Traffic Volumes Increase This Past Year -- November 24, 2015; Stein's Law --

John Kemp tweets:

• US traffic volumes have grown 3.5% over last 12 months, compared to prior 12-month period, fastest gain since 1997
• US traffic surged 4.3% in September compared with prior-year, according to Federal Highway Administration

John Kemp had a great piece yesterday on Stein's Law:

"If something cannot go on forever, it will stop," according to Herbert Stein, former chief economist to U.S. President Richard Nixon.

Stein's law is one of the most simple but important statements in economic theory, yet it is remarkable how often it is forgotten.

Stein's law explains why oil prices crashed from the middle of 2014 after spending more than three years over $100 per barrel.

Most commentators now accept a price of $100 was unsustainable (though at the time there were plenty who predicted prices would remain at that level forever).

High prices were encouraging too much new production, especially from U.S. shale, while causing consumption to fall in the advanced economies and slow in emerging markets.

The emerging supply-demand imbalance could only be resolved by a sharp price fall which was triggered in July 2014 after Islamic State fighters failed to seize Kurdistan's oilfields and Libya resumed oil exports.

In retrospect, all this is obvious, but the clues were there at the time for anyone who tracked data on stagnant consumption and accelerating U.S. oil production.

Now that prices are low?

Stein's law cannot predict when an unsustainable trend will reverse, only that it must do so eventually, and that the worse the disequilibrium becomes the bigger the correction is likely to be.

If Stein's law was relevant when oil prices were unsustainably high in 2012-2014 it is also relevant in 2015 now oil prices are unsustainably low.

There are plenty of signs that oil prices have now fallen to a level that cannot continue over the medium and long term.

But it may get worse before it gets better. Much worse.

The question is when rather than if the market must eventually move higher. 

The problem is that disequilibria can persist, and even get worse, for a considerable period of time before the inevitable correction occurs.

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All Bleeding Stops

I don't know who coined the phrase and I don't know if it's a "named" law, but we often said while working in the emergency room, "all bleeding stops." Maybe it was Murphy.

Sounds a lot like Stein's Law.