Economic recovery governor reactivating


If you have ben reading right along you already know what this post is about. The people who set the price of crude oil based on their imagination are at it again.

With Just the hint the second half of 2009 may be doing better the oil price forecasters have pushed the price of oil to $50.00 per barrel again. $50.00 per barrel is the point that economies start to strain. If you looked at this like a tachometer, $50.00 per barrel would be the start of the yellow line, and $100.00 per barrel most certainly would be the red line.

What we are saying is all that money President Obama cut loose to stimulate the economy will soon be in some oil tycoon’s bank account if these people who price oil do so as recklessly as they have been doing. It most certainly seems like the pros have retired and the ones that are still green are making the calls.

Seeing that the second half of 2009 is still far away, and many things can happen between now and then, this extreme long term outlook is not only foolish, it is dangerous. The time it takes oil to be pumped until it is ready for consumer usage is about 6 weeks. So looking any further ahead than that is simply not called for. It takes about 1 minute for the person who decides how much oil to pump to change the flow. What that simply says is looking 7 or 8 weeks in advance should be more than enough. This 20 and 30 week forecast is not only damaging, it is totally absurd and very reckless in such a fragile economy.

In the effort to allow the economy to recover, some very serious looks have to be made at the people who set the price of oil today based on the outcome of the 2018 World Series. All the money and effort being put into the recovery can quickly be sent to waste by these few people, and then we end up right back where we started. That is why going green is so urgent. We have already waited far too long based on the position of former President George Bush. What we are doing now should have been started 7 or 8 years ago. If we did this economic crisis may never had started or at the very least not been as severe.

This is very clear manipulation of the laws of economics. To look so far into the future to find some factor that may increase the price of oil can be called criminal.

One Response to Economic recovery governor reactivating

  1. Actually, what I would suggest is that these are the people that are truly “Connecting the Dots”.

    In order to be successful at connecting the dots, you must really understand fundamentals and long-term trends. Over the history of the markets, whether oil, stocks, or real estate, speculation runs rampant. This speculation often results in prices being overly optimistic or overly pessimistic, which I am assuming you are reaching at here – you are afraid that prices will violently shift out of control on the upside again.

    However, I would also ascertain, that is the beauty of the free markets. Anyone in the world can participate if they take the time to do their homework and “Connect the Dots”. Typically, your homework must result in you predicting the future 6 months or more in advance.

    Perfect example was in the late 90’s when oil was selling for around $13/barrell I started putting more and more of our money as a percentage of assets into oil. Why? Because fundamentally, oil had to be at a minimum of $20 a barrell for companies to break-even. Based on inflation and historical prices during the time, you could easily assume with current demand and supplies, oil should have been in the $35-$40 range. As oil hit $100 a barrell, I began liquidating all of my holdings because there was no fundamental support for those prices. Instead, it was all momentum and speculation – things I try to stay away from. I will admit it is sometimes emotionally difficult to stay away because momentum, greed, and hype among other things make it very difficult to go against the grain. Oil continued to soar to nearly $150/barrell. Would I have liked to have an additional 50% run-up? Of course I would, but as I said, I try to keep my emotions in check as best as possible and make a rational decision based on fundamentals.

    So, let’s take ourselves to today’s environment. Oil dipped all the way to nearly $30/barrell. With inflation in the past decade, although, low, this price was also unreasonable, however, on the low side. So, I am one of those people that have pushed the price of oil back to $50 as I have been pushing more and more cash to that area in the past 6 months. Oil can and probably should trade between $50-$80 per barrell in a normal economy based on inflation rates, current supply, and a normal economic demand. Will this put some pressure on the economy? Absolutely, but it is also reality.

    This doesn’t mean I won’t try to look for green alternatives for investment as they become reasonable and long-term investment options. However, in the current environment many of the green (wind, solar, etc) investment options are actually richly priced based on fundamentals due to the extreme demand and hype around alternative sources of energy. Currently, the best play seems to be land that can used to install wind turbines for wind energy, but like anything else this is also speculative and requires knowledge of your area of investment.

    Some of the run-up in oil is pure speculation as the economy is very fragile and could quickly turn back around on the downside again. However, this speculation is based on extremely educated individuals that understand the power of the markets and the trends that will take place. As the economy picks up steam, you will see more momentum going into these plays.

    I guess, in summary, I would say:
    1: It is smart and behooves your best interest to look 6 months or more out.
    2: This doesn’t have to be a small group of individuals that participate in the run-up of oil. Anyone in the world can participate if they do their homework. It’s as simple as opening an account with as little as a couple of thousand dollars.