Dwight Watt - Watt Thoughts #161 5/7/2008

#161 - Oil prices and Balloon (Watt Thoughts)

I have always heard that Joseph Kennedy knew when to get out of stock market when shoe shine boy gave him a tip in 1929. In the late 90s it was clear to many of us that a massive balloon had happened with Internet (.com) stocks when everyone was buying any Internet stock and bidding way up whether company had ever made money or any prospect of it. And that included many people who had no idea what the Internet was then or how it worked but it was the economy of the future. We watched the housing market reach similar extremes with the sub-prime market a couple years ago where large numbers of people were either borrowing all the equity of increased value of house or buying huge new houses on teaser rates figuring the house would keep growing in value as fast and when the real rates kicked in, they would borrow again on higher value. We watched in 1929 the stock bubble burst as Kennedy saw. Eigh t years ago over the past few months we watched the .com bust and NASDAQ fall from 5000 to 800 in basically the year 2000. We watched in the last year or to the bust of the housing and sub-prime bubbles.

I have been thinking for over a year now that the oil prices were going off on a similar bubble and I kept thinking it would break soon as it appears to be a lot of speculation again and not real shortages, although that will occur one day but now we seem to moving to more productivity for same amount an din US cutting back in use of oil and a number of discoveries recently that will impact us in 5-10 years when hopefully we have move more to alternatives.

We have been hearing for a year now that if demand went down prices would also, and usually directed at US market. Reports for last couple of months is US demand is down. Yet prices keep rising at wholesale. We hear that this or that military strike or leader threatening or hurricane or threat has caused rise, but never goes back down when strike never occurs or military action ceases or never occurred or hurricane fizzles or wanders off. We have been hearing it is because the value of dollar is down, but yet dollar has dropped lots less percentage-wise than oil has risen and in the last few weeks the dollar is up against other currencies but oil has continued to climb. (When you hear the dollar is the worst compared to the Euro ever now that Bush is president, keep in mind that the Euro has only existed as an accounting currency since 1999 and was not printed or minted until 2002. Guess what president the dollar has been worth th most and the least ever to the Euro. If you had any of the answer as anyone other than Bush, go back and read recent history again and see who has been the only USA president since 2002. Hint: Initials are GWB)

Today (Tuesday 5/6/2008) the analysts explained why the price of oil climbed almost $2 over $120 per barrel. The reason was because one group of analysts said the price would probably be $150 to 200 in a year or two. The investors then jumped in buying oil today wanting to buy it since they think it is a guaranteed return of profit as it will keep rising. It is not going to be a pin that pops the balloon but it has been blown so big that just a tiny bit more air and it will go boom. Greenspan warned of Irrational Exuberance in the late 90s about Internet stocks and oil investors appear to be on the same irrational exuberance. Unfortunately it was about two years and several more thousand NASDAQ points before the dot.com bust after Greenspan's comments, but I think we will see this bust probably before Clinton/Obama/McCain or one of the third parties is president.

Just a warning.



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