YOU HAVE BEEN WARNED: The Situation In The Markets Is Much Worse Than You Realize

It’s about time that I share with you all a little secret.  The situation in the markets is much worse than you realize.  While that may sound like someone who has been crying “wolf” for the past several years, in all honesty, the public has no idea just how dire our present situation has become.

The amount of debt, leverage, deceit, corruption, and fraud in the economic markets, financial system, and in the energy industry are off the charts.  Unfortunately, the present condition is even much worse when we consider “INSIDER INFORMATION.”

What do I mean by insider information… I will explain that in a minute.  However, I receive a lot of comments on my site and emails stating that the U.S. Dollar is A-okay and our domestic oil industry will continue pumping out cheap oil for quite some time.  They say… “No need to worry.  Business, as usual, will continue for the next 2-3 decades.”

I really wish that were true.  Believe me, when I say this, I am not rooting for a collapse or breakdown of our economic and financial markets.  However, the information, data, and facts that I have come across suggest that the U.S. and global economy will hit a brick wall within the next few years.

How I Acquire My Information, Data & Facts

To put out the original information in my articles and reports, I spend a great deal of time researching the internet on official websites, alternative media outlets, and various blogs.  Some of the blogs that I read, I find more interesting information in the comment section than in the article.  For example, the Peakoilbarrel.com site is visited by a lot of engineers and geologists in the oil and gas industry.  Their comments provide important “on-hands insight” in the energy sector not found on the Mainstream Media.

I also have a lot of contacts in the various industries that either forward information via email or share during phone conversations.  Some of the information that I receive from these contacts, I include in my articles and reports.  However, there is a good bit of information that I can’t share, because it was done with the understanding that I would not reveal the source or intelligence.

Of course, some readers may find that a bit cryptic, but it’s the truth.  Individuals have contacted me from all over the world and in different levels of industry and business.  Some people are the working staff who understand th reality taking place in the plant or field, while others are higher ranking officers.  Even though I have been receiving this sort of contact for the past 4-5 years, the number has increased significantly over the past year and a half.

That being said, these individuals contacted me after coming across my site because they wanted to share valuable information and their insight of what was going on in their respective industires.  The common theme from most of these contacts was…. GOSH STEVE, IT’S MUCH WORSE THAN YOU REALIZE.  Yes, that is what I heard over and over again.

If my readers and followers believe I am overly pessimistic or cynical, your hair will stand up on your neck if you knew just how bad the situation was BEHIND THE SCENES.

Unfortunately, we in the Alternative Media have been lobotomized to a certain degree due to the constant propaganda from the Mainstream Media and market intervention by the Fed and Central Banks.  A perfect example of the massive market rigging is found in Zerohedge’s recent article; Central Banks Have Purchased $2 Trillion In Assets In 2017 :

….. so far in 2017 there has been $1.96 trillion of central bank purchases of financial assets in 2017 alone, as central bank balance sheets have grown by $11.26 trillion since Lehman to $15.6 trillion.

What is interesting about the nearly $2 trillion in Central Bank purchases so far in 2017, is that the average for each year was only $1.5 trillion.  We can plainly see that the Central Banks had to ramp up asset purchases as the Ponzi Scheme seems to be getting out of hand.

So, how bad is the current economic and financial situation in the world today?  If we take a look at the chart in the next section, it may give you a clue.

THE DEATH OF BEAR STEARNS: A Warning For Things To Come

It seems like a lot of people already forgot about the gut-wrenching 2008-2009 economic and financial crash.  During the U.S. Banking collapse, two of the country’s largest investment banks, Lehman Brothers, and Bear Stearns went belly up.  Lehman Brothers was founded in 1850 and Bear Stearns in 1923.  In just one year, both of those top Wall Street Investment Banks ceased to exist.

Now, during the 2001-2007 U.S. housing boom heyday, it seemed like virtually no one had a clue just how rotten of a company Bear Stearns had become.  Looking at the chart below, we can see the incredible RISE & FALL of Bear Stearns:

As Bear Stearns added more and more crappy MBS – Mortgage Backed Securities to its portfolio, the company share price rose towards the heavens.  At the beginning of 2007 and the peak of the U.S. housing boom, Bear Stearns stock price hit a record $171.  Unfortunately, at some point, all highly leveraged garbage assets or Ponzi Schemes come to an end.  While the PARTY LIFE at Bear Stearns lasted for quite a while, DEATH came suddenly.

In just a little more than a year, Bear Stearns stock fell to a mere $2… a staggering 98% decline.  Of course, the financial networks and analysts were providing guidance and forecasts that Bear Stearns was a fine and healthy company.  For example, when Bear was dealing with some negative issues in March 2008,  CBNC’s Mad Money, Jim Cramer made the following statement in response to a caller on his show (Source):

Tuesday, March 11, 2008, On Mad Money

Dear Jim: “Should I be worried about Bear Stearns in terms of liquidity and get my money out of there?” – Peter

Jim Cramer: “No! No! No! Bear Stearns is fine. Do not take your money out. Bear sterns is not in trouble. If anything, they’re more likely to be taken over. Don’t move your money from Bear. That’s just being silly. Don’t be silly.”

Thanks to Jim, many investors took his advice.  So, what happened to Bear Stearns after Jim Cramer gave the company a clean bill of health?

On Tuesday, March 11, the price of Bear Stearns was trading at $60, but five days later it was down 85%.  The source (linked above) where I found the quote in which Jim Cramer provided his financial advice, said that there was a chance Jim was replying to the person in regards to the money he had deposited in the bank and not as an investment.  However, Jim was not clear in stating whether he was talking about bank deposits or the company health and stock price.

Regardless, Bear Stearns stock price was worth ZERO many years before it collapsed in 2008.  If financial analysts had seriously looked into the fundamentals in the Mortgage Backed Security market and the bank’s financial balance sheet several years before 2008, they would have realized Bear Stearns was rotten to the core.  But, this is the way of Wall Street and Central Banks.  Everything is fine, until the day it isn’t.

And that day is close at hand.

