Your take on the economy these days

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Bear Paw Jack

Dec 19, 2001
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Guess What Happened The Last Time The Price Of Oil Crashed Like This?

There has only been one other time in history when the price of oil has crashed by more than 40 dollars in less than 6 months. The last time this happened was during the second half of 2008, and the beginning of that oil price crash preceded the great financial collapse that happened later that year by several months. Well, now it is happening again, but this time the stakes are even higher. When the price of oil falls dramatically, that is a sign that economic activity is slowing down. It can also have a tremendously destabilizing affect on financial markets. As you will read about below, energy companies now account for approximately 20 percent of the junk bond market. And a junk bond implosion is usually a signal that a major stock market crash is on the way. So if you are looking for a “canary in the coal mine”, keep your eye on the performance of energy junk bonds. If they begin to collapse, that is a sign that all hell is about to break loose on Wall Street.

It would be difficult to overstate the importance of the shale oil boom to the U.S. economy. Thanks to this boom, the United States has become the largest oil producer on the entire planet.

Yes, the U.S. now actually produces more oil than either Saudi Arabia or Russia. This “revolution” has resulted in the creation of millions of jobs since the last recession, and it has been one of the key factors that has kept the percentage of Americans that are employed fairly stable.

Unfortunately, the shale oil boom is coming to an abrupt end. As a recent Vox article discussed, OPEC has essentially declared a price war on U.S. shale oil producers…

For all intents and purposes, OPEC is now engaged in a “price war” with the United States. What that means is that it’s very cheap to pump oil out of places like Saudi Arabia and Kuwait. But it’s more expensive to extract oil from shale formations in places like Texas and North Dakota. So as the price of oil keeps falling, some US producers may become unprofitable and go out of business. The result? Oil prices will stabilize and OPEC maintains its market share.

If the price of oil stays at this level or continues falling, we will see a significant number of U.S. shale oil companies go out of business and large numbers of jobs will be lost. The Saudis know how to play hardball, and they are absolutely ruthless. In fact, we have seen this kind of scenario happen before…

Robert McNally, a White House adviser to former President George W. Bush and president of the Rapidan Group energy consultancy, told Reuters that Saudi Arabia “will accept a price decline necessary to sweat whatever supply cuts are needed to balance the market out of the US shale oil sector.” Even legendary oil man T. Boone Pickens believes Saudi Arabia is in a stand-off with US drillers and frackers to “see how the shale boys are going to stand up to a cheaper price.” This has happened once before. By the mid-1980’s, as oil output from Alaska’s North Slope and the North Sea came on line (combined production of around 5-6 million barrels a day), OPEC set off a price war to compete for market share. As a result, the price of oil sank from around $40 to just under $10 a barrel by 1986.

But the energy sector has been one of the only bright spots for the U.S. economy in recent years. If this sector starts collapsing, it is going to have a dramatic negative impact on our economic outlook. For example, just consider the following numbers from a recent Business Insider article…

Specifically, if prices get too low, then energy companies won’t be able to cover the cost of production in the US. This spending by energy companies, also known as capital expenditures, is responsible for a lot of jobs.

“The Energy sector accounts for roughly one-third of S&P 500 capex and nearly 25% of combined capex and R&D spending,” Goldman Sachs’ Amanda Sneider writes.

Even more troubling is what this could mean for the financial markets.

As I mentioned above, energy companies now account for close to 20 percent of the entire junk bond market. As those companies start to fail and those bonds start to go bad, that is going to hit our major banks really hard…

Everyone could suffer if the collapse triggers a wave of defaults through the high-yield debt market, and in turn, hits stocks. The first to fall: the banks that were last hit by the housing crisis.

Why could that happen?

Well, energy companies make up anywhere from 15 to 20 percent of all U.S. junk debt, according to various sources.

It would be hard to overstate the seriousness of what the markets could potentially be facing.

One analyst summed it up to CNBC this way…

“This is the one thing I’ve seen over and over again,” said Larry McDonald, head of U.S strategy at Newedge USA’s macro group. “When high yield underperforms equity, a major credit event occurs. It’s the canary in the coal mine.“

The last time junk bonds collapsed, a major stock market crash followed fairly rapidly.

And those that were hardest hit were the big Wall Street banks…

During the last high-yield collapse, which centered around debt tied to the housing sector, Citigroup lost 63 percent of its value in the following 60 days, Kensho shows. Bank of America was cut in half.

I understand that some of this information is too technical for a lot of people, but the bottom line is this…

Watch junk bonds. When they start crashing it is a sign that a major stock market collapse is right at the door.

At this point, even the mainstream media is warning about this. Just consider the following excerpt from a recent CNN article…

That swing away from junk bonds often happens shortly before stock market downturns.

