Looks like the market has a case of the Mondays today.My wife asked me what's been going on with oil in the last day or so.
I told her that China and India are using a little more than they used to but that at some point they will be using a lot more than they used and the market is pricing some of that in but then sometimes unwinds that conern.
Also because the price has been doing well it has drawn in speculators who are just chasing heat. Despite what congress and the people they find to testify say, the amount of speculative premium cannot be quantified.
Part of it too is that the global scene is much dicier this decade than it was for most of last decade and finally the price action was less interesting in the last decade as well.
I did not tell her that despite all of things and what you may see on TV and read on the interweb not every move in oil, or anything else, can be or needs to be explained. I did not think it was necessary to hit her with any Taleb at 7am.
This is the current environment we are in. Oil prices are high and volatile. They have generally been going higher with volatility for several years now. Whether the risk premium is $0.65 or $65.00 probably does not matter because whatever it is you are paying more at the pump and your oil stocks/funds have gone up. Ditto the speculative premium.
The places in the US that some people want to do digging for oil can't produce any oil for ten years (give or take). These places were ten years from producing anything back in the 1990s, are ten years from producing anything now and will be ten years from producing anything if we wait until 2018.
Getting cracking on this is far more important than hearing a fund manager who supposedly owns a bunch of airline stocks tell congress the index funds are to blame. How will you as a constituent of some congress person benefit by knowing exactly what or who is to blame? How will your neighbor benefit?
Neither of the presidential mouthpieces that were on the network this morning had anything useful to say about their candidates' energy policies so we've got that going for us.
Wow that was rant. Celtics win game 1, Sox in first place and still a rant.
13 comments:
Very topical post - I was just speaking with a colleague in Calgary who is in the seismic exploration business. Strangely enough, his business is dead right now. Evidently, investment in exploration is based on the forecasted future price of oil - the current price is largely irrelevant. The forecast is currently between $60 and $70.
Good morning Roger. I respectfully disagree with your comment of the price of Oil being related to any risk premium or speculator induced premium. Of course these premiums do exist as they do for any commodity or any market for that matter. But I beg you to please give up on perpetuating the myth that a sizable percentage of the oil price is because of these factors. IMO, it is supply and demand driven, period. I spend a lot of time(perhaps too much) studying and analyzing and massaging production and demand numbers and I urge you and your intelligent readers to pay attention the the current IEA audit of World Oil fields with the report becoming available this fall. I think we will limp along for a few more years with a lot of price volatility, probably some national and international demand destruction but It sure does look like we go over a cliff in 3 or 4 years from a cumulative production standpoint and the implications for our industrial economy are mind boggling. Looking at historical performance of our markets, yield, return numbers etc, asset allocation ideas and the like will become irrelevant IMO.
sizeable? where do I say sizeable? where do I quantify in any way? I specifically say not quantifiable. You are adding 1+1 and getting eleven WRT to my comment.
I dont know why oil prices and gas prices keep increasing I wish someone would explain that
By the way love your choice of photo for this post.. what a cool pic.
tom
http://www.coolpersonalchecks.com
possible caption for that photo...
"can you please get my insurance card out of the glove box?"
I'm a pretty rational guy and I thought I understood how markets work. After the last two up days for oil, I'm beginning to question that. Even worse, I'm getting really teed off and fearful of the implications for the economy at large (financial and housing being another matter.) That attitude is not going to make me a better investor but could certainly lead to some bad decisions if I'm not careful.
nothing great for you short term if you feel that way but longer term i have to believe that capitalism solves these things--I am an optimist however.
Roger, correct.. not too great for short-term but longer-term, problems can be solved. Unfortunately, longer-term can also mean a severe depression similiar to the 30's. (don't expect this, but is possible).
However, where we have taken capitalism today is many multi-millionaires but the middle-class not moving too much. Until we can get government and business leaders to be more concerned about helping everyone move-up, we will be in dire straits.
This downturn appears to be different to me (just a gut opinion). Every other downturn in the economy, I've always loaded up on stocks on sale. I think we may have blinders on here because the situation can very well get much worse. I don't have any suggestions for investing at this time, but my eyes are wide open.
Check out the quadrennial performance of the market synchronized with election years.
Nothing to see here. Keep moving folks.
The uncertainty and the volatility can be attributed to a combination of countertrend rallies exhausting themselves in the face of a steady diet of less than great economic news together with an "historic" election year. If we can elect the first black president, we are in the land of uncertainty... and the market concurs.
It may take some guts and patience, but until we meaningfully break the 200DMA, I'd say we're in a trading channel with a negative bias - sell the rips and buy the dips and keep your stops close.
(If financials are going to be terrific buys at this level, they'll still be great buys once we're out of this trading range. I prefer the accumulation of dry powder to bottom picking.)
All the best, and keep up the postings,
Rick
I stand corrected. $65 is a sizable premium. Somehow I did not see the 65 cents! I guess it was the tone of your blog that struck me. I in no way regard the parabolic oil pop as a black swan event.I study these markets and what is happening now became obvious to even an investment dummy like myself when I came back from overseas 3 years ago. I have little patience with CNBC Panglossians and clueless financial bloggers who waste time arranging deck chairs of asset allocation while I am peering into the fog clearly seeing that Taleb iceberg of Peak Oil and its its influence on world markets loom ever closer. I certainly do not think that capitalistic markets will be able to handle what is coming at them and my rant is to gallop through the village and tell the people that cheap energy made our markets and expensive energy will kill them. I certainly could be wrong in my timing but I think that this bear market could be a whopper and a very defensive strategy is the only prudent one at this point IMO.
The thrust of your post is right on target. That some want to quibble about a detail or two seems as though you have plenty of accountants or technical analysts spliting hairs.
Parsing ad nauseum on the real issues of an energy blend in this country - including oil, coal and nuclear, is all we can expect through November's election and beyond, until there is no one left to blame except the real culprits -politicians.
T
The question is, who is more capable of solving the energy problem. Obama or Mc Cain?? The other question is will the Democrats loose control of the house in the next election. They are more of a problem than any President could ever be!!!!!!!!!!!!
BWJR
Two reasons that the price has gone up in the last two days is that a Jewish leader recently said that they may have to attack Iran if they don't stop their nuclear program.
"Tough talk from Israel, where an official there said attacks on Iran's nuclear facilities looked 'unavoidable,' has ramped up geopolitical concerns."
http://tinyurl.com/4vqazb
And the ECB announced that they may raise rates to curb inflation the result of which crushed the Dollar.
http://tinyurl.com/52w7mx
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