My dad is without a doubt one of the smartest people that I know. This isn’t a fathers day tribute or anything i am simply stating what I belive is a fact! He has spent over 50 years as an investmetn analyst and his area of expertise is as a technical analyst for the stock market. He does an email newsletter for his clients and sends me copies all the time. Very honestly, a lot of the stock market stuff i don’t understand. Hey, I’m just a simple minded real estate agent.
But when I got this email from him “Solving the oil crisis” Iwas anxious to see his take on it.
Below is his email. I have just a few comments to add. I’ll put those afterward.
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“JAN 13, 2008 MORNING MARKET COMMENT DOW 12,131 UP 47.23
HOW TO SOLVE THE OIL CRISIS
I WILL JUST SPEND A SHORT TIME ON THE MARKET TODAY THEN GET INTO THE MAJOR THEME. YESTERDAY THE MARKET HAD THE RALLY I EXPECTED. IT WAS A SHORT COVERING RALLY THAT THE DOW WAS UP 185. IN THE FIRST HALF HOUR AS OIL WAS DOWN $4.00. LATE IN THE DAY OIL WAS UP $.36 AND THE MARKET RALLY HAD FADED TO ALMOST NOTHING WITH ABOUT EVEN BREADTH.
THE OIL CRISIS: I BELIEVE THIS CAN BE SOLVED WITH A FEW SIMPLE STEPS. NOW EVERY ONE IN THE USA IS PAYING FOR THIS PROBLEM. WE SEND MONEY TO THE MIDDLE EAST AND ACT STUPID. WE ARE A DEBTOR NATION THAT NOW WATCH AS THE OIL TYCOONS IN THE MIDDLE EAST BUY OUR COMPANIES AND LEND US MONEY. WE FILL OUR TANKS AND SEND THEM MORE MONEY. YET I SEE NO LINES FOR OIL AT THE GAS STATIONS. WHY IS OIL HIGH?
SPECULATION. MARGIN REQUIREMENTS ON OIL IN THE PITS IS NOW 5%. THE HEDGE FUNDS , PENSION FUNDS, AND OTHER SPECULATORS MOVE THEIR MONEY OUT OF THE STOCK MARKET WHERE MARGIN IS 50% AND MOVE IT INTO OIL WHERE IT IS 5%. THE STOCK MARKET GOES DOWN AND OIL GOES UP. THE BIG BROKERAGE FIRMS MAKE HIGH PROJECTIONS ON OIL PRICE AND THEY COME TRUE. THE SPECULATORS RULE. THEY DO NOT INTEND TO TAKE DELIVERY ON THE OIL THEY BUY, THEY JUST BUY TO MAKE MONEY. BUY $100,000,000 MILLION IN OIL CONTRACTS, IT GOES UP 5% AND NOW THEY HAVE $200,000,000. SPECULATORS HAVE TAKEN CONTROL.
I HAVE BEEN IN STUDYING THE MARKET FOR OVER 50 YEARS AND HAVE A GOOD MEMORY. MARGIN USED TO BE FLEXIBLE. WHEN THE STOCK MARKET PLUNGED MARGIN USED TO BE DROPPED. WHEN IT GOT OVER HEATED MARGIN WAS INCREASED. THE HELPED SMOOTH THE MARKET OUT. AND WOW. DID IT REACT WHEN MARGIN WAS CHANGED. DID IT REACT WHEN THERE WAS FEAR OF MARGIN CHANGE
NOW RAISE OIL MARGIN TO 50% I BELIEVE YOU WOULD SEE $70-80 OIL. THAT IS ALMOST IN HALF. JUST THE FEAR OF THIS HAPPENING WOULD MAKE OIL FALL AS THIS WILL WIPE OUT MANY SPECULATORS.
GIVE INCENTIVES TO DRILL FOR OIL IN THE USA. TAKE THE RESTRICTIONS OFF. DRILL OFF THE COAST, DRILL IN THE MOUNTAINS, DRILL IN ALASKA.. I LIVED IN FLA DURING KATRINA. NO OIL WAS SPILLED IN THE GULF FROM THE RIGS THERE. MANY OF MY FRIENDS LOVED TO FISH NEAR THESE RIGS AS THAT IS WHERE THE FISH WERE. THE CARIBOU WILL SLEEP NEAR THE PIPE LINES. THEY DO NOT CARE. IF THE POLITICIANS ARE WORRIED, MOVE THE CARIBOU.
OBAMA IS YELLING EXCESS PROFITS TAX. I HAVE SEEN THIS HAPPEN OVER THE YEARS. IN PLAIN TERMS IT IS STUPID. IT GIVES THE POLITICIANS PORK BARREL MONEY AND TAKES AWAY THE INCENTIVE TO DRILL. WILD IDEA….GIVE THE OIL COMPANIES MORE TAX BREAKS AND INCENTIVE TO DRILL. I REMEMBER THE 27.5% OIL DEPLETION ALLOWANCE IN THE 1950′S. THIS WAS THE LAW THAT GAVE THE OIL COMPANIES A TAX BREAK TO DRILL. TAKE AWAY INCENTIVE AND RAISE TAXES ON THEM AND THEY DRILL LESS, GIVE THEM TAX INCENTIVES AND THEY DRILL MORE WOW. IT WORKED. IS NAY ONE IN WASHINGTON BOLD ENOUGH TO SUGGEST AND EXPLAIN THIS?
FLEX FUEL CARS: IN BRAZIL OVER 80 PER CENT OF ALL NEW CARS ARE FLEX FUEL. GIVE THE CAR COMPANIES TAX INCENTIVE TO BUILD THESE IMMEDIATELY. IF I WAS MCCAIN OR OBAMA I WOULD DO NOTHING BUT PUSH THIS PROGRAM IMMEDIATELY SAYING “I AM THE MAN OF THE PEOPLE, LETS SOLVE THIS PROBLEM TOGETHER.” I BELIVE THIS CAN GET EITHER ELECTED PRESIDENT.
THIS IS THE NUMBER ONE PROBLEM ON AMERICAN’S MINDS. THIS IS A PROBLEM THAT A STRONG PRESIDENT ,A STRONG CANDIDATE AND CONGRESS CAN SOLVE.
JUST THE FEAR OF ADOPTING A PROGRAM LIKE THIS WILL DRIVE OIL DOWN AND I BELIEVE THE STOCK MARKET WOULD GO UP 1000 TO 2000 DOW POINTS.”
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So what does this mean? Here is my take from it. The people that are fueling the speculation on oil prices are the same people who fueled the specuation on mortgage backed securities and the dotcoms before that! These specualtors are driving up the prices!
The only other additional comment that I had is regarding Brazils energy independance. Their cars are fueled with ethanol produced from sugar. In the US the gov’t is subsidizing CORN to increase crop production. Production has increased and its all going into our gas tanks instead into the world food market. Corn is a very inefficient source for ethanal. It is NOT answer. Aroung the world there are countries having food riots over shortages. The policy to promote corn as an ethanol source needs to end. Corn is food … not fuel.
Write to your congressman and get them to intervene on the issues of 5% oil futures margins!
