Forbes warns of oil bubble

August 31, 2005

PUBLISHING billionaire Steve Forbes has predicted that soaring oil prices will lead to a crash that could make the hi-tech bust of 2000 "look like a picnic".

Mr Forbes, publisher of Forbes magazine, said the price of oil, which peaked at more than $US70 a barrel on Monday as Hurricane Katrina headed for the US Gulf Coast, was unsustainable.

Is There An Oil 'Bubble'?

By Robert J. Samuelson
Wednesday, July 26, 2006

Could there be an oil "bubble''? Well, yes. [to be fair, the rest of that article explains that, in fact, not really]

Market Bubbles, Recession or Economic Rebound?

Economy, Housing, Energy & Credit Market Outlooks from Greenspan, Rogoff & Shiller at CERAWeek 2008

CAMBRIDGE, Mass. (Jan. 30, 2008) - Three of the world's preeminent economists will dissect the causes and effects of volatility and instability in the global economy and in credit, housing and oil markets, and the resulting outlook for business, consumers and financial markets at the coming Cambridge Energy Research Associates CERAWeek 2008 conference, beginning February 12 at the Westin Galleria Hotel in Houston.

Beware of a 'green' bubble

Investors have driven up the prices of environmentally friendly stocks, perhaps to unrealistic levels. A better bet might be multinationals that are taking on a greener tint.

In the effort to help the world's environment, investors are finding that it's easy being green. Maybe too easy.

The next bubble: Priming the markets for tomorrow's big crash

There are a number of plausible candidates for the next bubble, but only a few meet all the criteria. (...

There is one industry that fits the bill: alternative energy, the development of more energy-efficient products, along with viable alternatives to oil, including wind, solar, and geothermal power, along with the use of nuclear energy to produce sustainable oil substitutes, such as liquefied hydrogen from water. Indeed, the next bubble is already being branded.

In the long run, we're all dead. John Maynard Keynes

too much champagne!

just because it walks like a bubble and quacks like a bubble...

memo: this time it's not...

just the biggest market opportunity the planet has ever engendered.

more people want gold than can have it, likewise oil, but these are nothing compared with the need for clean(er) energy.

unsustainable business 'bubble', ones based on right principles need never worry about it.

centralised energy, now that was a bubble and a half!

welcome to bubbyl-on!

"Music is the pleasure the human mind experiences from counting without being aware that it is counting." - Leibniz .

As I commented on DailyKos: I'm sure the U.S. 'establishment' that is based on the traditional oil / Wall Street / CIA nexus is doing everything it can to maintain its grip on power, including sabotaging or co-opting rising 'green' companies and industries. But, can we also hope that there is growing awareness that the U.S. economy is in fact based on bubbles, and that it is not good? As Thomas Palley wrote last month in The debt delusion:

America's economic contradictions are part of a new business cycle that has emerged since 1980. The business cycles of presidents Ronald Reagan, George Bush Sr, Bill Clinton, and George Bush share strong similarities and are different from pre-1980 cycles. The similarities are large trade deficits, manufacturing job loss, asset price inflation, rising debt-to-income ratios, and detachment of wages from productivity growth.

The new cycle rests on financial booms and cheap imports. Financial booms provide collateral that supports debt-financed spending. Borrowing is also supported by an easing of credit standards and new financial products that increase leverage and widen the range of assets that can be borrowed against. Cheap imports ameliorate the effects of wage stagnation.

This structure contrasts with the pre-1980 business cycle, which rested on wage growth tied to productivity growth and full employment. Wage growth, rather than borrowing and financial booms, fuelled demand growth. That encouraged investment spending, which in turn drove productivity gains and output growth.

SNIP

The new business cycle also embeds a monetary policy that replaces concern with real wages with a focus on asset prices. Whereas pre-1980 monetary policy tacitly aimed at putting a floor under labour markets to preserve employment and wages, it now tacitly puts a floor under asset prices. This is not a matter of the Fed bailing out investors. Rather, the economy has become so vulnerable to declines in asset prices that the Fed is obliged to intervene to prevent them from inflicting broad damage.

All these features have been present in the current economic expansion. Wages have stagnated despite strong productivity growth, while the trade deficit has set new records. Manufacturing has lost 1.8m jobs. Prior to 1980, manufacturing employment increased during every expansion and always exceeded the previous peak level. Between 1980 and 2000, manufacturing employment continued to grow in expansions, but each time it failed to recover the previous peak. This time, manufacturing employment has actually fallen during the expansion, something unprecedented in American history.

The essential role of asset inflation has been especially visible as a result of the housing bubble, which also highlights the role of monetary policy. Despite the massive tax cuts of 2001 and the increase in military and security spending, the US experienced a prolonged jobless recovery. That compelled the Fed to keep interest rates at historic lows for an extended period, and rates were raised only gradually because of fears about the recovery's fragility.

Off on a tangent, it would be interesting to discuss how various economic theories deal with the existence of power structures such as the traditional oil / Wall Street / CIA nexus  in the U.S., the self-perpetuation of which often has negative effects on 'pure' market functioning and also results in sub-optimal societal resource allocations.

Well, as long they are ready to put their money where their mouth is, I'm fine. They can short those "bubbles" as much as they want. It's a nice way to circulate money around.


Facts, selfish little bastards. They don't even care about your feelings.

combining market logic with what is required to maintain year over year growth in energy use, we need the alternative energy industry to engage in the biggest economic bubble ever.

you are the media you consume.

I was just trying yesterday to figure out this "bubble" theory. It was mystifying me, because my understanding of futures trading was that events in the futures markets would not turn around and influence the "spot market," that is, the real-world prices for, say, frozen orange juice. In the same way, it seemed odd to imagine that the price of actual crude oil would be influenced by events in a market where people trade contracts on future purchases, rather than trading the oil itself, which is impractical.

Finally I learned from somewhere (sorry, can't remember) that in addition to driving up futures prices, some people, including retailers of gasoline and heating oil, may actually be hoarding some quantities of actual refined products. And maybe refineries are building up crude stocks?

Hoarding could theoretically account for some of the price increases, but how much could hoarding, either of crude or products, effect prices in a world where 80+ million barrels (3.2 billion gallons) of crude oil are consumed each day?

I find it hard to believe the world could hoard enough oil and products to raise prices as much as we have seen them go up lately. I guess filling up national stashes such as the Strategic Petroleum Reserve might possibly fall into that category, but I'd be surprised if the U.S. turned out to be buying for that purpose during this price runup. I don't know about other countries' reserves.