Wednesday, April 09, 2008

Shortages and bubbles

The world is short of oil. Oil price went through the roof. This is followed by gold, commodities and food (i.e. wheat, rice, etc).

Is the world suddenly so short of these commodities, when it was in adequate supply two years ago? Why is there a sudden increase in consumption or a big drop in supply?

The main cause is speculation. When there is a small shortage, the speculators came into the picture and push up the prices. The ordinary people also start to stock up on food supply, aggravating the situation.

The world had gone through bubbles. It was the tulip bubble, South sea bubble. In more recent years, we have the dotcom bubble, the US housing bubble. Now we have the commodity bubble.

All bubbles will burst. Some burst earlier. Others burst later. Be careful. Do not be caught in the oil, gold or commodity bubble.

9 comments:

Mao said...

In 1970's, there was shortage of steel. Plastic replaces part of steel product. Steel bubble burst!

In remote countryside of PRC, farmer still cook meals with wood.
Northen Chinese uses coal.

South Asia farmer cook meals with body discharge from an ox. "Biofuel" has been existed thousands years. Oil bubble will burst!

Anonymous said...

Dear Mr. Tan

Thank you for sharing this.

I am very impressed that you mentioned "tulip bubble" and "south sea bubble" and the realisation of the oil, gold and commodity bubble that we are in now - not many people are aware of history and too many people are obsessed with greed. Probably you may also be exposed to some of the excellent writings/blogs that I am accessing regularly. Wonders of the Internet.

Keep up the good work, cheers!

R.

Mao said...

Northen Thailand use hydropower supply from Lao. Oil bubble will burst!

Mao said...

Before Chinese New Year, a food store at Woodgrove Mall closed down. Owner said: " How to do my business when each piece of tofu increase 20 cents".

Today, a formal food store owner become a coffee servant in a Marsiling coffee shop. The employer became employee. Why?

She replied: "One bag of rice cost $10, my food store (a couple) made only $40/day after long hour of cooking and service".

She further told me bad news: "coffee shop owner is absobing higher cost now, sooner or later, a cup of coffee price will be much higher then today."

Oil speculator do make our daily life very difficult under existing capitalism system. Is there a way out?

mao said...

What is the action of PRC after escalating cost of oil?
Oil tanker will discharge oil at Myanmar port and transport to southen China through Lao highway.
This will save cost for PRC in a long term beside strategic purpose.

This will bypass PSA and many more other form of bypass to come by East Asia Nations. Will we survive 10 years later?

hanglian said...

Not to forget the toilet paper shortage of 1973, created by American comedian host Johnny Carson. :)

http://thelongestlistofthelongeststuffatthelongestdomainnameatlonglast.com/trivia74.html

Vitali said...

Just read an article in Economist on food shortages. They blame protectionism of some countries, which in order to control food prices at home try to limit the exports. This creates a vicious spiral - limiting exports lead to higher international price which in turn leads to more countries limiting exports in order to reduce local price.

The farmers in these countries lose out on high prices. They have no incentive to increase production because they know that government can always impose restrictions. Economist tells a story of wheat crops thrown away in Ukraine, because it was difficult to sell locally. Recent 25% increase in wheat price was caused by Kazahstan's export restrictions. Current rice increases come from Vietnam's restrictions.

Anonymous said...

Inflation followed by stagflation followed by deflation followed by reflation followed by disinflation followed by inflation followed by stagflation followed by deflation and followed by reflation and disinflation and the cycle starts all over again. The length between each "flation' is the only difference in the cycle.

PS: i am dizzy now.
Zhumeng:o)

Mao said...

WHEN WILL OIL BUBBLE BURST?
% change fro a year ago:
1991-98 minus 5.7%
2001 minus 13.7%
2002 plus 2.4%
2003 plus 15.9%
2004 plus 30.6%
2005 plus 41.5%
2006 plus 20.4%
2007 plus 10.4%
2008 plus 22.3%
2009 minus 4.4%(projection 28/2/08)

(Source: World Bank DEC prospects Group)

What do you think?

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