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Derivatives and Peak Oil

General discussions of the systemic, societal and civilisational effects of depletion.
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Re: Derivatives and Peak Oil

Unread postby mkwin » Wed 11 Jul 2007, 16:37:23

$this->bbcode_second_pass_quote('clueless', '')$this->bbcode_second_pass_quote('', 'c')orresponding removal of value out of that market.


Explain what you mean by a "corresponding removal of value" what is value ? Do you mean monetary worth ? You only realize monetary worth when you acutally transfer a good for money or something else.

Those .com shares were sold to high and sold low, somebody still made the money and spent it somewhere else.


Not all shares were traded. Many were held throughout the entire boom period. Their value increased due to the sense of increasing future earnings growth. When these growth prospects diminished the assets value collapsed so the unrealized wealth was lost.

The monetary loss came from the huge amounts of insolvencies. Assets suffered valuation write-downs as their resale value collapsed.
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Re: Derivatives and Peak Oil

Unread postby Zardoz » Wed 11 Jul 2007, 17:48:31

$this->bbcode_second_pass_quote('shortonoil', '.')..I wonder how long this will take to affect investment grade bonds in general.

Not long, perhaps:

Investors run for shelter - The Dow drops 148 as growing troubles with housing and mortgages stoke worries about consumer spending.

$this->bbcode_second_pass_quote('', 'S')tocks tumbled Tuesday, yields on corporate junk bonds surged and the dollar's value plunged amid fresh warnings about falling home sales and rising losses on bonds backed by risky mortgages...

...One key catalyst for the markets' sell-off was an admission by bond rating firm Standard & Poor's that it had underestimated the level of losses on mortgage-backed securities, which are growing as more homeowners miss payments and home values decline...

...the news from the housing and mortgage markets on Tuesday was more dire than Wall Street could stand:

• Investors dumped many bank and brokerage issues after Standard & Poor's said it might soon cut ratings on $12 billion of sub-prime-mortgage-backed bonds, conceding that it failed to see the extent of potential losses on the bonds when it originally rated them.

• D.R. Horton, the largest U.S. home builder, said it would report a loss for the quarter ended June 30 after orders dived 40% from the period a year earlier. The company's stock sank 39 cents, or 2%, to $19.40, a three-year low.

• Home Depot, the biggest home-improvement retailer, said 2007 earnings would fall more than initially forecast, in part because of the housing market's continuing slide.

Do you folks agree that we could have a very ugly domino effect starting to kick in here?
"Thank you for attending the oil age. We're going to scrape what we can out of these tar pits in Alberta and then shut down the machines and turn out the lights. Goodnight." - seldom_seen
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Re: Derivatives and Peak Oil

Unread postby clueless » Wed 11 Jul 2007, 17:57:17

$this->bbcode_second_pass_quote('', 'l')ol....We've fallen the level so common on this site. If it doesn't fit the argument it must be propaganda or a conspiracy.


Explain...I have no clue what your point is. I don't see anybody claiming consipricy here - But it is pretty clear people will do some pretty bad things to make a buck.

And the reality is we both have spoken true statements, but you have not admitted is that once money is put into circulation it rarely comes out of circulation, and the reason we are seeing all these shenanigans is because lot's of people have lot's of money and they are desiging all kinds of schemes to make more of it...

And you started with the ad-hominem on the other forum when you told me I didn't know what I was talking about, so "Don't get all mad"... :P
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Re: Derivatives and Peak Oil

Unread postby mkwin » Wed 11 Jul 2007, 18:07:14

$this->bbcode_second_pass_quote('clueless', '')$this->bbcode_second_pass_quote('', 'l')ol....We've fallen the level so common on this site. If it doesn't fit the argument it must be propaganda or a conspiracy.


Explain...I have no clue what your point is. I don't see anybody claiming consipricy here - But it is pretty clear people will do some pretty bad things to make a buck.

And the reality is we both have spoken true statements, but the reality is that you have not admitted is that once money is put into circulation it rarely comes out of circulation and the reason we are seeing all these shenanigans is because lot's of people have lot's of money and they are desiginng all kinds of shcemes to make more of it...

And you started with the ad-hominem on the other post, so "Don't get all mad"... :P


You effectually said all university courses in economics are propaganda of the elite.

I haven't answered your point on the circulation of money because it's far too complicated to answer. You have to look at the time value of money and the multiplicity effect - when you have Alan Greenspan saying he doesn't understand what money is, you know things are pretty complicated.
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Re: Derivatives and Peak Oil

Unread postby clueless » Wed 11 Jul 2007, 18:10:14

$this->bbcode_second_pass_quote('', 'Y')ou effectually said all university courses in economics are propaganda of the elite.


