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.
Oil dropping is a symptom in this case of deflation. There was a speculative bubble in commodities which was basically the last bubble to pop before the liquidity fled to cash to deal with the huge writedowns due to bad debt and excess speculation. That wasn't the macro dynamic that was driving oil lower in the 80s, so the two situations aren't comparable.
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 $).
I'm not sure that measuring performance/$ or feature/$ is the best metric to use, and using that metric would make electronics disinflationary rather than deflationary. And while deflation makes people horde cash thinking that they'll get that that house for cheaper next week or next month, electronics is constantly coming out with better products that spur consumers into upgrading eventually. There is a disincentive to buy electronics today since the prices typically drop and features go up tomorrow -- but the absolutely relentless nature of the disinflation means that buying new electronics eventually becomes very favorable compared to what you now have
For example, my huge rear-projection non-HD television set really needs an upgrade to a flat-screen -- and it looks like directv may have finally decided to off an actual tivo HD-DVR and not just their crappy DVR, which could make me pull the trigger finally. So, while there's forces making me wait, its starting to really annoy me because my existing gear is so very out of date. So at some point you decide to pull the trigger and buy, knowing that next week or next month there will probably be something even better out there -- but what you buy is way better than what you had before.
And then there's all the early adopters that have to have the absolute latest and greatest to show off to all their friends, which is a behavior pattern that you don't really see in a falling real estate market. So there's clearly something importantly different between disinflationary electronics and deflating housing.
Thanks for reminding me about the inflation thread from February Deejayoh. Some of the comments people made about my deflation predictions certainly looking interesting now.
Boy, someone sure is abusing our State's medical marijuana laws. Time to get some fresh air Sniglet. Perhaps you should mount up the training wheels and go count some more For Sale signs around Lake Sammamish?
For your deflationary scenario to come to pass are you counting on some sort of systemic failure of the banking/financial system (ie some major banking institution going under)? I could see deflation if you had significant banks go bankrupt and people hit the panic button but I really think the risk of that is fairly low.
For your deflationary scenario to come to pass are you counting on some sort of systemic failure of the banking/financial system (ie some major banking institution going under)? I could see deflation if you had significant banks go bankrupt and people hit the panic button but I really think the risk of that is fairly low.
The people who are most wrong have the conceited user names. First "Finance Guru" then "Mr. Rational". If RAL ever came back he'd have to change his name first and I bet it would be to something like "Revered Genius".
The people who are most wrong have the conceited user names. First "Finance Guru" then "Mr. Rational". If RAL ever came back he'd have to change his name first and I bet it would be to something like "Revered Genius".
You forgot a couple of other names that the most egregiously wrong people have used: NAR Chief Economist, Alan Greenspan, Henry Paulson, CEO of ____(pick a large financial company), Anyone with the last name Ford...
That, and like you said people with the most narcissistic names.
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Justifiably resurrecting an old thread, I believe
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A 60 Minutes feature well worth watching / reading; Did Speculation Fuel Oil Price Swings?
. ....."Approximately 60 to 70 percent of the oil contracts in the futures markets are now held by speculative entities. Not by companies that need oil, not by the airlines, not by the oil companies. But by investors that are looking to make money from their speculative positions," Gilligan explained.
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Gilligan said these investors don't actually take delivery of the oil. "All they do is buy the paper, and hope that they can sell it for more than they paid for it. Before they have to take delivery."....
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Dan Gilligan is president of the Petroleum Marketers Association and represents more than 8,000 retail and wholesale suppliers.
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It's amazing that oil prices keep falling even as traders are siphoning off some 70 million barrels into storage, hoping for future gains. This is extremely bearish. Not only does this indicate that demand destruction must simply be enormous (so much so that 70 million barrels of crude going into storage don't drive up the price), and that this supply will eventually have to come back onto the market driving prices down further.
Oil traders are seeking as many as 10 supertankers to store crude, potentially taking the amount hoarded at sea to almost five days of European Union demand, according to Frontline Ltd., the largest owner of the vessels.
About 25 of the carriers, each able to hold about 2 million barrels of crude, were already hired for storage. There are enquiries for 5 to 10 more, Jens Martin Jensen, Singapore-based interim chief executive officer of the company's management unit, said by phone today. Traders are storing crude to take advantage of higher prices for supply in the future.
