Global Financial Crisis (Was: Subprime Meltdown)

[cheesehead]

Originally Posted by ewmayer

That`s a good methodology, but how many consecutive months of large payroll declines do you need to figure out that it`s not just a several-month statistical blip you`re seeing?

Tsk, tsk ... that would be tunnel vision. Payroll numbers are just _one_ of the multiple different indicators the committee considers. (Don't I recall correctly that there was a brief discussion here about the term "jobs recession", whose characteristic was that the decline in employment was not matched by declines in certain other indicators?) I've read that much of the time not all indicators point the same way. That's why they consider multiple indicators, instead of only "the biggest factor".

From that same article:

Originally Posted by http://www.bloomberg.com/apps/news?pid=20601103&sid=al4iyIoRhvao&refer=news

The NBER committee defines a recession as a “significant” decrease in activity over a sustained period of time. The decline would be visible in gross domestic product, payrolls, industrial production, sales and incomes.

Notice how "payrolls" is listed as only one of five different types of activity there? Think about it: payrolls can decline while the other four simultaneously rise!

And note how it says "a sustained period of time", not "the past month" or something like that.

Originally Posted by ewmayer

Viewed in the context of a deeply distressed financial sector [banks not gonna be in a lending mood any time soon, despite massive government pressure for them to start doing so], extremely tight credit [= little money for new business creation], a massively overbuilt housing sector and an imploding commercial real estate scene [all those hundreds of thousands of construction-related jobs aren't coming back any time soon], the trend is glaringly, starkly obvious and has been so [except to professional economists, apparently] for most of the year.

So what?

The article concerned a declaration of a date for a turning point. My search for the character string "trend" finds no occurrences in the article. It's about the establishment of a certain date, not the existence or recognition of any trend.

Note: the estimates of GDP - which *are* issued by the "gubbermint" and thus subject to

< snip >

driving consumer spending - it sure wasn`t a concomitant rise in real incomes

See? You yourself have noticed that different economic indicators sometimes don't act in concert.

In other words, debt expansion masquerading as economic growth.

So, if the committee had declared the start date of a recession based on only one indicator or hastened to make a declaration as soon as a trend was apparent, it might have been fooled by some masquerade.

Now, over a year of [often massive] monthly declines in the Case-Schiller home price index and the aforementioned drying up of credit tell anyone with half a brain that consumer spending is sooner or later going to drop accordingly, and so must the bubble-inflated GDP numbers. Why do we need a full year to at least tentatively indicate that this may be happening?

The declaration was not about an indication, tentative or not, of some current trend. That isn't the committee's purpose. And the actual declaration was not a tentative anything -- it was a definitive historical determination.

Instead, until very recently we still had economists [government and private] "expecting" a recovery in the 2nd half of 2008 ... oh wait, make that late 2008 ... did I say late 2008? I meant, of course, sometime in 2009, only a slight weakening in GDP growth, etc. These are not subtle trends underlying what`s going on - at no point in the last half-century have the basic macro trends been more starkly obvious, yet nearly all of professional economists continue to be "surprised" at the severity of the downturn.

So what?

The committee's declaration wasn't about any trends or predictions of the future.

- - -

Ernst,

One of your comments posted just after that article link at the top of post #756 was unjustified. Perhaps you misunderstood part of the article. It was a rare mistake; 97% of what you post is on-target.

When I see one of your rare mistakes, I post corrections if I think they're needed to keep other readers from being misled into thinking it's part of the 97%. I happen to be particularly keen to see that comments about the National Bureau of Economic Research's connection to business cycle determinations are correct because I think that certain parts of economics have important implications for political decisions made by Americans ... so in post #757 I pointed out the technicalities that made that particular comment in #756 unjustified.

Now, in apparently attempting to refute my correction, you keep citing things that undermine that very attempt!

I forgive you. Just go on.

[ewmayer]

Service Industries in U.S. Contract at Record Pace; Job Losses Accelerate: Service industries in the U.S. contracted the most in at least 11 years, and a measure of private payrolls showed job losses accelerated, signaling the economy’s decline deepened last month.

The Institute for Supply Management’s index of non- manufacturing businesses, which make up almost 90 percent of the economy, fell to 37.3 in November, the lowest level since records began in 1997. ADP Employer Services said companies eliminated 250,000 jobs, the most since November 2001.