Your most truthful statement on this whole forum. I have news for you: Everything that has a beginning has an end...Same thing applies to the "economy", schools nowadays teach infinite growth economics.
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Re: Derivatives and Peak Oil

Unread postby clueless » Wed 11 Jul 2007, 18:23:15

$this->bbcode_second_pass_quote('', ' ')Alan Greenspan saying he doesn't understand what money is, you know things are pretty complicated.


Boy..Now there is a bulwark of truth for you. Are you actually saying this guy is someone to be trusted for truthful information?
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Re: Derivatives and Peak Oil

Unread postby ozkrenske » Wed 11 Jul 2007, 22:09:31

I saw a report out of Atlanta a few days ago that seemed to indicate massive losses in foreclosure sales.

Apparently the top edge of the market is seeing only 5-10% drops but head below the top quartile and the prices are halving or worse.

There was one guy surprised he was able to pick up a house for $140 000, the house was previously sold for the $450 000 in 2005. The sale was not apparently unusual according to the auctioneer. Thats a 66+% loss and we are no where near the bottom of this market. The working class over extended suburbs are being reposessed in bulk and no one is getting credit at the moment to do the buying. Georgia is meant to be a good weathervane as it has fairly tight foreclosure rules and you can go from default to sold out in four months while many states have a 6-9 month wait.

I fear the social turmoil that could occur because of this. Many of the lower classes have only just been convinced to jump into real estate and then chop goes the axe. I would suspect 75% of the loans issued in 2005 and 2006 are going to lose money in some US markets. It is truly scary to think about.
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Re: Derivatives and Peak Oil

Unread postby threadbear » Wed 11 Jul 2007, 22:15:40

$this->bbcode_second_pass_quote('mkwin', '')$this->bbcode_second_pass_quote('shortonoil', '')$this->bbcode_second_pass_quote('', 'W')e don’t know yet but even in the worse case it won’t be as bad as the dotcom fiasco.


The dotcom bust was isolated to the tech sector. Yes, some little old ladies lost everything. This fiasco is spread to almost every institutional investor in the country; pension funds, insurance companies, banks, educational institutions ... etc. It is based on $1 trillion in bad loans, leveraged 15 times over. This is going to make the dotcom bust look like and invitation to a Quaker Picnic!!


You're mistaken - the dotcom bust hit all of those investors you mentioned.

The scale of the loss here is in the tens of billions, possibily just into the hundreds of billions if there is a big recession, not the trillions experinced in the dotcom bust.


Trillions were not lost in the dotcom bust.
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Re: Derivatives and Peak Oil

Unread postby shortonoil » Wed 11 Jul 2007, 22:35:21

mkwin said:

$this->bbcode_second_pass_quote('', 'Y')ou're mistaken - the dotcom bust hit all of those investors you mentioned.

The scale of the loss here is in the tens of billions, possibily just into the hundreds of billions if there is a big recession, not the trillions experinced in the dotcom bust.


Since the decline of the housing industry started, construction of new homes are down almost 900,000 units/year. At a median price of $269K that is a yearly loss of $242 billion in economic activity. What we are witnessing is just the being of the damage that will come out of this monetary fiasco. The derivatives market is a $300 trillion shell game, 80% of is interest related. At least $100 trillion of that is based on 6 million trash mortgages and their associated bonds. Bonds that have been dressed up to sell to unsuspecting investors, like putting lipstick on a pig. When it goes, it will take Fannie May and Freddy Mac with it, and their bond holders, for $7 trillion.

It is hard to imagine that you are convinced that this is a non event, a mere blip on the financial world’s radar screen of risk. If true, it is a little disconcerting. I doubt that anyone could, or would play this down without some kind of personal agenda; some need to escape reality, to ignore, massage, perturb the numbers. Perhaps for yourself, perhaps for others.
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Re: Derivatives and Peak Oil

Unread postby shortonoil » Thu 12 Jul 2007, 11:22:21

I just got this from an analyst friend of mine, I thought I would share it.

$this->bbcode_second_pass_quote('', 'S')o, we have the following recession warnings/signals:

1. magnitude of inverted curve (to the zero false alarms level) /swap spread (still a valid signal, despite reversion)
2. duration of inverted curve (I think this one went to the zero false alarms level too, but I'm not certain about this one.) (I assume that this indicator is still valid despite reversion, but reversion was not addressed by the people who told me about it on Kudlow.)
3. commodities dropped >= 20% (I assume that this indicator is still valid despite price recovery, but price recovery was not addressed by the person who told me about it on Kudlow.)
4. housing cycle
5. employment growth rate (Was signaling recession even before the JOLTS and BED revisions to the monthly data!)
6. monetary base/ M-prime (They either gave a signal, or came *very* close to doing so in the first half.)
7. Items one and six, above, used jointly, as per Kasriel, offer even greater recession-forecasting accuracy. (zero false alarms)
8. year-over-year 3 month average of the Leading Economic Indicator (also a zero false-alarms indicator)

