[MonteQuest]

Wall Street gets a refresher course on oil
By Andrei Postelnicu in New York Sep 24 2004 21:28


{Copywritten material removed}

[skiwi]

Breaking News from Melbourne's Herald Sun
From correspondents in New York 14oct04

WALL Street shares swung lower at the opening today as investors cautiously watched the oil futures market and digested mixed earnings from blue chip firms including Citigroup and General Motors.

In the first 10 minutes, the Dow Jones Industrial Average fell 19.54 points, or 0.20 per cent, to 9982.79 and the tech-heavy Nasdaq composite slipped 4.35 points, or 0.23 per cent, to 1916.18.

Trading was cautious on Wall Street as crude oil futures moved back above $US54 in pre-opening trades, awaiting US weekly inventory levels.

The market also reacted to a better-than-expected profit from finance giant Citigroup while GM reported a disappointing quarter.

"I think you're looking at a market that is still grappling with high energy prices and a market (that's) seeing mixed results on earnings," said Barry Hyman, equity market strategist at Ehrenkrantz King Nussbaum.

There's no doubt that the market's going to bide its time, look at a few earnings statements, digest yesterday's news and see these energy numbers and inventory numbers and react to that - that's certainly the market moving event."

[RiverRat]

Not being a Wall Street Guru… what would happen in this scenario?

It becomes readily apparent that the US economy is ‘unwinding’ in a quick manner. This sparks a steady sell off of ‘paper assets’ to limit market losses. Quickly the herd mentality sets in and the majority of people not living under a rock rushes in to also sell.

Would Wall Street halt trading for an extended period of time? What if the ‘pressure relief’ valve can not be opened (ie… an economic perfect storm)?

[frankthetank]

Somewhat related

http://www.csmonitor.com/2005/0314/p14s01-wmgn.htm

$this->bbcode_second_pass_quote('', 'T')he first boomers turn 59-1/2 this year. That's old enough to pull money out of Individual Retirement Accounts (IRAs) without tax penalty. And while no one expects a huge drawdown immediately, some financial analysts are concerned about what boomer retirement will do to the stock market.

[trespam]

$this->bbcode_second_pass_quote('frankthetank', '
')I've thought about this for awhile too...I'm almost postive it would crash, but to what extent? Where would people put the money?

[trespam]

$this->bbcode_second_pass_quote('RiverRat', '
')Would Wall Street halt trading for an extended period of time? What if the ‘pressure relief’ valve can not be opened (ie… an economic perfect storm)?

[Colorado-Valley]

Tangental, but probably about right:

An excerpt from one of Hunter Thomspson's last columns before he committed suicide:

" It is genuinely incredible. The U.S. Treasury is empty, we are losing that stupid, fraudulent chickencrap War in Iraq, and every country in the world except a handful of Corrupt Brits despises us. We are losers, and that is the one unforgivable sin in America."

"Beyond that, we have lost the respect of the world and lost two disastrous wars in three years. Afghanistan is lost, Iraq is a permanent war Zone, our national Economy is crashing all around us, the Pentagon's "war strategy" has failed miserably, nobody has any money to spend, and our once-mighty U.S. America is paralyzed by Mutinies in Iraq and even Fort Bragg."

"The American nation is in the worst condition I can remember in my lifetime, and our prospects for the immediate future are even worse. I am surprised and embarrassed to be a part of the first American generation to leave the country in far worse shape than it was when we first came into it. Our highway system is crumbling, our police are dishonest, our children are poor, our vaunted Social Security, once the envy of the world, has been looted and neglected and destroyed by the same gang of ignorant greed-crazed bastards who brought us Vietnam, Afghanistan, the disastrous Gaza Strip and ignominious defeat all over the world. The Stock Market will never come back, our Armies will never again be No. 1, and our children will drink filthy water for the rest of our lives."

" Big Darkness Come Soon."

[Jack]

On the one hand, Trespam is correct - no one can know what's going to happen. On the other hand, it's fun to try - and, perhaps, worthwhile.

Share prices vary with money flows. If lots of people want stocks and put their money in, shares rise - and vice versa.

It is possible to stop trading for awhile, but ending liquidity doesn't stop the losses - if you have a stock that stopped trading a week ago at $20 per share, and you cannot sell it, then you have, essentially, nothing. Besides, even if most stocks are down, some will be up - at least, for a few years. So if oil goes to $200 per barrel, GM would go down, but ExxonMobile would probably appreciate. I suspect that stocks will continue to trade, though at a lower level.

The real challenge will come if people cease to expect growth. There's a real question about whether there is any reason to own a share of stock if earnings aren't growing. After all, there are only three sources of profit in a stock (assuming a long position)

1) Dividends (Not so common, these days)
2) Increased earnings, leading to a higher share price
3) Increased PE multiple, perhaps due to expectations of increased earnings, leading to a higher share price.

If we eliminate items (2) and (3), and the stock doesn't pay a dividend, one must ask why one should own the stock...

I suspect we'll see a signficantly lower stock market.

Also, Trespam - the Harper's article was preceeded by a piece in Barron's, along about 1997 (as I recall). The piece suggested that a demographic tidal wave was coming, and that increased savings
could not and would not solve the problem.

Why? Because savings, whether by individuals, corporations, or the federal government, tends to force security prices up, and to keep commodity prices down. But when those individuals retire, one of two conditions apply - either they liquidate savings, or someone else (company, government) liquidate securities on their behalf - which leads to declining securities prices, and increased costs for "stuff".

