Friday, November 21, 2008

It's The Economists, Stupid !

Hantu Laut

Hooray! The price of crude had fallen below $50 a barrel.The price slid to as low as $48.64 today.Who was right those mumble-jumble sycophantic economists or .........? Than you have those who made foreccasts and predictions but didn't have the balls to put their names on it.

Employing academicians who spent more time trying to please their bosses to listen to what is pleasant to their bosses' ears rather than doing some serious research to predict short and long term economic trends is as good as not having any of those blighters on board.They are not worth their salt.

It is even more disheartening to hear that almost every leader in our government are sold on the idea of the nation's immunity to the global economic meltdown purportedly due to our strong banking/financial system and strong fundamentals whatever that might mean.

Strong finances and healthy foreign reserves are just some of the many components that make up the whole economic pie.There is an array of other things that influence the workings of the economy which eventually boils down to one single objective, the making of money.The more money a nation has the more prosperous the people are .There are only two things money can't buy in this world, the air we breathe and immortality, everything else costs money.

In economics, one must not forget the law of supply and demand, the very essence of market forces.Dearth of supply will increase prices, abundance of supply will depress prices.Than there is a new element, not found in the old economic theory, that have been added to the new scheme of things to influence market and market prices, it is called speculation.Speculation can be a powerful tool in setting market prices.These are the wonderful inventions of the economic gangsters.These are bands of white collar criminals loaded with other people's money to raid the world markets in search of anything they can get their hands on and steal your whole life saving away from you. Would you in your wildest dream ever imagined that the price of palm oil can touch RM4,500 per ton ? Do you honestly think that's the real value of the commodity? Do you think price of crude oil at US$147 a barrel is a reasonable level for optimum economic consumption? Just like a balloon if over inflated it would burst and burst it had.

Over the past two decades the world has been teetering on the verge of an economic disaster never seen before due to over-speculative indulgences in every aspect of its commercial activities.The bubble had burst and would take a while to recover.

If the Malaysian government think they have consummated defences against catching the bug that most other more developed countries are caught in and are presently in the throes of recession than there must be something wrong with the yardstick we used to measure our economic activities.The sooner we wake up to the reality that the honeymoon and the good time will be taking a break soon the better it would be, at least to have a contingency plan in case the situation turned bad.

In the United States (US) the three big car makers in Detroit have recently declared they are in serious financial trouble.General Motors(GM) the leading car makers have cash reserve of US$30 billion and have declared they would be running out of cash in 2 to 3 months time.With the dramatic decline in sales of its cars the company have to use its cash reserve to pay for its recurring expenditure at the rate of US$5 billion a month which means the total reserve would be completely exhausted in 6 months.So, even if you have money when things go bad, that money will be gone in no time.As at September 2008 Malaysia's foreign reserve stood at US$32.3 billion, not much bigger than the GM's reserve.

The three big car makers GM,Ford and Chrysler were not on the original list of patients for bail-outs when the US Congress approved the bail-out package.They are now seeking government bail-out which they probably will not get.Their troubles are of their own making, incompetent management and products quality problem.The same problem faced by Proton here.

I believe the US Government will not bail them out but would ask them to file for Chapter 11, a bankruptcy protection from creditors that allow the company to reorganise without threat of foreclosure from creditors.Some creditors may end up as shareholders of the company under a reorganised scheme.

I have said in my earlier posts there is usually a time lapse before we feel the effect of the global recession.At the moment everything seems fine but it may not be so by the end of the 1st quarter of next year when the recession bites in,unless something dramatically good happened along the way that changed the whole global economic scenario.

Precaution is better than cure.


kittykat46 said...

Oil, like every other commodity, is driven by demand and supply.
The latest price, below USD $ 50 per barrel is being driven by panic just as surely as the $ 140 per barrel price just a couple of months earlier was being driven by speculation and a reverse sort of panic, where buyers in the market feared oil was becoming a permanent shortage commodity.

My gut feel is it will settle at somewhere USD 80-100 per barrel in the medium term (1 year) and long run will continue to climb.

Hubbard's peak oil calculation still holds true.

PS.I just had a really funny thought over lunch just now. You know how part of the oil market is based on futures contracts ? Some speculator somewhere, 4 months ago (when the price was $ 130 per barrel) must have made speculative contracts to take delivery of XX Million barrels of Oil at $ 140 per barrel, in the expectation that the price in 4 months time (which is now)could be as high as $ 180 per barrel. That's essentially how the hedge funds and the speculators were shouting up the market.

My funny thought is, the these guys are now legally obliged to take delivery and pay $ 140 per barrel for oil which they can only re-sell and earn $ 49 per barrel.....

God is fair after all...

supa said...

The banking systems in Asia Pacific is still considered in reasonable shape. The biggest problem with global recession when concerning Malaysia is reduced export. This basically means less income to everybody.
If the Government still has money, it can does what the Chinese Government is doing now: spend money to sustain its citizens' income. But with all these business talks and attempt to dig into our money, I think the Government account is probably not sustainable.

Hantu Laut said...

Those who bought forward are now cursing themselves.They have to take delivery at higher price.They can do averaging to reduce their overall cost by buying more at the cheaper price.

I agree the optimum price level should be around $80 max $100.

Hantu Laut said...

Right,that certainly would happen - reduced export.Our ringgit may weaken further against the US.