Comments on: Deflation, Deleveraging, and the Stimulus Effect http://www.ritholtz.com/blog/2009/01/deflation-deleveraging-and-the-stimulus-effect/ Macro Perspective on the Capital Markets, Economy, Geopolitics, Technology, and Digital Media Sat, 21 Nov 2009 08:40:44 -0500 http://wordpress.org/?v=2.8.5 hourly 1 By: Bill Werner http://www.ritholtz.com/blog/2009/01/deflation-deleveraging-and-the-stimulus-effect/comment-page-1/#comment-138477 Bill Werner Mon, 12 Jan 2009 03:37:33 +0000 http://www.ritholtz.com/blog/?p=15708#comment-138477 Guns and ammo are flying off the shelves down here in Texas. There are two forces at play Obama paranoia (get your guns and ammo while the getting is good) and the very real possibility that the unreported Narco Civil war in Mexico will spill over into the border states especially Texas. Fueled by American demand the Narco Wars which are most intense along the Mexican border towns where chiefs of police positions go unfilled because of the short life expectancy that comes with the job. That being the case the closer you get to The (Rio Grande) Valley the faster the guns and ammo fly off the shelves. I do not normally watch Lou Dobbs but if you are interested in the Mexican Narco Wars tune in and you will hear about it ad nauseam. With two wars, a financial crises and all the rest of it who has time for the Texas border except the poor people that live there. The border mess could be complicated by the slowing of the Texas job machine. That job machine has lead the country for quite a while and has held up amazingly until the past few weeks but it is definitely starting to crack. It appears to be something of an '82-83 repeat where Texas went into recession a year later than the rest of the country. Although Houston and Dallas real estate is not the mess it was during the '80s S&L crisis, everyone knows about oil (Schlumberger just laid people off) and gasoline (refiner Lyondell is in chapter 11) also demand for petrochemicals i.e. plastics etc. is cratering. http://www.chron.com/disp/story.mpl/front/6203897.html Rumors are swirling around huge projects such as the $7+ billion Motiva (Shell/Saudi) refinery expansion in Port Arthur Texas. http://www.panews.com/local/local_story_009190426.html (By the way Port Arthur is the home town of Janis Joplin. Some of the old refinery hands went to high school with her.) Old timers like me remember the Houston engineering houses (Fluor, Jacobs, KBR etc.) being decimated in 1983. The under 50 crowd has been saying this time is different. Some of the engineers can easily convert their skills to Obama projects. Some like Process (Chemical) Engineers down stream and geophycists up stream, the elites during a boom, may have more trouble. -snip- Guns and ammo are flying off the shelves down here in Texas. There are two forces at play Obama paranoia (get your guns and ammo while the getting is good) and the very real possibility that the unreported Narco Civil war in Mexico will spill over into the border states especially Texas. Fueled by American demand the Narco Wars which are most intense along the Mexican border towns where chiefs of police positions go unfilled because of the short life expectancy that comes with the job. That being the case the closer you get to The (Rio Grande) Valley the faster the guns and ammo fly off the shelves. I do not normally watch Lou Dobbs but if you are interested in the Mexican Narco Wars tune in and you will hear about it ad nauseam. With two wars, a financial crises and all the rest of it who has time for the Texas border except the poor people that live there.

The border mess could be complicated by the slowing of the Texas job machine. That job machine has lead the country for quite a while and has held up amazingly until the past few weeks but it is definitely starting to crack. It appears to be something of an ‘82-83 repeat where Texas went into recession a year later than the rest of the country. Although Houston and Dallas real estate is not the mess it was during the ’80s S&L crisis, everyone knows about oil (Schlumberger just laid people off) and gasoline (refiner Lyondell is in chapter 11) also demand for petrochemicals i.e. plastics etc. is cratering. http://www.chron.com/disp/story.mpl/front/6203897.html Rumors are swirling around huge projects such as the $7+ billion Motiva (Shell/Saudi) refinery expansion in Port Arthur Texas. http://www.panews.com/local/local_story_009190426.html (By the way Port Arthur is the home town of Janis Joplin. Some of the old refinery hands went to high school with her.) Old timers like me remember the Houston engineering houses (Fluor, Jacobs, KBR etc.) being decimated in 1983. The under 50 crowd has been saying this time is different. Some of the engineers can easily convert their skills to Obama projects. Some like Process (Chemical) Engineers down stream and geophycists up stream, the elites during a boom, may have more trouble.

-snip-

]]> By: karen http://www.ritholtz.com/blog/2009/01/deflation-deleveraging-and-the-stimulus-effect/comment-page-1/#comment-138471 karen Mon, 12 Jan 2009 01:43:08 +0000 http://www.ritholtz.com/blog/?p=15708#comment-138471 Bruce, that is absolutely fascinating (about the lack of ammo.) I have been meaning to do this course for several years now... mainly to have a basic proficiency with something I know nothing about, as well as to overcome a fear. Bruce, that is absolutely fascinating (about the lack of ammo.) I have been meaning to do this course for several years now… mainly to have a basic proficiency with something I know nothing about, as well as to overcome a fear.

]]> By: Bruce in Tn http://www.ritholtz.com/blog/2009/01/deflation-deleveraging-and-the-stimulus-effect/comment-page-1/#comment-138465 Bruce in Tn Sun, 11 Jan 2009 21:24:59 +0000 http://www.ritholtz.com/blog/?p=15708#comment-138465 BTW, my wife and I have signed up to take a licensing/safety handgun course, mainly because one of the wives in our outdoor circle wanted to, and we agreed. There will be about 10 of us doing this together in early February. WELL, has anyone tried to buy handgun ammunition lately? NOBODY has any in stock. Finally found enough to get through the course, in 38 special caliber, but geez louise, people must have been buying this stuff by the truckload somewhere... BTW, my wife and I have signed up to take a licensing/safety handgun course, mainly because one of the wives in our outdoor circle wanted to, and we agreed. There will be about 10 of us doing this together in early February. WELL, has anyone tried to buy handgun ammunition lately? NOBODY has any in stock. Finally found enough to get through the course, in 38 special caliber, but geez louise, people must have been buying this stuff by the truckload somewhere…

]]> By: VangelV http://www.ritholtz.com/blog/2009/01/deflation-deleveraging-and-the-stimulus-effect/comment-page-1/#comment-138459 VangelV Sun, 11 Jan 2009 19:58:51 +0000 http://www.ritholtz.com/blog/?p=15708#comment-138459 The energy sector is more interesting than is being suggested and may lead to surprises for investors. While I read a number of predictions about a further collapse in oil prices many of these predictions seem to believe that supply will stay flat while demand collapses. The problem with this scenario is obvious to anyone who has looked at the IEA report on depletion. After years of relying on questionable data the IEA did an internal review of existing fields and found that unless massive investments is made, production from those fields will fall substantially. Depletion from existing fields is running at around 9% per year and the maintenance of flat or rising production profiles depend on new capital investments, which themselves depend on the oil price. At $50 a great deal of marginal production becomes uneconomic and we see investments in deep water, heavy oil, and shale production being postponed or cancelled entirely. That means that depletion will take production levels lower in fairly short order and if the economy holds up better than expected or if demand does not fall as much energy prices could be sharply higher. Given the likelihood of seeing the USD depreciated so that debtors can be saved the nominal price of oil could be much higher than expected sooner than expected. That said, the safest play may be to look to gold and hold it for several years until the crisis has run its course. Gold started its bull market run when it took more than 40 ounces to purchase the Dow. It now takes around 10 ounces and by the time the run is over it is likely to be at one ounce to the Dow or better. The energy sector is more interesting than is being suggested and may lead to surprises for investors. While I read a number of predictions about a further collapse in oil prices many of these predictions seem to believe that supply will stay flat while demand collapses. The problem with this scenario is obvious to anyone who has looked at the IEA report on depletion. After years of relying on questionable data the IEA did an internal review of existing fields and found that unless massive investments is made, production from those fields will fall substantially. Depletion from existing fields is running at around 9% per year and the maintenance of flat or rising production profiles depend on new capital investments, which themselves depend on the oil price. At $50 a great deal of marginal production becomes uneconomic and we see investments in deep water, heavy oil, and shale production being postponed or cancelled entirely. That means that depletion will take production levels lower in fairly short order and if the economy holds up better than expected or if demand does not fall as much energy prices could be sharply higher. Given the likelihood of seeing the USD depreciated so that debtors can be saved the nominal price of oil could be much higher than expected sooner than expected. That said, the safest play may be to look to gold and hold it for several years until the crisis has run its course. Gold started its bull market run when it took more than 40 ounces to purchase the Dow. It now takes around 10 ounces and by the time the run is over it is likely to be at one ounce to the Dow or better.

]]> By: DP http://www.ritholtz.com/blog/2009/01/deflation-deleveraging-and-the-stimulus-effect/comment-page-1/#comment-138456 DP Sun, 11 Jan 2009 18:18:06 +0000 http://www.ritholtz.com/blog/?p=15708#comment-138456 @Bruce/Karen: Reiterating that "thanks". I picked up some PRGN at the time too, it has been nice trading from mid 4s to 6-7 for a few round trips. @Bruce/Karen: Reiterating that “thanks”. I picked up some PRGN at the time too, it has been nice trading from mid 4s to 6-7 for a few round trips.

]]> By: Steve Barry http://www.ritholtz.com/blog/2009/01/deflation-deleveraging-and-the-stimulus-effect/comment-page-1/#comment-138453 Steve Barry Sun, 11 Jan 2009 16:32:47 +0000 http://www.ritholtz.com/blog/?p=15708#comment-138453 "Fwiw, I’ve had more people ask me how to buy physical gold in the last few months than in all the years since 9-11." That is a good reason to fade gold for now...that and the fact that gold is trading at 21 times the price of oil. After the deflation ends (3-5 years??) I will put everything I have into gold miners. They won't be able to get the gold out of the ground fast enough and the cost to do so will be dirt cheap. “Fwiw, I’ve had more people ask me how to buy physical gold in the last few months than in all the years since 9-11.”

That is a good reason to fade gold for now…that and the fact that gold is trading at 21 times the price of oil.

After the deflation ends (3-5 years??) I will put everything I have into gold miners. They won’t be able to get the gold out of the ground fast enough and the cost to do so will be dirt cheap.

]]> By: Bruce in Tn http://www.ritholtz.com/blog/2009/01/deflation-deleveraging-and-the-stimulus-effect/comment-page-1/#comment-138452 Bruce in Tn Sun, 11 Jan 2009 16:25:12 +0000 http://www.ritholtz.com/blog/?p=15708#comment-138452 @Karen: By the way, thank you for the Prgn...it has been very good...and I had my feelings hurt when some moron said why are you touting this stock, here in the BP...but it has been a very nice trade here in this time of uncertainty...if you have any other ideas...I am still going to put most of my portfolio in short term cd's for next year, and hope that for investors like me, 2010 will be better... @Karen:

By the way, thank you for the Prgn…it has been very good…and I had my feelings hurt when some moron said why are you touting this stock, here in the BP…but it has been a very nice trade here in this time of uncertainty…if you have any other ideas…I am still going to put most of my portfolio in short term cd’s for next year, and hope that for investors like me, 2010 will be better…

]]> By: karen http://www.ritholtz.com/blog/2009/01/deflation-deleveraging-and-the-stimulus-effect/comment-page-1/#comment-138449 karen Sun, 11 Jan 2009 15:52:20 +0000 http://www.ritholtz.com/blog/?p=15708#comment-138449 OT: on gold, can you imagine if our US post offices would offer a .5 gram gold coin free with purchase of a 10 gram? that's 24kt mind you. http://www.commodityonline.com/news/India-Post-to-offer-free-Gold-coins-to-customers-14001-3-1.html Fwiw, I've had more people ask me how to buy physical gold in the last few months than in all the years since 9-11. OT: on gold, can you imagine if our US post offices would offer a .5 gram gold coin free with purchase of a 10 gram? that’s 24kt mind you.

http://www.commodityonline.com/news/India-Post-to-offer-free-Gold-coins-to-customers-14001-3-1.html

Fwiw, I’ve had more people ask me how to buy physical gold in the last few months than in all the years since 9-11.

]]> By: karen http://www.ritholtz.com/blog/2009/01/deflation-deleveraging-and-the-stimulus-effect/comment-page-1/#comment-138446 karen Sun, 11 Jan 2009 15:30:57 +0000 http://www.ritholtz.com/blog/?p=15708#comment-138446 I always get a kick out of seeing Jon Sundt of Altegris Investments name in Maudlin's newsletters as we worked at the La Jolla Chart House together nearly 30 years ago... there's no way i feel that old : ) I always get a kick out of seeing Jon Sundt of Altegris Investments name in Maudlin’s newsletters as we worked at the La Jolla Chart House together nearly 30 years ago… there’s no way i feel that old : )

]]> By: Bruce in Tn http://www.ritholtz.com/blog/2009/01/deflation-deleveraging-and-the-stimulus-effect/comment-page-1/#comment-138445 Bruce in Tn Sun, 11 Jan 2009 15:21:30 +0000 http://www.ritholtz.com/blog/?p=15708#comment-138445 One other thing from the article above that interested me...he states he thinks housing prices will drop another 10%....ok, let's say for a moment this is true. What we need is perspective or context. We are now in 2009, and housing prices have already dropped greatly. He is talking about ten per cent on top of the weakness we've shown in 2008. To me this means those who are in debt with housing will feel like they are not only not getting better, but they are in quicksand. I mean, you are in a loss position seconday to 2008, and your hope is housing prices recover in 2009. They won't and as the factor of time wears on, desperation will grow. At least that is one moron's opinion... One other thing from the article above that interested me…he states he thinks housing prices will drop another 10%….ok, let’s say for a moment this is true. What we need is perspective or context. We are now in 2009, and housing prices have already dropped greatly. He is talking about ten per cent on top of the weakness we’ve shown in 2008. To me this means those who are in debt with housing will feel like they are not only not getting better, but they are in quicksand. I mean, you are in a loss position seconday to 2008, and your hope is housing prices recover in 2009. They won’t and as the factor of time wears on, desperation will grow.

At least that is one moron’s opinion…

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