Tuesday, September 2, 2008

Old Fools and Bold Fools, but no Old, Bold Fools

There is an old saying that describes commodity trading brilliantly:

"There are old fools, and then there are bold fools.  But there are no old, bold fools."  - unknown

That's because the old, bold fools are dead.

2 years ago, in August of 2006, we had the PERFECT set up in the crude oil markets.  PERFECTPERFECTPERFECTPERFECTPERFECT.... I still have wet dreams about it (at my age wet dreams are something you brag about).  Oil fell from $80 to just under $50, and the rest was history.

I don't know if we will get that kind of lucky again, relatively speaking.  Oil would have to fall to $80.  The world economy would have to contract rather disasterously, which could happen, but only if the world's Central Banks purposely destroyed the world economy by hiking interest rates ruinously.

Remember, there is this pesky organization called OPEC.  They can defend any price point they want to, and  I, being the common man that I am unblessed with OPEC ESP, have no idea what that point, or even if that point exists in their battle plan, is.  Or maybe, it will take 2 more years, and the consumption of another 60 billion barrels of the world's oil endowment, to rock the house.  

The economy only cares about the AVERAGE cost of the energy it needs to operate and produce. We, as traders, are only interested in 2 price points.  The price we paid to buy and received to sell.  Markets are discounting mechanisms, and they tend to over react. If there was no over reaction, how would we profit?

BTW... Oil is trading in somewhat significant Contango.  The reversal might come soon.

Stay tuned...

Mentatt (at) yahoo (d0t) com

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