LONDON, England – On May 7 I wrote a blog about the possibility of oil hitting $200 a barrel. Since then, oil has continued to move higher. And now the futures market is pricing oil at close to $140 as far away as December 2016. Even by this year’s end there are predictions that oil, trading at $129 dollars a barrel now, will reach $150 a barrel.

Motorists are feeling the pain of higher oil prices at the pump.

That’s the forecast of T. Boone Pickens. He’s a man you may not have of heard of before, but he’s well known in the oil world and well known among many on Wall Street. When he speaks, people listen. He speaks in language easily understood. His reasoning for oil hitting $150 a barrel by year end is simple.  “Eighty five million barrels of oil a day is all the world can produce and the demand is for 87 million,” he said in an interview.

His prediction of course, follows Goldman Sachs which sees oil prices averaging $141 in the second half of the year. Goldman Sachs really turned heads when it predicted earlier this month that oil would reach $200 a barrel within 6 months to two years. Oil a year ago was trading at less than half its current price.

Is there a speculative element in oil’s rise? Of course. Might there even be an element of panic? When oil on the futures market jumps 9 bucks in one day, panic may be a factor. But there are also plenty of fundamental reasons people are predicting higher oil prices ahead, even out to 2016. I can’t predict where oil prices will be eight years from now. But I do know they aren’t going to fall dramatically anytime soon, if ever again, short of world wide depression.

None of us, with the exception of producers, like high oil prices. But few of us are willing to drive less or fly less, or radically shift our home heating and cooling needs. It’s much easier blaming the Chinese and the speculators.

Too bad, it’s blame misplaced. Can we really blame the Chinese for wanting to continue to build their economy, after we in the West have been using oil for much, much, longer to build our economies?

As for the world’s largest oil consumer, the United States, Americans are complaining about the price of gasoline, but they’re hugely dependent on their cars and many of them hugely lazy and overweight. Their definition of taking a dog for a walk is driving with one hand on the steering wheel and the other hand on the leash.

Who do you blame? Do you think oil prices will remain high for several years to come? Let me know your thoughts.

LONDON, England – The world’s richest person, Warren Buffett, didn’t get that way by being a fool. He says he only invests in businesses he understands. At his annual shareholders meeting held this past weekend the Oracle of Omaha, as he is known, once again said he believes the U.S. economy is in recession.

His definition of recession is easy to understand: “I would define that as a situation where people are doing less well than they were three months, six months or eight months earlier and most businesses find themselves in that position too.”

He said housing remains a huge problem. I’ve been banging on about this for several months, even longer, about a recovery in housing being a key to a recovery in the U.S. economy. I’ve also said it would be wrong for people who bought more house than they can afford to be bailed out by the government.

Buffett, a man far wiser than me, echoed my sentiments when he said the government should help those who were misled on what they would owe, but the government shouldn’t help people who bought more house than they could afford of who’s home value has declined .He said that borrowers shouldn’t be protected against mistakes. Amen to that.

Meanwhile, Wall Street is acting like the worst is over in terms of the subprime crisis. The engineering of the buyout of Bear Stearns by JP Morgan drew the line in the sand in terms of being a watershed event. Had it been allowed to fail, the knock on effect to the financial system would have been massive.

But there’s a big difference between not allowing a major financial institution to fail, and the worse being over. That’s also something I’ve been talking about for a long time.

Buffett isn’t optimistic either. He says the sorry state of the housing market will hurt bank results for “a couple of years,” and that the industry’s write downs and losses aren’t over “by a long shot.”

When I interviewed Alan Greenspan the week before last, he also expressed skepticism at the worse being over. He doesn’t see house prices bottoming out until the second half of next year.

Buffett also said he read an annual report of a major investment bank, all 270 pages. He said there were 25 pages which he didn’t understand. Now if the world’s smartest investor can’t understand certain parts of an investment bank’s report, is it any wonder we ended up in the mess we’re in?

Buffett’s track record is legendary, annual returns of 21.5 percent over 43 years. So when he says there’s more pain too come, I’ll believe him more than someone on Wall Street who thought they were smart with their financial engineering but proved to be a fool, triggering the worst financial crisis in the post-war period.

