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- Feb 28, 2008
Oil went up a lot 2002-2008 because of inflation. Sure, there were supply concerns (peak oil, geopolitics) and demand concerns (the myth of global wealthexpansion), but it was mainly inflation. From 2002 to the top in 2008, oil priced in US Dollars rose about 750%, but in that same timeframe, oil priced inEuros rose only 160% and oil priced in gold rose only 140%. Rising oil prices in the world's reserve currency (dollars) and in the world's biggestmarket for crude (united states) created a positive-feedback effect where demand outpaced supply at current prices, leading to speculative overleveragedbullish positions in crude by some of the same financial institutions that are now crashing. Bernanke's sale of $6 billion Euros through the ExchangeStabilization Fund in July to finance purchase of trillions in dollar derivatives is what caused the collapse of the oil bubble. The crash was going to happenregardless, but the US Fed intentionally catalyzed its timing to ensure the Dollar's status as premiere safe-haven as the impending financial crisis tookhold, which it was successful in doing.
Oil crashed from its highs of $147/barrel in June through deleveraging and demand destruction deflation during the financial crisis. But the globallycoordination expansionary monetary policies of essentially all of the world's central banks puts long-term inflationary risk on the response to theshort-term deflation. Eurozone nations and the United Kingdom especially can't get away with this, asno one is willing tofinance their recoveries throughdebt purchases. America isn't immune either, and in fact, the entire world is going to witness a sharp global devaluation of fiat currencies against hardassets.
But that isn't for a while. The financial crisis will not turn into a monetary crisis until at least middle of next year I'm guessing. The firstsigns of price inflation may show up as early as this fall, but it won't be an issue for the talking heads on CNBC and WSJ until maybe next summer at theearliest. But the monetary inflation has already started. The Bank of England just made quantitative easing its monetary policy for the first time in history.With ZIRP in the United States, we have resorted to QE as well.
I made a lot of money betting on the collapse of crude markets this past summer. My target date was July 4 and I was off by about a week and abotu 2%. Lotsof libertarian Austrian School economists, who called this crisis but have seen their predictions for monetary crisis not unfolding as they wished, missed thisgreat opportunity to short oil. But now I am bullish on oil again, as the charts dictate so and the severe contango in crude markets is easing up. I expectbackwardation to return to oil within one or two months.
Oil is ready to start rising again, strictly because of inflation. Peak oil is a very real phenomenon but it won't effect us in any real way because ofour ridiculous advancement of oil alternatives already. But it may again become a justification for higher oil prices once inflation kicks in, starting apositive feedback system in which oil rises, supply concerns re-arise, causing oil to go even higher in price, etc.. This also re-instates the demand concern,because there is an inherent demand for oil around the world, but the world won't be wealthy enough for oil at high prices, except for people heavilydivested from government-issued currencies and with large positions in precious metals.
I don't expect a dramatic rise in oil prices until at LEAST next year, like I said, with 2011 and 2012 being big years resembling those of 2006-2008.But I think now is finally a great long-term buying opportunity for oil, although they could retrace to around the $40/barrel level during the deflationaryequity mini-crash I'm expecting in coming weeks.
People to blame: Alan Greenspan, Bill Clinton, George W. Bush, Ben Bernanke, and Barack Obama
People who will save it from being an unsustainable problem domestically (like it will be in possibly hyperinflationary nations, like Ukraine, Mexico,Iceland, and Latvia): Alexander Hamilton, Andrew Jackson, Paul Volcker
Oil crashed from its highs of $147/barrel in June through deleveraging and demand destruction deflation during the financial crisis. But the globallycoordination expansionary monetary policies of essentially all of the world's central banks puts long-term inflationary risk on the response to theshort-term deflation. Eurozone nations and the United Kingdom especially can't get away with this, asno one is willing tofinance their recoveries throughdebt purchases. America isn't immune either, and in fact, the entire world is going to witness a sharp global devaluation of fiat currencies against hardassets.
But that isn't for a while. The financial crisis will not turn into a monetary crisis until at least middle of next year I'm guessing. The firstsigns of price inflation may show up as early as this fall, but it won't be an issue for the talking heads on CNBC and WSJ until maybe next summer at theearliest. But the monetary inflation has already started. The Bank of England just made quantitative easing its monetary policy for the first time in history.With ZIRP in the United States, we have resorted to QE as well.
I made a lot of money betting on the collapse of crude markets this past summer. My target date was July 4 and I was off by about a week and abotu 2%. Lotsof libertarian Austrian School economists, who called this crisis but have seen their predictions for monetary crisis not unfolding as they wished, missed thisgreat opportunity to short oil. But now I am bullish on oil again, as the charts dictate so and the severe contango in crude markets is easing up. I expectbackwardation to return to oil within one or two months.
Oil is ready to start rising again, strictly because of inflation. Peak oil is a very real phenomenon but it won't effect us in any real way because ofour ridiculous advancement of oil alternatives already. But it may again become a justification for higher oil prices once inflation kicks in, starting apositive feedback system in which oil rises, supply concerns re-arise, causing oil to go even higher in price, etc.. This also re-instates the demand concern,because there is an inherent demand for oil around the world, but the world won't be wealthy enough for oil at high prices, except for people heavilydivested from government-issued currencies and with large positions in precious metals.
I don't expect a dramatic rise in oil prices until at LEAST next year, like I said, with 2011 and 2012 being big years resembling those of 2006-2008.But I think now is finally a great long-term buying opportunity for oil, although they could retrace to around the $40/barrel level during the deflationaryequity mini-crash I'm expecting in coming weeks.
People to blame: Alan Greenspan, Bill Clinton, George W. Bush, Ben Bernanke, and Barack Obama
People who will save it from being an unsustainable problem domestically (like it will be in possibly hyperinflationary nations, like Ukraine, Mexico,Iceland, and Latvia): Alexander Hamilton, Andrew Jackson, Paul Volcker
