Yes dear reader, the whole worldwide financial system is a huge Ponzi scheme. (http://en.wikipedia.org/wiki/Ponzi_scheme). The scheme has to be kept alive as long as possible. Central Banks are floating the markets with liquidity in amounts never seen before. The Fed is, via Swaps (derivatives, http://en.wikipedia.org/wiki/Derivative_security), pumping liquidity into all markets.
Well as with all Ponzi schemes, this one will end too. As with all Ponzi Schemes that ended badly, this one most probably will end likewise. So my recommendation is, enjoy the party as long as you can. Do what your heart wants you to do. But at the same time having some kind of safety net put in place is maybe not that bad an idea.
Before looking at possible safety nets, let’s first have a look at this weeks overview, as usual from www.prudentbear.com
Global markets regained some composure. Here at home, it was apparently the biggest one-week market gain since 1974. The Dow jumped 11.3% (down 29.7% y-t-d) and the S&P500 rose 10.5% (down 34%). The broader market rallied sharply. The small cap Russell 2000 surged 14.1% (down 29.8%), and the S&P400 Mid-caps jumped 13.3% (down 33.8%). Economically-sensitive issues did some recovering. The Morgan Stanley Cyclicals jumped 8.8% (down 46.6%), and the Transports surged 12.7% (down 15%). The S&P500 Homebuilding index jumped 33.6% (down 37%), and the Morgan Stanley Retail index rose 19.0% (down 29%). The Utilities increased 5.5% (down 30.7%), and the Morgan Stanley Consumer index gained 6.5% (down 23.3%). The NASDAQ100 gained 11.0% (down 36%), and the Morgan Stanley High Tech index advanced 10.7% (down 39.5%). The Street.com Internet index increased 12.8% (down 41.3%), the NASDAQ Telecommunications index 12.2% (down 37.5%), and the Semiconductors 12.8% (down 41.3%). The Biotechs rallied 8.8% (down 14.2%). The financials bounced, with the Broker/Dealers rising 11.0% (down 56.4%) and the Banks gaining 13.9% (down 33.9%). Although Bullion dropped $10, the HUI Gold index rallied 14.9% (down 52.6%).
Safety net
A possible way to have a safety net is explained in following Bloomberg article.
This Bloomberg article explains why we have been harping on free trade for such a long time. Free trade is essential. Look at Iceland, when confidence in their banks evaporated, there was a currency collapse and inflation. Free trade became an impossibility due to a lack of trust in the currency. By the way, the Icelanders who owned gold, did great compared to everyone else, and they can now buy real estate companies and other assets cheaply in Iceland.
Credit `Tsunami' Swamps Trade as Banks Curtail Loans (Update2)
http://www.bloomberg.com/apps/news?pid=20601082&sid=aPA4NMYtDIS4&refer=canada
Well talking about safety nets, what is your opinion about money market funds? Are they safe? Are they the conservative investment everybody believes they are? Well unfortunately some people had already to learn the hard way that Money market funds are not as conservative as everybody believes.
Reserve Fund's Investors Still Await Their Cash
By DIANA B. HENRIQUES
At least 400,000 people, and perhaps as many as a million, can’t access their savings in the Reserve Fund, the nation’s oldest money market fund, with no sure end in sight.
http://www.nytimes.com/2008/10/29/business/29fund.html?_r=2&ei=5070&emc=eta1&oref=slogin&oref=slogin
Well dear reader the money market fund mentioned before is not the only one in troubles. As the commercial paper (http://en.wikipedia.org/wiki/Commercial_paper ) market was basically dead for several weeks due to investments in CP's combined with investments in long term low quality bonds that unfortunately did not have any liquid markets anymore, many of the so called conservative money market funds are or have been in deep trouble.
Liquidity crunch and how they try to solve it.