Thirty-five supertankers represent about 7 percent of the global fleet of very large crude carriers, according to data from London-based Drewry Shipping Consultants Ltd. Storing oil in tankers may buoy rental rates that fell by a record 78 percent last year as slower economic growth sapped demand for energy.
"I've never before seen storage demand on this scale," said Didier Labat, a Paris-based shipbroker at Barry Rogliano Salles who has worked in tanker markets for about 20 years.
I believe the general public is aware that oil prices were manipulated and they are pissed! Stricter regulation of specualtion in commodities markets is inevitable, IMO.
I believe the general public is aware that oil prices were manipulated and they are pissed! Stricter regulation of specualtion in commodities markets is inevitable, IMO.
It's unfortunate that people are so obsessive about oil. Losses to most people due to oil speculation are literally the least of our worries today. In fact, the pressure to find alternative fuels made oil speculation probably the only positive bubble in the last 10 years.
So, instead of fixing our real problems, we'll probably levy some kind of windfall tax on oil companies and create meaningless regulation on an industry which will be facing serious competition in 15 years time anyways.
Wow! The amount of oil speculators are tucking away just keeps growing. Something like 80 million barrels of crude are now in storage and there is STILL significant demand to find additional super-tankers to store more oil. The prospects for crude are just getting more bearish by the day. With this continuing growth of excess supply hanging over the market, there will be downward pressure on prices for a long time. Every time the price spikes a little there will be traders trying to unload their costly inventory.
I thought these Wall Street traders were supposed to be smart. Isn't one of the first lessons of investing that you should be doing the OPPOSITE of what everyone else is doing (i.e. selling when everyone wants to buy, and buying when everyone is selling)?
What's astonishing is that the price of crude is staying low even though nations are cutting production AND massive quantities are being siphoned off into tankers on trips to no where.
Morgan Stanley is seeking a supertanker to store crude oil, joining Citigroup Inc. and Royal Dutch Shell Plc in trying to profit from higher prices later in the year, four shipbrokers said.
"There's a lot of people looking for storage," Denis Petropoulos, London-based head of tankers at Braemar Shipping Services Plc, the world's second-largest publicly traded shipbroker, said by phone.
Frontline Ltd., the world's biggest owner of supertankers, yesterday said about 80 million barrels of crude oil are being stored in tankers, the most in 20 years. A purchaser could buy oil now, keep it for months at sea and fetch better prices by selling oil futures that are higher than the spot price.
Supertanker storage deals are being done at about $75,000 a day, according to Petropoulos. Assuming the ship has a 2 million- barrel cargo, that works out at $1.12 a barrel over a 30-day period. Traders also need to pay financing and insurance costs.
Wow! The amount of oil speculators are tucking away just keeps growing. Something like 80 million barrels of crude are now in storage and there is STILL significant demand to find additional super-tankers to store more oil. The prospects for crude are just getting more bearish by the day. With this continuing growth of excess supply hanging over the market, there will be downward pressure on prices for a long time. Every time the price spikes a little there will be traders trying to unload their costly inventory.
I thought these Wall Street traders were supposed to be smart. Isn't one of the first lessons of investing that you should be doing the OPPOSITE of what everyone else is doing (i.e. selling when everyone wants to buy, and buying when everyone is selling)?
What's astonishing is that the price of crude is staying low even though nations are cutting production AND massive quantities are being siphoned off into tankers on trips to no where.
Morgan Stanley is seeking a supertanker to store crude oil, joining Citigroup Inc. and Royal Dutch Shell Plc in trying to profit from higher prices later in the year, four shipbrokers said.
"There's a lot of people looking for storage," Denis Petropoulos, London-based head of tankers at Braemar Shipping Services Plc, the world's second-largest publicly traded shipbroker, said by phone.
Frontline Ltd., the world's biggest owner of supertankers, yesterday said about 80 million barrels of crude oil are being stored in tankers, the most in 20 years. A purchaser could buy oil now, keep it for months at sea and fetch better prices by selling oil futures that are higher than the spot price.
Supertanker storage deals are being done at about $75,000 a day, according to Petropoulos. Assuming the ship has a 2 million- barrel cargo, that works out at $1.12 a barrel over a 30-day period. Traders also need to pay financing and insurance costs.
