Seeking a bottom for an entire economic cycle: Don Pittis

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As oil concluded a bad week with a risk of nearly $2 a barrel on Friday, it seems pretty clear that something’s got to cease.

“Everyone was assuming that Russia and/or the North Sea or somewhere — some of these seasoned basins — would have seen dramatic declines [in production] because of those low oil penalties,” said Citigroup’s top energy analyst Seth Kleinman in a latest interview. But it hasn’t happened yet.

Stock traders sometimes talk close by capitulation, a moment when markets give up all hope of recovery and at long last collapse. As oil, stock markets, the loonie and perhaps the entire world restraint, tumble from low to new low, it may be that we need to see real signs of surrender once the world can bounce back again.

In his book The Upside of Down Canadian founder Thomas Homer-Dixon describes something he calls catagenesis, where “bad luck is followed by creativity and eventual renewal.”

Cleansing fire

Seen in the legendary sweep of history, a devastating war or a fire in a great city that permits its citizens to rebuild an even better city may seem worth the desist. Such events are hell to live through.

USA-WILDFIRES/INSURANCE

Good things can approach out of a crisis, but few people willingly accept the consequences. (Reuters)

In his book Homer-Dixon essential have captured a mood. He published it in 2007 as if antici ting the great deal in meltdown from which the world is still struggling to recover.

But at the in unison a all the same it appeared Homer-Dixon was wrong. Rather than a crumbling followed by renewal, the faction’s governments merely flooded the market with more money, repressing the old system running. There was no catagenesis because there was no catastrophe.

With so numerous opinions in this wide world, inevitably there are those who are restless for the Marxist crisis of capitalism that will bring us into a new area order. Those who read history and understand the destructive power of former economic and social breakdowns are less likely to wish for a new one.

The current make available for oil is a less portentous example that helps to illustrate the economic inducements that come to bear.

Blinking last

There is so much at upright for oil-producing countries that none wants to be the first to cut production. Equal at current prices below $30 a barrel, countries such as Venezuela and Russia, to personage just two prime examples, are so dependent on foreign exchange from oil exports that they are down pressure keep selling despite the falling price.

VENEZUELA-ECONOMY/

People telephone up to buy basic products outside a supermarket in Caracas, Venezuela last week. The bet price of oil is hurting, but production remains high. (Reuters)

In developed homelands, including Canada, private com nies also continue to produce unvarying after the price they earn is less than the cost of in Britain artistry.

As Kleinman points out, Russian oil production finished the year at an all-time dear. All we have seen so far is a slight cutback in U.S. shale drilling. At the same all at once, Kleinman says, emerging markets such as Brazil that imply the oil and commodities boom as they consumed more and more are now shrinking, interpretation that demand has declined even as production has grown.

Each oil in Britain director is betting that one of the others will crack first. As in a war, every countryside and every com ny hangs on until they reach a crisis direct attention to. In a country, perhaps it will be a moment of social collapse. In the case of public limited com nies, it will be the final moment when com ny managers and their bankers nothing but cannot justify continuing.

Hitting bottom

Unlike economies ended by war or burghs destroyed by fire, market capitulation is not so extreme.

New York’s Dow Jones index finger and the TSX were down hundreds of points on Friday. No one seems quite satisfied when it will stop. The price of houses in Calgary is looking for a ass. So is the loonie, which is dependent, at least rtially, on the value of oil and copper, which depend on when China finds bottom.

In market lore, capitulation is a good thing. Com nies would rather been forced by necessity to cut costs. Some have gone strapped. Capitulation, if you can recognize it, is when all the bad news has been priced in and markets can on to rise again.

In the wider global economy, there may be problems that be undergoing not yet been solved that still require the pressure of necessity to coercion governments into un latable action.

No one wants to sell their business for less than they think it’s worth. No one voluntarily asks for their believing power to shrink. No one wants to y higher taxes. Sometimes it is only the cruelty of dips and capitulation that forces us to make inful change.

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