Rational Advisor

If ever there was a financial instrument that seemed to be taunting the markets, the crude-oil is it.

- The Alberta provincial government has estimated that its oil sands contain some 173 billion barrels of economically recoverable crude nased on 2006 prices. This is roughly equivalent to Saudia Arabia’s known reserves. This means Supply UP

- From Evergreen Capital Management, There is a pervasive belief tat oil demand has grown exponentially over the last few years. Yet in reality, it grew 1.7 percent in 2005, 0.7% in 2006, and 1.8% in 2007. Further, China’s allegedly unquenchable thirst for oil is belied by hard data that shows its usage growth declining from 900,000 barrels per day in 2004 to 300,000 per day in 2007. This means demand DOWN

Previously, I thought oil would correct hard, but it’s ascent has led me to believe that the drop could be much more severe. What goes up fast, comes down fast as well.

Last month there was a very important Senatorial testimony given by Money Manager Michael Masters on the reasons for th eincrease in oil prices. Much of the literature that followed pooh pooh’d his comments. Saying that it’s a new era… things are different now (where have I heard that before). We heard from many commodity specialists say that Michale Masters didn’t know what he was tlaking about.

One thing I noticed about th erebuttals was how they glossed over his main point about these mega institutions ETFs and index funds getting around the long-standing restrictions about how much commodity can be owned by a single institution. Just like Mortage brokers got around the rules of debt management and loaded up people with sub-primne crap - because they knew how to get around the rules.

Remember every bubble in history had a good story.

- 1989 - House prices are increasing becasue they’re not making any more land.
- 1991 - Japan, has the best management techniques
- 1997 - The Asian Tigers, can manufacture cheaper and more efficently
- 2000 - The internet and Technology is a new way to do business, like airplanes and cars

The recent markets remind me of that phenomenal athlete Big Brown. The horse that had such an illustrous track record, and was predicted to win the triple crown of horse racing the Belmont Stakes. People were betting like crazy that just because Big Brown had won so many races before, he woudl do it again. After all, he had pedigree, he had money behind him etc

Where did he end up

DEAD LAST!

http://www.guardian.co.uk/sport/2008/jun/09/horseracing1

So much for picking the Favorite. Are you doing the same. Are you chasing something because it looks great, has done well recently.

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