Gyroscopic Investing

According the the stock market, and the vested-interest men of the moment interviewed on mainstream media.

Of course, when it is rising, I imagine they will still tell you we are doomed for a different set of reasons.

DIASTOLIC BLOOD PRESSURE - the one on the bottom

140 mm HG - TOO HIGH!
100 mm HG - still too high
70 mm HG - perfect
40 mm HG - uhh... really?
20 mm HG - ambulance ride

OIL PRICE
$140 - TOO HIGH!
$100 - still too high
$70 - perfect
$40 - uhh... really?
$20 - global deflationary storm and recession... buy the long bonds, maybe not the gold... yet

Except so much of the economy is involved in energy. For example, Caterpillar is having poor results because oil and gas is such a heavy user of heavy machinery. Layoffs in Decatur, Illinois, 1000 miles from the shale. The shale junk bonds are starting to putrefy and stink, like the "NINJA" mortgages of the 2007-2008 period. Jamie Dimon was on the new just this week about this. It's stressing the banking sector and ETFs. Emerging oil economies have Dollar denominated debt, and they are getting creamed because their wealth is going down just as their debts are going up in local currency terms.

The three job engines of the last few years have been - biotech, info tech, and oil & gas. Without those three, the US would be in a really bad jobs position. Well, how's biotech's outlook? Own a biotech ETF? Intel and Microsoft getting clobbered now, oil & gas is not alone.

An economy is an ecosystem... everything is connected to everything else. You can't really posit "S&P500 earnings ex-energy". That's like saying, "The patient is healthy, except for the liver cancer".

High yield is getting stressed... again

http://www.wsj.com/articles/sec-examini ... 1452725970

Desert wrote: It seems like these low oil prices should be generally stimulative, similar to a massive tax cut.  Of course it doesn't help the oil companies or alternative energy companies.

It has been for me, just not in the US.  Cheap flights+strong dollar= travel opportunities I haven't experienced in my adult lifetime

ochotona wrote: Except so much of the economy is involved in energy. For example, Caterpillar is having poor results because oil and gas is such a heavy user of heavy machinery. Layoffs in Decatur, Illinois, 1000 miles from the shale. The shale junk bonds are starting to putrefy and stink, like the "NINJA" mortgages of the 2007-2008 period. Jamie Dimon was on the new just this week about this. It's stressing the banking sector and ETFs. Emerging oil economies have Dollar denominated debt, and they are getting creamed because their wealth is going down just as their debts are going up in local currency terms.

The three job engines of the last few years have been - biotech, info tech, and oil & gas. Without those three, the US would be in a really bad jobs position. Well, how's biotech's outlook? Own a biotech ETF? Intel and Microsoft getting clobbered now, oil & gas is not alone.

An economy is an ecosystem... everything is connected to everything else. You can't really posit "S&P500 earnings ex-energy". That's like saying, "The patient is healthy, except for the liver cancer".

I'd rather lose oil and use the cheap energy to grow domestic manufacturing

The problem is, cheap oil plants the seeds for costly oil.

Financing, infrastructure and human capital have been routed. From seismic survey to first oil for the big Deepwater Gulf of Mexico fields is 10-15 years. The shale wells are faster to bring back, but still need money and people, which have been effectively chased out.

The closer the price goes to $10, the higher probability it will swing back on the upside to $200 someday. The oil system follows the classic "predator-prey" model. It's an oscillator. It's no way to run the biggest industry in the world.

Low oil prices encourages consumption, with attendant environmental consequences.

This huge mess underscores to me the need to switch to renewable sources and pump money and talent into battery technology. We'll all laugh about this nonsense in 50 years.

Pointedstick wrote: This huge mess underscores to me the need to switch to renewable sources and pump money and talent into battery technology. We'll all laugh about this nonsense in 50 years.

Agreed that we need to switch the technology, I'm not sure if the essential problem goes away, the problem of strong economic cycles.

ochotona wrote: The problem is, cheap oil plants the seeds for costly oil.

That's true of all commodities, and it's the nature of the commodity market.

Financing, infrastructure and human capital have been routed. From seismic survey to first oil for the big Deepwater Gulf of Mexico fields is 10-15 years. The shale wells are faster to bring back, but still need money and people, which have been effectively chased out.

Those were the risks that the entrepreneurs and their lenders took when they committed to those projects.  That's the nature of the beast.  It's unfortunate for the people affected by those bad bets, but it's the nature of the market.

The closer the price goes to $10, the higher probability it will swing back on the upside to $200 someday. The oil system follows the classic "predator-prey" model. It's an oscillator. It's no way to run the biggest industry in the world.

It's the nature of the commodity market.  High prices lead to future over-production, and low prices lead to future shortages.  I don't know how you fix that.  That's just how it works.

The situation we are in today isn't unlike what happened in the mid-1980s when we had the last oil bust.  It's true that that oil bust set the stage for the price spikes in the early 2000s, but the world economy enjoyed almost two decades of economic prosperity fueled by cheap oil before the next supply shortage started to show up.

Low oil prices encourages consumption, with attendant environmental consequences.

You're right, but I don't know what you can do to fix that one, other than completely re-configuring the world economy, which is VERY unlikely to happen before it's way too late to make a difference.

The Iranians are about to start putting another 500,000 barrels a day onto the world markets, so I think prices probably have further to fall, which is terrible for the energy industry, but basically great for almost everyone else.  Strong and sustained economic expansion is almost impossible without cheap oil.  Personally, I never thought we would get back to where we are now with oil prices, but that's probably because my Peak Oil beliefs didn't account for such a scenario.

We know from experience that once oil hits about $150 per barrel in 2008 dollars, it basically invalidates the economic assumptions underlying the whole world economy and everything just kind of stops working, so I don't think oil will ever go much higher than that. 

People like to think that the 2008 crisis was driven by a financial crisis, but I think that it was actually the oil price spike that caused the financial crisis because the sudden increase in energy prices made a lot of business financing impossible to re-pay, even for seemingly safe projects.  That's what almost put GE into bankruptcy.  Jack Welch's miracle was revealed to be little more than converting a heavy equipment manufacturer into a bank, which worked great until the customers could no longer pay for what they had bought, and could no longer finance the things they wanted to buy.

Good thread.

I'll just leave this here - http://www.visualcapitalist.com/category/oil-and-gas/