THE RECORD LOW VOLATILITY INDEX:  Signals Big Market Trouble Ahead

Even though I have presented a few charts on the VIX – Volatility Index in past articles, I thought this one would provide a better picture of the coming disaster in the U.S. stock markets:

The VIX – Volatility Index (RED) is shown to be at its lowest level ever when compared to the S&P 500 Index (GREY) which is at its all-time high.  If we take a look at the VIX Index in 2007, it fell to another extreme low right at the same time Bear Stearns stock price reached a new record high of $171.  Isn’t that a neat coincidence?

As a reminder, the VIX Index measures the amount of fear in the markets.  When the VIX Index is at a low, the market believes everything is A-OKAY.  However, when the VIX surges higher, then it means that fear and panic have over-taken investment sentiment, as blood runs in the streets.

As the Fed and Central Banks continue playing the game of Monopoly with Trillions of Dollars of money printing and asset purchases, the party won’t last for long as DEATH comes to all highly leveraged garbage assets and Ponzi Schemes.

To get an idea just how much worse the situation has become than we realize, let’s take a look at the energy fundamental that is gutting everything in its path.

WHY THE BIG MARKET COLLAPSE IS COMING:  It’s The Energy, Stupid

Even though I belong to the Alternative Media Community, I am amazed at the lack of understanding by most of the precious metals analysts when it comes to energy.  While I respect what many of these gold and silver analysts have to say, they exclude the most important factor in their forecasts.  This critical factor is the Falling EROI – Energy Returned On Investment.

As I mentioned earlier in the article, I speak to many people on the phone from various industries.  Yesterday, I was fortunate enough to chat with Bedford Hill of the Hill’s Group for over 90 minutes.  What an interesting conversation.  Ole Bedford knows we are toast.  Unfortunately, only 0.01% of the population may understand the details of the Hill’s Group work.

Here is an explanation of the Hill’s Group:

The Hill’s Group is an association of consulting engineers and professional project managers. Our goal is to support our clients by providing them with the most relevant, and up to-date skill sets needed to manage their organizations. Depletion: A determination for the world’s petroleum reserve provides organizational long range planners, and policy makers with the essential information they will need in today’s rapidly changing environment.

I asked Bedford if he agreed with me that the hyperinflationary collapse of Venezuela was due to the falling oil price rather than its corrupt Communist Government.  He concurred.  Bedford stated that the total BTU energy cost to extract Venezuela’s heavy oil was higher than the BTU’s the market could afford.  Bedford went on to say that when the oil price was at $80, Venezuela could still make enough profit to continue running its inefficient, corrupt government.  However, now that the price of oil is trading below $50, it’s gutting the entire Venezuelan economy.

During our phone call, Bedford discussed his ETP Oil model, shown in his chart below.  If there is one chart that totally screws up the typical Austrian School of Economics student or follower, it’s this baby:

Bedford along with a group of engineers spent thousands and thousands of hours inputting the data that produced the “ETP Cost Curve” (BLACK LINE).  The ETP Cost Curve is the average cost to produce oil by the industry.  The RED dots represent the actual average annual West Texas Oil price.  As you can see, the oil price corresponded with the ETP Cost Curve.  This correlation suggests that the market price of oil is determined by its cost of production, rather than supply and demand market forces.

The ETP Cost Curve goes up until it reached an inflection point in 2012… then IT PEAKED.  The black line coming down on the right-hand side of the chart represents “Maximum Consumer Price.”  This line is the maximum price that the end consumer can afford.  Again, it has nothing to do with supply and demand rather, it has everything to do with the cost of production and the remaining net energy in the barrel of oil.

I decided to add the RED dots for years 2014-2016.  These additional annual oil price figures remain in or near the Maximum Consumer Price line.  According to Bedford, the oil price will continue lower by 2020.  However, the actual annual oil price in 2015 and 2016 was much lower than the estimated figures Bedford, and his group had calculated.  Thus, we could see some volatility in the price over the next few years.

Regardless, the oil price trend will be lower.  And as the oil price continues to fall, it will gut the U.S. and global oil industry.  There is nothing the Fed and Central Banks can do to stop it.  Yes, it’s true that the U.S. government could step in and bail out the U.S. shale oil industry, but this would not be a long-term solution.

Why?  Let me explain with the following chart:

I have published this graph at least five times in my articles, but it is essential to understand.  This chart represents the amount of below investment grade debt due by the U.S. energy industry each year.  Not only does this debt rise to $200 billion by 2020, but it also represents that the quality of oil produced by the mighty U.S. shale oil industry WAS UNECONOMICAL even at $100 a barrel.

Furthermore, this massive amount of debt came from the stored economic energy via the various investors who provided the U.S. shale energy industry with the funds to continue producing oil at a loss.   We must remember, INVESTMENT is stored economic energy.  Thus, pension plans, mutual funds, insurance funds, etc., had taken investments gained over the years and gave it to the lousy U.S. shale oil industry for a short-term high yield.

Okay, this is very important to understand.  Don’t look at those bars in the chart above as money or debt, rather look at them as energy.  If you can do that, you will understand the terrible predicament we are facing.  Years ago, these large investors saved up capital that came from burning energy.  They took this stored economic energy (capital) and gave it to the U.S. shale oil industry.  Without that capital, the U.S. shale oil industry would have gone belly up years ago.

So, what does that mean?  It means… IT TOOK MORE ENERGY TO PRODUCE THE SHALE OIL than was DELIVERED TO THE MARKET.  Regrettably, the overwhelming majority of shale oil debt will never be repaid.  As the oil price continues to head lower, the supposed shale oil break-even price will be crushed.  Without profits, debts pile up even higher.

Do you all see what is going on here?  And let me say this.  What I have explained in this article, DOES NOT INCLUDE INSIDER INFORMATION, which suggests “The situation is even much worse than you realize… LOL.”

For all my followers who believe business, as usual, will continue for another 2-3 decades, YOU HAVE BEEN WARNED.  The energy situation is in far worse shape than you can imagine.

PRECIOUS METALS:  Are Stores Of Economic Energy.. Stocks, Bonds & Real Estate Are Energy IOU’s

If you want to lose all your money (most of it), I suggest that you keep it invested in most STOCKS, BONDS and REAL ESTATE.  I still receive emails from individuals who try to convince me that real estate is a safe-haven during economic distress.  Yes, real estate was good to own in the past, but we are living in much different times today.

Years after the markets finally crack, I see thousands and thousands of suburban homes, commercial and industrial properties empty… never to be used again.  We just won’t have the energy to run them.  Thus, there will be Trillions of Dollars of sunk investment capital gone forever.

So, if you are still watching late night infomercials on how to become RICH buying Real Estate, you have my sympathies. 

Lastly, if you are one of the few Americans not suffering from BRAIN DAMAGE, I suggest that you consider owning some physical precious metals to protect your wealth.  Once the markets finally implode, there will be few bids for most STOCKS, BONDS and REAL ESTATE.

The time to get out of highly-inflated garbage assets is before everyone else tries to.

GOD HATH A SENSE OF HUMOR….

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88 Comments on "YOU HAVE BEEN WARNED: The Situation In The Markets Is Much Worse Than You Realize"

  1. Why are you in favor of PM mining companies in your past articles at least when they will be screwed as well?

    • Jean Fossil,

      Because the amount of energy that it takes to produce an ounce of silver is trivial compared to the base metal mining industry. I see the silver mining industry continuing for some time, while the base metal mining industry disintegrates. This is why I see value in Silver Miners going forward for a while.

      steve

  2. Hi Steve, If there will be millions & millions of suburban homes empty, not to be used again, b/c there is not sufficient energy to run then, where will people find energy to live? Do you have a thought you can relate to me concerning basic housing? Or is the adjustment in energy mean also that there will not be a demand for housing?

    • Ric Munds,

      Yes…. with less energy, means the 4,000 square foot McMansions are no longer a viable living arrangement. I hate to be so blunt, but we continued building huge homes with no regard to where we were going to get the energy to run them in the future.

      Lastly, it’s not just the energy to heat, cool and maintain the home, we also have to consider the fuel it takes to travel to work and all the shopping from ones home.

      steve

      • New houses are well insulated these days by code.
        If energy is too expensive people will just wear more clothes or have wood fires.

        • It’s not just the cost of energy, but the increase in property taxes, the cost of food, and the relative cost of living that will make it far more prohibitive to maintain a household. I’m afraid renting will become the only viable option as it will be cheaper than trying to support a house with all the necessary inputs to maintain it.

        • jeff,

          I wish it were that simple. When Americans can’t either afford or get enough gasoline, how on earth does the typical Suburban Home Economy function? We must remember, how many miles a day does a typical American drive to work, school, stores and etc?

          steve

  3. Steve, I believe in Precious metals to protect wealth and have been accumulating them for years. I just don’t understand if oil energy were to become less available, how exactly will Gold and Silver be wealth? Why would your neighbor want a lump of silver? How would that benefit them in this scenario? It would seem that food and water would become the most valuable items. It would be helpful to explain the most likely scenarios that would play out. Also, what role would Bitcoin and other crypto currencies play? Thanks.

    • Greg Peterson,

      Excellent question(s). I will be writing about these questions in an article this week.

      steve

      • Hi Steve,

        I understand that oil energy will be less available due to higher costs to produce but am not quite understanding why this will result in a lower price for oil. Wouldn’t the oil companies just cut back on production to keep prices stable? Or would the demand decrease so much that there would be adequate supply to keep prices low?

        • R. Stephen Dorsey | September 11, 2017 at 11:17 am | Reply

          I, like Gene Cox, don’t understand why higher costs to produce oil translate to much lower prices. I’ve read your words and they don’t explain, they just affirm the concept. Also, how is “Maximum Consumer Price” determined? At any point on that descending line another increment of the population will be unable to purchase the oil that they could have at a point higher on that line. That is the Supply/Demand function that you seem to feel is immaterial in the face of the cost of oil production and it seems to be less of a “point” than a sliding scale.

      • The stored energy in PM is a sunk energy, it has no value when oil can’t deliver economic energy. The stored energy in PM correlates to the economic energy in oil. As the economic energy of oil fades, so will the value of PMs. The Bible clearly states in the end times that inflation will occur in terms of silver. Seal #3 “A measure of wheat for a denarius, and three measures of barley for a denarius”.

        “They will fling their silver into the streets and their gold will become an abhorrent thing; their silver and their gold will not be able to deliver them in the day of the wrath of the LORD”

        For those who believe that Gold and silver will save them, are up for a big disappointment. The coming kingdom in 1260 days will give any value for gold and silver. Invest in the coming kingdom because soon you will be your gold and silver on tghe streets.

    • pre collapsed urban X | September 11, 2017 at 3:57 pm | Reply

      Depending on the speed of collapse, and if a new currency is issued, pm’s give you options to have investment in the new system or continued savings until you need to use that money. PM’s may not buy fuel, when there is no fuel generally. Storing a few years of heating fuels, building-in a minimal solar off-grid system (sailboat-scale refrigeration + LED lighting), in addition to building a low-need situation (small, highly insulated, pre-stocked and semi-self-sufficient for at least a winter-spring cycle), will give a chance at an okay outcome (even if nothing happens, you are living cheaper and saving more).

      See the Bison Prepper Blog for interesting notions like “junk land”.

  4. Steve,

    Can’t help but wonder if hurricane Irma might not be the straw that breaks Uncle Sams back following so closely on hurricane Harvey. Where is all the money and energy needed to rebuild going to come from? These horrendous losses have to push the insurance companies and re-insurance companies in to bankruptcy – the US is broke and congress is in chaos.

    Recent movement in precious metals and the failing dollar may be signaling the impending end of the ponzi and the death of the dollar.

    The precious metals market could get crazy very quickly. Can’t wait to see what the FED does and what Trump does to the FED.

    Any body that is not buying physical silver is simply insane.