“High yield does provide useful sell signals to equity investors,” Barclays analysts concluded in a recent report.

Barclays combed through the past dozen years of data. The warning signal they found is a 30% or greater increase in the spread between Treasuries and junk bonds before a dip.

If you have been waiting for the next major financial collapse, what you have just read in this article indicates that it is now closer than it has ever been.

Over the coming weeks, keep your eye on the price of oil, keep your eye on the junk bond market and keep your eye on the big banks.

Trouble is brewing, and nobody is quite sure exactly what comes next.


Feb 22, 2007
That whole article was copied against forum rules. But then the rule about re-posting articles is missing now.

More money in people's pockets is good for most of the economy. In the past petroleum products went up so much they hurt almost everyone. Bout time we see some relief. It won't last forever because the market will settle eventually. Try to remember that most people think markets are correct and that we should leave them alone. Personally I think some regulation of markets isn't all bad.


Ruger Guru
Sep 18, 2002
I understand the logic behind the article.

However, just like the times we've had a stock market crash, or even a recession, it made many businesses & people to re-think how the lived. Read, living beyond their means.
Economics has to start at home & go all the way to the top.
If you only make XYZ amount of $$, then you can not spend VWXYZ amount of $$$ expecting to float along forever.
Will people lose jobs? Yes.
Will businesses fold? Yes.

In the last crunch, some of the banks & big companies got propped up by the government, and many down to earth people believe that shouldn't happen.
I own my own business. If I over-extend myself, & my business fails, nobody is going to bail me out. I'll have to do the work myself by the following; cut wages, cut expenses, etc to survive. I see no reason why big companies & our government shouldn't do the same.

Maybe I'm a bit jaded in that I live in a place that has been invaded by many folks who have 2,3,4,5 & even 6 other homes. In the last crash, a LOT of real estate & houses went on the market & some finally sold for a lot less than the owners wanted, or the banks got them back. There are places where "locals" who have lived for generations on family property have been forced to sell out due to being unable to afford the taxes & expenses of living there. All thanks to over-inflated prices of houses by the very people who invest in junk bonds, the stock market, & hedge against it all rising all the time & not falling.

It's basic;
Too many folks living beyond their means. If they lose a lot, they will have to adjust how they live.
Folks who don't have much will continue to live as they always have. They have just learned how to live without excess. These are the folks who need the relief of lower gas prices & such things.


Oct 17, 2009
This type of "logic" reminds me of one dolt on local TV a week or so ago.
She said that we were getting far less income from gas taxes because the
gas price was going down. :roll:

Pray tell, how did we ever survive just fifteen some years ago when the then
current retail prices were below one dollar per gallon? Let's see, how many
jobs were there then? Can you say BUNCHES more than there are today?
If you attempt to ignore what we had going less than two decades ago, you
WILL come to a very slanted view, at a minimum.

The oil industry IS NOT THE ONLY EMPLOYER!

The cost of gasoline . . does . . impact what other sales/jobs growth we have.
When gas prices are down, there is MORE money to spend on other items. :shock:
OH MY HEAVENS! The other 90+% of our economy will have an influence?! :roll:


May 13, 2007
My take on the economy? What "economic recovery?" It's a replay of the 1930s, when every time one or another sector of the economy shows even the tiniest sign of live, the suits in DC stomp on it, hard. The price of gas being but the latest example: Gas is now affordable again, so of course they're going to raise gas taxes while slamming producers with onerous new environmental regs that will hit the smaller companies - the ones that have done so much to develop and implement natural-gas fracking and shale-oil recovery techniques - hardest.

It doesn't help that one major factor in driving oil prices downward is the generally depressed state of the global economy leading to lesser demand for the product. Along with all the other things linked in the OP.

They tell us that the Dow Jones is at historic highs, yet even the merest hint that Washington will quit pumping stimulus money ("quantitative easing") into the markets is enough to send stock prices into a tailspin. What does that tell you?

Supposedly inflation is at historic lows, yet they've altered the calculation of the inflation index to omit things that ordinary people purchase on a regular basis, such as fuel and food. Food prices keep going through the roof, and for most of Obama's reign fuel was right up there, too.

Unemployment remains high; the true (U-6) numbers are still over ten percent. Remember when the Democrats claimed that 4-5% unemployment was "the worst economy in fifty years?" But ten percent-plus unemployment is now described as "the new normal." Also (this from the New York Times a couple of years ago), "funemployment."

Workforce participation is at a forty-year low. More Americans than ever - twenty percent of the population - are on food stamps. Almost half of all American families are receiving some sort of funds from the government. America's corporate tax rates are the highest in the Western world, and Obama only wants to jack them higher...further depressing the economy, and making it even harder for small businesses to even survive, let alone grow or even get off the ground in the first place.

