by
Adam Taggart
Demand
by
Brian Pretti
Executive Summary
- Lack of demand is the key drag on economic growth. And there's no end in sight.
- Private sector credit expansion just isn't happening fast enough
- Why the central banks' "wealth effect" policies have been a total bust
- Capital flows are simply chasing yield, precious little economic productivity is being created
If you have not yet read Part 1: Where To From Here available free to all readers, please click here to read it first.
The Bad
Who wrote this tired sea song set on this peaceful shore? I think you’ve heard this one before…
As mentioned, at least for the small business community, availability of credit has not been a key fundamental issue in the current cycle. In fact, their number one issue of concern for years has been lack of final demand.
Personally, I believe the experience of the small business community is simply a microcosm of the larger domestic and global macro. Subdued final demand IS the key macro. Is this why we see a growing gap between small business perceptions of credit availability and actual capital spending? Probably. The credit is there, but actual final demand that would support credit expansion is not. Hence the current cycle divergence in what has been a very tight data series correlation between credit and cap spending historically.
Of course this is a segue into a broader dark cloud of the current cycle that is private sector credit expansion, or more correctly, lack thereof relative to historical experience. When we listen to pundits speak of the economy potentially reaching “escape velocity”, they are of course referencing prior economic cycle growth results, aided and abetted by prior credit expansion that is now lacking. This is perhaps most dramatically seen in the rhythm of banking system credit, in the change in actual loans and leases outstanding.
As is clear in the chart below, never in any expansion cycle of the last four decades at least has banking system credit not grown in double-digit territory until…
The Bad & The Ugly
PREVIEW by Brian PrettiExecutive Summary
- Lack of demand is the key drag on economic growth. And there's no end in sight.
- Private sector credit expansion just isn't happening fast enough
- Why the central banks' "wealth effect" policies have been a total bust
- Capital flows are simply chasing yield, precious little economic productivity is being created
If you have not yet read Part 1: Where To From Here available free to all readers, please click here to read it first.
The Bad
Who wrote this tired sea song set on this peaceful shore? I think you’ve heard this one before…
As mentioned, at least for the small business community, availability of credit has not been a key fundamental issue in the current cycle. In fact, their number one issue of concern for years has been lack of final demand.
Personally, I believe the experience of the small business community is simply a microcosm of the larger domestic and global macro. Subdued final demand IS the key macro. Is this why we see a growing gap between small business perceptions of credit availability and actual capital spending? Probably. The credit is there, but actual final demand that would support credit expansion is not. Hence the current cycle divergence in what has been a very tight data series correlation between credit and cap spending historically.
Of course this is a segue into a broader dark cloud of the current cycle that is private sector credit expansion, or more correctly, lack thereof relative to historical experience. When we listen to pundits speak of the economy potentially reaching “escape velocity”, they are of course referencing prior economic cycle growth results, aided and abetted by prior credit expansion that is now lacking. This is perhaps most dramatically seen in the rhythm of banking system credit, in the change in actual loans and leases outstanding.
As is clear in the chart below, never in any expansion cycle of the last four decades at least has banking system credit not grown in double-digit territory until…
by
Gregor Macdonald
Executive Summary
- Why pressures to the downside have less impact when the global economy is weak
- Why oil's new floor is $80
- The 'upside risk' story for oil prices
- Why prices will march up to the $150-175 range over the next 2-4 years (with increasing sensitivity to spikes of over $200+ per barrel)
If you have not yet read Part I: The Repricing of Oil, available free to all readers, please click here to read it first.
I encourage others to read the entire recent paper on Nominal GDP (NGDP) Targeting by Michael Woodford (recently delivered at Jackson Hole) or to simply read its coverage, either by Joe Weisenthal at Business Insider or Paul Krugman at the New York Times. In short, I take the appearance of the Woodford paper (link opens to PDF) as the inevitable next-step solution to the problem of unpayable debt and scarce resources. By loudly and flagrantly voicing a policy pursuit of inflation, Nominal GDP Targeting (which has been discussed for some time in economic circles) would be the next iteration of behavioral prodding in Western economies.
