Green shoots or growing rot?

In the midst of the usual plethora of financial reporting, the causal reader would be hard pressed to decide if it’s the beginning of the end or the end of the beginning of the financial crisis.

Everyone agrees that we’re in a crisis. Officials and politicians point everywhere and say – Hey look! Green shoots! The worst is over.  Others urge us to ignore the green shoots, the worst is yet to come.

I’ll stick to something I know a little about. Oil. I have said repeatedly that we won’t be in recovery until oil is in the $70-$90 US$/bbl range for some time. Well, it has been in the range, only just, for some time now. The $70 – 90 range is the cost of bringing new oil online, as opposed to the cheap and easy oil we still get from our declining elephant fields.

My question is whether our hovering in the $70/bbl range is a sign that the global economy is coming through the crisis, a sign that we’re being forced to drill new oil because of cheap oil’s decline, or is it the result of a false optimism in the markets, driven by the US printing printing money/debt like there is no tomorrow.

I’m beginning to think it’s a bit of all three.

Meanwhile, our mortgage crisis deepens. When will the awkward bubble in high debt dairy burst?

What do you think?

Green shoots or growing rot?

22 thoughts on “Green shoots or growing rot?

  1. All those green shoots are about to have a dose of powdery mildew.
    I find it disturbing when people tell me the crisis is over because, well, they want it to be!!
    I think that reality is going to bite hard on this issue, the current confidence is based on nothing but blind optimism.

  2. Unfortunately the shoots will soon wither & die. I predict that mortgagee sales will double at least before they bottom out. Maybe that’s a serious underestimate !

    When we came to NZthree years ago we looked at a lot of property.We decoded to keep our cash invested a 8.5 % in non-property inestments. e could see a mile off that there was an about to burst bubble. When we stated this to Estate Agents we were poo-poohed. We had seen the UK market inflate like a giant balloon & predicted it would also burst. It did but we were out. Good luck or healthy scepticism

  3. Unfortunately the shoots will soon wither & die. I predict that mortgagee sales will double at least before they bottom out. Maybe that’s a serious underestimate !

    When we came to NZ three years ago we looked at a lot of property.We decided to keep our cash invested a 8.5 % in non-property investments. We could see a mile off that there was an about to burst bubble.

    When we stated this to Estate Agents we were poo-poohed. (this is not to mention the underhand, probably illegal- certainly non-professinal and dodgy tactics used by certain agents to con us and extract their outrageous fees)

    We had seen the UK market inflate like a giant balloon & predicted it would also burst. It did but we were out. Good luck or healthy scepticism ?

    Now Bernake, the infamous dolt in charge of the US Central Bank. Despite his school of ‘economics’ being now almost totally discredited by those in the know, he continues to have the faith of Obama. Notwithstanding the fact that the US deficit has reached run-away proportions and still exploding, Obama continues to hold the faith.

    Perhaps because there is no alternative now having gone so far. The Europeans are with him all the way of course because there is no alternative in the sense that the ‘system’ doesn’t allow it.

    Rudd isn’t far behind & of course Key is lost in the maze of indecision and plain ignorance – badly advised by his team of Chicago or Harvard leaning economists who desperately cling to ‘the way’ they learnt in College & Uni & which ‘worked’ for decades, so how can it be wrong ?

    When we come to ‘quantative easing’ we really get wackey!

    What sound system would allow a private enterprise contracted by the Govt. to manage monetary policy; print money, lend it out at virtually zero or negative true interest rates to banks, asking it kindly to lend it on to us poor smucks at around 4 – 8 % depending on the percieved risk so as to ‘stimulate the economy’ and then anticipate removing that money from the economy at an inspecified later date, by what means ?

    In fact little is being lent in that way, much being ‘held’ to shore up balance sheets so share prices will hold or inflate. Of course it isn’t ‘held’ in the true sense. It is lent back to Govt. in the form of bonds purchased at auctions almost daily at a healthy interest rate of course.

    So let’s get this straight you may ask. The central bank, a private enterprise, magics up money, ‘gives’ it to the banks at effectively no interest, ten borrows it back at around 2 – 3 % depending on the term. Yup, that’s it. Wow, you may say, how do I get a job as a central banker ?

    We haven’t been told how this will be achieved (removing money from the economy, every time it’s been done before it’s caused severe pain) as all this Q E stuff is new to us all – including economists, finance ministers, bankers, the lot. Never been tried before !

    Taxation is the possible method but of course they daren’t tell us that – it may scare the horses and that would never do !

