General Motors: Potential Bankruptcy?

[styla21]

A possibility according to Merrill Lynch.. Thoughts?

Shares of General Motors plunge http://images.ninemsn.com.au/resizer.aspx?width=215&url=http://news.ninemsn.com.au/img/news_feeds/gm03_400x300.jpg

Shares of General Motors Corp plunged on Wednesday to close below $US10 for the first time in more than half a century, on worries about the company's cash needs and speculation about a possible bankruptcy protection filing down the road.
GM shares fell $1.77, or 15.1 per cent, to close at $9.98. Their session low of $9.96 marked their lowest point since September 13, 1954, when they hit $9.92, according to the Centre for Research in Security Prices at the University of Chicago. The price is adjusted for splits and other changes.
The drop came after a Merrill Lynch analyst cut his rating for GM to "Underperform" from "Buy" and slashed his price target for the company to $7 from $28, saying that the decline in automotive sales has been more severe than anyone expected and will likely continue through next year.
"We believe there is potential downside in the stock below $7 and that bankruptcy is not impossible if the market continues to deteriorate and significant incremental capital is not raised," John Murphy wrote in a note to investors.
David Healy, an auto analyst with Burnham Securities, said the $10 mark is a purely psychological one but highlights the automaker's dramatic share price plunge since the beginning of the year, along with worries that the company may have to file for bankruptcy protection. GM shares are down about 60 per cent this year.
"My own opinion is that they're unlikely to file," Healy said. "But the conditions in the auto industry are so tough for everybody right now, especially for GM, and that's why people see this as plausible."
Healy said he thinks GM has enough cash to get it through the year, along with the ability to obtain additional financing if needed and raise cash through the sale of assets such as overseas operations.
Automakers' shares have taken a beating in recent months, hurt by rising oil prices and a weak US economy, along with a shift in consumer demand away from gas guzzling sport utility vehicles and pickup trucks and toward smaller, more fuel-efficient cars and crossovers.
Since July 2, 2007, GM shares have tumbled about 74 per cent and the company's market capitalization has dropped to $5.65 billion from $21.5 billion.
Investors on Wednesday shrugged off better-than-expected June sales that sent GM shares surging as much as 12 per cent the previous day. The automaker reported an 18.2 per cent drop in US vehicle sales from a year ago but retained its traditional US sales lead over Toyota Motor Corp, which posted a 21.4 percent decline.
Analysts, who had expected a much steeper drop, said GM's sales were able to outpace those of most other automakers because of late-month incentives and double-digit jumps in demand for certain small and midsize cars.
Deutsche Bank's Rod Lache said that while previous incentive programs have resulted in temporary boosts to GM's market share, they have generally been followed by drops in later months.
"If history is any guide, we would expect GM's sales to experience 'payback' for the pulled forward sales in the months ahead," Lache wrote in a note to investors.
The analyst said GM's market share could drop back to the 19 per cent to 20 per cent range, down from its June level of 22.1 per cent.
Meanwhile, Citi Investment Research analyst Itay Michaeli slashed his price target on GM shares to $14 from $21, citing liquidity fears.
"While we do not believe GM is facing an immediate cash crunch, the urgency to shore up liquidity to navigate through a difficult 2008-09 has risen significantly in recent months," Michaeli said in a note to clients. He kept a "Hold" rating.
Ford Motor Co didn't fare as well as its crosstown rival. The Dearborn, Michigan-based automaker said its June sales plunged 27.9 per cent, blaming surging gas prices for knocking its light truck sales down 35.4 per cent.
Ford shares fell 35 cents, or 7.4 per cent, Wednesday to close at $4.36, passing a multidecade low of $4.41 set the day before.
Despite the sales drop, Lache said Ford remains the best positioned among the US-based automakers and has the required cash to ride out a drawn out industry wide slump.
"In addition, we continue to believe that Ford is the most 'fixable' of the three US automakers - it has effectively consolidated itself to two brands, and we still see considerable cost savings opportunities within the enterprise," Lache said.
June was a dismal month for the industry overall, which posted a 18.3 per cent sales drop, according to Autodata Corp. Only Honda, whose lineup is tilted toward smaller and more fuel-efficient cars, managed to report a sales increase for June - slightly over 1 per cent.

[RC45]

ML are trying to drive the price of th shares to near zero so that Soros can swoop in an buy GM for a crazy low amount.

Analysts have been known to influence and manipulate the market for others gain.

I mean analysts predicitons are many times self-fulfilling - as if the analysts says, "prices are goign to fall, doom and gloom are coming" - oddly enough, people try dump the shares, and then - amazingly, the price goes down... so in fear of the "prediciton" coming true, the market sells....... and the price keeps going down. ;)

Aren't you guys going to use this as an opportunity to buy GM stock? Or are you gyus bailing on GM as well?

[styla21]

I'm bailing on GM mate. They are in the business of manufacturing and servicing high-petrol consuming cars. I believe that peak-oil theory is correct, and that we are on the road to $250 / barrell within 12 months. Add to that lower USD, and a customer base with less disposable income. How about financing methods? Whereby the majority of cars GM sold are done so with finance - which is now more expensive, and harder to obtain.
How a car manufacturer participates successfully in this market, without radically adopting an eco-theology I do not know.

Oh and regarding analysts. Take one opinion as a grain of salt. But when you see 10 reports from top 20 world banks then it's worth starting to pay attention.

[HeilSvenska]

Hahaha. I find this article even more telling.

Reuters - JP Morgan sees Q2 loss at Merrill Lynch


Or this.


US News - The rumors began with speculation by television investment guru Jim Cramer, then grew as a Merrill Lynch analyst called them realistic.

Whom I hate.

Then this.


Detroit Free Press - Shares of General Motors Corp. rebounded by 1.4% to $10.12 today from a half-century low on Wednesday as a JPMorgan analyst waved off the threat of bankruptcy...
The same low share price caused by John Murphy's note.



And I forgot to mention that "not impossible" =/= "bound to happen".

[Spiffu]

First Chrysler, now this.

Hang on to your American cars.

[graywolf624]

I believe that peak-oil theory is correct
Keep dreaming.. its an economic impossibility. Something cooked up by people that think only of supply and not demand or who have something to gain from scaring you.

When the gas bubble bursts people will be asking the gov to bail out green investors.. mark my words.

[RC45]

Oh and regarding analysts. Take one opinion as a grain of salt. But when you see 10 reports from top 20 world banks then it's worth starting to pay attention.

There was a time when every analyst was gaga over Enron.

