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Monday, April 20, 2020

Smells like deflation

Oil prices have gone negative in Canada:
And there it is... May WTI just traded below zero for the first time ever (trading below NEGATIVE $40 per barrel)... There was a small bid right into the settlement at 1430ET leaving the May contract to settle at negative $37.63.
Interesting times, my friends. Very interesting times.

Labels:

92 Comments:

Blogger Azimus April 20, 2020 4:39 PM  

Vox do you expect Precious Metals will behave the same way they did 2008-09?

Blogger Unknown April 20, 2020 4:47 PM  

Brother in the oil business, it hit negative fifty at least, I've heard rumors it may have gone as low as -60, getting stormy. Question for you if you think it's worth your time vox, I understand your thinking is that as the credit gets called in as a result of fractional usury it will be deflationary. Will the banks be able to destroy the dollars? Or will they break before so much debt currency can be destroyed? I can't fathom that much money actually being removed before the financial system shatters, then again the impossible is most definitely possible lol, thanks for the real news we are all grateful for your guidance in this time.

Blogger Snidely Whiplash April 20, 2020 4:47 PM  

I'm ignorant of how these things work. I assume this means that the holders of the futures contracts are having to pay money to get people to take them.

Blogger Jose Miguel April 20, 2020 4:57 PM  

I'm just going to keep praying and working to getting a small bit of earth to call my own, and hand down to my children's children. Deflation would be of great help.

Blogger RC April 20, 2020 4:58 PM  

I suppose this means my timing was bad for bringing new technology to the oil field, first pilot scheduled for three weeks out. What are the odds?

Blogger Stilicho April 20, 2020 4:59 PM  

Hard to distinguish or allocate responsibility for this price among deflation, excess supply, timing/delivey issues, and efforts to put US domestic producers out of business. Perfect storm.

Blogger Nihil Dicit April 20, 2020 5:00 PM  

What it really means is that there is simply no unused storage out there. A somewhat longer explanation.

What I'm dreading is the inevitable refineries going offline and the concomitant shortages. We're not too bad off at the moment because the trucks are still running, but that can change. Quickly.

Blogger Unknown April 20, 2020 5:08 PM  

prices are negative in EVERY SINGLE HUB in North America. Benchmark crude was negative for first time ever. But there were technical reasons for this to occur. Namely there's too much oil and not enought storage. Normally the oil market is balanced, and a few hundred thousand bbls a day can move it around quite a bit. The virus took billions of bbls (for the year) of demand out of the market. and then the Saudis and Russians started to argue. It's not deflation you are seeing.

Notice that oil and gas equities were bid today. In fact oil was down over 50 bucks a bbl today. Yet on that day investors purchased oil and gas stocks. There were no new 52 week lows in any oil stock in the world. How can this be? Investors correctly see that whether the demand collapse is a few months, or a year, the normal function of the market is causing supply to collapse in the most ferocious manner ever witnessed. For example, Just today, Canadian companies announced 100,000 bbd of cuts.

Blogger Robert Browning April 20, 2020 5:12 PM  

So is Saudi Arabia responsible? And are we going to finally be told the truth about 911?

Blogger Ominous Cowherd April 20, 2020 5:12 PM  

May futures trading negative. Sounds as if loads of speculators decided to close their positions and stop their losses. If you have a salt dome to fill, buy loads of oil futures contracts for May delivery!

Blogger Snidely Whiplash April 20, 2020 5:12 PM  

Unknown wrote:Will the banks be able to destroy the dollars? Or will they break before so much debt currency can be destroyed?
Once you understand the nature of a "dollar", it becomes incredibly clear that they can be destroyed with the simple change of a bookkeeping entry.
The financial system is shattering, right now, regardless of inflation, deflation, profit or loss. I read today that 15% of home mortgages did not get paid in the last 30 days. Statistically, a mortgage holder who goes 90 days in arrears has about a 5% chance of ever catching up. The purpose of the stimulus check was to give people the means to make those payments.
But it didn't happen. People are hanging on to the resources because the uncertainty of the current situation makes it clear they may need the cash desperately, and soon.

Blogger Rakshasa April 20, 2020 5:13 PM  

Just as the world is about to burn, we get paid to take the fuel.

Blogger Snidely Whiplash April 20, 2020 5:25 PM  

Unknown wrote:It's not deflation you are seeing.
Then you must have very different definition of what deflation is.
The mechanism of deflation exactly what you're talking about here. Over-supply, under-demand, and production system that's unable to adjust to the market. The fact that it overshot and went negative is more a sign of the fragility of the commodities pricing system than anything else.
I haven't read Vox's argument for deflation, but what I would expect to happen is that financial collapse leads to closure of the credit markets. Nobody is willing to lend into an unpredictable situation. With credit being outside the reach of ordinary people, demand for common goods will go down,a nd luxury goods will collapse, meaning whole sectors of the economy will go into fire sale mode, leading to a deflationary spiral. As prices start to fall, speculators, particularly equity and real estate speculators will either hold, sell, or go broke.
I've been looking to buy a house. The median home price in Seattle is well over a half-million dollars. Even here, 150 miles away, crappy infertile land is $15,000 an acre, and anything with a some structure that could be described as a house on it is minimum $300,000.
I am hoping for a real estate market collapse in about 60 days.

