Believe me, I hear your points, and they are good. There is no reason that crude oil should be running higher here. In fact, the markets should be spiraling into a vortex.
The PMI numbers out of Spain alone reveal an economy that is steadily disappearing off the face of the Earth. They were in the thirties; that’s approaching “global blight” readings. The rest of Europe can’t be doing much better; this is what austerity does…what higher costs do. And that’s just one half of the Western World. The pinnacle of the Eastern World – China – is getting dragged into a singularity kicking and screaming the whole way.
People seem concerned with the Iranian escalation and the Straight of Hormuz getting blocked off. That’s sort of a moot point if the oil is just sitting in port when it gets to Europe though. I mean, you can only argue that global crude oil supplies are at record lows for so long, when we’re seeing inventory builds of 3-5 million barrels at a time.
Now, altogether, we in the 9th floor are all quite aware that crude oil is just waiting to collapse again. And this time, it will be worse when it does; whereas before the price ran into the high seventies, I have every reason to believe that next time the price will push way below that – into the sixties or even fifties – as the now booming inventory supplies will be liquidated by financial speculators when the demand issues demand predominance.
But know that between then and now, there is no reason why crude oil can’t push above $110 a barrel, along with the rest of the market. The market is scared; they do not want to get caught at the bottom of 2009 again. So they will take the global monetary forces at face value, and put a bid under this market that can last for weeks or even months.
That is why I am so long, and if opportunity presents itself, I may get longer. Just as people discounted the economy and sent stocks and commodities lower this year – before the economic data came out to support it – they are now discounting some sort of recovery taking place in Europe and a controlled descent in China. They will need to see that they are wrong before they reverse course, and mindset might not materialize until the spring, or maybe even next summer.
If you don’t have the stomach for playing both sides of the ball, I fully understand. Keep a healthy cash position and wait it out. But know that betting against the markets here is folly.
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Cain, from the 9th floor, have you made room in your book for ERY?
No, not yet.
Cain,
It looks to me like the dollar is on day 4 of a daily cycle that goes 18 to 28 days trough to trough. So to get to its peak would take somewhere between 5 to 10 days unless the Fed. intervenes. Therefore, imho we need to wait approximately 5 to 10 days before going long on either commodities, precious metals or equities. Of course, should this come to pass, folks who don’t count cycles will call it a Santa rally.