Self-fulfilling prophecies.

GM going belly up will hurt much of the industrialized world.

[philip]

GM's dividend is $1 per share per year. On a ten dollar or less stock, I'll let you do the math. The last time I remember a stock with such a great rate of return, it was Enron.

It seems such a shame the GM and Ford are doing so poorly as their performance cars have really never been better.

[styla21]

Keep dreaming.. its an economic impossibility. Something cooked up by people that think only of supply and not demand or who have something to gain from scaring you.
Wait, what? An economic impossibility? That is an attempted factual statement lacking, well ....facts? :-)

When you say "the people that only think of supply and not demand" I don't know who you are referring to. Surely not the world market as a whole - which is the market that the petroleum industry caters to? Let me examine both sides of the supply / demand equation.

If you are going to try and blame the speculators on an inflated (bubble) price, the facts demonstrate that the rally in oil prices owes much more to fundamentals than to widely blamed 'speculation'. What is often ascribed to speculators has subsequently been found to have a fundamental cause. If it were speculation, I believe the shape of the forward curve would be different (in contango rather than backwardation) and the proportion of non-commercial positions would be greater.

How about Demand? Fundamental global demand continues to grow for middle distillates despite the US slowdown. This is also exacerbated by tight refining capacity.
Additionally, I would reinforce the long-term demand, as sustained demand growth of 5-6% per annum from China for the foreseeable future. Conservatively, global demand growth to 2015, on average, of ~1.2% per annum.

Supply? What supply? Projections from Venezuela and Mexico have been lowered. I would concede that projections of Iran / Russia can be tweaked up, although they do require some addressing of existing political / fiscal impasses. Overall forecast for bio-fuels is ambiguous at best, and diminishing.

The net-net the supply / demand situation is a crunch: The big picture Gray on supply is that non-OPEC capacity will peak in 2010. If Saudi Arabia sticks to its guns and restricts further capacity build-out, global capacity will peak in 2012. On this basis, spare capacity dwindles to the point where demand exceeds effective supply.
Unless there is a serious consumer and policy led demand response, then oil will develop a scarcity pricing model. Anticipation of this is what leads prices to $200/bbl+ figure.

There was a time when every analyst was gaga over Enron.

Self-fulfilling prophecies.

GM going belly up will hurt much of the industrialized world.

Use fundamental analysis and you will cut through hype and speculation. Remember the market is driven by perception. I agree with you it is a long shot to see GM fall; surely there will Govt intervention. But at what cost?
I want to refrain from entering this to a political discussion - but there is only so many times you can bail out failed banks, print money (stimulus cheques) which invites inflation through the front door, and use govt-sanctioned irresponsible lending practices to support an entire economy throughout recent history.
These converge and create a weak, distressed economy: So with this in mind, can you explain to me how GM plans to go and sell more cars, at more money, to create profit? Despite higher costs of raw materials, higher costs of labour, higher costs of financing and insurance, delivery, transportation, taxation and inflation. I can't see a way. ;-)

[RC45]

What does $250 per barrel oil do to Chinas growth and demand?

[5vz-fe]

GM's dividend is $1 per share per year. On a ten dollar or less stock, I'll let you do the math. The last time I remember a stock with such a great rate of return, it was Enron.

It seems such a shame the GM and Ford are doing so poorly as their performance cars have really never been better.

It will be no doubt they gonna cut dividend to conserve cash.

[graywolf624]

The big picture Gray on supply is that non-OPEC capacity will peak in 2010. If Saudi Arabia sticks to its guns and restricts further capacity build-out, global capacity will peak in 2012. On this basis, spare capacity dwindles to the point where demand exceeds effective supply.
Unless there is a serious consumer and policy led demand response, then oil will develop a scarcity pricing model. Anticipation of this is what leads prices to $200/bbl+ figure.

And here you've proven you don't understand the law of supply and demand.
You stated the demand for oil is
How about Demand? Fundamental global demand continues to grow for middle distillates despite the US slowdown. This is also exacerbated by tight refining capacity.
Additionally, I would reinforce the long-term demand, as sustained demand growth of 5-6% per annum from China for the foreseeable future. Conservatively, global demand growth to 2015, on average, of ~1.2% per annum.

Any real economist, myself included, will hear your last statement and start laughing. You don't understand how demand works. Demand is a function that relates to supply. If the cost goes up due to supply, the demand drops. It doesn't rise. That means gas cannot raise in price exponetially. Nor can it run out. Why? What proof do I have?

Well the proof can be seen in precious metals and a bet in 1980 by Ehrlich and Simon. The geologists bet the price of metals would rise.. The economist that they would fall. The geologist knew the item was a non renewable resource with limited supply needed to support the world economy (hey some parallel we have there). However what he didnt understand is that alternatives exist, just as they do for gas. As the price of metals or oil or anything else supress that of the alternative the alternative essentially puts a ceiling on the price of that commodity. OVer the price a proportion of the demand switches to the alternative. A proportion thats just equal to keep the cost of the main good below that threshold. Over time economies of scale drop the cost of the alternative. The result? No commodity in a market economy, free of govt intervention (and assuming war or something doesnt destroy it) can be all used up. Furthermore no public good in a market economy in the long term can sustain significant gains in cost (when adjusted for inflation). These are economic laws that prove the peak oil theory is thought up by individuals that dont understand economics. So where are the ceilings? Well lets see, we already started with oil sands, ethanol, and a few others. As prices continue to rise we'll see hydrogen, nuclear, coal, and eventually even solar kick in. Don't believe its going to happen? Then I ask you, why is GM bringing a mass market Electric to market next year? Why is Honda bringing one this year? And if droves of people switch to these options what does that due to your cost of gas predictions.

In fact demand growth has decreased already. That is why it is a well known fact that the price of gas currently is a bubble. The demand has not risen in proportion to the price, and the supply has actually increased. Which means something outside of demand and supply has influenced price... Speculation. It happened with stocks, and now its happening with gas. Theres a reason every economist worth a shit has come out and said at least a 1/3 of oils price currently is speculation.

[graywolf624]

These converge and create a weak, distressed economy: So with this in mind, can you explain to me how GM plans to go and sell more cars, at more money, to create profit? Despite higher costs of raw materials, higher costs of labour, higher costs of financing and insurance, delivery, transportation, taxation and inflation. I can't see a way.
While Im not sure I would choose to invest in GM, you are missing a significant fundamental. GMs book value is significantly larger then their market capitilization. Should they decide to close up shop and sell everything tomorrow (assuming a borrow came forward), everything could be paid off and then some.