Today’s figures suggest a prolonged blow to the economy from the increased financial turmoil of September and October. Economists at Goldman Sachs Group Inc. and Wachovia Corp. boosted estimates for November job losses ahead of the government’s report in two days, raising the median forecast to the biggest payroll drop in 26 years as employers from Citigroup Inc. to General Motors Corp. stepped up the pace of firings.

“What we’ve seen since mid to late September is that business activity has shut down, along with the consumer,” Stephen Gallagher, chief economist at Societe Generale in New York, said in an interview with Bloomberg Television. “There is no reason for an immediate turnaround; financial markets have not stabilized; consumers have not stabilized.”

...

The Labor Department’s November jobs report may show payrolls fell by 330,000, the biggest decrease since 1982, according to a Bloomberg News survey of economists.

John Silvia, chief economist at Wachovia in Charlotte, North Carolina, lowered his forecast for November payrolls by 100,000 to a decline of 450,000, following the ISM report. Goldman Sachs economist in New York projected job losses reached 400,000 last month.

My Comment: Those are huge job losses, and they appear to be accelerating. 2009 looks to be ugly in terms of unemployment.


UAW agrees to help automakers: Union chief Ron Gettelfinger says workers will work on changes in labor contract, a key to winning support for federal bailout of GM, Ford and Chrysler.


Bally Total Fitness files for Chapter 11 again: Gym operator with hefty debt load falls victim to credit crunch, files for bankruptcy protection for the second time in less than 2 years.


Nightmare on Wall Street continues: Goldman Sachs and Morgan Stanley brace for another bad quarter following abysmal performances across their various businesses.

NEW YORK (CNNMoney.com) -- The hits just keep on coming for Wall Street.

Later this month, the once venerated investment banks Goldman Sachs (GS, Fortune 500) and Morgan Stanley (MS, Fortune 500) will reveal their results for the fourth quarter and full year.

Neither firm has set a date for the reports, but most industry trackers are betting the numbers will be abysmal, particularly for Goldman Sachs.

A growing number of analysts have slashed their estimates for the New York City-based bank in recent weeks, saying they expect it to report a loss of about $900 million, or $1.82 a share, its first loss ever since the company went public in 1999.

A month ago, analysts anticipated the company would report a profit of $2.35 a share, according to Thomson Reuters.

And there are concerns that the losses could be even higher. Credit Suisse analyst Susan Roth Katzke warned earlier this week that Goldman Sachs could book a quarterly net loss of as much as $4 a share.

My Comment: A modest proposal: Instead of throwing multi-hundred-billion-dollar chunks of bailout money at Wall Street firms, he government should simply lift the Federal Reserve`s current monopoly on printing of currency and extend the same right to the Big Finance firms. Problem solved.

[ewmayer]

Clint Reilly is a Bay Area businessman who has been self-publishing his weekly online economic commentary by taking out ads in local newspapers. His latest weekly article describes how private-equity "vulture" investors effectively looted the 60-year-old Mervyn`s discount retailer chain and doomed it to bankruptcy:

Clint Reilly: Ode to Mervyn`s

At its height, the Mervyn’s chain included 300 stores in 16 states with 33,000 employees and annual sales of $4 billion. The company stayed true to its Bay Area roots by hiring Joe Montana and Kristi Yamaguchi – local celebrities with national appeal – as spokespeople.

In 2004, Target Corporation sold Mervyn’s to a private equity partnership. That was the beginning of the end. A November 22, 2008 Wall Street Journal story chronicles the downward spiral:

“Cerberus Capital Management LP and a group of private equity investors bought Mervyn’s from Target Corporation in 2004 for $1.25 billion. The investor group, which structured the buyout as two separate purchases – one for retail operations and one for the chains valuable real estate holdings, has earned more than $250 million in profits…The Mervyn’s store chain, by contrast, is in liquidation…”

By stripping out Mervyn’s valuable real estate, selling premium parcels and then leasing its own buildings back to the store at exorbitant rates, Cerberus guaranteed a big profit for itself and bankruptcy for Mervyn’s.

My Comment: Note that the all-too-appropriately-named Cerberus Capital is also the majority owner of none other than the Chrysler Corporation. In other words, they are currently busy asking the government for a multi-billion-dollar taxpayer-funded bailout of their Chrysler equity stake.


Treasury may set mortgage rates at 4.5% to boost sales: The Treasury Department is contemplating a proposal that would cut mortgage rates for new loans for homes, according to the Wall Street Journal.

