped them in the short term, but the same forces eating away at the American middle class are equally at work in Czech, Lithuania, Latvia, Hungary, etc.