The difference is that, unlike 1987, the US dollar has been holding up fairly well past couple of weeks while this sell-off in the markets has taken place. If the dollar starts crashing along with stocks and commodities, run for the hills.
Is it possible that the Fed has (1) inflated a big dollar denominated bubble with super-low interest rates, then (2) raised rates far enough that the bubble investments look poor on a risk-adjusted basis, so that (3) there is a rush to dollars to de-leverage?
Yes, investors clearly are dumping risky investments for less-risky investments, including cash. However, the U.S. dollar, the global reserve currency, is looking more shaky due to the huge debt and trade/budget deficits of the U.S. The Fed erred in keeping interest rates too low for too long and investors paid for it with the NASDAQ crash of 2000-2002, and the subsequent real estate bubble which is now beginning to deflate. The so-called "commodity bubble" (including energy) is different. It is supply/demand driven. We're approaching peak oil, peak copper, peak clean water, etc., due to the expanding world population and the rapidly advancing economies in China and India. Ultimately, I believe there will be a U.S. dollar crash but it may be years away. In the meantime, it may be wise to keep some gold on hand. I suspect that peak oil will just exacerbate and accelerate the dollar crash since it will stifle the U.S. economy. Expect severe stag-flation.
On 5/7 the June US dollar futures contract opened at the 84.90 level. I just checked the latest price (as of 7:30 PM on 5/22) and its at 84.33. That represents a total decline of 0.7%. I would hardly describe that as "plummeting". It's true that the dollar has been very weak since January, but the point is that it has held up pretty well during the vicious decline in the markets over the past 2 weeks. In fact, the dollar is up nearly 1% during the past week.
Would it be possible for you to explain your numbers for me. I watch Nightly Business Report on PBS every night and have been following the dollar to euro for some time now, and tonight it closed at (correct me if I'm wrong) at .777xx. Can you explain what this means.
You're quoting the Euro. I was quoting the U.S. dollar futures contract which is the value of the U.S. dollar against a basket of foreign currencies. The dollar has lost somewhat against the Euro in the past 2 weeks. I'm seeing an opening price of 1.277 for the Euro on 5/7, and the current price is around 1.288. However, the Yen was at 0.8949 on 5/7 and is at 0.8999 tonight. So, the dollar lost 0.86% against the Euro, but only 0.56% against the Yen. The point is, it's a very modest loss, as compared to the carnage in the stock and commodities markets. Furthermore, the dollar has been strengthening this week.
OK. last 2 weeks its been pretty constant. I guess I meant last 8 weeks, when it has gone from 1.18 to 1.29 vs Euro. thats a big move for 2 months, historically.
I dont remember what was happening in the weeks leading up to 10/19/1987 - was the dollar selling off before stocks did?
I don't have charts at my fingertips, but I recall reading that the dollar fell sharply, and the stock market was very weak, in the days leading up to the 1987 crash. That was the warning sign - the dollar was falling simultaneous with the stock market. In the present case, we have the dollar holding up (even though it's been weak in the past few months) while the stock market has been dropping over the past 2 weeks. If the dollar and the stock market start falling together, it greatly increases the chance of a real crash.
Here is a dollar index chart (June contract):
http://www.futuresource.com/charts/charts.jsp?s=DXM06
There has been a dollar selloff recently -- ahead of many of the market corrections. The biggest drop was in April. Then we got market corrections starting in mid-May, but the dollar decent stopped.
The only reason the dollar has held is due to a worldwide drawdown of riskier assets (foreign equities) & into USD "safe" investments. So again, it's like recycling dollars. In the absence of M3 info, I think it's clear that inflaton it starting to take a firm hold.
To combat that they will have to raise interest rates to maintain the dollar. Problem is they will do so to the detriment of the working people and boom UNEMPLOYEMENT!
One thing we all seem to have missed was that last week Larry King did a program on oil prices. I saw the last 5 minutes at 2AM when it was being re-run again.
Guests include Robert Redford, David O'Reilly (Chairman and CEO of Chevron), Senator Kay Bailey Hutchison, Senator Dick Durbin, Daniel Yergin and Sir Richard Branson.
A lot of boosterism for ethanol. I didn't see the whole thing and I am still reading the transcript so I won't say whether this was even worthwhile or not.
It seems that much is being said about Ethanol... but the point that nobody seemed to bring up is EROEI... what will it be at best 1 to 1, 2 to 1 someday? Anyone performed total calculations on this? fuel required by machines to till the field, prep the land, plant the corn, fertilize, spray pesticide, harvest, refine... etc... etc...
