Low oil prices are very good for the world economy overall, as there is more discretionary spending money available for other more productive uses...The market doesn't agree with you on this one
The market will in time, once it takes a step backwards and sees the "bigger picture" - to use your words "higher level" (country and world levels), not sector level
The current market volatility is being exacerbated by extreme "herd mentality"
People will come to understand that post-OPEC-cartel oil pricing is not the anomaly, and that we have just been fleeced by OPEC for the last 25 years out of how many trillions.... Wealth transfer on a massive scale through corrupt business practises into the wallets of the lucky few who have oil deposits
Low oil prices have always fed through into higher world growth, it's a form of QE. As the longer term oil price contracts expire, the "low oil price" positive effect on global growth will accelerate
The market will in time, once it takes a step backwards and sees the "bigger picture" - to use your words "higher level" (country and world levels), not sector level
The current market volatility is being exacerbated by extreme "herd mentality"
People will come to understand that post-OPEC-cartel oil pricing is not the anomaly, and that we have just been fleeced by OPEC for the last 25 years out of how many trillions.... Wealth transfer on a massive scale through corrupt business practises into the wallets of the lucky few who have oil deposits
Low oil prices have always fed through into higher world growth, it's a form of QE. As the longer term oil price contracts expire, the "low oil price" positive effect on global growth will accelerate
Have you ever tried standing in front of a stampeding herd?
The banks have been financing oil companies that have been operating within the framework of the OPEC era-not the post OPEC era.
we may pass into a post OPEC era where oil readjusts but the possible carnage left in its wake is the issue IMO
At some point the stampeding herd realises there is actually no need or purpose to the stamped and returns to business as usual, or even notices that the pastures they now find themselves in are much greener than the ones they left behind
In the US a few high-cost oil companies will fail, maybe a bank or two that over-exposed themselves to oil extraction/exploration will also fail. The oil market will start to correct to a happier price point as US fraking swing supply reduces. World growth accelerates, demand for many things grows as money not spent on "necessary" oil based products is spent elsewhere, including demand for (now cheaper) "discretionary" oil based product purchases. The oil market continues to correct to a happier supply/price point.
This has already happened to most commodities - minerals, coal, natural gas, dairy, oilseeds, consumer products. High oil prices only lasted this long due to the OPEC cartel, which has now lost it's relevance thanks to to new disruptive technologies.
Did the banks fail when other commodity prices reduced significantly? No, not on a scale that made the news. Countries and businesses adapted or closed, and life and the economies went on
I have zero sympathy for OPEC member states that now find the going tough. Although I acknowledge that as they withdraw funds from their many offshore investments vainly trying to maintain their extravagant lifestyles, that there may be a short term reduction in various asset values around the world. But I truly believe that this effect will be short, and then swamped by the following worldwide increase in discretionary spending. The wealth is being redistributed globally, rather than being concentrated in the lucky few countries with large oil reserves
The worldwide explosion in air travel and tourism is one example. Shipping rates on every import & export across the globe falling significantly is another
oil and commodities prices are simply just correcting back to there long term averages. artificially inflated by chinas big growth phase
oil long term price is 20 - 30, eventually this lower price will feed thru into other industries who enjoy bigger margins at the moment from the fall in commodities but eventually competition will cause prices in other industries to fall - simple economics
low inflation for yrs as this all plays out
anyway nice turn around in the us markets bullish a?
At some point the stampeding herd realises there is actually no need or purpose to the stamped and returns to business as usual, or even notices that the pastures they now find themselves in are much greener than the ones they left behind
In the US a few high-cost oil companies will fail, maybe a bank or two that over-exposed themselves to oil extraction/exploration will also fail. The oil market will start to correct to a happier price point as US fraking swing supply reduces. World growth accelerates, demand for many things grows as money not spent on "necessary" oil based products is spent elsewhere, including demand for (now cheaper) "discretionary" oil based product purchases. The oil market continues to correct to a happier supply/price point.
This has already happened to most commodities - minerals, coal, natural gas, dairy, oilseeds, consumer products. High oil prices only lasted this long due to the OPEC cartel, which has now lost it's relevance thanks to to new disruptive technologies.
