General Motors: Potential Bankruptcy?

[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 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

[Shilder]

Bad news !

[CarlZ]

Originally Posted by Shilder Bad news !

Did you red it all?

[RC45]

Originally Posted by graywolf624 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 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 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]

Originally Posted by RC45 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?