January 13, 2016

Is the world headed to #GreatRecession Part Deux?

Are we all doomed to eating generic Doritos in the dark?
So said the Royal Bank of Scotland yesterday, telling clients to sell off all but the most secure of assets, as it worried oil would hit $20 a barrel or less.

First, that worry belies the traditional "we're all rational" claim of most macroeconomists. Outside of actual research findings of behavioral economists, all one has to do is watch investment markets to know that, per John Nance Garner, Homo sapiens is collectively less rational than a bucket of warm piss.

Second, RBS's actual worry?

I won't say its chances are "slim and none," but oil at $20/bbl, especially for any lengthy period, is unlikely.

I'm no T. Boone Pickens or other oil bull to the point of fellating a pumpjack. I do know that, although it has taken longer than it should have — precisely because of irrationality among US shale oil drillers, many operating on tight fiscal margins — that the US shale market is unwinding.

As is any claim that the US was about to become a second Saudi Arabia. Remember that laugher a year or two ago from the Energy Information Agency?

That said, no, the US isn't about to become post-Hugo Chavez Venezuela, either.

Once the hyperfear of oil bears dissipates, and once Chinese stock markets stop getting so panicky every time its "circuit breaker" mechanism trips, things will stabilize. A place like Oil-Price.net is realistic, IMO, when its 1-year outlook is $35/bbl.

They're still not going to be pretty. Wall Street, and probably London as well, have both been due for stock corrections. China, with a Potemkin economy of corruption, shoddy construction, and abominable pollution, has been due for an even bigger correction for even longer.

But, this doesn't mean a second "Great Recession," let along Great Depression, is headed here. This is to focus too tightly on oil as a marker for the whole economy. After all, the economy was running sky-high, other than George Soros wrecking Asian currencies, when oil was $10/bbl in the late 1990s. (And, inflation's been low enough that $10 oil in 1998 would still only be $14.56 today, in the US.)

But, as noted, these corrections will happen.

And, the shale oil market will finish unwinding, as stubborn as some operators are.

Update, Jan. 25: Bloomberg says the likelihood of a recession in the U.S. is still a bit below 20 percent.

Once that happens, and the banksters accept writing off some US oilfield depths, there will be more stability, though. As noted above, the US oil market is unwinding. Finally. Maybe not immediately, but, by the middle of the year, I expect the House of Saud to agree to a trim on oil production. NOT a "cut," a "trim." Enough to get oil into the mid-$40s in time for US summer driving season.

That then said, this does reflect the spoiled greed of hypercapitalism, with the bankster world acting like a pouting 2-year-old holding its collective breath. Markets have corrections. Sometimes you lose money. Deal with it.

And, let's hope no neolib politicians offer to bail you out at the least sign of problems.

I still wonder if my $34-37 for the low end of oil prices on my poll at right is too high. But, I don't think it's that much too high.

As for people worried about their investments?

First, see above. Financial markets ALWAYS make adjustments. If you're too greedy, or if you rolled "Dow 36,000" pages into a giant doobie, or if like Ralph Nader of oil stocks ownership fame of 2000, you wanted the Fed to hike interest rates to make your investments earn more, I've got zero sympathy for you. No, wait. I have less than that.

Second, if you're going to bitch about any of the above AFTER noting how fragile the recovery was from the Great Recession, it ain't my fault you didn't make safer investments. Nor, if you're going to be that much of a capitalist, is it my fault you're not richer.

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