JustPass Wrote: ------------------------------------------------------- > Consider this. . . the S&P 500 Energy sector would > need to double up a few times to match the > performance of the S&P 500 Tech sector from > 1994-2000. > > And. . . the move in the energy sector has had > much greater cumulative earnings growth vs. the > tech sector over this time. > > So, how is this a bubble? > > Since you are the one with the “compelling” > argument that it is a bubble, perhaps you can give > us the definition. So, now it has to be comparable in appreciation to other sectors? How then, was housing a bubble, when it only went up 10% per year, compared to far higher appreciations in other sectors? Did housing stocks go up as much as tech stocks? What about compared to energy stocks? Is comparing stocks the right type of method for estimating a bubble? Does oil prices increasing mean that the whole energy sector will increase? Or, does it mean that everybody is still eeking out the same profit margin, thus there isn’t really a huge difference? Why don’t we compare the price of the marginal inputs into the sector. Silicon wafers barely increased in price during the .bombs, yet oil has gone up 600%+ in 7 years, 100% in the last year, and 50% in the last 7 months. What happened to the price of housing inputs in relation to oil and silicon? Housing costs barely went up, silicon barely went up, yet oil skyrocketed. What does this mean? Absolutely nothing. When you’re a stock analyst, do you compare the earnings of companies across sectors, or do you compare them within sectors? Do you compare them to historical norms, or across sectors? Do you compare them to fundamentals, or across sectors? Do you compare the inputs, to the outputs, or across sectors? Do you compare rational pricing of outputs to inputs, or across sectors? Compared to historical norms, oil is way over priced. Fundamentals do not support that price, as there haven’t been any significant changes to fundamentals in the measurement period. The inputs into oil haven’t changed much, although the demand outputs has marginally. Is oil rationally priced? Well, it’s down 14% in less than 2 weeks. I guess that says something. I think people give too much credit to efficient markets. Humans, by their very nature, are inefficient.
I hear ya, it’s not a clean comparison, but it highlights the difference between an asset that is grossly overvalued and something that hasn’t experienced that much of an extreme move on a relative basis. Just my opinion. . . and I hope you are right!!
The big difference between tech and oil is that tech stocks are ultimately valued by the cash flow they produce. It was pretty easy in 1999 - 2000 to say it was a bubble because you had to believe some pretty screwy things about tech consumption to value it that way. In particular, the market was capitalizing advertising dollars at unbelievable rates. You could start a website, make 1M shares of stock, sell $1M in advertising to your buddy and sell half your stock for $2M, pay off your buddy and close the company with $1M free and clear. That kind of arbitrage is a serious sign that there is a bubble. Oil is consumed. The price for oil is the price that people are willing to pay to drive their cars (etc). There just doesn’t seem to be an arbitrage there because the alternatives are not good.
And gasoline inventories rise more than expected again as demand destruction in the US continues. I would say the fundamentals have changed very much. 13 straight weeks of declining gas consumption in the US is showing a fundamental shift in the American consumer mentality and prices are dropping accordingly.
I was actualy thinking I was noticing a decline in traffic…
“I think people give too much credit to efficient markets. Humans, by their very nature, are inefficient.” You keep saying this, but I’ve yet to hear a single person on this board claim “the markets are efficient so oil is correctly priced”. That said, the markets are usually right, so I’m more inclined to believe in them than to go around calling bubbles.
NakedPuts Wrote: ------------------------------------------------------- > “I think people give too much credit to efficient > markets. Humans, by their very nature, are > inefficient.” > > You keep saying this, but I’ve yet to hear a > single person on this board claim “the markets are > efficient so oil is correctly priced”. That said, > the markets are usually right, so I’m more > inclined to believe in them than to go around > calling bubbles. The markets are usually right unless they are wrong. When they are wrong they get it wrong pretty fricking badly. We can run down a nice list of big “wrongs” in the last 21 years if you want. We can start with 87, S&L, .bombs, Enron/Worldcom/Adelphia, move into housing, and now, from what I believe, commodities.
^ | ding ding. to quote an article in today’s national post Crude oil price surge based on supply and demand: US task force An interagency task force chaired by US futures markets regulators yesterday said fundamental supply and demand factors best explain the recent surge in crude oil prices. The Interagency Task Force on Commodity Markets, which is investigating the role of speculators and other factors in recent sharp rises in energy and commodities prices gave its view in an interim report limited to the crude oil market.
In 87 the market recovered in a month. The S&L crisis was a business, not market failure. Housing and the dot coms were legitimate bubbles, although no one claims the residential housing market is textbook efficient - the market structure violates at least half the assumptions of the theory. Enron et al were fraud. You’re essentially saying anytime prices changes, the market was wrong beforehand. But prices changes does not violate efficiency, as they simple reflect new information. I’m not really a big proponent of efficient markets, but you’ve made some pretty outlandish statements and don’t really seem to understand the concept.
Since when did efficient markets mean that things can’t be “incorrectly priced”? It doesn’t mean that at all and the existence of disasters like Enron, Adelphia, etc… is consistent with all kinds of notions of market efficiency. I will claim that the oil market is efficient and therefore the futures price on any given day is essentially an unbiased estimate of the future spot price of oil on expiration day. I won’t claim anything like “it’s correctly priced”.
Speaking of cheap oil, the U.S. gubmint just slipped in a new debt cap with the housing bailout… up $800 billion to $10.6 Trillion. Easy come, easy go. The dollar rallies…
I think that overall the markets are efficient but that doesn’t mean I don’t believe that there exist pockets of inefficiency through-out certain sectors. Lets face it, it’s a big market and parts of it are bound to get messed up every once in a while. Willy
the bubble will really burst only when california develops some decent public transport culture. california alone consumes more oil than china and india put together
Oil is down 23%, gold about the same. Commodities are crashing. It’s funny to watch T.B.P. running around screaming “OMG, OIL WILL NEVER GO BELOW $100!!!”. Meanwhile, his hedge fund is down about 30% and he’s very long oil. Gotta love when these speculators take one in the shorts. It’s their turn to feel what the American Consumer has been feeling. I just hope the effect will make Peter North look small.
It might be that the people taking it in the shorts are “indexed speculators” investing Mom and Pop’s pension money in long-only oil positions. It’s good that oil went down (I have been enjoying my bike, though) but this vol sucks.
spierce Wrote: ------------------------------------------------------- > Oil is down 23%, gold about the same. Commodities > are crashing. > > It’s funny to watch T.B.P. running around > screaming “OMG, OIL WILL NEVER GO BELOW $100!!!”. > > Meanwhile, his hedge fund is down about 30% and > he’s very long oil. > > Gotta love when these speculators take one in the > shorts. It’s their turn to feel what the American > Consumer has been feeling. I just hope the effect > will make Peter North look small. commodity bull runs are volatile. 50% tracebacks arent uncommon. but c’mon whatever your short term views, you have to be really obstinate not to accept that the fundamentals of many commodities including oil ,agriculture and precious metals havent been better since a long long time.
spierce Wrote: ------------------------------------------------------- > Oil is down 23%, gold about the same. Commodities > are crashing. > > It’s funny to watch T.B.P. running around > screaming “OMG, OIL WILL NEVER GO BELOW $100!!!”. > > Meanwhile, his hedge fund is down about 30% and > he’s very long oil. > > Gotta love when these speculators take one in the > shorts. It’s their turn to feel what the American > Consumer has been feeling. I just hope the effect > will make Peter North look small. You have evidence of BP Capital’s returns?
Wait for it…now
Down to 107 today, -27% overall. Will we break through T.Boone Picken’s magical $100 layer, which he said would never be breached? Only speculators will know as they lose their shorts.
Why is oil down $8 today? Is it just because Gustav wasn’t as damaging as initially feared? If Gustav trashed the GoM oil would probably be up $10. Oh well, good time to buy energy today.