That had some economists swifting suggesting the Fed is in a complete state of denial.

Rob Carnell of ING quickly sent out an email with the subject head: “Who are you kidding Mr. Bernanke?”

“Our economics team view the statement as representing a Fed in denial over the scale of the forthcoming downturn and one which be forced to cut rates later this year, when the labour market starts to weigh on consumption,” he predicted.

Ian Sheperdson, Chief U.S. Economist at High Frequency Economics, also took issue with the Fed dropping the phrase about downside risks to the economy remaining.

In a sharp rebuke to the Fed, Shepherdson wrote: “We think this is completely wrong: Downside risks to growth do remain, and they are substantial.”

To underscore this point he not only italicized it, but put it in bolder and darker ink then the rest of his analysis. His rebuke didn’t end there.

“Moreover, we wonder quite what the Fed sees in the data over the past 27 days that we don’t. Mr. Bernanke himself said in Congressional testimony on April 2 that the risks remain to the downside. We have no argument with Keynes’ dictum that when the facts change, you should change your mind.

“But we’re a bit baffled by the Fed’s version, changing its collective mind in the absence of any change in the facts. Indeed we’d go further: The key incoming data since March 18 have deteriorated, with consumer confidence dropping further, the decline in home prices accelerating, and payrolls falling.”

Shepherdson thinks that by August the Fed will be forced to ease again. Several other economists also think the Fed have to cut rates further, with the most bearish down to 1 percent by year end, while others think 1.50 percent will be the floor. There is a camp who think the Fed is done easing with this latest cut to 2 percent.

In its statement the Fed did acknowledge that economic activity remains weak, but that’s a lot different than suggesting that further deterioration is behind us.

In my view, and in the view of several economists, plenty of risks remain, and they are all on the downside.

LONDON, England – More signs of stress in the U.S. economy. Consumer confidence continues to fall and is now at its lowest level since the beginning of the Iraq war in March of 2003. Consumers are feeling the pinch of higher gas and food prices, and less wealth because of falling house prices. Plunging house prices may actually be closer to the mark.The closely watched Case-Shiller numbers showed a near 13-percent year-on-year drop in their latest report. It gets even more depressing. If you take a three month snapshot, and annualize it, the rate of decline is a shocking 22 percent.

No one’s bragging anymore about how much money they’ve made on their home. And it’s likely to get worse before it gets better, which will complicate any hope of recovery in the economy.

Consumers might get a slight reprieve from tax rebate checks now being sent out, but many of those getting it will pay down debt or save it.

And given how quickly house prices are falling, the rebate is a drop in the economic ocean. It’s estimated a trillion dollars of value has been wiped off homes in just two months … nearly 10 times the size of the federal tax rebate.

I’ve been saying for a long time, you can’t get a recovery in the economy until you get a recovery in housing, and that recovery is still a long way off.

LONDON, England – Some blame Alan Greenspan, the former Fed chairman for helping sow the seeds of the housing bubble and the subsequent fallout. Greenspan of course has answered his critics and defends his policies. Agree or disagree with whether Fed policies played a role in the current financial crisis, everyone still wants to know Greenspan’s thoughts.

I had a rare opportunity to interview him for 50 minutes last week. It’s something few journalists get to do and it wasn’t really planned.

I had gone to the European Pensions and Investments Summit 2008 in Montreaux, Switzerland. About 450 people attend. The attendees have collectively about $3 trillion of assets under management. CNN marketing asked me to attend to underscore our commitment to business programming. I originally went to moderate a panel with five chief European economists, but while there I was asked to interview Greenspan.

The interview was conducted via satellite, with the 82 year old Greenspan in Washington. For me there was one question that loomed above all others, the question everyone wants to know: How much longer will the fallout from the subprime crisis last?

Some key players on Wall Street think the worst is now over, and judging by the performance of financial stocks since March 17 (the day the Fed announced the rescue of Bear Stearns) investors are acting like the worst is behind.

