My Daughter

My Daughter
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Wednesday, October 29, 2008

Oil Price: Dead Cat Bounce

You may have heard this little nugget of wisdom referring to market behaviour as prices fall.

"Even a dead cat will bounce if it falls far enough".

It works the same way in reverse. Take a peek at oil's roller-coaster ride over the past decade. link Expect price volatility like never before seen... if Peak Oil is a credible concept.

It's just Adam Smith's cold, dead hand enforcing supply & demand economic behaviour. The recent meteoric fall in oil's price should be at least as disturbing as it's assent... it heralds the violent correction to come.

These swings will devastate hydrocarbon alternative industries globally. With no firm economic base to ensure profitability, these fledgling oil alternative businesses will struggle for financing, and ultimately be delayed by years... perhaps decades. Imagine the downstream impact this interruption will have on our collective future.

"Drill baby drill" should contribute nicely to wild oscillations in price.

Can you say "demand destruction"?

I knew you could.

How about "poverty"?

Yeah... thought so.

Tuesday, October 21, 2008

The Coming Peak Oil Grand Depression

Posted: Mon Apr 04, 2005 10:48 pm

Yeah... in '05

The Great Depression, which began in late 1929 and lasted for about a decade, was the worst economic downturn in U.S. history, and one which spread to virtually all of the industrialized world. The coming Grand Depression will be no less far-reaching. The "roaring twenties" was an era when our country prospered tremendously, much like we have done over the last few years. And, like then, it was all due to wild speculation and inflated assets. In the 1920's, the U.S. came to rely upon two things in order for the economy to remain on an even keel: credit sales, and luxury spending and investment from the rich. 

Same thing today. 

Our consumer spending is not funded by an increase in income wages, but by an illusionary equity in our homes. In other words, all the inflation has gone into real estate prices. Prices have reached levels that make no sense in terms of traditional patterns and rules of thumb for valuation. A range of evidence suggests that at the market peak in September 1929, something like forty percent of stock market values were pure air: prices above fundamental values for no reason other than that a wide cross-section of investors thought that the stock market would go up because it had gone up. Now, real estate investors think the same thing of the housing market. 

In particular, the FED's efforts to lower interest rates have caused an asset bubble to form around real estate. People tend to over-invest when interest rates are low and when interest rates are raised to stave off the inevitable inflation, the bubble pops. That process is under way as I write this. Throughout the years preceding the Stock Market crash of 1929, the Fed did just that. The Fed set below market interest rates and low reserve requirements that all favored easy credit. The money supply actual increased by about 60% during this time. The phrase "buying on margin" entered the American vocabulary at this time as more and more Americans over-extended themselves to take advantage of the soaring stock market. Today, it is the housing market, and to some extent the stock market again. It was in 1929 that the Fed realized that it could not sustain its current policy. When it started to raise interest rates, the whole house of cards collapsed. The FED is starting to raise interest rates now for the same reason--to cool off consumer spending/speculation and reel in the trade deficit. 

One of our members, somethingtosay, suggested I "interview and learn from the people that lived and survived the great Depression of the 30's. Report back to this Web site on the wisdom they learned the hard way." Some of the following is from some old-timers I talked with recently, and the rest from interviews posted on the Internet. I will let the following quotes speak for themselves. It is a chilling account. 

Quote:
Well, everybody went on relief, and everyone raised a big garden. We raised everything from peas to potatoes and onions, and the extra vegetables we had we sold to people who didn't raise one. We lived off that garden for some time, and it was a big help. Once a month they'd give commodities out. You'd get dried beans, pound of bacon, pound of butter, dried milk, and sugar, and depending on how big your family was, was how much you got; and since we had the cow, we would trade the dried milk for coffee to people who didn't like coffee. That was supposed to last you a whole month, but that was government surplus, and they'd have a place that they dished that out; and I tell you we were so poor we had a gas stove, but we didn't even have the money to hook it up. We also had an icebox and couldn't even afford ten cents a day to put ice in it. When my son was born I'd mix his formula and put it down in the well on the rope and every time I had to feed him I would pull the rope up and get the bottle, but we had no refrigeration and everything we needed refrigerated went across the street to my mom and dad's place. When the war started in 1941, a lot of jobs were left vacant when the men left for war, so unemployment virtually disappeared after that.

Quote:
Gas was sparse, so when me and a group of buddies would drive down a hill, we'd turn off the car so we wouldn't waste gas.
Quote:
Seemed to have just enough food to eat...no leftovers...had to eat everything on our plate. Things we take for granted now, such as water and heat in our homes was something precious in the depression. All farmers had to can food for winter and they ate out of gardens in the summer on a farm, there was no money and the people had to eat from gardens
Quote:
It has affected me all my life. It made a lot of people learn how to conserve. My dad could not find work so we went to live on the farm with my dad's parents. We had no money so when we needed something we had to "make do" or do without.

Quote:
The city was affected more than rural areas. We always had food and wood from the farm, but city people had very little food or wood. They had to collect coal that dropped from the trains. Lived on a farm and had plenty to eat because we grew everything moved from town to live in Smithfield MO on a farm so that they could grow crops and have food to eat.

Quote:
African Americans suffered more than whites, since their jobs were often taken away from them and given to whites.

Quote:
Every tear I saw my mother shed was over the lack of money. All we seemed to do was to, literally, count the pennies in the house among all of us. We fought over money almost all the time, my mother would go into a panic if she could not account for every penny. Not one cent was ever foolishly spent and not one cent ever went for anything that was not vital to life. The memory that I retain to this day (77 years old) is that of my parents crying, singularly and together, about money! I remember one dinner where my mother, myself and my brothers and sister sat down to a meal. The meal consisted of 3 boiled potatoes and one slice of white bread which we divided up amongst us. I noticed my mother was not eating and I asked her why she was not eating. She answered that she was on a diet. When I was about 50 years of age it hit me that she had not been on a diet but was giving up what there was to us!

Quote:
When I talk about the essentials of life I mean just that. The list is easy to put together and here it is: 
Rent, food, but no ice cream, candy, baked goods; only the essentials, electricity, gas for the stove, clothing, medicineĆ¢€”and that was it. We walked everywhere and I do mean everywhere. If a trip was less than 5 miles we would walk it.
There are five things that seem to be predominating in all that I have read about the Great Depression: 
1) There was not one single private or public institution that was up to the task of coping with the depression. 
2) The United States suffered more than any country in the world since we were the most industrialized. 
3) People had to grow much of their own food in gardens. 
4) There was a mass exodus to the country to live with farm relatives. 
5) Money was seldom seen. 

Are we headed there once again as peak oil/gas inhibits our ability to grow the economy, provide new jobs, and feed--clothe--house the new comers? Even without peak oil, this seems to be in the cards. And without an abundance of cheap energy to grow our way out of it, the forecast for the future is ominous.