Crude Oil = $75
Talk about your deflation:
Crude Oil via Barcharts
Wednesday, October 15, 2008 | 10:30 AM | Permalink
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I thought deflation is a decrease in the monetary base, not lower prices??? Educate me please.
Posted by: Concerned Citizen | Oct 15, 2008 10:42:46 AM
Remember when Greenspan said that higher prices were actually helping reduce inflation because they were acting as a damper - taking excess money out. lol
Posted by: Concerned Citizen | Oct 15, 2008 10:44:05 AM
When it breaks into the $60's and stops being reactive to the general level of investment euphoria, then I will believe oil prices are under control of a legitimate commodity market and it is safe to invest and spend again. Since high oil prices crush the economy, investing in the markets, as opposed to making quick trades, is ludicrous. Ditto spending on anything that might impact disposable income if oil prices go up again.
If the oil markets aren't fixed, a lot of what the Fed and others are doing now will be wasted. The consumer is 2/3 of the economy, not the financials.
Posted by: dead hobo | Oct 15, 2008 10:51:24 AM
"[T]he U.S. government has a technology, called a printing press (or, today, its electronic equivalent), that allows it to produce as many U.S. dollars as it wishes at essentially no cost. By increasing the number of U.S. dollars in circulation, or even by credibly threatening to do so, the U.S. government can also reduce the value of a dollar in terms of goods and services, which is equivalent to
raising the prices in dollars of those goods and services. We conclude that, under a paper-money system, a determined government can always generate higher spending and hence positive inflation."
-Ben
Which camp are you in Barry, inflation or deflation? Zimbabwe or Japan? Commodities or Cash?
Posted by: Aaron | Oct 15, 2008 10:53:23 AM
Oil cut in half, gas prices at the pump cut 12 Cents.
Posted by: dss | Oct 15, 2008 10:53:32 AM
Well, I am still calling 7500 for the Dow, anyone have a target for oil? Low 60s?
Looking for an entry point to buy some DIG.
Thanks Barry for the site!
Posted by: tm | Oct 15, 2008 10:59:01 AM
So its where it was before the subprime mess got started. Not much of a crash.
Velocity is broken. Banks won't lend money. That will keep going on for awhile, but the amounts the Feds are printing has become truly astounding. When banks start lending again (either because the government forced them too, or because they've printed trillions) your going to see oil explode.
Nows the time to accumulate commodity posistions on a monthly basis. Just acquire a little bit more every month for the next year or two. It may trade down a bit, but your balancing that by averaging it out. When it finally explodes watch out.
Posted by: Dave | Oct 15, 2008 11:06:23 AM
I see big time inflation in the long-run. With all the decreases in output and soon to be flood of dollars into the system how can it not happen?
Posted by: Concerned Citizen | Oct 15, 2008 11:07:20 AM
This will cause a BOOM in consumer spending.
Posted by: CNBC Pollyanna | Oct 15, 2008 11:16:12 AM
DSS,
In Michigan gas has gone from $4.19 to $2.77
Posted by: JR Ewing | Oct 15, 2008 11:40:41 AM
I've heard alot of folks in the wealth management industry say the same, that they are VERY concerned about the seeds of this bailout growing into a massive inflation problem 2-3 years out.
So, whats the better play on this?
Long gold?
Long TIPS?
Long USO?
Posted by: I-Man | Oct 15, 2008 11:41:25 AM
Or:
Begin to average in to a position in CVX and get paid 4% div to wait?
Posted by: I-Man | Oct 15, 2008 11:51:06 AM
If you look at the end result of other credit crunches throughout history, the end result was almost exclusively deflation despite massive government injections as a percentage of GDP.
The problem is that the entire shadow banking system, which I believe had grown to about half of world credit, has essentially gone to zero. So the government can inject equity in the financial institutions, it can buy some bad debt. But it can't make the institutions lend. Thus, it can't substantially increase the money supply. If nobody has any money, demand and thus prices will both continue to fall. It's kind of like a bodybuilder on steroids. No matter how much protein he eats and how hard he works out, without steroids (credit), he will shrink back to a size that's natural for him.
Posted by: Skateman | Oct 15, 2008 11:59:00 AM
Oil down 50%, gas in my area down 24%. Wonder who's getting that 26% differential between cost and price?
DSS; MI is in a depression and it's only going to get worse.
I-Man; go long gold AND take delivery.
Posted by: Pat G. | Oct 15, 2008 12:00:09 PM
Talk about your deleveraging ...
Posted by: therealbigfoot | Oct 15, 2008 12:08:41 PM
Funny how us cassandras on commodities were crucified relentlessly about being stupid. But, human nature would have it no other way. Oil will bust.
Posted by: bdg123 | Oct 15, 2008 12:33:45 PM
Let's wait till after the election to see where oil goes.
Posted by: larster | Oct 15, 2008 12:49:28 PM
Who you calling cassandra?
Posted by: mike | Oct 15, 2008 1:03:47 PM
Ha. I told Prof Krugman several times oil was a bubble, but he never publishes any contrary or critical comments. Good thing he got the Nobel for understanding trade and not trading.....
We have had a 50% haircut. Time to start having a nibble again. The big oil drillers/integrateds/refiners are all now trading at very low P/E values so if oil rises or better simply stabilizes most of this group will do well. I like PBR as they have new reserves.
Posted by: leftback | Oct 15, 2008 1:11:16 PM
@leftback:
I agree, Pabst should outperform as consumers trim down their beer spending. The shittier beers should see some serious upside in earnings.
:)
Posted by: I-Man | Oct 15, 2008 1:32:40 PM
Posted by: I-Man | Oct 15, 2008 11:41:25 AM
forget TIPS, they're linked to the official CPI...
lb,
this: I told Prof Krugman several times oil was a bubble, but he never publishes any contrary or critical comments...
is to be expected, it'd be bad for his Social Calendar, and his Bank Account..
Posted by: Mark E Hoffer | Oct 15, 2008 2:45:21 PM
I told Prof Krugman several times oil was a bubble, but he never publishes any contrary or critical comments...
Baloney....I've had a variety of critical comments published on his blog and on his articles. I've also had some go through the cracks. Applies to other NY times commentators too, especially Kristol and Brooks. Big deal.
Posted by: Ben | Oct 15, 2008 3:38:38 PM
Concerned citizen is the only one talking sense.
Falling asset and commodity prices are not deflation. They are symptoms of it.
Posted by: Jono | Oct 16, 2008 12:40:27 AM
I believe thats a classic example of free market dynamics purely controlled by price, demand and supply. Read
http://criticalpaths.blogspot.com/2008/10/commodity-crash.html
Feel free to leave comments
Posted by: Rohit | Oct 16, 2008 9:10:54 PM