Fed Expands Swap-O-Rama to Brazil, Mexico, South Korea, Singapore
http://globaleconomicanalysis.blogspot.com/2008/10/fed-expands-swap-o-rama-to-brazil.html
As with all these actions short term it might work. the same seems to be the case for the CP market
http://www.bloomberg.com/apps/news?pid=20601087&sid=abMxlhsNP8kE&refer=home
Oct. 30 – Bloomberg (Steve Matthews and William Sim): “The Federal Reserve agreed to provide $30 billion each to the central banks of Brazil, Mexico, South Korea and Singapore, expanding its effort to unfreeze money markets to emerging nations for the first time. The Fed set up ‘liquidity swap facilities with the central banks of these four large systemically important economies’ effective until April 30… The arrangements aim ‘to mitigate the spread of difficulties in obtaining U.S. dollar funding.’”
Well dear reader even if you will be able to get frozen funds back from money market funds, your money might soon not be worth what it used to be. Purchasing power for your FIAT paper currencies might fall fast. Twenty years ago, one spoke about millions, later about billions then trillions and lately quadrillions. Well as this trend is increasing in speed, we soon will talk about Gazillions. On the following link you can see, with the example from Zimbabwe, how this works.
http://www.boncherry.com/blog/2008/10/26/global-crisis-this-is-the-real-crisis/
AIG
AIG is an excellent example showing us that pumping money into already bankrupt companies does not help at all. AIG has eaten through the 125 billions of USD received already. Please read on
http://www.nytimes.com/2008/10/30/business/30aig.html?_r=2&ref=business&oref=slogin&oref=slogin
http://www.huffingtonpost.com/2008/10/30/aig-burning-through-120-f_n_139131.html
AIG is now tapping into the Fed commercial paper facility for $20 billion. Add this to the $122 billion in loans advanced to AIG and we're up to $142 billion of what will ultimately be a taxpayer funded attempted bailout of AIG.
Considering AIG is a $4 Billion market cap company, it is amazing that the US calls these multi-billion dollar handouts "loans" when there is NO WAY they could EVER be paid off!
The question is, what exactly makes AIG so vital to the national US interests in order to keep pouring billions into AIG with a pool of failing derivatives and collapsing assets? Might be interesting to see who is counterparty to AIG's derivatives swaps and to what extent would they be on the hook if AIG defaults. It seems that this money is being used to let AIG put up more and more collateral against its derivatives liabilities. Goldman for example has at least $20 billion in exposure to this rotting financial swamp. Who else?
Well dear reader, what do you believe? Will they ever be able to pay back? Well of course the same question goes as well with basically all of the companies that have received government funds so far.
General market view
Dear reader, please find as follows, Nouriel Roubini’s opinion
On Nouriel Roubini's Global EconoMonitor, Nouriel Roubini warns that the worst in markets and economies is yet to come. On October 23rd, Nouriel predicted the potential shutdown of financial markets. A day later U.S. stock futures suspended trading after declines of more than 6% at opening tripped the circuit breakers. Nonetheless, Nouriel does not expect another Great Depression, but states that policymakers must act quickly and wisely.
Here are the main elements of Nouriel’s outlook: Tsunami of corporate defaults; 2-year U-shaped U.S. recession that threatens to turn into an L-shaped one if policymakers do not regain control of the financial system; global re-coupling to the U.S. will advance from non-U.S. markets to non-U.S. real economies – not even the strongest emerging markets such as Brazil and China will escape global re-coupling; vicious cycle of deflation in goods markets, labor markets, commodity markets, financial markets, corporate and household earnings, and aggregate demand; de-leveraging to reduce excess debt in municipalities, households and some firms; U.S. stock markets declining another 20-30%, bottoming fall 2009 at the earliest, then moving sideways for years post-recession if growth remains anemic as it did in Japan after its 1990s real estate and equities bust; U.S. unemployment rise to reach 8-9%; the demise of the shadow banking system.
According to Nouriel, USD assets, commodities, U.S. and international equities, housing, and the USD are quite risky right now. Seek safety in cash or cash-like instruments such as T-bills and bonds of safe, large governments. Though he believes the U.S. dollar will retain its reserve currency status for decades, its status will gradually erode.
