The European nations have renewed buying their own debt in desperation to stave off collapse. While they will no doubt claim that the maneuver is net neutral on the currency and therefore doesn’t weaken them, I think they’re full of shit.
There are no free rides. Even if they aren’t technically printing euros to make this happen, they are definitely borrowing money. There aren’t many European countries running a budget deficit, remember?
And if they’re borrowing money from the sidelines to inject into their banking system, then they’re still creating inflation. That’s how fractional reserve banking works.
And if they’re weakening the euro, then they’re strengthening the dollar.
Throw in a recession which is beginning to grip the entire continent, weak American growth and trouble ahead for China, and you’d have to be a lunatic to go long oil here.
Yet some people are doing just that. They do this under the guise of “fundamentals” stating that “Peak Oil Theory” dictates that there’s a limited quantity of the stuff which will necessarily cause crude oil to go to $1,000 a barrel. These are bastard arguments which should not be treated seriously.
Remember that the “fundamentals” of limited space and population growth dictated that real estate would necessarily increase forever? The argument here isn’t much different.
You might as well add that solar energy will become boundlessly more valuable, because one day we’re going to blow our sun.
Those who perpetuate this nonsense; I am your destroyer. I will cut out your tongue and plant it in the low water mark, where the tide ebbs and flows twice in twenty four hours. I will carve out your heart and feed it to the carrion birds. I will burn your entrails in front of your very eyes.
Remember that price is all about localized need. Saying that in 150 years, we may begin to see our net production taper off (provided we don’t keep finding massive oil reserves, like we are) doesn’t really change the fact that we’re pumping out more than we need right now, in the moment. All resources are theoretically finite; it’s all about relative scale.
I suppose livestock feces are in limited supply as well, but you don’t see me stabbing orphans to secure fertilizer.
Now, we seem to be continuing to rally. This is good. When the buying is greatest and pseudo-intellects go long oil hard, I will up my short of UCO by another 25-50%. And I will short ERX alongside, in outright objection to fuel prices, which are even now too high.
And you, my dear oil bulls: I will see you in hell.
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Relatively new to your blog so if you’ve answered this before, apologies. The question I have is; why are you shorting UCO rather than going long SCO? In theory, by shorting UCO you could never make more than 100% on the position given that UCO cannot go <$0. A long position in SCO, on the other hand, could make you more than 100% on the position since, again theoretically, there is no limit to how high the price of SCO can go.
Actually there is a limit to how high SCO could go, because oil itself will only ever go so high. While SCO could in theory go up 1,000%, I just don’t think that it will.
The answer to your question has to do with decay. These products typically use derivatives to create artificial exposure. But it costs the funds money to maintain that exposure over time.
So by shorting the products, you have the wind at your back. Buying them means you have to deal with small losses in perpetuity.
so low*
CT – – have you read Dan Dicker’s (great name BTW) Oil’s Endless Bid. His thesis is the oil ETF’s have created financial demand for the commodity that has inflated prices the past 10 years.
No I have not. I need to pick up that one, and one that Po Pimp suggested a while ago.
Increased my short UCO position by 25%, for $28.92.
Raised my MGM short to a full position, $9.22 a share this round.
“I suppose livestock feces are in limited supply as well, but you don’t see me stabbing orphans to secure fertilizer.”
Well, no, we don’t *see* you stabbing orphans…
(provided we don’t keep finding massive oil reserves, like we are)
Where are thee massive reserves and would you care to take a guess as to what the price of oil needs to be to make them economically viable? Hint, it’s a lot higher than $40 per bbl.
I don’t believe in the full “Peak Oil” theory, but I certainly buy into the “Peak Cheap Oil” theory because I live it every day.
Well said Po. I do believe there is a massive “cheap money” premium in oil though because, lets face it, the economy is shit and the unemployed aren’t exactly queuing to buy oil.
True sucks to be Texas. I wonder what the Saudis will produce after oil? Glass factories, perhaps?
That’s Saudi Arabia’s problem, not mine. My job goes wherever the remaining oil is.
But I guess it will be all our problem when millions of disenfranchised nutjobs join up with their local al Qaeda club.
Fiddy a Bbl keeps the CFO happy…anything below that and then it’s time to lay off the physical description department…