“Markets 101”

How many times in the past 2 years have you read some publication say that the bottom for housing is 6 months away? Who writes this stuff anyway, and why? How do they stay employed when they are so $%^#!! wrong? They keep writing this drek because their masters want them to, need them to, help bring parties to the other side of the trade.

How many times have you seen articles in the financial press telling that oil “could” go to $100. Lots. And how many articles have you seen saying oil prices are unsustainable and could go as low as $60, but $50 is not out of the question? Plenty. Now with oil at $96, and the financial press implying that the top is $100 and the bottom is $50, do you think that there is a single market participant with more than 2 working neurons who believes the press? Would you put up $96, risking $46 of downside to make $4? Do you think these guys have rocks in their head?

Forget for a moment that oil futures expire and cease to exist and that the oil is consumed and will never be traded or produced again… let us just focus on the market for crude oil. A commodity market needs sellers as well as buyers; it is a zero sum game. For every winner, there is an equal and opposite loser. Every dollar of profit that you pocket in a commodity trade would have wound up in the pocket of the contra party to the trade had the contra party not entered into the trade. Pretty simple, really.

Here is my point. The markets are constantly being manipulated by the financial press. Positively or negatively is up for debate, but not the fact itself. After all, if there were no press whatsoever, would the markets be the same? Nope. It follows then that there must be SOME agenda of the journalist, editor, publisher, etc… What might that be? Maybe they really do feel you have a right to be informed, maybe they just want to sell advertising and will shamelessly publish sensationalized BS for that purpose, maybe, just maybe, they have been influenced by the public relations firms that represent their largest advertisers. And maybe, just maybe, these parties have interests that are in direct contravention to your own. Maybe these parties want to influence the market (maybe? Give me a break), as in create sellers who are influenced by the $46 of downside risk for $4 of upside potential insinuated by the nonsense that passes for journalism in the financial press.

Folks, maybe I am wrong, and oil prices will reach $50 before they reach $150, but the market is pretty much equally split on these potential outcomes, hence prices are nearly $100 per barrel. Since the press is not so equally split, and so clearly to my mind is pitching the “oil prices have come too far and will fall soon” idea so hard, many of the “weak hands” have sold and my bet is the buyers will overwhelm what sellers that are left.

Market tops are formed when market participants are “sure” prices are going higher and collectively throw their last dollars at the commodity, equity, housing market, etc… Correct me if I am wrong, but there appears to be sufficient worry, as measured by tone of the financial press, that prices will collapse.

Now this is just market psychology in a normally functioning market. Through in some spot shortages of heating fuel this winter or gasoline next summer and I will be writing about what market panics look like.


Yours for a better world,

Mentatt (at) yahoo (d0t) com