CDZ Why do People Believe This Stuff?

[william the wie]

Two memes currently making the rounds are:

The Dow will drop by 80% this year.

Oil will climb 50% this year.

Either of these things are possible but both?

Wells that return contribution margins at $30/bbl will also return higher contribution margins at $45/bbl and pipelines will be built to those wells to raise the payment at wellhead to the equivalent of $60-90/bbl without pipelines. That sounds like a gold rush to me.

The US has an official interest rate above 0 and most of the world does not. So where is investment money likely to flow to, if there is a world wide economic collapse? On the face of things it sounds like the US is the only game in town. Anybody see any reason why either of the two memes should work, much less both?

 

[RodISHI]

For those who believe in magic it may look good to them. Even many refugees in the EU are discovering the grass really wasn't greener on the other side.

 

[Asclepias]

When people hijack your thread trying to make an unrelated point.^^^^

 

[william the wie]

For those who believe in magic it may look good to them. Even many refugees in the EU are discovering the grass really wasn't greener on the other side.

QFT!

 

[320 Years of History]

Two memes currently making the rounds are:

The Dow will drop by 80% this year.

Oil will climb 50% this year.

Either of these things are possible but both?

Wells that return contribution margins at $30/bbl will also return higher contribution margins at $45/bbl and pipelines will be built to those wells to raise the payment at wellhead to the equivalent of $60-90/bbl without pipelines. That sounds like a gold rush to me.

The US has an official interest rate above 0 and most of the world does not. So where is investment money likely to flow to, if there is a world wide economic collapse? On the face of things it sounds like the US is the only game in town. Anybody see any reason why either of the two memes should work, much less both?

Functioning absent great unanticipated calamity or shortage, neither of those things should occur, IMO. In terms of calamity, for example, one of the biggest and most recent physical ones in our history, 9/11, drove the DOW down by about 15%. The Great Depression caused the DOW to lose 90% of its value; nothing else has come close to having that great an impact on the DOW's value, and that was caused by Fed mistakes. For all I think about the Fed, good and bad, I am confident its board won't repeat those mistakes, although I suppose they could "find" new mistakes to make that might effect a similar sell off.

Oil prices are a different "animal." There are huge entities that have vested interests in driving oil prices high, and doing so as fast as possible. What do they say? Where there's a will, there's a way.

 

[william the wie]

Two memes currently making the rounds are:

The Dow will drop by 80% this year.

Oil will climb 50% this year.

Either of these things are possible but both?

Wells that return contribution margins at $30/bbl will also return higher contribution margins at $45/bbl and pipelines will be built to those wells to raise the payment at wellhead to the equivalent of $60-90/bbl without pipelines. That sounds like a gold rush to me.

The US has an official interest rate above 0 and most of the world does not. So where is investment money likely to flow to, if there is a world wide economic collapse? On the face of things it sounds like the US is the only game in town. Anybody see any reason why either of the two memes should work, much less both?

Functioning absent great unanticipated calamity or shortage, neither of those things should occur, IMO. In terms of calamity, for example, one of the biggest and most recent physical ones in our history, 9/11, drove the DOW down by about 15%. The Great Depression caused the DOW to lose 90% of its value; nothing else has come close to having that great an impact on the DOW's value, and that was caused by Fed mistakes. For all I think about the Fed, good and bad, I am confident its board won't repeat those mistakes, although I suppose they could "find" new mistakes to make that might effect a similar sell off.

Oil prices are a different "animal." There are huge entities that have vested interests in driving oil prices high, and doing so as fast as possible. What do they say? Where there's a will, there's a way.

Some degree of disagreement. Yield whores got that name the hard way, they earned it. Given the spread of zero and negative interest rate policies in the rest of the developed world and trillions of dollars of capital flight from emerging markets do I consider it well within the realm of possibility that the errors of the Great Depression are being replicated by the rest of the world's central banks? Yes, I do.

I find it credible that the Dow could be bid up to 5 times its current level with foreign leverage. That would replicate the annihilation of the shorts by the Radio corner in the 1920s. We lack a 1914-21 farmland bubble and `1923-6 housing bubble, the meltdown was distinctly minor league in terms of multiples of GDP compared to those two. However China's real estate and commodities bubbles are not minor league by any standard.

The flipside of that mess is that in today's economic world refinancing of leverage with foreign money to reduce vulnerability to shock also has to be figured into any scenario. So, I would say the US is likely to increase its lead in being the world's cleanest dirty shirt but it ain't going to be pretty.

 

[sonic]

An 80% drop in the market is absurd. There's no justification for it outside of some catastrophic event. I could see another 20% drop, but as you indicated, the U.S. is in relatively good shape so the bottom is not going to fall out of our markets.
As far as oil, again, outside of some major event, there's no reason for prices to jump that dramatically, especially since the U.S. is in an increasingly stronger position and it's geopolitically advantageous to keep prices low.

 

[william the wie]

An 80% drop in the market is absurd. There's no justification for it outside of some catastrophic event. I could see another 20% drop, but as you indicated, the U.S. is in relatively good shape so the bottom is not going to fall out of our markets.
As far as oil, again, outside of some major event, there's no reason for prices to jump that dramatically, especially since the U.S. is in an increasingly stronger position and it's geopolitically advantageous to keep prices low.

Yes, absent idiocy in other countries spilling over on us in the form of hot money US markets are not going to collapse but there is the real risk of 5-10 trillion hitting US capital markets as a safe haven and then coming right back out in say 180-360 days round trip. So, pick a "this is getting scary" point. And get out and stay out when that point is reached.