Monday, December 22, 2008

Ever Since, I Have Distrusted Myself and Avoided All Predictions

Everybody is doing it, so why not join in. Not sure if I can think of ten off the top of my head.
  1. The recession will last until 2010Q3. Nominal GDP growth will become positive in 2009Q4, but by NEBR scoring the downturn will last a lot longer.
  2. Unemployment will hit 10% in 2009Q3. The job market will be brutal in 2009, and robust job growth won't start until 2011. And 10% is the U3 number; U6 will reach 16%.
  3. Oil will fall to $25-30.. After bottoming in that range crude will rise substantially as the dollar weakens in the second half of the year. Against the euro and other currencies the change won't be as great. But the price in any currency will be low enough to seriously damage the petro-states.
  4. The dollar will lose strength. The dollar will stay flat for the first half of the year as money continues to flee emerging markets, then fall to 80¥ and 0.55€ as people start realizing that the Fed is printing. The greenback could go to 0.45£, or to 0.80£ depending on how bad things get in "The City".
  5. A country will leave the Euro. I've been predicting Italy will leave for some time now; this may be the year I'm finally right. The dark horses for the dubious distinction are Spain, Greece, and Ireland
  6. China will blow a gasket. The current leadership seems unprepared for the current crisis, and has spent too much money propping up state industries instead of investing in desperately needed basic infrastructure inland. The pain will be widespread even if the renminbi is devalued. There is a good chance the devaluation will be excessive and prompt a reaction from the US.
  7. The mercantilists will crash. Both Japan and Germany failed to address structural problems while times were good, depending instead on a positive balance of trade to paper over the problems. The decline of trade in general, and with the US specifically, will cause these problems to re-assert themselves. Other significant European exporters - Norway, Finland, Sweden, Netherlands, Switzerland, and Austria - will suffer as European importing countries - Spain, United Kingdom, Italy, Greece, Portugal, most of Eastern Europe - find their public and private budgets severely pinched. However, the pain won't be as great as that of the big exporters because of better fundamentals. The smaller East Asian exporters - Thailand, Indonesia, Malaysia, Singapore, Hong Kong, Taiwan, and Korea - will suffer as is usual during a US downturn.

    That's all for now.

    Update: This list goes to 11.

  8. GM and Chrysler will both file for bankruptcy. GM will seek Chapter 11 protection in March, and will re-emerge in a few quarters. Chrysler will file at the same time, and then be dumped on the UAW and various creditors by Cerberus. However, the company will be too far gone to save, and liquidation will start in early 2010.
  9. The banking system will evade nationalization. Between Obama's deep-seated cautiousness and the wall-to-wall appointment of economic insiders, the banking system will not be subjected to the "Swedish model". The Fed will continue to be the primary source of relief, and its balance sheet will expand by another $2T.
  10. Retail and commercial real estate will get crushed. CRE is wildly over-built and over-leveraged after years of cheap credit. Personal consumption will fall almost 8% from 2007 levels, and thus many store chains will file for CH7, leading to massive loan defaults by property holding companies.
  11. Housing will decline for the entire year. Aggregate prices will continue to fall until 2010Q2, though as usual local markets will vary widely. Homebuilders will finally go bankrupt due to continuing declines of spec starts after unexpectedly clinging to life in 2008. Sales volumes of existing housing will decline through 2009Q2 then flatten for the rest of the year.

Well, that's what I've got at the macro level. Predicting the markets is not one of my talents, so I'll forgo the embarrassment on that front.


Clifford J. Wirth, Ph.D. said...

Predition: Peak Oil is now.

Independent studies conclude that Peak Oil production will occur (or has occurred) between 2005 to 2010 (projected year for peak in parentheses), as follows:

* Association for the Study of Peak Oil (2007)

* Rembrandt Koppelaar, Editor of “Oil Watch Monthly” (2008)

* Tony Eriksen, Oil stock analyst (2008)

* Matthew Simmons, Energy investment banker, (2007)

* T. Boone Pickens, Oil and gas investor (2007)

* U.S. Army Corps of Engineers (2005)

* Kenneth S. Deffeyes, Princeton professor and retired shell Geologist (2005)

* Sam Sam Bakhtiari, Retired Iranian National Oil Company geologist (2005)

* Chris Skrebowski, Editor of “Petroleum Review” (2010)

* Sadad Al Husseini, former head of production and exploration, Saudi Aramco (2008)

* Energy Watch Group in Germany (2006)

Independent studies indicate that global crude oil production will now decline from 74 million barrels per day to 60 million barrels per day by 2015. During the same time, demand will increase. Oil supplies will be even tighter for the U.S. As oil producing nations consume more and more oil domestically they will export less and less. Because demand is high in China, India, the Middle East, and other oil producing nations, once global oil production begins to decline, demand will always be higher than supply. And since the U.S. represents one fourth of global oil demand, whatever oil we conserve will be consumed elsewhere. Thus, conservation in the U.S. will not slow oil depletion rates significantly.

Alternatives will not even begin to fill the gap. And most alternatives yield electric power, but we need liquid fuels for tractors/combines, 18 wheel trucks, trains, ships, and mining equipment. The independent scientists of the Energy Watch Group conclude in a 2007 report titled: “Peak Oil Could Trigger Meltdown of Society:”

"By 2020, and even more by 2030, global oil supply will be dramatically lower. This will create a supply gap which can hardly be closed by growing contributions from other fossil, nuclear or alternative energy sources in this time frame."

With increasing costs for gasoline and diesel, along with declining taxes and declining gasoline tax revenues, states and local governments will eventually have to cut staff and curtail highway maintenance. Eventually, gasoline stations will close, and state and local highway workers won’t be able to get to work. We are facing the collapse of the highways that depend on diesel and gasoline powered trucks for bridge maintenance, culvert cleaning to avoid road washouts, snow plowing, and roadbed and surface repair. When the highways fail, so will the power grid, as highways carry the parts, large transformers, steel for pylons, and high tension cables from great distances. With the highways out, there will be no food coming from far away, and without the power grid virtually nothing modern works, including home heating, pumping of gasoline and diesel, airports, communications, and automated building systems.

This is documented in a free 48 page report that can be downloaded, website posted, distributed, and emailed:

I used to live in NH-USA, but moved to a more sustainable place. Anyone interested in relocating to a nice, pretty, sustainable area with a good climate and good soil? Email: clifford dot wirth at yahoo dot com or give me a phone call which operates here as my old USA-NH number 603-668-4207.

PeakVT said...

Clifford -

Thanks for the feedback.

My current position on PO is: while there is good reason to think we are somewhere near the maximum of production, above-ground factors create so much noise that we won't know that we've hit the peak until we are well beyond it. If you look at global production graphs, you can see how much the rate during 1970s diverged from previous and subsequent trends. The current global recession will be deep enough to disturb trends again, even though the long term fundamental - oil is a finite resource that has been over-used - will remain.

Good luck in your sustainable location. I wish I could join you but for now I am stuck here. But here isn't so bad - for America.