Quote of the Day: Oil & Recessions
Hard to argue with this:
"Nothing has been a more reliable indicator for an upcoming recession as the price of Oil. Every major bear market, every major economic decline has been preceded by a large spike in oil prices. The 73-74 recession, recession of beginning 80's and the recession of 2000. Oil prices jumped 80% between 1999 and 2000. Oil prices have been the most important indicator of major economic disasters. Whenever Oil prices rise about 80% from year ago levels, a fair chance does exist that a recession/bear market will follow."
-Stephen Leeb
~~~
Thursday, June 26, 2008 | 04:30 PM | Permalink
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Unfortunately...he is only looking at the effect (high price) and not the cause (debased dollar).
Posted by: Chris | Jun 26, 2008 4:40:04 PM
Suddenly Homer's scam of stealing used cooking grease doesn't look so dumb. It's probably cheaper to recycle now.
I wonder whether Homer has an a.r.m. with Countrywide?
Posted by: Chief Tomahawk | Jun 26, 2008 4:47:10 PM
Yesterday's headline:
Fed to Consumers: Drop Dead
Today's headline:
Markets to Fed: Drop Dead
Posted by: MitchN | Jun 26, 2008 4:48:02 PM
Unfortunately...he is only looking at the effect (high price) and not the cause (debased dollar).>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>
Although there is alot of debasing of the USD going on because of Greenspan and Bernanke,
If by miracle, Bernanke were to contract the money supply by increasing interest rates,
and kill off economic activity, it does not
mean that all of a sudden, cheap oil will start gushing out of Depleted wells like the good ole days of the beverly hillbillies.
There is no direct correlation between US money supply and the production of oil.
Posted by: rickrude | Jun 26, 2008 4:54:01 PM
As of November 5th, this will all be Obama’s fault.
Posted by: DL | Jun 26, 2008 5:09:13 PM
This is a very weak argument. I see the role of oil in the 1970s recession. It was so sudden and artificial. But 2000? C'mon, it was a workout of speculative excesses in financial markets. And today? Consider this...Oil prices went up more than 80% from 2004 to 2006. According to this guy's argument, that should have been enough to trigger a recession. But does anyone here think that oil at 2006 prices would be putting us into our current recession? The problem (like in 2000) is not energy prices, but speculative excesses in other asset markets -- this time in real estate and consumer debt.
Posted by: Eric | Jun 26, 2008 5:16:30 PM
Or McCain's fault.
Posted by: Jonathan | Jun 26, 2008 5:16:50 PM
wiley E. Coyote has just crossed the cliff. Don't know when he will look down to begin the quick fall. But when he looks down,he will see Chinese and indian markets at the lows and Global economy struggling which will prompt the gravity to take control over the situation.
Gravity always wins! All the Time!
Posted by: Sam Jacob | Jun 26, 2008 5:17:25 PM
Bloomberg headline saying 'worst June since the Depression'. mamacita
Posted by: scorpio | Jun 26, 2008 5:41:49 PM
Eric & Chris have it right. To a significant extent, oil price is reflective of credit/money bubbles. This time globally. In terms of gold, oil hasn't appreciated that much.
Posted by: algernon | Jun 26, 2008 5:47:01 PM
What is the relationship of oil and recessions prior to the 1970's? Stephen Leeb has zero credibility.
Posted by: John | Jun 26, 2008 5:59:11 PM
How does something move from "Nothing has been a more reliable indicator" to only "a fair chance" in the same paragraph? And since when are recessions "major economic disasters"? Stephen Leeb has zero credibility.
Posted by: John | Jun 26, 2008 6:09:18 PM
☺☺"The problem (like in 2000) is not energy prices, but speculative excesses in other asset markets -- this time in real estate and consumer debt."--Posted by: Eric | Jun 26, 2008 5:16:30 PM
I'm with you Eric. This guy is in search of a scapegoat.
Blame the oil companies, blame OPEC, blame the "speculators." Blame anybody, but just don't blame the people who caused the problem.
Posted by: DownSouth | Jun 26, 2008 6:18:03 PM
If the market heads down too fast it will get an emergency rate cut. Ben hates bears. He also cares less about the dollar.
However the price of oil is his enemy and with the price oil going up as the dollar goes down he has nowhere to go.
Notice to all America. Visit Wall Mart. Buy a bicycle and maybe a nice broad rimmed hat as well.
Don't look in the shop windows as you ride along.
By the way I pumped up the tires on my bike the other day. I'm reading up about organic farming too.
Posted by: simon | Jun 26, 2008 6:26:24 PM
@ Eric, DownSouth :
IMHO you understand the argument for more than it really says.
The quoted statement read 'indicator', which doesn't at all mean causality (OIL=>RECESSION), might just invoke correlations (OIL<=>RECESSION) and generally stands even rather for effects (OIL<=RECESSION).
This is quite an impressive, but very WEAK statement.
This is why, as mentioned Barry, "Hard to argue with this" ...or is it?
Posted by: michange | Jun 26, 2008 6:30:51 PM
michange, yes, I see the distinction of correlation and causality. but even then, I would take issue with the statement. whatever else you say about Ken Fisher, he has run a fairly thorough regression between stocks and oil prices and found no statistically significant correlation. he has devoted a couple of his Forbes columns to the subject.
