Originally posted by: BansheeX
Originally posted by: palehorse
I love watching LK light the paulbot-end-of-the-world-zealots on fire! It's always a great show...
Notice how the last three posts accuse me of only blaming the dollar even though I go into supply/demand and geopolitical issues afterwards and our inability to address those problems in the near-term. I'd say the "tunnel-vision" is entirely in the RP mock-and-balk camp. At the other side of every long trade is a short. If people were taking delivery on this oil and keeping it in their backyard, that would be an overproduction glut bubble like housing. Nothing is pretend here. It's all being consumed at these prices. Not accumulated, consumed. So explain how this is mostly speculative? Good luck with that one.
I'll also add that inflation has a serious lag effect and can take a long time to spread out when wealth in dollars is as concentrated as it is. Notice how oil went up hundreds of percent, but gas itself hasn't yet. We WILL see $8 a gallon in the coming years.
So, in followup...
1. The "dollar problem" is only about 5% of the actual contribution to the raise in oil prices.
2. If geopolitical or supply/demand were the issue, then why the 100% runup in a year, despite flat/declining demand. This is in the face of *INCREASING* Opec production, Saudi going up 800k barrels, Brazil finding a huge field, increased activity off of Cuba, and increased activity in Alberta and the Bakken. Oil demand and production shortfall has been about the same over the last 7 years, yet oil has increased over 600%.
Did the "efficient" market suddenly wake up from a collective stupidity to realize oil should be 6x as much? Yeah, that's it!
3. You claim that for every long there is a short. Great, that's true. However, when a short can offset with a long and that short can do the same, you get a tangled web of contracts.
You see, this problem is far more complex than housing, in that yes, you don't have to take physical delivery in order to increase the price, you just have to take more contracts. Consider that the number of contracts outstanding equate to about a *DECADE* of production. Do you think the market can ignorantly not price in the fact that a whole decade of production is already taken and accounted for?
What's also interesting is the fact that this is probably one of the biggest cases of pump and dump we've ever seen. The fact that banks can lay on trillions of dollars worth of contracts, contribute only 5% "equity", while only 5% of that 5% is truly equity Tier I capital. Effectively you are 400x leveraged.
What happens when, say, one of these people who are so heavily "invested" were to release a statement saying that oil will hit a price $20 more than the current? What happens when that analyst happens to work for a bank with a few tens of billions of "notional" of outstanding futures. Isn't that an interesting little tidbit from the .bomb era?
What happens when that new price target is met? Do you layer on new trades? Of course, because you can always claim higher price targets!
Interestingly enough, the banks are in trouble, but many are having their asses saved by commodities trading.
This is a brilliant scheme, in that you never have to take delivery, are 400x leveraged, have a commodity that is highly sought after, and a captive market. Ohh, and by the way, you can trade an unlimited amount, there's no regulation on how much you can handle, you don't even have to report it to your banking regulator, and nobody can track how much you have or what you're doing with it.
Nah, doesn't sound like a bubble to me at all!
That doesn't even touch the fact that capital has flown from the debt markets, en masse, and "index funds" created from these futures are plethoric at this point. What happens when TRILLIONS of dollars goes from one market to another? The new market valuations explode!
Isn't it a bit suspicous that all of this happened at the *EXACT* same time that regulations were removed overseeing futures *AND* when the debt markets blew up, eliminating a more lucrative investment? No, not suspicious in the slightest!
Your problem is that you look at such a pathetically small picture and you think that by reading one aspect you're getting the whole thing. As with Ron Paul's ideas, you're woefully unprepared to think of the big picture.
What's funny is that when this thing blows up and the banks beg for mercy from the Fed, you're going to be screwing "ZOMG, NO FAIR!", yet, with a little bit of brains, you could have prevented the whole thing.
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