Commodity price, Commodity risk, Economics, Energy crisis, Hedging, Inflation, Market research, Market trends, Oil market, Politics, Risk management, Trading

The coming oil price shock: could the crisis in Venezuela trigger an energy crisis?

Measured by historical standards, the price of oil has been extremely volatile in recent years. From over $114 per barrel in the summer of 2014 it collapsed more than 75% in only 18 months’ time. Then it tripled to $86/bbl in October 2018, only to drop by 40% to $52/bbl two months later. The question is, why is the oil price so very volatile? Is the market foreshadowing greater disruptions in the future? A closer look into oil supply and demand fundamentals suggests that a great crisis could be in the making – possibly with alarming repercussions.

The looming oil shortage

In 2012 a report produced by the UK Ministry of Defence predicted that oil prices would rise significantly out to 2040, and by “significantly,” they meant to $500 per barrel. From today’s perspective, this may seem farfetched. However, we should not dismiss UKMOD’s warning lightly. This could turn out to be the most important development facing humanity for decades to come. Continue reading

Economics, Eurasia, History, Inflation, Politics

3/6: the strangulation of Russian economy in the 1990s was a deliberate IMF policy

… if the notion of billions of barrels of proven oil reserves and billions of tons of gold fills your dreams with visions of red-hot cash flow and ice-cold vodka, then Boris Yeltsin just might find some work for you. – Paul Hofheinz, Fortune Magazine, 23 September 1991[1]

The foregoing article is an excerpt from Chapter 3 of my book “Grand Deception: the Truth about Bill Browder, Magnitsky Act and Anti-Russian Sanctions.” Part 1 is here. Part 2 is here.

Shock therapy gave Russia one of the worst and longest economic depressions of the 20th century, an unprecedented humanitarian catastrophe for a peace time crisis, and a criminally inequitable privatization of public assets. The reasons why things happened this way in Russia generally aren’t well understood in the west. Even among better informed intellectuals, the failure of shock therapy is often thought to be vaguely related to some sinister flaw in the Russian society. It is what Bill Browder characterized as “the dirty dishonesty of Russia,” or “Russia’s evil foundation,” which spawned corruption and criminality of staggering proportions. In this toxic environment, the sweet fruits of western democracy and capitalism simply could not grow in spite of the generous benevolence of Russia’s western friends. Continue reading

Asset management, Commodity price, Commodity risk, Economics, Inflation, Market trends, Risk management

Labor tightness adds fuel to rising inflation in the U.S. economy

Toward the end of 2012, Elliott Management’s Paul Singer made a speech at the Archstone Partnership annual meeting. He stated that, “The thing that scares me the most is significant inflation, which could destroy our society.” About a year later in an interview with Wall Street Journal’s “Heard on the Street” program he explained that this could come about with small changes in perception of inflation risk: “The first whiffs of either commodity inflation or wage inflation … may cause a self-reinforcing set of market events … which may include a sharp fall in bond prices, … fall in stock prices, rapid increase in commodities…Continue reading

Asset management, Economics, Inflation, Market research, Market trends, Policy, Stock market

Parabolic markets may signify onset of high inflation

Asset price inflation might signal debasement of the currency and acceleration of commodity price inflation

This time it may well be different… For several years now, numerous high-profile commentators and analysts have been forecasting an imminent stock market correction, or indeed a crash, evoking the events of 1929, 1987, 2000 or 2008. Of course, many are now predicting it is sure to happen in 2018. If not, perhaps in 2019 or maybe 2020? Who knows… But so far, not many analysts – if any, apart from yours truly – have considered the possibility that this rally might extend even higher from today’s dizzying heights. In an October 2016 post I suggested that this is exactly what was ahead. Continue reading

Central banking, Economics, Inflation, Monetary reform, Social development, Uncategorized

Inflation: lessons from the last empire’s collapse

So far, the dreams of 1,000-year empires and stable world domination have eluded the ruling elites throughout history and across the globe. Empires arise, sustain themselves for a century or two and then rapidly decay and collapse. The collapse may appear relatively fast and obvious in hindsight, but in reality it spans decades, may appear as a series of temporary crises and only become obvious very late into the slow-motion train wreck. Continue reading

Commodity price, Commodity risk, Economics, Energy crisis, Hedging, Inflation, Oil market, Policy, Social development

Is an epic energy crunch in the making?

Last year I published a report with the (justifiably) bombastic title, “$500 per barrel: could oil price rise tenfold?” One of my central claims was that producing oil requires investment of real capital including materials, equipment and highly skilled labor, and that, “as more and more resources are required to generate the same amount of liquid fuels, energy production is becoming ever more expensive to society in real terms.” Thus, as it becomes more expensive in real terms (as the deteriorating EROEI figures indicate), the fact that energy has recently become cheaper in nominal (dollar) terms can only be a temporary abberation. EROEI stands for energy return on energy invested; in the early 1900s, we obtained 100 barrels euqivalent of oil per barrel invested (EROEI of 100 to 1); today we are at about 15 to 1 globally and at 11 to 1 in the USA. Continue reading

Central banking, Commodity price, Economics, Inflation, Policy, Uncategorized

Greenspan: Fed balance sheet is a tinderbox of explosive inflation looking for a spark!

In June 2011 Carmen Reinhart wrote a paper for the IMF titled “Financial Repression Redux.” She suggested that the current policy of financial repression could ultimately lead to high levels of inflation. Today, five years later it seems like she couldn’t have gotten it more wrong. In spite of the unprecedented monetary expansion, monetization of public debt and swelling central bank balance sheets, deflation seems entrenched. So why worry about inflation at all? In short, because deflation could actually give rise to inflation. Continue reading