Guest Post: Peak Dow, Peak GDP And Peak Oil

Tyler Durden's picture




 

Submitted by Charles Hugh Smith from Of Two Minds

Peak Dow, Peak GDP And Peak Oil

Peak Oil and Peak Credit do not exist in a vacuum; they're why we have Peak GDP, Peak Dow and peak Income.

You don't get Peak Oil and cheap abundance in everything else: you get Peak X, Y and Z, for example Peak Oil, Peak Dow and Peak GDP. Peaks come in causal series, and yesterday I highlighted one such series: Peak Housing, Peak Fraud, Peak Suburbia and Peak Property Taxes.

Would we really be surprised if Peak Oil was associated with Peak GDP and Peak Dow Jones stock market average? Let's start with a chart of global oil production and the Dow Jones Industrial Average (DJIA), courtesy of Chartist Friend from Pittsburgh.

This chart suggests the Dow may track oil production on the downside, just as it tracked it on the upside.

We get a slightly different but related view if we look at the price of gasoline and gross domestic product, a broad measure of economic activity. Here we see that high prices of gasoline are correlated with low economic activity/stagnant GDP:

While GDP is somewhat abstract, disposable household income is what's in our checking account. Once again we find a high cost of gasoline is correlated with stagnant income:

Common sense suggests that if employment is rising, the stock market should follow as more jobs means more wages, sales and profits. We see this correlation in the overlay of the S&P 500 (SPX) and employment until the latest recession and stock market Bull run-up: this is clearly a jobless "recovery" yet the stock market has more than doubled. Is this decoupling of employment from the stock market "the new normal" or an aberration that's about to revert to historical correlation? To do that, the market would need to fall in half or the economy would need to add 10+ million jobs in short order.

If we combine Peak Oil with Peak Credit, we get a household sector with stagnant disposable income burdened by servicing monumental debt loads. Here is a chart of household liabilities and wages/salaries, unadjusted for inflation. Household debt has completely outstripped income.

These charts do not paint a picture of robust recovery, they sketch a grim picture of stagnant household incomes and rising costs for fuel and debt service.

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Thu, 04/26/2012 - 12:04 | 2376888 SheepRevolution
SheepRevolution's picture

The first chart looks like one of my kid's drawings. Oh I taught him so well!

Thu, 04/26/2012 - 12:08 | 2376908 vast-dom
vast-dom's picture

Peak Bullshit

Thu, 04/26/2012 - 12:11 | 2376917 SilverTree
SilverTree's picture

Peak-peak.

Thu, 04/26/2012 - 12:22 | 2376958 Bring the Gold
Bring the Gold's picture

Hey abiotic folks, you really think that even if your theory is true, that the nougaty center of the earth is creating oil faster than its depleted? Follow up question, if oil is replenishing in a timely manner why the ultra expensive and risky deep sea exploration?

Final thought, the Peak Oil theory sure helps line up all the activity we have seen world wide for about 11+ years. Lots of disparate phenomena that look like elite desperation (eg openly stolen elections, emergent police states world wide, costly wars in oil rich regions etc etc ad nauseum) suddenly make a TON of sense when you view the world through a Peak Oil lens.

Thu, 04/26/2012 - 12:27 | 2376971 Gully Foyle
Gully Foyle's picture

Bring the Gold

Um,dude just because you observe a thing, then you observe a second, doesn't mean that the first caused the second or even that they are related.

The human mind needs to see patterns, we can't handle chaos.

We also enjoy the simplest solutions because we just are not designed to process complex thoughts.

I once read that you should have no more than five people work for you. That is because those five generate one hundred and twenty five combinations of issues through their interactions. Pretty hard to keep focused on that many problems and potential problems.


Thu, 04/26/2012 - 12:33 | 2377011 Bring the Gold
Bring the Gold's picture

Sure, there is complexity. I don't remember denying that... There are also large scale problems that cause tectonic shifts in the activities of large complex socities. To each their own.

Thu, 04/26/2012 - 13:18 | 2377188 Joeman34
Joeman34's picture

How do you get peak oil when U.S. production has increased to its highest level in a decade??

Peak oil is BS:  http://www.ft.com/intl/cms/s/0/8698ae80-4503-11e0-80e7-00144feab49a.html#axzz1tATnJsXW

Thu, 04/26/2012 - 14:00 | 2377315 easypoints
easypoints's picture

Headlines from the Financial Times are usually hopium.

http://www.postcarbon.org/blogs/Bakken-Bump-2-17-2012-10-49-08.jpg

I still see a peak.

Thu, 04/26/2012 - 14:16 | 2377410 ATM
ATM's picture

Does highest in a decade also mean highest of all time?