Not to mention that all the "jobs" "created" by Obama have been more than offset by all the illegal immigration he's openly encouraging and legalizing with a wave of His imperial hand.

Oh well: I'm currently working for a state social-services agency. At least I'll have a steady least until the printing presses melt down and the supply of airbucks run out, at which point unemployment won't matter because we'll all be living in a Mad Max world, fighting each over dwindling supplies of food, ammo, gasoline, rat-rods and black leather.



Dec 7, 2008
AND I see now that the Idiot in the White House is OFF on the typical liberal mantra of raise taxes on the rich and grab the dividends from their investments ALONG WITH raise the gasoline tax; Excuse me aren't we using as much gasoline/ Why were the taxes ENOUGH when gasoline was $0.99/Gallon? I DON'T see Obama, CLinton or ANY of the other RICH politicians handing over ANY of their money beyond what they ABSOLUTELY have to hand over.
Back to our current Moron in the White House; Has he NEVER looked at PAST economic history were raising taxes resulted in LESS revenue for the government, not to mention a great DECREASE in Jobs and economic activity? The History CLEARLY shows lowering taxes has the GREATEST beneficial effect on the sconomy, it BOOMS and government revenue increases.


Jan 2, 2011
Look at it this way, the shale oil boom was just that, a boom. Booms don't last long but their echos do. It's not at all surprising when somewhat suddenly the balance of supply and demand is vastly changed. All of a sudden OPEC, the Russians and Venezuela are not the only major players in the petroleum market. The market will take some time to adjust to the sudden change so we can expect some rapid changes in oil prices which also cause shifts in many other commodities, materials and services. It's going to be bumpy because the afore mentioned Russians, Arabs and Venezuelans are going to be doing their best to try to swing the market back toward more expensive oil. If the US cuts back production due to lowering prices we'll be giving those parties what they want which isn't to our benefit. Our best play would be to keep the pressure on our competitors to let them know there's a new player in the market. We should break OPEC, they've had a controlling cartel for way too long. It's going to be interesting in a big way, Russia's ruble just lost about half it's value due to the oil and natural gas price drop caused by the US production increase. It's likely they'll try some military moves to reassert their influence in Europe. I'mREALLY glad I'm not Polish, Georgian or a citizen of one of the old USSR's captive countries. As the Chinese say, "interesting times coming".


Dec 25, 2007
Personally, I'm in far better financial condition than anytime in my adult life. BUT. The outrageous prices of things like vehicles, land, and farm equipment preclude me from any expectation of upgrading any of those possessions. Too old to owe that much money.I'm able to see ground level standing in the hole that nearly buried me in the 80's and I don't intend to go back to digging it deeper again.
Things that I consider a major expenditure are "discretionary" expenses when applied to a two income household with both incomes over $100K. As cruel and cold-hearted as it sounds, it might do some of these younger folks good to discover they can't buy anything including food because their exorbitant income went away or is no longer offered. I've heard many brag about how much more they make than I but they don't realize their income could disappear overnight in an economic crash. At least I'll be able to eat.


Ruger Guru
Sep 18, 2002
Mobuck has a good handle on what & how it should be. Out of major debt, and being able to survive. Too many people, and not just the younger crowd, have not learned to do without.


Mar 28, 2004
I must be the luckiest chap around who chooses to invest where there is money to be made, Me, one that works for one of the majors, investing elsewhere. What a dumbbazzz...

Fox Mike

Nov 17, 2009
Much like Contender said, I was taught that you never spend more than you make or can afford to pay, as in the case of a home or car for instance. If we cannot pay for it by the end of the month then we probably don't need it...whatever 'it' is. Our leaders have never seemed to figure out that little manner of operation. Price of gas goes down, more people travel, using more fuel, causing more work to supply the fuel,creating jobs. What is wrong with that?


Oct 18, 2012
read the fine print on world news.
the only reason oil is low is saudi a. is undercutting iran. they hate iran...and russia. they are shite. saudis are sunnis.
all saudi did was lower the cost of their oil to force them to keep up with the drop...and they know they cant because their iranian economy runs on high oil prices.
it is a 3 prong attack. not only did they stick it to iran and russia, but they stuck it to us. because as long as oil is low....we close down rigs and lay off hundreds.

enjoy it while it lasts. itll go back up again, after we get use to paying less and adjusting our lives around it...theyll pull the rug out from under us again....because we are stupid enough to let them.
Oct 26, 2006
The oil prices shouldn't go back up to more than around $60/barrel. Because then fracking becomes viable again. The Saudis control the price. Of course they are also messing with Iran and "the mad czar Putin"! :shock: 8) :mrgreen: