Economics

The Government and the Housing Market

The housing market has long been the measuring stick of how well the economy is doing or how badly it is doing. When the economy is good, houses are being built, banks are lending money, and people are buying houses. When the economy is bad houses are not being built, banks are not lending money and people are not buying houses.

When houses are not being built there are a lot of people affected. People in construction are not hired and therefore they do not make money to support themselves or their families. Companies that sell material to build houses do not make money so they cannot hire more people.

The companies that manufacture house building materials do not get orders so they have to lay off people in their manufacturing plants. Banks do not lend money so they have to keep their interest rates high. With higher interest rates people do not borrow as much money and this makes it hard for people to get a loan and then people cannot buy houses.

So it becomes a self defeating cycle. So much of our economy is based on the house market. But as it is said in the real estate field, the housing market goes up and it goes down. The government is so involved in the housing market that it has many regulations in place to try to control the market. They control everything from the construction of houses to the lending of the money to buy the houses.

They control the bank’s part and the mortgage broker’s part. The government controls the real estate agents involved in the sale by enforcing rules they have to abide by. The government can try to build up home sales by offering income tax credits to first time home buyers. The government encourages home ownership by providing income tax savings by allowing people to write off their interest payments off their taxes.

This is an age old reason why people want to own a home, so they can pay less tax. We simply take for granted this benefit when in reality it is a major way government controls the home market. There are many factors involved in our economy but no other area is controlled or determined by the government than the housing market.

Perhaps because the government knows that there is stability in home ownership. Or perhaps they know that if people own homes they have to keep busy trying to keep their homes so they have no time to worry about what the government is doing. Or maybe the government believes so much that home ownership is part of the pursuit of happiness and all that.

Whatever the reason the housing market is the government. And whether that is good or bad depends on how you look at it. The housing market will always have its good times and its bad times. It will always have people who try to make a killing in the market and those who simply want to own a home and raise their family. And the government will always be there controlling the market.

Archived under Economics Comments (5)

Mousenomics

Humans have a great deal that they can learn from us mice. For example, mice immediately know the difference between a mouse and a rat. Humans take a long time to recognize rats. Just look at how many times they elect the same rats to Congress.

My name is Ludwig Von Meeses. That is Von Meeces of the Mousetrian School of Mousenomics, not to be confused with Von Mises of the Austrian School of Economics. I am here today to help you humans gain a better understanding of your economy by studying Mousenomics.

Mice are born with a built in understanding of mousenomics. Unfortunately, humans are not born with any inherent understanding of their economy.

Mice understand that if there are two chunks of cheese on the counter of the same size and shape, it is always better to choose the cheddar over the swiss. Cheddar is always a solid block of cheese while swiss has holes where there is no cheese. We also understand that there are rats in the cheese making business that put more and bigger holes in the swiss cheese and sell it for the same price that honest cheese makers sell swiss with smaller and fewer holes. We mice know a rat when we see one.

Humans on the other hand, don’t seem to have a clue. I have been studying one such human for some time. His name is Bob Cannon. He graduated from college in 1969 and went to work for another human who compensated him in money rather than cheese. Money, like cheese is a generic term for a store of value. Just as we have different kinds of cheese like cheddar, swiss and muenster, humans have different stores of value like dollars, gold and silver. Bob could have had $8400 per year or 240 oz. Of gold (at $35 per oz.). Not understanding mousenomics, the dummy took his pay in dollars, he might as well have taken swiss cheese.

Not long after Cannon started to work, a big rat in Washington, DC said the government would no longer back dollars with precious metals like silver and gold. If you were a mouse, you would automatically understand that this rat intended to put bigger holes in the swiss cheese. For humans it is called inflation.

Cannon worked hard all his life and thought he was doing OK. My studies show that the rats have convinced the humans they are doing OK while putting ever bigger holes in the swiss cheese.

