OUR NEXT RECESSION

First, the latest update on vaccinations.  

• We already know that any shot  dramatically improves the odds of keeping you alive.
• If you compare COVID-19 deaths, it might seem that it is not worth getting vaccinated because a typical tally in a community might show that one-third of those deaths are of those who got fully vaccinated.  The problem here is that there aren't too many totally unvaccinated individuals.  A better indicator is the following, from Scientific American:

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  In other words, the key point is that unvaccinated people 12 years and older had 17 times the rate of COVID deaths compared with those fully vaccinated.
• Further, unvaccinated people had 8 times the death rate compared to those who did not get boosters.

• 
  Today it was reported that people aged 50 and older who had received a single dose of booster had 4 times the rate of death compared to those who got two booster doses.
• In other words:
• Get fully vaccinated.
• Get BOTH booster shots.
• Both Pfizer and Moderna are preparing the next generation of shots that will combat those BA.4 and BA.5 Omicron variants.
• But they will not be available until October, if not later.
• In the meantime, even if the current vaccines might not prevent you from getting infected, they help by reducing symptoms, and almost surely will keep you alive.

• 
  IF YOU'RE NOT VACCINATED YET, GET UP TO DATE WITH TWO BOOSTERS AS SOON AS POSSIBLE.
• IF YOU ONLY GOT THOSE TWO FIRST SHOTS, GET BOOSTED, THEN GET THAT SECOND BOOSTER AS SOON AS MEDICALLY POSSIBLE!
• Don't wait for the perfect booster.  It could be too late for you.

I had a dream, leading to a two-part posting, with #2 coming tomorrow.  Tuesday is nostalgia day, and I will begin with my blog of 12 December 2009.  First, remember that:

• On 9 February 2009 the price of oil hit a recent low for those days at $36/barrel (see first graphic below).
• A month later on 9 March 2009 the the Dow Jones, S&P500 and NASDAQ all bottomed out, with the Dow settling at 6547.

So what has all that to do with my dream, the price of oil, the state of our stock market and any potential for an economic recession?  All those will lead to two predictions.  

• First, today, I will point out that in the period around 1980 and 2008 the world suffered through some very serious recessions, caused by a sudden jump in oil prices, which could easily happen again this year or next.
• The dream part comes tomorrow, where the horror of the Ukraine War and subsequent uptick in petroleum cost could well trigger the rise of biofuels and even the initiation of the Blue Revolution, setting the stage for the remediation of global warming.

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How the Price of Oil Affects the World Economy.

The following chart shows how oil prices have fluctuated, with the black line representing the actual cost of oil and the red the inflation adjusted, and, therefore, true cost, relative to 2009:

Note that the lowest value for oil actually occurred in 1998, not 1973, before the First Energy Crisis. There was a second shock after the Second Energy Crisis, when the price escalated to $107/barrel. There was a small spike during Gulf War in 1990, but a descent down to around $10/bbl in 2009 dollars. Then in June of 2008 came that highest ever price of $124.52/bbl. Oil actually peaked on a July day at $147/bbl, but ended up lower for the entire month.

Those peaks represent when we have had our two greatest recessions, so oil prices certainly do affect the economy. What might be lost above is that society gave up on renewable energy mostly because in 1998 oil reached its lowest price ever. Now that crude has retreated below $70/barrel, can we expect another significant dip to again scuttle sustainable resource activities? There are people like Michael Lynch and Raymond Learsey who at the end of August expected $30/barrel oil soon. The Oil Drum had a good rebut and Joe Romm extended a challenge. Suddenly, on October 21, Lynch somehow re-challenged at $65/barrel. Deutsche Bank also predicted an average 2010 price of $65, so maybe that is about as low oil will go into the future.

Finally, clicking FUTURE PRICE OF OIL on the right, you can view what speculators believe to be where oil will go. Nowhere is there $65/barrel, and $100/barrel is finally reached nine years from now.

If all the above holds, we are being given a decade window to do monumental things with conservation, the renewables and global climate change. Alas, our decision-makers seem not to care much.

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My block stock challenge as of today is at 202%. That is, from a little more than a year ago (complemented by my Ford buy and GM buy and sell earlier this year), I've more than doubled my money. Here I purchase many of the worst stocks possible, mostly because these companies were into wind energy conversion systems, OTEC, the hydrogen jetliner, smart grids and next generation vehicles, and still end up ahead. Call it luck, but what it is is buying when the market is down.

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So back to today, let me summarize,  It turned out that:

• The second Energy Crisis, the one with all those gasoline lines, came with a petroleum price high of $121/barrel in December of 1979.
•  A recession began the following month, which continued for six months.  
• However, as unemployment was low, a second recession started in July of 1981 and ended 16 months later in November of 1982.

• 

  The Great Recession of 2008-2009 was caused by the oil price shock of 2007-2008.
• This was the most severe economic decline since the Great Depression of 1929 in the '30s.
• Most blame the housing market and certain finance companies.
• I contend that the world economy was softened by this oil shock, making it vulnerable to fiscal disaster.

Here is the updated inflation adjusted petroleum prices, where you can see a recent third jump.  Oil prices today are in the range of $100-$115/barrel.

While our latest escalation is not in comparison as monumental as 1979 and 2008, analysis is complicated by inflation adjustment that exaggerates the difference between the actual price we paid and the real value based on inflation:

• December 1979
• Actual price of oil/barrel = $38
• Inflation adjusted price  = $145
• Inflation adjusted previous low = $64
• Sudden jump = $81/barrel
• June 2008
• Actual price of oil/barrel = $126
• Inflation adjusted price  =  $169
• Inflated adjusted previous low = $72
• Sudden jump = $97/barrel
• July 2022
• Actual price of oil/barrel = $100
• Previous low
• The price of oil dawdled around $52/barrel for a couple years, so the sudden jump for 2022 would be $48/barrel.
• However. it's a little more complicated than that because on 20 April 2020 the WTI crude future dropped to MINUS $37.63/barrel, taking two years to zoom up to $131/barrel on 7 March 2022, the highest since July 2008.
• In other words, the sudden jump for 2022 could well be as much as $138/barrel, much worse than in 1979 and 2008.

In the meantime, this recent oil price jump seemed to have peaked and might actually now be dropping.  If this decline continues, the chances of a recession will drop.

So is this metastable nature of petroleum prices a scary sign of an imminent recession?

• Nicholas Colas, co-founder of DataTrek Research says:  The rule of thumb I learned from auto industry economics in the 1990's is that if oil prices go up 100% in a one-year period, expect a recession.
•  A JPMorgan analysis from last fall made the case that equity markets would hold up in an environment even with oil prices as high as $130 to $150.
• 
  This current pandemic, inflation and the Ukraine War factor into the question.  So can we expect a recession this year or next?  
• President Joe Biden said that a recession not inevitable.
• I am not as optimistic.

Tomorrow, part 2, a more upbeat prognosis about the potential for real progress in combating global climate warming, but only if oil prices again dramatically rise.

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