Thu, 04/26/2012 - 14:46 | 2377527 Joeman34
Joeman34's picture

FT is only one of many sources reporting increased oil production in U.S.  Wow, junked for presenting facts.  The quality of debate on ZH is the only thing that's peaked in the recent past...

@ATM, Does not need to be highest of all time.  Peak oil theory states production will never rise again and can only decline.  Thus, production increases in U.S. invalidate the theory.  Sorry.

 

Thu, 04/26/2012 - 15:37 | 2377645 easypoints
easypoints's picture

The Peak Oil Theory is a prediction that charting yearly production over the global data set will produce something similar to a bell curve. Individual wells, fields, countries, and even world producion, can fluctuate within this theory. Do you believe that U.S. Production charts are not representative of a bell curve?

Thu, 04/26/2012 - 15:37 | 2377727 AGuy
AGuy's picture

There is an abundant supply of $300 bbl oil, however the supply of $30 bbl oil has been permanently depleted. The only reason why US production has gone up is because the price of oil has nearly quadrupled. Note that although the price of oil nearly quadrupled the amount of domestic production only increased a small fraction.

The US increases of oil production are temporary, Shale oil drilling will top out in the next two or three years. However, declines from convential oil production will likely exceed shale oil increases in the next 12 to 18 months. Higher oil prices affords increased drilling from less economical fields, but high prices also lead to demand destruction. Demand destruction will lead to significant price declines, forcing shale oil production to shut-in and stop drilling, Slowly the price of oil will creep back and the shale oil drilling will resume, but the US will never come close to exceeding its peak production in the 1970's. Also note that US demand for oil is down by about 15% from 21 mbpd to about 18 mpbd. The cost of oil has a big impact on consumption.

 

 

 

Thu, 04/26/2012 - 16:03 | 2377848 Decolat
Decolat's picture

Occasional increases average out into a bell curve over time. 

 

http://www.youtube.com/watch?v=VOMWzjrRiBg

Skip to 3:00 if you're in a hurry, but the whole thing is worth the time to see.

Thu, 04/26/2012 - 14:49 | 2377535 Matt
Matt's picture

highest level in a decade is still much lower than 1970. Noise vs trend, check it out. http://en.wikipedia.org/wiki/Trend_estimation

and:

http://www.indexmundi.com/energy.aspx?country=us&product=oil&graph=production

Thu, 04/26/2012 - 12:36 | 2377018 Oh regional Indian
Oh regional Indian's picture

Post hoc, ergo propter hoc...

Peak oil has a lot of demand side answers that have been viciously suppressed or just plain bought off. The Pouge Carb (Canada)...he was bought off, died rich and miserable, unable to speak, legally bound...the water-guy, Stanley Meyers, who was poisoned the night he got his DoD contract (WWII aircraft engines ran on part water, it's old techniques anyways)... then there is th ewhole Brown's gas thing...

On and on and on....

Peak oil, in it's totality is a scam. There is stuff out there to kill 40% off the demand side pronto!

Peak all this shit is a scam, our real troubles lie esle-where, not in this nut-house scenario being burned on people's minds 24/7

 

ori

 

/re-membering-deepwater-horizon

Thu, 04/26/2012 - 12:43 | 2377053 Spastica Rex
Spastica Rex's picture

But ori, I think you are talking about an anti-growth solution. Yeast in a petri dish never choose to reproduce less.

Thu, 04/26/2012 - 14:34 | 2377475 BobPaulson
BobPaulson's picture

"Yeast in a petri dish never choose to reproduce less"

Is that quote yours? It's damn good. If there is an original source, would you be good enough to post? I love it.

The inherent problem of evolution is that we don't do shrinkage. Sawtooth waves are the natural progression.

Thu, 04/26/2012 - 15:06 | 2377596 Spastica Rex
Spastica Rex's picture

That's mine. CC licensed, no attribution required. Share and share alike. 

http://creativecommons.org/licenses/by-sa/3.0/

Thu, 04/26/2012 - 16:03 | 2377846 Oh regional Indian
Oh regional Indian's picture

But that is in this current, triangular world Bob, perhaps it's time the edges got rounded out a little.

We are intelligent enough,collectively to be wave riders instead of wall crashers. Its' all about choices and consensus and conscience.

And true enough Spastica. But when everyone tries to rush for the exits simultaneously or the pipe of life suddenly shrinks by a third or more, you'd better understand how to shrink a little right.

Seems like what we are coming up to. Like a birth canal slide or a sperm to egg chase, take your pick.

ori

Thu, 04/26/2012 - 17:31 | 2378184 Spastica Rex
Spastica Rex's picture

I don't think we disagree much at all, except maybe on the likelihood that humanti is going to make a collective wise choice. I'm coming to belive that there is no such thing as collective "free will," and that our species is merely outgrowing its petri dish.

