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.

Black Gold or Yellow Gold?

smartmoney:

thanks for clarifying your comments. i don't fault anyone for making money in any legal way they can, including through speculation. i do it every day myself. i agree that our lack of leadership has put us in the most dire economic circumstances faced in my lifetime and i ain't no kid. i agree that we're between a rock and a hard place and that the traditional formulas...e.g. pushing interest rates lower...will not solve our structural problems. we're a nation of wussies and in many ways we have the leadership we deserve. i don't agree that violence will solve our economic problems either, but i understand the temptation to use it at times. good luck trading!

fitzman:

you taught me something about my own comment. it's ironic indeed that our 51st and 52nd states are serial enemies.

save the republic:

revolution indeed. i think a general strike might accomplish a lot. consumers have a lot of power if it could be channeled.....

Black Gold or Yellow Gold?

smart money:

you're part of the "i don't give a damn what's best for the country as long as i get what i want, and everybody is a dumb ass but me" crowd.

can't say i know many people like that....can't say i want to.

Black Gold or Yellow Gold?

what a great post. the author is spot on with respect to every comment, including the disastrous effect of u.s. foreign policy in the mideast, including israel and iraq. israel cares about israel and only israel, yet we fund it treat it like our 51st state...with 2008 direct foreign aid set at $2.4 billion, or about 20% of its defense budget. the dollars are insignificant by u.s. standards...but the jewish vote is not and there are lots of buyers in both major parties. we've paid a major price for the lopsided nature of our mideast foreign policy.

with respect to iraq, we are now spending over $100 billion annually on the war. that tab is about $3,600 per iraqi, which is more than triple iraq's 2007 per capita income. the entire budget of the country is about $48 billion for 2008. what do i conclude from this?

iraq is our 52nd state.

the part of the author's post i take issue with is that of the effect of speculation on oil prices. it should be severely curtailed, and here is why:

futures markets are a comparatively new innovation, particularly for oil trading. they were designed for the purpose of allowing producers and users a vehicle to hedge their production and/or consumption activities. these markets were never intended to function as a proxy for currency, currency hedges or a hedge against the actions or inactions of incompetent governments like our own. to the extent that financial speculators are permitted to distort the equilibrium price by distorting supply/demand fundamentals through en mass buying and rolling over long positions, never taking delivery of the end product, it has the potential to threaten the national security of any non-producing nation. that hank paulson, our own treasury secretary, denys that speculation is a material factor in today's oil prices is the position of an idiot. underlying demand for the raw product has not resulted in a quadrupling of the price in 4 years and a double in one year. supply and demand is just one of many factors at work here....all others under the umbrella of "speculative activity."

adding fuel t the speulative fire is the unintended consequences of absurdly low short term interest rates, rendering the opportunity cost of commodities speculation nearly negligible. that, along with 14:1 leverage for oil traders, lowers the bar for virtually anyone who wishes to try their hand at speculation...whether a hedge fund or an armchair trader.

i don't believe in banning futures trading in oil or anything else. i do believe in recognizing that speculators have usurped the domain intended for legitimate hedging activities of producers and users. raise the margin requirement from its current 7% or so to 50%. then let traders speculate all they wish, if they can afford it.