In 2009 the US Will Be Forced to Selectively Default and Devalue Its Debt
We have seen estimates that next year the US will have to finance a $2 Trillion annual deficit. They may be able to push it further into the next Administration than that by the forbearance of the world, but not by much. We'd expect 2011 to mark a significant drop in Treasuries at the latest. It should be obvious to anyone that we are approaching the apogee of the Treasury bubble, with the credit bubble having broken already. When the Treasury says they are facing unprecedented challenges in financing the US public debt next year that is an understatement.
http://jessescrossroadscafe.blogspot.com/2008/10/in-2009-us-may-be-forced-to-selectively.html
I couldn’t agree more
The London Banker
The cycle of debt deflation is just getting rolling. The banks were only the first bailout and already the federal deficits are ballooning unsustainably. What will be the recourse when municipalities and states face default through catastrophic tax and revenue shortfalls? What will be the recourse when large commercial employers, industries and infrastructure confront failure from collapsing consumption expenditure? What will be the consequence when unemployment, homelessness, political disaffection and crime are resurgent and threaten the political fabric?
We are at the end of the beginning. Hank Paulson has played a clever game for the past decade of exporting dodgy paper to the US creditors abroad while forcing a middle class subsidy of the tax exempt corporatists at home. Now he plays a clever game of devaluing all currency and paper assets, exporting the pain to foreign taxpayers and investors. But this is not a game that America can win without the debasement of everything America once represented as holding value in its formerly prosperous market economy.
In my experience, there is nothing so permanent as a temporary expedient. It is hard to see how partially nationlised banks will ever be more than the means of political redistribution of wealth and power, and so corrupt both the economy and political system.
http://londonbanker.blogspot.com/
Life insurance
Oct. 28 (Bloomberg) -- U.S. life insurers are in talks with the government for potential investments as companies jockey for the remaining $90 billion of the $250 billion set aside to prop up ailing financial companies.
The Treasury has been ``asking us how we can fit into the program,'' said Jack Dolan, spokesman for the Washington, D.C.- based American Council of Life Insurers, declining to name companies that may participate. Principal Financial Group Inc. feels insurers ``should have had a seat at the table'' during negotiations, said Rick Swalwell, a spokesman for the company.
http://www.bloomberg.com/apps/news?pid=20601087&sid=aomIX8J39aos&refer=worldwide
Hartford Financial loses over half its market value
Insurer may have to raise more capital as variable-annuity business suffers
SAN FRANCISCO (MarketWatch) -- Hartford Financial Services Group lost more than half its market value Thursday on concern the insurer may need to raise more capital.
The company reported a big third-quarter loss late Wednesday and said that it couldn't gauge the amount of extra capital it has because of market volatility.
http://www.marketwatch.com/news/story/story.aspx?guid={5BD8629F-48D6-4372-B592-00C9DFDFE724}&siteid=djm_HAMWRSSMktsH
Well dear reader, the only and true life insurance in my opinion is holding physical gold. Gold is no liability of anybody. Gold is money. Gold will still exist when all around fails.
Credit Crisis
http://www.telegraph.co.uk/news/newstopics/howaboutthat/328
0471/Credit-crunch-song-is-an-online-hit.html
GM/Chrysler
Rick Wagoner would sure like us to think so. Mr. Wagoner, the chief executive of the ailing automotive giant, spent most of Friday down in Washington, pressing his case for a government rescue.
G.M. wants tax dollars too. Banks are getting billions. Insurance companies are getting billions. Why not G.M.?
The answer to that question depends on a few crucial points that few people seem willing to talk about, at least publicly: jobs, wages and the United Auto Workers.
Mr. Wagoner hopes that one way or another that Washington will help finance a merger of G.M. and Chrysler, salvaging the companies, their employees’ livelihoods and his own legacy. He is painting G.M. as too big, too important and too interconnected to fail without dire consequences for the entire economy.
http://www.nytimes.com/2008/10/28/business/28sorkin.html?_r=2&ref=business&oref=slogin&oref=slogin
GLG chief Emmanuel Roman warns thousands of hedge funds on brink of failure
Emmanuel Roman, the co-chief executive of Europe’s biggest hedge fund GLG, has warned that thousands of hedge funds are on the brink of failure as the global economy contracts with unexpected severity.
http://www.telegraph.co.uk/finance/financetopics/financialcrisis/3248965/GLG-chief-Emmanuel-Roman-warns-thousands-of-hedge-funds-on-brink-of-failure-financial-crisis.html
Well dear reader, thousands of funds are on the brink of failure and going out of business and I am starting a new fund. Sounds maybe crazy. Well it is not that crazy as it sounds. Why are the funds going out of business? Well they speculated to high, taking leverage and using credit lines. Now that many trades go sour these funds face on one side margin calls and on the other side face redemptions. Both of course is coming at a very bad moment for those funds.
