Moonlight and Vodka (Musical Tribute)

Here's a disturbing UK statistic to ponder. It doesn't imply prosperity is alive and well.

Alcohol admissions to hospital up 7% in a year

The number of hospital admissions linked to alcohol has risen 7 per cent in one year and more than doubled in 12 years, figures showed today.

1995/1996: 93,459
2005/2006: 193,637
2006/2007: 207,788

From 1995/1996 to 2005/2006 the rate of increase averages 7.5% per year. From 2005/2006 to 2006/2007 it has increased 7.3%. Statistically speaking, this is just like clockwork.

The extrapolator in me using a modest 7% annual increase predicts that in 100 more years there will be 180 million alcohol related admissions. That's pretty impressive for a country that will have 80 million people at most in 100 years (61 million growing at 0.276% per year). You know what they say on Wall Street though. The trend is your friend.

I think this same sort of math can be applied to the price of oil. At some point exponential trends simply become unsustainable, no matter how impressive the fundamentals appear.

They're wrong about oil, by George

Now consider the situation today in oil markets: the Gulf, according to Mr Rothman, is crammed with supertankers chartered by oil-producing governments to hold the inventories of oil they are pumping but cannot sell. That physical oil is in excess supply at today's prices does not mean that producers are somehow cheating by storing their oil in tankers or keeping it in the ground. All it suggests is that there are few buyers for physical oil cargoes at today's prices, but there are plenty of buyers for pieces of paper linked to the price of oil next month and next year. This situation is exactly analogous to the bubble in credit markets a year ago, where nobody wanted to buy sub-prime mortgage bonds, but there was plenty of demand for “financial derivatives” that allowed investors to bet on the future value of these bonds.

This is why I cannot invest in oil at these prices. I have no way to verify the claims by the bulls or the bears. In any event, there can be no argument that the best time to invest in oil was when it was just 8% of its current price (i.e., ~$11 a barrel heading into the dotcom bust in 1998).