Powers Vow in 2007 as in 1932

[FRED]

Re: Powers Vow in 2007 as in 1932

[QUOTE=Jim Nickerson;18176]

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.

[0tr]

Re: Powers Vow in 2007 as in 1932

"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.

Re: Powers Vow in 2007 as in 1932

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

Long Term oil prices (viewed from 2007 - now a time capsule)



Oil prices are tumbling down to quarterly lows of only $43.00/bbl. 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 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 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

[Rajiv]

Re: Powers Vow in 2007 as in 1932

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?

[Jim Nickerson]

Re: Powers Vow in 2007 as in 1932

[quote=Fred;18169]

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

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."?

Re: Powers Vow in 2007 as in 1932

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.

[GRG55]

Re: Powers Vow in 2007 as in 1932

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...

[FRED]

Re: Powers Vow in 2007 as in 1932

[QUOTE=GRG55;18159]

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 forth

I 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

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]

Re: Powers Vow in 2007 as in 1932

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 forth

I 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.

Re: Powers Vow in 2007 as in 1932

OK, I guess that's "expanded" enough to make the point clear. It's looking a little blurry close up though. :rolleyes:

[metalman]

Re: Powers Vow in 2007 as in 1932

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!!!

Re: Powers Vow in 2007 as in 1932

See, it did it again! I could swear Mish's "no U-Turn" sign just got a bit bigger ...

[metalman]

Re: Powers Vow in 2007 as in 1932

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...

Re: Powers Vow in 2007 as in 1932

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]

Re: Powers Vow in 2007 as in 1932

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.

[ATTACH]89[/ATTACH]

_________________

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...