Oil & US Trade Figures – Cause for Concern

If your heavily geared.

Stick this on your fridge!!

It would be wise to think about your current position and take action as needed to manage the risk while there is still time.

NOW DO SOMETHING.

Humans are the DUMBEST of creatures.
They do the same thing day in day out and expect a DIFFERENT result.

Used to be a gold standard. Countries had to buy oil in gold.

In the 80’s I think it changed to a US$ standard, countries have to buy oil in US$. The yanks said so…

All these bazillions of oil US dollars floating around kept the US currency buoyant.

Then the Euro launched. The US laughed.

Then some countries decided ‘bugger the US, we’re going to trade oil direct in Euros with Europe’.
Those countries included Iraq.

Result…Euro up, US dollar down.

Are you following me so far? This is basically the guts of a brilliant article I read in the Age.

So US panics. They are the most in debt overspending nation etc in debt 18000 US per head of population or something, and if their dollar devalues they are as Steve said likely to collapse. Stuart Wilde predicted this anyway once the oil runs out (he reckoned that would be in 2050 or before)

OK so just coincidentally (not) there is a war against Iraq for various reasons (i won’t go there unless someone asks me to…hehe) and suddenly oil trading with Euro stops, goes back to the US dollar, dollar goes back up and euro back down and US breathes a sigh of relief. For the short term.

Long term, yes, they are on shaky ground. I predict one day the dole cheques will bounce, and there will be a country up in arms! !!! Oprah will have a field day! “How could you mismanage things so badly!” And then some states might even break off, saying ‘you guys are a crock, we no longer want to be involved, we will self-govern’. Thus breaking up one of the world super-powers…and then there’s Europe and China.

I dunno, but it all seems logical. Besides, i’ve read Stuart Wilde….

It’s a subject that I pondered a lot and read a lot about since sept 11 which is when I first started ‘noticing the discrepancies’ shall we say.

joy to the world

Here in Washington DC I am close to the heart of what makes the US economy tick, and to a lesser extent, global economies.

The trade deficit compounded by rising energy costs is somewhat of a concern, but these issues can be adequately managed over the medium term given the right economic policies.

In terms of a global economic recession, or even a US recession, the chances of this happening are minimal at this time.

An economic “collapse” in the United States simply will not happen in the foreseeable future.

“the US economy is funded on the back of spending rather than manufacturing productivity”

The above statement is not necessarily accurate. The US economy is influenced by consumer spending to a reasonable degree. But manufacturing is a fundamental component of any economy, specifically the United States. It dictates employment numbers, productivity trends, etc, which determines where the equity markets and interest rates are heading.

“The second factor to watch is world oil prices.“

Correct. But in the not too distant future, the world’s economies will be less reliant upon oil as a primary energy source.

“In the 80’s I think it changed to a US$ standard, countries have to buy oil in US$. The yanks said so…“

Such statements require some validation. You will find the reason oil is traded in USD is quite the opposite.

“Then you have to consider the impact of the falling share market – will this creeate another stampede for property?“

Since the “dot.com crash”, real estate commodities/assets have demonstrated record rates of return in the United States and elsewhere. This reflects a trend toward “bricks and mortar” investment rather than a reliance on forecast assumptions.

Although the Dow remaining around 10K has a correlation with oil prices and the war in Iraq, this trend is more closely aligned with caution from an equities standpoint and avoiding overinflated valuations.

There is also a greater tendancy to profit from shorting the market in today’s environment than in the late 90’s when stocks continued to climb with no limit in sight.

At this time I don’t see a need to raise interest rates at a significant pace to offset inflation in the United States.

As for the Australian real estate market, and New Zealand for that matter, if myself and other US investors felt there was global economic doom and gloom in sight, we would certainly not be focusing so much on Australasia.

“I dunno, but it all seems logical.“

If it was logical I very much doubt George W. Bush would be in power.

— Michael

Hehe, there were in fact a small group of us Sal. I remember well the satirical resposes to our posts.

Cheers

Some very interesting discussion here….