Posted by: Eric | Jun 26, 2008 6:44:19 PM
Fed Explores Steps to Channel
Funds to Cash-Strapped Banks
http://online.wsj.com/article/SB121450979069408179.html?mod=hps_us_whats_news
Fed is trying to time the market bottom again. A short-covering rally tomorrow is for sure. Enjoy the ride!
Posted by: Ben | Jun 26, 2008 6:47:43 PM
Two points:
1) If you recall, I posted on 1/2/08 on this blog, that 2008 would be the worst year in the history of the S&P. I will re-iterate that today.
2) The blame for the oil situation lies with whoever, and I'm too lazy to research it, decided that an SUV was a truck, and thus exempt from CAFE standards. That one move alone could put us back into the stone ages. The Fed's easy money has monetized the problem.
Posted by: Steve Barry | Jun 26, 2008 6:49:22 PM
Gary Savage has been talking about this for months.
Posted by: mephisto | Jun 26, 2008 6:53:31 PM
Chief Tomahawk,
"Suddenly Homer's scam of stealing used cooking grease doesn't look so dumb. It's probably cheaper to recycle now."
It WAS. Everything has spiked in price now:
Cooking Grease Suddenly Lures ThievesCartoon dad Homer Simpson once came up with a brilliant plan for making a quick buck. A surprising result of the oil crisis is an increase in theft from restaurants. His scheme? Stealing smelly, dirty, used kitchen grease and re-selling it for profit. Now, with average gas prices topping $4 a gallon, it seems life is imitating cartoon.
That's because frying oil can be used to make bio-diesel, an alternative fuel that can power cars and other vehicles that driven by a diesel motor. Only two years ago, discarded grease was sold for roughly 75 cents a gallon on the commodities market. Since then, the price has more than tripled to $2.60 a gallon.
With the gooey stuff now being something akin to liquid gold, restaurants in states from California to Florida are reporting a rise in used-grease thefts.
.
Posted by: VJ | Jun 26, 2008 7:10:43 PM
This is such a correct observation. The importance of it cannot be over estimated. This means that the Yanks are toast. With all the suburbs and exurbs and shit totally dependent on cheap oil.
The problem is that you dumbasses have a military power that cost more than all other countries combined and you are not afraid to use it. Iraq is a good example. The Iraq situation is of course a result of this dire situation. Forget the rhetoric and the BS that's for the sheeple.
Posted by: Euro guest | Jun 26, 2008 7:12:32 PM
Larry Kudlow is about to have a heart attack.
And he's actually chastising the Fed for not having tough money policies. Can someone put up a link to him stating eight months ago on how great it was that the Fed cut rates?
Posted by: rj | Jun 26, 2008 7:18:51 PM
And Larry Kudlow just used the term "inflation tax".
Somewhere, Ron Paul is smiling.
Posted by: rj | Jun 26, 2008 7:28:56 PM
The drive to relax CAFE standards for both passenger cars and for SUVs was led by the usual gang of suspects. The domestic manufacturers, rightwing pro-corporation/anti-regulation organizations like the Heritage Foundation and the Competitive Enterprise Institute, and Michigan Democrats such as John Dingell have tenaciously fought meaningful mileage requirements for the past two decades.
The ironic thing is that groups like Heritage and CEI continually yammer that government should not get involved in forcing the automakers to make certain kinds of cars; the almighty genius of the free market would determine what the best cars for consumers were. Fast forward 20 years and here we are: domestic manufacturers caught with their pants down (again) with parking lots full of unsold gas-guzzlers, forced to scramble for their very existence now that the free market is working its wonderful magic again.
To quote Homer, "D'oh!"
Posted by: bluestatedon | Jun 26, 2008 7:47:54 PM
I don't buy the argument that the oil price simply reflects the falling $ and ever more voracious world demand. Did another China appear in the last 6 months? Did the $ lose half its value? What if this is simply "safe haven" investing by funds that has created another bubble? If you look back in history there have been many oil price spikes and they all end the same way...
Eric says the 70s oil price spike was sudden and 'artificial'. But what could be more artificial than a huge jump in the price of oil because of something unstable in Nigeria (shock, horror!!) or because Libya is jawboning about how they are talking about reducing production (and this just after an increase in US crude inventories) ?
The exaggerated buying of oil futures in response to recent supply threats and rumours, and the modest selling in response to actual declining demand NEWS is surely characteristic of the very late stages of a bubble, no? Of course this could go on for some time - but not for ever. The law of supply and demand can reassert itself surprisingly quickly as asset classes start to roll over. Nikkei, NASDAQ, US housing, oil at the end of the past price spikes...
But how can oil prices come down? (hint: astronomical prices cause a fall in economic activity and demand, which will cause a drop in the price of oil, which would decrease imports, which would strengthen the $, which would cause a drop in the price of oil....) this is called negative feedback. It's simply the opposite of what we have seen since August 2007. When do we flip the switch? I am not sure, but probably sooner than a lot of fund managers are counting on. The only new danger would be another Fed rate cut, which seems to be off the table.
Posted by: leftback | Jun 26, 2008 8:04:24 PM
