Okay, here's the commentary.
1. The long-term trend is not robust. Note the low correlation. That implies anything can happen. In spite of near record low real yields, I'm still leaning deflationary. That would mean that I think down is possible. I do.
2. If we do stick to the long-term exponential trend, then oil will exceed inflation by roughly 3.77% per year. Ouch.
3. If we do stick to the trend, then oil is currently expensive. It's roughly 33% higher than it should be.
4. If we do stick to the trend, then who exactly is going to be able to afford oil long-term? A billion low-paid Chinese? 15 million unemployed Americans? A few highly overcompensated CEOs? Who exactly am I supposed to be betting on again? Call me crazy, but I kind of need to know the particulars.
Special thanks to GYSC at Economic Disconnect for providing the funniest video I have seen in a long time!
Source Data:
EIA: WTI - Cushing, Oklahoma
St. Louis Fed: CPI-U
Here's a bonus thought. I'm not a fan of technical analysis but some certainly are.
ReplyDeleteIf $80 oil holds, then look at that chart again and compare it to this technical analysis commentary.
Head And Shoulders Pattern
1. Rises to a peak and subsequently declines.
2. Then, the price rises above the former peak and again declines.
3. And finally, rises again, but not to the second peak, and declines once more.
The first and third peaks are shoulders, and the second peak forms the head.
The "head-and-shoulders" pattern is believed to be one of the most reliable trend-reversal patterns.
Oil rose to an $80 inflation adjusted price and then declined. Let's call that the left shoulder.
Oil then rose to a $135 inflation adjusted price and then declined again. Let's call that the head.
Oil now sits at a roughly $80 inflation adjusted price. If it declines again then we can probably call that the right shoulder. Right?
Once again, I'm not much of a believer in technical analysis. It doesn't matter what I believe though. If enough people believe something then they can easily create a self-fulfilling prophecy.
I just believe that oil is expensive right now. I have little desire to hoard oil at these prices. That's all.
"the low correlation ... implies anything can happen"
ReplyDelete.
As does high correlation...
-jus me
jus me,
ReplyDeleteIndeed! Low correlation just means that the rear view mirror we're using to drive the car is especially foggy. Even if it was crystal clear it still only shows us where we've been.
Stag,
ReplyDelete3. If we do stick to the trend, then oil is currently expensive. It's roughly 33% higher than it should be.
Here's some fuel for thought (bmm). On an energy equivalence basis, oil is overpriced by hundreds of percent when compared to natural gas.
A speculator would likely go long natural gas and short oil, but if deflation is indeed upon us, it's quite possible that going short both is the best play. Of course I won't be going short or long either - I have no interest in competing with stupidity, leverage & fraud.
One more thought, Bernanke is a criminal, the enabler and sponsor of Wall Street's looting.
I find it impossible to believe that any astute person could study the Great Depression and then choose to ignore wealth inequality, asset bubbles and fraudulent/ponzi credit. Yet that is exactly what Bernanke has done.
mab,
ReplyDeleteOf course I won't be going short or long either - I have no interest in competing with stupidity, leverage & fraud.
No joke. I would even add that "no interest" is helping create stupidity, leverage & fraud. Again.
I find it impossible to believe that any astute person could study the Great Depression and then choose to ignore wealth inequality, asset bubbles and fraudulent/ponzi credit. Yet that is exactly what Bernanke has done.
Ben "There is No Housing Bubble to Go Bust" Bernanke's Flow of Funds reports simply need new sections.
I could offer an anecdotal flow of my funds. Some of it sat in a Washington Mutual checking account earning unholy interest (4% on a checking account?) right up until the point I no longer wished to take the risk.
Although it never exceeded the $100k FDIC limit, I was and am a big believer in the "if one must panic, panic first" theory. My funds flowed quickly to my primary bank.
I think it was about the time we were first being told that the subprime problems were contained.
For those with knowledge far grander than mine, Chris Whalen highlights an Alan Boyce piece today that shows the gamble the FED was/is making with their MBS program baloney:
ReplyDeletehttp://tinyurl.com/y3c36eo
I'll stick to funny videos!