I really AM Bob, Vivek.

Fri, 04/27/2012 - 00:49 | 2379281 Oh regional Indian
Oh regional Indian's picture

Well, you sure are a SubGenius BobRex, that is fer shure.

ori

PS: I'm still wondering...nah..... :-)

Thu, 04/26/2012 - 12:53 | 2377086 Bring the Gold
Bring the Gold's picture

So you say that I'm claiming false causation and then bust out conspiracy theories about engines that run on water...wow. If you are asserting that dependence on Oil has been for decades a scam, sure I'm willing to buy that there is transparent history (see Carter plan below) that would back that up. There probably were viable alternatives had we embarked on them in time. For instance, had we continued with Carter's plan for the past 32 years we probably would be largely energy independent in the US.

That said, NOW we have reached the point where turning the Titanic around isn't really an option. Switching over to any energy source alternative (assuming one exists that could adequately replace the energy density of oil, there isn't one that is publicly acknowledged...) would simply take too long. Indeed, it couldn't happen at all without a HUGE decrease in the standard of living in the West and also the developing countries eg BRICs at least during the transition phase.

Nobody wants to hear that, and that is the root of Peak Oil denial. It floors me that people seem to believe in limitless supplies of all resources when everything from the Dodo, to Easter Island, to the Thylicaine and any other number of things has proven that in fact there are LIMITS to resources on Earth. Yes those were island examples, we are a floating island in space. Whatever though, clearly we are pretty far from Peak Denial.

Thu, 04/26/2012 - 14:37 | 2377484 Decolat
Decolat's picture

Thank you. Global resource depletion, tangled in with exponential population growth, is something few can (or want to) wrap their heads around.

 

I really doubt abiotic oil exists. The earth is hot down there though. If I were to invest in long term energy, deep well geothermal has potential. Drilling 6+ miles to inject water for steam extraction is the tricky part. It's been done before, at enormous cost. But if the heat source remains viable for centuries, the initial capital investment for drilling may prove worthwhile and profitable. Alot of fresh water, another diminishing resource, would be used and lost. Would it be worth it?

Thu, 04/26/2012 - 14:39 | 2377496 Oh regional Indian
Oh regional Indian's picture

Peak EVERYTHING is a Technochracy ruled, resource based (on false assumptions and false, engineered booms and busts, famines and floods) FRAUD of enormous proportions.

You sound like your paycheck comes from Peak Oil HAVING to be a reality. I believed it till I saw other-wise. 

It's not about it's limitlessness, it's about it's being burnt in 15%-30% efficient IC engines. where, with a simple change, you can boost performance by 40%. i can do it. To any IC engned car.

Are you an academic per-chance?

ori

Thu, 04/26/2012 - 17:56 | 2378279 Marginal Call
Marginal Call's picture

I got a 2008 Dodge Ram.  Feel free to demonstrate on my rig.

Thu, 04/26/2012 - 14:19 | 2377408 palmereldritch
palmereldritch's picture

You can add Tom Ogle to that list ORI:

http://fuel-efficient-vehicles.org/energy-news/?page_id=787

Imagine how diluted their petrodollar-fiat-debt control matrix would be by having 'false-sell' fuel supplies extended by a super-efficiency of 100 mph in the 70's....

http://www.youtube.com/watch?v=F7qHmB62Y6c

http://www.youtube.com/watch?v=IYyVnCeWV1A

Thu, 04/26/2012 - 13:09 | 2377157 ElvisDog
ElvisDog's picture

Here's what I dont' understand about the abiotic theory - the temperature of the inner Earth is hot. The mantle, the closest layer below the surface is over 1000 degrees Kelvin (http://hypertextbook.com/facts/1999/PhillipChan.shtml). The auto-ignition temperature of oil is 670 degrees Kelvin. So even if the Earth is creating oil abiotically, how is it not burning and converting into other substances?

Thu, 04/26/2012 - 14:35 | 2377470 palmereldritch
palmereldritch's picture

It's near the Upper Mantle where it is generated and you forgot to factor in tremendous pressure at depth.

Inorganic chemistry + (Heat + Pressure @ depth) = Geologic Processes

Think of petroleum as a liquid mineral.

Thu, 04/26/2012 - 14:50 | 2377538 SemperFord
SemperFord's picture

lack of oxygen maybe??? IDK

Thu, 04/26/2012 - 13:12 | 2377172 NewWorldOrange
NewWorldOrange's picture

Yeah, oil will be "replenished", after man destroys itself (and most other species) and all the carcasses become the New Oil, a few million years from now. The radiation-immune mutants that evolve by then will probably drill for all of our nuclear waste instead, however.

