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It's the speculators!!! (yup, oil again)

Discussion in 'Sports and News' started by The Big Ragu, Jul 3, 2008.

  1. The Big Ragu

    The Big Ragu Moderator Staff Member


    $146 a barrel and climbing... The cost of a barrel of Brent crude up $4 since the beginning of the week.

    In the mean time, we officially entered a bear market yesterday. The Dow Jones is down 21 percent since last October. June was the 37th worst month for the stock market in 80 years. The FTSE (London) passed the 20 percent bear market threshold already. Anyone who has their money sitting mindlessly in equities right now is insane.

    If you have clicked any of these threads the last year and a half, you know what I was saying about the economy as a whole, the stagflation an oil shock was going to bring and what was going to happen to the price of oil (based on supply and demand, not the "speculator" nonsense I kept responding to on here).

    Last of these threads, I believe I said $150 a barrel soon (when we were in the 130s) and $200 within 15 months (probably much sooner). This is happening quickly. There is just not enough of the stuff, reserves are falling, and the price is going to keep rising. These world politicians bitching about it are powerless to do anything about it, and in fact, many countries with the highest demand are making things worse by stockpiling and subsidizing it (which boosts demand and makes the worldwide price rise even more).

    I have never done this on here, but I'll flat out make the recommendation (but won't take responsibility for whatever happens to anyone's money). I won't recommend people on here try playing with commodities if it is something they don't understand, but if you have ANY money to invest, buy just a little of the U.S. Oil Fund. It's an exchange-traded fund that mirrors the price of West Texas crude and trades under the stock symbol USO. It trades like a stock, so you can buy it through your discount brokerage account, if you have one. It's the easiest way to play the commodity. It has an expense ratio of .5 percent, which is annoying, but it's worth it. As long as the price of oil rises -- and it is going to -- the price of USO will rise in lock step. The fund is up about 100 percent in the last year, and 10 to 15 percent in the last month. There are no guarantees, but I'd bet my farm (and pretty much have) that this is not done yet. The price of oil is not even close to where it is ultimately going. If I am right, as the economy goes into reverse and worldwide equities are going to be in the crapper for a while, you can actually make some money *gasp* -- just WATCH it and put in a good-till-canceled limit sell order (maybe around $110 or $112 a share if USO is your weapon of choice) so you get out if the price starts to drop quickly. I don't want anyone losing a ton of money on my stupid advice. But if you do it, and you make the money I am positive you are going to make over the next year, while everyone else is suffering and watching their savings dissappear (and everyone with their money parked in an S&P 500 mutual fund is going to be bitching on threads on here for the next 2 to 3 years; get ready for that trend), please just buy me a drink, OK?
  2. poindexter

    poindexter Well-Known Member

    I am in - and I should have done it long ago.

    If people are interested, I recommended a some ETF shorts - these are stocks that trade at 2x the inverse of their index.

    DXD - trades 2x inverse of the dow. If the dow goes down 10%, DXD goes up 20%
    SKF - 2x the inverse of a marketbasket of financial stocks. At this point, this stock alone may be fueling my retirement fund
    SRS - same thing, only for real estate

    These are VERY volatile - a LOT of risk.

  3. The Big Ragu

    The Big Ragu Moderator Staff Member

    The ETF shorts are smart, but riskier to me. Shorting financials, in particular, could mean bucket loads of money, but a lot of bad news has already been built into those stocks, so the worst may be over and they may just stay in a depressed range now. For example, the shit is hitting the fan with UBS right now and the time to be shorting was two months ago, not today, probably.

    The other thing I'd caution is that bear market or not, equities might not drop in a straight line. I think it's more of a solid bet that the price of oil is going to just steadily rise. No zig zag. No big pullbacks--just small moves down. None of the problems you can get with equities when bargain hunters start swooping in.

    With the commodity, it's simply supply and demand, plus if Israel just decides to bomb an Iranian nuclear reactor next week, you get the added bonus of world turmoil and even less supply.

