Dear Dr. Bones,
Hieronimo is mad againe. Not madde as H*lle, quight, _y non loco como Sevilla_, but still pretty vexed. As I think anybooby *would* be.
Understand, sir, that one of those blue sheeps that graze peacefully upon the Great and City-Crowned Hill, nigh unto the Shadow of the Palace of Public Television, has just discovered The Key to All Monetary Mythologies, which, in part, goes like this:
| The relationship between the value of the dollar and oil prices is very complex. While they can feed on each other to produce a vicious cycle, their short-term relationship is distinct from their long-term relationship. IN THE SHORT-TERM, dollar depreciation does not affect supply and demand, but it does affect speculation and investment in oil futures markets. As the dollar declines, commodities – including oil – attract investors. Investing in futures becomes both a hedge against a weakening dollar and an investment vehicle that could yield substantial profit, particularly in a climate of vanishing excess oil production capacity, increasing demand, declining interest rates, a slumping real estate market, and crisis in the banking industry. |
Now any deepthinker like unto yourself, O Bones, plus many shallower, is bound, after having spent maybe five minutes in rapt adoration of that deliverance, to wonder, "¿But what about the LONG term?"
At that point you (or they, or anybooby) will discover that Comrade Sheep has omitted to disclose who he is swiping from. "In part" is all that is on offer. _¡Quos ego . . . !_
¿How is one to fortify one’s portfolio for the day after that? [1] ¡Dollerica demands to know!
Paddy is mostly kidding, as usual, for in fact the pet g@@gle took the first sentence of that precious treasure and had no trouble apprehending its perp, one A. F. Alhajji, "Chief Economist at NGP Energy Capital Management." ("¿Who?")
As I was singing to the Muses and you just the other day, sir, "This is the dawning of the Age of Breitbartius, Breitbartius, ¡Bright BAAAAAAAAAR Tee Yus!" Supply-side attribution will soon become a lost art: the few residual pedants and troublemakers who care where our daily flotsam and jetsam come from can find out for ourselves so easily that it would be grossly cost-inefficient for the flot- and jetsam-monger community to bother to make easy what very few want to do at all. Oh, well, "It’s kind of fun to be extinct" is a Principle one finds oneself recurring to all the time lately.
Meanwhile, back at the portfolio,
| In the long run, however, statistical analysis of various oil industry variables indicates that a weaker dollar affects supply by reducing production, regardless of whether oil is owned and produced by national or international oil companies. A weak dollar also affects demand by increasing consumption. The result of a decrease in supply and an increase in demand is higher prices. The lower dollar also reduces the purchasing power of oil exporters. If nominal oil prices remain constant while the dollar declines, the real income of the oil-producing countries declines, resulting in less investment in additional capacity and maintenance. The same is true of oil companies. Consequently, oil prices increase. |
Hmmm. This may not be The Key after all. Without a great deal of glossing that Freelord Alhajji is evidently unwillin’ to bore the ignorant laity with, "statistical analysis of various oil industry variables" could mean almost anythin’. Probably, though, it includes that plumb ’rong "vanishing excess oil production capacity." Not encouraging.
It makes a remarkable amount of difference just to know whose Key it is. I hope that observation does not make me a respecter of the _ad homunculum_ [2] or a vulgar gossip, but there it is: his freelordship’s notions sound like the sort of product that should be marketable at ar-Riyád or al-Kuwayt without difficulty, but is less adapted to the harsher climate of New Iceland. ¿Who in Lovecraft Country cares very deeply about "the purchasing power of oil exporters"?
Indeed, I think Comrade Sheep might well ask for his money back, having pretty plainly violated Rule Zero -- _¡Caveat emptor!_ -- and purchased only the second cousin of the product he went shopping for. When his freelordship wonders How Does the Weak Dollar Affect Oil Prices? , these ‘prices’ are the ones Exxon-Mobil an’ _Messrs. les altesses royales du Ryad_ buy an’ sell raw petroleum at, not what the Mass. murderist
(( The John Kenneth Galbraith Memorial Filling Station ))
Still, one *could* sink one’s whole specuvestment portfolio in Exxon-Mobil [3], if not in the House of Sand, so perhaps there is some facsimile of a Key here after all. Let’s put on our thinking caps for a moment, and work through it again backwards, Seemightywise. The second half of "A weak dollar also affects demand by increasing consumption. The result of a decrease in supply and an increase in demand is higher prices" is harmless enough, one of the few propositions on which all mammonologists agree, even the Chicagolanders an’ the Viennasausagevolks. "Increasin’ consumption," though, is a little hard to square with his freelordship’s own "vanishin’ excess production" -- no matter how cheap the general run of goods we bring in from the Lesser Breeds Without, nobody can import what does not exist over there to be imported.
But the real hitch remains "a weaker dollar affects supply by reducing production, regardless of whether oil is owned and produced by national or international oil companies." I have already complained that his freelordship does not tell us how this affection works. From a stricty Riyádhocentric perspective, if _les altesses_ still purchase all their prospecting equipemnt and technology with dollars, as I assume (ignorantly) that they do, ¿Ought not the opposite to be the case?
Well, maybe not. Presumably Their Highnesses do not purchase such tackle at all when they feel that they are not gettin’ proper value for such rock oil as they currently make available to the heathen.
Over at Exxon-Mobil, the same applies, I guess, to refinin’ an’ so on. If the end-user prices are not adequate in their freelordships’ eyes, they would be mad to specuvest in more production capacity. That woul be like M. Elllul’s post-war Denmark: "¡Produce more butter, export more butter, and we will all starve together!" A safe distance from starvin’ are the Exxon-Mobilites, no doubt, but ’tis the thought that counts.
Happy days.
--JHM
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[1] Rereading, I think maybe the Day After has already come and gone. "Vanishing excess oil production capacity" does not sound much like the present correlation of mammonomic farces, with the Titans of Industry poised to start ‘fracking’ under Boston Common any day now, to the immense enrichment of Father Zeus’s Owne Commonwealthe. Not to mention the extreme inconvenience of Red Line patients or victims.
Furthermore, "crisis in the banking industry" appears to have subsided. (¿Wanna guess who won that round?)
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[2] Freelord Homunculus is a Perfesser Doctor an' registers 3.8 on the CliffsNotes™ Scale.
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[3] [¡E] il naufragar m’è dolce in questo mare!
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