Friday, June 6, 2008

The 2x4 of Reality

I guess the bulls have had to reconsider yesterdays these of the extremely bullish jobless claims, Verizon/Alltel, retail sales in light of the unemployment number we got today. It seems even now that unemployment number is now being overshadowed by the oil story as it has ignited for liftoff today.

Gotta give Bill Griffith credit today, he admitted on his Powerlunch show on pompom TV, that he had no idea crude had a $10 limit up. But you just gotta love Dennis Kneale, you truly have to hand it to someone who can stare logic in the face and still deny it. Fascinating exercise in human behavioral science, watching him today interview the cat from the commodity exchange.

The howls for increases in margin requirements(Dennis Kneale) on energy grow daily, funny how these calls where mysteriously absent when tech stocks did the moonshot or when investment banks like Lehman and Bear Stearns, to only mention a few, were leveraging 40:1. But not with energy as these new religion finders are the case like white on rice. Comical, their selective thinking.

Even I must say I am uncomfortable seeing oil move in this fashion but this is what can and does happen when the proverbial 2X4 of reality hits the object of denial squarely between the eyes. Peak oil is doing this to oil and slowly but surely it is being discovered by the masses, even mainstream media. Be it bullish or bearish side it creates fantastic moves. It happened in the gold and silver markets of the early 80's. It happened in the uranium markets of the 60's. The techs of early 2000 and now we are seeing it with oil. People deny, deny, deny the facts of a situation until it gets so far out of whack and then everyone realizes the folly and you get either the moonshot or crater drop. Which can take many years, even decades to recover.

I would counsel energy players to have their money management techniques in tip top shape going forward. Honor your stops and don't let hype, hysteria and news cloud or interfere with your plans. I am a diver with my Open Water certification and one of the first things we were taught in the course was plan your dive and dive your plan. The same should apply to your trading.

Here are some facts people like Dennis Kneale should consider but won't and even if they did it would not compute as its the speculators and someone, namely government should fix it. Aren't they supposed to fix everything?
  • Mexico via Cantarell production in decline but a more apt word would be free fall.
  • Russian production in decline.
  • Indonesia has experienced internal demand that they have gone from net exporter to importer and will be leaving OPEC.
  • Britain now a net importer of oil.
  • Increasing global demand in many cases via subsidized government intervention.
  • Saudia Arabia mysteriously cannot pump more oil.

I ask again where is the supply?

Where is the demand destruction?

The new supply is years and years away and is not nearly enough for today let alone what we will need when it finally arrives.

The demand destruction everyone has been calling for simply hasn't materialized. This has to be attributed to the gov't subsidies along with the simple fact that oil is something we just cannot do without.

Good speculating to you all.


Anonymous said...

It's funny...

Way back in 2004 and 2005 people were laughing at us, talking our housing bubbles and our long emergencies.

I still have no mea culpa from my friends and relatives. I guess I'll be waiting a long time.

Still, while it's easy to bask in the joy of being right and lay on the schaudenfreude, the reality is that peak oil just isn't going to be any fun at all.

Got physical?

Harleydog said...

yes, make sure you have physical, never know when you may need it.