Is The US Economy Bubble- Hopping?
We are a economy of extremes--- an extremely robust equities market coupled with extremely low bond yields and interest rates, causing investors to take extreme risks. And our friends at the Fed are largely responsible for this environment. The cheap money that they have been pumping into the economy can be compared to the water and sand mixture frackers use to find oil. The Fed and frackers are similiar in that both are pumping something into something to generate results. For frackers the result is oil or gas, for the Fed, a better economy. Or is it? Does anyone believe the stock market would have more than doubled in the last 6 years if the Fed hadn't spiked the punch bowl? If traditional investments such as bonds or savings don't provide decent returns, then investors are forced to chase them. Housing was the last bubble and oil production is the latest. And as this bubble pops it's causing concern across global financial markets. I am not trying to find the black cloud in the silver lining of cheap oil, consumers are sure to benefit--but extremely low oil prices-just as in high prices, has its own set of problems. Goldman Sachs recently announced that 1 trillion dollars of oil and energy exploration projects are now in jeopardy of being canceled, and according to Rob Raymond founder of RCH Energy, between 2009-2014 the domestic E&P industry outspent cash flow by $350 billion, which in itself is not so bad, until you realize the lending was based on $90 crude. A pipeline to move crude from Canada has been canceled, and Houston, Texas the energy capital of the US, is experiencing declines in housing demand and is beginning to see layoffs in the energy space. Energy growth, especially in Texas has led the jobs recovery over the last 6 years. And green energy development will suffer as the lure of cheap fossil fuels make it economically unwise to switch. And the problems are not limited to the US. There are oil producers around the globe that because of domestic budget commitments need oil to sell at higher prices. We might say "that's their problem," but we should remember that some of our banks have given loans to these countries, and economic or politically instability on a large scale are in no ones best interests. So what is the Fed to do? Should they start to raise interest rates--They can't, the global economy of which they are tracking is too weak. And Janet Yellen, in her recent press conference called low oil "transitory", never touching on the possibility that prices might stay low for some time. So we are stuck in this endless cycle of bubble-hopping-.when the oil bubble bursts, which will be the next one to expand?
