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My view of the economy.


Shampoo

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The US has stopped operation on 94 oil rigs so far due to the price of crude oil. I don't want to even know how many shale oil Co's have stopped operating due to the cut even cost of $70 a barrel.

Now this will have a severe impact on the Unemployment Figures at next count. This coupled with the fact that the US banks have billions in loans to these Co's that shut down and will impact the banking sector badly. They dished out money like peanuts to pidgins during the oil boom.

This low oil price might seem great for some sectors of the economy that utilize oil and transportation but if you look at the past, you will see a different picture. After every oil price crash, the markets followed suite soon after.

So Brent crude made a nice morning star reversal candle and reversed at the expected $45 a barrel.

"The Trader" foresees a false bottom for oil. If he is correct then we may just see a repeat of the Black Monday of 1987 where the markets lost over 20% in one day (New Zealand lost over 60%). We live in an age of automation where computers do trades and a more than normal drop in prices will cause a snowball effect that can be more severe than the Black Monday.

I am positive that this will not happen. thumbsup.gif

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Hi Sampoo

Another article (RCIS Investment services) says similar things:

"Wall Street is set to fall some eleven percent between its December 30 peak and mid-June.
The likely trigger for this decline could be a re-run of the sub-prime crisis of 2008 sparked by a collapse of the US
junk bond market which has lately been a major funder of the US oil fracking
industry where yields have lately fallen to an unprecedented 5% - just three
percentage points higher than the riskfree 10-year T-Bond. With loan capital
so cheap it is hardly surprising that the oil frackers took advantage to the
extent that they are now reported to account for some 20 percent of the
entire junk-bond market and,furthermore, that during 2014 some 61 percent of the junk bonds issued were
to the energy sector.

It is estimated that the average fracking company breaks even between $55 and $85 a barrel
and so the current world oil price, at $50 a barrel and falling, clearly spells bankruptcy in the
short-term for most of them and, inevitably a collapse of the junk bond market. It is unlikely,
however, that the fracking wells will cease producing oil once the companies are liquidated.
Whoever takes over the wells after liquidation has removed most of the loan costs, will be able
to produce oil at between $10 and $25 which implies that, even if crude oil falls to $29 a barrel
as ShareFinder forecasts it will by late February (see my second graph composite) an oil
oversupply is likely to continue for some years to come."

The forecasting of the SP500 doesn't look good - but I will wait for it to play out before I post.

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I don't think we'll see the price of a barrel of oil following normal market expectations here.

The Arabs are clearly keeping production up to make an over-supply force the price of a barrel of oil southwards. They're doing this with the usual market expectation of driving the shale oil producers out of the market, leaving the oil market largely to themselves again.

What they aren't seriously considering is the geo-political aspect of this.

When you consider that Saudi Arabia is the country which is not only exporting its black gold, but also its Wahhabism . . . . an extreme C7th form of Islam . . . . around the world, it's only a cosy arrangement between the Wahabists and the current Saudi government which allows things to operate as they are at the moment. Saudi Arabia has already chopped off a couple of dozen heads officially since the New Year, and flogged a liberal blogger who wants Islam to reflect on where it's going.

The West (if you read the Sydney Morning Herald article, Sat 8th Feb. about the hypocrisy of the West in its relations with Saudi Arabia) is slowly waking up to the fact that when we buy a barrel of oil from Saudi Arabia, we are propping up a state more akin to Nazi Germany than a civilised country. Worse still, the cash that is fuelling Wahhabism around the world is coming largely out of the petro dollars that Saudi Arabia and other Middle East producers are getting.

Islamic State, Al Qaida and Boko Haram, to name just a few, are getting their funds for guns and rockets somewhere, and it doesn't take a rocket scientist to extrapolate these funds are coming from the Middle East.

I reckon there will be silent players in the market deliberately keeping the shale oil industry afloat in order to frustrate the Arab plans to gain control of the world oil market once more.

I'd like a view of the short term future, say, over the next two or three years to see where the price of a barrel of oil will land.

I'd hazard a guess that it won't be anywhere near US$100 a barrel like it was 12 months ago. . . . . and that shale oil is still operating, as if my magic, against all market expectations.

Edited by Bob
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I was going to say what Bob, said, but he beat me to it.

Plus he added extra insight which I wasn't going to say ...

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I would not say they did not think through the geo-political aspects. They are shrewd operators. Give a man power and money and you will see what he really is made of.

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I would not say they did not think through the geo-political aspects. They are shrewd operators. Give a man power and money and you will see what he really is made of.