Let me explain. Cannon bought a house shortly after the rat changed the money. It was a house that cost him $25000. He could have paid for it with 706 oz. Of gold ($35.4 per oz). Today, that 706 oz. Of gold would buy him a $670,000 home (at $955 per oz.).
He couldn’t hope to buy a home at that price today.
Looking at it another way, humans invest in the stock market as represented by the DOW Jones Average. Back when the rat made the changes in Washington, The DOW was at 890 and Gold was at $35.4 per oz. Today the DOW is at about 9300 and gold is at about $955 per oz. If the Dow had gone up as much as gold, the market would be over 24000 not 9300, but no…Cannon invested in the DOW.

Even taking his salary of $8400 per year in 1969 or 240 oz. Of gold. If he were still making the same 240 oz. Per year, his salary in dollars would be $229,200 and this poor human thinks he is doing OK.

Archived under Economics Comments (8)

Reflections for 2008, Predictions for 2009

2008 was a year filled with great triumphs and a year scarred by deep sorrow. What 2008 was not, was a peaceful year, and whether the world is a better place, for having endured is unclear.

Russia’s invasion of Georgia has chilled Russia’s relations with the West, a resurgence of the Cold War may be on the horizon. The Tibetan monk’s protests being crushed in the streets demonstrate that freedom of speech, is not a God given right for all. The continued unrest in Middle East is no longer news, but simply part of daily life in the region.

Close calls with Hurricane Gustav in New Orleans and the water lapping at the edge of overburdened levies caused concern that the lessons of Katrina have still not yet been fully learned. The heartbreaking destruction of Hurricane Ike in Galveston and the Texas coast shows that while the US has made progress, she is still no match for mother nature. Nature’s wrath still wields a heavy hand. As horrific as the despair in Galveston, it paled in comparison to the cyclone that hit Burma/Mynamar, taking the lives of more than 100,000 people in the region. China, widely thought to be a rising world power, was no match for the 8.0 earthquake that collapsed buildings like tinker toys.

Through leadership change, we often see policy change. Unfortunately Fidel Castro’s retirement in 2008 did nothing to free Cuba from the constrains of dictatorship with Raul Castro stepping into the leadership role on the tiny island.

Early on in 2008, the Hollywood writers strike in 2008 showed that American can in fact live without television. Regardless of the break from television, technology certainly played a role in the 2008 elections.

The structure of the US political debates, with YouTube questions taking stage early on, demonstrated how technology shaped the 2008 US presidential election. Obama utilizing technology to text his vice presidential choice to his constituents was just the tip of the iceburg when it came to technology’s role in the 2008 US election. The radical domestic terrorist, Bill Ayers and Jeremiah Wright became household names. Joe the Plumber, Joe Six Pack, and the average Joe were all invested in the 2008 US Presidential election.

The historic 2008 US presidential primaries and election resulted in many firsts. Ultimately, Sarah Palin, the first female Republican vice presidential candidate and the GOP’s rising star, went back to Alaska and the US will crown its first African American President on inauguration day in 2009.

At the 2008 Beijing Summer Olympics, China presented it’s best. Michael Phelps made his mark on history, breaking Mark Spitz record of swimming medals and Dara Torez breaking a record of her own.

Tainted baby formula sickened tens of thousands of babies in China in 2008. Even the US was not immune to tainted food. A wide spread Salmonella outbreak caused a number of illnesses in the States.

The senseless deaths of children like Caylee Anthony and Precious Doe at the hands of those that were suppose to love them the most demonstrate how hopeless some things are in this age of technology.

The world in 2009 will sorely miss some legends who passed on in 2008. Heath Ledger’s senseless death and the famed actor Paul Newman who had a lifetime of achievements will be missed. The world also lost the comedic geniuses of George Carlin and Bernie Mac as well.

The world’s largest proton beam large hadron collider high energy collector was effectively deployed, while the world was not swallowed into a black hole. Unfortunately, shortly after the test, the economic markets imploded. The global economy crash devastated retirees who were heavily invested in the markets, forgetting that the stock markets can not only go up but down as well. A sad reality when their savings dwindled and the reality of their investments set in with the market down almost 40% for the year in November.

Based on this year’s reflections, I have made some predictions for 2009.

