Lower Gas Prices and the New Global Recession

Posted on January 27, 2015 by MN Gordon

How about these gas prices?  They’re incredible.  A recent AAA fuel gauge report marked the national average for a gallon of regular gas at just $2.03.

That’s down 38 percent from $3.28 a year ago.  At current prices it’s estimated the average household will save $750 on gas this year.  Not bad, for sure…

But the decline in gas prices is nothing.  Oil prices are down 55 percent over the last year.  This, no doubt, can be classified as an epic price collapse.  What’s going on?

The popular notion is that lower fuel prices will be a boon for the economy.  The consumer will take their additional savings and use it to buy additional consumer goods, goes the thinking.  More consumer spending will lead to a rise in gross domestic product.

This makes logical sense.  However, the magnitude and velocity of the oil price drop may be telegraphing that there’s more to the story.  Perhaps the global economy – including the U.S. economy – isn’t walking on as sound of footing as thought. Continue reading →

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Chasing the Wild Goose

Posted on January 23, 2015 by MN Gordon

Occurrences of rich irony are to be savored like fine wine.  Each sip makes one feel smarter, younger, and wealthier too.  So, too, they should not be wasted…lest they turn to vinegar.

Today we pause a moment for appreciation.  A bottle of rich irony was served up this week in a giant glass goblet.  We must drink it in before it sours.

Do-gooders galore are gathered in Davos, Switzerland, to partake in the World Economic Forum.  Moreover, they are gathered for grave and weighty reasons.  According to the programme, they are “committed to improving the state of the world.”

This, in itself, warrants a snicker.  For the vanity and conceit of it all if nothing else.  But it gets much, much better…

“Billionaires and world leaders from across the globe are flying en masse to the annual World Economic Forum in Davos, Switzerland – and they insist on traveling in style,” reports CNN Money.  “Roughly 1,700 private flights are expected over the course of the week, which is twice as normal.” Continue reading →

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Treasury Bubble Redux

Posted on January 20, 2015 by MN Gordon

Last week, while everyone was busy gawping at the stock market’s wild swings and oil’s epic fall from grace, we set our sights on the 10 Year Treasury note.  On Thursday and Friday the yield touched down at 1.75 percent.  Yields haven’t been that low since May 2013.

What’s more, 10 Year Treasury Yields are approaching their all-time low of 1.53 percent that was briefly reached in July 2012.  If you recall, when Treasury yields go down, Treasury prices go up.  In other words, right now Treasuries are nearly as expensive as they’ve ever been.

With global financial markets being on edge, U.S. Treasuries appear to be a safe bet.  “They’re the safest investment in the world,” goes the popular wisdom.  Many investors reason they are guaranteed the return of their principle, plus 1.75 percent to boot.

Here at the Economic Prism we believe 1.75 percent is just enough rope for people to hang themselves with.  But don’t listen to us.  We’ve been predicting a debt market reversal for at least six years…possibly longer. Continue reading →

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Oil Demand Deduction

Posted on January 16, 2015 by MN Gordon

According to Saudi Prince Alwaleed bin Talal, we’ll never see $100 per barrel oil again.  That, in our book, is a pretty long time.  Nonetheless, Prince Alwaleed’s sure of it…

“If supply stays where it is, and demand remains weak, you better believe [the price of oil] is gonna go down more.  But if some supply is taken off the market, and there’s some growth in demand, prices may go up.  But I’m sure we’re never going to see $100 anymore,” said Prince Alwaleed bin Talal, the billionaire Saudi businessman.

This is quite a reversal indeed.  Who would have predicted back in June 2014, when oil was at $107 a barrel, that it would crash to the mid-$40s by January 2015?  We don’t know anyone who predicted this…do you know anyone who predicted this?

The pros certainly didn’t.  For example, Southwestern Energy definitely did not have a clue what was about to happen.  As recently as October, they spent $5.3 billion acquiring oil reserve properties from Chesapeake Energy.

Now, just three months later, the collapse in oil and gas prices has dragged the value of the properties with it. Continue reading →

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