So what is the lesion to be learned? Well on one side avoid leverage and on the other side don’t exaggerate with the use of credit facilities to leverage your positions. Of course as long as it goes well it helps to boost performance. However in a crisis situation it means losses and it even could mean heavy losses.
From taleb, black swan
Once again, recall the story of banks hiding explosive risks in their portfolios. It is not a good idea to trust corporations with matters such as rare events because the performance of these executives is not observable on a short-term basis, and they will game the system by showing good performance so they can get their yearly bonus. The Achilles’ heel of capitalism is that if you make corporations compete, it is sometimes the one that is most exposed to the negative Black Swan that will appear to be the most fit for survival.
As if we did not have enough problems, banks are now more vulnerable to the Black Swan and the ludic fallacy than ever before with “scientists” among their staff taking care of exposures. The giant firm J. P. Morgan put the entire world at risk by introducing in the nineties RiskMetrics, a phony method aiming at managing people’s risks, causing the generalized use of the ludic fallacy, and bringing Dr. Johns into power in place of the skeptical Fat Tonys. (A related method called “Value-at-Risk,” which relies on the quantitative measurement of risk, has been spreading.)
Please, don’t drive a school bus blindfolded
See a video of Taleb explaining the actual situation
http://therealnews.com/t/index.php?option=com_seyret&Itemid=91&task=videodirectlink&id=517
or the same video on you tube
http://www.youtube.com/watch?v=ABXPICWjFIo&feature=related
THE NOT-SO-INVISIBLE HAND: HOW THE PLUNGE PROTECTION TEAM KILLED THE FREE MARKET
Plunge Protection for Some, Plunge Creation for Others
The most egregious examples of market manipulation have been in gold, silver and oil. The official “spot” (or cash) prices of gold and silver were taken down sharply in the last ten days, despite the fact that physical demand has been inexorable. Gold is available in the “real” market only at huge markups, and popular types of silver are not available at all.1 We were taught in school that communism does not work because when industry is in the hands of a single owner (the government), competition is eliminated and chronic shortages and black markets develop, since the government does not let prices respond to “supply and demand” but dictates them from the top. Today this is happening with gold and silver, with the true physical price varying radically from the reported paper price.
Please read on
http://www.webofdebt.com/articles/manipulation.php
Equity
Well dear reader you know already that, I am not that positive for the equity market for the moment being. You know already that I believe that we are in a primary bear market and that over time we will see equity prices lower. Of course in the bear market we will go through several bear market rallies, which of course are always a chance to make some nice profits or to sell existing equity positions at higher prices. Well apart from these bear market rallies and my general opinion that we are still in a bear market, there are some stocks that I prefer as equity holdings. For example some of the Oil&Gas or Energy Canadian Income Trusts (http://en.wikipedia.org/wiki/Income_trust) to me seem to be still an interesting investment. First of all the Canadian Dollar, after having fallen against the USD, seems to be at an interesting entry point. Secondly the Income Trusts do pay a high dividend yield (some more than 10% after withholding tax, which of course is not bad at all) and thirdly many have gone down in prices and seem to be at levels that seem to be interesting. Fording Canadian Coal (a stock I was recommending for the last 3 years) for example did very well this year. At the beginning of the year the stock traded at approximately CAD 40 and now trades at around CAD 100 (not bad at all).
Of course Fording is in my opinion, for the moment being not a buy anymore due to the huge rise this year. However there are some Income Trusts that are at interesting price levels. If you like to receive some more information, please send me an e mail.