Top 10 Winners for 2009

1. Personal Responsibility
2. Financial Diversification
3. Mobile Malware
4. Weight Loss
5. Going Green
6. Social
7. Cloud Computing
8. Virtual Collaboration
9. Video
10. RSS

Top 10 Losers for 2009

1. Global Economy
2. Republicans and Conservatives
3. Hollywood
4. China
5. Somali Pirates
6. Financial Services Industry
7. Corrupted Politicians
8. Security or Securities
9. Outsourcing
10. Gasoline

Archived under Economics Comments (866)

Forex Trading Fundamentals: Good News for the Dollar

Over the past six months it seems like almost every major finance magazine has published an article related to the weakness of the dollar. If you are a currency trader like I am then this topic is particularly relevant to you because you need to know what the long-term trends of each currency are so that you can make profitable trades.

What you probably have not been reading about in the news are some of the events that have been happening behind the scenes or that will be happening in the near future, and why the American economy will ultimately regain its strength.

The single most significant factor affecting the American dollar is the trade balance, and the biggest portion of this problem is related to our war in the Middle East that should never have been authorized, yet is still costing us billions of dollars every single day. I will not spend a lot of time talking about the horrendous actions of the Bush administration (namely that they defrauded their way into office in order to wage a cultural genocide for the sake of gaining control over oil), but there are truly good things that have been happening behind the scenes and that will be happening in the near future.

You will not hear about many of these things in the mass media news outlets in America such as CNN and ABC, and there is an exceedingly simple reason why these manipulated news networks try to convince the American people that there is a threat of danger when really none exists at all: War is profitable. There are powerful groups in our world today whose agendas are motivated by greed and control, and these people engage in heartless wartime profiteering so that they may satisfy their lust for power. But it is not all bad: I will discuss some of the wondrous events that are causing these groups to rapidly lose their power, and what all of this information means for the currency markets.

The Bush Administration has dropped to single-digit approval ratings, and millions of Americans have gone to websites such as Impeach Bush and spoken out about their opinions of why this man is no longer our leader. Dennis Kucinich, a representative from my home state of Ohio that I have had the pleasure of meeting, is leading the way for the eventual impeachment and forcible removal from office of Bush and his war-mongering cronies.

The Bush Administration has inadvertently caused a global recession with their desire to wage a heartless war, and the signs are strong that the global community has finally come together and told these warmongers “Enough!” They are rapidly losing power as people are becoming more conscious and aware of the fact that they have been lied to by the controlled mass media outlets.

If you are looking for really good forex trading opportunities, I would be willing to bet that when the news releases come out stating things such as Bush’s impeachment or other things that peace-loving people the world over are working to create, there will be a large jump in the value of the dollar in the window of a day or two.

The really good news for the dollar and for the American people is coming from Japan. The Japanese are the largest holders of foreign dollar reserves (around $5 trillion dollars), and they have openly declared that they will no longer fund the American war effort.

The reason why I remain optimistic about the future of the American economy is because of the two main presidential candidates that have come forward to lead our country. In my mind (and in accordance with recent political data), the two main candidates in the 2008 presidential election will be Barack Obama and Ron Paul. Both of these men are benevolent leaders and are sufficiently equipped to rectify the errors of the Bush Administration, and Ron Paul has openly stated that he will abolish the Federal Reserve and the IRS to create a more prosperous America.

In the last paragraph, notice that I said the “American economy” and not the dollar. This is an important point, because many benevolent and powerful leaders are discussing new potential monetary systems for the United States that can lead to greater prosperity. The Federal Reserve system is based upon perpetual debt, and it is not sustainable because it steals wealth from the American people and puts it into the pockets of a few. This is all very good news, and so you may be wondering how this plays into your forex trading.

The dollar will continue to go down so long as our war is not stopped, and so for the next few months until the Bush Administration is forcibly removed from office or until they simply fade away to be replaced by a new leader, there will still be a downwards trend for the USD.

After our war ends due to internal political pressure from our benevolent leaders as well as financial pressure from the Japanese, many Japanese leaders are discussing the possibility of using their foreign dollar reserves to create a global humanitarian mission where they can bring knowledge and modern telecommunications access to countries that have not been able to provide it for themselves.