More importantly, the growing acceptance of NGDP targeting in policy circles simplifies the battle that began a decade ago: the struggle to counter emerging scarcity of natural resources with the provision of greater and greater amounts of cheap credit. Within the contours of this battle lies the answer as to whether oil’s next major move is downward, in a deflationary collapse, as global demand vanishes in a new economic crisis; or whether oil’s next major move is higher, as the five billion people in the developing world pull the OECD along in a new expansion.
Modeling the next move in oil prices is, of course, a very different task than it was ten years ago…
The March to $200+ Oil
PREVIEW by Gregor MacdonaldExecutive Summary
- Why pressures to the downside have less impact when the global economy is weak
- Why oil's new floor is $80
- The 'upside risk' story for oil prices
- Why prices will march up to the $150-175 range over the next 2-4 years (with increasing sensitivity to spikes of over $200+ per barrel)
If you have not yet read Part I: The Repricing of Oil, available free to all readers, please click here to read it first.
I encourage others to read the entire recent paper on Nominal GDP (NGDP) Targeting by Michael Woodford (recently delivered at Jackson Hole) or to simply read its coverage, either by Joe Weisenthal at Business Insider or Paul Krugman at the New York Times. In short, I take the appearance of the Woodford paper (link opens to PDF) as the inevitable next-step solution to the problem of unpayable debt and scarce resources. By loudly and flagrantly voicing a policy pursuit of inflation, Nominal GDP Targeting (which has been discussed for some time in economic circles) would be the next iteration of behavioral prodding in Western economies.
More importantly, the growing acceptance of NGDP targeting in policy circles simplifies the battle that began a decade ago: the struggle to counter emerging scarcity of natural resources with the provision of greater and greater amounts of cheap credit. Within the contours of this battle lies the answer as to whether oil’s next major move is downward, in a deflationary collapse, as global demand vanishes in a new economic crisis; or whether oil’s next major move is higher, as the five billion people in the developing world pull the OECD along in a new expansion.
Modeling the next move in oil prices is, of course, a very different task than it was ten years ago…
by
Gregor Macdonald
Executive Summary
- Why oil price vulnerability is growing
- Why the marginal cost of oil is rising higher at an accelerating rate
- Why the marginal cost of oil for non-OPEC regions is now above $90
- The hard math explaining why an increase an output from OPEC will no longer reduce the world price for oil
- The new rules that will govern the price of oil from here
- The alarming growing risk of large-scale war for oil
Part I: OPEC Has Lost the Power to Lower the Price of Oil
If you have not yet read Part I, available free to all readers, please click here to read it first.
Part II: The Cruel Math of the Marginal Barrel
An unpleasant megatrend that has affected global oil production the past decade has been the quickly escalating cost of production. However, prices have finally risen high enough to stabilize declines in regions like North America.
This actually makes for a new and emerging vulnerability: the risk that prices fall at some point through levels that remove the new oil supply.
Given that world oil production has been trapped below 74 mbpd since 2005, and that the cost of the marginal barrel keeps rising, this vulnerability is growing.
The Cruel Math of the Marginal Barrel
PREVIEW by Gregor MacdonaldExecutive Summary
- Why oil price vulnerability is growing
- Why the marginal cost of oil is rising higher at an accelerating rate
- Why the marginal cost of oil for non-OPEC regions is now above $90
- The hard math explaining why an increase an output from OPEC will no longer reduce the world price for oil
- The new rules that will govern the price of oil from here
- The alarming growing risk of large-scale war for oil
Part I: OPEC Has Lost the Power to Lower the Price of Oil
If you have not yet read Part I, available free to all readers, please click here to read it first.
Part II: The Cruel Math of the Marginal Barrel
An unpleasant megatrend that has affected global oil production the past decade has been the quickly escalating cost of production. However, prices have finally risen high enough to stabilize declines in regions like North America.
This actually makes for a new and emerging vulnerability: the risk that prices fall at some point through levels that remove the new oil supply.
Given that world oil production has been trapped below 74 mbpd since 2005, and that the cost of the marginal barrel keeps rising, this vulnerability is growing.
Total 6 items
Community
by blaggers 
Peak Prosperity Community
Learn more