The plan would employ Fannie Mae and Freddie Mac to offer mortgages with rates as low as 4.5%, roughly 1% lower than current rates.
The measure is under consideration as part of the Treasury Department's continued effort to limit foreclosures, which has been at the core of the financial crisis. The plan would seek to revitalize the financial market without bailing out homeowners and lenders, the Journal reported.

As part of the proposal under consideration, Treasury would buy mortgage securities backed by Fannie Mae and Freddie Mac, in addition to those guaranteed by the Federal Housing Administration.

Fannie Mae and Freddie Mac guarantee a significant chunk of all new mortgages in the United States.

It's unclear whether the proposal would create refinancing opportunities, which analysts said would be even more positive for the beleagured housing industry and battered home buyers.

My Comment: 4.5% would be quite a sweet rate for a fixed-rate mortgage. Part of me wonders whether this just another misguided asttempt to prop up the fast-deflating housing-price bubble, though.

[ewmayer]

AT&T Will Fire 12,000 Workers, About 4% of Total, Take $600 Million Charge: AT&T Inc., the largest U.S. phone company, will cut 12,000 jobs and reduce spending next year, striving to become leaner as the U.S. economy falters.


Mortgage applications more than double: Bankers' group cites Fed's bailout of Fannie and Freddie for plummeting rates, with refinancing leading the way.


Trichet Sees Economy Shrinking in '09 as ECB Cuts Rate by Most in 10 Years: European Central Bank President Jean- Claude Trichet said the euro region’s economy will shrink next year for the first time since 1993 after the bank delivered the biggest interest rate cut in its 10-year history.


China Urges U.S. Government to Counter Crisis, Prepares for `Worst Case': Chinese officials urged the U.S. to do everything possible to restore calm to financial markets and said they are preparing for a “worst-case scenario” as the global crisis deepens.

[Chinese central bank head] Zhou told U.S. officials that, while China remained confident of maintaining growth in the world’s fourth-biggest economy, it needed to prepare for the worst, central bank official Jin Qi said.

“We hope that the U.S. can take all necessary measures to stabilize its financial markets and economy as soon as possible and ensure the safety of China’s assets and investments in the U.S.,” Wang said. “To work together to tackle the financial crisis is the most pressing task that we are facing.”

Zhou urged the U.S. to increase savings, after excessive consumption and debt helped to trigger the crisis.

My Comment: Slashing spending in order to pay down debt [a negative-balance-sheet version of increasing savings] is precisely what Americans are doing as we speak. The problem for cvhina is that so much of its double-digit annual economic growth of the past decade was fueled by that excess American consumption. That leads to only one conclusion: more pain aheasd for the Chinese Economic Dragon.


Dubai Speculators Quit as Lending Drought Bursts Desert Property Bubble: The classified ads in Dubai read like an obituary for a real-estate market that until a few months ago seemed immune from the global credit crisis.

A Turkish investor, who identified himself as Sebat, took out 10 bright yellow ads in the Nov. 25 edition of Gulf News, the United Arab Emirates’ biggest newspaper, with the headline: “DIRECT FROM OWNER DISTRESS SALE!!!” Sebat said he used to be able to buy four or five properties at a time and sell them the next day for a profit of as much as 5 percent.

“There is panic in the market,” said Sebat, 52, who wouldn’t give his full name because he’s juggling 60 properties.

My Comment: Price appreciation of 5% per DAY - insanity. Anyway, Sebat is wrong about where the panic is - it`s not in the market per se, what we have there is an inevitable correction of speculative excess. The panic is among the speculators who thought the party was going to last forever, or that they would know when to get out with their profits intact. Alas for them, gambling fever doesn't work that way.

