Thursday, October 30, 2008

I was right - again. Oil price was another bubble, after housing

Occam's Razor - the simplest answer is usually the best.

AmericanGoy: So why are gas prices rising?, dateline May 27, 2008.

The answer for me then was simple... speculation.

I cut through the bullshit on TV and in print and on radio so common then (and still common now) that oh my goodness, the emerging economies of India, China are generating sooooo much greater demand for oil.

Others were bringing up warfare in Africa as affecting oil prices.

In response, I put forth Mr. Masters testimony, who spilled the beans before Congress that yes, indeed it is rampant speculation which was to blame for the meteoric, out of this world, insanely rapid rise in the price of oil.

I wrote this at the time:
"There is no underlying cause for the price of oil to be so high. None. No logical reason WHY it is so high."

Put simply, it was another bubble.

Just like the housing bubble going pooooof right now, the oil bubble, propped up by endless buys from the speculators who saw it as quick profits after the housing bubble went pooooof, is also coming to an end.

I was happy to see an article on this topic on bloomberg.com, World Is `Drowning in Oil' (Again) After Drought: Caroline Baum, dateline Oct. 28 2008.

Three months ago, the world was running out of oil.

Seriously. I kid you not. Everywhere you turned, you heard whispers that the day of petroleum reckoning was at hand.

Now there's too much oil, prodding OPEC to cut production targets for the first time in two years. Last week, the Organization of Petroleum Exporting Countries, confronted with the halving of oil prices since July, announced a 1.5 million barrel-a-day cut in output.

World markets greeted the news of reduced oil supply by pushing prices down further. Crude oil fell $3.69 a barrel Friday to $64.15. Yesterday, oil dropped another 93 cents to $63.22, a 17-month low.

How quickly things change. Or do they?

All speculative bubbles have a kernel of truth behind them to justify their existence. This time around it was China and India. These emerging Asian giants were gobbling up all the commodities the world could produce to fuel their rapid industrialization.

It wasn't that the story was untrue; it was old. Growing global demand probably was the reason for the gradual rise in oil prices from $20 a barrel to $40 earlier in the decade, and even to $60 by mid-2005.

It was the moon shot to $147 that took on a life, and a litany, of its own. Emerging nations didn't start gobbling up crude, coal and copper all of a sudden in the middle of 2007.


"It wasn't that the story was untrue; it was old. Growing global demand probably was the reason for the gradual rise in oil prices from $20 a barrel to $40 earlier in the decade, and even to $60 by mid-2005.

It was the moon shot to $147 that took on a life, and a litany, of its own. Emerging nations didn't start gobbling up crude, coal and copper all of a sudden in the middle of 2007."


Thank You, miss Caroline Baum.

Yet analysts on TV and in print told us with a straight face that the doubling in oil prices from July 2007 to July 2008 was a result of fundamental demand, not speculative buying or investors, including pension funds, ``diversifying'' into ``alternative investments'' in search of ``uncorrelated returns.'' (It sounds a lot better than admitting you got suckered into buying what was going up and are now stuck with a pile of stuff that no one wants.)


Strong language.

Almost as if we were related.

``It happens in every market,'' says Michael Aronstein, president of Marketfield Asset Management in New York. ``Once it goes up an enormous amount, creating unfathomable wealth for the fortunate participants, someone makes an ex-post case as to why we are only at a beginning and it's not too late to get in.''

This advice is ``generally formulated by someone who has a vested interest in selling the stuff,'' he says.


Funny.

Do you think that the people on TV with the idiotic explanations on how the price of oil was due to the growing demand (which, according to them, went up, what, 50% in a few months - just L O L) and not to market manipulation...

Do you think that the "experts" on TV had a vested interest in keeping the oil bubble going after the housing bubble burst?

Hmmm?


So now lets think of the simplest explanation, Occam's Razor and think about the bailout.

The bailout... the government takes taxpayer money - MY MONEY - and gives it to various corporations, no questions asked, no rules set... because otherwise the sky would fall and we would all live in a 'Mad Max' world.

So what words come to mind to you?

Mine are... swindle.... con.... theft.... the biggest financial crime in the history of the world.

Good night.

3 comments:

Anonymous said...

How much do you wanna bet that some of the specualtors started selling oil short about 3 months ago, and are making a mint doing so now..................still laughing their asses off at the rest of us?


We certainly need afordable gasoline with all of the other troublesome factors we are facing economically at the moment. Im glad its down, even though Im pretty certain some real slimeballs have made a fortune on it going down.


Think of the beauty of what CNBC and other modern media allows Wall Street insiders and their mouthpieces to do Goy....................create a bubble on X and buy fairly early on its way up (your own buys helping it grow), and when it gets near its zenith, you and your buddies (Kudlow, Cramer, all the A-holes you'd expect)get together and start shorting it. One of you, or a friend, goes on the tube and states they are worried or some shit while all of you are slowly dumping your stock in X, driving the price down.

You then buy the shares back when it bottoms out, give them back to the brokerage rode-hard-put-up-wet-cheap-and-greasier-than-a-whores-ass-down-at-the-sauna-at-the-end-of-the-shift, and laugh your ass off............You made a mint both ways on the boom bust cycle that you yourself helped create.


Its beautiful. But I however dont think for a minute that James Cramer or Larry Kudlow would EVER do something like that with the aid of their "hardworking" entrepreneurial buddies, do you?

American Goy said...

"Think of the beauty of what CNBC and other modern media allows Wall Street insiders and their mouthpieces to do Goy....................create a bubble on X and buy fairly early on its way up (your own buys helping it grow), and when it gets near its zenith, you and your buddies (Kudlow, Cramer, all the A-holes you'd expect)get together and start shorting it."

That is exactly what has been happening for a while now.

Kramer has admitted that he uses his audience as idiots to manipulate stock prices.

And lets face it - anybody who does take CNBC or any financial "analyst" on TV is an idiot.

Come to think of it, any "expert" on TV usually has an agenda and cannot be taken at his/her word.

Anonymous said...

Hey, there, AG;

You are convinced that oil at $145 / barrel was a bubble.

Are you familiar with the concept of Peak Oil?

I read a book in ***2004*** (!!!) by Stephen Leeb called "The Oil Factor, Protect Yourself and Profit from the Coming Energy Crisis" where Mr. Leeb laid out the evidence that the world is nearing the peak of production of the easily -gotten, high quality sweet, thus cheap, oil.

In 2004, mind you, Mr. Leeb was talking about $100 / oil, when oil was $40 / barrel. I don't believe Mr. Leeb has THAT much effect on world oil supply and demand that he could have single-handedly started a bubble, so I am convinced that the world really WAS demanding 87 million barrels a day in summer of 2008, and can currently produce only 85. And world oil production will only decrease as we go forward, because the giant fields such as Cantarell in Mexico and Ghawar in Saudi Arabia are seeing production decline crashes of 10% per year or more. And there have been NO new giant oil fields discovered in 40 years, despite all our technology and exploration.

Certainly there has been some demand destruction these last few months, but if oil production continues to crash at 10 million barrels / day each year, then it won't take long for supply to again not meet demand, even with demand destruction, and $200 / barrel, here we come.

Also see, "Twilight in the Desert" by Matt Simmons.