Blogger Matthew T April 20, 2020 5:31 PM  

Speaking of us, did you notice the biggest mass shooting in Canadian history over the weekend?

I'm no expert in sniffing out these things - I don't have VD's sixth sense - but awfully convenient for a government already hell bent for leather to ban guns.

Blogger Ominous Cowherd April 20, 2020 5:32 PM  

That Zerohedge article says there is a $60 gap between the May contract and the prompt delivery price. The negative price is almost surely speculator-driven.

Blogger Ken Prescott April 20, 2020 5:35 PM  

Costs more to store it than they're going to get, and the option contract expires tomorrow.

Blogger bramley April 20, 2020 5:37 PM  

Looking forward to the housing market going negative so my landlord can pay me every month for a change. That will happen, right? Bueller? Bueller?

Blogger Unknown April 20, 2020 5:40 PM  

Saudi needs the cash, they are fighting a war with Iran in Yemen, they need to keep their population content or they may overthrow the regime. They are vying for islamic spremacy versus Turkey and Iran, perhaps even Egypt and finally they have a program of spreading their faith globally, with resulting current costs and no benefits in the near term.

Blogger Tanjil Bren April 20, 2020 5:42 PM  

I was fascinated to recently read that our Reserve Bank is now openly turning on the printing presses (unlike last year's effort to clandestinely triple Australia's money supply (M1)). Recalling one of your recent deflationary observations, I realised that they're fundamentally banking on massive business failures and widespread debt defaults.
You've sold me.

Blogger maniacprovost April 20, 2020 5:42 PM  

I suppose this means my timing was bad for bringing new technology to the oil field

Not necessarily. Depends on what reservoir it's for. Unconventional US Land? Then it's probably a bad time. But it also depends on your capital structure. If you don't have overhead weighing you down, the operators that are drilling are desperate for cost reduction measures. The more people get laid off, the fewer whiners and "quality processes" remain to block the adoption of new technology in the name of CYA.

Depending on the operator's company culture and the economics of the reservoir, they may go more risk averse or more adventurous.

Caveat - it's ALWAYS a bad time to introduce new technology to the oilfield. They want to buy exactly the same kluge that is causing their current problems, just cheaper and faster.

Blogger rumpole5 April 20, 2020 5:47 PM  

You make stores close and everyone stay home on pain of arrest. It is no surprise that the price of fuel is collapsing. OF COURSE it's collapsing! I'm sure that the price of a whole lot of things will be collapsing... and then skyrocketing when producers and retailers go belly up and future price competition is reduced. I can't believe that we did this to save a (relatively) few, unhealthy, oldsters (perhaps like myself) who will be gone in a few years at best. If anyone had asked me I would have supported far fewer restrictions because I have a son and grandson with FUTURE lives to lead. What we are doing is pure crazy. It's like the craziness of the early 70s right down to stupid congressional impeachment hearings and toilet paper shortages. Stupid!

Blogger CM April 20, 2020 5:55 PM  

Even here, 150 miles away, crappy infertile land is $15,000 an acre, and anything with a some structure that could be described as a house on it is minimum $300,000.
I am hoping for a real estate market collapse in about 60 days.


I've been looking to pick up some land for cash and hoping this gives me an opening.

From what I understand, deflation periods benefit cash rich and inflationary periods benefit asset rich.

Debt holders are completely screwed either way, though I wonder if deflation is better for them than inflation. I have no idea.

I've wondered if regular debt jubilee would create a d/I cycle so you aren't pushing inflation into an uncontrolled deflationary spiral/collapse.

Blogger Hammerli 280 April 20, 2020 5:58 PM  

Not a good thing. The engine for our economic recovery has been fracking. This would kill fracking deader than a doornail.

And American energy independence is critical to our strategic posture. It gives us the ability to tell the Middle East to go to Hell...or send them there, if needed. No more Mr. Nice American.

What I'm trying to figure out is my own strategy. I carry NO debt. Own my own house. But I've got a lot of money in the stock market. Ratio of cash savings to bonds to stocks to retirement fund stocks of 1:1:4:20.

Blogger RedJack April 20, 2020 6:08 PM  

Once again, you were right vox.

My plant is open, and we are making decent money. But eventually the demand will drop.

Blogger Vachilles April 20, 2020 6:26 PM  

Very interesting indeed... Predictions on point Vox!

Blogger Snidely Whiplash April 20, 2020 6:35 PM  

CM wrote:Debt holders are completely screwed either way, though I wonder if deflation is better for them than inflation. I have no idea.
Look at the Fed target rates. Whatever the Fed does is in the interest of it's owners and management, and the Fed explicitly wants 2-3% inflation on a stable and continuing basis.
That is to say that they want inflation, but at a low enough rate that people don't generally worry too much about it.
In a deflationary market, people defer purchases and loans. In an inflationary market, people make the loans, but interest rates price a lot of people out of the market. Mild inflation absorbs the impact of their monetary policy and serves as a tax on the entire economy, without prompting people to forgo consumption.