What I see happening is a hostile take over. At 10 dollars a share someone like Cerberus is going to gobble them up. Why do I say that? Well look at Cerberus. .They gobbled up Chrysler. GMs outlook looks way better then Chrysler or Ford. If market forces are correct in their pricing of Ford, then GM should rise after this little dip ends.

In other words, long term I wouldnt invest in GM. But if I had free cash Id be pumping it into gm right now with the expectation that in the short term your going to get a hell of a return when they go back to book value.

[RC45]

Unless there is a serious consumer and policy led demand response, then oil will develop a scarcity pricing model. Anticipation of this is what leads prices to $200/bbl+ figure.

This could almost be a dictionary definition of speculation ;)

But again I am wondering, could China's growth (and demand) continue at $200+ / barrel prices? At what number do higher prices slow China's demand?

[styla21]

You seem to be in a remarkable state of delusion about the world's ability to increase oil supply.

You as an energy-optimist, have good arguments but they are all “faith-based”, and you are relying on:
a)An increase in undiscovered oil
b) Increase in oilfield technology, or
c) Increase in non-conventional oil.


It easy for you to rest on these faith based assertions that the price of oil is now driven by speculation, but let’s examine the facts. Oil demand growth is propelled by the powerful factors of:
1.Solid US, European, and Asian industrial economies
2.Soaring oil use throughout developing world
3.Transportation that is an economic necessity
4.There are no easy energy substitutes, and
5.Oil supply growth has faltered

Gray, ironically to the timing of your post, The International Energy Agency yesterday published one its gloomiest ever reports asserting that oil prices are justified by fundamentals. It said “Like alchemists looking for a way to turn basic elements into gold, everyone wants a simplistic explanation for high prices,” bluntly adding: “Often it is a case of political expediency to find a scapegoat for higher prices rather than undertake serious analysis or perhaps confront difficult decisions.”

I suggest you to consider the following. The IEA projects that global demand will grow from 86.8 million barrels per day this year (with supply of around 88mbpd) to 94.14mpbd in 2013. That's an increase in required global production of 8.5%.
So let's see, where will that come from? Well, assuming there is no decline in current production, you could double Iraq's production, throw in 2mpbd from the Saudis and their spare capacity and new fields, chuck out Chavez and get Venezuela humming again, and bring on-stream a lot of the deep-water projects...and maybe, just maybe you'd get there.

I find it amusing you choose to use language such as “Any real economist, myself included, will hear your last statement and start laughing. You don't understand how demand works”. This is a questionable choice of words you use in response to quantifiable, irrefutable facts of geo-political and economic landscape. Are you seriously trying to argue that China does not have a sustained energy demand? Or that tight refining capability is being experienced at present?

1. The Gulf of Mexico has anchored 20% of USA’s oil for the past decade, and a growing percentage of this comes from a small number of deepwater fields. The remaining base consists of oil fields that are now 30-50 years old. All are small, and largely depleted.
2. Indonesia is now importing oil
3. Mexico’s Cantarell crisis – As the worlds 2nd largest oilfield, it peaked in May 2005, and has already now declined by 41%.

In today’s FT Christophe de Margerie, the CEO of French oil company Total, says 94mpd is an optimistic forecast in ten years, and probably the peak anyway. "We will have to fight against the natural decline of (present) oil fields," he said "It will not go smoothly."

Gray, you can fight against some things...love handles, injustice, heavy traffic. But if you pick a fight with something like gravity, you're going to lose every time, and probably injure yourself. The natural decline in the production on an oil field can be "fought" with some methods to enhance recovery. But depletion is depletion. They don't make Botox for oil fields.;-)

So this leaves your “faith-based” argument, clutching at the hope of successful short term implementation of alternative energy. These options are to use:
Nuclear - creates electricity – and is extremely water intensive.
Coal-to-liquids: Massively expensive and only produces tiny volumes. (Sufficient high quality coal is an issue here too)
Solar and wind: Create electricity (not oil) for transportation (Current 0.1 and 0.4% total production respectively)
Non-conventional Oil: Very energy and water intensive
Bio-fuels: (Currently 1.0% of energy production) Go ahead, use them. Raise your food prices, and increase your recessionary risk further. Assuming you choose to anyway, what are your choices?
-Corn based ethanol - Has many problems, it raises food prices, is not scalable, has significant C02 issues, and depletes water supply
-Cellulosic ethanol – this is theoretically better, but still does not scale to 20% of what is needed. It also competes with biomass for electric, and home heating.
-Bio-fuel from Algae might work, but it is not perfected yet.

I suggest that you spend more time on using fact to underline your point, rather than attempting to increase your economic-credibility by self-describing yourself as a “real economist," or making baseless assertions that I do not understand supply and demand. These do not enhance the validity of your opinion and what you are trying to say. I have substantiated my logic and reasoning, and suggest before you next attempt criticism that you do the same. :-)

[graywolf624]

I suggest that you spend more time on using fact to underline your point, rather than attempting to increase your economic-credibility by self-describing yourself as a “real economist," or making baseless assertions that I do not understand supply and demand
Ok so .. how about you explain to everyone how the demand has trippled or supply has gone to a 1/3 over the last 2 years. If you can't show either, you can't show that the supply or demand is driving the trippling of price. Ready set GO. Without that your spouting the same crap as the club of rome.. The club of rome? Who are they you ask?

In 1970 they predicted a population bubble that would cause us all to starve to death by 2000.. Similar to Malthus' prophecy in 1709..
So how did that one turn out?

Again these are economic laws your arguing against.. It has nothing to do with faith.

Fact:
you are relying on:
a)An increase in undiscovered oil

We don't need to increase undiscovered oil at this time. Presently their is enough discovered oil to last us 100 years if the price goes above the price to extract it. What I just discribed to you.


b) Increase in oilfield technology, or

Fact, technology doubles every 3 years. If you believe that technology innovation is suddenly going to stop well then your dreaming. Even if it doesn't economy of scales will drop the price of alternatives.
Then again Marx believed tech innovation would stop in about 200 years from his life. He also believed at that point capitalism would die because we wouldnt need innovation. If you believe we are there now I can't help you.


c) Increase in non-conventional oil.

Fact, electric cars are 100 percent doable at higher prices. Ex: tesla roadster. That is the absolute highest gas could go with today alternatives. Why? Cause if it went higher wed all drive teslas. More drivers of teslas, price goes down. Also fact. Why? More cars to spread r&d across, lowering the overall cost. Right there you have whats called a ceiling. Another economic concept, and yet another one that proves gasoline cannot run out or go up over the long term.