And we have the following, less-quantitative, but still very alarming, indications that the magnitude of the next down-cycle will be huge:

1. unprecedented bond market leverage
2. unprecedented downward price action already in the housing market with Bill Gross of PIMCO forecasting a decline in excess of 20% (assuming mortgage rates don't fall from here)
3. too many to mention 'not since the 1920s' or 'not since the Great Depression' references on CNBC
4. oil price septuple in the past 8 years + peaking/declines + complete failure to prepare for peaking/declines + refinery issues
5. failure of the Fed to cut pre-emptively (We are now just over one year past the last rate hike, with no sign of relief in sight.)
6. dollar weakness preventing interest rate relief (A dollar crisis looms either way: relative economic weakness versus our competitors and a wave of bankruptcies due to the high interest rates needed to prop-up the dollar, or else lower rates allow us to avoid the bankruptcies, but the dollar gets sold so much that the
inflation-adjustment causes a negative *real* carry, thus dis-incentivising lending, causing a collapse and the inevitable dollar printing.
7. the competitive disadvantage that our low energy efficiency causes (although... we do have the partially offsetting advantage provided by some domestic energy supply)
8. rising chorus favoring protectionism (in goods, services, and even in labor)

I could continue, but it's quiting time.


I believe this will precipitate a massive unwinding of the mortgage bond market. If you are exposed, get out!!
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Re: Derivatives and Peak Oil

Unread postby AirlinePilot » Thu 12 Jul 2007, 11:43:26

Just for data's sake, I'm in a more affluent suburb of Atlanta and home prices here vary a god bit. I'm in an upper middle class neighborhood and have seen very little shrinkage in home value. I have not seen any sort of value "crash" here or nearby yet either. Home sales are taking longer by a good bit, but values are not off significantly yet here.

I see a lot of talk about the fed, the subprime crisis and the obvious US debt/credit crunch, but the news doesn't seem to back any of this up. Just today CNBC is talking about how positive things are.

It's amazing. We potentially are on the verge of serious energy issues and a possible giant recession, but everyone is just whistling along like there isn't a problem. Yikes.
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Re: Derivatives and Peak Oil

Unread postby clueless » Thu 12 Jul 2007, 12:03:08

$this->bbcode_second_pass_quote('', 'J')ust for data's sake, I'm in a more affluent suburb of Atlanta and home prices here vary a god bit. I'm in an upper middle class neighborhood and have seen very little shrinkage in home value. I have not seen any sort of value "crash" here or nearby yet either. Home sales are taking longer by a good bit, but values are not off significantly yet here.

I see a lot of talk about the fed, the subprime crisis and the obvious US debt/credit crunch, but the news doesn't seem to back any of this up. Just today CNBC is talking about how positive things are.

It's amazing. We potentially are on the verge of serious energy issues and a possible giant recession, but everyone is just whistling along like there isn't a problem. Yikes.


I live in Eugene Ore and my house (according to Zillow) has increased over 20% from what I paid for it two years ago.

But - WHo really cares what a house's value is becasue everybody needs one and unless you sell and live in a cave none of that value is realized.
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Re: Derivatives and Peak Oil

Unread postby shortonoil » Thu 12 Jul 2007, 12:27:06

AirlinePilot said:

$this->bbcode_second_pass_quote('', 'J')ust for data's sake, I'm in a more affluent suburb of Atlanta and home prices here vary a god bit. I'm in an upper middle class neighborhood and have seen very little shrinkage in home value. I have not seen any sort of value "crash" here or nearby yet either. Home sales are taking longer by a good bit, but values are not off significantly yet here.

I see a lot of talk about the fed, the subprime crisis and the obvious US debt/credit crunch, but the news doesn't seem to back any of this up. Just today CNBC is talking about how positive things are.

It's amazing. We potentially are on the verge of serious energy issues and a possible giant recession, but everyone is just whistling along like there isn't a problem. Yikes.


It is true that home prices have not declined equally across the nation. Some areas like California and Florida have been decimated. It does not appear to have anything to do with the affluence of the area. In my area, which is very affluent being the retirement center for the nation’s DC made millionaires, property values and sales have totally collapsed. Growth here in the last six years has been absurd, to say the least. It seems to have more to do with the amount of growth that occurred in an area, before the unwinding started.

But, in time this devaluation of property values will spread to other areas. One main reason will be that lending institutions will have to raise rates to compensate for the $trillions that will soon be lost in the subprime debacle. A one percent increase in mortgage rates, eventually, reduce housing values by about 10%. As interest rates go up, property values go down.

Every one is whistling along because the Media is not addressing this situation, just like it is not addressing is compatriot, Peak Oil. In both the oil industry and housing and mortgage industries, there are vast sums of money to be lost if the public becomes too keenly aware, too soon. The majors, in both, will have done everything possible to have covered their butts, before the final finale is announced.
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