What really caused the oil price to collapse? Philip Treick says it’s not what everybody believes. Conventional thinking believes the oil price collapsed because of the dropping global demand from a world wide recession sparked by the US sub-prime fallout. Treick, founder and principal of Thermopolis Partners LLC, has a slightly different view. He explains how everything – the oil price collapse, the global economy collapse – started with an unannounced policy change in China towards its currency. More importantly, he uses his theory to tell investors what to look for in the coming months and years that will guide us in finding profits. His charts, reproduced below, provide a sharp image to back up his comments.
KS: Most people think the collapse in the US sub prime housing crisis caused the global recession. But you don’t. Why is that?
Treick: Well, I point out if you look at mortgage equity withdrawn in the United States – that peaked in late 2006. Identifying that point in time as the top of the credit cycle, our credit based economy had already started to contract prior to the collapse in oil and copper. So one can’t say that the credit contraction was the sole cause of this collapse in commodity prices, because it was already in full force. It definitely contributed to it, but it wasn’t the sole cause. Something else had to contribute. That something else was an unannounced change in currency policy out of China.....read the entire article, interview and charts.
