But for the past many months I have been telling you what? ‘
That right: Oil could collapse into the $30s per barrel.
That’s because the world is in the grips of a gigantic deflation the likes of which have never been seen before and that in itself is remarkable and worthy of discussion.
First, however, we need to be clear that a barrel is not a barrel. If you are talking about the ubiquitous 55-gallon drums, popular in American chemical, refining, and coatings, that’s not what a barrel of oil is: Write this down: Oil is 42 gallons per barrel.
Just how cheap is oil, right now? Well, if you drop by the local convenience store this morning, oil is cheaper than your coffee by a damn-sight. Grab a bottle of that water (a large Desani or Aqu-What’s-It) and you will pay more for the water than for oil. (Admittedly, there’s a price off convenience and maybe if water folks made a 42-gallon size. Even so, compare oil to those 5-6 gallon water jugs at the store.
While all of this may sound like really, really good news, oil breaking into the $51 range this morning increases the odds of panic in financial markets this spring. Think you could wake up to a Dow 2,500-4,000 points lower than where we are right now before summer? Don’t bet against it.
Part of the reason oil was so high (for so long) is the Fed’s quantitative easing. Usually when there’s a big recession (remember 2007-2010?) prices come right down, everyone sees a bargain, and recovery begins.
Unfortunately, what the Fed’s money give-aways have done is set a semi-permanent deflation expectation in place. While the QE money kept deflation from becoming obvious (and wage collapsing, and even more massive unemployment) it is now off the table and the price of oil is dropping quickly.
Let’s run a number or two to show economic impacts: Let’s say you bought a car getting 18 MPH highway, $4.25 Gas and drove 100,000 miles. Total fuel bill? $23.611.
Fast forward to my son’s car (Versa) mostly highway and around 37 MPG and gasoline we’ll use Triple A’s national average of $2.199. Driving it the same 100,000 miles, his fuel bill will only come to $5,943 and change.
This is whatcha call an economic shock. Car costs (on a real cost per mile basis) are down to about 1/4 of where they were in the past 7-years. This is deflation and huge deflation at that.
Oil could drop down to the $50 range. But if it can take out $50, why not $48? And then what holds it at $45? You see how this goes.
Pigs with Lipstick
Hong Kong was down half a percent overnight. Japan down a quarter percent. Germany is down half a percent, the UK down 0.7% and France down 0.9%.
Someone besides me is starting to look at the phenomena I was writing about this past week – the deflation discontinuity.
This is what happens when the reality of deflation and collapse of interest rates gets do low that the price of stocks paying even a 1% dividend should go theoretically to the moon.
But just the other side of that is the realization that if that kind of thing really happens, no one will have money, new cars will be almost given away free and the outlook for economic recovery slips from “green shoots” to “oh sh*ts!”
With perhaps a slight headache from a weekend of partying, that’s where the economic ball landed this morning. We can try one club length in from the rough, but that’s not likely to work.
Instead what we should see is a modest decline for another week, or so, and then a rally into the end of the month.
But mark Ure’s words here, this deflation stuff is the destroyer of lives and savings and its here right now.
If you ran up to the fringes of the Bakken and bought a motel, or maybe a sub-zero hot dog stand, it may be getting on time to unload them while there’s still some greed and frontier spirit left.. I’d be mighty disappointed after years of my diatribes about Great Fool theory if you were to wake up one morning and notice the GF looking back from the mirror.
Good time to be prepping and having seeds and working on gardens. We’re coming to the Grow Food Or Die part of life. One of these mornings, Zeus and I will head up to the greenhouse after the morning column is done and start putting in the seeds on the heating mat.
No time like the present to keep on dialing back the lifestyle.
Instead of Bomber News…
Instead of the Boston Bomber news (see the MSM outlet of your choice for the umpteenth rewrite of this one), I’d recommend you get into the practice of “indicator words” which are the basis of much of what goes on in background with our www.nostracodeus.com software project.
Along with Chief programmer Grady, who puts up cheerful ditties like “Energy, Resources, and Corruption” data slice, we’ve been really working on indicator words lately.
I’ll give you an example: The Boston Bomber trial is NOT going to impact your life much. But if there is a shortage of something, that’s got some potential.
Find the occurrences of the word “shortage” in today’s news and it is likely to offer hints as to how your personal world may change in the near-term.
How do some of these grab you?
- Real Estate prices are going up in Orange County
- Olive oil prices may be going up – so time to stock up?
- Japan is having a baby shortage – which means Japanese pension funds could move into the red and bring reductions…
- And if you’re a world traveler, finding oysters in Panama Beach, Florida is turning difficult.
That is how we tend to look at news around here: Skip the doom and gloom, pass on the flash, mostly, and keep an eye on the things that matter.
The MSM tends to focus on the easy stuff because the video comes easy from the scene. Whether it’s a courthouse in Boston or whether it’s the see where piece of an aircraft neither of us was on are being fished up.
But that won’t change what’s for dinner, or whether you’re late for work.
Much more important?
Did you notice the quake swarm out in Nevada this weekend that is getting very little play?
Look at the data stacking up in that upper left area of the USGS zoom in.
Not the little stuff down in the area around Reno and that area.
This is something a bit different.
A few media are paying attention to the area…and let’s not overlook the small quake felt over a wide area of Idaho this weekend.
When comes to news, bomber stories may be fine for some, but where you get actionable intel is from asking unusual questions.
If the question has been asked by someone else before, the answer is likely old enough to have passed its “useful shelf like” window.
We have huge lists of indicators (words like “ultimatum” for example). So rather than worrying about minutia, and the 800th rewrite of Ferguson, we try like the Dickens to keep looking ahead rather than behind. So here we go into another year….
More after this…
That area is loaded with hot springs. Volcanic underbelly!
I’ve tried over the years to get some idea of if the economy is going into inflation or deflation. Big picture. I’ve given up on being sure about anything except building #7. I’m not as smart as you. But I do at least try to think about these things.
This guy,
http://philosophyofmetrics.com/
Has an interesting series on “SDR’s and the New Bretton Woods” which is really interesting. He says this year probably they will dump the dollar and go to global SDR currency. Now hopping around a little. We have deflation even though the FED has been throwing money out of helicopters, to bankers anyways. There’s tons of treasuries out there and lately they’ve been jumping up and down about the $21 or $32 Trillion in offshore money. So is the offshore money in dollars? If the dollar is dumped, the treasuries are dumped, the offshore is dumped and the FED says we only have,
http://www.federalreserve.gov/faqs/currency_12773.htm
“There was approximately $1.29 trillion in circulation as of October 1, 2014, of which $1.25 trillion was in Federal Reserve notes.”
Inflation? Stagflation? Deflation? Detonation? I don’t know but it’s scary.
The new SDR reminds me of the Who song lyrics “Meet the new boss Same as the old boss”.
In your prepping George, you might reconsider the goats – easier to keep than cows – and barbecued over coals – quite tasty.