The Next Bubble

[lamont]

[Matthew]

Oil now at 104 and dropping... Could we see 80 dollar a barrel oil and a repeat of last year's paranoia by the peak oil theorists?

Prepare for deflation America! OPEC was actually talking about CUTTING production this week!

[rose-colored-coolaid]

[WestSideBilly]

[Matthew]

I don't necessarily disagree with either of the last two posts. My initial point was that commodities (to include oil) were a speculative bubble that was about to burst due to deflationary (decrease in demand/money supply) effects.

It just seems that every year, the peak oil theorists argue that the new oil highs are due to a new paradigm in the oil market. While I don't fully discount the peak oil theory, I believe that it is premature and that the world markets are currently well supplied with oil.

BTW, oil is hovering at a huge resistance point at 100/barrel. If we plunge below 100, ROOK OUT BEROW!

[WestSideBilly]

[TJ_98370]

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Our very own Maria Cantwell is mentioned.......
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Three members of Congress, armed with a new report that they say proves that excessive oil speculation is distorting consumer energy prices, are renewing their efforts to exclude many institutional investors from the nation's commodity markets.
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The report was released Wednesday by Senators Byron L. Dorgan, Democrat of North Dakota, and Maria Cantwell, Democrat of Washington, and Representative Bart Stupak, Democrat of Michigan.....
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[WestSideBilly]

[Matthew]

Oil check, hovering in the 70 dollar range.

HELLO DEFLATION!

[WestSideBilly]

I wonder if any politician will have the balls to pass an increased gas tax or a floor price come January.

[deejayoh]

Sniglet had the call for $50 a bbl oil on

Personally, I wouldn't call oil dropping back to a more demand-based price "deflation" at this point.

Deflation = a reduction in the general level of prices sustained over several months, usually accompanied by declining employment and output.

Perhaps one sign of it coming, but if lower oil prices work to spur more economic activity I think there is an argument it could also work against it. Our economic engine runs as much on energy as it does on anything else, and when the price of that drops it may make up a bit for disappearing credit.

Oil prices dropped precipitously off a short term peak in the early 80's to no ill effects.

[rose-colored-coolaid]

I thought was interesting.

So, have you guys heard any suggestions that all economists believe deflation is bad? One of the most vibrant growth industries in the last 20 years has been personal electronics, which is also the domain feature the most reliable deflation over time (if measuring performance per $).

[deejayoh]

[Matthew]

The commodity bubble bursting is one of the first signs of deflation. We already have increased unemployment nationwide, as well as destruction of wealth in equities, energy, and home values.

[jon]

Falling oil prices are not deflationary because with a limited tank size, you won't put off your purchase of gas waiting for the price to fall. The few cents you would save aren't worth the hassle.

Failing electronics prices are to a greater extent deflationary, but it is offset by rapidly improving capabilities, which makes older units functionally obsolete because they won't run new software that is geared towards more recently built machines. Eventually you do run into the same situation that you do with gasoline, where you just have to buy a new one.

When capital equipment prices start to fall, that's when the economy goes into a severe downturn. Manufacturers lay off workers because customers can't make a profit if their competitors waited a little longer and got a better price on the same equipment. The falling demand then leads to lower prices and thus feeds on itself.