Uh-Oh: Greenspan’s an Oil Bear


We have previously noted what a terrible forecaster Fed Chairman Alan Greenspan is. Now, I see in Forbes that Big Al is bearish long term on Oil.

There are two possible explanations for this, neither of which are pleasant. The first is that he is quite simply wrong. There is ample precedent  for this: Greenspan was wrong about:

Natural Gas:  In May 2003, he warned of potential natural gas  shortages and pprice squeezes. Natural gas prices tumbled shortly thereafter;

Crude Oil:  July 20, 2004 Congressional testimony that rising energy prices
"should prove short-lived"; crude prices have risen substantially since;

Mortgage Rates:  Recall last Summer, when he
praised the virtues of adjustable-rate mortgages when fixed-rate loans
were near half-century lows;

Stocks: Recall his now infamous 1996 irrational exuberance speech — the market rallied for another 4 years. By 2000, he had drank the Kool-aid and was discussing the productivity miracle –just in time to catch the bubble popping;

Job Creation:  While he focused on the productivity miracle, the productivity paradox was overlooked. The present anemic Jobs recovery can be traced in part to high productivity.

Notice a pattern yet? This forecasting track record history makes me immediately think "Wrong again."

But let’s not be quite so flippant. What happens if he’s right? (and how might that happen?).

That’s the even worse news. The most obvious way to be bearish on the price of Oil is to anticipate a global economic slowdown. And thats no fun for anybody — Bull or Bear.

(Theoretically, increased prices stimulate additional exploration while dampening demand. But thats too fine a line to walk, while simultaneously anticipating a soft landing). 


Greenspan On Oil: Long-Term Bear
Dan Ackman,
Forbes, 04.06.05, 10:20 AM ET

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  1. bear2 commented on Apr 9

    Greenspan has been a terrible forecaster before. On the eve of another crash, he declared everything to be fine. It is quoted in “Intelligent Investor”, but I can’t find it off the top of my head.

    I think that Greenspan is a bear on oil prices because he expects a slowdown. If you read the WallStreetExaminer.com, they have been stating that the Fed has been religous about keeping the monetary supply under a growth rate of 5-3/4%, which is nothing compared to what it was growing at.

    Furthermore, I suspect that OPEC, specifically Saudi Arabia is going to dramatically turn up production. They know that high oil prices will tank the US economy and US dollar for that matter, and that will kill oil completely. It is in their best interests to pump like crazy even if the price drops to keep the economy going.

  2. calmo commented on Apr 9

    Unfortunately bear2 Saudi capacity is already full bore from the reports I’ve read. Much more likely that the other majors will join Shell revising their ‘proven’ reserves downward. Much more likely that China’s appetite will continue to rise not abate. Much more likely that American consumers will put the increased pump prices on their credit card rather than demand a responsible energy policy that penalizes heavy users and rewards light users.

    You be right Barry. If Greenspan is right about a downturn in oil, it can only be in the context of a General Downturn. I am harboring a deep desire to see the Magician slip in his own goo but not especially if it means a recession.

  3. bear2 commented on Apr 10

    “Unfortunately bear2 Saudi capacity is already full bore from the reports I’ve read. Much more likely that the other majors will join Shell revising their ‘proven’ reserves downward.”

    OPEC hasn’t put ANY effort (or funds) into upgrading their output for a long, long time. There is still a TON of oil in the world. Check out the Alberta tarsand and look at what PetroKazakhstan has done in their area. I hold a lot of oil stocks and I’d love to see crude at $90/bbl, but it ain’t going to happen.

    Furthermore, history is bound to repeat itself. Look what happened with the oil shocks of the mid 70s. New supply came on line, refineries were built and the oil price plumetted.

    I do, however, think the US is headed for a recession and I don’t think there is anything that Greenspan can do about it.

  4. apav commented on Apr 10

    I’d say that Andy Xie at Morgan Stanley provided a good explanation last week for Greenspan’s statements(http://www.morganstanley.com/GEFdata/digests/20050407-thu.html). Greenspan hopes to talk down the price of oil so as to limit need to raise interest rates rapidly. If he can’t stop speculators pushing the price up, it feeds inflation, interest rates go up and the economy slows. He’d rather see a gradual dollar depreciation than a collapse of the economies. This might be the best case scenario but it’s going to be very difficult to navigate to it.

    I’d treat Greenspan’s comments as efforts to manipulate rather than what he thinks. I still haven’t figured out why he wanted to push Americans into adjustables (I just moved out of mine to a fixed).

  5. M1EK commented on Apr 11


    People have been promising the tarsands of Alberta since the 1970s, and there’s no credible evidence we’re much closer to exploiting them economically than we were back then. They’re the fuel cell for the oil-set – a diversionary tactic to prevent Western governments from more sensible energy policies.

  6. supabill commented on Apr 11

    The tar sands are really there but since they are very heavy crude and we are currently constrained on heavy crude refining capacity (see light/heavy spread) they are no immediate help. Any additional Saudi crude would be heavy as well so it’s no help either.

    There is plenty of heavy crude just not enough cokers and complex refining capacity to refine it to light evironmentally -friendly products.

    This will take a long-term capital investment to address or a general economic slowdown would reduce the pressure as well.

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