Thu, 6 Nov 2008|
Automatically Generated Transcript (may not be 100% accurate)
How much will -- mortgage costs in these days well too much. In many people's estimation that nearly six and a half percent for a thirty year fixed up north of seven and a half percent seven point 65%. On a thirty year fixed Jumbo again borrowing costs for fame and Freddie Mac even though they are officially owned by the government. Are still very high an unwillingness to lend to ban that is keeping mortgage rates propped up it's -- gonna -- to bring them down. One thing that is calmed down well dramatic -- oil plunging from that record of 145 dollars a barrel. And we're on track for the worst performing month for oil in 25 years of New York trading. Joining us now from Denver is Tom -- Merrill Lynch vice chairman and member of the executive client coverage group with his insight on oil. Tom are we -- a replay of what happened in the seventies and eighties where you had a big. Boom in oil prices talk of peak oil and then -- collapse. And the one the last collapse lasted a couple of decades is that in the cards here. Probably not the the outward appearance is very similar. And it is true that. What's happened in terms of the the last six months or so when oil went from eighty to a 120 and then we had an -- -- -- into -- 147. We did trigger demand elasticity east and so. That is understandable. The differences however are that as we go forward from here we're now back down. 30% this month over 30%. In oil prices and we're in territory were fairly powerful self correcting forces will -- here. Tom look at one I it was says while ago that you were talking about when we might test a hundred that you thought OPEC could defend oil at around seventy -- -- an hour. Staring at the sixties and what does OPEC do or is it powerless here. Well good it did know it's not powerless but the lead there there is a lag. When now OPEC takes action the announcement they -- of of the cutbacks they intend. Was a first step. And frankly I think it'll take several steps for them to really get traction part of the reason is frankly within OPEC. There are those who have to provide leadership want to make sure everybody's on board. And that may mean that we have to test below sixty and into the fifties this happened in 2006. And when it got down in the fifties. The support became very firm especially at fifty dollars a barrel. And I expect that'll be similar this time around. -- -- -- Tom a lot of production projects being canceled refinery expansions being canceled. Is that setting the stage for significantly higher oil prices here. That's part of the self correcting forces I was talking about. There are projects. They're really did require 607080. Dollar royal. To have confidence in the returns. And those projects I don't know so much about canceling it as postponement. -- stretch out of development. Is probably a healthy thing. Frankly we had so much pressure to develop new supplies. We were getting oilfield inflation. That was beginning to get out of control so. There is a silver lining in this in that we -- get into 88. A more stable. Period most. The chaos that we're dealing with right now. Stable where. Well -- -- my view is the next three years a good operating hypothesis is sixty to ninety dollar oil 80% of the time. Some periods when we test below sixty. And self correcting forces of supply kick in some food supply dismissed diminishment. And over ninety we remember. The recent history and say. We're gonna change patterns of consumption. Do you expect that cash rich oil companies to start buying up the smaller. Debt latent energy names here. Well lot of logical combinations of -- been done but there are situations that involve if you look through the corporate. Structure because the underlying assets it is -- the old adage that sometimes it's cheaper to buy oil on Wall Street -- Then it is to find -- in the field. Does have applications so. Yes some consolidation may pick up as a result of this I don't think it'll be widespread or overwhelming but I do think selective acquisitions will become. Part of the capital spending pattern. Mainly by companies that can take advantage because they have additional cash to exploit and develop new resources in the company's acquired. Do you think the push in Washington. To kind of wean us off of foreign oil wanes as oil. Falls and it just as a nation are -- tell alternative sources energy does that get stopped in the tracks. Well I don't -- stock from the tracks but it definitely does diminish the incentive. We've got an election coming up the policy of whoever is elected we'll have a bearing on that. Both part of I think both candidates believe. That developing a degree of alternative energy and renewable energy makes sense. But certainly the economic incentive to proceed. Rapidly -- that has diminished as a result of prices coming down. And we'll have to see what the policy makers. Both within an administration no administration. And congress have to say about that. The top but -- looking overseas as the drop in prices is it diminished the power of say -- Ron. Venezuela and -- out or has -- instead created more unstable states there. Well it could be a little -- both. You know. For sure. This is then what's going on. And it's not just involving oil -- involving securities markets and obviously debt markets. Within the security sector. And so I think there's a degree of humility that's being spread around the planet that may be healthy. In terms of people beginning to figure out how we work together as opposed to. Specific national interest at troubling hall. Tom I think that's a great way to end that healthy humility. It's good to see you as always -- we -- -- -- Merrill -- please -- and.