Song of the Day

With apologies to an obscure Paul Simon ditty, Mish Shedlock has a tuneful way to start your morning today:

50 Ways To Beat Deflation

50 Ways To Beat Deflation

The problem is all inside your head, Ben said to me
The answer is easy if you wreck the currency
I'd like to reinflate your weak economy
There must be fifty ways to beat deflation

He said it really is my habit to intrude
Furthermore, I hope my actions won't be historically misconstrued
I`m sick of all these pundits yelling "OMG We`re Screwed"
There must be fifty ways to beat deflation
Fifty ways to beat deflation

Just bail out a bank, Hank
Mail out some checks, Rex
You dont need to be coy, Roy
Just give 'em for free
Stamp up the moss, Ross
You don't need no Congress
Just shell out the bread, Fred
And do it for free

Just buy up some bonds, Ron
Quantitative ease, Louise
You dont need to be coy, roy
Just give it for free
Lower the rates, Nate
You dont need a Senate debate
Just drop it from planes, Jane
And do it for free

He said that hoarding cash won't do to ease our pain
I know there's something that will make you lend again
I said I appreciate that and would you please explain
About the fifty ways

He said I gave a speech on this way back in 2002
And it'll work if we all just see it through
But that guy Mish thinks my head is full of poo
There must be fifty ways to beat deflation
Fifty ways to beat deflation

[cheesehead]

Originally Posted by ewmayer

Song of the Day

With apologies to an obscure Paul Simon ditty

... one of my favorites.

There's at least one other financial-crisis parody:

http://www.amiright.com/parody/70s/paulsimon92.shtml,

not to mention more standard topics:

http://www.amiright.com/parody/70s/paulsimon110.shtml

http://www.amiright.com/parody/70s/paulsimon62.shtml

[ewmayer]

Employers in U.S. Cut 533,000 Jobs, Most in 34 Years, as Recession Deepens: U.S. companies slashed payrolls last month at the fastest pace in 34 years as the economy headed for its deepest and longest recession since World War II.

Employers cut 533,000 jobs, bringing losses so far this year to 1.91 million, the Labor Department said today in Washington. November’s drop exceeded all 73 forecasts in a Bloomberg News survey. The unemployment rate rose to 6.7 percent, the highest level since 1993.

“It’s unbelievable,” said Nariman Behravesh, chief economist at IHS Global Insight in Lexington, Massachusetts. “We’re well on our way to the worst recession of the postwar period.”

The plunge may spur incoming President Barack Obama to come up with an even bigger fiscal stimulus package than economists’ projections of about $700 billion. Today’s figures also will add to pressure on the Federal Reserve to take radical steps to revive credit markets and on lawmakers to bail out the auto companies.

“This is a huge downshift, much larger than we thought,” said Jared Bernstein, an economist at the Economic Policy Institute in Washington, who will be Vice President-elect Joe Biden’s chief economist in the new administration. “The upper bound on a stimulus package is going up, not down. As the hole gets larger, the amount you need to fill it gets larger.”

My Comment: Note that the 6.7% is the government`s Pollyanna-ized unemployment figure, which ignores people who have given up looking for a job, who have gone from working full to part-time, and a host of other "severely underemployed" categories. I predict that even that optimistic figure will hit the 8-9% range next year, which would imply that real unemployment is running close to 15% [That number, officially dubbed U-6 by the BLS, is currently running at 12.5%, up a whopping 4% from a year ago.]. In related news:

Jobs report sends oil under $42: Crude falls on fears of slowing U.S. demand after government reports worst monthly job losses since 1974.


Mortgage Delinquencies, Foreclosures Rise to Record as Home Prices Plummet: One in 10 Americans fell behind on their mortgage payments or were in foreclosure during the third quarter as the world’s largest economy shed jobs and real estate prices tumbled.

The share of mortgages 30 days or more overdue rose to a seasonally adjusted 6.99 percent while loans already in foreclosure rose to 2.97 percent, both all-time highs in a survey that goes back 29 years, the Mortgage Bankers Association said in a report today. The gain in delinquencies was driven by an increase of loans with payments 90 days or more overdue.

My Comment: So the total percentage of non-current mortgages is 6.99+2.97 = 9.96%. That means that what conservative syndicated columnist George Will wrote earlier this year in a highly optimistic op-ed, namely the glass-half-full argument that "Over 90% of mortgages are current", is still true, even if just barely. I`m suddenly feeling a warm glow of bullish optimism ... think I`ll go hit one of the many going-out-of-business sales in my area and treat myself to a shopping spree.


Auto Industry Failure Would Be a `Disaster,' Exacerbate Crisis, Frank Says: Failure to aid U.S. auto companies and keep them out of bankruptcy “would be a disaster,” House Financial Services Chairman Barney Frank said as members of his committee said they back some type of support for the companies.

