Comments on: Andy Xie: The big burnout http://www.ritholtz.com/blog/2009/10/andy-xie-the-big-burnout/ Macro Perspective on the Capital Markets, Economy, Geopolitics, Technology, and Digital Media Tue, 14 Feb 2012 17:15:04 +0000 hourly 1 http://wordpress.org/?v=3.0.5 By: PUNDIT PATROL Market Nut http://www.ritholtz.com/blog/2009/10/andy-xie-the-big-burnout/comment-page-1/#comment-233770 PUNDIT PATROL Market Nut Wed, 11 Nov 2009 14:54:09 +0000 http://www.ritholtz.com/blog/?p=42096#comment-233770 [...] says China has bubbled up again and it’s asset markets have become a giant Ponzi scheme.   (The Big Picture)   (China Digital [...] [...] says China has bubbled up again and it’s asset markets have become a giant Ponzi scheme.   (The Big Picture)   (China Digital [...]

]]> By: Mark E Hoffer http://www.ritholtz.com/blog/2009/10/andy-xie-the-big-burnout/comment-page-1/#comment-229532 Mark E Hoffer Mon, 26 Oct 2009 16:25:04 +0000 http://www.ritholtz.com/blog/?p=42096#comment-229532 4horsemen, nice post. Andy, another excellant article, and w/this: "The case for a double dip in 2010 is already strong. Inventory restocking and fiscal stimulus are behind the current economic recovery. The odds are quite low that western consumption will pick up when the recovery runs out of steam next year. High unemployment will keep incomes too weak to support spending. Many analysts argue that, as long as unemployment rates are high, more and more stimuli should be applied. As I have argued before, the demand and supply mismatch rather than demand weakness per se is the main reason for high unemployment. Further stimuli will only trigger inflation and financial instability. The current generation of central bankers has ignored asset inflation and believed in maximising employment through monetary stimulus. They have ignored the fact that the economy needs to purge deadwood from time to time. The stagflation in the 1970s discredited Keynesians who ignored the inflation consequences of sustained monetary expansion. This crisis will discredit those who ignore asset bubbles." strong conclusion, that'll be proved correct. 4horsemen,

nice post.

Andy,

another excellant article, and w/this: “The case for a double dip in 2010 is already strong. Inventory restocking and fiscal stimulus are behind the current economic recovery. The odds are quite low that western consumption will pick up when the recovery runs out of steam next year. High unemployment will keep incomes too weak to support spending.

Many analysts argue that, as long as unemployment rates are high, more and more stimuli should be applied. As I have argued before, the demand and supply mismatch rather than demand weakness per se is the main reason for high unemployment. Further stimuli will only trigger inflation and financial instability.

The current generation of central bankers has ignored asset inflation and believed in maximising employment through monetary stimulus. They have ignored the fact that the economy needs to purge deadwood from time to time.

The stagflation in the 1970s discredited Keynesians who ignored the inflation consequences of sustained monetary expansion. This crisis will discredit those who ignore asset bubbles.”

strong conclusion, that’ll be proved correct.