Blogger xavier April 20, 2020 6:37 PM  

Deflation will destroy Singapore. The politicians there until very recently lied for decades their shoeboxes would appreciate forever....until aboutv6 months ago when the National development minister admitted public housing is a depreciating assets and goes to zero cost at the end of the 99 year. It reverts to the govt for free.
Deflation will be a positive for Grn xers we'll finally be able to finally buy that house

Blogger Ominous Cowherd April 20, 2020 6:38 PM  

Hammerli 280 wrote:What I'm trying to figure out is my own strategy. I carry NO debt. Own my own house. But I've got a lot of money in the stock market.
In Ecclesiastes, Solomon told us to diversify into seven portions, or even eight, because who knows what's going wrong next. I'd suggest that financial assets, like stocks and bonds, should be one seventh or less of your total assets. There is land, buildings, precious metals, your house, heavy equipment, a business, stuff you're buying to fix up and flip - there are a lot of options besides financial assets.

Blogger bobby April 20, 2020 6:38 PM  

Storage is expensive. Supply is way up as demand drops, so storage is getting even MORE expensive as it fills up.

It's cheaper to sell at a loss than to store the stuff for later.

Blogger Hieroglyph April 20, 2020 6:43 PM  

@ 22

Ethical question. Is it wrong for me to desire the collapse of the Australian housing market? On the one hand, it's obviously a bubble, and arguably parasitic on the economy. On the other hand, a whole lot of people, not just boomers, will get hosed. I'm afraid lots of people have invested in the housing market, and they simply don't know what they are doing.

The alternative, as SDL has written, appears to be a debt jubilee. One suspects, however, that certain ... grabblery types would prefer total collapse. Quite why escapes me.

I think there is literally zero chance of a debt jubilee in Australia. Possibly some sort of interest deferral or other weaselly piece of grabbler, but the beatings will continue till morale improves.

Blogger John Regan April 20, 2020 6:53 PM  

Okay let's speculate. It's an engineered deflation. Maybe we were headed for a deflation anyway, but shutting everything down guarantees it. And quickly.

So cui bono? That is often the most important clue.

I don't think anyone benefits in a deflation. Except maybe...government?

Blogger crazyivan498 April 20, 2020 6:58 PM  

robert wenzel is predicating massive inflation in areas where people are still buying stuff. He says the money is hitting getting into the system and this is different than 2008. Should be interesting indeed. I still don't understand how the premium price to buy gold and silver got so high and spot remains low, especially silver.

Blogger Snidely Whiplash April 20, 2020 6:59 PM  

Hieroglyph wrote:On the other hand, a whole lot of people, not just boomers, will get hosed. I'm afraid lots of people have invested in the housing market, and they simply don't know what they are doing.
A lot of people are going to get hosed. People have been getting pretty badly by the current situation.

The concern should be for your nation and your progeny, not the personal fortunes of individuals who made bad choices. Right now the baby boom generation and the Chinese keep inflating the price of real estate in a speculative bubble of South Seas Scheme scale.
This has priced ordinary people, particularly young people, completely out of the market. If millions of 60-year-olds lose everything and have to move into apartments, and millions of young families are formed and feel free and secure enough to have children, well, I won't be crying, even if I'm one of the losers. That's literally the best possible outcome.

And millions of Chinese investors losing their shirts and repatriating some of the money they've been fraudulently extracting from us over the last 50 years is just gravy.

Blogger Rahul S April 20, 2020 7:02 PM  

Is this just a delivery/storage issue? The june contract is trading above 21 as of right now.

Blogger Snidely Whiplash April 20, 2020 7:06 PM  

John Regan wrote:I don't think anyone benefits in a deflation. Except maybe...government?
Savers benefit in a deflation.
crazyivan498 wrote:I still don't understand how the premium price to buy gold and silver got so high and spot remains low, especially silver.
the paper market and the physical market have become completely separated. Spot markets do not deliver gold or silver. The deliver derivative contracts. Many people right now want physical silver, nobody wants derivatives. If some of the conspiracists are correct, there's about 10x as much paper gold as physical gold in the market. This used to be called counterfeiting, but I bet they have a new, fancy name for it that doesn't sound like a crime.

Blogger Snidely Whiplash April 20, 2020 7:10 PM  

Rahul S wrote:Is this just a delivery/storage issue? The june contract is trading above 21 as of right now.
It's an investment market. It's a fear/greed issue.

Blogger Ingemar April 20, 2020 7:12 PM  

Matthew T wrote:Speaking of us, did you notice the biggest mass shooting in Canadian history over the weekend?

I'm no expert in sniffing out these things - I don't have VD's sixth sense - but awfully convenient for a government already hell bent for leather to ban guns.


Possibly. I'm convinced Trudeau is Deep State.

Blogger Nihil Dicit April 20, 2020 8:12 PM  

Is this just a delivery/storage issue?

Demand has been fading badly since before corona-chan. Cushing's been pretty full for a while.


Is it wrong for me to desire the collapse of the Australian housing market?

Do what you feel, but mostly give up your illusions of control: bubbles go pop no matter what we want.


So is Saudi Arabia responsible?

Everyone who's been participating in the greatest asset inflation scheme the world has ever seen bears responsibility. It's a long list of dealers in fantasy, fabrication, and 'free' money.