Thu, 04/26/2012 - 12:11 | 2376918 WhyDoesItHurtWh...
WhyDoesItHurtWhen iPee's picture

  peak ponzi

Thu, 04/26/2012 - 12:17 | 2376937 SilverDoctors
SilverDoctors's picture

Don't forget the peak dollar.  This will be a bigger factor than peak oil as the world turns to using gold and the yuan in place of the dollar. 
Jim Willie states gold is winning the Epic Battle.  Just ask Iran and the Chinese.

http://www.silverdoctors.com/jim-willie-us-dollar-vs-gold-epic-money-bat...

Thu, 04/26/2012 - 12:23 | 2376960 LawsofPhysics
LawsofPhysics's picture

Gold-YES, Yaun?  Are you saying that the Yaun is not manipulated by the PBoC?- FAIL.

Thu, 04/26/2012 - 15:56 | 2377815 Matt
Matt's picture

read the comment again. the previous poster made no claims about the Yuan not being manipulated, simply that the Yuan will increase in prominence and the USD decline. As the American sphere of influence shrinks and China's grows, the Yuan will be used more and more for trade between China and its partners. It is not a better currency, it just is the currency of the regional power.

Thu, 04/26/2012 - 13:22 | 2377209 Bullish Bear
Bullish Bear's picture

Far out. The bullshit will have to start piling up exponentially now to cover up the truth.

Thu, 04/26/2012 - 12:05 | 2376897 LawsofPhysics
LawsofPhysics's picture

Call it what it all really is.  Peak stupidity on all fronts.  The insane are now in full control of the asylum, hedge accordingly.

Thu, 04/26/2012 - 12:08 | 2376899 Cognitive Dissonance
Cognitive Dissonance's picture

Talk about ugly charts. Truly ugly charts.

And yet......and yet the band plays on as if rescue is just over the horizon.

Ben with some close friends.

Ben with friends

Thu, 04/26/2012 - 12:13 | 2376909 Spastica Rex
Spastica Rex's picture

God doesn't believe in limits. The Kingdom Of God is abiotic. Who do you think started all this "peak" nonsense, hmm? Could it be.....Satan?

edit: One should feel free to insert "The Invisible Hand" for "God," if that is what one places one's faith in. Likewise, one can use "hippies" for "Satan" if one prefers.

Thu, 04/26/2012 - 12:15 | 2376928 CPL
CPL's picture

Spaghetti Monster doesn't believe in limits. The Kingdom Of Spaghetti monster is abiotic. Who do you think started all this "peak" nonsense, hmm? Could it be.....Ninjas?

Thu, 04/26/2012 - 12:16 | 2376933 Spastica Rex
Spastica Rex's picture

The Invisible Pink Unicorn is acceptable, too.

Thu, 04/26/2012 - 12:20 | 2376951 Gully Foyle
Gully Foyle's picture

The Way is a limitless vessel;
Used by the self, it is not filled by the world;
It cannot be cut, knotted, dimmed or stilled;
Its depths are hidden, ubiquitous and eternal;
I don't know where it comes from;
It comes before nature.

Thu, 04/26/2012 - 12:21 | 2376956 LawsofPhysics
LawsofPhysics's picture

precisely, anything make-beleive is acceptable, damn, I missed the sarcasm again.

Thu, 04/26/2012 - 12:28 | 2376976 Gully Foyle
Gully Foyle's picture

LawsofPhysics

Everything is true/false/and meaningless.


Thu, 04/26/2012 - 12:19 | 2376945 CPL
CPL's picture

Sardonic doesn't work well on mildly insane financial forums.

Thu, 04/26/2012 - 12:21 | 2376955 Spastica Rex
Spastica Rex's picture

Sardonic=Islamo-gay-fascist, so - no.

Thu, 04/26/2012 - 12:20 | 2376953 GeneMarchbanks
GeneMarchbanks's picture

Protracted exchange incoming? I'd say affirmative, but let's see if I can be succinct to spare us all: Nissan Leaf, let's not quibble over reasons.

Thu, 04/26/2012 - 14:49 | 2377536 NewWorldOrange
NewWorldOrange's picture

Gene! DAMN you just got BUSTED. A CLASSIC example of why trolling on this blog is VERY BAD idea:

http://www.zerohedge.com/news/disasters-natural-and-keynesian#comment-23...

Start here:

Thu, 04/26/2012 - 14:11 | 2377396 GeneMarchbanks
Do NOT follow this link or you will be banned from the site!