Posts Tagged 'oil'

Predictions for ’09 (and a review of my ’08 calls) …

In my most recent question column earlier this week, I asked for readers’ predictions for the upcoming year … aside from Genghis bravely predicting that Obama would become POTUS, I didn’t get too many responses.

So I’m going to ask for your predictions again, while repeating some of the predictions I made and adding a couple of more, before I revisit some calls I made this year.

First, the predictions for 2009. I’m sticking mostly to economics, with a few foolish forays into other areas (I was going to make a call that Prophet would finish his Top 10 2008 Albums list next February, but I see now he’s picked up the pace):

Economy

  • Unemployment, now at 6.7%, surges past 9 percent and falls just short of double digits
  • Gold now at about $845-$850, revisits all-time highs at $1000 an ounce, probably later in the year
  • Obama puts alternative energy initiatives on back burner at first, but then gets more involved as light crude oil, now at about $36 a barrel, rebounds first to $55-60 in short-term and then approaches $90 sometime next year. Gas prices again become a political issue.
  • ‘Class’ replaces ‘race’ and ‘immigration’ as the next big battleground in America. We see several examples like the factory sit-in we saw a couple of weeks ago. At least one of these protests turn violent and leads to a fatality. Unemployment benefits get extended again, and numerous other populist measures, including foreclosure relief, get passed by Washington.
  • The market has another down year, probably more than 10%, but stages a pretty decent rally early in the year, with the Dow hitting 10,000 again. IPOs remain few and far between, but Facebook does end up pulling off one of the few big new public stock offerings of the year next fall. The stock does well in the short-term, leading to another mini-rally.

Politics

  • The Obama inauguration attracts more than 3 million visitors, and the combined TV audience for his speech exceeds that for the Super Bowl, drawing more than 100 million viewers. There is at least one announced assassination attempt that is thwarted.
  • Biden was right after all and some terrorist organization or rogue state tests Obama’s resolve by the summer. We have the first attack on U.S. soil since 9/11 and it’s possibly a multi-city attempt that mimics the chaotic action in Mumbai. (Please god I hope I’m wrong on this one).

Sports

  • The Panthers meet either the Patriots or the Colts in the Super Bowl and win it all.
  • The Red Wings win the Cup. The Celtics repeat. (These are huge guesses).
  • The Yankees win the division, but flame out in the first round of the playoffs. Girardi is fired by the end of October. The Angels get to the World Series and play the Dodgers in an all-SoCal World Series. Angels win. My beloved Cards come in 3rd place in the NL Central division, which the Brewers win.

So should anyone listen to me? Probably not. My track record this year for predicting events was so-so. I was generally dead-on with economic trends, as I have been very negative for over a year now. On February 11, before I started blogging, I wrote an email to Jim Cramer, stating that we are heading into a ‘severe economic downturn that will last longer than most people are predicting,’ adding:

We are still in the early throes of this current crisis. We still haven’t seen any bankruptcies. Foreclosures and defaults have been at a minimum. The job market has only just begun to show signs of strain. The pain will of course spread to the rest of the world, which is wallowing in our debt and weak dollar, causing a global slowdown. Much more damage will be done, many more shoes will drop.

In a July post on pessimism, I predicted 50% odds for a multiyear recession, and 10% chance for a depression, fairly bold but probably not high enough odds for either. When the Lehman bankruptcy occurred on Sept. 14, I warned this wouldn’t be the end of the story and a systemic collapse was possible. When the Treasury first presented its bailout plan, I said there would be bumps along the way and that other industries would quickly be lining up for money, including the car manufacturers.

When it came to the financial markets, the record was much more mixed. I probably made my best call of the year on July 4, calling oil a bubble about to pop on the exact day it hit its high price for the year ($140+). Despite talk of new rules against speculation and for offshore drilling, I also correctly pointed out that the main reason for oil’s fall would be a rapidly weakening global economy. However, in that same piece, I said there’d likely be one more big run higher and that oil was not going to be heading to $50 anytime soon (It’s now in the $30s. Oops).

My calls for short-term bottoms and tops in the stock market were generally correct, but often early by a matter of days or even weeks, which makes a huge difference if you actually wanted to trade on the information (which I would NEVER recommend, as you have probably realized by now I like to talk out my ass a lot).

For instance, on Oct. 8, I called for a short-term bottom in the market, but it didn’t start happening until the next week. In a follow-up post on the 13th, I thought the rally could have some legs (somewhat true) with the Dow possibly hitting 11,000 (way untrue), but that we would revisit our earlier lows ‘in the next few months, if not sooner’ (true) and that we’d hover around the Dow 8K-9K for a year or more (to be determined).

I didn’t make many political calls, but wasn’t so impressive here either. In July, I predicted an Obama victory and said ageism would prove to have a bigger impact than racism (hard to judge the latter call, but I think it was a pretty good one).

On Sept. 3rd, I said McCain’s Palin could backfire but was the only thing he could to generate even a trace of the excitement of the Obama campaign.

On Sept. 24th, I called McCain’s announcement that he was postponing his campaign to focus on the economy as ‘just silly’ and ‘annoyingly hyperbolic.’

When the bailout was being debated and strongly questioned in Congress, I said it would surely pass; It was vetoed. To be fair, after the bill was vetoed, I did correctly predict a new bailout proposal ‘very similar’ to the rejected one would pass.