    Thanks for another doozy,

    SteveW

    • Steve W,

      Instead of thinking in terms of MONEY to rebuild Houston and cities in Florida, we must think of it in terms of… WHERE ARE WE GOING TO GET THE ENERGY. Actually, Bedford told me during our conversation that it would take something like 25 billion barrels of oil to rebuild Houston. We just don’t have that kind of energy anymore.

      steve

  5. I don’t agree with the point you’re making re the cost base to produce oil. The rise of the oil price was caused by financial manipulation, mainly JP Morgan. Maybe it was done so that Saudi-Arabia and Qatar earn eniugh money to support the wars in Lybia, Syria, etc. Oil production is a steady process so why shall the cost of production triple or even more over night? Think twice…

    • Axel Schweigert,

      I suggest that you go to TheHillsGroup.org website and spend some time reading and researching the data. That ETP Oil Cost Curve represents the increased cost to produce oil. Yes, part of it was due to the money printing and debt issued by Central Banks. But, it is important to understand that the Central Banks printing money, to allow more oil production to come online… not the other way around.

      steve

  6. Steve I’m a bit confused by this statement from the mises above:

    At the beginning of 2017 and the peak of the U.S. housing boom, Bear Stearns stock price hit a record $171.

    • olegig,

      Ah… I see. I made a silly typo. It should have been 2007, not 2017. Sorry.

      The VIX Index was not really working in 2005-2007. If the market understood it was being propped up by garbage loans and etc, the VIX Index would have shot up higher years before 2007. This is the same issue today. The VIX is at a low, but the market doesn’t realize EVERYTHING IS GARBAGE.

      However…. they will soon.

      steve

      • DisappearingCulture | September 10, 2017 at 10:05 am | Reply

        “At the beginning of 2017 and the peak of the U.S. housing boom, Bear Stearns stock price hit a record $171.”

        2007 rather than 2017, right?

      • I totally understand, back in the ’90’s I spent a lot of time on web as a Christian apologist. The sites then had a proof-read option before final posting, very handy.

  7. investing in physical silver may be quite ok. But soon the amount will be too big to be transportable without major problems. Your rig will be low and slow riding on the highway and eventually break down. What are your suggestions about how to keep least limited access to your modest walth and stay as much mobile as possible?

    • Enka Latineg,

      That is a good question. However, there will likely be time to convert silver to gold when the price surges higher. It is wise to own both gold and silver. But, I do believe silver will rise much higher in percentage terms than gold.

      steve

    • Junk silver. 10 dimes approximates 1 oz.
      What I worry about is change.
      How does one buy pack of gum with $60?
      Standard answer is that pack of gum probably will cost $120.

      • DisappearingCulture | September 11, 2017 at 8:54 am | Reply

        14 dimes contains 1.001 troy ounce silver. .0715 x 14.

        • A laminated card with actual silver or actual gold weights as well as details (percentage fine, dimensions, rare or key strikes, etc) to assist trade might become useful. The Fisch scales are neat, but portable digital scales with .01G precision are cheap. BU US Nickels are an excellent 5 gram check weight.

  8. I often wonder if the entire world has missed one of the most crucial yet obvious things:

    “Central banks have purchased $x worth of assets…”

    Think about that for a minute. This is their final grab to buy up the world. They print currency for nothing and then buy up everything, all based on the fraud* that we are in financial trouble. (*The fraud being that they themselves deliberately created the financial trouble). They own much of the property through indebting people, and all the stocks etc. When the collapse occurs all the shareholders (you and me) will own nothing and 100% will be transferred to them, all legally. How easy is that? I think sometimes we have over-complicated how those mafia banksters are stealing the wealth of the world.

    • Too Easy,

      You bring up a good point about Central Banks buying up assets. To some, this suggests that they are gaining control of the world’s assets. Unfortunately, the opposite is the case. The collapsing U.S. and Global Oil Industry will destroy the value and functionality of most assets going forward. So, the Central Banks aren’t buying assets to take control, they are buying them up to keep the entire global market from collapsing.

      Who wants a huge manufacturing plant if value falls 95% and the economy collapses?

      steve

      • Yep, they had no other choices, they had to do it, fusion between state and private capitalism has been one of the major transformation of the end of the 20th century which is still increasing and for “good” reasons.
        Funnily it has happened in China, Switzerland, Russia, USA, Sweden, Venezuela, Germany and so on which are quite different to say the least.
        I still do not understand why people can think about a particular subject like energy, or central banking, or goverments, in a separate way as if these would have some kind of autonomy.
        Capitalism is dying like slavery and feudalism died, that’s all, you can hope to restore post WWII capitalism of the mythical pioneer one but will never return again…

      • Steve, on this one I disagree. When you can print money for free it does not matter even if you paid too much for it ! When the music stops the bankers will own it all and everyone else nothing – the physical assets are in their legal possession and the “money” (i.e.: debt) they used to buy it with is in someone else’s hands and becomes worthless. Plus it’s all relative. The 5% of today’s price is irrelevant because so too will the incomes go down to 5% of today’s price so it will still be the same labour/money to buy that asset.

        The “value”, purchase price and debt on that asset is only important for people like you and me who have to work and pay it off. For the banksters it’s just a meaningless fraudulent activity playing with numbers which they will ultimately get away with.

        • Too Easy,

          We are going to have to AGREE to DISAGREE on this one. No where in your comment do you factor in “OIL.” This is a mistake that even the most highly educated analysts make.

          steve

          • OK. But remember this.. how ever many people are left and whatever standard of living remains, people will need food and water, basic necessities – toothpaste, toilet paper, some kind of limited energy, building materials for shelter, vehicles or animals for transportation, etc etc etc.

            Who owns all the manufacturing plants who can make these essential things? Who owns most of the land for food production? Who owns the military and police to control you? Who owns all the infrastructure? The banksters do. When they make stuff to sell/trade to the people who will always have needs, they will take gold, silver, sea shells, paper/digital currency or whatever is being used at the time. THEY are the owners and controller and will be selling to YOU. Oil simply reduces the scale of it all. They are in a prime position to be the masters of society and that’s all that matters.

        • DisappearingCulture | September 12, 2017 at 7:00 am | Reply

          “They are in a prime position to be the masters of society and that’s all that matters.”

