Posted on 04/21/2008 11:39:30 AM PDT by tatown
I’ve long been a bear on oil and energy as an investment thesis — Simply put, the end product of all energy is totally commoditized and every player in the business is totally beholden to the vagaries of the market to set the price of that end product.
Intel gets to choose how much to price their processors for. And they’ve kept gross margins far above 50, 60% regardless of the cycles playing out in the broader economy. I like to invest in businesses that have lots of defend-able proprietary technologies and/or strategies in their business model. Google’s another great example of that kind of a business.
But oil? The same cycle we’re playing out right now in 2008 is part of the exact same 150 year old cycle that has been playing out since people figured out that fossil oils give a great bang of energy in a relatively small package (gasoline vs cottonwood, for example…both burn very easily, but only one burns clean and hot enough to say, run a Cadillac). Peak oil? Yeah, I heard that same silly concept back in the last oil bubble that I lived through in Ruidoso, NM, a very-oil-dependent tourist economy near Texas. All those idiot Texans who spent like oil would stay at $35 a barrel and higher forever, ended up totally broke and ruined when oil, as it ALWAYS does, reversed its intermediate-term trend and headed back to $10. They were broke for a couple decades after that. And oil was still at $10 a barrel just ten short years ago. Yeah, 1998.
Oil’s up 1100% percent since bottoming in 1998. If you think it’ll be up another 1100% in the next ten years, then by all means, stick with your energy trade. But if you think the last 150 years of oil cycles — and the historical boom/bust cycles of all commodities — are actually meaningful because it’s not actually any “different this time”, then you gotta be looking for some top indicators. My gut’s telling me we’re in blow off top mode right now and that oil will see an $80 handle before a $140 handle, but I never trade off my “gut” and neither should anybody else.
Better top indicators are the endless money managers constantly being trot out in front of viewers, listeners, and readers of the mainstream media, all of whom are now certified oil cycle and technology experts, and KNOW FOR SURE that peak oil’s FOR REAL! As our competing TV station put it today, “There Will Be Higher Oil Prices”. That was across the lower third of their screen for an entire interview with some dude who says that there’s $30-40 of speculative premium in oil but that $140, $150 are the next stop anyway. He even said outloud after explaining his logic of higher prices, “It doesn’t make sense for prices to go higher…but they will!”
That’s call complacency. And it’s sorta rare to get that clean an example of it. Okay, not that rare, because the mainstream media always glorifies trends at the top.
Here’s another top indicator, if true.
Material girl Madge is reportedly getting paid around $25 million — roughly $15 million for a 90 minute concert and another $10 million for a millionaire’s private party, both in Dubai. According to Gordon Smart of The Sun (UK).
Coincidentally, I’m actually good friends with her booking agent and have a call into him about this. Let you know if true…
Recall that last year Steve Schwartzman put the top on the Private Equity bubble (”No, really, leveraging up hundreds of billions of dollars for struggling retailers in a very tired year five of an economic boom is a GREAT INVESTMENT STRATEGY…uh, oops”) when he paid some dad (Rod Stewart) of that famous celebrity from VH1 a bunch of money to play at his birthday.
As an aside, take a look at the line up at that Private Equity Topper!
…After all, the titans who partied control more than $3 trillion a day. They included Lloyd Blankfein, head of Goldman Sachs; Jimmy Cayne, the chief of Bear Stearns; Merrill Lynch boss Stan O’Neal; JPMorgan Chase head Jamie Dimon; and investment-banking chief Jimmy Lee.
One last parting thought on that roster note — these guys told you the mortgage bubble didn’t exist and that even if it did, they wouldn’t be hurt by it. How many of those guys even have their jobs just a year of so later. You really wanna listen to the guys in OPEC and at Chevron for oil investment advice???
Oil at $95...SOON!
ping for our earlier discussion
Yup, those housing prices....bubble, what bubble?
The surest sign of a top is when the “experts” explain “why it is different this time.”
Madonna has done more to corrupt the young girls in this country than probably any other performer in history. Even more than Spears. She’s nothing but a disgusting human being, not worthy of spit on the sidewalk.
95? Even more impressive from 117.47 which is where the NYMEX index has bounced up to in the last few minutes.
That has been a common thread for every bubble in history.
How about a windfall profits tax on Madonna? Ha ha just kidding.
Well, if we had a NORMAL april, I would already be bicycle commuting...
I happen to agree. Madge of all people corrupted our youth. Actually I think I’m more angry that she’s pulled the wool over everyone. Madge for crying out loud. You’re soaking in it.
He calls the top in real estate. Thanks for the look back. Did he sell his house just prior to that, and now he's renting? I could respect that - otherwise, he's just venting.
Trader take positions. That's what they do. He called a top in oil, right in the title. So is this guy long oil, or did he just get short? Is he flat, waiting to see. That doesn't impress me.
Did he get long oil at $10/barrel a decade ago, or is he just looking back at the historical charts? I'd like to see more of his track record, that's all.
Perhaps she will get her “karma” when she is Dubai.
Wow. Pretty harsh on Madge. What has she done to get you to that opinion? Just wondering.
Natural Gas at $10.706 just now....I’m thinking we’ll see natgas at $8.00 or less in a month or two. Course a Katrina/Rita in the Gulf could change that real quick,
What do you base you $8.00 nat gas forecast on?
That white trash woman made it fashionable and cool for young girls to want to dress and act like whores. I find absolutely no redeeming social value whatsoever for that woman. Including her trashy music.
Just think how cold it would be without global warming....(I’ve said that to a couple of people...I think it parted hair as it went right over them)
That's a little ambitious for me...but I see a sprint to $100, then $95 shortly after.
Why, because she blows?
Disclaimer: Opinions posted on Free Republic are those of the individual posters and do not necessarily represent the opinion of Free Republic or its management. All materials posted herein are protected by copyright law and the exemption for fair use of copyrighted works.