Fannie and Freddie
Well dear reader it's some time since I wrote about the pair. Well not much did happen with the two. However lately the spread between the pairs yield and Treasury has widened considerably. What does that means? Well it means that some investors do not trust the guarantee Fannie and Freddie have received. It is rumoured that especially Asian investors (Taiwan) have sold Fannies, Freddies and Ginnes and might have switched them into Treasury notes. As with the AIG example above, this shows me that the bailout plans might only buy time and certainly do not solve the underlying problem.
In effort to reduce mortgage rates, the Treasury Department is stressing that the U.S. government “effectively guarantees” all Fannie Mae and Freddie Mac debt and mortgage-backed securities. “The U.S government stands behind these enterprises, their debt and the mortgage-backed securities,” Treasury acting under secretary Anthony Ryan told the Securities Industry and Financial Markets Association. “Their mission is critical to the housing markets in the United States and no one will deny the importance of these institutions in assisting our housing market in this downturn,” Mr. Ryan said. The two government-sponsored enterprises were placed into government-controlled conservatorship on Sept. 7. Fannie Mae and Freddie Mac each entered into a preferred stock purchase agreement with Treasury “that effectively guarantees all debt issued by the GSEs, both existing and to be issued,” the Treasury official said”.
If you like to read more about this topic, please click on the following link
http://mrmortgage.ml-implode.com/2008/10/29/treasury-continuing-to-try-to-talk-down-mortgage-rates/
Securities Lending
October 30 – Wall Street Journal (Craig Karmin and Leslie Scism): “The credit crisis is causing a contraction of the little-noticed but huge business of securities lending, and financial players including pension funds, insurers and hedge funds are paying a price. Losses are sparking lawsuits from customers who pursued securities lending as a way to squeeze additional gains with seemingly little risk.”
Currencies
The following info is from www.lemetropolecafe.com
Perhaps an old book explains gold's apparent disappearance from shopkeeper's shelves: 1938 - The Promises That Men Live By - Chapter 15: Why Is Gold The World's Money? - Page 289
(Remember that this book was published 5 yrs AFTER gold possession was outlawed in 1933)
Quote
Sir Thomas Gresham was asked by the puzzled and worried Queen Elizabeth why it was that, as soon as she minted good gold or silver coins, they at once disappeared from circulation; only debased coins remained in evidence in ordinary commercial transactions. He explained that poor money always drove good money out of circulation.
. . .
The truth is that all those who are alert to what money is -- a fixed weight of gold or silver, of a specified quality -- DO actually prefer the good coin. They prefer it so much that, once they get their fingers upon it, they hold it and will only relinquish it when they can be sure to get full value for it in other goods.
Currencies
The dollar index slipped 0.9% to 85.63. For the week on the upside, the South African rand increased 14.6%, the South Korean won 10.2%, the Australian dollar 7.3%, the Brazilian real 6.9%, the Canadian dollar 5.4%, the New Zealand dollar 4.7%, the Mexican peso 4.4%, the Norwegian krone 4.0%, the Swedish krona 2.1%, and the Singapore dollar 1.6%. On the downside, the Japanese yen declined 4.2%. In the emerging currencies, the Indonesian rupiah declined 7.8% and the Argentine Peso 3.2%.
Over the last days the Aussie has fallen against the Yen in such a way that a technical correction is possible. Please look at the below chart.
Please take note that many Forex analysts have already opined about this trade and therefore traders possibly have taken already their positions. This trade bears some risks
http://www.dailyfx.com/story/strategy_pieces/weekly_trading_lesson/Chart_of_the_Day__AUD_JPY_1224131594900.html
Amero
Well dear reader one of the readers of my musings informed me that the video, as per link in my past musings is a hoax. Well I'd like to give my excuses to have posted an information without having verified it before. However, as I wrote in my last musings, the interview I saw with Vicente Fox, ex Mexican President is no hoax. The video was sent on one of the well-known international information channels. Apart from the Amero contract already signed by the presidents of the 3 countries, there is, in my opinion, at least one important part in the video. A part I'd like to mention and a part that holds its importance in any case, which is the recommendation to buy physical gold.