    The US $ is heading for a major fall & I would advise all to extract themselves from US $ investments ASAP. All you have to do is to examine the US China relationship to realize that . Oh and by the way China is on it’s own version of splurging (QA Chinese style) Yuan $ £ you name it before the s**t hits the fan. Better to spend as many of those $ as possible before the day of reckoning. Handy to have all those Commodity Assets for a rainy day. I’ve always said those chinese are clever.

    All this, after following the crazy dance for many years, convinces me that these shoots are bound to die off soonish. Pity us poor smucks who are at the mercy of such forces, all we can do is keep our eyes open and take good advice – if you can find any that is – most of it is snake oil and mirror stuff so beware !

    Not to coin a phrase – if something looks too good to be true (i.e. a recovery so soon after a major crash and no time or inclination or sheer guts to get rid of the bad s**t stuffing banks, investment portfolios, balance sheets ) – it is !

  4. I don’t think $US 150 per barrel will be very kind to any green-shoots. I expect a bit of a yo-yoing between recession and oil spike over the next few years until we can reduce our oil addiction.

  5. Re Oil price – it will go skywards of course. $ 60 – 70 is peanuts. Gas too.
    We are already using more than we produce by some margin according to reasonably reliable figures (IEA). Of course there must be an actual balance or prices would already be shooting up. Have a look at futures prices. Think about the fact that no-one knows what will appen to the economy, despite my rant above, we are in uncharted territory & the price of oil is only one of many unknown factors. Good sense though and risk assessment, says buy oil if you can. Many investors are doing it quietly and cautiously right now.

    One large problem is that investment in exploration has been cut savagely and quickly so as to retain the bottom line as far as possible. Share price of big oil is retained too by the lies they tell about reserves (Shell Oil). Some sources say that these are overestimates by many percentage points.

    Reinvestment takes time and of course money. Where is this money to come from ? Increased oil price is one obvious source. The question remains too as to where is the extra oil we’ll need to satisfy projected demand. No one knows – all seem to be relying on that well known and proven strategy, something will come along.

    Still you guys will be fine – there is another Saudi Arabia of oil lurking off Taranaki. Trouble is it very deep & technology will need to be developed ….. Yawn Yawn, heard it all before !

    Get real guys – we aint got very much more time to decide on a real strategy, not a politicians one – a real achievable one !

  6. I have said it many times before – we will yo-yo between economic gloom brought on by high oil prices, recovery, high oil prices and economic gloom until the stuff runs out in a century or two. We’ll never get to all the oil because the economics will just get worse and worse…

  7. Hi Froggy.

    Bit off topic, but…

    Norway is having their general election in a couple of weeks. The greens over there are polling a record 1.1% of the votes in one poll that chose to include them for the first time ever (most polls apparently don’t even mention them by name, just lump all the minor parties into an “other parties” category”.) This is far higher support than they ever had before at a general election. Their main issue though, is being ignored by the MSM getting little or no coverage although their message clearly has resonance.

    They’ve set up a site: http://www.democracyinnorway.net/ calling on the media to give all nationwide parties their fair share of time. Currently it’s the greens and two other parties being shut out.

    Aussie green senator Bob Brown has already endorsed them. I’m sure they would appreciate it if one of the NZ Green MPs took the time to write a paragraph supporting them. It may be one of the few story angles the media there would be willing to look at.

  8. I don’t think the oil price is yet in a range that will signal recovery. Because of slightly reduced demand, supply has been comfortably keeping up with consumption for several months, at least. So I’m skeptical that the current price is sustainable with current demand. I get your point about the cost of new production but I don’t think much new unconventional oil has come on stream in the last year that justifies $70 per barrel.

    Oil production was struggling to keep up with demand last year, which was part of the reason for the price spike. If we get any kind of recovery worthy of the name then I would expect that production struggle to resume. It is quite likely that we’ve now seen the peak of all liquids production; the recession would have put paid to investments that might have nudged production up a little. The decline rate of fields that have already peaked is high, so a huge amount of new production is needed each year just to keep at an even level. As economies start to demand more oil, any spare capacity will be subsumed quite quickly into the general decline. So oil will again provide an upper limit for the global economy. I wonder if we’ll get the message the next time around.

    As a footnote, it’s interesting to see the statistics from the US’s Energy Information Administration, which show that global production of crude oil plus condensate (so, basically, the regular conventional oil that is cheap to produce) peaked, on an annual basis, in 2005.

  9. I see it like the emporers new cloths, those on the far right are pouring optimisim on the subject, they dream of the holy grail of recovery when once again they can profiteer on land and the energy markets.

    Booms have always been bad news for the environment and all I can say is that this recession has been braught about because TNC’s and people (usually clients of TNC’s) cannot live within their means.

    The cause of economic troubles in not an economic problem it is a spiritual problem.

    Yes I think that the Norwegan Greens need a helping Hand so how about it: Two letters one from Russel and one from Metiria.