My Comment: And a taxpayer-funded bailout of the Big Three could equally well prove a fiscal disaster, especially as the latest "new and even higher" $34 Billion bailout they are asking for is likely to be only a down payment. Mark Zandi, chief economist at Moody`s estimates that the real figure could reach $125 Billion. I don`t see Cerberus Capital Management, the private-equity fund which owns 80% of Chrysler and which [as documented in a recent post] ruthlessly stripped the Mervyn`s department store chain of its valuable real-estate holdings and promptly forced Mervyn`s to lease them back from it at usury rates, thus effectively dooming the chain the bankruptcy - I don`t see them offering to pony up any of their billions to help bail out Chrysler. Why should the taxpayer in effect bail out a bunch of scumbag vultures like that?


Sarkozy Morphs from `President Bling-Bling' to Champion of Working Class: At 4 a.m. on Sept. 30, as the collapse of Lehman Brothers Holdings Inc. was shaking up investors on six continents, President Nicolas Sarkozy convened an emergency meeting at the Elysee Palace in Paris to broker the bailout of French-Belgian bank Dexia SA. For an hour, he grilled Finance Minister Christine Lagarde and Bank of France Governor Christian Noyer on the terms of the 6.4 billion euro rescue plan, says François Perol, Sarkozy’s economic adviser.

One of his top requirements: Dexia Chief Executive Officer Axel Miller must leave and forfeit his 3.7 million euro severance paycheck.

With that gesture, Sarkozy, who took office pledging to instill a work-hard, get-rich ethos in a country known for its disdain for money, turned into something more familiar to the French: a politician who intervenes in private companies, subsidizes jobs and bashes the bosses.

“By conveying the message that the state can do better than free markets, Nicolas Sarkozy is appealing to the French’s old instinct for protection,” says Philippe Waechter, chief economist at Natixis Asset Management in Paris. “He seems to be turning his back on his reformist agenda meant to give the French economy more inner resilience.”

Sarkozy, 53, began his presidency in May 2007 as an outspoken admirer of billionaire industrialists. He celebrated his election with his wife, former fashion model Cecilia Ciganer- Albeniz, on the 60-meter-long (197-foot-long) yacht of Vincent Bollore, who built a transportation empire that operates ports in Africa and distributes oil products in Europe.

Charles de Gaulle

By August, the president had cut taxes by 8 billion euros ($10 billion) for workers and small business investors, in a bid to encourage more of the French to become entrepreneurs like Bernard Arnault, chairman of LVMH Moet Hennessy Louis Vuitton SA.

Seventeen months later, with the financial crisis having pushed Europe into its first recession in almost a decade, Sarkozy is backing away from his flirtation with laissez faire and rediscovering another French concept -- dirigisme, or state intervention.

My Comment: Why, the sheer "gaulle" of the man ... puns aside, I thought the French disdain was not so much for money but rather for having to work for it. Shows you how much I know about our 35-hour-work-week continental friends. I`d ask one of my French friends to clarify, but he`s having trouble getting to work these days ... seems the public-transit workers are striking in protest against the postal workers being on strike. Or something like that.


China November Car Sales Drop 10%, Most in Three Years, on Cooling Economy: China’s November car sales plunged 10 percent, the biggest decline in more than three years, extending a global rout in auto demand that has caused carmakers to seek government support.

[Fusion_power]

Here is a question to do a bit of thinking on. The dotcom bubble exploded in 1999, the housing bubble exploded in 2008, what about the oil bubble?

In other words, were high oil prices a result of a speculative bubble that sent gasoline prices from $.97 in 1999 to $4.11 in 2008? If so, what is a sustainable price for oil in the forseeable future?

Here are my thoughts. Oil did indeed see a speculative bubble with prices rising significantly faster than inflation over the last 9 years. Based only on inflation, gas should be about $1.30 per gallon today. This is a major variance vs the price at any time in the last 5 years.

Consider that from the highest price point for gas in July 2008, within 2 months, U.S. consumption had dropped by no more than 3%. How on earth does a drop of 3% in consumption lead to a 75% drop in price of oil? The only pattern to explain the precipitous price drop is that it was a speculative bubble to start with. Granted that oil prices have been artificially manipulated for years, still the evidence seems to say we have seen an abrupt price bubble deflating.

DarJones

http://www.portfolio.com/views/colum...ices-Will-Drop

http://www.eia.doe.gov/basics/quickoil.html

[masser]

Originally Posted by Fusion_power

In other words, were high oil prices a result of a speculative bubble that sent gasoline prices from $.97 in 1999 to $4.11 in 2008? If so, what is a sustainable price for oil in the forseeable future?

