Monday, February 8, 2016

Ignorance Or Arrogance. Pick One.

In the Idiocracy, knowledge is a "detail", to be outsourced to proven arrogant dunces who didn't see Lehman coming, and don't see this coming either...

At the end of this clusterfuck we will nominate the pantheon of arrogant dunces - Kudlow, Cramer, Kernen, CNBS, Krugman, Bernanke, Summers - ok, this could go on for days. Nevertheless, on my list would be Gene Epstein, Chief EconoDunce from Barrons. His logic is emblematic of Generation Madoff...

Barron's Feb. 6, 2016
Oil will fall to $20 and magically bounce back to $55 by year end

"stock traders may be subscribing to the misguided belief that low oil prices are signaling imminent global recession."

Below, world oil demand (red) versus price of oil 2 year %change:

In the past two years, oil fell 62% while oil demand rose 3%, but stock traders are "misguided". To put this into perspective, in the two years prior (2012-2014), oil demand rose 2% with oil at $110/barrel. The oil market is oversupplied by 2 million barrels per day (Production - demand), which is two supertankers per day of too much oil. Holy fuck. We live in a Terminal Idiocracy. 

These are the facts HE presents, to support the $55/barrel thesis...

"over the past five years, the world has found a trillion extra barrels of oil—the equivalent of 30 years of extra supply—with a third of it coming from shale, a third from deep water, and a third from oil sands. Over the past year, the costs of recovery from these sources has noticeably fallen"

The U.S. is virtually the only nation remaining with storage space left. And even here, as the Energy Information Administration reported last week, “at 502.7 million barrels, U.S. crude-oil inventories remain near levels not seen for this time of year in at least the last 80 years.”

The worldwide oversupply of oil is evident from the buildup of inventories. Storage-tank capacity outside the U.S. is virtually exhausted

Saudi Arabia, long the Organization of Petroleum Exporting Countries’ swing producer, has recognized that it is powerless to control the market

WORLD CONSUMPTION OF OIL has held up relatively well...But, of course, that was due mainly to the price plunge that made oil dirt cheap." [See chart above]

A 30 year supply of oil. Flat demand. Sovereign wealth funds liquidating to cover chasmic fiscal deficits. No control over the market. $55 here we come.