Tuesday, April 19, 2016

Oil Is Caught In the Poverty Trap

The Poverty trap: More supply and less demand...

Quite apart from the unresolved supply glut, conventional economics would assume that lower prices would stimulate demand. But that's not happening...

U.S. Deflation (TIP:Treasury ratio) with oil:

Emerging Markets are the marginal consumer of oil, AND Emerging Markets derive substantial income from oil. Hence paradoxically, demand is constrained by low prices

In other words, the price of oil (black line) is down -60% while oil demand (red line) is up a puny 2%, as EM economies get decimated and the economic multiplier works its "magic" in reverse:

EM stocks and Energy stocks:

Here's the other chart they don't want us to see...

Chinese FX reserves with Oil:

U.S. Deflation aka. imported poverty: