Looking At The Crystal Ball For 2008

December 31, 2007

[Strategic Analysis]

Can you tell me the future? We shall try, assembling the largest team ever – our panel of hacks have all screwed on our Nostrodamus hats and will ruminate on the major trends that’s likely to feature in 2008.

Topics include the major socio-economic & political trends; Are we heading for another recession? How are job prospects? Is the price of petrol going to keep heading upwards? If 2007 was the year of run away train inflation will more of the same pan out for 2008?

To summarize; three main drivers will muscle their way to the lime light in 2008.

Food is going to be big for producers, retailers and consumers. We are not referring only to quantity, but also quality.

2008 will be the year when some of the most radical regulatory changes to food in the primary markets [EU and US] will take effect redefining how it’s produced, distributed and marketed.

2008 will also feature as the great year of economics. Expect it to make headlines as never before. In 2008 even your friendly auntie in the NTUC outlet will be able to give you a 5 minute lecture on ‘cost driven inflationary pressures.‘ If 2007 was the year that oil prices went crazy, 2008 will be the year when the world finally begins to make sense of how to get on top of this problem with the help of economics – so expect economics to be the main actor in TV, newspapers and magazines in 2008.

2008 is also the year when the large teutonic plates of the US and EU collide with those in the Indian continent and North Asia. We know this has been an on-going story, but no time in the history of financial markets has it ever reached such a watershed. Or aligned itself to cover so many topics of interest ranging from migration, defense, economics, oil and security.

(1) First East to West, Now West to East.

The good news next year is the world economy will still grow albeit at a slower rate – with Asia taking up much of the slack. in 2007 Global growth hit 4.58%. This is unlikely to fall below 4 per cent in 2008, despite an expected US recession.

One reason is due to the rise of North Asian economies e.g China which has over taken the US as the major contributor towards GDP growth. These days China, India and Russia between them now account for more than half of global growth.

If the story of 2007 was the great “disconnection” of the world economy from the US juggernaut, which once colored the rest of the world i.e What happens in the US economy has the ability to affect the rest of the world.

The narrative in 2008 will be about how the economy of the world “re-connects” with the new power houses in the East.

This signifies a shift not only in the way we typically make sense of stuff. It will also have a profound effect in re-defining the balance of power between East and West.

Expect the trilogy of China, India and Russia to feature more prominently in the world stage. As they assume greater roles on issues ranging from monetary control to the environment – China as usual will lead the pack, as her wealth lies in it’s endless reserves of ultra cheap labour and unparallel ability to deliver cost leadership.

Russia by virtue of her vast oil reserves assumes a clout never seen before except during the days of the cold war. Unlike the family run oligarchs of the sheikhsdom who have always been cautious about investing in the West. The Russians have no qualms about hedging their foreign reserves in businesses in the West. The question with Russia is whether it is able to shed it’s zero business sense successfully and take to the sophistication of the role demanded. As for India expect it to move up the value chain in innovation. Unlike China that only has a numerical superiority. India leverages on it’s base of quality nowledge workers. In 2008, we are confident at least one major IT innovation will emerge from her.

(2) Oil, Oil all Around, But Not A Drop….

Will taxi fares continue to escalate in 2008? How much will it cost you to put a tiger in your tank?

Our prediction is the price of crude oil will continue to remain high for years to come.

2008 will continue to see increases, albeit at a controlled rate as oil extraction currently isn’t the main problem as much as bottlenecks in the refining process – these shortfalls will even out sometime in the first and second quarter of 2008.

I remember during university doing a paper on “peak oil” – the conspiracy theory that global oil production and prices will continue to defy the adage, “what goes up must eventually come down” – where the price of oil keeps going up and up for decades and then starts falling rapidly like the market in 1929 – the lecturer wasn’t amused and failed me.

In 2007 when the price of crude did an unexpected runner the black arts of economics went mainstream and started dominating much the fiscal thoughtware.

Just to give you a short historical trend line of how high crude has gone up recently – in the second quart of 2006, crude prices fell from $80 to $59.7 a barrel – the biggest drop in 20 years. Pundits expected it to fall further to $35 or even lower – within a span of a year throughout 2007, the price of crude crossed the $100 psychological level!

Apart from lending credence to my pet theory of the age of ‘peak oil,’ this also shows you how much of forecasting has to do with rain dancing and studying pig entrails – when you think that the price of crude has gone up by a staggering 87% from it’s Q2 benchmark of $59 that’s the main reason why we have been seeing the sharp shocks of the recent rounds of price increases – much of it is has to do with businesses knee jerking as they frantically try to adjust these increases with their financial projections earlier in 2007. And behaving very much like the crew on the Titanic 2 minutes before she rammed into the iceberg.

If 2007 was the year that businesses were completely blind sided by the sudden increases in oil. Expect 2008 to be the year when governments, firms and individuals begin to develop methods to deal with the paradox of how to sustain growth with ultra-expensive oil.

While some in blogosphere have been describing 2007 as the year of run away train inflation and they’re probably telling you, 2008 will see more of the same wild inflationary increases.

We do not believe this to be the case. Infact, we don’t even see the threat of hyper-inflation featuring in the local, regional or the global economy in 2008.

If you look at this type of scare mongering rhetoric it’s fostered largely by hitherto hawkish talk from central banks rather than industry watchers. And much of it is driven by ignorance and a lack of appreciation; how elastic oil prices can be under prolonged conditions of resource scarcity.

We believe 2008 will be the year when inflation remains relatively kwai kwai i.e stable. There will still be rises, but they will be tacked.

If 2007 was the year when most financial planners were caught with their pants down as they were blindsided by wave after wave of cost spikes.

In 2008, they’re all wearing chastity belts – and plenty of provisioning has already been factored in to dampen the volatility of rising oil prices [for at least 1.3 years, after that no guarantees. Tip: take this year to prepare for 2009]

There are several reasons accounting for why we are unlikely to see the run away type inflation that scissored its way across 2007.

Firstly we have studied three drivers; organised labour [cost of doing business] capital goods [machines that converts raw materials into goods] and money supply [how much cheap money in the market] in the West.

Wage cost is consolidating. This is good, it means 2008 is the year when less people will be talking about superman and extraordinary people. If 2007 was the age of the 2.2 million dollar man and master of the universe rhetoric. 

2008 will be the year when many of us will be asking; why does Superman wear his undies outside? Why is his tongue sticking out? What is that green thing? Is it krytonite? Did we overdo it in 2007?

Expect 2008 to be the search for value; it is no longer; what time did you come back from work yesterday? That’s the easy part. The question is will be; what did you accomplish for the salary – 2008 will be big on value.

Real or actual, wage growth [salary rates] has been falling steadily in EU, US and Japan for the last 2 quarters – we have been monitoring this development very closely, as it also has a direct impact on our game – this is good and if all the indications are to go by, 2008 will see an end to the helium filled days of run away salaries.

Given that labor usually makes up 25% to 30% of most corporate cost bases [what firms usually spend in a year]. This should offset upward pressure from oil costs.

Second, if you look at the credit rating agencies [how much money is floating out there] there is a credit crunch [no one is money laundering these days], historically this tends to be deflationary rather than inflationary. So again this is a good – it means we are headed towards a soft landing rather than another round of price hikes.

Thirdly, the consumption of capital goods [machines that make stuff / used as aggregate to calculate MIC – manufacturing conversion cost] in EU and US is at all time low. So again this is unlikely to exacerbate the already high cost of oil to trigger off run away inflation. Stands to reason; less machinery = less electricity required = less demand on oil = stable to moderate price for oil.

(3) Food Glorious Food!

If 2007 was the year when the price of Maling Luncheon simply went up and up till it finally disappeared. Expect 2008 to be the year when it returns back to earth again, only in better shape and form albeit at a slightly higher cost. Due to a plethora of regulatory measures to be introduced by both the EU and the US next year and this is where it goes screwy – even oil shortages feature as ethanol a fuel substitute is made from corn. The problem is when it goes into the tank less of it goes into the wok and so the crop prices of corn goes up. Corn oil is in everything from potato crisp to giving mee pok that springy bounce. It’s added as a stabilizer to bind the flour. 

Now don’t go catatonic and start hoarding maggi mee, we know that recently the USDA Economic Research Service observed the average American who spends roughly 10% of our household budget on food is expected to spend 15% in 2008. The alarmist say this 50% percentile increase signals the end of affordable food and heralds the age of expensive food for all of us. Not true, in both the Singaporean and Malaysian context.

Firstly Americans already enjoy the lowest price to ratio food in the world.

It becomes all too evident when one compares this with France, its almost double at 18.5%, in the UK shoppers typically spent 22%. Japan, over a quarter at 26%.

Another anomaly in the calculation is the type of food consumed , for example, I usually have laksa for breakfast, but the average Brit sausages, bacon and egg.

So just because the price of food is expected to go up doesn’t mean that it will go up by the same percentile basis points, there is considerable elasticity associated with the calculations – we have not been able to finish off the calculations as we are still compiling data on how much veggies and makan stuff come over from Malaysia etc, but it’s fair to assume with improvements in sourcing and supply chain technology food prices in 2008 will also be relatively well behaved – imported chiat kantang variety food is definitely expected to go up e.g imported fish fingers, chips and everything that gives you a heart attack.

This is largely a function of shifting values in how the average American has come to appreciate the benefits of higher quality foods. As they guarantee both proper nutrients and the right safety procedures such as educating workers not to regularly wipe their bum bum with chocolate cakes.