The article is behind a pay wall. The article uses the "Hubbert Linearization" logistic technique to estimate peak production from a group of oil fields currently being developed. However, the kicker is toward the end of the article, where the author provides his logistic based reserve estimates for the world and various regions, which are as follows (presumably for crude + condensate, in billions of barrels, or Gb, through 2004):
World:
Total Recoverable Reserves: 2,000 Gb; 1,043 Gb Remaining; 48% depleted.
US:
Total Recoverable Reserves: 225 Gb; 40 Gb Remaining; 82% depleted.
Russia:
Total Recoverable Reserves: 195 Gb; 44 Gb Remaining; 77% depleted.
Saudi Arabia:
Total Recoverable Reserves: 165 Gb; 64 Gb Remaining; 61% depleted.
Final comment at the end of the article: "There is a need for a fast track development plan. At current rates of project slippage, depletion will continue eating into discovery gains."
Note that the author's estimate of ultimate recoverable conventional world oil reserves exactly matches Kenneth Deffeyes' estimate (also 2,000 Gb).
If Saudi Arabia and Russia are both well past the 50% depletion mark, how can the world be at 48%? That implies that there are some countries out there (many small ones or a few large ones) that are well below the 50% mark. Which ones might those be?
"That implies that there are some countries out there (many small ones or a few large ones) that are well below the 50% mark. Which ones might those be?"
Some obvious candidates are in the Caspain Sea area and Africa (both onshore and offshore).
O.K. - interesting. Matt Simmons always says that "if Saudi Arabia has peaked, then the world has peaked." But I guess that might not be the case. It may be correct to say "if Saudi Arabia has peaked, then the world is just about to peak."
I suspect that Saudi Arabia is keeping their production up via the use of horizontal wells. In effect, they are probably "borrowing" oil from future years. They will pay the price. There also appears to be a "swing producer" effect. Texas peaked, based on Khebab's work, at about 58%, while the Lower 48 peaked at around 49%. Note that Texas oil production has dropped by about 75%, while the Lower 48 is down by only 50%.
The Yibal Field, in Yemen, is a prime example of what happens when the water encounters the horizontal wells. The Cantarell Field is another, emerging, example of what happens with water + horizontal wells.
If you go to Graphoilogy, you will find some recent Texas, Lower 48, World and Saudi Arabia graphs. Texas is to the Lower 48 as Saudi Arabia is to the world.
Well I suppose that if was bound to happen ... my mind is officially boggled!
Saudi Arabia at 61 percent depleted! It may just be that I have not been paying attention, but I believe that this is the most pesimistic number that I have seen.
How unusual is it for a highly controversial position to appear in the Oil and Gas Journal? I googled the author, Rafael Sandrea, and came up with the following link to a number of his articles. http://www.its.com.ve/publications.htm
"How unusual is it for a highly controversial position to appear in the Oil and Gas Journal?"
I have a sneaking suspicion that the author snuck a Peak Oil article into the Journal, without the editors really realizing what he was saying. I had to read the paragraph regarding the logistic reserve estimates several times to make sure I understood what he was saying.
Iran's production has been declining slightly the last year or so. Can we add it to the countries that are past peak?
Original here http://omrpublic.iea.org/supply/ir_cr_ts.pdf
If net oil exports are falling, where would actual shortfalls show up first?
As everyone knows who has signed on more than one time, I am predicting an imminent crisis in net oil export capacity worldwide.
If we assume a drop in exports, IMO here in the US we would see an initial drop in imports, followed by a price spike, followed by a (temporary) increase in imports, ultimately followed by another drop in imports, then a price spike, then another temporary increase, and the cycle goes on as we see progressive demand destruction--as prices equalize supply and demand.
What we would of course be seeing is a process of richer importers outbidding poorer importers. So, the demand destruction should be readily apparent in poorer countries.
Following are links to two stories outlining how two poorer countries are coping with more expensive oil. They are cutting back, because they can't afford to buy all that they want at current prices. This actually ties in with a NYT story on US driving patterns. Just about the only US drivers that curtailed their gasoline usage were the ones financially incapable of buying more gasoline.
Thailand and Senegal, today, offer us a glimpse of our tomorrows.
(FnWeb.com Via Thomson Dialog NewsEdge)fnWEB - Bangkok - April 26,
Excerpt:
Small gas stations had closed not because of short supply, but apparently due to the rising oil prices, which had already seen domestic consumption of diesel drop from 55 million litres to 51 million per day and gasoline from 20 million litres to 18 million daily, he added.