Blogger maniacprovost April 20, 2020 8:16 PM  

millions of Chinese investors losing their shirts and repatriating some of the money they've been fraudulently extracting from us over the last 50 years is just gravy

A lot of Chinese have invested in US real estate. This is true.

And we said that deflation benefits people with cash at the expense of people with assets, particularly nonproductive assets like uninhabited "investment" mansions that Chinese nouveau riche love.

But in the macro scale, who is in debt, and who has the cash? China is sitting on 3.4 trillion US Dollars, with which they can buy the rest of the real estate if the assets crash. Combined with mass defaults, they can buy for pennies on the Dollar. The California real estate... they can hold onto that for 50 years. They're not struggling with underwater mortgages. They play the long game.

I don't believe in the deflation scenario because it would be so cataclysmic that we would switch to dollar printing and/or have a revolution if it got seriously under way.

Is this just a delivery/storage issue? The june contract is trading above 21 as of right now

It's a technical "glitch" that occurs right before future contract expiration. But saying it's "just" a delivery storage issue, and the financial wizardry is not that bad? Delivery and storage are what it's all about. That's the physical reality. This is very bad for the oil producers because 1) they will all go bankrupt by the time this turns around and 2) it's physically harmful to many wells to shut them in.

Having too much natural resources is not the worst problem we could have.

Blogger John Regan April 20, 2020 8:25 PM  

Savers benefit? So you'd have an orchestrated deflation to benefit savers?

How do savers compete with an entity that can generate money at will? How do savers benefit when the supply chain for food is disrupted and they're starving and it doesn't matter how much money they have saved?

Blogger AT April 20, 2020 8:31 PM  

My friend, debt is the very essence of fiat. As debt defaults, fiat is destroyed. This is where all these deflationists get their direction. Not seeing that hyperinflation is the process of saving debt at all costs, even buying it outright for cash. Deflation is impossible in today's dollar terms because policy will allow the printing of cash, if necessary, to cover every last bit of debt and dumping it on your front lawn! (smile) Worthless dollars, of course, but no deflation in dollar terms! (bigger smile)
- Friend of Another

I've always been surprised by how little crossover there seems to be between the voxday and fofoa blogs.

Blogger Azimus April 20, 2020 8:34 PM  

@ John Regan - qui bono?

It's hard to sweep the plebs off the land with money when their assets are expensive. When they are begging for you to buy their property for pennies on the dollar, it's a matter of some more simplicity.

Blogger Snidely Whiplash April 20, 2020 9:12 PM  

John Regan wrote:How do savers compete with an entity that can generate money at will? How do savers benefit when the supply chain for food is disrupted and they're starving and it doesn't matter how much money they have saved?


You see, this is why no one likes you.

Blogger Snidely Whiplash April 20, 2020 9:26 PM  

The point is, the way this works out is already baked into the cake and all the manipulation in the world won't change it.

Blogger Balkan Yankee April 20, 2020 9:26 PM  

Global oil storage capacity is just about saturated. Hence negative front month prices.

Rig counts are plummeting. Wells are being shut-in the world over. Just not fast enough.

Enforced demand destruction leads to supply destruction. Sooner than later.

Which leads to capital destruction. Followed by debt destruction. Which contributes to deflation.

Just add Corona-chan and stir.

Blogger Lazarus April 20, 2020 9:41 PM  

bramley wrote:Looking forward to the housing market going negative so my landlord can pay me every month for a change. That will happen, right? Bueller? Bueller?

Nice one.

Blogger Doktor Jeep April 20, 2020 9:53 PM  

Roughly 7 million jobs in the oil industry.

Blogger Ska_Boss April 20, 2020 9:57 PM  

I work in US shale. The oil industry is taking a double hit from both the Saudi-Russia price war and the COVID-19 economic shutdown. And it's a very large scale system that can't be turned off with the flip of a switch. Only the big corporations with the most cash on hand to operate in the negative will survive this.

Blogger Ingemar April 20, 2020 10:39 PM  

I just realized this settles the Vox/Nate debate once and for all, with Vox as the clear winner. What do you win?

Blogger Matt April 20, 2020 11:04 PM  

In other news, Trump just announced that he will be suspending all immigration to the United States.
Is there anything this virus can't do?

Blogger Doktor Jeep April 20, 2020 11:04 PM  

My main concern is that gas stations shut down due to it not being profitable to sell gas. But I'm told that they hardly pull a profit anyway, being distribution points, and after government taxes, there's not much per gallon being garnered for profit. I don't know if that's the case or not.
WTV some large gas cans, like those German Jerry Cans. They will look good on my Mad Max car.
- yes I have one, though not a Falcon XB, an American cousin of it.

Blogger furor kek tonicus ( no need to be racist, Ratchets can Karen better than anybody ) April 20, 2020 11:07 PM  

13. Snidely Whiplash April 20, 2020 5:25 PM
The median home price in Seattle is well over a half-million dollars. Even here, 150 miles away


don't know the pricing, but Leavenworth is a beautiful little town.

kinda need to be in the tree business though.

Blogger Sterling Pilgrim April 20, 2020 11:09 PM  

OT, but man Trump just leveled the Globalists with one tweet.

Blogger heyjames4 April 20, 2020 11:09 PM  

Related: https://twitter.com/realDonaldTrump/status/1252418369170501639 "@realDonaldTrump
In light of the attack from the Invisible Enemy, as well as the need to protect the jobs of our GREAT American Citizens, I will be signing an Executive Order to temporarily suspend immigration into the United States!
10:06 PM · Apr 20, 2020"

Blogger Doktor Jeep April 20, 2020 11:11 PM  

1 OT and one related:
Trump curse hits North Korea
Trump suspending all immigration.
Thanks fate on the former.
Thanks Coronachan on the latter.
Don't know how this is going to end, but .. ah feck it. Hoka hey.

Blogger Jack Amok April 20, 2020 11:20 PM  

Savers benefit? So you'd have an orchestrated deflation to benefit savers?

How do savers compete with an entity that can generate money at will?


You don't even know what deflation is, do you?

Blogger Ominous Cowherd April 20, 2020 11:24 PM  

The feds just borrowed into existance $2.3(10^12). We will need $2.3(10^12) in bankruptcies to offset thatto prevent inflation. There will probably be another stimulus bill in a month or so. To have deflation, we're going to need $5(10^12) or so of total bankruptcies to make total money supply shrink, and we'll need supply to NOT fall too much, to keep the $/goods ratio from getting bigger instead of smaller.

Deflation is the immediate, natural, obvious response to debt destruction. The government is the borrower of last resort, printing presses go brrrr, and inflation and perhaps hyperinflation follow close behind.

We'll get deflation, all right. I just don't think we'll get to enjoy it very long.

Blogger sammibandit April 20, 2020 11:33 PM  

If Snidley is full of cheer I'm paying attention.

Blogger papabear April 20, 2020 11:47 PM  

Temporary immigration moratorium! I hope it gets extended for whatever excuse necessary!

Blogger Snidely Whiplash April 20, 2020 11:57 PM  

sammibandit wrote:If Snidley is full of cheer I'm paying attention.
Hey! Now cut that out!

Blogger Mathias April 21, 2020 12:03 AM  

Hmm, looks like Trump just shut down ALL immigration with a new executive order:

https://twitter.com/realDonaldTrump/status/1252418369170501639?s=19

Blogger Ingot9455 April 21, 2020 12:06 AM  

@51 Much like movie theaters, gas stations make the real money on concessions in the dinky little overpriced emergency store.

Blogger Noah B. April 21, 2020 12:29 AM  

Expect for Trump to be widely panned for his statement about Invisible Enemies, but what an exciting choice of words that is. Meanwhile Schiff and Nadler have taken renewed interest in investigating Barr...

Blogger Tom d April 21, 2020 12:52 AM  

Why doesn't the God Emperor step in and save the day again via having the Government take delivery of US crude oil and store in the Strategic Oil Reserve?

*Did a quick search as I type this and per a Fox Business article, Trump is looking to do just this.

Blogger John Rockwell April 21, 2020 1:03 AM  

The Grabbler Debt based economic system facilitates mass immigration and open borders by definition.

Usury and Babelism are one and the same.

Blogger Akulkis April 21, 2020 1:13 AM  

"
I don't think anyone benefits in a deflation. Except maybe...government?"

When you start going into LOWER tax brackets, the government sure does NOT benefit.

Government benefits from you being pushed from a low tax bracket into a high tax bracket when the increases in your pay are (or maybe not even) just keeping up with the cost of living.

When the income tax was introduced, Henry Ford, the highest earner in the entire USA, was paying 3% of his earnings.

Blogger Hieroglyph April 21, 2020 1:38 AM  

Apologies if dim, but this seems a good place as any to ask about economics. On topic, I'd say.

So, Virgin Australia has gone into administration, after begging for bailout. I live in Australia, and the lockdown has only been in place for less than a month. Am I correct in thinking that VA is spectacularly badly run? We know Branson is a chiseler, who may have been to a Certain Island, but I always assumed he at least fronted for serious people. But to go into administration in such a short time seems ... curious, to this poster. Am I being a little unfair here?

Also, true story time. I once worked a xmas job for Virgin. They paid all the xmas staff 6 weeks late. Yup.

Blogger Scuzzaman April 21, 2020 2:48 AM  

And American energy independence is critical to our strategic posture. It gives us the ability to tell the Middle East to go to Hell...or send them there, if needed. No more Mr. Nice American.

Let’s imagine that the Saudis Russians and Venezuelans really are your enemies ant not just troublesome imperial refuseniks.

If they are willing to send you oil for less than it costs you to extract your own, then they’re helping you preserve your reserves, ie your precious “independence”.

Describing this as “killing off American oil producers” is one of the stupidest things that’s been said lately.

Oil at minus [anything] a barrel is going to kill off ALL oil producers. It’s only that the marginal ones go first. That’s not geopolitics, merely very simple mathematics.

what exactly do people who talk this way think the Russians should be doing? Extracting more oil and pushing the price to minus 500 a barrel? Is that going to preserve American oil independence?

Fucksake.

