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60 comments on Why oil (and helium) are still underpriced

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steverino on December 1, 2005 - 3:07am Permalink | Subthread | Parent | Comments top
 stuart, you state above:

"I suspect that the post-peak era will be inflationary, and high interest rates reduce the time window with which a net-present value calculation looks forward"

now...that's what you'd think...increased scarcity of various commodities...same or more demand...prices go through the roof...bingo..inflation

i would have thought the same thing...but..the bond market is saying the opposite..no matter how much mr. greenspan and his minions push up short term rates..the only interest mechanism they control..long term rates have stubbornly stayed the same...and that in the face of fed funds increasing from 1% to 4%

now, you could argue that long term rates are being artificially depressed, because all those foreign governments like china , japan and saudi arabia are recycling their foreign exchange profits by buying the long bond...and that very well may be the case...

but i've been thinking..(if i can anthropomorphise a bit)...maybe the bond market is trying to tell us something..and they have been doing it for several years now...maybe what we're facing is deflationary recession ( or depression, if that's your flavor)

as alan g. said ...it's a conundrum

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Stuart Staniford on December 1, 2005 - 5:48am Permalink | Subthread | Parent | Comments top
Yes - I don't understand the yield curve either. And I'm by no means certain at this point of the issue of the post peak era being inflationary - I need to work a lot harder on it (so much to research, so little time...)
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Stoneleigh on December 1, 2005 - 10:30am Permalink | Subthread | Parent | Comments top
Try Conquer the Crash by Robert R Prechter, or The Dollar Crisis by Richard Duncan (not the same Richard Duncan associated with Olduvai theory). Both explain the deflation angle, but from different perspectives.
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LevinK on December 1, 2005 - 1:27pm Permalink | Subthread | Parent | Comments top
If you take a look at who is buying long-term treasuries you can clearly see that achieving high capital yelds is not among their greatest motivations. I doubt that for some of them it is motivation at all.

I've been thinking of why the Chinese are so willingful to grant us such a generous line of credit in spite of the obviuos tensions between our countries. Besides the obvious motivation of keeping WalMartism, and thus their own economy alive I suspect that they plan to use the dollar card to keep us under control. It is logical - it would be much cheaper and safer for them to beat us on the financial markets than to confront us on the military front.

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steverino on December 1, 2005 - 2:49pm Permalink | Subthread | Parent | Comments top
yes, i agree totally on the chinese intentions..i have thought for some time that the chinese are playing us for the dupes that we are...of course they need us to buy that lawn furniture now...and if the american consumerators don't buy...who will??...the japanese economy has been in a deflationary funk since 1990 and the europeans with imbedded 10% unemployment (yeah, socialism...rah,rah,rah) are not the market of their dreams ,either...so they keep buying the bond to keep us afloat until...when??...how much longer do they put up with his excellency (the W-meister) going over there and insulting them before they say...o.k. dufus that's about enough?
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jkissing on December 1, 2005 - 9:45pm Permalink | Subthread | Parent | Comments top
If you borrow 10k from your banker, and you run into difficulty repaying the loan, you have a problem. If you borrow 10 billion (or 100b), and you have a problem paying it back, your banker has a problem. There is simply nothing the Asian bankers can do with their dollars that can hurt us, whether they dump them for Euros (pumping up the Euro, causing our European friends to squeal, and helping us export to Europe), buy gold (which we export) or burn them. Eventually dollars must be exchanged to the US for goods and services - there is nothing else they can be used for. (The current practice of buying paper, stocks and bonds, simply puts off the return of our wandering dollars.) No doubt they see their side of the conundrum quite clearly.
Pretty soon the one-child policy will present younger Chinese workers with their own problem: how to care for their two ageing parents, and without any help from SS. There will come a time when they become net importers of finished goods, certainly including food and health products, and will convert their dollars into goods and services, completing the trade of goods that is one-sided today. When this period begins the inflation we exported to Asia will return along with our dollars to the US.
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mkc on December 2, 2005 - 12:41am Permalink | Subthread | Parent | Comments top
This is a very interesting way of thinking about our borrowing.

Just as a thought experiment, what exactly is to keep us from repudiating that mountain of debt, once they decide they want to start spending those dollars in a big way?

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wkwillis on December 4, 2005 - 11:18am Permalink | Subthread | Parent | Comments top
Nothing. Of course, the Chinese might be required to sell thermonuclear weapons to the Iraqi insurgency to pay for their oil if we default on the money we owe them.
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MikeTor on December 2, 2005 - 3:03am Permalink | Subthread | Parent | Comments top
There is no conundrum. An inverted yield curve indicates recession ahead. So a flat one indicates the US is on the verge of it, never mind the ridiculous +4% 3Q growth statements. Those are fantasy statistics.
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60 comments on Why oil (and helium) are still underpriced

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