No surprises from Matt: "Oil was cheap and going much higher..."
After Matt was the Vice-Chairman of Merrill Lynch saying "Peak Oil is here or near." That got my attention. Merrill has an ARMY of brokers/salesmen, and over 1 $TRILLION of client assets under management. This is a firm that can truly move markets. It is one thing when a small firm gets behind something, but with Goldman Sachs and Merril Lynch getting behind "Peak Oil"... things are going to happen much faster in the markets - UP and DOWN.
On another note...
For the past several years China, India, and other Asian nations have been able to export their cheap labor to the U.S. With oil well over a $100 per barrel, that is coming to an end. When oil breaks the $200 per barrel barrier and remains there, there will be little opportunity to arbitrage China/U.S. labor because of the cost of shipping. This will be of necessity on another front. The U.S. trade deficit for oil will be so great that there will be no room for trade deficits for other goods and services.
Give that some thought before you go head long into some investment in China. This is not to say that the Yuan could not appreciate greatly, it certainly could, but there is much to consider here before I would be willing to extend myself here.
Meanwhile, back at the ranch...
Oil has given up all of its gains since Goldman's call for an average price of $141 for the second half. Oil will be much higher in 2 years, but establishing positions here will likely be frustrating (at least it is for me; I bought a little long dated yesterday after the inventory report and immediately got killed). Have a plan, and keep this in mind:
Would you rather be long U.S. $'s, or indispensable commodities?
Good Luck!
Mentatt (at) yahoo (d0t) com
8 comments:
In regards to chinese goods still shipping here, I've read and am convinced it should continue to be economical. Remember, you can squeeze alot of dollar store crap in a huge ocean going vessel which is very efficient in it's use of fuel. So more likely it will boil down to any requirement to balance the trade deficit (or go bankrupt as a nation) and whether we protect our local businesses with tariffs. I guess you could add concerns about trucking (fuel costs) and the interstate system (costly maintenance). But I guess it could be argued the rail system could be reborn (Warren Buffet is investing in it) to carry all those dollar store goodies. RobG
Rob, Thank you for your comments.
Irrespective of the efficiency of Ocean Going vessels... the multiplier effect of higher and higher energy prices on moving raw materials and unfinished goods, providing manufacturing services, and shipping them has significant costs. Much the goods then still needs to be trucked to the end user.
This model, especially for heavy goods, like Chinese made steel and other equipment is in a tough competitive spot. The Chinese are not just manufacturing Dollar store crap.
Of course the rails will be big again. I would expect warehouse property on railheads to pay off in spades.
Re: Warren Buffet. Smart guy, but he was not long oil at $10 (neither was I). He is by no means infallible. He does have the capacity and the status to be in things for a long time. The importance of Staying power can't be understated.
Many a smart academic understood the oil problem, but never laid a nickel down as a bet.
Yes I am getting killed in commodities options. So far this year I am up only 416%. This blows. I think that's 1000% annualized. I better get out before I get into real trouble. Or perhaps not :-)
Just wanted to share this bit of joy. I knew about PO for two years now. I started in the options markets last year and only made 130% in 11 months. It sounds good but it was in spite of a huge number of mistakes that any newbie makes in the first year of trading. Crude saved my tush with one big trade making up for all the bad ones. Now I am a bit smarter. I bet on crude and gold and silver and so far doing good. Corn's also been good to me but getting killed on wheat. Expecting a very active gold and silver move in the next couple of months. Oil may or may not take off also. All depends on the hurricane season in the summer but in the fall expecting prices to head up regardless. Considering heating oil as a possible trade. Please advise your opinion. Also in the next post you were talking about a thinnest market. What is a thinnest market? That hint was not good enough for thick people such as myself.
Best regards,
Chuck H.
I meant "the thinest market" Some markets are very liquid and have a great deal of deliverable supple, some don't have a great cushion of deliverable supply, and that was my hint. These markets can be VERY volatile. I LOVE volatility, as long as I am on the right side of the trade...
email me directly chuck, and I will share my thinking with you. Just remember, my thinking might not be profitable!
One of the features of globalisation is balancing of the terms of trade. Energy prices are international (i.e. we all pay pretty much the same) but wages differ hugely. Over time they have to equalise, either by wages rising in China (but they have a 1 billion-long queue of willing cheap labour), or real wages falling hugely in the West. The 'political' way for this to happen is dollar (and Pound, and Euro) devaluation, which will slowly undermine the Chinese expansion overseas. But they already have a 300-million-people middle class; a market as big as the USA or Europe!
Regarding oil, have you seen this analysis? http://www.paulchefurka.ca/Oil%20Price%20Projections.html
Oil at $900 a barrel anyone?
Hi Don,
Good to her from you.
I read it. I would not be buying $500 options in 2012.
But that's just me. For oil to get there, the $ would have collapsed as the reserve currency. Maybe, but no likely by then. Now 2015...
Yeah, but two years ago if I'd said you'd be buying options at $140...........?
Don:
That may be true, and I thin Oil heads much higher. But $500 per barrel options are out of my universe at the moment. That does not mean that I am right, and I reserve the right to change my mind and claim I meant to all along - just like the rest of the schmucks on TV...
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