Blogger mike April 21, 2020 4:04 AM  

/CLK20 is a future contract settled physically with oil. If you don't sell (close) your position you have to accept the oil and store it for a month or re-sell it, if you sold contract short you have to deliver the oil. The problem is the leverage, what you are trading is a contract and you just put up enough dough to buy the contract, however when settlement happens you need to put up the actual amount for the oil lol and that amount is yuge amount say margin for trading future is 5k but the oil costs 200k depending on the price, the lever is in hundreds. The speculators end etfs they don't want oil any oil they want to close the position and trade contract for next month. So if you're really greedy and dumb you wait till last moment to close your position this can happen, you basically have to close no matter the price

Blogger mike April 21, 2020 4:07 AM  

Low oil will bring deflation yes. But this negative contract is more of a supply / demand / storage / greed issue. The June contract is positive and i bet they will not wait till last moment to close their positions.

Blogger Tetro April 21, 2020 4:47 AM  

So, riddle me this: The majority of dollars are in electronic form and not in tangible dollar bills. Once the bankruptcies and defaults hit, those accounts full of electronic money will go to zero. Money will be destroyed, as if it were tangible dollars being burnt.

There are no real dollars that have been printed for most of those electronic dollars. And there won't be, ever.

This would lead to deflation. There is less 'money' being passed around electronically to hold up prices, at least on the electronic marketplace, and the electronic trading floors.

So, how quickly does distrust in the dollar itself, in any form, outpace the deflationary pressure of disappearing electronic money? When does presenting a tangible dollar bill... begin to lose its overall value, leading to inflation?

Will a frantic buying of resources using electronic money first cause some inflation, then a massive deflation as those accounts go *poof* and people begin distrusting any electronic forms of 'wealth'?

Honest question. If I am missing something important and consequential, let me know. Am I wrong in any of my assumptions? This is what I understand to be the major financial forces at work in our current system, and how it will play out in the short and mid-term.

I do believe deflation will rule the day for quite some time. Causing a lot of confusion, even for the 'brightest' minds of our time.

Blogger Rocklea Marina April 21, 2020 7:56 AM  

It is absolutely amazing how many people are expecting a Big Rope Pushing Trick. I ain't buying it and nobody is buying anything. Therein lies the problem.

Blogger Stilicho April 21, 2020 8:05 AM  

>Describing this as “killing off American oil producers” is one of the stupidest things that’s been said lately.<

>Low oil will bring deflation<
No. That's exactly backwards. Deflation brings low asset prices because fewer Dollars are relatively more valuable.

@Tetro: the money is mostly debt. As debts become worthless and fewer loans made, money supply shrinks. This is deflation. Inflation will not occur unless money supply (new debt) is increased beyond previous levels. However, you cannot "print" borroqwers- you cannot force people to borrow, so banksters cannot forcibly create the inflation they desire.

Blogger John Regan April 21, 2020 8:10 AM  

We can throw this into the mix.

Blogger John Regan April 21, 2020 8:17 AM  

@56 @66

Maybe at this point inflation/deflation is a category error. Apparently the agenda - well, one agenda anyway - is to remake America entirely.

The New York Times may be useless for providing news, but it can be a reliable indicator of ruling class objectives.

Blogger Stilicho April 21, 2020 8:26 AM  

>Describing this as “killing off American oil producers” is one of the stupidest things that’s been said lately.<

They've been trying to kill off higher per barrel cost American producers for some time. Nothing new. Simple competition. They"ve had some success, but get stuck in a trap. If they ease the price war to increase profit, those higher cost producers start coming back. They have not been able to keep prices low enough for long enough to kill enough domestic production to make US net importer again.

Blogger Ominous Cowherd April 21, 2020 8:41 AM  

Tetro wrote:So, how quickly does distrust in the dollar itself, in any form, outpace the deflationary pressure of disappearing electronic money? When does presenting a tangible dollar bill... begin to lose its overall value, leading to inflation?
You have it backwards. As long as the deflation phase continues, nobody has any reason to distrust paper currency. Yes, the coming wave of bankruptcies will be deflationary.

The thing you're missing is that the government will be borrowing into existence a great deal of currency - it's created just as easily as it's destroyed. Taxes will soon be totally inadequate to fund the operations of government, and the metaphorical printing presses go brrrr. Total currency supply will increase, then increase very rapidly, then exponentially. Meanwhile, economic disruption will greatly reduce supply. The quantity of dollars goes up, then goes to the moon, while the quantity of stuff for it to chase tends toward zero.

It begins with deflation. We'll be very lucky if it ends there.

Notice that I'm using the word currency, not the word money. Currency is not money, although currency is one function that money can serve.

Blogger Akulkis April 21, 2020 9:49 AM  

" We know Branson is a chiseler, who may have been to a Certain Island, but I always assumed he at least fronted for serious people."


Branson didn't just VISIT Epstein Island (in the U.S. Virgin Islands), he BOUGHT HIS OWN ISLAND less than 20 miles away in the British Virgin Islands.

Blogger Maniac April 21, 2020 9:59 AM  

I'm a little concerned over what oil/gas prices will be if or when this shit blows over. Will prices skyrocket to make up for lost profits?

Blogger Akulkis April 21, 2020 10:13 AM  

"This would lead to deflation. There is less 'money' being passed around electronically to hold up prices, at least on the electronic marketplace, and the electronic trading floors.

So, how quickly does distrust in the dollar itself, in any form, outpace the deflationary pressure of disappearing electronic money?"

Oh, how you have it backwards.

(Electronic account) Dollars disappearing due to bankruptcies lowers the money supply (M2 through M10? M12?)

M1 is physical coins and currency, + the amount on deposit in checking accounts, demand-deposit accounts, and NOW (Negotiated Order of Withdrawal) accounts (basically, a checking account that still pays interest), or any other thing that requires the bank to have the full amount deposited to be on hand (because as a demand deposit, it can be demanded IMMEDIATELY to anyone showing up with an authorized check on that account).

M1 does *NOT* include savings accounts or other types of accounts (money market, etc.), bonds, etc., as the bank is not required to keep the cash on hand, and can delay a withdrawal up to 30 days (for savings accounts) and money-market accounts also have rules requiring withdrawals to be scheduled ahead of time. Same goes for Certificates of Deposit (CD's). The bank keeps that money in total for the duration of the CD (typically 90, 180 or 365 days), and then releases the money in full, plus an interest rate determined at the time of deposit. Since these accounts are immediately turned into loans (i.e. demand accounts for someone else, usually businesses), they are not counted in M-1, which is how much $ are in circulation, or otherwise IMMEDIATELY available at a moment's notice, no questions asked with 100% liquidity, as if you were keeping it all in your wallet or pants pocket.

Those are counted in M2 but not M1.

Each successive M (M3, M4, etc.) generally includes more than the previous M.

Likewise, U1 is the unemployment statistic of "how many people are receiving unemployment benefits" and has only a scant relationship to the real unemployment rate -- which is, how many people are out of work and would like to work REGARDLESS of whether they meet the criteria defined by the government unemployment offices to get a check.

The accurate number, and the one politicians are loathe to admit to is U6. During most of the Obama presidency, U6 was more than DOUBLE U1, because so many people had been out of work for so long that they were no longer eligible for unemployment benefits.

U1 is a lie, and mostly, the only honest part about it is the sub-category, "new claims" telling how many people lost jobs or got laid off in the previous week.

Blogger Akulkis April 21, 2020 10:19 AM  

"This would lead to deflation. There is less 'money' being passed around electronically to hold up prices, at least on the electronic marketplace, and the electronic trading floors.

So, how quickly does distrust in the dollar itself, in any form, outpace the deflationary pressure of disappearing electronic money?"

Oh, how you have it backwards.

(Electronic account) Dollars disappearing due to bankruptcies lowers the money supply (M2 through M10? M12?)

M1 is physical coins and currency, + the amount on deposit in checking accounts, demand-deposit accounts, and NOW (Negotiated Order of Withdrawal) accounts (basically, a checking account that still pays interest), or any other thing that requires the bank to have the full amount deposited to be on hand (because as a demand deposit, it can be demanded IMMEDIATELY to anyone showing up with an authorized check on that account).

M1 does *NOT* include savings accounts or other types of accounts (money market, etc.), bonds, etc., as the bank is not required to keep the cash on hand, and can delay a withdrawal up to 30 days (for savings accounts) and money-market accounts also have rules requiring withdrawals to be scheduled ahead of time. Same goes for Certificates of Deposit (CD's). The bank keeps that money in total for the duration of the CD (typically 90, 180 or 365 days), and then releases the money in full, plus an interest rate determined at the time of deposit. Since these accounts are immediately turned into loans (i.e. demand accounts for someone else, usually businesses), they are not counted in M-1, which is how much $ are in circulation, or otherwise IMMEDIATELY available at a moment's notice, no questions asked with 100% liquidity, as if you were keeping it all in your wallet or pants pocket.

Those are counted in M2 but not M1.

Each successive M (M3, M4, etc.) generally includes more than the previous M.

Likewise, U1 is the unemployment statistic of "how many people are receiving unemployment benefits" and has only a scant relationship to the real unemployment rate -- which is, how many people are out of work and would like to work REGARDLESS of whether they meet the criteria defined by the government unemployment offices to get a check.

The accurate number, and the one politicians are loathe to admit to is U6. During most of the Obama presidency, U6 was more than DOUBLE U1, because so many people had been out of work for so long that they were no longer eligible for unemployment benefits.

U1 is a lie, and mostly, the only honest part about it is the sub-category, "new claims" telling how many people lost jobs or got laid off in the previous week.

Anyways, back to disappearing dollars and deflation.

That does NOT make the dollars less valuable. Quite the opposite, it makes dollars MORE valuable, as they are scarcer (no longer as plentiful as before) and therefore more valuable, and this makes a STRONGER dollar.

If you're a net importer, you want a "strong" currency, as this makes people willing to give you stuff for FEWER dollars in return. Same applies if you are a domestic manufacturer with no loans.


If you're a net exporter, you want a "weak" currency, as this allows you to sell your stuff for a better price in terms of other currencies. Part of China's strategy for gobbling up the world's factories has been to deliberately and continually weaken the Chinese yuan. American home-soil based manufacturers have been complaining about China's currency manipulations for DECADES.