          In such a scenario THEY can be stolen from, overrun, etc.

  9. Hi Steve – I discovered your work via your interview with James Howard Kunstler. I have been reading your work ever since. I just emailed Mr. Kunstler suggesting that there might be a reprise. Perhaps you two can get together again for an updated chat about the Hills Group and more? Thanks!

  10. “I asked Bedford if he agreed with me that the hyperinflationary collapse of Venezuela was due to the falling oil price rather than its corrupt Communist Government. He concurred.” Dumb statement, its like asking- Why is the alcoholic homeless, because he lost his job or because he is an alcoholic?

    • Guillermo F,

      Dumb statement? Really? Most of the analysis I see out there states the problems in Venezuela are due to the corrupt Communist Government. Very few, if any, understand its an ENERGY ISSUE and not a GOVERNMENT ISSUE.

      But, of course… you are free to your opinion.

      steve

      • You’re correct of course. The Venezuelan government has always been corrupt. There is a reason Chavez was able to get elected even after a failed coup de’ tat and several years in prison. What we are seeing in Venezuela is what happens when the financial pie gets to small and the strong squeeze out the weak for the remaining crumbs. I have several Venezuelan family members living in Venezuela. What’s interesting is how some will cling to the rules of society and others quickly cast them aside to capitalize on the chaos. What we see are the lawless preying on the what’s left of civilized society. Those that can are leaving Venezuela and in many cases are preyed upon by the citizens of the nations they emigrate too. Sucks to be a man without a country. I think Venezuela is a dress rehearsal for the U.S.

        • DisappearingCulture | September 10, 2017 at 12:33 pm | Reply

          “I think Venezuela is a dress rehearsal for the U.S.”

          For a while longer the U.S. government + Fed’s ability to create [print or digital] the world’s reserve + petrodollar currency at will insulates the U.S.

          • Being North American, one would think that I should support the US in its efforts to maintain a US Petrodollar hegemony, backed up by the most expensive military on the globe. The means used by those in power to appropriate vat assets are not morally justifiable. I do not support them.

            The cracks are forming and spreading. The facade crumbles. The Yuan oil trade with gold convertibility is a major set back for USD. Bitcoin, if it can side step the regulatory and banking community attacks, is another threat.
            The death throes will not be pretty, but we have brought it on ourselves.

        • Hyperinflation is caused by banks issuing or creating credit at an ever accelerating rate, which which can then be used to short the same currency.
          Hyperinflation is created intentionally, with the aid of speculators.

      • “Currupt communist government” like the US government, funny, theres no economic collapse and hyperinflation in the usa?

        • robert sinclair,

          Come on now. You should know better. We have the world’s reserve printing press and top military. Shame on you for not understanding that.. LOL.

          However, DEATH to the U.S. Empire is coming. Don’t you worry.

          steve

          • Not sure the chinese empire will take over, every day they show they have no balls…

          • RD, the Chinese are not (overtly) bellicose like the US. They are patient and are accumulating all the gold they can get.
            However, regarding “hyperinflation” – this is already happening, in terms of debts (and fiat wealth of the 1%/owners of the system). The difference to the past is, that the CBs of the world are working together to monetize the debt and keep the paper ponzi going, thereby keeping the respective exchange rates more or less stable. The cryptos are sign of the hyperinflation, but the metals (and especially gold as CB base money in extremis) will be where the p(b)uck is ultimately is going to go. As such, even J. Rickard’s IMF-SDR-thesis is nothing but a basket of fiat currencies. Once you add gold in there, gold could (IMHO “will”) be revalued at whatever price necessary to cover all (bad) debts while the exchange rates of different fiat types (including the dollar index) may not necessarily tank to zero; in terms of gold they will all be quasi-worthless anyway.

  11. Hey, Steve! Insightful analysis as alway. What you don’t ever mention is the geographical bounds of the coming problems. For instance, I live in Russia where the costs of pumping oil and gas are very low; do you think that countries with cheap labour and plentiful oil will survive the coming conundrum? I’m thinking of investing in one of our so-called national champions — “Gazprom”. Thanks!

  12. What a well done article. Let me add an accelerator to the energy argument you put forth. I believe TPTB in Asia and elsewhere also follow your EROI logic. I believe China and its allies are going to cut the U.S. off from global oil supplies primarily located in the M.E and Asia, if successful I expect Africa will follow the leader. That would do a lot to conserve dwindling reserves for China and her allies. It would also deliver real assets back to the oil exporters such as Russia, Iraq, and Iran, etc. Its coming and I think America’s oil shortages are coming a lot sooner then expected. If we’re left to whatever reserves we can find in N and S America we’re in a lot of trouble.

    China’s oil for gold benchmark is supposed to be released this year.
    https://asia.nikkei.com/Markets/Commodities/China-sees-new-world-order-with-oil-benchmark-backed-by-gold

    • DisappearingCulture | September 10, 2017 at 12:37 pm | Reply

      ” I believe China and its allies are going to cut the U.S. off from global oil supplies…”

      Then the U.S. military goes into action. When that happens everyone loses. China & Russia et al knows the Deep State is psychopathic enough to do it.

      • BRICS are only a bunch of clowns, their alliance will explode at the first real issue. India is really no longer one of them…
        Africa and South America could go back to the west in the next few years as chinese domination is even worse than chinese one.

  13. Which is why the oil price of the dollar must fall. Prior to QE, there was a balanced maintained between gold, oil, and Treasury yields, such that oil exporting nations were indifferent as to whether to demand dollars or gold for oil. Now that that relationship has been destroyed by QE countries have turn toward gold for oil instead of Treasuries. This is why Yellen needs higher inflation and interest rates to put these relationships back in place. Not sure that can happen any more due to debt levels, declining economy, etc., etc.

  14. The markets will be fine until the massive oil shortages hit the economy around 2020. The Insane Powers that be understand this well. That I am certain about. And Americans are already divided, angry, and armed to the teeth. Now throw in the mother of all black swans in an energy crisis. And it’s everybody out of the pool time!

  15. Good article again, Steve. Your info on the economy/PM’s is superb. I am (still) skeptical on the energy issue. As I’ve said before I live in Alberta, work in finance. The oil sands here are by far the highest cost producers on land, anywhere on earth (MUCH higher than Venezuela). Yet the oil sands keep expanding, producing more and more barrels, year after year. To top that , we have to sell for less than market price ,due to lack of refining & pipelines. If the EROI is correct, we should have peaked long ago, and be reducing production, not relentlessly ramping it up.

    • That is the crazy thing. Most of these producers are not profitable at all and ramped up production anyways, presumably because there were low rate loans and everyone assumed the price of oil wouldn’t be this low for too long. Curious to see what Steve has to say.

    • Steve had a good article on the shale companies. Ever increasing cheap debt keeps the oil flowing. If debt is cut off, there are not funds to continue drilling. At 80% depletion in the first year, production slows to a stop rapidly.

  16. Johny Comelately | September 10, 2017 at 3:30 pm | Reply

    Relax. No need to worry! The Webbot says there are literal mountains of clean coal in Antarctica. Enough to power the U.S.A for the next 200 years! If that’s not enough, we are about to see a slew of precious ancient technologies emerge from beneath the ice melt! Combine this with cadres of secret access program agents that become unemployed as the economy wobbles, whom will auctioning off black project energy devices to survive… and we have nothing to worry about!

  17. Just wait until we experience a 10% or 20% drop in oil supplies. In a few years or sooner we certainly will. When it hits the economic and social damage will be catastrophic. The end of Western Civilization, from China to Europe, to the US, will not occur when oil runs out. The economic and social chaos will occur when supplies are merely reduced sufficiently.

  18. “If there is one chart that totally screws up the typical Austrian School of Economics student or follower”.
    I’m an electronic engineer and when inside a data-sheet I look at electrical characteristics, most of the time I avoid typical values; considering them beautiful traps, I concentrate more on minimum and maximum values measured by manufacturers.
    This just to say that I’m an Austrian School of Economics (weak) student too, but also have a bit of insight to energy matter and some traps involved.

    That said, critiques you point towards prices as a key to determine costs vs the opposite is a false problem (unless you’re a politician, a central banker or simply an enemy of mankind 🙂 ).
    While I agree with you that zealots are present among every human group, what I get about the diatribe is that prices guide costs to the extent that a “quite true” free market is possible: the result of continuous price manipulation, like the ever-lasting money printing, is the impossibility on the long term to establish a valid price setting as a measure of a long-chain work feasibility.
    Money printing is not simply a matter of kicking the can along the (rising) road, but is intrinsically a political/religious way to disguise what really is at the end of the rise: while you know that you’ll spend energy to get high, you’re forbidden in evaluating this cost as a consequence of a more general price discovery mechanism.

    And you get the point by quickly analyzing Venezuelan disgusting situation: it’s impossible to sustain the extraction of oil because the current price, or as you name it the energy captured/borrowed from the market, is not enough in order to be repaid or at least to be matched.
    But this should have been discovered much in advance through a staggering rising price, while the energy return was inverting from the top, and not at the zenith of energy dispersion actuated by corrupted governments, among others: the inevitable decline of oil price has just accelerated the events.
    The same for any other countries especially the “democratic” ones ’cause, if you’re right, we’re heading to a common place.

    I conclude by thanking you for the precious (even if not metal) work I can enjoy here: not many sites force me to take time and read posts more than once.

    Hoping the best for the CDX adventure, also because I’m in.

    Sincerely,
    Riccardo

  19. Pilitical Atheist | September 10, 2017 at 7:55 pm | Reply

    I don’t know…. Anyone who followed this line of thinking from alternative media from 2009 has lost a lot money in metals vs market. Metals have done nothing. Why should it become valuable suddenly now? I agree with someone above who posted that this has allowed to cartel to purchase almost every real asset with paper/digits while leaving humanity with nothing though through their scheme from 1913 when Woodhead Wilson sold the country.

  20. Thanks Steve, regards

  21. You are wrong Steve. I’ve heard this same thing for 9 years now and nothing has ever come of it.

    Therefore, I’ve stopped believing it. I think the markets are going to keep rising to infinity. Even if they crash, the powers that be will step in and ramp them up again.

    • The central banks can’t print barrels of oil. Perhaps you’re right and the markets continue to climb which I believe they will but your standard of living is tied to oil. As the market rises based on extra more numbers in cyberspace completely disconnected from reality your standard of living will continue to fall due to less cheap energy. The food and the overall health of the western world has been steadily declining and will continue to do so.

    • dolph,

      Your point is duly noted. Let’s see how things unfold in the next 5-10 years.

      steve

  22. venezuala collapse watch https://youtu.be/GHc7yegaCmc

  23. Hi Steve, being oil a commodity, hence the price is manipulated by paper emission, haven’t you consider that the oil prices are just being kept artificially low to lead to bankruptcy non-aligned countries like Venezuela, calm down Brazil, and at least weaken the strength of Russia in a broader global game of power, even at the cost of USA industries for a while?

    • Caio,

      You bring up a good point. However, the U.S. Shale Oil Industry is in far worse shape than you can imagine. I forecast that U.S. oil production will likely plummet to 4-5 million barrels per day by 2025… maybe even less.

      Unfortunately, the value of oil today isn’t worth a high price… and the market can’t afford a high price without doubling or tripling the amount of debt in the world.

      Please check out The Hills Group site.

      steve

      • Hopefully the Fed will step in to subsidize oil purchases and production.
        Creativity of the west is unbelievable. Incredible to see that 1 billion of chinese who love money more than their own children and who works so much has not already dominated the west.
        China has been so stupid namely with Philippines, Japan, Vietnam and even India or some african countries that if they continue like that they will not be able to contain their huge credit bubbles, imbalances before some serious issues could not been kick down the road in the west and namely in USA.

      • As you know Steve I can be as big a sceptic as any one in here BUT I have learnt to have respect for your research and have therefore leant your way in light of your PART COMMENT from above (see below):

        “and the market can’t afford a high price without doubling or tripling the amount of debt in the world”.

