Best of the Week
Most Popular
1. Dollargeddon - Gold Price to Soar Above $6,000 - P_Radomski_CFA
2.Is Gold Price On Verge Of A Bottom, See For Yourself - Chris_Vermeulen
3.Dow Stock Market Trend Forecast 2018 - Nadeem_Walayat
4.Gold Price to Plunge Below $1000 - Key Factors for Gold & Silver Investors - P_Radomski_CFA
5.Why The Uranium Price Must Go Up - Richard_Mills
6.Dow Stock Market Trend Forecast 2018 - Video - Nadeem_Walayat
7.Jim Rogers on Gold, Silver, Bitcoin and Blockchain’s “Spectacular Future” - GoldCore
8.More Signs That the Stock Market Will Rally Until 2019 - Troy_Bombardia
9.It's Time for A New Economic Strategy in Turkey - Steve_H_Hanke
10.Fiat Currency Inflation, And Collapse Insurance - Raymond_Matison
Last 7 days
Gold Exodus to Reverse - 22nd Sep 18
Bitcoin Trader SCAM WARNING - Peter Jones, Dragons Den Fake Facebook Ads - 22nd Sep 18
China Is Building the World’s Largest Innovation Economy - 21st Sep 18
How Can New Companies Succeed in the Overcrowded Online Gambling Market? - 21st Sep 18
Golden Sunsets in the Land of U.S. Dollar Hegemony - 20th Sep 18
5 Things to Keep in Mind When Buying a Luxury Car in Dubai - 20th Sep 18
Gold Price Seasonal Trend Analysis - Video - 20th Sep 18
The Stealth Reason Why the Stock Market Keeps On Rising - 20th Sep 18
Sheffield School Applications Crisis Eased by New Secondary Schools Places - 20th Sep 18
Precious Metals Sector: It’s 2013 All Over Again - 19th Sep 18
US Dollar Head & Shoulders Triggered. What's Next? - 19th Sep 18
Prepare for the Stock Market’s Volatility to Increase - 19th Sep 18
The Beginning of the End of the Dollar - 19th Sep 18
Land Rover Discovery Sport 'Approved Used' Bad Paint Job - Inchcape Chester - 19th Sep 18
Are Technology and FANG Stocks Bottoming? - 18th Sep 18
Predictive Trading Model Suggests Falling Stock Prices During US Elections - 18th Sep 18
Lehman Brothers Financial Collapse - Ten Years Later - 18th Sep 18
Financial Crisis Markets Reality Check Now in Progress - 18th Sep 18
Gold’s Ultimate Confirmation - 18th Sep 18
Omanization: a 20-year Process to Fight Volatile Oil Prices  - 18th Sep 18
Sheffield Best Secondary Schools Rankings and Trend Trajectory for Applications 2018 - 18th Sep 18
Gold / US Dollar Inverse Correlation - 17th Sep 18
The Apple Story - Trump Tariffs Penalize US Multinationals - 17th Sep 18
Wall Street Created Financial Crash Catastrophe Ten Years Later - 17th Sep 18
Trade Wars Are Going To Crash This Stock Market - 17th Sep 18
Why Is Apple Giving This Tiny Stock A $900 Million Opportunity? - 17th Sep 18
Financial Markets Macro/Micro View: Waves and Cycles - 17th Sep 18
Stock Market Bulls Prevail – for Now! - 17th Sep 18
GBPUSD Set to Explode Higher - 17th Sep 18
The China Threat - Global Crisis Hot Spots & Pressure Points - 17th Sep 18 - Jim_Willie_CB
Silver's Relationship with Gold Reaching Historical Extremes - 16th Sep 18
Emerging Markets to Follow and Those to Avoid - 16th Sep 18
Investing - Look at the Facts to Find the Truth - 16th Sep 18
Gold Stocks Forced Capitulation - 15th Sep 18
Hindenburg Omen & Consumer Confidence: More Signs of Stock Market Trouble in 2019 - 15th Sep 18
Trading The Global Future - Bad Consequences - 15th Sep 18
Central Banks Have Gone Rogue, Putting Us All at Risk - 15th Sep 18
Gold Price Seasonal Trend Analysis - 14th Sep 18
Growing Number of Small Businesses Opening – and Closing – In the UK - 14th Sep 18
Gold Price Trend Analysis - Video - 14th Sep 18
Esports Is Exploding—Here’s 3 Best Stocks to Profit From - 13th Sep 18
The Four Steel Men Behind Trump’s Trade War - 13th Sep 18
How Trump Tariffs Could Double America’s Trade Losses - 13th Sep 18
Next Financial Crisis Is Already Here! John Lewis 99% Profits CRASH - Retail Sector Collapse - 13th Sep 18
Trading Cryptocurrencies: To Win, You Must Know Where You're Wrong - 13th Sep 18
Gold, Silver, and USD Index - Three Important “Nothings” - 13th Sep 18
Precious Metals Sector On a Long-term SELL Signal - 13th Sep 18
Does Gambling Regulation Work - A Case Study - 13th Sep 18
The Ritual Burial of the US Constitution - 12th Sep 18
Stock Market Final Probe Higher ... Then the PANIC! - 12th Sep 18
Gold Nuggets And Silver Bullets - 12th Sep 18
Bitcoin Trading - SEC Strikes Again - 12th Sep 18

Market Oracle FREE Newsletter

Trading Any Market

If The Euro Collapses What Will Happen to the Oil Price?