Greenspan however sees it differently. He told me he wouldn’t go so far as to say the worst is over, even in the financial sector. In terms of the economy itself, he sees a turnaround in housing as a key to moving beyond the crisis. And here’s the bleak news, he doesn’t see house prices bottoming out until the second half of next year, specifically in the third quarter.

The panel of European economists I interviewed, with the exception of one, is fairly bearish on the outlook for the U.S. economy, with one of those economists seeing no recovery until 2010.

And course, the longer the U.S. economy stays weak, the greater the knock on effect on the global economy.

There are a lot of headwinds for the U.S. economy… banks are keeping lending tight, consumers in the U.S. are getting squeezed by rising petrol prices, rising food prices, and falling house prices.

I think it will take much longer than many expect for the economy to recover. That’s why I wasn’t surprised when Greenspan told me he’s not convinced the worst isn’t over. It may be easy to criticize him, but on this score its tough to disagree with him.

LONDON, England – More reminders of the sub-prime crisis debacle will come this week with further massive writedowns from Citigroup and Merrill Lynch.

By doing a mea culpa, banks are clearly hoping that they can keep further regulation at arm's length.

And while the fallout from the crisis continues to weigh on the real economy, a group representing more than 375 of the largest  financial companies has admitted “major points of weaknesses in business practices,” including management of risk and the bankers’ pay.

But at the same time, it warned against imposing more regulation on the industry. “We think it would be completely wrong to jump to some premature regulatory measures,” said Josef Ackermann, head of Deutsche Bank and chairman of the Institute of International Finance. “We want to demonstrate we can do a better job within the industry,” he added.

Give me a break. You bankers take heavy leveraged bets that go terribly wrong, resulting in probably the worst financial crisis in the last 50 years, and you say you can regulate yourself. I say, who do you think you are kidding Mr. Ackermann?

I think it’s clear that greater oversight and regulation is needed. Not the type of regulation that impairs banks’ ability to loan money, but regulation that make it far less likely that another crisis like this one could ever happen again.

Paul Volcker, the former Fed chairman, recently said: “The bright new financial system for all its talented participants, for all its rich rewards, has failed the test of the marketplace.”

The Institute of International Finance admitted banks had failed in many ways including inadequate protection against shortages of liquidity and too much reliance on financial models. It also cited the conflict of interests over bankers’ pay.

That would be a good place to begin. Defer huge payouts for several years to see whether or not the big bets taken actually work out.

By doing a mea culpa, banks are clearly hoping that they can keep further regulation at arm’s length. I say given all that’s happened, make them pay the price and impose stricter regulation. They deserve it and we need it.

LONDON, England – Now there’s speculation that Yahoo is close to making a deal with Time Warner’s AOL. According to press reports, Yahoo would gain control of AOL, get a cash investment from Time Warner in return for about 20 percent of the Yahoo/AOL tie-up. Time Warner is also the parent company of CNN.

I think this potential deal is less about Yahoo/AOL and more about anyone but Microsoft. Yahoo has rebuffed Microsoft from the moment it made its unsolicited offer of $31 a share. It rejected the Microsoft bid, saying it was too low and not in the best interest of shareholders.

It can be argued that AOL isn’t the strongest player to tie up with. In terms of search queries, Google of course is the most popular site, attracting 59.2 percent of queries in February. Yahoo is number two with 21.6 percent, Microsoft 9.6 percent, and AOL is a distant fourth with just under 5 percent of search queries.

But Yahoo could take the cash it gets from Time Warner, repurchase Yahoo shares at a price in the mid-30 dollar range. That would be above where the stock is now trading.

Even if the Yahoo/AOL deal doesn’t happen it could be used as a bargaining chip to force a higher price from Microsoft.

Meanwhile there are media reports that Microsoft could team up with Rupert Murdoch’s News Corp to make a bid for Yahoo. News Corp owns the popular Web site MySpace. Now that could be formidible combination, and one that would likely be much more attractive to Yahoo shareholders.