Did the banks fail when other commodity prices reduced significantly? No, not on a scale that made the news. Countries and businesses adapted or closed, and life and the economies went on
I have zero sympathy for OPEC member states that now find the going tough. Although I acknowledge that as they withdraw funds from their many offshore investments vainly trying to maintain their extravagant lifestyles, that there may be a short term reduction in various asset values around the world. But I truly believe that this effect will be short, and then swamped by the following worldwide increase in discretionary spending. The wealth is being redistributed globally, rather than being concentrated in the lucky few countries with large oil reserves
The worldwide explosion in air travel and tourism is one example. Shipping rates on every import & export across the globe falling significantly is another
"at some stage" when the stampede stops,does not help the person standing in front of it--but its fine for those who got out of the way and waited.
From what I see ,the banks are not invested in the other commodities that you mentioned anywhere near that of the oil industry---What other commodity could do the damage Im referring to or the good your referring to---nothing competes with oil.
Its not a debate on how cushy the OPEC states have had it--Its a debate a on the possible damage from the banks jumping in big time
A happy outcome in the end does not mean that there may not be alot of carnage in the meantime.
Why do you think the volatility has happened?
One or two banks may fall...One or two banks were about to fall in the GFC--something the economic system deemed so horrible ,the Gov, decided to use bail outs and go down the QE road experiment.
I hope you are right ,but think theres a chance you are wrong,and even a chance is reason for caution.
The big banks are reason for concern IMO--I think we would be far better off if there were alot banks of a more manageable size,rather than a small number of mega Merchant banks,who seem to be infatuated with speculation.
There is likely to be pain before the wide spread benefits you are suggesting xafalcon.
If oil stays at these sort of levels or lower then SOME of the oil industry will fail, after all that's what the Saudis want.
Some countries could 'fail' as well and the exposure to banks and the wider economy shouldn't be underestimated.
We have zero interest rates which should also put more money in people's pockets yet world growth in most Western economies is sputtering.
We now have low oil which will add to that.
The problem is we have had asset bubbles in equities, bonds & property & cash is returning zero.
So where do you put your money?
Hopefully you find my posts helpful, but in no way should they be construed as advice. Make your own decision.
Yes, some oil companies will fail. That is the fundamental basis of capitalism - the best performers survive, the worst performers don't
Zero interest rates can't work in isolation. The banks must lend the money to productive enterprises, trade practices (esp subsidies/tariffs) must be reformed, and labour laws freed up.
The US and NZ are good examples of what is possible with low interest rates if the other elements are supportive - heck NZ's still has very high interest rates by world standards, and look how well we are doing with diversification and new industries flourishing to take advantage of new opportunities. Yes the US does currently have the "speed wobbles" but seems to be heading in the right general direction
The EU nations (by and large) are good examples of the ineffectiveness of low interest rates if the other elements aren't supportive. Banks aren't keen to lend, labour unions aren't keen to allow greater flexibility in employment, employers aren't keen to take on more workers due to inflexible labour laws, governments aren't keen to forgo their import tariffs, and EU producers aren't keen to surrender subsidies. This breeds inefficiencies which are now entrenched in many EU countries
Economic effects of low oil price and zero interest rates are simply not comparable with regards to raising growth
I would put my money into heathcare, retirement and tourism sectors. The boomers are now retiring, generally have sound financial backing and will be strong supporters of all 3, with tourism getting a boost from working age people as well
But yes, there could be some pain to come. I'm not saying there won't be. What I am saying is that there will be a huge boost to world growth as a result of low oil price, and the benefit will out-weigh the detriment
In theory you are correct, however places like Japan is proving otherwise. There is also a psychology around confidence and that is impacting the consumer. retirees have the biggest collected wealth in the demograph, but they can't get any interest and that is creating a hoarding cash mentality to a degree.
I would suggest NZ is doing very well due to the level of immigration.
Without that I would suggest NZs growth would be flat at best.
Hopefully you find my posts helpful, but in no way should they be construed as advice. Make your own decision.
Originally Posted by Hoop
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