Food increases in 2008 is also a function of how marketers in the West are increasingly targeting oldies as major makaners observing their incidence of major health ailments including diabetes, high cholesterol and high blood pressure actually double or triple from munching lousy food. 

2008 will be the year when food is really food. We are definitely observing a shift in policy. From one that moves away from spending more time and money to hire lawyers like Dotty to put out fires and issue out cover your ass health disclaimers to actually marketing the wholesome benefits of highly nutritious food.

(4) Summary 

As a quick recap The Outlook for 2008     

1. Slow down in major markets in the world, US and EU / pick up in North and East Asia.  

2. Don’t sweat the inflation – it will be quiet well behaved / 2009 may see another round of spikes, so take 2008 as a breather and it may be a good idea to defer those big ticket purchases. 

3. Less interventionist policy expected in global and regional markets – may even see a shift from Fed style monetarism policies to something laissez faire policy.  

4. The world financial system is weaning itself off the dollar as a reserve currency, expect a shift to Europe currencies – for example: UK – the most attractive fixed income market.

Happy New Year from all of us. Remember only Dummies drink and drive! 

[This report has been compiled by the Council of the Wise /All the Guilds of the Interspacing Fed / Vollariane. Memphisto. Cerebus / Kadjel, Harphoon, Scholarboy, Atomic Monkey, Pumpman, Astro-Boy, Keith Ho – guest readers LHL, Dr Lee TB, Chandra and all the members of the Imperial College Mafia – The brotherhood Press 2007]  

Disclaimer: We are all idiots here, so please don’t believe everything you read in the internet, check it out yourself!

Find Out What’s Happening In Our First Travelogue of 2008. Right Here

(Live Location Report)

28 Responses to “Looking At The Crystal Ball For 2008”

  1. Louis said

    Insightful – credit crunch? Doesn’t that translate into additional pressures to unleash the reserves and spend more on public projects. Would that increase inflation?

  2. Louis said

    Btw there could be a few errors in the way capital goods consumption is linked to the whole idea of dampening the price of crude – if I am not mistaken, the problem with that approach is, it fails to take into account the extend of how outsourcing has featured in the manufacturing process and how many firms in the US are increasing their throughput by moving to 24 hr operations:)

    Anyway great report and very insightful

  3. Louis said

    OK the decoupling issue is very well spotted / no one doubts there will be a shift eventually from US to another reserve currency. However, I my feel is in the analysis very little was mentioned about how all this takes time.

    I dont believe the “benefits” will be felt for a very long time to come, only because the US may no longer be a world economic power in GDP terms, but it still has alot of influence on global politics.

    It will take some time for the Ruskies to figure out how to play this card. As for the Chinese, they really don’t care and as far as the Indians are concerned, they have their plate full with the whole matter of trying to balance their domestic score sheet.

    So at the end of the day, do expect the status quo to stay.

  4. KOHO said

    Hello Louis,

    Pls note that due to ongoing annual mtn on our servers – only one line is active, so pls be informed you may experience so delays in the reply from the authors.

    We highly reccomend all our readers to use the nagivation thread in Fiona Xie in the Singapore Daily to come here – when you are there, pls also take the opportunity to read some of the excellent articles aggregated.

    Happy 2008

    Once again very sorry for the inconvenience.


  5. indiana jones & the prophets of doom said

    Wah! I have been trying to post on the SLF for 3 days, no luck. Just Stuff on a few issues you mentioned.

    First the author says he doesnt see oil extraction to be an issue, it has more to do with the tail end of the supply chain refining & logistics presumably. Then suddenly peak oil kicks in. Now correct me, but peak oil is really the stuff one assoc with Yeti, UFO’s and perpetual motion.

    Really, I have always been a fan of the BP yearly oracle, but I never expected it to read like a childs story book this year.

    Can we expect a detailed report on peak oil? That I believe would cap this article of as really it generates more questions than answers.

  6. indiana jones & the prophets of doom said

    The entire premise of peak oil is facile. Let me explain, Peak oil is based on the critical tip point when the global petroleum production rate is reached, after which the rate of production enters its terminal cycle. The proponents of this conspiracy theory say; if global consumption is not mitigated or subject to quota controls before this so called max point, this would lead to short falls in avaliability of conventional oil stocks and prices will rise, resulting in peak oil pheno.

    Dear learned sirs, do bear in mind peak oil the proverbial wolf has been around since WW2. First sounded directly after the stock market crash of 1929, it proved to be a no show. Since then the cry wolf has featured in the 70’s during the OPEC crisis. Then in Gulf war 1 and now most recently directly after Katrina, but in every single case it’s roar has proven more damaging than it’s maul and bite power.

    One reason why I believe dear Sirs why the theory has managed to gain mileage this time round is it lends a patina of legit currency to the green movement. Who incidentally happen to be the new shoe on the podium fringe who see it as convenient to perpetuate the dream that we are near the point when the oil reserves of the world is running out. Not true dear sirs. FYI, there exist large tracks of oil reserves in the polar caps, Alaska and even the North Pole. Furthermore refining know how in the last 20 years has improved to such an extent that these days the yield efficiency is nearly 5 fold what it used ten years ago! That translates into efficiencies which can easily off set shortages for perhaps the next 100 years.

    I believe one reason why the peak oil theory has gain a foothold on this occasion is largely due the increasing prominence of the greens. Previously considered the lunatic fringe, they are now very much a feature in every energy forum and for political cause celebre points it doesnt pay to diss them, but as I said, probabilities do not make for possibilities.

    I believe it may still be very much a case of wolf once again sirs.

  7. indiana jones & the prophets of doom said

    I am sorry for being so long winded. However, there are so many blatant errors in this annual report that I just feel it’s my duty to set the bones straight.

    “less machinery = less electricity required = less demand on oil = stable to moderate price for oil.”

    Unmitigated hogwash! Dont believe me go and ask darkness. To think the Mercantile Guild who comprise some of the best thinkers are unable to draw a simple analogy to account for NAFTA and how for the last 5 consecutive years capital goods expenditure in the US has fallen dramatically is a function of the global trend of outsourcing. To a lessen extent in the EU low capital goods up take is due to supply chaining not to mention in part the credit crunch that has lessen the effect of venture capitalist in manufacturing start up’s.

    Gentlemen and a few ladies, I believe you are out of your league this time, I have only mentioned a fraction of the issues here for the sake of brevity, but this report leaves alot to be desire in terms of quality, accuracy and relative advisory value.

    I am starting to believe the only note worthy comment in this post is the caveat in the last paragraph.

  8. Darkness said

    Good Evening,

    How are you? Are you right? Yes, absolutely. However, you are also wrong bc of the issue of how the truth ALWAYS needs to seen in relativite terms. Will I defend what is written? Yes and No. I am not trying to hypnotise you, merely stating a simple fact.

    Let me put it this way, there’s always a need for balance. You always need to bear this in mind – who is the target audience? What is the relative breadth of their knowledge? Will they understand what is being said? As the rabbit said to Alice when she was in wonderland, how far down the hole do you want to go? That is the problem that confronts these writers, string it too tight and it will snap, too loose and it will not even play – the tension needs to be just right – so its always a compromise between depth, detail and debate / something always gives otherwise it just doesnt come around.

    These question of balance will always form the basis of how any article is written in the BP – you could even say, its our biggest headache – it cannot be the other way round otherwise we will just be talking to 50 to 60 boffins and the rest will just be standing around like furniture.

    So now you know why it has to be written in such way, 1+1=2 and why that is as wrong without doing violence to the truth that it may be completely wrong, though you and I both know in the world where God and not the devil resides in the details, 1+1 can never ever = 2. Never.That’s just simply impossible.

    Do you understand now?

  9. Darkness said

    Do I believe in peak oil? Lets put it this way, if I really wanted to impress a sexy lecturer with a decent rack in the econs dept, that would be the last subject I will ever talk abt, that guarantees a good to boot. However, what you need to appreciate is this, that’s bc you and I know how the bell curve begins and ends to make up the whole theory of peak oil – but what if I told you that maybe 8 out of 10 readers – have NEVER even heard of peak oil bfr – not even casually or conversationally – never is the key and operative word here. You always have to keep this at the back of your noddle. So what will they do when they pick up this word? Well bc some of them love and hate us, they will probably try to forget it, but it will chew them from the inside out like a baby alien, bc this sort of words just grow and grow. If they haven’t already been dumbed down by regularly reading Mr Wang, they would probably google it up and read up on the works of a few heretical prof’s who have committed academic harakiri by writing on peak oil – but at the end of it, then they will at least have a firm grasp on why the prices may or may not be going up – my point is this, we always have to strike a fine balance between giving information and creating the context for information to come about. There is no mystery to the former, none whatsoever, so you must not be too harsh on your appraisal.

    Do you now understand?

  10. Indiana jones & the prophets of doom said

    “Do I believe in peak oil? Lets put it this way, if I really wanted to impress a sexy lecturer with a decent rack in the econs dept, that would be the last subject I will ever talk abt, that guarantees a good to boot.”

    LOL. I don’t believe you will such luck. No quarry there I am afraid, not in econs. OK that makes sense and I am sorry if I laddled it a bit thick & furious. I meant well.

    I sensed from the way the article was crafted there may have been a longer report. May I have access to it?

    btw you missed out the socio-political this year – may I ask why? Was there something there that was considered too sensitive for public consumption?

    Thanks and once again the error was mine completely.

  11. Darkness said

    Access? If u like. Socio-Political? In one sentence: it all has to do with the question whether high oil prices are here to stay for good?

    You see this is where the whole issue of peak oil theory kicks in, what we may be seeing here may not one big bell curve, but a series of really small cycles that just adds up to create the same cummulative effect.

    Do you know what I mean? It is a reverse cobweb equation. Where the zero goes out instead of centering into one point.

    My gut feel is expensive oil prices are here to stay for at least 5 years possibly even longer. So at the end of the day that’s the salient, no point pussy footing around. You can throw the rest out of the window. If there are going to riots in Jakarta, it will be oil. If the price of goods and services goes up it will be oil. If electricity goes up it will be oil. Its the common denominator and accounts for the largest conversion and fixed cost in everything.

    Solar tech and windmills arent going to make a difference. The key here avoiding that sort of rasputista at every cost / once you’re in the mud hell, you’re habis i.e acute attrition which is has the capacity to be systematic / becomes an assumption or working factorial / energy no longer = progress.

    The only way to get around that size of attrition is by resorting to technology to augment the situation and cut its head off.

    Have to move very decisively. 1,2,3 those sort moves.Diesel cars in my view should not be restricted to just businesses, higher users should be targetted for usage eg salesmen – he uses av 400 bucks of petrol a month, possibly more. Taxi’s should switch to LPG. Wait for wat! Control of fuel pricing should be moderated by re-adjusting the tax levied on current diesel commercial auto’s using a floating rate like CEO / the math is easy peasy / no brainer – they have plenty of room to play with there, Singapore has one of the highest diesel road tax in the world!

    I suspect these measures aren’t really seriously considered bc everyone is still adopting a look and see attitude.

    Question is how long can they do that for? That’s only possible if income goes up to cover these price increases, but with the middle income trap, credit crunch and slow down, you tell me? There is a seige happening, they dont even know it.

    Now you know why my greatest fear is always stupid ppl.

  12. Indiana jones & the prophets of doom said

    A reverse cobweb? Cyclical? So what are you saying? Oil is going the way of Durians in reverse? That’s only possible if you eliminate all the factors that accounts for elasticity in the equation. I don’t believe it has ever been done bfr for non agricultural commodity like oil. Unless you are saying that supply becomes so erratic or the cost of storage is so prohibitive that its no longer feasibility to maintain stockpiles of oil, that’s certainly a possibility in the long term future, but I don’t believe it can be practically accomplished not even with modern supply chain know how. Providing growth is linked to oil, there will always be a incentive to maintain stockpiles. Pls explain yourself.

    I am curious why you see it as a form of attrition rather than a simple case of supply and demand. Correct me if I am wrong as this is certainly the deep end even for my understanding / are you saying attrition is a by-product of rising oil prices or does it have something to do with the depletion of the resource itself? If it’s the second then it isn’t really a case of attrition as it is phasing out one resource in preference for another as a function of market expectation. I believe coal gave way to the internal combustion engine very much to suggest neither factories or ships ever once suffered from any form of attrition as you so described. They simply switched over. The problem with oil of course is the change over in shift wouldn’t be so simple as there is currently no substitute.

    Diesel engines is a quaint idea darknes, but I don’t really see how being able to drive a diesel car will alleviate the problem associated with trains, power generation and all the bread and butter which accounts for oil usage / direct and indirect. What I feel is often misrepresented is the commonly held view automobiles account for the primary consumption of oil which is highly inaccurate. In real terms it accounts for less than 40% in global demand, the other 60% is converted hydrocarbon goods like plastic, polymers and 90% of the things that you would usually have in your house. The figure of 40% is significantly lower in Singapore as cars per capita is one of still low and even if they are high. This figures needs to take into account our city state make up added the av traveling distance is significantly shorter. I don’t have any empirical data, but even I would be very surprised if it exceeded 20% in sg. How is shaving off a few digits from 20% going to make a significant difference to affect the rest of the 80%? I don’t believe the problem can be resolved that easily. You are over simplifying a very complex problem, if I may say so.

  13. vollariane said

    Very well presented Indiana, if I may be allowed to say so. You will be glad to know not all of us subscribe to this peak oil theory.

  14. Dr Chandra said

    Brilliant! You’re actually the first person who nailed Darkness to the door post without having to write a book as thick as a telephone directory.

    Just a friendly word from a good samaritan. Stand by for a round of distraction techniques galore followed by the rabbit in the hat trick. Yes it will be trap doors, smoke and mirrors. We have already seen the rabbit in the hole, so do expect all this.

    We all know when he gets cornered thats really all he does.


    The Light

  15. Harphoon said

    Hello all,

    Happy New Year. Darkness has actually spoken to me abt this topic, a few times. You have certainly raised a few good points Indiana. However, let me share with you some of my thoughts in this area.

    (1) Can Oil be treated as an agricultural commodity?

    I believe it can in so far as it permits some aspect of cobweb theorem to work its way. Granted its hardly 100%, so that could be why darkness felt the need to shore it up by fusing it with the science of attrition. I believed he used a very specific term to describe the relationship between supply and demand: rasputista, which is a form of soil liquification that renders all mobility impossible. Incidentally this is a planning term that has its roots in operations science / so its very much linear programming.

    We certainly saw it with gold and how it back tracked a few years ago to a all time low only to rebound again in the last 2 years. Is that a form of cobwebbing? And to a certain extent the falling prices of computers plays it out quiet well, when you consider what a paradox it is; lower price for more computing power, which in real terms is represents an equational reversal of traditional linear logic.

    So I believe peak oil theory may very well be finally coming out of the lunatic fringe. I admit that much of PO has been assoc with conspiracy theorist. However, lets not run off with this whole idea of a brand a dog – what I believe cannot be so easily discounted is the maths associated with the theorem and how persuasive it actually is. One reason why mainstream economist are so reluctant to buy into the idea of PO is because much of it is econmetrics rather than pure economics. That’s why even if you speak to a economist at a phd level, dont be surprise if they know very little abt this phenomenon. I do believe PO will eventually come to dominate much of macro-economic planning in the future. As to how it may influence fiscal policy remains to be seen.

    (2) Why attrition instead of supply and demand?

    I dont know why he postured the case that way – I have no comment.

    (3) Diesel cars?

    I believe you argued your case here very sensibly and I really dont see how he cannot concede the case.



  16. Darkness said

    OK lah, lets throw out the diesel cars, it wasn’t such a good idea. Well spotted.

    However, lets get a sense of scale here, that’s a side dish.

    I believe your main bug bear centers on the issue of why I believe cobweb theory can be used for oil / peak oil. Simple. Oil is one of those really funny commodities that’s traditionally treated like wheat, rice or grains. I mean we all know its not strictly perishable. Neither does it have a cultivation lag in the strict sense of the word, but even you cannot deny oil is often treated as an agricultural produce.

    One compelling reason is bc oil has always been considered a strategic resource – if you look at any country and it really doesn’t matter whether it’s a really small state like Monaco or even the Vatican, someone is always secreting the odd barrel underneath their bed, its perhaps the most hoardable commodity in the whole wide world – go and check it up if you dont believe me. Everyone stockpiles oil for a rainy day and in macro terms its even considered a debenture a sort of waiver insurance. What does this mean in real terms?That means that if there’s one liter out there in the open market, there’s probably a hundred liters siloed somewhere. Agreed?

    Now this may sound like another of Astro boys conspiracy theories, but it isn’t, you can go check it up yourself – the world doesn’t have a real shortage of oil, not in the true sense that even presupposes anything close to a deficit or short fall in real economic terms – what it has is a fictitious deficit. A situation that con’t to exacerbate the shortage and a large chunk has to do with how oil is typically managed. Now this is where you really have to consider whether the whole idea of stock pilling oil promotes economic development or retards it. My feel it is the latter. I am not a big fan of warehousing. It goes against every single tenet of efficiency, so how the hell are you going to even optimize resource allocation? And that brings into focus the whole issue of attrition i.e if every country is going to build secret underground storage facilities – what sort of macro-economy are you talking here?

    So when you say cobweb theory only applies to crops, that’s delusive – harphoon brought up the good point of associating gold with crops. Now if you think about gold reserves, its basically one of the most archaic economic control systems around. I will put it as stone age technology – the whole idea is if the treasury prints a dollar note, somewhere there’s supposed to be a droplet of gold that backs it up in real value terms. You know what? That’s bullshit, Karl Marx proved it das Kapital when he dreamt up the idea actual labor was a function of price – Agreed? As the US deficit shows, you can even have the lock of hair of Washington in fort Knox and still manage balance the national score sheet pretty well. Of course lah, in this equation, we have really dumb people here like the Japs and to a certain extent the Chinese who are willing to pay good money for paper in treasury bonds etc. God only knows why they continue doing this, but you get what I am trying to say, that these days the whole idea of gold to back up cost of capital is passé along with the whole idea of hoarding oil.

    So my point is this, do we have a real oil shortfall? The answer is No. If the truth be know, we probably have enough oil to last us into the next century, if only govt’s can wean themselves from the archaic manner in which they manage petroleum. However, the short answer is they cannot and will not for an assortment of reasons, real and imagine.

    Darkness 2008

  17. Scholarboy said

    Hi Indi

    I think Darkness didn’t satisfactorily explain why we felt the need to transplant the science of attrition to best explain the oil shortage and its effect. On a macro-economic scalar, let me just say that oil shortages represents only one element in the whole equation. Along with this we also have the middle income trap, credit crunch and the slow down in the US. There are really a million things here to consider. And this means the model needs to account for not only the winners and losers but also the reasons. Lets face it if high oil prices are here to stay it will really have a far reaching effect on not only the region as a whole but it will really up the ante on the competition to such an extent that failure or dropping out means losing the race completely. Putting in place the law of attrition helps explain much of this phenomenon. One of the weaknesses of relying solely on economics is it has a tendency to gloss over high dropout rates, they aren’t really treated as observables in the conventional sense. Hence frequently the results escape detection. Usage metrics and determinants of attrition allows observables to be highlighted, measured, analyzed, and discussed.