Commodities
Gold declined 1.4% to $725. Silver rallied 5.2% to $9.85. December Crude gained $3.66 to $67.81. December Gasoline rose 3.2% (down 39.6% y-t-d), and December Natural Gas gained 5.0% (down 9.4% y-t-d). December Copper recovered 8.4%. December Wheat rallied 3.9% and Corn jumped 7.7%. The CRB index gained 4.7% (down 25.3% y-t-d). The Goldman Sachs Commodities Index (GSCI) rose 5.0% (down 26.3% y-t-d).
Gold
In analysis posted this week at Gold-Eagle, mathematician John Peterson does some complicated calculations to reach conclusions similar to those reached a few years ago by another mathematician, Dmitri Speck, which in turn are similar to conclusions reached 10 years ago by GATA Chairman Bill Murphy, who couldn't add up his fingers and toes with a calculator but who knows a rigged market when he trades in one: that an international gold price suppression scheme is carried out largely on the commodities exchange in New York. You can find Peterson's analysis, "War of the (Gold) Worlds," at Gold-Eagle here:
http://www.gold-eagle.com/editorials_08/peterson102908.html
Gold production
found on www.lemetropolecafe.com
A team of geologists can spend years searching the earth to find a gold or silver deposit. After a deposit is found, drill samples and feasibility studies must be done. Statistically, for every 1200 gold occurrences in rock, only 1 economic deposit will result. If the discovery is economically feasible, a team of engineers, technicians and geologist can spend up to 10 years permitting, designing and building a gold or silver mine.
From time of discovery to mine completion and pouring of first metal, up to one billion dollars or more can be spent building a mine. After the mine is built and functioning, tremendous amount of work goes into mining the gold and silver. In South African gold mines, up to 10 TONS of rock are blasted up to 2 miles underground, hauled to the surface, then go through a complex refining process to produce 1 troy ounce of gold!
Meanwhile, COMEX dealers sit in plush offices and buy and sell PAPER gold and silver contracts, most of which are backed by nothing!!! The purpose of these paper contracts are to cap any price rise in gold and silver, then drive it lower, destroying mining company market capitulations, company profits, and even shutting down mines because they are unprofitable at rigged COMEX prices! If this wasn't enough, COMEX officials have the balls to say longs are "corning the market" by taking physical delivery of metal, as COMEX law says they can!
Silver
A Shock To The System?
In a moment, I’d like to describe a new development in silver that should prove quite bullish to the price, but first I’d like to review some continuing facts that are significant in their own right. It would appear that the confluence of many factors point to sharply higher silver prices dead ahead. Yes, I know the price has recently collapsed. Ironically, it is that very price smash that is the basis for the coming price launch higher.
Since the recent top in July, the price of silver has undergone a dramatic collapse. As proven by data released in government reports, a large U.S. bank or two sold a massive number of COMEX silver futures contracts into the top and subsequently has covered a good number of those short contracts on the resultant price decline. Quite simply, this is the single most important factor behind the price collapse. The latest data appear to indicate that the price decline is now largely behind us.
http://news.silverseek.com/TedButler/1225121146.php
Silver Production Falls by 70%?
October 31, 2008
This headline should grab anyone’s attention, especially those interested in the silver market. Before going forward, let me explain that fully 70% of silver is produced as a result of mining other metals, mostly base metals. Copper mining, for example, is responsible for 28% of the silver mined in 2007. Lead/Zinc mining yielded 32% of the silver mined in 2007. Finally, gold mining brought about 10% of the silver mined, again in 2007. All data is from GFMS World Silver Survey 2008, page 31.
http://www.silver-investor.com/davidmorgancommentary/articles/10-31-08_ibtimes35_SilverProductionFallsby70%25.html
Oil
Well dear reader as mentioned in previous posts, Peak Oil is real. Although oil prices lately have come down considerably, Peak Oil has not disappeared. Au contraire, the low oil prices will have a negative impact soon. Why? Well because oil companies do and will reduce their development budgets. Due to no credits available because of the actual crisis, the impact on not developed new sources will be harsher than expected
The Financial times leaked a report from the International Energy Agency.
World will struggle to meet oil demand
Carola Hoyos and Javier Blas, Financial Times
Output from the world's oilfields is declining faster than previously thought, the first authoritative public study of the biggest fields shows.