DAKAR (Reuters) - Dakar was known as "little Paris" during the post-colonial era because its sophistication evoked France's glittering "City of Lights" -- but these days the Senegalese capital is frequently plunged into darkness.
Soaring fuel prices and lack of investment in the creaking state-run electricity sector have caused lengthy power cuts in the city of more than 2 million people.
So, what we need is a "barrel" of "poor" countries and access to their consumption data. Do you have an "index" in mind that you would consider reliable?
I suppose that one could argue that the sooner that Third World countries adjust to a less oil dependent lifestyle, the better off they will be; nevertheless the fact remains that the US is probably outbidding them for oil supplies--which were largely used for nondiscretionary purposes in Third World countries--in order to maintain our high consumption lifestyle.
To put it in its simplest terms, we may be taking oil away from poor farmers and fishermen in order to supply our large SUV's and McMansions.
Somehow, I don't think that this is going to make the US more popular around the world.
I had earlier theorized that BCR planned to seize control of the oil fields in the Middle East and then in effect renege on the federal debt. I suppose that it might be more accurate to say that they planned to seize control of the fields in order to force exporters of all types to continue to accept dollars.
I suspect that the emerging definition of a terrorist state is an oil exporter that refused to accept payment for oil in dollars. This weekend, one of the talking heads on Fox had some interesting questions/comments regarding Chavez & Venezuela--Do you think that Chavez is using oil as a new weapon of mass destruction?Are there links between al Qaeda and Chavez?Don't you think that we need to do something about Chavez before Venezuela becomes something like Iran?
IMO, the only rational--and moral--course of action for the US to take is to replace the Payroll Tax with an Energy Consumption Tax. Unfortunately, I suspect that the course that BCR are pursuing is something along the lines of sell us oil for dollars or we will talk about nuclear weapons.
I think you might be right about BCR using military force to prop up the dollar, instead of contemplating reneging on the national debt (which would end US hegemony.)
Lt. Col. Karen Kwiatkowski worked for Douglas Feith's "Office of Special Plans" in the Pentagon, and said that Saddam's plans to convert to oil payments in Euros was the primary cause for our invasion. Or at least she thought they talked about that as much as anything.
I think BCR would like to bully the world into selling us oil for fiat dollars, but their power is rapidly ebbing. All three of them are under sustained attack, mostly as a result of the prolonged failure of their policies to accomplish the above.
I've been a bear for three decades, but sooner or later I'm bound to be right, and I think the US's luck is finally beginning to run out. If the dollar drops, and oil exporters follow Russia's lead and convert to Euros, and China and Japan start to diversify their portfolios, oil could become far more expensive in dollars, but not necessarily other currencies. Which would be a way of correcting for US extravegance, and "sharing the wealth."
"... is to replace the Payroll Tax with an Energy Consumption Tax..."
At which point would you assess this tax? What I mean to say is, would I be tax liable only for direct energy consumption? Like heating, electricity, petrol, etc. The rest of the tax would be "hidden" in the cost of goods (services) I purchase?
"..sell us oil for dollars or we will talk about nuclear weapons."
I'm not entirely convinced this is the case. BCR, or better still, the Neocons, probably don't have a particular affinity to USDs as such, they simply want to ensure that access to the resources they feel are essential to US (their) best interests remain unimpeded. Only the loss of the presidency would actually challenge the Neocons, so I don't think Cheney or Rumsfeld going would necessarily have an immediate impact.
The Straussians spent an awful long time in the wilderness, some being turfed out by Bush Sr. during his reign, so I think it will take more than a few scandals and some bad press to remove them. This is why I perceive them as particularly dangerous. They appear to be beyond morals, ruthless, and willing to go to any lengths to ensure their survival.
I would use the existing tax system, and tax energy at the retail level, principally at the delivery point to the customer--pump, electricity meter, natural gas meter, etc. Note that I am not talking about an increase in overall taxation (beyond what we would have anyway). I am simply suggesting that we tax energy consumption instead of payroll in order to fund Social Security and Medicare.
As a depressing aside, here in Australia, we have recently had the government announce the latest budget. Included in the budget were widespread and extensive income tax cuts. However, latest opinion polls show the government less popular following the release of this budget. In attempting to understand the public response, at least one media pundit has suggested that the public are unhappy because they would have preferred a cut in the petrol excise (gasoline tax).
Essentially, you want to reward "savers" and "punish" "spenders?"
