We all know the story of the Emperor’s New Clothes.
It’s the one where a con man convinces the foolish king that he has the finest suit in all the land when there is nothing there at all. Today was a day for exposing several scams. One we spoke about yesterday was Michael Masters’ testimony to the Senate on the great commodity scam. Also yesterday Friedman Billings Ramsey (NYSE:FBR) moved into my camp and stripped First Solar (NASDAQ:FSLR) down to a sell rating, sending that stock tumbling 7% today, passing our $285 target (so we covered). Another naked scam that came to fruition today was the artificial shortage created in this week’s oil inventory report, which I said would happen way back on April 18th, when the crooks at the NYMEX canceled all but 22M barrels that were scheduled for May Delivery, over 20M barrels below Cushing’s normal capacity.
Not only that, but the "experts" estimated we would have an inventory build this week, when clearly a massive shortage had been created. This led to a "disappointing" crude inventory report today and gave the NYMEX pump crew a chance to test $135 this evening.
These jokers were supported by the usual array of talking heads on CNBC, who are now known as the oil apologists network (as every anchor they have just spews industry talking points to anyone who might suggest this particular emperor is less than fully dressed). The new scam they have going is that they now have a series of guests whose talking point is that "oil prices are up because the world consumes 87M barrels of oil a day and produces only 85M barrels." This 2M barrel a day shortfall does indeed sound shocking until you realize that what’s really shocking is that it’s repeated on CNBC two or three times a day and not once does a "newsperson" point out that both OPEC and the Oil Companies (who are testifying under oath today) say this is patently untrue. Also, wouldn’t common sense suggest that if we were short 730M barrels a year that someone might have noticed it? This isn’t just a lie, it’s a massive fabrication aimed at inciting panic of a very profitable nature for energy traders and guests like the recently proclaimed "greenie," T Boone Pickens.
And how green is our T Boone? Not very, it seems. Bespoke Investment Group ran a list of Mr. Clean’s holdings and it turns out he’s actually up to his eyeballs in crude. That’s right, while Mr. T was on TV telling you he was short on oil he actually increase his holdings considerably and then spent a great deal of time "talking his book" and working with GS to drive oil up to their $140 short-term target. Here’s where T Boone is making his money:
Now I don’t have an issue with T Boone the investor - this is a brilliant portfolio and he’s done well for his clients - but for CNBC to give this man almost unlimited airtime and to present him as and "independent expert" on the energy markets is criminal! What happened to journalistic integrity? Also, name the energy bear on CNBC. Come on - surely there must be one - just a token player to give a contrary opinion against the nearly 24-hour pump-fest that makes up a typical day on the network. Are we in Russia? Is this Pravda? What the hell has happened to this country where this kind of crap is passed off as news?
And CNBC and their guests have such total disdain for us viewers that they think they can make up a HUGE lie like 2M barrels of oil PER DAY is being consumed over and above what is being produced, as if we are too stupid to calculate that that would work out to 730M barrels a year or a world-wide shortage of 14M barrels a week, yet this is the utter nonsense they need you to swallow in order to have you accept the fact that oil can be $130 a barrel for any reason other than manipulation and speculation.
Obviously, Mr. Pickens is a speculator, yet somehow the regulations that used to have guests on TV disclose their positions to you before they give their opinions have been thrown out the window and they don’t even bother to pretend to vet their guests anymore - just another example of how the government, through the simple act of lax enforcement, can allow the system to be perverted by market manipulators.
The really sick thing is that we are cast in the role of the people in this version of "The Emperor’s New Clothes." King Oil parades out into the crowd wearing nothing but a very expensive smile while all the court jesters on CNBC ooh and ah at the magnificence of the demand cycle, even though there are no fundamentals there at all! I will continue to play the role of the small boy in the crowd who points and laughs and says "But there’s nothing really there," as I did with housing two years ago, but until you start pointing with me, until the voices of reality drown out the sycophants in the mainstream media. the people of our kingdom will continue to be taxed to pay for the kings’ imaginary outfit, until we expose him for the naked fool that he is.
David Fry is joining the cause (thanks DB!) and points a fed-up finger at this atrocity; Michael Masters did a great job enlightening Congress on Tuesday; and the London Telegraph points out that not only does OPEC have a current production surplus of 2M barrels a day but that surplus will rise to 3.5M barels a day BY NEXT YEAR. Also, non-OPEC production is rising fast with a 1.5Mb gain in non-OPEC production coming down the pike next year. Of course there’s always the Iraqi wildcard as that country is still producing over 1Mbd less than they did before Bush decided to go on a WMD hunt over there.
Iraq, by the way, is no longer included as OPEC or non-OPEC production, a very clever way to hide 2.4Mbd of production by the energy apologists. Again, you can’t have a fake shortage without hiding a lot of facts!
Lehman’s latest report - Is it a Bubble? - says commodity index funds have exploded from $70bn (£36bn) to $235bn since early 2006. This includes $90bn of fresh money. Energy takes the lion’s share. Every $100m flow of investment money into oil lifts crude prices by 1.6pc, it said. "We see many of the ingredients for a classic asset bubble," said Edward Morse, Lehman’s oil expert.
We are hoping what we are seeing is a blow-off top to oil, but bubbles can go on far longer than you expect, even when everyone knows it’s a bubble as investor dollars have a peculiar momentum that is hard to stop. Institutional investors count on this, in fact as the general public is only just now getting into the oil speculating game. Just as your neighbor bought his first "spec house" for $1M and got stuck with it, that same neighbor is now jumping on the next sure thing and buying barrels of oil for the cheap, cheap price of $135 a barrel.
It would be nice if Congress would step in now, before another $1Tn in US household wealth is wiped out, but that would leave GS and T Boone holding the bag instead of all those widows and orphans you’ve been hearing about who are investing in energy futures through mutual funds and IRAs, driving that $90Bn of "fresh money" that Lehman is noting into the market. "Fresh money" is the term you use for the guy who comes in late to the poker game after you’ve wiped out the first round of suckers - very nice…