This was all prior to wide awareness of Peak Oil. So I think one should be cautious in dealing with stocks for the present.

[smiley]

I'll try to answer you questions.

Most of the trading is electronically nowadays. These programs have a very quick response time. If you give the market a big enough jolt this will trigger a lot of stoplossess. The programs then start selling massively and the market will plunge.

In order to prevent that the market is halted. I believe in the case of the dow Jones the market is stopped for one hour after a 3% loss. This happened several times after 911. This gives the traders some time to rethink their positions and do some reprogramming.

Then there is the illustrious 'plunge protection' team. There is some evidence that the government has formated a group of banks which in the case of a selloff will step in and start buying massively. This could take the bite out of a crash. I'm not sure whether they exist, but it does seem logical.

but the biggest problem for the economy would IMO not be a stock market crash.

The main problem is when people start monetizing their assets. If people fear that the banks will collapse they want to take the money out of their accounts and store it physically at home. This can have disastrous consequences. The banks suddenly risk loosing a lot of their assets. Like in the Argentinian crisis the only thing you can do is to close the banks and deny people access to the money.

Needless to say that this usually does not go down well with the people. You get mass protests, riots and other forms of social unrest.

So if you are looking for something which could turn an economy in a crisis overnight it would be a banking crisis.

[DantesPeak]

$this->bbcode_second_pass_quote('DoctorDoom', 'T')he futures market, which I watch every day, is trading crude in the $30 range out as far as 2010; this represents the effect of a gradual decline through $35-37 next year, low 30s the year after that. Clearly, the collective wisdom of the traders is that more supply is coming on line and the price will ease; I believe someone posted a report showing that several mega-projects are coming in 2005 and 2006. However, there are no mega-projects in the pipeline after that point, so it does make you wonder. Traders are probably also factoring in the resessionary effects of higher prices, especially on countries like China. The commodities trade is a tough business - don't kid yourself, these guys do it for a living and betting against them is like being asked to be skinned alive. They read everything - I'm sure they're well aware of the kind of information that's been posted here.

http://futures.tradingcharts.com/market ... ?market=CL

[auscanman]

One of the great joys as time goes on here at Po.com will undoubtedly be digging up these old threads and seeing how horrifically off the MSM was!

[TreebeardsUncle]

Ok. Am a small-time investor and will call the maximum summer prices for light sweet crude (on the Nymex/Brent markets) for the next 4 years:

2007: $77

2008: $82

2009: $91

2010: $103

Let's see how that looks. Feel free to call me on it.

Geoff

Don't think there will be much of a mini-glut by 2010 due to increased production in the ME, Caspian, GoM, off the West Coast of Africa. In particular, increased internal consumption within exporting nations, will reduce the amount of crude available for importers.

to

[Cobra_Strike]

It is interesting to see stuff like this, and how wrong the predictions have become. However, it really makes no difference. The MSM will do what they are suppose to do (arguments about who gives the orders aside).

My personal feeling, there will be places where oil is unavailable at almost any price before 2010.

[EnergyUnlimited]

$this->bbcode_second_pass_quote('', 'O')il at $26.81 in 2010 according to Wall Street analysts

[Temperedoil]

To be fair, we have all lived in a world where supply can always be increased to meet demand. Supply of toothpicks, of toy trucks, of apples, of oil.

The economists will be looking at the situation with oil, will be saying to themselves "Yes, supply is tight at the moment, but supply will simply be increased to match demand. That has always happened in the past, experience and training tell us that will always happen in the future."

Once again we come to the observation, that we, our systems, our societies, our economies, our assumptions, our expectations, are just not ready for the consequences of Peak Oil. The economists are doing exactly the job that everybody else expects them to do. They are making use of the training that society has given them. They are making the assumptions that society has said they should.

[Dajm]

$this->bbcode_second_pass_quote('DoctorDoom', ' ')don't kid yourself, these guys do it for a living and betting against them is like being asked to be skinned alive. They read everything - I'm sure they're well aware of the kind of information that's been posted here.

[gg3]

Ho ho ho!, what are they smoking?! Jeez, if you could grow that in Mendocino we'd really have an economic boom here.

Meanwhile it would be interesting to rub CNN's nose in their forecasts and ask when they're going to fire the idiots who conjured up that nonsense. Do it on their call-in show if they have one. That would be fun to hear them sputter and choke on their own words.

TreeBeardsUncle, I think you're probably pretty well on target there. Though I'd say add another $20 in the event of any additional wars breaking out in the Middle East.

[Twilight]

I think they feed off each other. Easier to be wrong in a crowd than out on your own, so they see what everyone else is doing and copy. Traders love to boast about how they embrace risk, but they know that conventional wisdom tends to be self-fulfilling. Notice how last year many economists said $100 oil was possible or at least made no objection, once they saw that had become the new consensus and it was safe to do so. But yeah, a new take on reality was revealed and many of them missed it.

[Newsseeker]

Skrebowski and ASPO predict a peak, Simmons and Pickens and Bakhtiari say it has already occurred (oh, Deffeyes, too). But all it takes is a few guys with six figure salaries and Microsoft Excel to come up with something different. Sounds like CERA has been whispering in ears again.....

[SevenTen]

$this->bbcode_second_pass_quote('Dajm', '')$this->bbcode_second_pass_quote('DoctorDoom', ' ')don't kid yourself, these guys do it for a living and betting against them is like being asked to be skinned alive. They read everything - I'm sure they're well aware of the kind of information that's been posted here.