Without extra investment to raise production, the natural annual rate of output decline is 9.1 per cent, the International Energy Agency says in its annual report, the World Energy Outlook, a draft of which has been obtained by the Financial Times.
The findings suggest the world will struggle to produce enough oil to make up for steep declines in existing fields, such as those in the North Sea, Russia and Alaska, and meet long-term de-mand. The effort will become even more acute as prices fall and investment decisions are delayed.
The IEA, the oil watchdog, forecasts that China, India and other developing countries' demand will require investments of $360bn (£230bn) each year until 2030. The agency says even with investment, the annual rate of output decline is 6.4 per cent.
The decline will not necessarily be felt in the next few years because demand is slowing down, but with the expected slowdown in investment the eventual effect will be magnified, oil executives say.
Falling oil production 'is greater threat to Britain than terrorism'
Daily Mail
Falling oil production 'is greater threat to Britain than terrorism' as world struggles to meet demand
---
The risk to the UK from falling oil production in coming years is greater than the threat posed by terrorism, according to a new report released today.
Industry taskforce Peak Oil group warned that Britain will begin to feel the effects of a shortage of oil within the next five years, as the major oil-producing nations slow down production.
The warning comes after a new study said that the world is struggling to meet the demand for oil and will have to invest hugely in production just to maintain the current output rate.
The draft report from the International Energy Agency shows that output from the world's oilfields is declining faster than previously thought, and that without more investment the rate of annual decline is 9.1 per cent.
Oil production predicted to decline within five years
ABC Rural (Australia)
A taskforce of eight British engineering, utility and transport companies is predicting the world will reach peak oil in three to five years.
That's when oil drillers have reached the maximum they can produce and production starts to decline,
The taskforce has given three possible options - a collapse in production, a decline, or a plateauing of production once peak oil is reached.
Taskforce chairman Dr Jeremy Leggett says even the Shell Oil company agrees with the third option, although it's less gloomy about when the plateau will be reached.
"The collapse is the worst case scenario," he says.
"The plateau scenario, interestingly, is Shell's view of what could happen.
"They think that we can get to 2015 and then maybe hold it on a plateau provided they're allowed open season on unconventional oil, tar sands and all the rest of it."
Richard Heinberg
Nine percent
The Financial Times has leaked the results of the International Energy Agency's long-awaited study of the depletion profiles of the world's 400 largest oilfields, indicating that, "Without extra investment to raise production, the natural annual rate of output decline is 9.1 per cent."
http://postcarbon.org/nine_percent
Well the question is what is the fair oil price. Some say USD 40 per barrel other put another price. In fact the fair price is the price someone is willing to pay. That means that the actual fair price is the actual price. Inflation adjusted the fair price would be above 125 Dollars per barrel and the is the price level I believe we will see in a couple of months before we head much higher.
Commodities in general
Well as mentioned above, it is getting more difficult for importers to get letters of credit
(http://en.wikipedia.org/wiki/Letter_of_credit)
Part of the reason for the drop in prices can be traced back to the affects of the credit crisis. In many countries good companies are
simply unable to obtain letters of credit guaranteeing the purchase of a
shipment. Also, it is proving more and more difficult to insure shipments as banks doubt the ability of insurance companies to pay off in the event of an accident. The prime mover behind the decline though is directly related to the fall in US consumption. The consumption accounts for more than 70 percent of GDP and they are cutting back. Rumor has it that Americans are even trying to save and that is something the rest of the exporting world was not planning on. That’s why the deflationary spiral is affecting the entire planet and will not end any time soon.
Agricultural commodities
Well as mentioned in my previous musings, farmers might not put the seeds due to various factors such as no money (no credits) high fuel, fertilizer and other costs and especially the low actual prices. Farmers to not plant and harvest in order to lose money. With other words, a farmer does only plant and harvest when he or she believes that a profit is possible or when they need to keep the operation running for what ever reason. That means that less area will be plantet and will mean lean smaller harvests. Please read on
http://www.bloomberg.com/apps/news?pid=20601087&sid=a.YrOnFi9aJM&refer=home
and
http://www.oftwominds.com/blogoct08/credit10-08.html
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