]]> By: 4horsemen http://www.ritholtz.com/blog/2009/10/andy-xie-the-big-burnout/comment-page-1/#comment-229524 4horsemen Mon, 26 Oct 2009 15:58:09 +0000 http://www.ritholtz.com/blog/?p=42096#comment-229524 Looks like the peak oil fear-mongers are out from under their rocks again. First point, if you understand anything about the localized supply-demand economics of natural gas vs crude oil, you should also understand why it is possible for oil to be in a bubble while gas is not. Just because something is in a bubble does not mean investors do not have a rational argument for making the investment. More people are drawn to the global demand story for crude, as opposed to the very North America centric S&D story for gas. Bubbles generally begin with solid fundamental foundation and only get out of hand when they become self-reinforcing, as we see now. Say what you want about peak oil, but even in this market, the days of supply and inventory levels are extremely high at present - meaning the level of demand recovery being priced into the commodity is becoming increasingly challenging. I also believe this to be the case for many other assets/commodities, although not natural gas (still trading only marginally higher than cost of production). One more thing, your final comments essentially dampen your entire argument. "And it’s not that big of a deal because we will simply find another way to power our vehicles. The world changes and life goes on" -- Exactly. The world changes. Life goes on. We adapt. The amazing advances in drilling technology over the past 2 years are a clear example of that. Energy trusts that were winding down with production declines now see growth due to access to previously unreachable sources. Electric cars and hybrids are now being produced much sooner than expected. The changes are numerous, and while they take time, the one thing they do suggest is that demand can not be assumed to continue straight-line ad infinitum, and extrapolations about production declines are dangerous as well. Even the Saudis are concerned about their long-term future and are well-aware that alternatives will one day make the source of their wealth far less valuable. Basic Economics: the short-term supply curve may be fairly inelastic, but the long-term curve is always elastic. Looks like the peak oil fear-mongers are out from under their rocks again. First point, if you understand anything about the localized supply-demand economics of natural gas vs crude oil, you should also understand why it is possible for oil to be in a bubble while gas is not. Just because something is in a bubble does not mean investors do not have a rational argument for making the investment. More people are drawn to the global demand story for crude, as opposed to the very North America centric S&D story for gas. Bubbles generally begin with solid fundamental foundation and only get out of hand when they become self-reinforcing, as we see now.

Say what you want about peak oil, but even in this market, the days of supply and inventory levels are extremely high at present – meaning the level of demand recovery being priced into the commodity is becoming increasingly challenging. I also believe this to be the case for many other assets/commodities, although not natural gas (still trading only marginally higher than cost of production).

One more thing, your final comments essentially dampen your entire argument. “And it’s not that big of a deal because we will simply find another way to power our vehicles. The world changes and life goes on” — Exactly. The world changes. Life goes on. We adapt. The amazing advances in drilling technology over the past 2 years are a clear example of that. Energy trusts that were winding down with production declines now see growth due to access to previously unreachable sources. Electric cars and hybrids are now being produced much sooner than expected. The changes are numerous, and while they take time, the one thing they do suggest is that demand can not be assumed to continue straight-line ad infinitum, and extrapolations about production declines are dangerous as well. Even the Saudis are concerned about their long-term future and are well-aware that alternatives will one day make the source of their wealth far less valuable. Basic Economics: the short-term supply curve may be fairly inelastic, but the long-term curve is always elastic.

]]> By: insaneclownposse http://www.ritholtz.com/blog/2009/10/andy-xie-the-big-burnout/comment-page-1/#comment-229508 insaneclownposse Mon, 26 Oct 2009 14:52:08 +0000 http://www.ritholtz.com/blog/?p=42096#comment-229508 it is truly remarkable how many well informed and thoughtful people think that $80 oil somehow constitutes a bubble. If this is a freakin' bubble, why is natural gas near historic lows and oil near historic highs? Speculators have the same opportunity to purchase natural gas with an ETF. There is a simple reason for the high oil price: scarcity. We can find all the oil fields we want that are located under five miles of water, but we can't pump them quickly enough to make up for the depletion of mature oil fields in areas ranging from the North Sea to Mexico to Kuwait. Wake up! Cheap oil is a thing of the past. No true bubble in history has ever magically reinflated just one year later. Last year's $140 a barrel oil is just a preview of what is to come. And it's not that big of a deal because we will simply find another way to power our vehicles. The world changes and life goes on. it is truly remarkable how many well informed and thoughtful people think that $80 oil somehow constitutes a bubble. If this is a freakin’ bubble, why is natural gas near historic lows and oil near historic highs? Speculators have the same opportunity to purchase natural gas with an ETF.
There is a simple reason for the high oil price: scarcity. We can find all the oil fields we want that are located under five miles of water, but we can’t pump them quickly enough to make up for the depletion of mature oil fields in areas ranging from the North Sea to Mexico to Kuwait.
Wake up! Cheap oil is a thing of the past. No true bubble in history has ever magically reinflated just one year later. Last year’s $140 a barrel oil is just a preview of what is to come. And it’s not that big of a deal because we will simply find another way to power our vehicles. The world changes and life goes on.

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