Made by Wannaphong Durongkaveroj. It's abridged from Ravi Batra The New Golden Age

1. LOGO
The Twin Bubbles :
Housing and Oil

2. The Twin Bubbles
Contents Housing and Oil
1. History and Introduction
2. Housing Bubble
3.Oil bubble
4. Hedge Funds

3. History and Introduction
 Since the unprecedented crash since the Great
Depression 1929, the next crash did not arrive for
44 years.
 Then, in 1973, there is a turning point in
economic and social annuals of the U.S.
 OPEC (oil cartel) imposed an oil in the U.S. and
the rest of the world.
 As a result, oil price jump has never fallen to the
previous level again.

4. History
 Oil price jump during 1973 was not the result of
consumer euphoria (normally the bubble stems from
the demand side due to consumer’s the irrationality)
 In fact, the demand for oil decline after 1972 but oil
supplier has been shrinking.
 Oil price jumped from $2.50 to $42 per barrel (1,600
per cent)

5. History and Introduction
Effects
Oil bubble
1973 - 1982
Oil balloon is a Nine years
result of the later, oil price
monopolistic began fall. By
action of the 1986, it’s less
cartel (OPEC) than $10 per
that trimming the barrel but it’s not
oil output hold to the same
(embargo) level

6. Rule of demand and supply
Demand & Supply-side bubbles
And the three-part life cycle of bubble
Interplay
Demand- Supply-
side side
Its supply
Form swiftly falls short of
Its demand
outpaces its demand. It
supply. It
Expand fast stems from
stems from market
the obsession
Burst concentration
of buyer. or producer’s
manipulation
Bubbles tree-part life cycle

8. Housing Bubble
When Black Monday, Alan Greenspan , head in Federal
1987 Reserve, unraveled the crash by using the action causing
interest rate declined.
14 years later, he followed the same recipe for disaster
2001 Control and began trimming the Federal Funds Rate
The Federal Funds Rate (the interest fee that bank charge
2002 each other for overnight loans, then when this rate fall,
other interest rate usually follow) fell from 6.5% to 1%
However, Greenspan became award of the phenomenon but
dismiss it as a little froth in this market.

9. Why is low interest rate scary?
The stages of cut interest rate
Most of buyers purchase home via credit
When demand for
Low interest rate, low cost of borrowing house rises, price
goes up
It contributes to higher demand

10. Data of housing
1 2 3
Between 2001 to 2005, 1975 – 1995, home price In record numbers, people
home values had been jumped 204% while inflation have been using their
appreciated 53% is 183% - not far from the home appreciation as
inflation rate. it surpasses vehicles for maintain their
nationally in a slow- the CPI inflation rate. 1995 –
growth economy but it’s lifestyle. They refinanced
2000, inflation adjusted rise
faster than the national their mortgage and taken
in home prices was 3% per
equity out of their homes
wide figure. The report in year but soar 9% per year
for 2000 – 2005. Clearly,
and used money to
2005 shows that alone
home values have consume. So, the nation is
home price rise to 13.5% sinking in an ocean of
that is the fastest pace substantially accelerated in
the new millennium. debt.
since 1979.

11. www.themegallery.com

12. Speculator’s action
 Because sinking interest rate, home demand has
expand smartly since 2001, residential output has
grown accordingly (2004 – 2005 2 million housing
units were built and similar 2006).
 However, the population increase can only support
an increase of 1.5 million units. That means 500,000
is snapped up by “speculator”- who buys them not to
live but to make money from speculation.

13. It spreads to other countries
Effect on the world
AROUND THE GLOBE
The worldwide rise in Home values in the From the Home
home price is the advanced economies of Price Indexes in the
biggest bubble in Europe & North Britain, Britain’s balloon
history prepared for the America has already is the largest – home
economy pain when it climbed more than $30 value jump of 154%
pops. It will froth from trillion in the new between the years 1997
America, Britain, millennium, property – 2005, France is 87%,
Australia to France, value surpassed GDPs Netherland is 76% and
Spain, and China of nation. Home price is U.S. is next with
very soared a jump of 73%.