    Hmmmm. I can see my new book on the shelf: "Ragu's Guide to Profiting From Doom and Gloom."
  4. Baron Scicluna

    Baron Scicluna Well-Known Member

    Outing: Ragu is Dick Cheney :)
  5. The Big Ragu

    The Big Ragu Moderator Staff Member

    He's much more sensitive and kindly.
  6. EStreetJoe

    EStreetJoe Well-Known Member

    I predict that by the end of this year, or early next year, that the oil bubble will burst - just like the tech stock bubble and housing market bubble before it.
  7. The Big Ragu

    The Big Ragu Moderator Staff Member

    The price of oil will not rise forever. Nothing does. But what we're seeing right now is not a bubble. Bubbles are not based on anything fundamental. Tech stocks collapsed because of a frenzy to buy a bunch of companies that had little or no earnings. The housing problem was predicated on loans to people without the assets to make good on the loans.

    Oil is much more tangible and has less potential to be overpriced. The price is where it is because of how much of the commodity there is relative to how much the world is demanding. That is based on current circumstances, and circumstances do change. But this is not a bubble. The spot market for oil is not the fiction of stocks with no earnings or loans made to people without collateral. It's as simple as the fact that worldwide people want oil for their energy needs and based on how much is available, the price is finding it's equilibrium. Demand is way outpacing supply. That is very tangible, not not a bubble.

    I am not sure on what basis for your prediction is, given the paltry worldwide economic growth we are staring in the face along with the early indications of spiraling inflation we are seeing. But if you're convinced I am wrong, the thing to do is the opposite of what I suggested. Start selling futures or if you can't trade commodities, short USO, the exchange traded fund I mentioned.

    I'd think anyone doing that is insane, because oil is going to hit at least $200 a barrel by the end of next year, if not much sooner.

    But if I am wrong, at least you can come back here early next year and say, "I told you so." :)
  8. slappy4428

    slappy4428 Active Member

    If you haven't had to hock you computer to pay for gas...
  9. Batman

    Batman Well-Known Member

    So what you're saying is, if we take your advice and make a ton of money we might be able to afford a tank of gas come January?
    Sign me up.
  10. The Big Ragu

    The Big Ragu Moderator Staff Member

    Well... yeah. We all need gas. We all are getting hit at the pump as the price rises. A way to offset that is by profiting from the rise in price of the commodity. If you're getting hit hard by inflation, it's smart behavior to find a way to make money in an investment that outpaces the inflation.
  11. jgmacg

    jgmacg Guest

    My short term oil-investment strategy includes the immediate purchase of the most liquid and volatile version of that commodity. Later today, I will remonetize part of the family portfolio by moving us out of our unprofitable longterm holdings in hard US currency. These holdings - backed by bonds held by the Chinese and as of today worth far less on the global exchange than they were several short years ago - will be traded instead for a 23-gallon position in the retail gasoline market. We plan to pinpoint the 87-octane (with a 10% ethanol additive component) sector in that market.

    By late this evening, I will have painstakingly converted that short-term investment into nearly 6 hours of northward highway travel. For 48 hours thereafter, my investment partner and I will stand pat, watching fireworks, while we wait for the global commodities market to readjust.

    Then, Sunday morning, we will eliminate the very last of our sluggish cash holdings to take another 6-hour position in the retail market. Thus, by Sunday night, returning home from our holiday weekend, we will have gone long in the market for a rough total of 46 gallons, at the rate of approximately $4.30 per gallon (unless we stop in Jersey), for a ballpark expenditure of $200.

    Our rate of return on that investment - to be measured using the comparative index of Costco hotdogs, gray market M-80s, and slices of summer melon - will be discussed on Monday.
  12. The Big Ragu

    The Big Ragu Moderator Staff Member

    Mock me to your heart's content, jg. I still have a huge man crush on you, despite your hot dog breath.
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