1) If you are highly leveraged, YES, definitely nowadays you should try to minimise your exposure if possible…

2) Oil Prices….. – How much has the relative cost changed I wonder…. I mean, the US$ price has gone UP, BUT, the US Currency has devalued substantially against many currencies…. so. really…. just how much has oil really increased…. This always seems to be forgotten…..

FROM THE NEWS WIRES:

This year’s oil price surge will not be a replay of the oil shocks of the 1970s and 1980s that sent the United States into a series of recessions, Federal Reserve Chairman Alan Greenspan said on Friday.

Greenspan delivered a generally upbeat assessment of the economy’s ability
to withstand this year’s spike in oil prices, but he added a significant
qualifier.

“Obviously, the risk of more serious negative consequences would
intensify if oil prices were to move materially higher,” the Fed chairman
said in his most extensive comments this year on energy.

Greenspan spoke on a day when crude oil prices climbed further into record
territory with the price in New York trading hitting 54.88 US dollars, up 12 cents from Thursday’s record close.

He said that even at the current levels, crude oil prices are still about 40 percent below the all-time highs – in inflation-adjusted terms – of
February 1981.

Crude oil futures rallied to 54 US dollars and 90 cents on Friday, a day after a decline in the US inventory of heating oil unsettled a market already on edge over tight supplies, high demand and unrest among key producers.

The oil markets are already concerned about supply shortages, largely because of the slow recovery of oil production in the Gulf of Mexico following Hurricane Ivan.

Crude futures have climbed about 10 US dollars a barrel in the last month alone.

While oil prices are more than 70 percent higher than a year ago, they are still around 25 US dollars below the peak inflation-adjusted price reached in 1981.

Hi Guys

I don’t care what is being said, the price I am paying to put petrol in my car keeps going up.
This means I have less to spend on may be doing renovations to my IPs.

It also means that my clients(tenants) have less money to spend. I am going to have to closely monitor rent payments.

And with higher petrol prices the cost of buying things will also go up. This results in inflation and the Reserve Bank in NZ will just keep putting interest rates up in an effort to curb it.

Regards

The price in Taumarunui(King Country) today to fill my car was NZ$1.25.9/litre.

Hi Scotty,

I don’t think anyone here is overcome by a collective fear… I think it’s good to have an idea of what COULD be coming and plan accordingly. All part of being a prudent investor IMHO. It’s a fact that economies move in cycles, and that people win and lose all the time. The key (obviously) is to make the right plans to be on the right side of the coin. If that means treading carefully or waiting a little while, so be it. It’s not a smart thing to be gung ho ALL the time IMHO. From what you wrote it seems you have your head screwed on right, but it’s a fact that a lot of people don’t, and they’re the ones who will suffer a bit.

SIS, the oil price was so high back then due to the lead up to the Iraq War, when the Yanks invaded back then the price of oil dropped 33% in a day. Also, I think if we look at the figures of the US and their massive deficit, it isn’t a good thing. It comes back to the spending more than you earn I would have thought… it can’t go on forever without something having to give. Then again, I’m not an economic expert, just trying to look at things logically.

Cheers
r

re: “The second factor to watch is world oil prices.”
Michael R said: Correct. But in the not too distant future, the world’s economies will be less reliant upon oil as a primary energy source.”

Michael R –
I agree with you, but don’t you think the US economy is buoyed by all the bazillions of dollars floating around as the world is on this ‘buy oil in US dollars, or else!’ thing?
Don’t you think that if oil runs out and we move to other things, that will affect the US and the US dollar??

Richmond said “it can’t go on forever without something having to give. Then again, I’m not an economic expert, just trying to look at things logically.”

Well said Richmond. Michael R, that was the thing which was logical to me too.

You said “If it was logical I very much doubt George W. Bush would be in power.”

American TV news – 95 percent US content and 5 percent about the world. More, and the yanks will change channels, and we can’t have that, we need to sell advertising. Ok, so it’s not their fault because they only know what’s on TV. So therefore perhaps it is logical that Bush is in. The guy with the biggest campaign who’s on TV the most and diddles the odd vote count is gonna get in, surely? Until the public won’t allow that any more. But that’s up to the media/TV to let them know what is going on so they can react.

I salute you, Mike Moore

joy to the world