Global Trade Likely to Collapse if Romney Wins - Interview with Mike Shedlock

As markets continue to yo-yo and commentators deliver mixed forecasts, investors are faced with some tough decisions and have a number of important questions that need answering. On a daily basis we are asked what’s happening with oil prices alongside questions on China’s slowdown, which commodities or instruments will provide safety in the current environment, will the Euro-zone split in the future and what impact the presidential election is going to have on the economy and markets?

To help Oilprice.com look into these issues and more we were fortunate enough to speak with the award winning economic commentator Mike “Mish” Shedlock.

• Why global trade will collapse if Romney wins • Why investors should get out of stocks and commodities • Why we have been oversold on shale gas and renewable energy • Why oil prices will likely fall in the short-term • Why the Eurozone is doomed • Why there may soon be an oil war with China • How government interference is ruining the renewable energy sector • Why we need to get rid of fractional reserve lending

Oilprice.com: With oil prices now in the high 80's and news out of Europe getting worse every day, do you expect prices to stay in this range, or do you see them dropping in the short term?

Mish: There are two conflicting forces here. One of them is oil prices over the long-term and the other is oil prices over the short-term.

Even in the short-term you will find there are conflicting forces at play. For example, stress in the Middle-East puts an upward pressure on oil prices. However, economic problems in Europe, a slow-down in Asia and a slow-down in the United States put downward pressure on oil prices. New orders are falling at a staggering rate across the board in Asia, China, Japan, Europe, and the United States which also puts further downward pressure on oil prices.

Long-term, forces such as peak oil and population growth in China are putting pressures to the upside.

One needs to balance all of those factors out when they are about ready to give a prediction on oil prices. My opinion is that over the short to mid-term, oil prices will go down. Long-term, energy is a good place to invest.

Oilprice.com: If your prediction is correct and oil prices do go down – what sort of impact do you see this having on the U.S. economy, if any?

Mish: That's an interesting question. However, the question puts the cart before the horse.

Looking at prices in a vacuum is a mistake. One also has to look at why prices are doing what they're doing. For example, falling oil prices that happen when supply shocks are alleviated are a positive thing. Falling oil prices because of falling demand is another. You seldom see this kind of distinction in mainstream media.

My comments...

Why global trade will collapse if Romney wins

There is an upside to this. First, I do not believe that global trade will collapse if Romney wins. Global trade is already collapsing. Overall, global trade is dependent on this country as a consuming nation. China is absolutely dependent on us. If decisions are made that have an adverse effect on what China can sell to the US market, that is a very good thing.

Why investors should get out of stocks and commodities

This is an area that is always uncertain, even with the best, most knowledgeable of investors. Even the best of us should get out of the market, except when we are privy to the insider info like that our Congress critters get on a regular basis. Mish says, ‘At this point, the best thing to do is wait for better opportunities. I am talking my book, but something like 70-80% cash (or hedged equities) and 20-30% gold seems reasonable. I’m telling people, “Get out of the stock market. Get out of commodities except gold and perhaps a bit of silver.” My own opinion is that silver is a good thing...silver coins have value at a reasonable level for things we will need when the SHTF. A bar of gold bullion has no value when it come to buying a loaf of bread, or a fill-up at the gas station. And btw, I do not disagree with Mish, overall on this point of ‘getting out’.

Why we have been oversold on shale gas and renewable energy

Mish is wrong. Shale gas and oil is a real thing. It will be developed, and the Keystone pipeline will be built. But not while Obama is President. We have more oil reserves in the US & Canada with this shale gas that there is in all of the middle east. We have to develop it, and doing so gives us energy independence. We have to tell the ‘greens’ to FO. And we need to make sure that Congress and the President are supportive. It is not just in the Bakken region. This is not new... The Bakken formation, initially described by geologist J.W. Nordquist in 1953, is a rock unit from the Late Devonian to Early Mississippian age occupying about 200,000 square miles of the subsurface. It is long past time to develop this region’s oil reserves. All of the reserves in this country exceed that of the Middle East. FUBO. FUSierra Club, FUAG, etc.

Why oil prices will likely fall in the short-term

Oil Prices will go down because demand is falling. The unrest in the Middle East is temporary.

Why the Eurozone is doomed

Yes, the Eurozone is ‘doomed’, but the extend of the ‘doom’ is a big question mark. The EC will fight like hell to see that it is not ‘doomed’...time will tell. That said, the EC influence in the scheme of things will diminish. Do not invest in Euros.

Why there may soon be an oil war with China

If so,, this will be temporary. China needs oil, though they likely have reserves that are comparable to the Bakken’s. And right now, China’s economy is growing very slowly, and total demand is low. When this changes, China can get their own oil, and if we have the right leadership, we will have our own oil...Middle East, be damned.

How government interference is ruining the renewable energy sector

Renewal energy is a pipe dream. Yes, there is solar, and wind, but these are not ‘renewable’ resources. These resources are there, if we can finally learn how to utilize them. We have not yet done that. Government should stay the hell out of ‘renewal energy’, except to grease the skids by eliminating all EPA etc interferences. We should not promote, nor should we subsidize ethanol from corn as a renewable energy source. This is pure evil and causes untold damage to the price of food, both for the farmer, and for our own tables...at absolutely no advantage...the cost of growing the corn and converting it to ethanol exceeds the value of the energy when it gets to us at the pump. This is both an economic and an energy disaster.

Why we need to get rid of fractional reserve lending

Quoting Mish...”The gold standard does not cause huge bubbles. The real culprit is fractional reserve lending. Historically, problems happened when banks lent out more money than there was gold backing it up.
The gold standard did one thing for sure. It limited trade imbalances. Once Nixon took the United States off the gold standard, the U.S. trade deficit soared (along with the exportation of manufacturing jobs).

To fix the problems of the U.S. losing jobs to China, to South Korea, to India, and other places, we need to put a gold standard back in place, not enact tariffs.”

I agree in principle with Mish on this point.

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