Green Retirement

Wow!  Amazing 11% stock market rally in both the Dow and Nasdaq, on Monday, October 13, 2008, has many people breathing huge sighs of relief.  Did we hit bottom? Only delay another bigger stock market crash in the future?  Will the world have a recession or a depression?  It all depends.

It all depends on the price of oil.  The last eight years produced three bubbles, housing, stock, and oil.  Median home prices have fallen considerably, and are on their way back to 2000 prices, wiping out the housing’s false equity.  The stock market represented by the Dow Jones fell below 8,000, reaching 2001 prices before climbing back above 9000 in today’s rally, technically satisfying a stock market bottom.

Even though oil has dropped from nearly $150, down to $80 per barrel, it is still four times too expensive.  For economic growth to occur in the United States, Europe, Japan, China, and emerging countries, a sustained period of less than $20 oil is required.

The United States, during the Clinton and tech-bubble years of the 1990’s enjoyed nearly ten straight years of below $20 oil, creating tremendous growth, the capital to build the internet, eliminating the Federal Deficit, producing millions of jobs, reducing crime rates, etc.  A quick look at the chart (click to make larger), makes the obvious connection, between the price of oil and recessions.   The economic break even point for oil is $17.

Simply put, if the price of oil quickly (next two months) drops to under $20 per barrel and stays at that price for a period of time, their will be a recession.  If the price of oil stays above $80 per barrel for an extended period of time (next two months), the stage is set for another bubble burst (perhaps the U.S. Dollar), and a stock market crash that will commence the next world wide great depression.

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