As this happens the American economy will regain strength because our trade balance will become much more sustainable. So ultimately for your forex trading, the downwards trend for the dollar will continue until these big benevolent changes occur, afterwards the American economy (as well as the global economy as a whole) will regain its stability.

Archived under Economics Comments (3)

Transforming Federal Government – An Unknown Success Story

The President’s Management Agenda is almost an unbelievable success story! Money has been saved, efficiencies have been achieved, and higher accountabilities demonstrated. We have been in the midst of this transformation the past seven years with significant and positive changes in government that we taxpayers should applaud. Since most of these are not public activities, very few people outside the government know about them.

The Secret. The din of the debates about the Iraq war, the historical certainty of the 2008 presidential elections, and the disenchantment about this presidency drown out many positive successes. Quiet successes of government improvements are not splashy and front page news and are mostly buried under louder news. The President’s Management Agenda (PMA) of 2001 has successfully impacted twenty-six agencies, effectively one of best kept secrets in government. It has not been press worthy, but an astounding success from a government reform perspective. The desire to improve government has been a goal of every administration. During President Bill Clinton’s years, VP Al Gore led the effort to improve government. Using the Government Performance and Reform Act (GPRA, 1993) as a driver, Gore championed a Golden Hammer award to encourage agencies to improve program results. The GPRA required each agency to provide a five-year strategic plan followed each year with an annual plan. The challenge was that there were no real consequences for non-compliance. Many of the plans were created and filed away and not used to guide the agencies as intended.

The Plan. In 2001, President George W. Bush announced his five-point PMA. The PMA pushed corporate ideas into the Federal government to create greater efficiencies and effectiveness. The PMA included: 1) strategic management of human capital to optimize placement of people and to support their growth; 2) competitive sourcing to outsource non-mission critical efforts and to be competitive with commercial companies; 3) improving financial performance with better and timely information to better inform decisions; 4) expanding e-government by using technology wherever possible to reduce manual tedium, improve information flow; and 5) integration of budget and performance by tying funding with desired performance outcomes. Additionally, a Performance Assessment Rating Tool (PART) was added to measure performance in the five areas. Performance standards/goals were established between each agency and the President’s Management Council, the body tasked to evaluate results. These performance results are annually posted using a Stoplight scoring system — Red for unsatisfactory, Yellow for mixed results, and Green for successfully achieving goals.

The Challenge. When the first (baseline) scorecard was published in 2001 for the twenty-six agencies against the five PMA measures, there were 109 Red results, 20 Yellow, and only 1 Green (National Science Foundation). In 2007, there were 17 Red, 53 Yellow, and 60 Green, an astounding decrease of 84% in the red category! Several Websites are worth a visit: Results.gov to view the annual scorecards since 2001, Whitehouse.gov/omb for descriptions of the GPRA, PART, and PMA, and ExpectMore.gov to read more and to see the candor within government about being more effective, and less bureaucratic.

The implementation of the PMA has been good news for the government and for those from the commercial world looking in. The result is that government processes get better and more aligned with the business world, and best practices from the business world are welcomed and being applied to government efforts. Ultimately, there are real benefits for the public in increased efficiencies and effectiveness in the use of public funds.

It is easier for those working as contractors inside the government to see progress. Implementing the PMA has produced higher satisfaction in project work than before the PMA, when it was more like treading water than in reaching a destination. With the regimentation of the PMA, everyone is more focused on achieving meaningful and measureable objectives.

Tangible Success. Implementing the PMA has met resistance and turmoil. This dramatic effort toward changing government has challenged government leadership and personnel, with increased stress and low morale. Imagine the need to compete against a commercial firm to keep your job! Making change is never easy! Nevertheless, there are real successes because of the PMA:

a) Workers have been provided Individual Development Plans with the idea to help them grow in their jobs. b) The requirement to find activities within government that are not critical to running the government has released those noncritical activities to the private sector (like travel and conference planning). In some cases activities, such as managing training, are put forth for direct competition between the government entity and the private sector. This latter effort forces the government entity to bid on their own work with greater project and fiscal clarity to adjust costs to the lowest best denominator in order to win the bidding contest. In one case a private sector team lost a competition to the government entity. The team bid $20 million to the government’s $10 million to do the job that originally had an annual budget of $40 million. The process clearly created a leaner government entity.

c) There is more use of Web-based technology for communicating, training, application for grants. One agency recently converted three instructor led trainings into Web-based self-paced modules. This will provide training on a 24/7 basis plus saving the cost of travel and instructors. d) The move to performance-based contracting has forced government and outside providers alike to be very focused on aligning project outcomes with budget support. One firm, with experience in the private sector, provided useful guidance to develop performance-based assessments on two contracts they were on during the transition from traditional result-based to performance-based contracting. Simply, the President’s Management Agenda has driven government toward a better return-on-investment of public funds. A very good thing!

Archived under Economics Comments (59)

Americans Hunkering Down for a Chilly Economy

According to recent polls, more Americans would rather see the government work on the economy then work on the environment. The economy remains at the forefront of Americans’ minds and tops the list of concerns. Despite the empirical evidence that the economy is on the mend, people across the country still feel the effects of the worst recession since the Great Depression. The national unemployment rate is still at ten percent and retail numbers are still down.

The National Retail Federation reports that consumer spending this holiday is at a five year low. The fact that the hottest toy of this holiday season is under $10 is among the indicators that people are spending less than in years past. Spending on Black Friday and online is up slightly this year over last, but many analysts believe consumers may be holding out for better deals. To this end, retailers are preparing for a so called Super Saturday, hoping shoppers will come out in force the last Saturday before Christmas.

CNBC’s Steve Liesman reported that the majority of Americans feel pessimistic about the economy. A CNBC “Wealth in America Report” found that middle to lower class Americans plan to spend less this holiday and feel that the government, particularly the President, is doing a lousy job of repairing the economy. As banks thrive and repay the TARP funds from the stimulus package, Americans want that money to pay down the deficit rather than be spent on more stimulus packages.

For his part, President Obama has expressed public outrage at the banking industry. He invited the heads of the country’s biggest banks to the White House to scold them about their lending and compensation practices. In response, banks are repaying the TARP funds to minimize any leverage the government has to mandate changes to executive pay packages. Although, Bank of America has pledged to help the economy by lending $5 billion to small businesses next year.

Unfortunately, it still all comes down to jobs. Most Americans feel like the stimulus package helped the bankers keep their jobs, but did little for the average American. While the Treasury Department and the Federal Reserve point to indicators that show the economy is making a comeback thanks to the government stimulus, most Americans can point to someone they know who is unemployed or going through foreclosure.

The unemployment rate at 10 percent is probably not a truly accurate reflection of just how many Americans are out of work. Considering how long this recession has gone on, many Americans have been unemployed for over a year and have given up looking. The way the unemployment rate is calculated doesn’t factor in people who have given up looking for a job or those who are working part time because that is the only job they could find. The Bureau of Statistics and Labor calls this U-6 unemployment and puts that number at over 17 percent. That’s a much higher percentage of Americans with little money to spend and prospects looking bleak for the new year.

Archived under Economics Comments (66)

What the Federal Reserve Doesn’t Want You to Know

The United States’ original monetary system that was set up by the Founding Fathers had limits to how much money could be printed. The U.S. currency was backed by gold and silver, creating a gold standard. This is why Fort Knox existed. By 1971, with the help of global and political events, the United States was completely off of the gold standard, and there were officially no limits to how much money could be printed up by the Federal Reserve. Since then the economy has had booms and busts many times over, and on a global scale we are all feeling the repercussions of having a monetary system that is without discipline.

One thing as certain as gravity is that precious metals, more importantly gold, will protect you from hyper-inflation in the coming times due to all the money that is being printed up by the Federal Reserve for bailouts and so forth. Precious metals have historically been a proven hedge against hyper-inflation. In the 1970′s, the U.S. dealt with massive inflation and at its peak in that time inflation reached 13.3%. The U.S. economy was not in nearly as much trouble as it is today.

