Commodity Bubble Proponent

Options Trader: Monday Outlook

saifl...those numbers don't include any of the de-regulated exchanges like the ICE and Dubai. Using the CFTC report to gauge speculation is like using the Fed's core inflation number that strips out food and energy to measure inflation.

Options Trader: Monday Outlook

A few interesting points:

-China's runaway demand: I don't see how a country (who even with subsidies has prices at $2.80/gal) where " upper middle class" is defined as $1,000/month can afford to spend that kind of coin on gasoline to exponentially grow the automobile market (that works out to about 10% of pre-tax income on gasoline at those prices for the rich chinamen, compared with 4-5% for the poor American shlub). The Chinese miracle is about to be completely undone by their manipulation because they are in a lose-lose scenario with their currency for two reasons:

1. If they keep the yuan artificially low, they will have inflation rates that exceed the nominal GDP growth (which they already have at 10% inflation and 9% growth). This creates major instability in the poorer regions as workers demand higher wages to compensate, thereby decreasing profitability of outsourcing.

2. If they let the yuan appreciate, then they become too expensive to be used as exporters. Since the Chinese do not have the education system (they have NO top universities by most measures) and protection of IP to transform to a high tech society, they lose their major employment base. High unemployment leads to the unwinding of the Chinese miracle.


Historically, during commodity booms, the bulls underestimate the supply response from producers. This time is not different in that there is a MASSIVE resource base in a diverse area to accomodate supply growth (Brazil, Ghana, India's Rajasthan field, China's Bohai Bay, Mexico's Chicanotepec, US's GOM & Bakken, Canada's Artic zone, Eastern Russia, Lukoil's 4 billion barrel discovery in the Caspian, new recent finds in the North Sea from the UK and Norway, Saudi Arabia's recent discovery this year adjacent to Ghawar as indicated in Aramco's annual report, supermajor fields in Iran and Iraq that are known but not yet tapped). I know I'm missing a few more. Even Goldman Sachs super-spike guys do not subscribe to the peak oil theory per the Barron's article.

We have not dealt with the real drivers of this market and until we do nothing will change:

1. Fed's cheap money policy
2. Reckless speculation: It's not surprising that as soon as the CFTC even started to look into the ICE, Goldman & co. threatened to move to Dubai. That could be shot down real fast with a few simple measures like huge fines ($100,000,000 per day per violation) for any company doing business in the US that trades on unregulated trading platforms. The game would be over real fast if that happened.