14. The bubble’s direction
Form
expand
Nature of
Burst
bubble
Spread

15. www.themegallery.com

16. Stages of bubble
Oil Bubble
Experts expect no fall in price
People foresee it keep rising
Price is predicted to rise
Hedge funds prevail
People think it’ll go on
Continue to rise and keep durable
No one recognize
until it burst
Price jump persist several years

17. Monopolistic trigger does not
come from OPEC
Oil bubble from supply-side
It stems from Big Oil Company
They are the bullies profiteering Exxon Mobil
from the self-generated oil bubble.
oil mergers has raised the pump
price at least 10 cents a gallon Royal Dutch shell
the crude oil price as much
as $10 per barrel Conoco – Phillips
Big Oil controls over 60%
of gasoline production Chevron – Texaco
and 21% of
natural gas
British – Petroleum – Amoco-Arco

18. Hurricane Katrina
During September and October, the Gulf of Mexico was hit by Hurricane
Katrina and Rita, several refinery and natural gas platforms were battered. Oil and
gas production fall sharply and not surprisingly, energy prices soared, with gasoline to
$3 million per gallon and natural gas to as much as $14 million cubic feet. And crude
oil jumped to $70 per barrel. The post- Katrina, by March 2006, crude oil was down to
$63 per barrel, gasoline averaged $2.30 per gallon and natural gas to $7. This is
because demand fell due to a warmer-than-expected winter. Now the question is “why
did natural gas prices sink more than 50% ($14-$7), while petroleum gas, especially
crude oil, barely budge?”
Answer: the economic power in natural gas (60%) is not concentrated as
petroleum production (21%). Therefore, when energy demand fell, natural gas
prices fall much faster than petroleum prices. Where there is little competition
or excessive concentration , as in oil industry, the law of demand and supply still
work but very sluggishly.

19. Effects
Five Bully controlling over
60% of refinery output Their profit is $298 billion
Bubble
Why did crude hit $78 in
July 2006 without a divesting
The uncompetitive practices
hurricane? The answer
by oil corporations are cause –
comes from the monopolized
not OPEC or environmental law
oil industry along with
– of high gasoline prices around
another factor next.
the country

20. Action of speculators for profit
Hedge Funds
Five Bullies Price Rise Hedge Funds
Big Oil Keep persisting Speculation

21. Action of speculator
Wall Street and avaricious behavior
1990

22. Again, hedge funds is one reason causing
crude oil is now so expensive even though
there is no physical shortage of oil
anywhere in the world !!

23. Punishment
 Oil companies themselves are speculating and
manipulating the future market. This is “Bill O’Reilly reported”
on his show :
 “A few months ago, I received some critic for telling you
that the big American’s oil companies are price gouging. You
should have seen my mail. Well, I was right, and here’s the
proof. The U.S. commodity futures Trading Commission just
fined Shell oil $300,000 for manipulating crude oil market. So,
now oil bullies have found another way to shift people through
speculation.”

24. Conclusion !
 Twin bubble : Housing and Oil crisis in the new
millennium
 Causes : Supply- side and Demand side
 Demand -Side stems from the irrationality of
consumer(decline in Fed Fund Rate contributes
to increase consumer’s demand), speculator
 Supply-Side stems from the monopoly power
(OPEC,1973 and Big Oil company,2004)
www.themegallery.com

25. It’s clear that oil market is bubble
Illustration of whole picture
1973 1982 2004 Then,
Oil bubble Oil bubble is There are Oil bubble
stems from punctured mergers act as displays mixture
monopolistic as a sign of monopolist of both supply
trigger by burst and and they and demand-
OPEC cartel then price cornered side
by trimming steady causing oil price
the output decline jump and
accompanied
with speculation

26. A rare phenomenon, the rupture’s perils are magnified!!
That is the crucial juncture where we stand today, and the
resulting explosion could be brutal in the near future
www.themegallery.com

27. The Twin Bubbles
Lead to future’s pain Housing and Oil Crisis
Oil Bubble
Big oil
Housing
Bubble
Economic
Chaos
Fed Funds Rate
Speculation

28. LOGO