Due to the 13.3% inflation rate in the 1970s the value of gold skyrocketed and had a growth of 2500%. This explains the current gold rush that is occurring, and more importantly illustrates where gold could hit in the coming times. Never in our nation’s history have they printed up so much money, and soon Americans will feel the repercussions, in the form of massive hyper-inflation. If inflation was at 13.3% in the 1970s and the value of gold grew by 2500%; you can only imagine what is coming our way in the very near future,
and what this will do to the precious metals market.

With the hyper-inflation on the way and gold being a limited resource the time to put your wealth in precious metals is now.

Archived under Economics Comments (142)

Don’t Get Talked Into An Economic Decline

The media is doing their best to talk us into another recession. If they have their way we will find ourselves in a full-blown economic decline. I don’t know about you, but I refuse to let the people who report the news determine my destiny. In a nutshell – I can’t afford another recession. I have been through 3 since I started speaking and training full time in 1973.

So, what can we do to limit the impact of the economy on our success, lifestyle and income? We can wait and see! We can worry! We can whine and moan! We can settle for less! Or, we can use this time to get better, smarter, wiser, more effective and, yes, successful. There have been economic shifts in the US and the world for years. This is nothing new. However, I have observed the reactions of hundreds of salespeople and organizations during the past 25+ years, and generally, one of two things happen to salespeople and/or the organizations they work for.

They can do less, feel out of control, circle the wagons, cut back, and generally focus on how ‘bad’ everything is. These salespeople and organizations tend to get less of their share of the available business during these times and after.

The other groups work harder, smarter, more effectively and focus on what they can do. You guessed it – this group may not set sales records, but they emerge better equipped to take advantage of the increase in business when it comes. And it always comes. After every recession for the past 70 years, there have been economic booms.

So, what can you do regardless of what happens ‘out there’?

1. Focus on what is working.

2. Avoid naysayers.

3. Read instead of watching TV.

4. Get up earlier every day.

5. Make one or two extra calls every day.

6. Plan better and more frequently.

7. Look under every rock for new business.

8. Re-activate past clients.

9. Improve your after-sales service on existing customers.

10. Attend a sales seminar that can refine your skills. (Mine is 3/26 – 3/27 in Charlotte. A few seats remain.)

11. Go to bed an hour later (I am assuming by getting up earlier and/or going to bed later you will be using the time to beat the competition.)

12. Get focused.

13. Waste less time with poor prospects.

Archived under Economics Comments (11)

The Price of Crude Oil, How High Will It Go?

Although many people don’t realize it, open bidding at the New York Mercantile Exchange in New York City sets the price of crude oil. For all intents and purposes, this open bidding, or open outcry, is actually the same as an auction. The New York Mercantile Exchange, the Chicago Board of Trade, or any other futures exchange for that matter, is no different than a great big financial Ebay.

Oil Companies Setting High Prices

It is in vogue to think of rich, evil, oil companies setting high prices on their product, but actuality this is not what happens. It is true that oil companies participate in the bidding, but anyone is free to participate. Besides the oil companies bidding for crude oil, many investors/spectators are also involved in the process.

Fundamental and Technical Trading

When speculators, or companies who are hedging, bid in the open market on futures exchanges, they attempt to predict future prices by using two different types of indicators.

The first types of indicator speculators/hedgers will use are fundamental indicators. In other words, they attempt to determine what the given supply will be in the future for a certain product. They will also attempt to predict what the future demand will be for the same product. If they are accurate, they will be able know whether the price of this commodity will rise or fall.

The second types of indicator speculators/hedgers will use are technical indicators. With technical indicators, investors feel they can simply look at charts and predict whether the price of the commodity is rising or falling.

In the case of crude oil, some time ago fundamentals indicated that its price would be rising. However, there is some controversy about just how high the fundamentals tell us the price of crude oil should be right now.

As far as technical indicators are concerned, when the price of a commodity has gone on for a while in one direction or another, these indicators will no longer be useful because all they do is tell you which way the price is headed. They say nothing as to how far it should go.