Microsoft has threatened to take its fight directly to Yahoo shareholders via a proxy fight. The smart money is still on Microsoft winning its battle for Yahoo. But for now Yahoo is doing everything in its power to prevent that happening.

LONDON, England – I’ve been accused by some of you of being too pessimistic, of having a dark cloud hanging over me, when talking about the economy and the credit crunch. But I don’t make up the data, I just report and interpret it. I have been bearish and I continue to be bearish.

Call me Mr. Doom and Gloom, but if you want to call me that, then you better start thinking about names for the Fed and the IMF, because they too are speaking in dark tones.

The Fed now says its staffers expect the U.S. economy to shrink in the first half of the year. And some members of the Fed are now worried about the possibility of a “severe and protracted down” that could last into next year.

That’s an even darker assesment than what Fed chairman Ben Bernanke painted publicly just last week during a congressional hearing. He admitted that a recession is possible, but suggested that by next year things would be looking much better.

Meanwhile, the International Monetary Fund is warning that losses from financial crisis could approach a trillion dollars. More than half of that would be suffered by the banks, with insurance companies, hedge funds, pension funds and others shouldering the rest.

“It is now clear that the current turmoil is more than simply a liquidity event, reflecting deep-seated balance sheet fragilities and weak capital bases, which means its effects are likely to be broader, deeper and more protracted,” according to the IMF.

Just a reminder, those are the words of the IMF, not me. But I couldn’t agree more. That’s not being pessimistic, just realistic.

A lot of focus on the problems in the U.S. housing market. But conditions are tightening in the UK housing market.

The number of mortgage products has fallen by nearly 40 percent in the past month. The Bank of England has cut rates twice and is expected to move again this week.

But because of the credit crunch, mortgage rates on average are higher than they were last August. Tougher lending conditions, tighter money means the number of mortgage approvals is nearly 40 percent lower than it was at the same time a year ago.

Nationwide, a big mortgage lender in the UK, is forecasting a drop in house prices this year. It says house price growth is now at its slowest level for 12 years.

Property is an obsession with the British. There are prime time television programs devoted to it. And at the other end of the spectrum, plenty of articles in recent years about how difficult it is for first time buyers to get on the property ladder because of the run-up in prices.

Since 1988, house prices have risen more than 300 percent, about twice the rate of the United States.

Are UK house prices about to crash? Some predict they will, but I don’t think so. Will they slow further? Absolutely. For those priced out of the market it couldn’t happen soon enough.

In the last housing bubble, prices in the UK averaged five times earnings. This time around, it’s closer to six times earnings. One analysis suggests prices have come down some 10 percent from the peak.

But there’s still a disconnect between sellers who are still holding out for prices achieved earlier last year and buyers who are more cautious about the market.

That alone means there’s further scope for prices to fall, as the reality of a softer housing market will force more sellers to face up to reality.

More signs of weakness in the U.S. economy. Jobs fell by a worse-than-expected 80,000 in March. The third month in a row that payrolls have shrunk.

But it’s not surprising, given that we’re in economic downturn. Add to that a strike by one of General Motors’ suppliers. It’s meant no work for almost half of GM’s North American workforce.

The continued fallout from the subprime crisis also means fewer jobs. And the housing crunch means fewer new homes are being built. Add it all, including consumers retrenching, and it’s easy to see why there’s less demand for workers.

You have to go back to to start of the Iraq war in 2003 to find another period when there were three consecutive months of declining employment.

Initial claims for jobless benefits are now at their highest level since the aftermath of Hurricane Katrina in September of 2005. The unemployment rate, now at 5.1 percent, is expected to rise further.

“With layoffs rising quite quickly, and hiring intentions very depressed, we think the unemployment rate is set to reach 6% or so by the end of the this year,” according to Ian Shepherdson, the highly respected U.S. economist.

He goes on to predict: “It will continue to rise, though hopefully at a slower rate, through 2009 if we are right in our view that the consumer retrenchment will last much longer than most forecasters expect.”

Not comforting words. As I’ve said many times before, we didn’t get into this mess overnight, and it’s not going away anytime soon.