        There is no denying this fact. Have a look at the DOW JONES between 1982 and 2001 (19 Years)this index doubled exponentially by 100% every 5 years. It did so on CHEAP ABUNDANT ENERGY. I call it the Petrodollar Trend.

        Since 2009 this index is once again increasing exponentially by 100% every 5 years ONLY this time it is not happening because of CHEAP ABUNDANT ENERGY it is happening because the central banks are PRINTING MONEY!!!!!!! The bells are ringing, something is out of wack and I am curious enough to wonder why.

        Steve’s research goes a long way to satisfying my many curiosities on this subject. Have a good look at his stuff, none of you in here can honestly say he doesn’t do his numbers; his numbers (Factual Numbers)are what are telling the story NOT ASSUMPTION!

  24. Correct me if I’m wrong. GDP is measured in $s minus the inflation rate which is stated at ~2% but in reality is more like 7%. There are 2 things that affect GDP #1 is $s borrowed into existence, which we have increasingly more of to substitute for the slowing down of #2 the turnover rate of the $s in existence. The loss in energy available to the consumer has been having a severe negative effect on this turnover rate and according to EROEI can only slow down this rate as we head into the future.

  25. The ETP derived cost curve and maximum affordable price is garbage.

    Put up a chart of the real petroleum price and calculate the correlation coefficient with the ETP derived cost curve. It’s a joke.

    http://www.bp.com/content/dam/bp/en/corporate/images/energy-economics/svg/crude-oil-prices-bp.svg

    Gasoline is highly affordable. The following is a chart of gasoline spending to aggregate cash wages. Gas is ~3.5% of total wages in the US. The maximum consumer price is a joke.

    https://fred.stlouisfed.org/graph/?g=f1pP

    • marmico,

      What a treat that you took your time away from the Peakoil.com blog to comment here. Maybe you should look at the massive amount of debt and derivatives in the world before you may such silly superficial assumptions.

      steve

  26. Ugo Bardi is a reputable professor and he and others have debunked the conclusions of the Hills Group report. See: http://www.resilience.org/stories/2017-03-01/debunking-hills-group-analysis-future-oil-industry/#comment-3181883364
    He understands that the oil industry is in trouble, but claims the process will unfold in a much different way than the Hills Group claims. I suggest reading this piece to further grasp where the Oil Industry might be heading.

    • Ned,
      The only difference between Hills and Bardi is that Hills is a pessimist and Bardi is an optimist. Hills assumes nothing will be done about the problem and we will inevitably fall off the Seneca Cliff. Bardi assume we can implement a program of sustained acceleration in the rate of investment in renewable energy of 30% per year using oil as the “seeds” of an entirely sustainable renewable energy system. In the end, it will be the fiat credit system that brings an end to the age of oil and our current way of life. A collapse from which we will never fully recover.

      • Steve,
        Thanks for the response, I agree that there is probably not a huge difference in what they believe. And myself I am quite pessimistic, but I do believe that we should at least attempt to soften what promises to be a rocky landing. I think it is important to realize that there is still plenty of net energy for the next several years, but the debt loads should bring the industry down sooner. I think Nate Hagens might be right: the system won’t just collapse due to low EROI, the higher cost tranches will just go out of business over time because in the near future, it’s all about the credit.

  27. Conventional Oil Peaked in 2006 –IEA-EIA-NATURE
    http://imgur.com/a/uCz7V
    http://www.nature.com/nature/journal/v481/n7382/full/481433a.html

    New Oil discoveries by scientists have been declining since 1965 and last year was the lowest in history –IEA
    http://imgur.com/a/W60yn

    We have been draining our oil reserves by consuming more oil than we discover since the 1980’s – ASPO
    http://imgur.com/a/uJ0Rg

    Aging giant oil fields produce more than half of global oil supply and are already declining as group – CSM-HOOK 2009
    https://www.csmonitor.com/Environment/Energy-Voices/2013/0412/The-decline-of-the-world-s-major-oil-fields

    Saudi Arabian oil reserves are overstated by 40% – Wikileaks
    https://www.theguardian.com/business/2011/feb/08/saudi-oil-reserves-overstated-wikileaks

    IEA Chief warns of world oil shortages by 2020 as discoveries fall to record lows-WSJ
    https://www.wsj.com/articles/iea-says-global-oil-discoveries-at-record-low-in-2016-1493244000

    Saudi Arabia’s Energy Minister Warns of World Oil Shortages Ahead– WSJ
    https://www.wsj.com/articles/saudi-minister-sees-end-of-oil-price-slump-1476870790

    UAE warns of world oil shortages ahead by 2020 due to industry spending cuts
    http://www.arabianindustry.com/oil-gas/news/2016/nov/6/more-spending-cuts-as-uae-predicts-oil-shortages-5531344/

    Saudi Aramco CEO believes oil shortage coming despite U.S. shale boom– FOX NEWS/REUTERS
    http://www.foxbusiness.com/markets/2017/07/10/saudi-aramco-ceo-believes-oil-shortage-coming-despite-u-s-shale-boom.html
    https://www.reuters.com/article/us-aramco-oil/aramco-ceo-sees-oil-supply-shortage-as-investments-discoveries-drop-idUSKBN19V0KR

    Halliburton CEO says oil will spike due to oil shortages by 2020 after Industry Cuts -BLOOMBERG
    https://www.bloomberg.com/news/articles/2017-07-12/halliburton-sees-2020-oil-spike-after-industry-cuts-2-trillion

    Total CEO warns we are going to have oil shortages around 2020 due to lack of investment
    http://www.boursorama.com/actualites/je-suis-convaincu-qu-on-va-manquer-de-petrole-selon-le-pdg-de-total-patrick-pouyanne-9b2d911a65572f5f989a74319b68d296

    Chevron CEO warns US shale oil alone cannot meet the world’s growing demand for crude-NBC NEWS
    https://www.cnbc.com/2017/05/01/us-shale-cannot-meet-the-worlds-growing-oil-demand-chevron-ceo-warns.html

    HSBC Global Bank warns 80% of the worlds conventional fields are declining and world oil shortages by 2020
    https://www.research.hsbc.com/R/24/vzchQwb

    UBS Global Bank warns of industry slowdown and world Oil Shortages by 2020
    http://www.telegraph.co.uk/finance/newsbysector/energy/oilandgas/12136886/Oil-slowdown-to-trigger-supply-crisis-by-2020-warns-bank.html

    IEA Forecasts worldwide Oil Shortages and Sharp Price Rise by 2020 -NASDAQ
    http://www.nasdaq.com/article/iea-forecasts-oil-shortages-and-sharp-price-rise-by-2020-cm757712

    Energy watchdog warns oil and electricity shortages could develop as investment falls –NBC NEWS https://www.cnbc.com/2017/07/10/watchdog-warns-of-oil-and-electricity-shortages-as-investment-falls.html

    Wood Mackenzie warns of oil supply crunch and world oil shortages around 2020-OILPRICE
    http://oilprice.com/Energy/Crude-Oil/The-Next-Oil-Price-Spike-May-Cripple-The-Industry.html

    Why investors’ should brace for a devastating oil shortage ahead around 2020-MARKET WATCH
    http://www.marketwatch.com/story/why-investors-should-brace-for-a-devastating-oil-shock-ahead-2017-07-03

    German Government (leaked) Peak Oil study concludes: oil is used directly or indirectly in the production of 90% of all manufactured products, so a shortage of oil would collapse the world economy & world governments/democracies
    https://www.permaculture.org.au/files/Peak%20Oil_Study%20EN.pdf

    The Oil Age may come to an end for a shortage of oil. ~ Saudi Oil Minister Sheikh Yamani

  28. “If there is one chart that totally screws up the typical Austrian School of Economics student or follower, it’s this baby”

    Refuting the Austrian school undermines your credibility. All Austrian economists will agree that as market prices rise, so do costs; and as market prices fall, so do costs. There are several reasons why Austrians say this is so:
    1) As market prices drop, producers cut costs in an effort to maintain profit margins. They do this by cutting employees and fixed costs.
    2) Since OIL is a large input to producing oil, costs will indeed drop as less oil produced = less oil consumed as a cost of input.
    3) As prices rise, marginally productive units are brought back on line and the opposite occurs as market prices drop.

    There’s the explanation of your cost curves….or at least a partial explanation. Furthermore, your cost curves do not nor will ever invalidate the laws of supply and demand. What the seemingly high correlation we see to costs tracking prices closely are not only explained by the three points above, but also by the simple fact that the demand curve for a necessary commodity like oil is nearly vertical: in other words, the demand for oil is INELASTIC. As oil prices drop, for example, I cannot curtail the number of trips I make to work or the grocery store.

    All of that being said, you conclusions are still spot on: America is in deep trouble, it’s fiat currency is waning not only in value but in reserve status, precious metals are where it’s at to protect against central bank lunacy, and finally, there will indeed be a day of reckoning.

    • Correction:

      “…in other words, the demand for oil is INELASTIC. As oil prices RISE, for example, I cannot curtail the number of trips I make to work or the grocery store.

    • I highly concur, Bob. By the way, if you are who I think you are…thank you for your good work!

      Steve, think about what you’re saying. If cost determined market oil prices, then it’s conceivable for any major oil producer to force up worldwide oil prices by simply bidding up the cost of their own production. Similarly, there were no profit incentive for improving production efficiency, since the price of oil would fall with cost anyway (profits=revenue-costs). In fact, no efficiency improvements would have ever been started at all since, clearly, such upgrades would be costly and pointless.

      This is why relying on correlative charts and graphs is rather silly when, in the end, correlation is not causation.

      • Gail Tverberg and Steve are spot on in their conclusions….barring any new additions to technology (this is key!). But to state that oil (the only current real energy) is not subject to supply and demand is a mistake. The reason I say this is that if the implosion of fracked petroleum is combined with a curtail of mideastern oil production, then indeed supply and demand then dominate.

    • Bob M,

      We will have to agree to disagree on this one. First of all, those are NOT MY COST CURVES. Those are done by the Hill’s Group. Secondly, thermodynamics, not supply and demand, is the underlying factor that determines price on the long term. Supply and demand only impact price on the short term.

      steve

      • The funny part is that we actually do agree. I’m an engineer as well as a businessman and am an ardent proponent of Austrian Economics, as that is the only truthful economics that exists today. As a “student” of Mises, Rothbard, and Hoppe, I can assure you that indeed thermodynamics, EROI, and all of these things you speak of do indeed drive price, but only because of the inelastic demand of energy. Again, the Austrian economists are right there with you…at least we properly trained Austrian economists.

        The Hill’s cost curves are spot on and as expected….from we Austrian economists no doubt! In the end, when demand is flat (inelastic), the price is irrelevant, but only up until the point that it is unsustainable by the middle class….that’s the collapse you speak of.

        Again, your conclusions are correct in all regards, but to leave supply and demand out of your equation is and will be a flaw in the model that you and Gail Tverberg profess. Austrian economics is truth…period!

  29. Another essay pontificating “the end is near”. We are still waiting for the end of the world as we know it!

    Companies are going broke all the time and Bear Stearns is just another company that went bust. There’s been millions before Bear that have gone broke and there will be million after it that go broke. In the meantime the world will go on like it always has and always will.

    • Stuart,

      LOL…. I needed a good laugh. Thanks. You are typical of what I said… BUSINESS AS USUAL WILL CONTINUE.

      steve

      • Steve, with respect you seem to be gloating prematurely. I haven’t seen the collapse of the financial system just yet …. but maybe I missed it.

        • It actually collapsed 2008-2009 and has been propped up by central bank liquidity. There’s enough semi decent oil left and imbedded energy in the system but those two things have an expiration date.

    • “the world will go on like it always has and always will” : If you means company which are going broke it has happened only since a frw centuries and especially 2 or 3.
      Be sure that this energy issues is a major hurdle for capitalism to continue its expotential expansion (it cannot do otherwise by essence).

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