Monday, April 21, 2008

Thoughts on Crude.

With crude pushing $117/bbl all I see and hear is talk of a bubble. When we truly had our most recent bubbles, tech and then credit/housing, none of the cheerleaders on CNBC saw it as such. but crude, now that has to be a bubble. The irony of it all is staggering.

While chewing on the price of crude, I recalled a comment maybe 12 to 18 months ago by the esteemed Barton Biggs when crude was about $55/bbl. I recall it being just around the Israel/Lebanon conflict time period. He felt there was a 20-25% fear premium in crude at the time. I wonder what his thoughts are now. I shutter to think what a serious geopolitical premium might do to crude. Considering all this, I dug up this interesting comparison put forward by Matt Simmons, the oil guru out of Houston and author of Twilight in the Desert, in a presentation he made earlier this month.

All prices are per barrel.

  • Lowfat Milk $159.18
  • Evian Spring Water $268.80
  • Budweiser $372.96
  • Carlo Rossi Blush Wine $237.30
  • Crude $117.00

So I will pose the question to all of you. Does oil look expensive to you or cheap ? How important is it to you. Just a thought.

Now in case you still want more EVIDENCE, try this on for size. Again I am lifting the numbers from Mr. Simmons presentation. All prices below are per gallon.

  • Vick's NyQuil $98.13
  • Right Guard deodorant $57.22
  • Pert Plus shampoo $35.93
  • Shout laundry spray $14.04
  • Budweiser beer $13.33
  • Coca-cola $8.00
  • Evian water $7.45

Now compare these numbers above to unleaded gasoline prices in your area. Now I will ask you again, do you think we are in a bubble in energy? No guessing, or hoping or praying like our friend Dennis Kneale on pom pom TV. The facts seem to spell a different story.

For those not aware Matt Simmons has been way out front on this issue of peak oil. His book is must reading for EVERYONE, investor or not. I cannot recommend it highly enough. What continues to floor me is the number of investment professionals who have not heard of it, let alone read it. Go figure.

I am of the opinion, though I cannot quantify this, that the market is bidding up the rails (UNP CSX, BNI, et al) due to their extensive track network. Maybe the market realises what are government is loathe to discuss, passenger rail and its viability going forward.

I also think it is the energy industry and it's constant need for repair and upgrade that is the major demand on steel, sad to say I missed that trade. AK Steel at $16 is not a nice memory for me!

National City dividend cut and capital raising. Outstanding stock increasing over 200%, gives new meaning to the world dilution. But don't worry, the credit crisis is over. Like I have said before comical if it were not so tragic.

Good Speculating to you all.

Open Positions:
Long 6 units Currencyshares Japanese Yen ticker FXY @ $88.55 stop at $91.40
Long 2 units US Gasoline Fund ticker UGA @ $51.25 stop at $51.74
Long 1 unit Allis-Chalmers ticker ALY @ $14.45 stop at $12.64
Long 1 unit Frontier Oil ticker FTO @ $27.90 stop at $24.64
Short 2 units Daimler AG ticker DAI @ $86.20 stops at $84.20/$82.20
Short 1 unit Darden ticker DRI @ $35.05 stop at $37.18

No comments: