Monday, November 26, 2007

Ignoring reality won't make it go away.

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These are British Analysist, but they often write about American markets because, obviously, what happens in American directly affects the financial markets everywhere else. There are set algarhythms and formulas for price analysis of various commodities, including liquids such as oil and gasoline. Today, an article appeared with charts most of you will likely not be able to comprehend at all, but I am going to post them anyway because they say the same thing I said recently to someone on a forum: peak oil is not far away, it's practically here, and hyperinflation will follow.

Hyper Inflation: Crude Oil and Gas The Next Fed Made Bubble To Come In 2008 ……
Commodities / Energy Resources Nov 26, 2007 - 11:01 AM By: Eric_Chevrette

I'm sure you did take note in the few past weeks that gasoline is getting expensive … Expensive again I should say … Indeed gasoline is currently around $ 2.4 per gallon ……… But it was already that much expensive twice in the past, first in the summer of 2005 and then in the summer of 2006 ……… And the price of gasoline fell back from its peak price each time in the past (from $ 2.4 to $ 1.4 in 2005 and from $ 2.3 to $ 1.5 in 2006) ……. Because past experience is too often taken as a psychological comfort if not an insurance for the future, I guess that many of you don't feel so much in “danger” yet when hitting the gas station because you may expect the price of gasoline to slide in a near future while your high bills at the gas station would only be a short term pain ……… Well, folks, I'm really sorry for you ……….. But THIS TIME IT IS DIFFERENT and things are not the way you feel. My best advice is that you take an URGENT look at chart #1 below.

As nobody in the world could deny a textbook abc with gas, there is no single doubt about what happened with oil within the same time frame …… While looking ONLY at oil would leave you in deep doubts about the EW road map for oil, market synchronicity is one more time the key to peaceful nights.

It is NEVERTHELESS the time for you with chart #2 below to open your eyes to the sleepless nights you will have as a consumer over the next 12 months while these 12 months will just be an APPETIZER to the main dish that will be served to you some time later (2010).

As chart #2 points out, gasoline around $ 3.5 is only halfway or so of the full green wave 3 ….. Be ready for gasoline to reach out for $ 4.6 in late 2008 (+91% from current price level) . Then you will be given a temporary relief ( green wave 4 ) which gasoline needs to “travel” to the lower trendline of the channel before hell breaks out upon US & world consumers with green wave 5 ( YES , life is THAT easy) ….

Remember then that it will be a wave 5 not only for gasoline but also for oil; as you know that wave 5 is commonly the LONGEST one with raw materials (while the longest one with stock indexes is wave 3 ), I have NO DOUBT THAT BY NOW YOU GET THE FULL PICTURE about the next US & world economic crisis which is going to be THE WORST EVER IN 100 YEARS : while gasoline is going to hit $ 4.6 (or higher) at the top of green wave 3 (oil around $ 190) , it is not very hard to figure out gasoline hitting $ 6 (+150% from current price level with oil around $ 250) or $ 7 (+190% from current price level with oil around $ 300) maybe even $ 8 (+230% from current price level with oil around $ 340) at the end of green wave 5 into the year 2010 (rough estimate) ….. But why not $ 9 (with oil around $ 380) ?…..

Many experts have been claiming that USA will endure a major deflationary collapse; this deflationary collapse never came and never will. If “deflation” (deflation = elimination of debt) is what USA ultimately needs as the only possible “solution” out of more than 25 years of debt building by private and public bodies, it will be not be brought about by straight away deflation but under the disguise of HYPER inflation.

Indeed charts #1 & 2 above both reveal very clearly that USA will fall into decay amidst HYPER inflation: the years 2009 and 2010 will be somewhat similar to the years 1972 and 1973 which preceded a worldwide economic collapse because of an inflationary peak …. Except for the KEY fact that the US body had a FAR LOWER OVERWEIGHT (indebtedness) to suffer from thru the 1974 crisis than it will have to deal with thru the 2010-2012 US & world crisis…… Except for the OTHER KEY fact that the US currency was rather stable around the 70s while it is now caught in a downward spiral which will highly question the role and validity of the US $ as world reserve currency by 2010 if not before…

There is no doubt indeed that the green wave 5 peak for the price of gasoline (which is only one of the many facets of the inflationary diamond acting in the same time window while you can find oil and the CRB among these other facets) will BREAK consumption in USA thus worldwide like “never before”.

OK, class, this is called "demand destruction" and it's how commodities markets balance themselves when there is far more demand than there is supply. Demand destruction is exactly what you think it is - the market price of the commodity becomes so high that demand for it is pretty much destroyed, only the excruciatingly wealthy can afford it. It is my opinion, however, that the government will in fact step in prior to the complete demand destruction curve apex and pass rationing laws that will allocate most gasoline/diesel for it's own use at prices somewhat less then the market could command (called "nationalizing," and capitalists hate it). This writer doesn't mention government intervention, because as a "neocon" he clearly thinks the government would never dare "interfere" with the "free market." I think it will.

As a matter of fact, the years left to run until the peak of green wave 5 is reached with gasoline and oil will be very harsh on US consumers: while the US economic body will try IN VAIN to get out of the subprime mortgage debt crisis, rising inflation will eat up more and more of the purchasing power (this is why I wrote “IN VAIN”) left to US consumers (see chart #11 in my article from August 27 about that issue) until the final surge of inflation ( green wave 5 ) combined with the unsustainable weight of indebtedness in USA will bring US & worldwide consumption to the MOST SEVERE HALT IN 100 YEARS around the year 2010 (this time frame will be adjusted once green wave 5 is on the way) ……..

We are on the edge of this trend now - people are maxed out on their credit and simply can't afford to shop 'till they drop anymore. They're already about to drop.

Of course I hardly need to point out to you that further sitting with US common stocks until 2010 is certainly the WORST choice you can make: beyond the maybe somewhat comforting illusion of nominal figures, investing in US common stocks is now as good as lending your money to the US government with a NEGATIVE interest rate AND the HIGH risk of bankruptcy at last as a hidden premium. If you don't want the years to come to feel like a hellish agony for you, you'd better take the right steps now…..

Eric F.M. Chevrette

© 2007 Eric F.M. Chevrette
Eric Chevrette translated Bob Prechter's “Elliott Wave Principle” in 1989 after graduating in 1984 from the ESCP (Ecole SupĂ©rieure de Commerce de Paris, see ) which has been ranked 6 best business school in Europe by the Financial Times in 2006. He since has become interested in “market forecasting” and “global economical analysis” since 1987 and is currently helping people to protect and grow their assets while anticipating the big trends.

In other words, this mess starts off with stock prices reacting to the reduction of oil production and the restriction of credit markets due to higher "lending standards" - that is, no longer giving money to anyone who can breathe. Now people will actually have to have a real income, decent credit rating, and sufficient savings to put a 20% down payment on big ticket items - and guess what, class? Probably 9 out of 10 people can't meet those standards. The days of "easy credit" are over, and this combined with the decreased oil production of peak oil will be an economic nightmare, within 6-7 years according to the Council on Foreign Relations industry analyst Matthew Simmons.

Are you ready for reality to come biting? - because ignoring it won't make it go away.

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