I think this article is about arbitrage more than speculation. February crude is trading for delivery later this month at $35 a barrel while crude for delivery in December is trading at $58. So they buy Feb, sell Dec, take delivery and wait while paying the $1.12/barrel per month for storage plus the financing and insurance costs (no clue what these costs be). I'll bet they end up with a healthy return on a near risk-free investment.
I think this article is about arbitrage more than speculation. February crude is trading for delivery later this month at $35 a barrel while crude for delivery in December is trading at $58. So they buy Feb, sell Dec, take delivery and wait while paying the $1.12/barrel per month for storage plus the financing and insurance costs (no clue what these costs be). I'll bet they end up with a healthy return on a near risk-free investment.
But if everyone is doing the same thing, they'll end up flooding the market with crude in December and everyone will lose their tail.
I believe the general public is aware that oil prices were manipulated and they are pissed! Stricter regulation of specualtion in commodities markets is inevitable, IMO.
So we should make policy because the "general public is pissed"? When has that ever led to good results?
I think this article is about arbitrage more than speculation. February crude is trading for delivery later this month at $35 a barrel while crude for delivery in December is trading at $58. So they buy Feb, sell Dec, take delivery and wait while paying the $1.12/barrel per month for storage plus the financing and insurance costs (no clue what these costs be). I'll bet they end up with a healthy return on a near risk-free investment.
But if everyone is doing the same thing, they'll end up flooding the market with crude in December and everyone will lose their tail.
It won't be a problem if we just nationalize the oil industry and let Hugo Chavez run it.
Yesterday I asked you to identify the next economic bubble or artificial shortage that is likely to form. You did better than I expected. The winning suggestion: WATER.
In order to have a good artificial shortage you need several things to be true:
1. The commodity must be essential.
2. There is a plausible "natural" explanation for the shortage.
3. Only large companies have the resources to increase supply.
4. The government is involved in some way.
5. The media hasn't yet obsessed about it, but could.
6. Inventions to solve the problem are noticeably absent.
7. There are futures contracts for it.
Water has it all, except for the existence of futures contracts, as far as I can tell. Once you see a market for water futures forming, bend over. That's when the manipulation will begin. Crooks prefer manipulating financial markets over building reservoirs.
The plausible explanation for the worldwide shortage is that the population is growing faster than the supply of clean water. Add global warming to the mix and you have plausible explanations for worldwide droughts. That's the cover story. It's true enough to mask the artificial shortages that will be caused by the speculators and hedge funds.
So how can you invest and make money in water now, before the bubble tops?
Also, he points out in today's post that there is an ETF comprised solely of water companies. It trades under the ticker symbol PHO. I also found FIW.
Real Estate has water right provisions. My home contains a wet land for the purpose of free water, for my toilets, should I need it. A client of mine owns a stream in Canyon Park. His neighbor bottles water and owns a water purification patent. You'll find several obscure land trusts that own only water rights dating back to the early 1800s.
Real Estate already has the market cornered on water.
Yes Real Estate is owned. All land, in this country at least, has been claimed. Water rights are a very big deal going back to the time of the cattle men and farmers. Water rights are recorded then held in a wide variety of ways.
I happen to agree that water is the next big bubble.
Water rights are one of the main reasons that McCain didn't win Colorado, because of comments that he made about wanting to change water rights on the Colorado river for those states downstream of Colorado.
There's an old saying in the wild west: "Whiskey's for drinkin' and water's for fightin'."
Comments
I called for $60/bbl in this thread on another blog, back in May when Goldman Sachs was calling for $200/bbl oil right near the $145/bbl peak:
http://climateprogress.org/2008/05/06/p ... -gasoline/
Oil dropping is a symptom in this case of deflation. There was a speculative bubble in commodities which was basically the last bubble to pop before the liquidity fled to cash to deal with the huge writedowns due to bad debt and excess speculation. That wasn't the macro dynamic that was driving oil lower in the 80s, so the two situations aren't comparable.
I'm not sure that measuring performance/$ or feature/$ is the best metric to use, and using that metric would make electronics disinflationary rather than deflationary. And while deflation makes people horde cash thinking that they'll get that that house for cheaper next week or next month, electronics is constantly coming out with better products that spur consumers into upgrading eventually. There is a disincentive to buy electronics today since the prices typically drop and features go up tomorrow -- but the absolutely relentless nature of the disinflation means that buying new electronics eventually becomes very favorable compared to what you now have
For example, my huge rear-projection non-HD television set really needs an upgrade to a flat-screen -- and it looks like directv may have finally decided to off an actual tivo HD-DVR and not just their crappy DVR, which could make me pull the trigger finally. So, while there's forces making me wait, its starting to really annoy me because my existing gear is so very out of date. So at some point you decide to pull the trigger and buy, knowing that next week or next month there will probably be something even better out there -- but what you buy is way better than what you had before.
