Home / Investing / The world is flooded with oil, false guarantees, magical thinking and complacency as global demand approaches a cliff – Investment Watch

The world is flooded with oil, false guarantees, magical thinking and complacency as global demand approaches a cliff – Investment Watch

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Written by Charles Hugh Smith through the OfTwoMinds blog,

This price collapse will manifest itself in all types of markets that are based on purchases of debt-financed wishes rather than a cautiously prudent priority over needs.


Given that markets are supposed to discover the price of excesses and shortages, it is a mystery why everything that is in excess of supply remains too expensive as global demand slides over a cliff: The price of oil, semiconductors, Uber trips, AirBNB lists and many other global risk / growth stories are still priced as if the demand before Covid-19 was still guaranteed.

The punters are still buying semiconductor actions based on out-of-contact projections that are equivalent to counting the number of fairies on the head of a pin, ignoring the fundamental reality that very few people really need A new mobile phone, vehicle, laptop, refrigerator, etc.

It boils down to trust and certainty. People pursue what I wish but I don't need when they overflow with confidence in the future, encouraged by the euphoria of animal spirits that their income and wealth will continue to increase, a sense of certainty based on the belief that their economic world is essentially risk free.

When trust dissipates and is replaced by fear and uncertainty, wisheslose its shine and needs prevail. When you are afraid of contracting a deadly virus or losing your livelihood, status symbols and frivolous expenses no longer lead the agenda.

However, the entire history of global risk / growth is based entirely on wishes not needs. The vast majority of the demand is not for a pressing need, it is for euphoric aspirational consumption, expenses destined to make the buyer bigger than they really are, in their own image and in the image they present to the world in the brands they show, the coffees where they have dinner, etc., etc.

Since the world is flooded with false guarantees, magical thinking and complacency, we might ask ourselves: what is the market value Of these fantasies disconnected from reality? There is no pricing mechanism for such intangibles, of course, but it should counting the number of fairies on the head of a pin give way to a new appreciation of risk and a widespread awareness of uncertainty, then global demand will fall off a cliff as wishes They are set aside indefinitely.

In a world of false projections and manipulated statistics, the drop in demand for oil is one of the few available measures based on reality. One of the games that is played is when a measure based on reality is discovered: electricity consumption, satellite images of empty parking lots, etc., the authorities immediately limit access to the measures and / or trigger a tsunami of counter-narratives To discredit the real. -Worldwide evidence that global demand is in craters.

Since oil is the main resource for the global industrialized and interconnected economy, it is difficult to argue that the decline in oil consumption does not matter.

When craters demand, producers must restrict supply or price as well.The problem with oil and everything else that is now in excess of supply / overproduction is that producers cannot survive a sustained fall in price or a sustained fall in production. As both are equally fatal, producers have all the incentives to continue producing and expect someone else to reduce their production to keep prices high.

Unfortunately, no producer is willing to fall on his sword to keep prices unnaturally high. And so, the excess production continues at a good pace until the price collapses.

This price collapse will manifest itself in all types of markets that are based on purchases of wishes instead of a cautiously prudent priority in needs.

My publications of the COVID-19 pandemic


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