The Tech Stock Boom

In the 1990′s, there was a tech stock boom. Very shortly into this boom, tech stocks became overbought. In other words, the tech stocks were not, in reality, worth the high price they were selling for. A year or so later, they became extremely overvalued. That didn’t stop their price surge though, because the price of tech stocks were increasing very rapidly, they were making money for people. So, more buyers kept coming into the market.

Tech stocks made millionaires out of a lot of people. All a speculator had to do was buy tech stocks, and then hopefully sell them before it was too late. After a few years had gone by, tech stocks were so expensive, new investors just couldn’t afford them. Without new buyers coming into the market, the price of the tech stocks stopped appreciating. When that happened many speculators saw no purpose in holding onto their tech stocks. So, naturally they started to sell them.

As you probably remembered, the tech stock market suffered a complete crash once selling became the trend. The NASDAQ tumbled from 5,000 to 1,100. During this time, fortunes were lost. Once the NASDAQ had settled around 1,150, the price of tech stocks had found their equilibrium. In other words, after bouncing around a bit they started to trade at their true worth.

This is the Crude Oil Price Boom

The crude oil market, which right now is trading at approximately $98 per barrel, looks exactly like the tech market boom just before its bubble burst. Other parallels can be drawn between the tech market bubble of the 90′s; the housing bubble of 2005-2006 and what the crude oil market is going through right now.

It looks very much like the price of a barrel of crude oil just has to hit $100. There is no real fundamental reason behind it except for it appears to be what the market psychology is dictating. Once it reaches $100 per barrel, I can’t see what possible indicator would tell anyone that this would be the time to invest in it.

While I, or no one else can predict the future; I can look at the past with the best of them. When I look at what’s going on in the crude oil market, I just can’t distinguish anything different from what happened to the tech stock market of the ’90s, and more recently the housing market.

Archived under Economics Comments (7)

The Coming Boom in Enhanced Oil Recovery

While a cult of Peak Oil adherents fret about the end of the hydrocarbon age, we’ve been focusing on trends that will provide buffering to the upcoming declines in oil production. Don’t get me wrong, I’m not saying that Peak Oil won’t happen, however the dreaded peak may turn into a downward sloping plateau supported by higher prices. This high price plateau should buy the planet enough time to start thinking about conservation and using alternate energy sources.

One little known fact about the oil business is that the majority of the oil discovered to date will never be produced. Engineers use the term “recovery factor” to describe what percentage of the “original oil in place” or OOIP will be produced. In the United States it is estimated that 66% of the oil discovered to date or the OOIP is left in the ground.

State oil companies control approximately 80% of the world’s oil reserves. The vast majority of these countries are not friendly towards the United States.

The discovery of giant oilfields today is hampered by the fact that giant oilfields are the ones that are discovered first in an exploration cycle. The longer we look for them the less likely we are to find them. Giant fields are usually discovered first.

Matthew Simmons has pointed out that as much as 70% of our daily oil supply comes from oilfields that were discovered prior to 1970.

Of course new technology can increase the size of the discovery universe by allowing drilling in increasingly hostile conditions. For example, 75% of Brazil’s oil reserves are under at least 400m of water. Without deep water drilling technology this oil would never be produced. Brazil’s recently announced Tupi discovery is a good example. It occurs in ~2100m of water. Petrobras (PBR), controlled by the Brazilian government, owns 65% of this ~8 billion barrel field.

A confluence of factors are pointing to a developing boom in enhanced oil recovery (EOR) projects. Increased oil recovery is going to require the implementation of EOR technology on an epic scale. Investors should take note.

There is no doubt that a new generation of oilfield hackers will be getting much more oil out of mature oil fields.

According to Schlumberger’s Oilfield Glossary, the three major types of enhanced oil recovery operations are:

1)chemical flooding (alkaline flooding or micellar-polymer flooding).

2)miscible displacement (carbon dioxide [CO2] injection or hydrocarbon injection).

3)thermal recovery (steamflood or in-situ combustion)

We have found public companies active in all 3 categories and will be profiling them over the coming weeks.

Archived under Economics Comments (4)

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