And then there's all the early adopters that have to have the absolute latest and greatest to show off to all their friends, which is a behavior pattern that you don't really see in a falling real estate market. So there's clearly something importantly different between disinflationary electronics and deflating housing.
The people who are most wrong have the conceited user names. First "Finance Guru" then "Mr. Rational". If RAL ever came back he'd have to change his name first and I bet it would be to something like "Revered Genius".
You forgot a couple of other names that the most egregiously wrong people have used: NAR Chief Economist, Alan Greenspan, Henry Paulson, CEO of ____(pick a large financial company), Anyone with the last name Ford...
That, and like you said people with the most narcissistic names.
Justifiably resurrecting an old thread, I believe
.
A 60 Minutes feature well worth watching / reading; Did Speculation Fuel Oil Price Swings?
.
....."Approximately 60 to 70 percent of the oil contracts in the futures markets are now held by speculative entities. Not by companies that need oil, not by the airlines, not by the oil companies. But by investors that are looking to make money from their speculative positions," Gilligan explained.
.
Gilligan said these investors don't actually take delivery of the oil. "All they do is buy the paper, and hope that they can sell it for more than they paid for it. Before they have to take delivery."....
.
Dan Gilligan is president of the Petroleum Marketers Association and represents more than 8,000 retail and wholesale suppliers.
.
.
.
http://www.bloomberg.com/apps/news?pid=newsarchive&sid=ahkU9Lg5fzoA
It's unfortunate that people are so obsessive about oil. Losses to most people due to oil speculation are literally the least of our worries today. In fact, the pressure to find alternative fuels made oil speculation probably the only positive bubble in the last 10 years.
So, instead of fixing our real problems, we'll probably levy some kind of windfall tax on oil companies and create meaningless regulation on an industry which will be facing serious competition in 15 years time anyways.
Wahoo!
I thought these Wall Street traders were supposed to be smart. Isn't one of the first lessons of investing that you should be doing the OPPOSITE of what everyone else is doing (i.e. selling when everyone wants to buy, and buying when everyone is selling)?
What's astonishing is that the price of crude is staying low even though nations are cutting production AND massive quantities are being siphoned off into tankers on trips to no where.
http://www.bloomberg.com/apps/news?pid=20601087&sid=aRo2aV9.jLhI&refer=home
I think this article is about arbitrage more than speculation. February crude is trading for delivery later this month at $35 a barrel while crude for delivery in December is trading at $58. So they buy Feb, sell Dec, take delivery and wait while paying the $1.12/barrel per month for storage plus the financing and insurance costs (no clue what these costs be). I'll bet they end up with a healthy return on a near risk-free investment.
But if everyone is doing the same thing, they'll end up flooding the market with crude in December and everyone will lose their tail.
So we should make policy because the "general public is pissed"? When has that ever led to good results?
It won't be a problem if we just nationalize the oil industry and let Hugo Chavez run it.
/leftist fantasy off
Answer to: Who Will Screw Us Next? Also, he points out in today's post that there is an ETF comprised solely of water companies. It trades under the ticker symbol PHO. I also found FIW.
Wait...what!?! You've been watching too much Fox News or something...
I used to own Budweiser for that purpose, but they were purchased by a foreign company.
Coca-Cola might be a good bet.
If water becomes a bubble, the US might take nationalize some of it in the interests of national security.
Real Estate already has the market cornered on water.
Or... real estate has the corner marketed on water.
In Seattle we call those in-house wetlands a basement. and that's why they suggest not laying carpet down there, to avoid the "marshy" effect
Yes Real Estate is owned. All land, in this country at least, has been claimed. Water rights are a very big deal going back to the time of the cattle men and farmers. Water rights are recorded then held in a wide variety of ways.
I happen to agree that water is the next big bubble.
What's the problem?
There's an old saying in the wild west: "Whiskey's for drinkin' and water's for fightin'."