The International Energy Agency
How lame. Your quoting a political organization. Thats like quoting the IPCC on climate change. How about quoting economists. Oh thats right, just 2 weeks ago a panel of over 100 economists said that at least a 1/3 of the gas increase was due to speculation. But hey what do they know right?

It has nothing to do with blame. I wish I was one of those speculators, I would have bought oil contracts. Hell if you believe it so much, mortgage your house and buy options on the engergy market. You believe its such a sure thing. Put your money where your mouth is and get rich. I already have by my purchases.. Given I just dumped obsene amounts of money into my gas hogs.. Why dont you?

[graywolf624]

More facts:
1.Solid US, European, and Asian industrial economies

If the price of gas rises they will be forced to go to something else or they wont be so solid. Solidity drops.. So does oil usage and thus price. Price rising decreases their growth. Again any way you slice it the price wont continue to grow over the long term.


2.Soaring oil use throughout developing world

See above.


3.Transportation that is an economic necessity

So is food.. So tell me again why the club of rome was wrong and we haven't starved to death? Transportation at current levels is not a necessity.

4.There are no easy energy substitutes, and

What are Nuclear, Wind, Solar, Coal, Geo Thermal, and Hydro? Last time I checked they have been in use reliably for hundreds of years. Ironically, this same arguement was used on coal last century when we changed over to Oil. Its not even a new arguement.


5.Oil supply growth has faltered

ERNNN Wrong.
Supply has actually grown. It hasnt grown quite to the level recently as Supply, but it has grown. In fact the numbers mostly denote that the real problem isn't even oil. It is the number of refineries.

[RC45]

Sooooooo..... at what oil price does China's growth falter? Or will they keep buying/using oil at any price? ;)

[graywolf624]

Your entire arguement hinges on two things that are simply not true.
That is that Gas demand is inelastic. IE as you incrase cost people won't decrease their consumption. That is obviously not true, given the number of articles on people driving less.

The second assumption you are making is that their are no alternatives.
Also obviously untrue. We have electric cars and hydrogen cars. They cost alot of money (albeit GM plans their electric car to be relatively affordable) but they do exist.
Now.. If thats untrue then that alot of money represents the absolute max dollar it could cost for an oil based car? Why? Other then a few of us nuts we'd all be driving them if the cost of gas became more then their cost.

Now look again to the curves of supply and demand. If that alternative is mapped as a ceiling on the supply and demand curve that means the cost can't go above. So I hear you saying that makes sense but we can't all just jump to electric cars overnight.. Well, your right.. But we don't have to. See the cost once speculation goes away should move in proportion to the rise in demand. But if a percentage transfers to another type of car, the cost will also drop by that proportion. What does that say? That says unless you believe the alternatives can't rise in proportion to the increase in demand, which you quote as ~1.2% percent. Are you going to sit here and tell us that we can't produce enough alternatives to replace 1.2 % of the oil market? If so I have to call bullshit. Anything more then 1.2 percent decreases gas prices over time. So your telling me that the alternative has no R&D or other fixed costs (ignoring innovation since you want to argue tech innovation stops) that will decrease per mile if spread across a wider volume?
Your arguement depends on all of the above being true. And the reality is, it isn't. Never has been.

Supply and demand includes expectations of future availability when information is given. The last drop of oil is technically infinite cost. Cascade that back. Infinite cost is greater then alternative.

[graywolf624]

at what oil price does China's growth falter? Or will they keep buying/using oil at any price?
If I knew that I would be buying short term puts on all their stocks and oil prices. That being said. I have a suspicion its less then a year away. Honestly I'm kind of worried about that moment. Not from a oil standpoint, but from a destabalizing Chinas govt and sending them into a civil war one.

[RC45]

If I knew that I would be buying short term puts on all their stocks and oil prices. That being said. I have a suspicion its less then a year away. Honestly I'm kind of worried about that moment. Not from a oil standpoint, but from a destabalizing Chinas govt and sending them into a civil war one.

That would sort of be a bit of a disaster for the west - I mena all our crap comes from china. I believe even the chemical raw materials for many cheap drugs and testing solutions etc are sourced there as well.

Not to mention all the consumer junk we goble up from the east... and the solid state electronics etc.

[styla21]

Gray, The "idiot" economists you refer to, who all support $150 near term, and $200 mid-term include.

James Neale, Citibank, report 3rd March, 2008 “Oil and Gas Daily”
Anton Sychev, Goldman Sachs International – Global Investment Research June 14th, 2008
Mikhail Zak – Veles Capital, Head of Department, Oil and Gas Research Report June 20th.
I have reports that come in daily from top 20 global firms, how many do you need? ;)

Here is the background of supply and demand. Oil supplies are running out. Of the world's 60 top oil producers, 54 report declining output. Indonesia announced last month that its production had slipped so much, it was no longer an exporter; the country had to withdraw from OPEC, since it has become an oil importer.
Many experts, such as the ones I have listed above, believe the maximum annual extraction level oil is coming up soon. From this point onward, the world has to accept (and price) tighter supplies and higher prices.
Looking at the demand side, there is a curve rising from here to eternity. Practically, I refer to the world we live in whereby there is an increasing population, of which most of moves to the city, lives in apartments heated by oil, eating commercial food grown with plenty of petroleum-based inputs, working in heated, energy-absorbing factories, riding on automobiles and buses, and buying things that take energy to make and energy (usually oil) to deliver.

It used to be a sure thing that if the United States had a recession that oil consumption and thus energy prices would go down. But in the last 12 months, oil consumption in the United States has gone down 1.3% - even as the price of it has soared. This is due to the giant demand coming from the BRICs and the Middle East. These countries are all using a lot more energy, partly due to stimulated economies, and partly because they tend to keep internal energy prices low (which assists in understanding why they are growing so fast). Both China and India have refused to allow their oil companies to raise domestic prices in line with world market prices, encouraging greater consumption. In the BRIC nations, oil use went up 4% during the last 12 months.

This sets the scene for why you cannot use your static-data to input as variables for calculating global supply and demand. For example, over on the side are the central bankers - Ben Bernanke and the U.S. Fed printing money. They are permitting the supply of money to increase at an estimated 16% annual rate. When the supply of money increases faster than the supply of GDP, prices rise. With GDP flat or barely rising at all, a 16% increase in money supply results in a huge inflationary push.

I probably don’t need to double underline this one, do I. Surely a trip to the gas station, or grocery store has articulated this for me? Higher oil prices depresses economic activity (RC45 – Read J ) They, along with falling house prices, are the two things pushing the United States into a slump. Usually, a slowdown would bring pain…but some relief too. Prices, notably the price of oil, would fall. But now globalization kicks in – the rest of the world takes up the slack, and the oil price refuses to fall.

This is from the 2008 Economic Report of the President (Page 166).

http://img112.imageshack.us/img112/1213/energydistributionrenewrv7.png (http://imageshack.us/)
http://img112.imageshack.us/img112/1213/energydistributionrenewrv7.c172389362.jpg (http://g.imageshack.us/g.php?h=112&i=energydistributionrenewrv7.png)

The data shown are 2006 figures. Percentages for the newer renewables would be slightly higher for 2007. The larger circle on the left represents consumption. It totals 100 quadrillion Btus. The smaller circle on the right represents production. It totals 71 quadrillion Btus.
Renewables are in the section pulled out. In total, renewables amount to 10% of production or 7% of consumption. The vast majority of renewables are hydroelectric and "other biomass" (wood used to heat homes and fuel some electric generating plants).
Please pay specific attention to Petroleum, Natural Gas, and Coal, and how much of your consumption (85%) is predominated by these.

I refer to my earlier post, where I stated, and attempted to open the discussion concerning alternates and their viability:
So this leaves your “faith-based” argument, clutching at the hope of successful short term implementation of alternative energy. These options are to use:
Nuclear - creates electricity – and is extremely water intensive.
Coal-to-liquids: Massively expensive and only produces tiny volumes. (Sufficient high quality coal is an issue here too)
Solar and wind: Create electricity (not oil) for transportation (Current 0.1 and 0.4% total production respectively)
Non-conventional Oil: Very energy and water intensive
Bio-fuels: (Currently 1.0% of energy production) Go ahead, use them. Raise your food prices, and increase your recessionary risk further. Assuming you choose to anyway, what are your choices?
-Corn based ethanol - Has many problems, it raises food prices, is not scalable, has significant C02 issues, and depletes water supply -Cellulosic ethanol – this is theoretically better, but still does not scale to 20% of what is needed. It also competes with biomass for electric, and home heating.
-Bio-fuel from Algae might work, but it is not perfected yet.

You're on a different wavelength here:
What does that say? That says unless you believe the alternatives can't rise in proportion to the increase in demand, which you quote as ~1.2% percent. No, I said 8.5% I suggest you to consider the following. The IEA projects that global demand will grow from 86.8 million barrels per day this year (with supply of around 88mbpd) to 94.14mpbd in 2013. That's an increase in required global production of 8.5%.

[RC45]

Interestingly, the higher oil prices has allowed many oil wells in Texas and Oklahoma to be uncapped.

These wells were capped in the 80's when oil dropped to $17 a barrel and there was no profit in getting the oil out.

Perhaps its time for Texas to ditch this silly federal system, secede from the union and become self sufficient ;)

[graywolf624]

James Neale, Citibank, report 3rd March, 2008 “Oil and Gas Daily”
Anton Sychev, Goldman Sachs International – Global Investment Research June 14th, 2008
Mikhail Zak – Veles Capital, Head of Department, Oil and Gas Research Report June 20th.
First off those are not economists. Those are hedge funds. You keep quoting people that have something to gain and were going to have to explain the concept of conflict of interest. Sachs especially has been wagging the dog as of late. In fact they did the same with the housing market... they publically said it would always climb. while selling at the opportune time.


The futures market can affect prices by cornering the market. For example, if a group of investors buys all the pending futures contracts of a given commodity, that group can refuse to sell unless a higher price is offered.
“I think it’s a minimum of a dollar a gallon,” said Sean Cota, a regional chairman with the Petroleum Marketers Association of America, before the Senate Energy and Natural Resources Committee. “That’s very significant.”
Trevor Hanger, head trader at Brookline Avenue Partners in Dallas, said speculation had almost as much to do with prices as demand.
“There are fundamental reasons why oil will stay high,” Harger said. “It’s my feeling that the move from $60 to $130 in the last 12 months is maybe 55 percent fundamentals and 45 percent speculation.”
...

Again the only way you can argue gas prices are due to an increase in demand is if the increase is proportional to that of the increase in cost. I'm still waiting for evidence of a 300 percent increase in demand over 2 years. Prove that and I might start thinking your less brainwashed.

Looking at the demand side, there is a curve rising from here to eternity
Again this isn't economically possible. I already showed you why. You must disprove the fact to make this claim. That is the part you still dont understand. Demand can only continue to climb if it remains below the alternative.

This is due to the giant demand coming from the BRICs and the Middle East. These countries are all using a lot more energy, partly due to stimulated economies, and partly because they tend to keep internal energy prices low (which assists in understanding why they are growing so fast). Both China and India have refused to allow their oil companies to raise domestic prices in line with world market prices, encouraging greater consumption. In the BRIC nations, oil use went up 4% during the last 12 months.

I guess you missed the news.. China just removed oil subsidies. Also you just said it wouldnt decrease oil usage and then you quote that the US has decreased its. Why are you assuming the rest of the world wont do that?


This sets the scene for why you cannot use your static-data to input as variables for calculating global supply and demand. For example, over on the side are the central bankers - Ben Bernanke and the U.S. Fed printing money. They are permitting the supply of money to increase at an estimated 16% annual rate. When the supply of money increases faster than the supply of GDP, prices rise. With GDP flat or barely rising at all, a 16% increase in money supply results in a huge inflationary push.
Your arguement sounds vaguely like those who pushed the dot com bubble. You cant use old world economy, the market has changed, its different.. blah blah blah. Again your working under the assumption that other countries wont have to shift off oil at some point and that their are no alternatives. Neither stands in the real world.

Renewables are in the section pulled out. In total, renewables amount to 10% of production or 7% of consumption. The vast majority of renewables are hydroelectric and "other biomass" (wood used to heat homes and fuel some electric generating plants).

And the reason ladies in gentleman.. is because gas was 1.50 a gallon 2 years ago. There was no reason to invest in these other things until now. Guess what.. Now there is.. and guess what else.. That percentage is increasing. Nuclear plant plans are poping up across the country, electric cars are showing up... and the enviro nuts are losing their fight against hydro and oil exploration.

No, I said 8.5%

Additionally, I would reinforce the long-term demand, as sustained demand growth of 5-6% per annum from China for the foreseeable future. Conservatively, global demand growth to 2015, on average, of ~1.2% per annum.
I must be illiterate because that sure looks like 1.2 % per annum. Anyone want to dispute that?
You cant quote a political group, they have gains.. nor a hedge fund with sizeable dollars invested in oil hedge funds.

[graywolf624]

And more people backinbg me up, in fact the same political organization you quoted:
The International Energy Agency on May 13 reported that oil stocks in OECD countries equaled 53.3 days of demand in March, at the same time revising down its forecast for world oil demand growth in 2008 because of record prices and slower economic growth. Badri warned prices could keep rising due to non-market factors such as a continued decline in the dollar, but said the organisation sees no reason to hold an extraordinary meeting before the next one scheduled for September.


"As the committee knows, there is much talk about 'peak oil' supply these days," said Yergin. "However, we think something else is at hand - 'peak demand' - at least in terms of U.S. gasoline consumption," Yergin said. "In our view, 2007 may well have been the top, the peak, in terms of U.S. gasoline demand."
Hey look.. the point Ive been telling you. Yergin, co-founder and chairman of Cambridge Energy Research Associates

USing your own inflated numbers.. 8 percent per annum increase plus 16 percent money supply increase... Can you show that to be > 200 percent? If you can't your arguement is immediately moot.

Quit trying to quote things regarding oil price increases, and do the math. Its not that hard. demand increases plus inflation should equal increase in gas price if your right. Can you keep a straight face and say it does?

[graywolf624]

Lets do the math together shall we.
.08 per annum increase in demand..
So over 2 years thats
.08*1.08+.08= 0.1664 or 16.5 %

Assume worst case 16 percent money supply increase equals 16 percent inflation. It doesnt but for the sake of being conservative we will.
.16+.165= .325

Heck I'll even be generous and throw in a supply side bone of a reduction of 5 percent capacity.. Just for the hell of it. I'm feeling that confident.

.375 percent.

Do you feel confident that number is > then the increase in gas?
Well.. How about we do the numbers on that. Price at local pump 4.00 a gallon.. Price 2 years ago.. 1.50.

4/1.50= 2.667 or 167 percent increase in the price of gas.

So how can you make .375 = 1.67? Want me to throw you a few more bones from somewhere? Not much else I can give you other then speculation, aka the betting that the price will continue to rise in the future. Otherwise Im just about out of ideas.

Maybe I can throw in a ten percent surcharge for the war (theres that pesky govt interference we discussed) and another ten percent for the china govt pegging their costs.

.57.. nope still not 1.67...
Help me out here. What am I missing?

Until you can balance the above equation I consider you to have lost this arguement and will comment no further.

[Lightbane]

My head hurts.

[RC45]

My head hurts.

My wallet hurts.. ;)

The 4 cylinder Ford Contour used to cost $20 to fill up when I bought it in 1997 - now it costs about $60.

Although, come to think of it, a 4 fold increase over an 11 year period is not that bad... oh - wait, the price held steady at abtou $35 for 10 of those yeras and the skyrocketed the last 6 months :P hehehe

Either way, a tank still lasts me 2 weeks of driving, so in the grand scheme of things we just eat out at the steak house 2 less times every 2 weeks ;)

[philip]

It will be no doubt they gonna cut dividend to conserve cash.

That usually results in the stock going lower. In this case it may go up.


I had a rental car for a couple of weeks. I bought the gas, so I could return it empty. They said buying the gas was a great deal, $3.50 a gallon. I got 3/8's of a tank for $35.00 (I didnt see the total price untill I took it back, what a deal 3/8 of a tank is about 5 gallons)

Anyway the car was a small crossover SUV, a Miliano, Monaro, Monrovia, something like that from Nissan.
It is real sexy for a sport ute, lots of pickup.

As the time for me to return it got closer I started not putting very much gas in it as I could and should return it empty.

I learned that I use about $9 a day in gas going to and from work (12 miles one way) and any little errands I run. That 6 euros a day, today, but only $5.10 in 2001 euros.

While I had it, I drove to Kansas City and back (1600 miles) and used about $300 in gasoline. I think thats about 21 miles to the gallon.

I stayed home for the 4th this July. Usually I would have driven to Bilouxi or Brownsville and gone to the beach.

So yeah eventually this is going to really smash the economy.

T

[styla21]

Gray. It is difficult to have a meaningful discussion with you, when you choose to ignore 90% of my points, and chose to misquote and misrepresent facts to suit your one-line-wonder comments.

You are using an assumptions that are static, and have not factored in accurately geo-political, or fiscal manipulations. Your ivory-tower stance claims that using these points are mere "hype" and lead to "speculation", when in-fact they the very underpinning of every market in the world today.

I have used certified, non-negotiable facts. You then misquote them or ignore them.

I have quoted credible, published economists. You choose to defy a source one minute and then quote them the next to suit your purpose. Interesting strategy?
Having an intelligent discussion becomes impossible when those involved stop paying attention to facts, or get upset when said facts it supports a position contrary to their own.

As you will insist on having 'one-more-post' to get the last word in, I will concede now that your opinion will have the last say.

I will articulate some very simple underpinnings toward the value of oil, and the amount of speculation factored in to todays pricing - which incorporates elements of your argument.
You have depleting supplies from aging oil fields, government fuel subsidies, and record Chinese and Indian demand. These could explain the parabolic surge in energy prices, and would indicate that the crude oil market could be inflated by speculation. I agree with you, that there is a % of oil price that is the direct cause of speculation.
I would remind you that this is present in most financial instruments, as markets are driven by perception after all ;)

I suggest to you that the short term price of oil will not recede until both the United States and the British economies slip into recession, after which oil prices can be allowed to fall. You can anticipate that the “bubble” will eventually correct, but that is unlikely to happen before the recession actually reduces the demand. The rise in the price of oil and food is going to weigh and aggravate the recession.

In the past, in the event of a slowdown in the US economy, the price of crude oil was pushed down and other commodities even lower. On April 28th, OPEC chief Chakib Khelil stated that crude oil prices were climbing, “even though supply is adequate, because the market is driven by the dollar’s slide”. Each time the dollar falls 1%, the price of the barrel rises by $4, and obviously vice versa. If for instance, the US dollar would strengthen by 10%, it is probable that oil prices will fall by 40%.
So assume you prescribe to the above, which it appears you do, you must realise such simple logic has its limitations. China, India, Russia and the Middle East combined, are now consuming more crude oil than the US, burning 20.7 million barrels a day, up 4% from a year ago, according to the IEA. The emerging economies are picking-up the slack in the oil market, more than offsetting the -1.3% contraction in U.S. oil demand to 20.3 million barrels this year. Thus, a mild recession in the Western economies and Japan does not weaken global demand for oil. :)
Russia, Mexico, and OPEC itself are growing at such a rate that their need for energy within their own borders will limit how much they can sell abroad. Internal oil demand in Saudi Arabia, Russia, Norway, Iran and the United Arab Emirates, grew 6% last year, and their exports declined 3 percent. Mexico’s oil output fell -11% in the first half of this year, from the year earlier. Extrapolate these trends, and you see that if continued, global crude exports could fall by 2.5 million barrels a day by the end of 2010.