  10. One from me, one from my mom… She knows some folks too… they are likely to double their current message volume just by my sending her the link. ;-)

    I thought that around here green shoots were something forcefully expelled from the southern end of a sick northbound cow.

    BJ

  11. Volatility bigblukiwi, so far just volatility and it really isn’t clear that Gold is going to be the beneficiary of the problems. There is a lot of resistance and manipulation in that market right now.

    The question is how long the Fed can keep the marks in the game.

    “If, in a poker game, you ever start wondering who the sucker is, you are.”

    It will come eventually, but they’re still sitting on Gold. We could still see 900 before we see 1000 there. Other foreign currencies? Less successful, but they don’t have to work that hard there, those currencies are all backed by the same empty promises and don’t have status as a “reserve” currency. Which is why the Kiwi is up, but the dollar hasn’t fallen into a black hole.

    People who SHOULD know better, haven’t figured out how B-52 Ben is bombing their children to save his bankster buddies.

    respectfully
    BJ

  12. Yes the gold price has remained remarkably stable although there has been a slow but steady climb. I think we are in for a bumpy ride both in Oil & Gold in the coming months…..’B-52 Ben’…. & his Bankster buddies… save us from them ! I’m not into currencies, but of course the whole caboodle will be effected in the coming ‘badlands’ period.

  13. I think bj is right there would be a lot of manipulation in that market, but I think that it is well worth noteing that there is not quite two Olympic pools of gold.

    That is the total world supply.

    Everybody now wants a piece of it and what scares me is the lenths people will go to to get it.

    The real economic value is growing food.

    IN YOUR FRONT AND BACK YARD !!!!!!!!

  14. Gold is heavily manipulated, I mean all the money printing over the last year should of pushed the price up significantly. Thanks to the naked shorting by the big bullion banks the price has been suppressed.

    I still see Gold as a canary in the coal mine, If they loose control of the gold price and it starts rising then that should signify the end of the fiat $us, but don’t worry they will just replace it with another fiat currency like say the amero.

    Obama will come on TV and tell us that by having an amero and replacing the US dollar, canadian dollar and mexican peso will make us rich and how its the right thing to do. All the stupid people who voted for obama and you need to be stupid to vote or to have voted for him will nod and go along with what “The One” is saying.

    The conversion rate will be something like 1 amero will equal 100 $US, China’s “Investment” will suffer a 99% loss overnight as will anyone else holding $US. The US debt will magically disappear and “happy days will be here again in the US”

    Then the US can start the money-go-round again and in 50 years time do the same thing to some other stupid country.

  15. Thanks to goldman sucks and the rest of the banker parasites, the best long term investment if living in the US is a gun and plenty of ammo

  16. Turnip

    The effects are deferred partly because there was (at the same time) an enormous amount of debt destruction.

    The Amero scenario you describe won’t happen on Obama’s watch, it’ll be another decade before the mass of the federal debt obligations to foreign countries and the weight of Social Security obligations to poorer boomers collapses the system. The wealthy boomers will continue to suck on the treasury teat….

    Obama voters weren’t stupid Turnip, they were by and large FED UP. The alternative to Obama was a Republican, with a continuation of Dick Cheney’s lies, wars and policies (including denial of environmental reality) and a continuation of the dominion of the Religious Right. Sarah Palin? Would the geezer have survived 4 years? It was time for a change. Trying to choose the least bad alternative is an American institution now, and people were still focused on the wars and similar idiocy that the last administration had gotten us into, as well as the CLEAR evidence of lying about the situation to get us into those situations. Electing another lawyer would not ever be my FIRST choice.

    Unfortunately it was the least bad choice on offer.

    Would’ve been a lot better change if it weren’t for First-Past-The-Post. Instead of descending into a police state under the Republicans the country has been co-opted into a bankster’s state under the Democrats.

    Would have been nice to be able to vote for someone else without (effectively) spoiling your ballot. I could see Libertarians and Greens both getting double digit votes in that situation.

    Doesn’t matter, the nation has been doomed since the rebirth of the Fed, the adoption of a system that requires growth to maintain stability and the acceptance of FPP voting.

    In a historical sense it may simply be doomed by its own success.

    Doesn’t matter. You go right ahead and hate us for voting “for” Obama and forget that we were voting “against” a continuation of the policies that got us INTO these messes in the first place. We knew he couldn’t fix it all, but it is annoying that he is making things worse. Bernanke again? The bankers own the USA now. Government Sachs is calling the shots. That didn’t happen just on Obama’s watch, but he sure didn’t STOP it.

    So I am not pleased, but I expected all of it, and I am not THERE either.

    respectfully
    BJ

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