    Hope giving you some background will allow you understand why attrition science feature.

    Reg SB

  18. Indiana Jones & the prophets of doom said

    Darkness et al,

    Thanks for the reply. Since the price of oil is so closely tied to inventory levels as you mentioned. I give you this, you are right in one narrow sense. Providing I assume you are referring to SPR (strategic petroleum reserves) – your theory makes sense under these market conditions as it both depletes private sector inventories and pushes up prices for America’s consumers. However, that’s only a short term effect.

    What you fail to recognize is SPR or “hoarding” as you mentioned has been around since Henry T Ford first came out with the first mass produced motor car! It has been around and that means economist have factored in these aberrations into their computations! Hold on a minute, Are you are saying, the world is in this economic quick sand because of something that has been practiced for nearly a century? I really don’t believe you have any idea what you are talking about here with due respect Sirs, let me just point out a few reasons why, US SPR stands at abt 800 million barrels roughly 138 million m³ of crude oil. Note its crude, not petrol, diesel or kerosene, so it still needs to be processed. In relative terms that’s only about two and half months supply. Now the second largest is in Japan which just over 500 million barrels and the rest of is really pocket change, so are you telling me that 2 odd months of inventory is the reason why we are having a shortfall? I think you need to revisit this figures and pay closer attention to the throughput to market effect rate.

    Am I reversing my initial skepticism on peak oil scenario – I believe we may be in the first hair pin of the bell curve. That sounds like a more convincing argument. Yes, as I agree oil may not be an agricultural produce, but this doesn’t stop it from behaving like one if it is treated as say corn or wheat. So you are right cobweb theory will apply under those conditions, but I wouldn’t go to say its pure equlibria theory in the conventional sense. If anything it’s a redux of peak oil by gutting away the whole bell curve and replacing it with something asymmetrical. However, I don’t wish to be difficult but again, I still fail to see what bearing reserves have to the whole issue of macro-economics, or how you are even able to draw the delusional conclusion that we are not facing a real oil deficit. Why then is the price of oil going up and up?

  19. Astroboy said

    “SPR stands at abt 800 million barrels roughly 138 million m³ of crude oil.”

    Hahaha you actually believe that just bc its posted somewhere in the net?The Americans have underground facilities the size of Singapore and there are all hidden away in some super top secret facilities. The real figure is maybe 10 to 20 times that.

    You are not the only oil and gas expert here. We have pumpman and he will put u in a bag. Just u wait.

  20. Astroboy said

    Who do you think killed the electric car? Why did the segway die? Did you know there are close to 9,000 patents on engines that can run on everything from lemon juice to fridge magnets, guess who owns them? Oil companies. Yeah they buy all these patents up and put them in some bank vault in the Swiss alps. Have you ever wondered why the most advanced country in the world, the US doesnt even have one mile of maglev tracks?

    And you are quibbling abt 800 million barrels roughly 138 million m³ of crude oil.

  21. passerby said

    When I was in college everyone knew the easiest way to get funding was by working on an alternative fuel source engine. You dont even need to patent the prototype, all you had to do was pretend to be really busy and publish alot of meaningless papers with the title, no oil engine or video tape it, something along those lines and the next thing you know those oil companies will just come along and offer you a scholarship. Under one condition of course, you stop all your research and allow the men in black to take away everything in black bin liners. Happened to one of Darkness best friends. Dont believe me go and ask him. We have never ever saw him since. He was a boy from Ipoh, Malaysia, used to work with velomobiles, those electric bicycles in mono-shells.

    Everyone know oil companies are even more powerful that the illuminati, freemasons and even PAP by maybe a few hundred million times.

  22. blade runner said

    passerby, ab & darkness,

    I hope you ppl arent just making all this conspiracy theory talk up. I happen to be doing some research on a maglev project and recently I have been doing some part time reading on GM’s EV1. I have to admit there are a whole lot of coincidences, I cant seem to explain.

    Just want to say the accounting for the strategic reserves for crude is not accurate. Abt 2 years ago there was this scandal, as part of the Kyoto P, the US allowed the EURATOM to audit their energy projections, guess what did they discover. They WIP (work-in process) that means all the avaliable crude in pipelines at any given period is over 11 times what the SPR keeps in its inventory. This roughly checks out with what AB said, but I have never heard of secret underground holding tanks bfr.

    Are they in Area 51 by any chance?

