Friday, December 3, 2010

Standing in Front of Freight Trains (and other stupid ideas)

Fighting a market is a lot like standing in front of a freight train.  I am far more sympathetic to dopes that say things like "if it goes there it will go there without me"... mostly because I have been dopey enough to have said that once or twice.

Insisting that the very volatile market's like Silver, Oil, Nat Gas... are all wrong... can lead to some painful losses and missed opportunities.  I say this because while a future correction might prove you right in the long run... markets can remain irrational FAR LONGER than you can remain solvent (or even alive).

I was speaking to one of my trader buddies in New York yesterday... I knew things were going wrong when he told me "this doesn't make sense"... sure it does... when a market is going against you in a powerful way, it is usually because the market feels or knows something that YOU are missing.  Calling tops (or bottoms, though bottoms are somewhat easier) in powerfully moving markets is a good way to find employment in another field (would you like some ketchup with those fries?).

The markets don't give a good %$&# what you or I think.

That said, Oil did not break today... the melt up is on, at least for another day.


westexas said...

The Oil Drum had an item about the Saudis raising oil prices, in response to higher demand. I thought it curious that they apparently didn't say much about increasing net exports. In any case, my comments:

bureaucrat said...

$89 a barrel! WWOOOOOHHHOOOO!!!!!

The thing with commodities, in which there is no immediate replacement, makes me wonder ..

If Milton Friedman said that inflation (increasing prices) was soley caused by an increase in money supply, and deflation is the reverse (as Mike Shedlock also re-affirms), then prices are solely a function of how many dollars (roo many or too few) are in the system at any given time, and NOT by shortages of this thing and that thing -- long term, anyway.

So, for things that are easily replaced (nylon for cotton, one metal for another metal, corn syrup for sugar, etc.) that may be true. But what happens when you have a commodity, like oil, and sometimes natural gas, that cannot be easily substituted? If there becomes an (oil) shortage, and prices do start to rise, what does that say about Friedman's theory?

Are rising prices caused solely by money supply, or by shortages of irreplaceable things, or both?

Dextred1 said...


would that also not lower the price of other goods, hence making no inflation. With no more dollars the price of other goods would by definition go down. I don't know if this is right, maybe. Does not matter though because we know that the fed is printing a whole hell of alot of money.