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If You Listen Carefully, The Bankers Are Actually Telling Us What Is Going To Happen Next

by Michael Snyder, The Economic Collapse Blog:

Are we on the verge of a major worldwide economic downturn? Well, if recent warnings from prominent bankers all over the world are to be believed, that may be precisely what we are facing in the months ahead. As you will read about below, the big banks are warning that the price of oil could soon drop as low as 20 dollars a barrel, that a Greek exit from the eurozone could push the EUR/USD down to 0.90, and that the global economy could shrink by more than 2 trillion dollars in 2015. Most of the time, very few people ever actually read the things that the big banks write for their clients. But in recent months, a lot of these bankers are issuing such ominous warnings that you would think that they have started to write for The Economic Collapse Blog. Of course we have seen this happen before. Just before the financial crisis of 2008, a lot of people at the big banks started to get spooked, and now we are beginning to see an atmosphere of fear spread on Wall Street once again. Nobody is quite sure what is going to happen next, but an increasing number of experts are starting to agree that it won’t be good.

Let’s start with oil.  Over the past couple of weeks, we have seen a nice rally for the price of oil.  It has bounced back into the low 50s, which is still a catastrophically low level, but it has many hoping for a rebound to a range that will be healthy for the global economy.

Unfortunately, many of the experts at the big banks are now anticipating that the exact opposite will happen instead.  For example, Citibank says that we could see the price of oil go as low as 20 dollars this year…

The recent rally in crude prices looks more like a head-fake than a sustainable turning point — The drop in US rig count, continuing cuts in upstream capex, the reading of technical charts, and investor short position-covering sustained the end-January 8.1% jump in Brent and 5.8% jump in WTI into the first week of February.

Short-term market factors are more bearish, pointing to more price pressure for the next couple of months and beyond — Not only is the market oversupplied, but the consequent inventory build looks likely to continue toward storage tank tops. As on-land storage fills and covers the carry of the monthly spreads at ~$0.75/bbl, the forward curve has to steepen to accommodate a monthly carry closer to $1.20, putting downward pressure on prompt prices. As floating storage reaches its limits, there should be downward price pressure to shut in production.

The oil market should bottom sometime between the end of Q1 and beginning of Q2 at a significantly lower price level in the $40 range — after which markets should start to balance, first with an end to inventory builds and later on with a period of sustained inventory draws. It’s impossible to call a bottom point, which could, as a result of oversupply and the economics of storage, fall well below $40 a barrel for WTI, perhaps as low as the $20 range for a while.

Even though rigs are shutting down at a pace that we have not seen since the last recession, overall global supply still significantly exceeds overall global demand.  Barclays analyst Michael Cohen recently told CNBC that at this point the total amount of excess supply is still in the neighborhood of a million barrels per day…

“What we saw in the last couple weeks is rig count falling pretty precipitously by about 80 or 90 rigs per week, but we think there are more important things to be focused on and that rig count doesn’t tell the whole story.”

He expects to see some weakness going into the shoulder season for demand. In addition, there is an excess supply of about a million barrels of oil a day, he said.

And the truth is that many firms simply cannot afford to shut down their rigs.  Many are leveraged to the hilt and are really struggling just to service their debt payments.  They have to keep pumping so that they can have revenue to meet their financial obligations.  The following comes directly from the Bank for International Settlements

“Against this background of high debt, a fall in the price of oil weakens the balance sheets of producers and tightens credit conditions, potentially exacerbating the price drop as a result of sales of oil assets, for example, more production is sold forward,” BIS said.

“Second, in flow terms, a lower price of oil reduces cash flows and increases the risk of liquidity shortfalls in which firms are unable to meet interest payments. Debt service requirements may induce continued physical production of oil to maintain cash flows, delaying the reduction in supply in the market.”

In the end, a lot of these energy companies are going to go belly up if the price of oil does not rise significantly this year.  And any financial institutions that are exposed to the debt of these companies or to energy derivatives will likely be in a great deal of distress as well.

Meanwhile, the overall global economy continues to slow down.

On Monday, we learned that the Baltic Dry Index has dropped to the lowest level ever.  Not even during the darkest depths of the last recession did it drop this low.

And there are some at the big banks that are warning that this might just be the beginning.  For instance, David Kostin of Goldman Sachs is projecting that sales growth for S&P 500 companies will be zero percent for all of 2015…

“Consensus now forecasts 0% S&P 500 sales growth in 2015 following a 5% cut in revenue forecasts since October. Low oil prices along with FX headwinds and pension charges have weighed on 4Q EPS results and expectations for 2015.”

Others are even more pessimistic than that.  According to Bank of America, the global economy will actually shrink by 2.3 trillion dollars in 2015.

One thing that could greatly accelerate our economic problems is the crisis in Greece.  If there is no compromise and a new Greek debt deal is not reached, there is a very real possibility that Greece could leave the eurozone.

Read More @ theeconomiccollapseblog.com

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14 comments to If You Listen Carefully, The Bankers Are Actually Telling Us What Is Going To Happen Next

  • randy0302

    So the bankers are only a few decades behind folks like Ron Paul. Welcome to the party. Decades ago this could have been avoided but not now.
    The world has been run, for at least the last 100 + years, by children with no loftier goals than greed, power and control. Ignorant and spiritually retarded they have their plan for the NWO. Now they are failing and the people are waking up. Soon they will be jailed and discarded. All they succeed in doing was to re engage humanity to bring massive positive change. Clearly a work in progress we have the crashing of the old and birth of a new brighter future on all levels of life.

    • Gnostic

      randy,

      i wish i shared your optimism.

      • rl

        Optimism is good.
        While the truth has always been you can avoid reality but reality wont avoid you. Which is why lalaland is the one they have 99.9% of the people living in where freak shows become real and msm lies are ok.
        And I longer feel sorry for any of them. And have no more time to help, change, or enlighten any of them… period.
        They have chosen their demise and have been complicit in the true mental, emotional, and phsyical 100% engineered genocide of the white male that has been scripted for them in the talmud and elsewhere. All others are simply ancillary piles of cannon fodder to the threat we pose to them.
        And the rest of the goyim will not choose for me.

    • Howard Roark

      I have to agree with Gnostic, if a plurality of people are so easily dissuaded from engaging in critical thought with empty labels like “anti-semite” and the like, there is little chance of change for the better.

      • KSKing

        The very actions of TPTB in regards to those who ‘dare’ tell the truth demonstrates that they fear losing control. I suppose logically the greatest fear of a control freak is losing control. My concern is that we don’t repeat the past mistake when casting off a control system(s) by replacing it with another more onerous one.

        ‘People easily dissuaded from critical thought’ is a direct result of mind control techniques initiated in public schools and perpetuated through the MSM. Imo if we are to win this fight we must figure out a way to break this ‘spell’. People are not dumb. But they have been deliberately ‘dumbed’ down. To awaken is as much spiritual as it is mental. Even within the alternative media, truth movement I don’t think we appreciate how pervasive and sophisticated mind control tools and techniques have become. Even though mind control is powerful it is also tenuous and needs constant reinforcing.

    • dan

      Randy,
      do you really think THEY will go quietly,as they say “we are sorry,please forgive us”….I think not…Just look at Greenspan still in your face after ALL the damage he created and profited from…and most still respect this POS liar and theif…I do not…..

  • Timco

    What I see is a gigantic speeding freight train called the United States of America. No one is at the controls, and the end of the track is in sight.

  • Gnostic

    If you are not familiar with Frank O’Collins you should be.

    http://grizzom.blogspot.com/p/frank-ocollins.html

    More and more people are waking up every day to the fact that they are not the “WE” referred to in the Constitution of the United States.

  • rich

    Former CFTC Commissioner Michael Greenberger: “We’re Going to be Back Where We Were in 2008″

    This interview with former CFTC Commissioner Michael Greenberger provides useful detail on why financial reform proved to be so weak. Some of it, predictably, is that Obama has consistently put Wall-Street-friendly candidates in key regulatory positions. As Greenberger points out, Gary Gensler unexpectedly switched allegiance.

    That likely comes as no news. But what may surprise readers is Greenberger’s assessment that Dodd Frank was actually a pretty decent bill, but was substantially watered-down by extremely aggressive and effective lobbying in the rulemaking phase. Here I have to quibble a bit, since Dodd Frank punted on far more issues than is typical for a bill, kicking many over to a year or two of studies, or delayed implementation, which give the financiers another bite at the apple.

    The whole rationale for what ultimately became known as the “Dodd-Frank” bill was to prevent a recurrence of the 2008 crisis. Has it served its purpose? No, according to Michael Greenberger, a Professor at the University of Maryland Francis King Carey School of Law, and a former top official with the Division of Trading and Markets at the Commodity Futures Trading Commission (CFTC) working directly for then-Chairperson Brooksley Born. He focused on issues relating to financial regulation and derivatives.

    http://www.nakedcapitalism.com/2015/02/former-cftc-commissioner-michael-greenberger-going-back-2008.html

  • Ed_B

    Speaking of banksters, the info I am seeing is that only Citi Bank is calling for $20 oil. All of the other big NY banks are all saying that $40 oil is what will be happening in 2015. Of course, it is not difficult to figure that this is a contrived price drop, definitely for skulduggerous purposes, and apparently quite successful at putting a lot of pressure on Russia, Iran, Venezuela, and the US fracking industry. Follow the money and it will lead us to the culprits and their reasons for all this. That said, this is a good time to be buying US oil company stocks and funds. In a year or two, you will be glad that you did.

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