And in sports, the only prediction I made was a hopeful and ultimately correct one that St. Louis Rams Head Coach Scott Linehan would be fired after the bye week. Unfortunately, Linehan’s firing didn’t lead to ‘watchable football’ as I had hoped.

OK, now it’s YOUR turn. Go out on a limb. Make some calls. Trust me, if you’re right, you’ll look like a genius, a seer, a visionary. And if you’re wrong, no one will remember (at least not ’til I revisit these predictions next year)

Not enough bearishness …

I wrote earlier today how I was hopeful for a significant market rally in the short-term because there was too much bearishness.

I’m not so sure anymore.

This was a truly ugly day, the worst we’ve had since 9/11, and yet I see a lot of complacency. I know the number of bears in recent surveys has been very high, but I’ve been reading a bunch of stories on today’s action, and I see a lot of bottom-pickers or at least ‘What, me worry?’ guys out there – people who have been calling for the bottom for months and months now and feel this is an even better buying opportunity.

These people suck. We need them to go away, to admit they were wrong and didn’t realize how bad things had gotten, before we get a true bottom. We may just need to destroy those old lows of the summer before real panic sets in.

If we don’t get that panic, any rally we do get will be EXTREMELY short-term. The problems that we have created weren’t built in a day, a month, or even a year, and they won’t go away that easily either. Expect a sluggish, choppy market at best over the next couple of years.

BTW, can you believe the price of oil? $94?!? A couple of months ago, I made a call that oil was a bubble market nearing a top (I ended up posting the prediction on the very day the price of oil topped out, but that was just sheer luck). I said oil would hit double digits by the summer of ’09, and it turns out I was, oh, a wee bit early. I just hope politicians don’t take any credit for this – oil’s 35% fall is due to one reason and one reason only: A weak worldwide economy growing weaker by the day.

Bubbling Black Revisited …

Time for a short self-congratulatory post (For if I don’t do it, who will?).

Right before the Fourth of July, I wrote that the price of oil was a bubble waiting to be pricked and nearing a short-term top. In the past three weeks, the price of oil has fallen by about $20 bucks a barrel, or almost 15 percent, a huge move by any standard. In terms of daily closing prices, July 3rd ended up being the exact top.

I also correctly pointed out the main reason usually cited for the fall-off: Decreased demand due to a weakening economic picture, particularly in the U.S. and Europe. I also believe the fact U.S. government officials have been speaking out against an Israeli attack on Iran’s nuclear production facilities has helped. I do not think any of George W’s jawboning about offshore drilling, nor Congress’ subsequent investigations into oil market speculation, had any real impact.

However, I wouldn’t start planning to buy that new SUV just yet. I am a bit concerned that we didn’t get that last parabolic move in the price of oil that I thought we’d get. Bubbles don’t typically fizzle out; they tend to pop in dramatic fashion. So I still believe another big move higher, one that potentially busts through July’s high of $147, could be forthcoming.

In other words, this is one hot-button election issue that won’t be going away anytime soon.

Bubbling Black … Pop Goes the Diesel

OK, I know nothing about the oil market, but considering I distinctly remembering the then-CEO of Exxon-Mobil saying on CNBC that oil was way overpriced based on the fundamentals some 2-plus years and $100/barrel ago, I don’t see why my lack of knowledge on the subject should keep me from commenting.

Plus, being involved in the tech blowup earlier this decade, I do know something about market bubbles, and I believe we are getting close to at least a short-term top in the price of oil. Wall Street brokers are calling for oil prices reaching as high as $500/barrel in the coming months and years (reminiscent of a $1000 target price set by one analyst for the now-bankrupt CommerceOne Internet software company); speculators as well as regular Joes and Janes are pouring money into oil and gas investments (not a surprise given it’s the only thing on the Street that’s working); and perhaps most tellingly, CNBC just aired a one-hour special ‘America’s Oil Crisis’ replete with the necessary disturbing intro music and computer graphic (U.S. map drowning in oil).

Timing the exact end of a speculative blowoff move higher is always tricky, but darn it if the similarities between the oil price chart and the Nasdaq circa March 2000 don’t look rather compelling. The dot-com party lasted far longer than many people imagined, so there’s likely to be another run higher, and if so, it’s gonna be explosive, but the end is near.

What’s the news event that triggers the sell-off? Maybe it’s a new law that supports offshore drilling, or limits speculation. More likely, and more distressing, the fall could just come as high oil prices bring the world’s economies – and thus rising oil consumption – to a screeching halt.

Even if oil sells off, I do not think we’re going back to $50 a barrel anytime soon. I’m not sure I buy the ‘peak oil’ theory, but we are talking about a limited and much-needed resource, after all, not dot-com stock that can be issued until the funny dog handpuppets come home.

High oil prices will present problems for a lot of people and economies, but in the end, those prices will cause their own demise as good-old human ingenuity provides the technological means to sever our dependence on oil … giving the Earth a much-needed break and hopefully making it less likely American troops are sent into harm’s way to sate our energy addiction.

So, here’s my fearless prediction: We top out in oil sometime within the next month and we hit double-digit oil sometime by this time next year. Of course, if Israel attacks Iran, all bets are off ;-)

P.S. For another (mostly balanced, well-reasoned) take on why oil is as high is it is, read this article.

P.P.S. (Man, I gotta work on this ‘very short’ blog post thing!)


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