Blame the speculators (No, really)
Remember when speculators were getting blamed for high oil prices? Remember how I thought it was bogus? Now oil is down more than 50% from its summer highs. And this time, I think it's safe to say speculators have a hand in it.
It looks as if the last time I wrote about the greedy-speculator meme was July 7. Those were the days, huh? Those of us sympathetic to the Peak Oil crowd were beside ourselves: Yes, oil had likely run up too far too fast, but it was frustrating as hell to see "speculators" take the rap while long-term supply-and-demand issues got swept under the rug.
Now, a little over three months later, where do we stand? We stand somewhere, no one knows exactly where, in the process of a Great Deleveraging: "All the hedge-fund fast money that poured into commodities is pouring out now as the redemption orders pile up fast and furious," I wrote last week.
A story in today's Wall Street Journal fleshes out this theme:
Hedge funds, responsible for a large amount of the speculation in crude oil, have had to play defense in the credit crisis lately by unwinding trades that use a lot of borrowed money, such as oil futures bets. Hedge funds are also being hit by heavy redemptions as risk-averse investors cash out. This forces funds to sell at inopportune times, adding to the spiral…
Jeffrey Currie, Goldman's head of commodity research, said it was the credit crunch and its impact on the U.S. economy — more even than soaring prices this summer — that have so sharply eaten into demand. Gasoline purchases have fallen more so far this month than they did in July, when prices were at records.
"The credit issues have had a severe impact on economic activity and especially on the oil industry," he said. "If this was all just about pump prices, the cratering would have been much more severe in July than in October. But it's been the other way around."
And yet, all you hear from the pundit class — and indeed most of this WSJ article is shot through with the same garbage — is that the falling oil-price story is primarily one of falling demand. An "Americentric" perspective lures lazy thinkers into believing lower fuel consumption in the United States can be extrapolated worldwide. Not so: Second-quarter car sales were indeed down 7% in developed countries… but up 20% in Brazil, Russia, India, and China.
For now though, Outstanding Investments editor Byron King has updated his short- and medium-term oil forecast: A potential dip down into the $50s, and eventually up to $200… all in the next 36 months. His reasoning here.
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No reason to blame the speculators. Speculators are just the messenger in a capitalist system, but these silly arguments are irrelevant because an Obama victory and socialism are inevitable now. Buwah ha ha haha ha ha. What is it called” A fortuitous crisis? All this crisis and blame game playing is just a distraction to allow Obama a final victory. As always
I am
your favorite annoyance
Comment on October 17, 2008 @ 12:05 pm
To clarify. Leveraged speculators in a capitalist system only magnify volatility, but increase market efficiency by quickly amplifying market signals. Crisis are quicker to reach “crisis” with leveraged speculators, but these increased efficiencies if they don’t kill the market will pull it out of a crisis faster, so we have more volatility but quicker (and painful) resolution of crisis. But that is all irrelevant to the new world order that’s coming down from Obama
Comment on October 17, 2008 @ 12:09 pm
If the companies can’t borrow money from the banks, they can borrow money from their inventory (like oil, gasoline, diesel, LPG, etc) and then replace it when the credit crunch is over.
Of course, if everyone is running down their inventory, everyone is going to try and replace that inventory at the same time later this year…and we are going to be running into Just Isn’t There problems all at once, in every sector of the economy, just in time for Obama to do the loaves and fishes thing in January.
At least I hope Barack (means ‘the blessed’) Obama can pass miracles, because we are going to need one.
Comment on October 17, 2008 @ 3:06 pm
Come on Justabreatha, do you really believe that our Orwellian future can be avoided with a choice between two and just two candidates? Is there any candidate willing to let free market capitalism FLY! Painful economic cycles and all (Ron Paul respectfully excluded)? I would at least like to see a president capable of clearly expressing his resolutions. You can have your 70 year old over achieving father complex fratboy incapable even of remembering how many homes he owns.
Comment on October 17, 2008 @ 6:52 pm
Justabrother - can you spare a dime?
Comment on October 17, 2008 @ 8:04 pm
We need diversity and decentralization. To do that, the government if it has to help should help people at the base of the pyramid, not the middlemen or the hustlers at the top. A better thing would be a minimal, non-intrusive govt, which today is just a fantasy in the land of the free. But it is possible for atleast some of the people to get back to living the way the pioneers did.
Comment on October 17, 2008 @ 11:00 pm
Decreased demand. Yeah, right. On Bloomberg, every chance they get on days when oil is dropping in price (which is quite often recently), they continue to say “due to demand destruction” which is what they were saying when it was at $140 a barrel! Now they add that a “global recession” is also to blame. Don’t let the facts get in the way. Last I checked, the world still has no viable alternative to oil, gas and coal energy. And when they talk about rises in oil, gas and distillate inventories, they make it sound as if there is now a glut, never mentioning just how little, particularly measured in how many days, supply there is in reserve.
But then it IS an election year, so it should be of no huge surprise that oil prices are now falling off a cliff with the rest of commodities. Remember how corn was going up in price due to ethanol production, leading to riots in Mexico? When is the last time you heard that mentioned? Now would be the time to start cranking up the ethanol production while both corn and energy prices are hitting bottom, in order to stockpile it for a “greener” future. Oh, right, demand destruction.
Comment on October 18, 2008 @ 12:22 am
These Firefighters are Pyromaniacs!
Madrid, Spain
Friday, October 17, 2008
LET’S GIVE CREDIT WHERE IT IS DUE
“Asked what the problem was in the banking system Emilio Botin, head of Santander Bank, said it was simple: “In the fat years, people made mistakes…†People always make mistakes when the going is good. They pay for them when the going isn’t so good.
Keynes’ idea was more than 2,000 years old when he thought of it; it came right out of the Old Testament story of the 7 good years and the 7 bad ones. Pharaoh knew the people wouldn’t be smart enough to save any grain for themselves. They’d make a mistake – and eat it all. So he stocked up the grain in the fat years…then, released it to the people when the lean years came. Keynes said the government should do the same — run surpluses in the good years and deficits in the bad ones.”
I recall it was God who inspired Joseph about that coming finacial meltdown in Egypt not Pharaoh and it was God who orchestrated Joseph to be at the right place at the right time to help Pharaoh, Egypt and the budding Israelites nation, but your analysis was interesting.
Comment on October 19, 2008 @ 2:17 am
can you spare a dime
Comment on October 20, 2008 @ 6:38 am
Explain where you find Keynes’ideas represented in the Old Testament story.
Comment on October 20, 2008 @ 10:01 am