The Saudis have thought thro it, but what they hope for is to maintain something like what they've been used to up until now.

I can't see that happening, despite what they might like.

Just over 10 years ago, a Texan oil man invented hydraulic fracturing of the bedrock . . . . "fracking" . . . . which gives a much greater surface area able to be released of its oil and gas. The old exhausted oil wells and gas holes are being opened up again, with other new wells being drilled right across the United States (20 000 so far!) and it's becoming increasingly likely that America is sitting on as much oil as the Middle East.

China is also sitting on vast oil and gas wealth, able to be accessed for the first time by fracking which they don't have the technology to do, so far.

Australia is another country with lots of gas.

This will change the political situation in the Middle East.

The Arabs have been enormously blessed by having oil coming out of their ears for the past 80 years, with good prices per barrel being handed over to them since the Yom Kippur War in 1973.

What have they done with all their wealth . . . all the billions and billions of petro-dollars flooding into their Swiss Bank accounts??

Has it filtered down to the man in the streets in the form of jobs or industry?? Why do you reckon the masses of young people were calling for revolution and change right across North Africa (Tunisia, Libya and Egypt) . . . . the "Arab Spring" . . . and Syria being embroiled in turmoil with up to 40% unemployment and no prospects for them in the foreseeable future?

. . . . or has it just gone to buy luxury jet planes and Maseratis for the ruling elite?

It has been largely squandered by the elite, but increasingly the Wahabbis are gaining power and control, so want a slice of the pie . . . . and that means slipping a few billion to their organisations dotted around the world.

If you want a new mosque built? Fine. An Islamic school built? Great!

The cash will come from Saudi Arabia.

. . . . . but there is also a darker side to what the Wahabbis are funding and the West needs to wake up to itself and not keep sucking up to parts of the world funding terrorism just because they export oil to keep our industry ticking over.

You can't have your cake and eat it, too.

Now we are taking the side which is about being more self-sufficient in our energy needs (like the United States is developing with its shale oil industry and massive gas deposits coming on stream to power its electricity stations) and to starve the Middle East of funds to keep IS and Boko Haram in weaponry.

It won't happen overnight, but it is beginning to change.

I can see the Titanic slowly turning off course to avoid the iceberg.

. . . . . . and that is why I can see cheap oil for the next few years.

Enjoy!

Edited by Bob
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Not sure there will that effect..this is all building to a GFC 2.0 with some tweaks to nail those who escaped the hit the first time around...

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Not sure there will that effect..this is all building to a GFC 2.0 with some tweaks to nail those who escaped the hit the first time around...

Interesting.

What signs make you believe that another financial crisis around the world is on its way??

You're not the only one thinking so.

About four years ago now, I thought that Greece would not be able to stay in the Eurozone. I even posted something to that effect on this forum, if you scroll back far enough.

Despite my forecast, it's still in there . . . . but only just.

Edited by Bob
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With their new president and them reneging on their loan requirements i think you may turn out right pretty soon, gonna be an interesting one pretty soon

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My forecast is that the new Syriza government of Greece will default (to save credibility in the eyes of the Greek electorate) and the Eurozone will not continue to back the Greek government financially (so that other countries like Ireland, Portugal, Spain and Italy which are all in trouble financially, don't try the same brinkmanship as Greece, causing the Euro to collapse)

Greece will be forced to adopt its own currency (Greek Drachma) to stay financially afloat, with the Greek banks collapsing with the outcome.

This may send financial shockwaves around the world, in particular in the European countries.

Things were looking good for bank shares last week, because the Eurozone money printing (quantitate easing) would flow directly into the banks. Australian banks would get the benefits indirectly.

This week, things are not looking so good for the banks, because if Greece defaults, the European and British banks exposed to Greek government debt, will lose a lot of funds.

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With that European thing, the only ones I feel sorry for are the Germans. The people who rose from a bombed-out wasteland to become (again) the industrial heart of Europe. And, BTW, have just finished paying off the costs of reunification.

Edited by OubaasDik
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I premise my prediction on the prediliction that society has a glut of debt and consumes at an unsustainable rate. There are also the bankers who are using derivatives etc. Then there is the massive Euro debt...has anyone lifted their head up from the trough to ask HOW they got there with nobody noticing? There has to be another GFC so that a cashless society can be itroduced and a universal currency.

Just read Revelation, it's all there. I will wait for the GFC, then go house hunting. Will be bargains galore.

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Problem with Revelations is that the end keeps on being predicted to be nigh, but then doesn't eventuate.

Don't be caught out waiting forever....

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Haven't been here for some time but apart from the Greece saga, the UK seems to be gearing up for elections. My original post on the oil price has been negated due to the "false bottom" looking to be an "actual bottom" so the focus now is on the UK in my view.

Seems like the majority of the brits are concerned about the influx of immigrants from Pakistan, North Africa and the middle east. Not to mention Romania.

This influx of 130 000 pa has the present government concerned to the extent that they have now closed the door for all and sundry to enter.

From now onwards, no Brit with a non EU spouse will be allowed in for more than 90 days. Although this is against the EU Directive, they will continue to enforce this regulation.

Sad for Brit citizens that want to return but it will keep the votes up for the ruling party and appease the population.

The opposition party is calling for a blanket refusal of all immigration into the UK and seems to be building momentum. If they are successful, they will exit the EU.

This will be the end of the Euro and the EU union.

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I don't agree with your assessment of Britain's immigration policy causing the break up of the European Union.

Like a lot of good things initially, things get pushed to the max until it breaks.

The current international laws about refugees were signed shortly after World War II, in 1951.

Then there was an Iron Curtain extending across Europe, keeping many people who fled the Nazis from going back to live in eastern Europe. they would probably end up in gaol by the Communists.

It was intended to offer these millions of fellow Europeans a land in which to live until such time came that they were able to return.

The countries around the world which signed at the time, Britain, France, USA, Australia, Canada, New Zealand and many others had a finite number of people that they were dealing with. There were only so many people stuck in Red Cross refugee camps in western Europe unable to go back to their part of Europe.

The 1951 Convention on Refugees didn't contemplate an endless stream of humanity to deal with. They could actually count the number of European refugees looking to start life anew in another part of Europe or America / Australia.

Nowadays, with Europe, we see Africa doubling its population every 30 years, and owing to corruption and nepotism, there simply aren't the jobs being made and food produced to feed and employ all these people.

I look at Italy being swamped continually with 2 000 people a week . . . . from Syria, Mali, Nigeria, Somalia.

It will be an endless number of refugees attempting to seek a better life . . . . in Europe.

Sadly, the 1951 Convention on Refugees was not designed to deal with this.

The solution really has to come from their own home countries, by fighting corruption and bringing in reforms needed.

Europeans are getting quite exasperated with this seemingly endless demand on their hospitality, and if a down-turn in the European economy unfolds, they will be looking to keep jobs for themselves and keep welfare payments for themselves only.

That is when things could turn ugly for non Europeans, s they will be in the lower paid jobs competing with unemployed Europeans themselves. . . . . and it doesn't take a rocket scientist to see who will get the votes (the Far Right).

So . . . . something clearly has to give.

Europe is being pushed to the max, and it will either give or break.

That is what most people I spoke to in Britain (but also in the Netherlands and France) are worried about . . . . a collapse of their welfare system and national health systems and a diminishing number of jobs available.

Edited by Bob
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LOL, SA has a welfare system that encourages people to sit about and do nothing. Add to that the trend to destroy the economy rather than grow it....well you can wee ho that landed. Can't wait for my citizenship.

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Italy has been sending the refugees back lately. The Red Cross refugee camp that used to house 2 000 people in transit at a time now stands empty. They were forced to do this as it was hurting the already strained economy.

Finland has the best welfare system in the world and being a welfare state, it attracts many migrants and refugees. Helsinki is now surrounded with burning squatter camps.

My kids live in the UK but hate having to go to London as all they hear is foreign languages in the streets. Not having jobs, they resort to stealing to make a living.

About 70% of the prisons in Europe are occupied by foreigners. The bubble has to burst.

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Not sure if this thought belongs to this thread but let see. I think its much more complex than just an economic or political problem.

Perhaps to deep for this discussion but let me put it our there.

Picked up this recent article from a manufacturer forum: -Australia in Crisis-

:http://www.businessinsider.com.au/australia-is-in-crisis-2015-2

What strikes a chord with me is when it says "not economically........But when it comes to the country’s mindset, it is surely time to hit the reboot button"

Its the political volatility and the whinging instead of long term strategic planning for skills, education and investments that is lacking in Australia.

Often in our debate it appears if its mostly the symptoms that gets addressed instead of the underlying causes.

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My worry is the system is becoming very American. Most of what Americans pay in taxes is paid back to them. That could be rebates, government medical aid, welfare, etc..

Governments use those payments to control people. Remember the last election? " if labour doesn't get voted in you will loose your school kids bonus". Governments should be building more roads and running more busses. That way people won't ned a "school kids bonus".

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