This brings me to strict speculation. If the speculators on the Nymex were buying oil as a hedge against the U.S. dollar’s slide against the euro, the #2 reserve currency, then perhaps traders in London were buying North Sea Brent as a hedge against the British pound’s devaluation against the Euro. The Bank of England engineered the British pound’s sharp devaluation against the Euro, by joining the Fed’s rate cutting spree last November and throughout this year.

The euro soared 17% to 80-pence, while at the same time, North Sea Brent crude oil prices doubled to $130 /barrel.

Flipped the other way round, the British pound buys around €1.25, down from €1.50 last summer, making European imports considerably more expensive. For Ivory-Tower economists such as yourself, the euro’s ascent against the British pound and U.S. dollar, which closely tracked North Sea Brent was just a statistical coincidence.
But for crude oil speculators, the sharp devaluations of the pound and U.S. dollar translated handsome windfall profits in our brokerage accounts. (Thank you for your advice to 'put my money where my mouth is'. I don't recall asking for your advice - but I took my own over 2 years ago my account is thankful that I did.)

I reiterate it’s always good to have the basic fundamentals on your side. Oil production is shrinking in 54 of the world’s top-60 oil producing nations, including Britain’s North Sea, where output peaked in 1999, and has already plunged by half. The United Kingdom began importing liquid gas, for the first time in history in July 2005, and its North Sea oil reserve is dwindling at an -8.5% annual rate. According to the UK Offshore Oil Industry, it might be the curtain fall on North Sea Brent by 2012, if enough isn’t done to maintain development and exploration.

It is fruitless of you to try and argue these facts. You will offer analysis, math, exclaim technology doubles every 3 years, and that "Nuclear power plants are popping up all over the place".
C'mon Gray, language such as that makes you appear naive and misinformed. How long do you think it takes to build a nuclear refinery?

A man convinced against his will, is of the same opinion still. Certainly you are not open to examining fact, dicsussing logic, or considering a new idea. Thus respectfully, I will draw a line in the sand before I join you in name calling and slandering each others credibility.

[RC45]

An important point to consider is that many of the major oil fields on the US mainland never "ran dry" - they were capped because the environMENTAL movement made it impossibly expensive to continue drilling.

When oil was $17 a barrel and it cost $40 a barrel to take it out the ground it was obviously cheaper to just cap the wells and move on.

The EPA and other federal agencies watch the lan based drillers like hawks, with $50,000 fines for oil spilling on ground etc.

The bottom line is that if the liberal enviro-idiots would get their heads out their arses and allow the driling to start up again - the USA could actual be very nearly self sufficient - but sadly it is almost illegal to drill for oil on the mainland.

[graywolf624]

I have quoted credible, published economists
Your quoting Goldman Sachs man. They just got in trouble for pumping up housing fundamentals while betting against them. They are the biggest player in oil contracts in the world. Has it occured to you they might gain by jacking up the price in the near term?

. I agree with you, that there is a % of oil price that is the direct cause of speculation.
I would remind you that this is present in most financial instruments, as markets are driven by perception after all :wink:

I suggest to you that the short term price of oil will not recede until both the United States and the British economies slip into recession, after which oil prices can be allowed to fall. You can anticipate that the “bubble” will eventually correct, but that is unlikely to happen before the recession actually reduces the demand. The rise in the price of oil and food is going to weigh and aggravate the recession.
And in the short term this is exactly what I've been trying to tell you. The problem is.. Its debateable whether the US is already in a recession, and our consumption has already dropped. The rest of the world will follow suit shortly. That being said, nothing I've said refers to the short term. Economics doesn't deal with the short term. We could have an unforseen war somewhere and oil supply be cut off. I can't predict that, Im not Nostradomis here. Short term, outside of people not getting their oil, is something that never follows the fundamentals. Peak oil however is a long term theory that is blatantly wrong. It is also causing the third specualative runup in this nations history. (see 1980, the paralells there are amazing)

you prescribe to the above, which it appears you do, you must realise such simple logic has its limitations. China, India, Russia and the Middle East combined, are now consuming more crude oil than the US, burning 20.7 million barrels a day, up 4% from a year ago, according to the IEA. The emerging economies are picking-up the slack in the oil market, more than offsetting the -1.3% contraction in U.S. oil demand to 20.3 million barrels this year. Thus, a mild recession in the Western economies and Japan does not weaken global demand for oil. :-)

Theres an old saying. When America gets a cold, the rest of the world ends up on their death bed. Who do your emerging economies all sell too? The western world. If the western world has a recession, who buys from the emerging economies? If no one buys, how do they maintain growth?

I reiterate it’s always good to have the basic fundamentals on your side. Oil production is shrinking in 54 of the world’s top-60 oil producing nations, including Britain’s North Sea, where output peaked in 1999, and has already plunged by half. The United Kingdom began importing liquid gas, for the first time in history in July 2005, and its North Sea oil reserve is dwindling at an -8.5% annual rate. According to the UK Offshore Oil Industry, it might be the curtain fall on North Sea Brent by 2012, if enough isn’t done to maintain development and exploration.
Again, no one is arguing the supply side. What I keep telling you is your blind to demand.

language such as that makes you appear naive and misinformed. How long do you think it takes to build a nuclear refinery?
What exactly do you think defines the long term? No one said economists predict this will turn around in x years/days. It may take 10 years. Thats long term, and that is within nuclear construction timelines. The 1 year is my prediction, but thats not hard and fast. That is instead based on my belief that Chinas heading for collapse. Peak Oil, as defined by Hubbard who honestly knows about as much about economics as I do about the Russian language, is where we actually run out of oil and the price of energy goes so high we all starve. Its the same crock the Club of Rome, Malthus, Ehrlich, and all the rest I already quoted have spouted for the last 400 years. Its like a natural man kind desire to think well all be destroyed by something and worry about it non stop. Its too bad we most likely wont see what will kill us comming.

draw a line in the sand before I join you in name calling and slandering each others credibility.
I dont see any name calling or slandering. Isn't it slander to insinuate such in the absense of it?