Blogger Ominous Cowherd April 21, 2020 10:26 AM  

Stilicho wrote:However, you cannot "print" borroqwers- you cannot force people to borrow, so banksters cannot forcibly create the inflation they desire.
The government is the borrower of last resort. They have no intention of repaying, no immediate limit on how much they ``borrow'' when printing press go brrrrr.
Maniac wrote:Will prices skyrocket to make up for lost profits?
Prices will skyrocket to make up for lost supply.
A lot of production has been shut down. Nobody is going to spend a buck to reopen a well until he's pretty confident he'll make more bucks by doing it. That'll take a while. The oil industry doesn't make investment decisions on the current price. They know it can turn on a dime, and go to zero, or close enough. They want to see evidence that their investment will pay for itself before that nosedive happens, and that takes a period of higher prices.

Blogger Scuzzaman April 21, 2020 10:35 AM  

Will prices skyrocket to make up for lost profits?

Only if/when the demand also skyrockets.

Blogger Tetro April 21, 2020 12:26 PM  

Thanks for the replies. I still don't see that I'm wrong on this analysis. I could be, it's why I'm putting this out there.

Ok, so the Fed printer goes brrrr, which is mostly an man behind a curtain quite literally punching numbers into a computer and sending it off to his friends. There is not much physical cash being minted, at least not compared to the amount on going into the electronic ledgers.

So it goes brrrr, and maybe even the average joe gets a piece of that action and gets his electronic ledger refilled a bit. But trust in those electronic ledgers called bank accounts has now dropped considerably and many businesses and people will want something more tangible in its place: cold hard cash. But there isn't even close to enough minted currency to cover what's on these ledgers and the subsequent demands for withdrawals.

This failure would, as it seems to me, place deflationary pressure on the entire economy as electronic deposits become increasingly incontrovertible, unreliable, and ever-more exposed to being wiped out in banking failures, etc. Yes, the production of goods might go down to, but I am don't want to focus on that. Who knows how much a decrease in the supply of goods will balance out the deflationary financial fallout. I am not sure anyone can know that at this point.

If and when it gets to a point where even the hard, physical cash is not trustworthy, I agree that yes, this means everyone wanting to quickly trade their dollars for more tangible goods and resources, leading to inflationary pressure.

I still don't see how the actual physical currency (M1) could enter into the marketplace at a rate and quantity greater than that of the money destruction going on with electronic accounts/ledgers being wiped out. With every 're-fill' of an electronic ledger by the Fed, it becomes more apparent to all involved that it's funny money and pretty risky to leave it on the ledger and not turn into into a tangible good or resource. Which kicks off a race to trade it for hard currency or tangible goods/resources. This would mean a premium for physical cash. But who in their right mind will accept the electronic version anymore, in exchange for anything, except at a huge premium? And as I stated before, I don't believe there is even close to enough hard currency (M1?) to cover what's on the books, and people will be up shit creek. They'll be left with their tangible goods and hard cash, for the most part. And seeing as the hard cash is not nearly enough to maintain the prices we see today, which are propped up by electronic money bidding up prices in London, New York, and keeping prices high at Amazon, etc., I don't see how anything but a medium-term deflationary period is what occurs.

Not to make this a basic econ thread, but wanting to know how I might be going wrong with this analysis.

Blogger Crew April 21, 2020 12:59 PM  

Hmmm, during deflationary times should one hold cash or property?

Blogger Crew April 21, 2020 1:05 PM  

All the usual suspects tell us that Orange Man Bad and Deflation Double Bad!

https://www.investopedia.com/articles/personal-finance/030915/why-deflation-bad-economy.asp

Blogger John Regan April 21, 2020 1:10 PM  

@Crew, cash is king in a deflation. That's simple.

But it may be the wrong question. Think the final scenes in War of the Worlds, 1955 version.

Blogger Ominous Cowherd April 21, 2020 1:25 PM  

@84 Tetro, forget about the pieces of paper. They are inconsequential. The in- or de-flation will be driven by the ledger entries. The trust or not will be driven by the ledger entries.

Blogger ex-pastor April 21, 2020 1:53 PM  

Genesis 47:18-20

Blogger Roddie Piper April 21, 2020 4:31 PM  

Why not stop production at the wellhead and leave that oil in the ground, especially when wholesalers will pay you forty dollars for *not* delivering a barrel of oil?

Blogger Eugenius BEar April 21, 2020 6:48 PM  

The price of oil is going to be epic in about 2 months after all wells have stopped pumping, reserves have been allowed to deplete and everyone starts driving back to work.

Blogger Macs April 22, 2020 1:53 PM  

Inflation means your debt is worth less and easier to pay off. What is happening here is a deflationary period on which the deep pockets will start snatching-up assets when the prices are low enough. That will be followed by inflation due to there being supply shortages because diverse businesses are replaced by monopolies who are going to slash overhead/production. Look at oil: right now it's worth nothing, but after half the wells have been emergency capped and the small players bought out the price of oil will be astronomical due to monopoly pressure as well as having to re-drill half the wells. However, by then the deep pockets will have moved their cash to assets, which will be worth more. Further, they will have leveraged their assets into vast debts, which will be worth less. They can repeat this cycle as needed using the absolute authority of lockdown as required.

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