Currencies / Euro May 19, 2010 - 12:25 PM GMT

By: Andrew_Butter

Currencies

Best Financial Markets Analysis ArticleAccording to the IMF World GDP in nominal terms expressed in dollars was $57 trillion in 2009. The European Union accounted for 29% of that; and lets say another 10% of the world implicitly or explicitly link their currencies to the Euro (for the sake of argument I’m assuming the Pound tracks the Euro and the Yen will track the dollar more or less).


Regardless of what the Gold-Bugs say (and they may have their day in Court yet), the rest of the world effectively uses dollars.

So…if the Euro in 2010 on average (or however the IMF works  it out) is worth 75% in dollar terms, compared to what it was in 2009, and assuming anaemic growth, rough number that would mean World GDP in nominal terms denominated in dollars would go down by 39% x 0.2 = 8%.

Rough Numbers!!

Of course that’s not “Real”. And it does not account for PPP or any of those clever benchmarks that economists use to pontificate about this or that and justify their existence.

But dollars are dollars, and nominal GDP is simply about dollars or their equivalent, passing from one pocket to another.

And then the penny dropped that “someone else” would NOT be happy to lend money to profligate PIIGS and the like so that they could pay huge sums of money (that they don’t stand a chance in collecting in taxes), to pay for armies of public servants and union members to live a life a of luxury, at the expense of a diminishing pool of people who actually work for a living and pay the part of the wages and pensions of the “majority”.

The trick there was that the majority always vote for an easy life of play-today pay-tomorrow, that’s what democracy as it is currently practiced is all about, that’s why UK joined with America to invade Iraq, it was the “will of the majority”. Just like the majority of Americans (the 70% who owned houses), voted for the housing bubble (and what they are really angry about is it burst).

That’s the joy of democracy, when nations vote to commit collective suicide (and there is a lot of pork to grease the wheels (no pun intended)), well if they have a majority, that’s what they will do (witness the credit crunch).

Put it another way, if the “profits” that banks reported in 2006 and 2007 were not “real”, then perhaps a lot of the GDP that the EU reported until recently, was simply a construct, built like the failed US model, on insanely foolish debt.

So What about Oil?

Regardless, money is money, and dollars are dollars, and so long as there are people prepared to accept dollars as payment for goods & services that’s the way it’s going to be (whether that was a good idea or not is not the issue).

Regardless also, one thing that everyone will buy; is oil, because if they don’t have oil they can’t drive to work, tractors don’t run, and just-in-time logistics gets snarled up.

When the market for oil is not in disequilibrium (and right now it’s not), short-term (I’m talking two or three years), the “fundamental” price of oil is a function of World GDP.

That’s of course assuming that the essential principles of Parasite Economics apply (http://seekingalpha.com/.. ).

Oil was on a pretty steady path towards $90 until the latest “upset” with the Euro.

If the Euro goes down and stays down relative to the dollar, then unless there is a spike up in the GDP of the rest of the world, the “fundamental” oil price (in dollars) is likely to drop from about $75 now to about $69. Until of course it becomes blindingly obvious it’s about to run out (and given the inability of the governments of Western Democracies to plan any further ahead than what dish of pork they will have for lunch, it’s likely that will be a BIG SURPRISE .

Just like it was a BIG SURPRISE when a few weeks after Hank Paulson declared “The US Banking System is Safe and Sound”; all the banks in America started failing, like dominoes.

So are those “nasty” markets that Angel Merkel is trying to defy, like King Canute ordering the tide to go down, anticipating Euro at $1.15 or less?

Makes sense, the EU is full of pork and self serving “democracy” of the “I wanna-free-lunch” at the expense of the (ever-diminishing) productive part of the economy, variety.  Perhaps now is the time for that to get washed out by a dose of reality, like neat cod-liver oil?

The big question now, is when will Germany decide to leave the Euro?

By Andrew Butter

Twenty years doing market analysis and valuations for investors in the Middle East, USA, and Europe; currently writing a book about BubbleOmics. Andrew Butter is managing partner of ABMC, an investment advisory firm, based in Dubai ( hbutter@eim.ae ), that he setup in 1999, and is has been involved advising on large scale real estate investments, mainly in Dubai.

© 2010 Copyright Andrew Butter- All Rights Reserved
Disclaimer: The above is a matter of opinion provided for general information purposes only and is not intended as investment advice. Information and analysis above are derived from sources and utilising methods believed to be reliable, but we cannot accept responsibility for any losses you may incur as a result of this analysis. Individuals should consult with their personal financial advisors.

Andrew Butter Archive

© 2005-2018 http://www.MarketOracle.co.uk - The Market Oracle is a FREE Daily Financial Markets Analysis & Forecasting online publication.


Post Comment

Only logged in users are allowed to post comments. Register/ Log in

6 Critical Money Making Rules