I believe it will be a bubble in energy and agriculture, and the signs are already there that these related sectors are starting too "bubble". Oil prices and food prices have risen significantly from the post-financial crisis trough. [add some charts here to demonstrate] These sectors are connected in that oil is a significant input to growing crops (fertilizers, operating farm equipment, transporting foods to markets). There is even an influence going the other way in that rising food costs appear to have been a factor in the unrest in poorer oil producing countries like Libya.
Besides the evidence of rising oil and food costs, there is a great body of research on "Peak Oil" that I find compelling. A great deal of the economic growth of the past hundred years or so was because of the remarkable power of (cheap) oil. Despite all the inefficiencies inherent inthe process, the idea that is is possible to move a 2500 lb fully-loaded vehicle for 20 to 30 miles using a gallon of a fuel that costs about the same as a gallon of milk is astonishing when one thinks about it.
One compelling piece of evidence in favor of Peak Oil (withough having to get bogged down in estimates of supply, demand, proven reserves, inventories, probable reserves, unused capacity, etc.) is the spike in oil prices in August of 2008 to $147 per barrel. Unlike the spikes of 1973 and 1979, which were caused by supply disruptions in the Middle East (the Arab oil embargo in 1973,and the overthrow of Sha of Iran in 1979), the oil price rise from 2006 to 2008 was the result of demand outstripping supply. Even though there were no major supply-side disruptions in 2006-2008, and even though the incentives to produce were strong from rising prices, and the global system was operating full, prices rose enough to create a supply shock that was a major factor, along with the financial crisis in the wake of the financial system melt-down, in the world-wide major recession of 2008-2009.
From Wikipedia: Peak oil is the point in time when the maximum rate of global petroleum extraction is reached, after which the rate of production enters terminal decline. This concept is based on the observed production rates of individual oil wells, and the combined production rate of a field of related oil wells. The aggregate production rate from an oil field over time usually grows exponentially until the rate peaks and then declines—sometimes rapidly—until the field is depleted. This concept is derived from the Hubbert curve, and has been shown to be applicable to the sum of a nation’s domestic production rate, and is similarly applied to the global rate of petroleum production. Peak oil is often confused with oil depletion; peak oil is the point of maximum production while depletion refers to a period of falling reserves and supply.
[add more about the supply demand balance outlook in oil globally]
[add more about food crisi]
Just as the upcoming oil crisis was preceded by a similiar criss in 2006-2008, there was also an food crisis in 2007-2008.
Again, we turn to Wikipedia:
The years 2007–2008 saw dramatic increases in world food prices, creating a global crisis and causing political and economical instability and social unrest in both poor and developed nations. Systemic causes for the worldwide increases in food prices continue to be the subject of debate.
Initial causes of the late 2006 price spikes included droughts in grain-producing nations and rising oil prices. Oil price increases also caused general escalations in the costs of fertilizers, food transportation, and industrial agriculture. Root causes may be the increasing use of biofuels in developed countries (see also food vs fuel),[1] and an increasing demand for a more varied diet across the expanding middle-class populations of Asia.[2][3]
These factors, coupled with falling world-food stockpiles all contributed to the worldwide rise in food prices.[4] Causes not commonly attributed by mainstream views include structural changes in trade and agricultural production, agricultural price supports and subsidies in developed nations, diversions of food commodities to high input foods and fuel, commodity market speculation, and climate change.
As I explore investment ideas based on this theme, the first thing I looked at is the ETF from Power Shares S&P for small cap energy. PSCE is the symbol. Bought a small amount on 4 5 11. I wanted to download crude oil price data so that I could compare it to the equity stock prices of PSCE or other individual equities. The futures price data is apparently not readily available for download for free on the Internet. I guess the futures exchanges keep the data to themselves unlike the equity exchanges.
I did manage to find daily prices from the EIA. They are for Cushing OK delivery. Here is the link:
http://www.eia.doe.gov/dnav/pet/pet_pri_fut_s1_d.htm
What is noteworthy is how quickly oil prices have rebounded even though economies around the world are still well below the levels of 2008 when prices hit their prior peak.
No comments:
Post a Comment