Clearly, there would be no threshold. So, how would you deal with those suffering "fuel poverty?" What if fuel contributes more than, say, thirty percent of one's income. How would you deal with that scenario?
http://www.timesonline.co.uk/article/0,,2095-2189601,00.html
link
thanks
I dont remember what was happening in the weeks leading up to 10/19/1987 - was the dollar selling off before stocks did?
http://www.futuresource.com/charts/charts.jsp?s=DXM06
To combat that they will have to raise interest rates to maintain the dollar. Problem is they will do so to the detriment of the working people and boom UNEMPLOYEMENT!
Transcript here:
http://transcripts.cnn.com/TRANSCRIPTS/0605/17/lkl.01.html
Guests include Robert Redford, David O'Reilly (Chairman and CEO of Chevron), Senator Kay Bailey Hutchison, Senator Dick Durbin, Daniel Yergin and Sir Richard Branson.
A lot of boosterism for ethanol. I didn't see the whole thing and I am still reading the transcript so I won't say whether this was even worthwhile or not.
It seems that much is being said about Ethanol... but the point that nobody seemed to bring up is EROEI... what will it be at best 1 to 1, 2 to 1 someday? Anyone performed total calculations on this? fuel required by machines to till the field, prep the land, plant the corn, fertilize, spray pesticide, harvest, refine... etc... etc...
http://www.ogj.com/index.cfm
Early new field production estimation could assist in quantifying supply trends
By: Rafael Sandrea
Oil & Gas Journal, May 22, 2006
Comments by Jeffrey J. Brown:
The article is behind a pay wall. The article uses the "Hubbert Linearization" logistic technique to estimate peak production from a group of oil fields currently being developed. However, the kicker is toward the end of the article, where the author provides his logistic based reserve estimates for the world and various regions, which are as follows (presumably for crude + condensate, in billions of barrels, or Gb, through 2004):
World:
Total Recoverable Reserves: 2,000 Gb; 1,043 Gb Remaining; 48% depleted.
US:
Total Recoverable Reserves: 225 Gb; 40 Gb Remaining; 82% depleted.
Russia:
Total Recoverable Reserves: 195 Gb; 44 Gb Remaining; 77% depleted.
Saudi Arabia:
Total Recoverable Reserves: 165 Gb; 64 Gb Remaining; 61% depleted.
Final comment at the end of the article: "There is a need for a fast track development plan. At current rates of project slippage, depletion will continue eating into discovery gains."
Note that the author's estimate of ultimate recoverable conventional world oil reserves exactly matches Kenneth Deffeyes' estimate (also 2,000 Gb).
Some obvious candidates are in the Caspain Sea area and Africa (both onshore and offshore).
The Yibal Field, in Yemen, is a prime example of what happens when the water encounters the horizontal wells. The Cantarell Field is another, emerging, example of what happens with water + horizontal wells.
http://www.its.com.ve/publications/Early_New_Field_Production_Estimation_Could_Assist_in_Quantifying _Supply_Trends.pdf
Saudi Arabia at 61 percent depleted! It may just be that I have not been paying attention, but I believe that this is the most pesimistic number that I have seen.
How unusual is it for a highly controversial position to appear in the Oil and Gas Journal? I googled the author, Rafael Sandrea, and came up with the following link to a number of his articles. http://www.its.com.ve/publications.htm
For what it is worth.
I have a sneaking suspicion that the author snuck a Peak Oil article into the Journal, without the editors really realizing what he was saying. I had to read the paragraph regarding the logistic reserve estimates several times to make sure I understood what he was saying.
Original here
http://omrpublic.iea.org/supply/ir_cr_ts.pdf
As everyone knows who has signed on more than one time, I am predicting an imminent crisis in net oil export capacity worldwide.
If we assume a drop in exports, IMO here in the US we would see an initial drop in imports, followed by a price spike, followed by a (temporary) increase in imports, ultimately followed by another drop in imports, then a price spike, then another temporary increase, and the cycle goes on as we see progressive demand destruction--as prices equalize supply and demand.
What we would of course be seeing is a process of richer importers outbidding poorer importers. So, the demand destruction should be readily apparent in poorer countries.
Following are links to two stories outlining how two poorer countries are coping with more expensive oil. They are cutting back, because they can't afford to buy all that they want at current prices. This actually ties in with a NYT story on US driving patterns. Just about the only US drivers that curtailed their gasoline usage were the ones financially incapable of buying more gasoline.
