icandoitdon

Your Oil Stocks Aren't Coming Back

last time i heard ole boone on the tube he said "ah no ohl wone go balow a hunerd dollahs" while talking up his wind farm. i wonder how ole boone's wind farm is doing with $35 oil, insolvent banks and moribund capital markets.

tv is full of wanna be prophets who think they know the future. most are regular guests on CNBC. having said that, if ole boone loved oil at $100, i've got to think it's pushing the limits of the bottom at $35. the risk of war premium alone is worth $10, meaning you're paying $25 for the product itself.

Oil Won't Stay Down for Long

no, everyone is not a little bit right.

sperculation drove the bubble in technology stocks, one of the biggest bubbles of modern times, and there was obviously never a supply/demand imbalance in technology stocks. neither was it elasticity of demand that drove this bubble.

housing is another, though less dramatic, example of speculation having an undue influence on prices. buyers ignored fundamentals that historically helped contain home prices, e.g. rent equalivancy, cost/income ratios, etc. the "ignition" for this shift may have been exogenous influences on the market, e.g. relaxation of credit requirements, government mandate of more broad ownership in housing, lower mortgage rates, more financing options (e.g. adjustable rate and negative amortization mortgages), etc., but it was all designed for the same purpose: to stimuilate investment in housing which, by definition, attracted speculative money.

the bottom line: a bubble is created by speculation, whether the trigger is misguided public policy or fear and greed. it has nothing to do with market fundamentals.

Oil Won't Stay Down for Long

production did increase...no more or less than required to meet demand. name one spot in the world during this period in which there were any significant and repeated shortages or crude oil or gasoline...just one. aside from the occasional hurricane-caused disruptions, you can't do it. lack of product had nothing to do with the explosion in oil prices.

nobody was hoarding the oil because production/consumption was not driving the price. it was the marginal financial buyer who was trading the product that drove the price. consumers had to pay it, given the inelastic nature of short term demand; and producers were glad to accept it, however disbelieving they were of its sustainabiility. the financial buyer never took delivery of the product because he didn't want or need it...he rolled over his contract, riding the price higher until the bubble burst, as did thousands of others. that's called speculation, my friend.

even the saudis dismissed the relentless rise in oil as financial driven speculation. but the true believers....the "we're running out of oil!!" crowd....wouldn't hear it.

what's laughable is they still don't.







On Dec 12 08:20 AM Andy1234 wrote:

> If oil was such a speculative bubble.....why didn't production increase
> over this mania?
>
> And where were these people hoarding the oil? it sure wasn't in inventory
> or the SPR.
>
> In order to kil 1% of demand.....price needs to rise 8-20% (depends
> on how high the price is to begin with).
>
> So things do go parabolic if a perceived shortage might exist in
> the near future.
>
> But at the same token.....once you start gaining back a supply cushion....things
> go just as fast in the opposite direction.
>
> It still comes back to supply and demand.......the downside is limited
> to the cost of production for new supplies.....and the upside is
> limited to the price that a certain amount of consumers can afford
> at the current rate of production.
>
>
> I don't know what the upside is on oil.....but the cost for most
> of the new oil coming online is between $40-80/barrel depending on
> where the oil is coming from (deep sea or oil sands). Given a 6%
> decline rate on conventional low cost oil fields....and a production
> of 74MBPD.....in 10 yrs thats roughly at 40MBPD........oil is going
> up long term.
>
> The icing on the cake is the printing press......more dollers = inflation.....we
> might even see hyperinflation in the future......that is if people
> go back to the normal spending habits.

Oil Won't Stay Down for Long

"It took nothing less than a Depression-like global financial crisis to humble the energy bull, not the deflation of a speculative mania."

what nonsense....

there is always a trigger to the bursting of a speculative bubble. i would also argue, as a bit of irony as well as poetic justice, that it was the parabolic rise in oil that helped burst speculative bubbles in real estate, emerging markets and credit markets. but i suppose you don't think there was speculation there either....

Boone Pickens' Holdings

boone "oil won't go below $100" pickens is a little long in the tooth for this game, just like kerk kerkorian, car ichan and yes....warren buffet.

questions for each of them:

boone: when are you going to fold your investment in air?
kirk: which is the better investment..casinos or automobiles?
carl: which stock would you recommend...motorola or yahoo?
warren: do you think maybe you jumped too soon on goldman and GE?