Remember Those $200 Oil Predictions? 16 comments
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Does anybody else besides me remember the people who were fearlessly predicting that oil would be topping $200 a barrel soon? If so, congratulations! You've just learned a valuable lesson about the utter futility of predicting the future.
Predictions about the price of crude were a particularly short-sighted version of the prognosticating fallacy called "If This Goes On." The If This Goes On fallacy goes wrong by just extending the present trend into the future without taking any moderating influences or complex variables into account.
This is the fallacy that takes rising hemlines on women's dresses and forecasts that hems will be up around people's navels in another year or two. It also shows up in simple projections of Americans' weight that take past gains and extend them into the future. If you saw the lumpy couch potatoes in the Pixar animated feature Wall-E, you know what I mean.
Predictions about the price of crude oil were almost self-liquidating, but no one talked about that possibility when the black stuff was topping $140 a barrel. The price of oil is a function of demand, but the $200-a-barrel people didn't think that really expensive oil (and gasoline and diesel fuel and home-heating oil) would put such a quick lid on demand. They also didn't think about how the inflationary effects of high energy prices (and the recessionary pressure that would result from the high interest rates necessary to keep inflation at bay) might dampen economic growth, thus leading to ... you guessed it ... lower demand.
Whenever I listen to economic advisors, scholars and predictors, I always remind myself of my favorite quotation from Peter Drucker, the legendary management consultant. He said: "Anyone who tells you that he understands the American economy ought to be sent to teach modern dance."
Forecasting complex events is impossible. Investing on the basis of anyone's forecast is dicey. You're an individual investor and the one advantage you have over institutional behemoths is your ability to jump in or out of a position quickly. If you give up your agility, your edge is gone, and you're at the mercy of the fearless predictors. I wouldn't do that if I were you.
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This article has 16 comments:
Does the author believe that China will stop growing?
Will India stop growing?
Will the US demand for oil level off and never again exceed its current demand?
Will US automobiles morph into a CNG-burning fleet within three years?
At best, one of those four questions might result in a "Yes" answer.
Therefore, over the next three years, it is hard to see current global oil and gas production keeping up with global demand unless the US significantly increases its domestic production. If the anti-production folks in the US Congress successfully stall efforts to increase domestic production of oil and gas for the next three years, it should surprise no one if the price of oil returns to $146 per barrel and then moves higher. Add in the threat that a conflict with Iran will choke off the Straits of Hormuz over the next three years and sadly, $200 per barrel is certainly attainable again.
The blame can be laid entirely on the Shoulders of the Housing Bubble.
Just like the current predicament can be laid entirely on the Treasury/Fed.
Paulson knew about the Leverage, the Fed ignored him. Had the Fed acted immediately to assume the measly $50 Billion in subprime and lowered the discount rate, none of the other cockroaches would have been allowed to escape the room.
Buy an ETF, buy a basket of shares within a sector, Sell an ETF, ditto. PEs don't matter; the Good, the Bad and the UGLY are all lumped together. Fund managers buy ETFs to avoid doing individual research, same with the various Index Funds, everything Overlaps.
Wonder why your low PE, terrific tech stock is getting hammered along with the also rans? This is why.
That's why I'm not interested in future guesses or told-you-so pissing matches. I shorted oil a few days after the popping of the bubble became obvious in July and I can't wait to exit that position. Sure, I might leave money on the table, but if you gamble till you lose, you eventually will.
What happens after the election depends on whether their current production levels have stressed any of their fields and whether they see it in their political as well as economic interests to have the oil price rise rather than fall.
This political factor may be part of the reason why Charles Maxwell believes oil has further to fall, but will eventually go up to $300.
The Saudis are exceptionally good at keeping secrets; guessing is aided by heeding what they do, not what they say.
If you think the Israeli's will wait, short oil. I think they will wait until more US warships are parked off the coast of Georgia and Nato has deployed troops into the Baltic States( plans currently under way for mobilization)