Thailand and Senegal, today, offer us a glimpse of our tomorrows.
http://www.tmcnet.com/usubmit/2006/04/26/1612791.htm
Government, refiners move to prevent oil shortages
(FnWeb.com Via Thomson Dialog NewsEdge)fnWEB - Bangkok - April 26,
Excerpt:
Small gas stations had closed not because of short supply, but apparently due to the rising oil prices, which had already seen domestic consumption of diesel drop from 55 million litres to 51 million per day and gasoline from 20 million litres to 18 million daily, he added.
http://news.scotsman.com/latest.cfm?id=758322006
Senegal in dark as power cuts halt activity
By Diadie Ba
Excerpt:
DAKAR (Reuters) - Dakar was known as "little Paris" during the post-colonial era because its sophistication evoked France's glittering "City of Lights" -- but these days the Senegalese capital is frequently plunged into darkness.
Soaring fuel prices and lack of investment in the creaking state-run electricity sector have caused lengthy power cuts in the city of more than 2 million people.
To put it in its simplest terms, we may be taking oil away from poor farmers and fishermen in order to supply our large SUV's and McMansions.
Somehow, I don't think that this is going to make the US more popular around the world.
I had earlier theorized that BCR planned to seize control of the oil fields in the Middle East and then in effect renege on the federal debt. I suppose that it might be more accurate to say that they planned to seize control of the fields in order to force exporters of all types to continue to accept dollars.
I suspect that the emerging definition of a terrorist state is an oil exporter that refused to accept payment for oil in dollars. This weekend, one of the talking heads on Fox had some interesting questions/comments regarding Chavez & Venezuela--Do you think that Chavez is using oil as a new weapon of mass destruction? Are there links between al Qaeda and Chavez? Don't you think that we need to do something about Chavez before Venezuela becomes something like Iran?
IMO, the only rational--and moral--course of action for the US to take is to replace the Payroll Tax with an Energy Consumption Tax. Unfortunately, I suspect that the course that BCR are pursuing is something along the lines of sell us oil for dollars or we will talk about nuclear weapons.
Lt. Col. Karen Kwiatkowski worked for Douglas Feith's "Office of Special Plans" in the Pentagon, and said that Saddam's plans to convert to oil payments in Euros was the primary cause for our invasion. Or at least she thought they talked about that as much as anything.
I think BCR would like to bully the world into selling us oil for fiat dollars, but their power is rapidly ebbing. All three of them are under sustained attack, mostly as a result of the prolonged failure of their policies to accomplish the above.
I've been a bear for three decades, but sooner or later I'm bound to be right, and I think the US's luck is finally beginning to run out. If the dollar drops, and oil exporters follow Russia's lead and convert to Euros, and China and Japan start to diversify their portfolios, oil could become far more expensive in dollars, but not necessarily other currencies. Which would be a way of correcting for US extravegance, and "sharing the wealth."
At which point would you assess this tax? What I mean to say is, would I be tax liable only for direct energy consumption? Like heating, electricity, petrol, etc. The rest of the tax would be "hidden" in the cost of goods (services) I purchase?
"..sell us oil for dollars or we will talk about nuclear weapons."
I'm not entirely convinced this is the case. BCR, or better still, the Neocons, probably don't have a particular affinity to USDs as such, they simply want to ensure that access to the resources they feel are essential to US (their) best interests remain unimpeded. Only the loss of the presidency would actually challenge the Neocons, so I don't think Cheney or Rumsfeld going would necessarily have an immediate impact.
The Straussians spent an awful long time in the wilderness, some being turfed out by Bush Sr. during his reign, so I think it will take more than a few scandals and some bad press to remove them. This is why I perceive them as particularly dangerous. They appear to be beyond morals, ruthless, and willing to go to any lengths to ensure their survival.
I would use the existing tax system, and tax energy at the retail level, principally at the delivery point to the customer--pump, electricity meter, natural gas meter, etc. Note that I am not talking about an increase in overall taxation (beyond what we would have anyway). I am simply suggesting that we tax energy consumption instead of payroll in order to fund Social Security and Medicare.
Clearly, there would be no threshold. So, how would you deal with those suffering "fuel poverty?" What if fuel contributes more than, say, thirty percent of one's income. How would you deal with that scenario?
If we do nothing, we will all be paying both higher energy prices and Payroll Taxes.
As Jim Kunslter says, whether we like SUV's are not, we are going to be forced to reduce our energy usage and our high consumption lifestyles.
I am merely talking about accelerating trends that we will inevitably see anyway.