It seems its starting to click with you that this is a short term situation. It still hasn't clicked what long term is in terms of economics. I'll give you a little time to mull that one over.

[CarlZ]

wow, awful lot of info....and I don't ewen understand who to believe :D

[Shilder]

Bad news !

[CarlZ]

Bad news !

Did you red it all?

[RC45]

Who do your emerging economies all sell too? The western world. If the western world has a recession, who buys from the emerging economies? If no one buys, how do they maintain growth?

This is the bit I never see CNN and the other "doomsdayers" talking about......

[styla21]

Originally Posted by graywolf624 http://www.motorworld.net/forum/firestorm/buttons/viewpost.gif (http://www.motorworld.net/forum/showthread.php?p=839219#post839219)
Who do your emerging economies all sell too? The western world. If the western world has a recession, who buys from the emerging economies? If no one buys, how do they maintain growth?

Originally Posted by RC45 http://www.motorworld.net/forum/firestorm/buttons/viewpost.gif (http://www.motorworld.net/forum/showthread.php?p=839219#post839219)
This is the bit I never see CNN and the other "doomsdayers" talking about......

Well, this comment may spark Round 2. But here goes..
I believe in the growth of emerging markets.

The emerging markets just don't have the problems of the developed world.
There is not much sub-prime debt in Argentina’s financial industry, for example. In fact, there’s not much prime debt either. Or credit card debt. Or home equity debt. Or corporate debt. Or any kind of debt.

Nor do the emerging countries have huge trade deficits – in the past they couldn’t afford them. Instead, they tend to have been on a pay-as-you-go system of international finance. And now, many are building up large stockpiles of hundreds of billions of dollars. By contrast, the USA has practically none of it in the currency reserves of emerging markets denomination.

Many emerging markets are major exporters of raw materials…and food products.
In a worldwide downturn, the short term demand for oil may dampen…but would demand for cheap chicken lower? Nor are emerging countries generally burdened by high social and environmental costs. They’ve been too poor to afford expensive public pension and health care systems.

My point is that he force of a correction is equal and opposite to the deception that precedes it. In the West, millions of people took out mortgages without a real plan on how to pay them off. Sophisticated investors believed these bad loans could be made good by splicing and dicing them. Narrow-minded economists believed you could get rich by spending more money… or by printing more! ;-)
Whole populations thought they could live on the savings of others. And the USA thought it could finance its military campaigns by borrowing from its rivals

What about China? Ten years ago, China imported 165 million barrels of oil per year. Today, the total is more than 1 billion.
What does it do with all that energy? It grows...it develops...it soars. In addition to the oil, China has opened 229 new coal-fired power plants since 1990. And rice is now selling for twice as much as did last year. Could that too be blamed on China? Probably.
Brazil is in a sweet spot, and India's middle class of 700million people have an increasing purchasing power. Russia I could write a whole thread on.
(I do acknowledge that there are possible asset-bubbles being created in India and China however.)

However the facts remain, China, home to 1.3billion people, and India with more than over 1 billion. All of these economies are growing fast, and they must have oil (Cue prior peak oil debate... :) )

Does this mean you would want to go and buy anything that resembles an 'Emerging Market' Investment? Of course not. Only about 1/4 of my portfolio is geared toward it.
The balance comprised of natural resources, gold and some European stocks I like.

But in examining the supply / demand equation, I certainly can see a strong demand emerging. 'Scuse the pun ;-)

[philip]

This is the bit I never see CNN and the other "doomsdayers" talking about......

What is the quote "when the US gets a cold the rest of the world gets the flu."

[Alelanza]

In your countries, where to you typically get electricity from? I'm from Costa Rica and iirc about 85% of our power comes from renewable sources, mainly hydroelectric and to a much lesser extent thermoelectrical (not sure how this translates, volcano power?). The rest is from burning oil. That being said we could do a 100% renewable and have spare to sell if it were not for all the hippie groups.
What is it like in your countries, where does it mainly come from? nuclear?

PD. US car manufacturers do not need high oil prices to go bankrupt, it's really more a question of how long before they do.

[Alelanza]

In your countries, where to you typically get electricity from? I'm from Costa Rica and iirc about 85% of our power comes from renewable sources, mainly hydroelectric and to a much lesser extent thermoelectrical (not sure how this translates, volcano power?). The rest is from burning oil. That being said we could do a 100% renewable and have spare to sell if it were not for all the hippie groups.
What is it like in your countries, where does it mainly come from? nuclear?

PD. US car manufacturers do not need high oil prices to go bankrupt, it's really more a question of how long before they do.

[graywolf624]

There is not much sub-prime debt in Argentina’s financial industry, for example. In fact, there’s not much prime debt either. Or credit card debt. Or home equity debt. Or corporate debt. Or any kind of debt.

Your leaving out one of the largest developing world countries in your analysis. The one that has the debt your refering to. China. They have had an almost strataspheric rise in govt debt. Based on current projections they will reach French levels of govt debt (read 100 percent of GDP) in a few more years. Their banks are known to have made what the SEC would consider bad loans. They aren't as stable as you want to think, they are just very good at not reporting.

They aren't the only developing world country no doubt, but they are the biggest. Then we have India. If no one is there to buy IT services and pay for pharma R and D, where does that leave india? The growth of these countries industries is not comming from within.

Nor do the emerging countries have huge trade deficits – in the past they couldn’t afford them
What happens to a trade deficit in say China or Russian when less people buy their goods. They still need to import food. They dont produce enough on their own to survive. Yet their sales will drop. What picks up the slack?

The other developing nations you site have a bigger problem. At present they aren't major developers in the world economy, so in general when we discuss ramifications of the developing world Im thinking China, India, Russia. That being said the reason these countries can't compete over time isn't lack of resources or initiative. It's government stability. I have a decent size foreign contingent in my portfolio as well. Long term the entire world will continue to improve, US included, if you understand the fundamentals of globalization. But.. The hold back isn't recession in say a Brazil or Argentina. Its the potential for people like Chavez to steal all your money or Argentinas history of rampant inflation.

US car manufacturers do not need high oil prices to go bankrupt, it's really more a question of how long before they do
This is true. High unionized labor costs/ retirement costs make it nearly impossible for them to be competitive on cost. If I recall GM has to sell 3 or 4 cars for every retired worker just to cover their pension.

[dutchmasterflex]

Oh... so NOW the recession rumors are true?

[styla21]

Gray,
Did you review Pickens plan he announced today? If so, what did you make of it?