The Great Recession of 2008-2010/11 is going to be a very tough time economically.  As I wrote in my Forecast for 2009, this economic collapse brings four words to mind.

The first word is contraction, which is the standard way to view a recession.  Economic activity contracts and we are in a recession, economic expansion represents the end to the contraction.  The contraction was severe in the fourth quarter and will be so in the first quarter and second quarter. Output and consumption are in a deep fall right now and will remain so.

The second word is cleansing which in this context means that old ways of doing business, of looking at only the upside, of embracing debt and extreme leverage must and will be cleansed from both the economy and the way that people think. The casino capitalism of the past 20 years will soon be viewed as an unsustainable exercise in individual and corporate greed.

The third word is reorganization.  To quote from the linked column …

It was two years ago that I first wrote about ocean dead zones. These are areas of the ocean that, due to a lack of oxygen, no longer sustain any life.  While dead zones can happen naturally, they usually are caused by the results of human activity.  A primary cause is nitrogen-rich nutrients from agricultural fertilizers that flow into coastal waters from rivers and streams.

Last week there was a report published in the Journal of Science that stated that the number of these ocean dead zones around the world has doubled every decade since the 1960s.  There are now some 400 coastal areas that periodically or perpetually become dead due to oxygen starved bottom waters.

While the size of these dead zones is small relative to the total surface of the oceans, they account for a significant percentage of ocean waters that support commercial shellfish and fish species.  This is due to the fact that these zones occur in areas that have historically been prime fishing grounds since these grounds are close to dense human populations.

In recent years there have been consistent dead zones in the Gulf of Mexico, Chesapeake Bay, the Baltic Sea, the coastal areas of China and even the Kattegat Sea where the Norwegian lobster industry has been decimated..  There is now a regular dead zone off the coast of the Pacific Northwest that was mentioned in the column two years ago.

The developing problem with these dead zones is that over time entire species are killed …

The two trend lines are the decline in gasoline consumption and the decline in miles driven.  These two are obviously connected and are obviously caused by the price of oil.  For the first time in close to 30 years, we have something to be proud of when it comes to our driving behavior.

Two different reports last week documented this profound turnaround.  A report by the Cambridge Energy Research Associates documented that, should recent behavior continue, gasoline demand will likely decline in 2008 for the first time in 17 years. Over the course of the last 25 years gasoline demand in the U.S. increased by 40% due to the popularity of SUVs, minivans, increasing number of vehicles per household and the ever lengthening distance of driving commutes. All subsidized by cheap oil. This growth slowed significantly in the last two years and then in the first quarter of 2008, actually dropped 1.3 percent compared to the first quarter of 2007.  While this percentage drop is slight, this observer believes it will be a historic turning point that, in just a few years will be seen as the turning point from the constant increase in gasoline consumption to the constant decrease that will the reality from now on.

The second report, from the Transportation Department stated that in the month of April, Americans drove 1.8 percent fewer miles that the same month a year ago.  This was the sixth consecutive month of driving decline.  This trend, also a reaction to the price of …

Well, it finally has happened. The price of gasoline has increased enough to cause pain to Americans so that they are changing behavior. The approach of $4 a gallon gasoline has, in the last month produced two positive results. First, after gasoline consumption increased 1.4% in March over the same month last year, it declined 0.6% in April. Second, ridership is up on mass transit systems around the country, in some cases by double digit amounts. The Minneapolis-St.Paul light rail line has increased ridership of 16% year to date over last year, and the Miami rail ridership is up 13% year in first quarter but an impressive increase of 28% in April

As regular readers of this column know, I have long predicted current oil prices. In April 2006 I predicted $125 a barrel price for February 2008, so I was off by two months. Also in that month I predicted $137 a barrel price for April 2009. I now think that might be low. In a recent column I predicted that the trading range for oil for the next 18 months would be an unlikely low of $95 and an elastic upper range of $135. I see many trends and market conditions that point to a trading range of $125-175 between now and the end of 2009. In other words, get used to today’s prices being the normal or the low normal.

America has 5% of the worlds’ population but consumes 25% of its energy. The numbers are even worse when …

Two years ago in this blog, I wrote a futuristic column from April 20, 2009. The title of the column was “Remember When Gas Was Cheap?” At that time I predicted that the price of oil in early 2008 would reach $125 and that in April 2009 it would be $137.
In January of 2007 I was invited on the “First Business” syndicated business program to discuss the price of oil for the remainder of the year. At the time the price was $53 a barrel. I basically told the flabbergasted reporter that I thought the price of oil would most definitely cross $80 a barrel and would approach, but not reach the $100 a barrel price. The counterbalancing view was some “oil industry expert” who said the price range for the year would be $50-70 a barrel. Of course we know what happened.

Last fall I wrote a column predicting that the trading range for the price of oil would be $80-125 for the next two years. I now want to revise that forecast. When I made that prediction, the price has recently crossed $80, charting new territory. While obviously not surprised, I did let all the disbelief I had been subjected to in my predictions to give me a sense of caution. Since $80 was the new high, and I was saying that it would be the price floor for the foreseeable future I thought it would be a correct floor. I did say in that column …