Here are my thoughts. Oil did indeed see a speculative bubble with prices rising significantly faster than inflation over the last 9 years. Based only on inflation, gas should be about $1.30 per gallon today. This is a major variance vs the price at any time in the last 5 years.

You're assuming $0.97/gal in 1999 was a fair price. You're cherry-picking a low price in the past as your initial condition.

What about the demand from developing economies over the last 10 years?

What about the (understandable) worries from the Peak Oil enthusiasts?

What about futures contracts?

The dynamics of the price of oil are a little more complicated than: "Let me (arbitrarily) pick a nice low price from a few years ago, and then (arbitrarily) assume oil follows a simple inflation model, and then extrapolate to the present so I can carp about the high price I had to pay for gas"

Markets aren't that simple.

[cheesehead]

Originally Posted by Fusion_power

Here are my thoughts. Oil did indeed see a speculative bubble with prices rising significantly faster than inflation over the last 9 years. Based only on inflation

I presume you mean inflation-aside-from-energy-costs.

, gas should be about $1.30 per gallon today.

masser already said what I would about cherry-picking.

Here's a proposal:

For fairness, let's base _all_ inflation and oil/gas price comparisons on Jan. 1 1973, just before the Arab oil embargo that radically changed the situation. There's been no comparable event since then that has shaken up the relationship between oil-importing and oil-exporting nations like that did.

- - -

Alternatively, a base date for fair comparisons of inflation and oil/gas price comparisons could be the date of the Hubbert's Peak for U.S. domestic oil production, which was, not coincidentally, only slightly earlier than the Arab oil embargo.

Then it would become clearer that the fundamental three oil ages are:

1) Before Hubbert's Peak of domestic oil production in the leading oil-consuming nation,

2) After Hubbert's Peak of domestic oil production in the leading oil-consuming nation, but before Hubbert's Peak of global oil production, and

3) After Hubbert's Peak of global oil production

(That these are or will be not precisely datable is not important. Draw the curves. Eyeball the maxima. Round to the nearest January 1. Or use your favorite stock-market charting algorithm -- higher highs and all that.)

Just as there was a shakeup accompanying the transition from 1 to 2, I expect there is/will be a (different kind of) shakeup accompanying the more drawn-out transition from 2 to 3. That's not a bold prediction. It'll probably be obvious in retrospect.

[S485122]

Originally Posted by Fusion_power

The only pattern to explain the precipitous price drop is that it was a speculative bubble to start with. Granted that oil prices have been artificially manipulated for years, still the evidence seems to say we have seen an abrupt price bubble deflating.

Stockpiling, reducing or increasing production are just fair methods do influence the price of a commodity. Is it because other countries are doing it and that you suffer the consequences that you call this artificial manipulation ?

About the fair price of oil, does one count only the production costs (extraction, refining, transport and distribution) or should one count the fact that a resource that took millions of years to come into existence is used. In other words shouldn't the price take into account the fact that we are using the capital (you can not keep the cake and eat it.) If so the price of oil is nowhere near its real value.

Jacob

[Fusion_power]

It seems that oil prices touch a few nerves.

The .97 price in 1999 was not cherrypicking. It was just a convenient point before the inexorable price rises that took place over the next few years.

1. in 1965 gas was $.21 per gallon
2. in 1971, gas was still in the $.30 cent range.
3. in 1972, gas went to $.50
4. in 1978 I paid $.79 per gallon
5. in 1980 I paid $1.16 per gallon
6. in 1990, I paid $1.30
7. in 1995, I paid $1.15
8. in 1999, I paid just over $1.00
9. in 2004 I paid $1.80
10. in 2008, I paid $4.05
11. in late 2008, I am now paying about $1.40

Just so you 'cherry pickers' can get your teeth into that, the cost of production in 1965 was about $5 per barrel and today is about $30 per barrel. Using that differential, the price of gas would be expected to be about 6 times as high today as it was in 1965. That yields somewhere between $1.20 and $1.50 as the expected price of gas today.

I am not making any arguments about fair prices or underlying supply/demand fundamentals. My position is very simple. The price of oil reached a speculative peak in July 2008 and collapsed thereafter. Interesting to me is that it happened to unwind at a time when the economy was already fragile from the real estate fiasco.

DarJones