    Hardly post, but this was one hell of a review. I feel much better now, for a few months, I have been wondering whats happening. Many Thanks and Happy 2008. Bladey.

  23. vollaraine said

    Where is our oil and gas expert? Chronicler get pumpman here! ASAP~!

  24. memphisto said


    Can you all not see he is too strong. We are no match for him. We dont even come close. Darkness do you concede? Let us not prolong this agony any further.

    Gentlemen we are like those predator aliens in the movie, we hunt for trophy but if a stranger kills one of us there is no love loss. He deserves our respects.

    Who are you Indiana? Tell us. you seem to know our ways.

    You win. You win. Do you know who I am. I am Memphisto. May I be the first to honor you, it is not every day that I get to see that motor mouth darkness get thrown around like a rag doll and being treated like a water boy. It amuses me that you can do this with such ease.

    Consider all of us your friends. You can let yr guard down, take my cup of friendship, I offer it only once.

    You are in the company of the same though you know it not. There is much that we can learn from you.


    Council of the Wise

  25. Darkness said

    I concede. You fought well. We welcome you with open arms into our fold. We do not care abt nationality, race or religion – we only care abt who you aspire to be here – the brotherhood is like the french foreign legion, we care little as to who you used to be – the rest you can more or less make us as we go along, it matters little to every man here. Pumpman will be your brother, he will teach you our ways, you will hunt with us and share with us your weirding ways, we will learn from you and grow stronger – Memphisto is the wisest amongst us, here wisemen are respected and fools are chased out – that is all. See to it.

    Your new name will be Karesh, as you came to us when the moon over D’ni eclipsed over the the 3 suns – I darkness have this right to name you, I am your benefactor.

    Give him my milk sword, you will carry as it bears my personal coat of arms, it means you belong to my tribe. I concede defeat, but next time remember, I will rip your throat out. So there you know.


    Darkness 2008

  26. Vollariane said

    The good dr is right – chronicler increase production by 500% – let us see how the blog of one article per month can match us – if there is a way to rubbish a man, it is by showing him the error of his ways.

    See to it.

  27. Harvardian said

    Look guys. Doc is right. No one gives two shits abt the NLB, the BP has been archiving as far back as 4 years ago. So what is the big deal?

    What we have here is bunch of useless people living in the stone age who have decided to get serious abt nothing.

    No one even takes them seriously. If you don’t believe me ask the readership.

    As for those one month a article blogs who were mentioned pity them lah, they need to make a living, it is a matter of cari makan, so I think, we should let them be.

    However, on a serious note. As for as officialdom is concerned, their selection process is a joke. The way I see it they put a gun to their head and made a mess of it and now the NLB is an international laughing stock – I mean if you are really serious about history, then why is there even a need to filter it? That’s just such a big hole that I suspect no one in NLB will even step up to the podium to address that simple question.

    This was a real chance for the NLB to connect and no make the same mistake BL & gang made, what did they do? They fucked it up! Now they will go down in internet history as the reason why the first olympics broadcast using homegrown garage tech is cancelled!

    Can you imagine someone reading abt that in 100 years?

    I am glad the BP has decided to go 500%!

  28. Darkness said

    Dear All,

    We must remain calm. What have we done so far? We have cancelled the staging of the Olympics in Blogosphere. This was an event that would have been a great opportunity to show the world how we can organize very small ppl to do big things using home grown technology. This project is now being relocated whole sale to Hong Kong.

    Why have we done this? Because our channel partners feel strongly about it. This is not my decision, I am not God – it’s an economic decision. I believe many of the ppl working hard on this project believe they have a right to insist this is significant enough to be entered into the history books. For obvious reasons which I dont wish to go into, we are not in a position give them that level of assurance that it will even be treated as such. We can certainly assure them Mr Brown and his story of disappearing stools in the void deck will make it into our digital history books. We can also assure them Mr Wang’s reiki power crystals will certainly be recorded, but we cannot guarantee what we will do can be treated with such deference. I believe it is important to be honest with our channel partners on the onset.

    So please there is no emotion here. This is a very cold decision, certainly not a I cut my nose to spite you tactic. It has to be an economic and business decision and it has been forced on us by prevailing conditions which we have absolutely no control over.

    As for the future, let us proceed as we have always done. Let me also say we should not get unduly worked up abt this NBL thing. My feel is like this, if you go around jumping up and down abt this being unfair etc, then it says alot about how small and insignificant you really are. It also speaks volumes abt the level of your maturity. If you behave like a beggar then dont be surprise if someone treats you like one and expects you to be happy when they throw you a few trinkets.

    My friends there is much to be said abt the discomfort zone. I felt it most acutely in the IS when more or less the same thing happened. However, since then, I had an opportunity to reflect and if I were to do it all over again, it would be very different.

    So let us not be unduly troubled by all this and settle down, everything will just be fine.


    Darkness 2008

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