Jan 23 Blog - High Oil prices caused by China's growth

[Higgenbotham]

From p. 419 of At the Crest of the Tidal Wave,

Another wildcard is the potential for the outright outlawing of certain markets. Government authorities, who proudly take credit for bull markets, will require a scapegoat for the decline. They will desperately order investigations to determine who (omitting themselves, of course) are to blame...Though they are seemingly permanently entrenched in the investment landscape, a dozen years from now, futures and options will be banned.

So even if those ^#%$*# margined speculators did drive up oil, it was just positive social mood that was the root cause of it.

[tobyguy]

That could even be negated with your thesis. Reason being, let's just say that margin buying did drive the price of oil up. Your counter to that would be that the only reason that happened was because positive social mood allowed people to speculate on all kinds of things they had no business speculating on anyway, and that it was positive social mood that motivated them to get involved with it. I've read At the Crest of the Tidal Wave and, from what I remember, it would not be at all surprising if one of his predictions is that sometime during this bear market speculative futures trading will be banned. I believe it will be and no longer trade futures.

Exactly. Social mood determines the direction of markets.

Believing that the fine points of the system (eg. margin buying) being the culprit is hardly the point.

Similarly, the belief that computer software is also partly responsible for wild swings is down right silly. Firstly, people make the programs that run on computers. And they reprogram/change models, re-enter orders, change limits, or throw them aside etc. all time time depending on their moods. Computers do not go through periods of euphoria. Computers do not panic. People do!

Do I think it's possible that some idiot programmer out there may have written a bad program and it may be responsible for a few dumb buy/sell decisions, probably. However, this would likely do more harm than good to such an institution that allowed that to happen and it would put an end to the use of such a program very quickly.

Tobyguy

Tobyguy

[tobyguy]

From p. 419 of At the Crest of the Tidal Wave,

Another wildcard is the potential for the outright outlawing of certain markets. Government authorities, who proudly take credit for bull markets, will require a scapegoat for the decline. They will desperately order investigations to determine who (omitting themselves, of course) are to blame...Though they are seemingly permanently entrenched in the investment landscape, a dozen years from now, futures and options will be banned.

So even if those ^#%$*# margined speculators did drive up oil, it was just positive social mood that was the root cause of it.

I think we all should believe this may happen.

They banned short selling on almost 1000 companies for a short time and that was only after the stock market lost only about 30-35% or so. Imagine what's going to happen when it gets down to 3000 or around there?

Talk about trying to lock in your profits!

Tobyguy

[freddyv]

They all peaked at the same time (all within 1-2 years of each other, with most months of each other) because the same phenomenon was driving them all (credit flowing into all markets and people believing price increases would go on forever/positive social mood). They also all started crashing around the same time as each other, again because of the same culprits (except this time, credit contraction and fear/negative social mood). This is unprecendented in all of our lifetimes (except in deflationary times).
Tobyguy

You are arguing with yourself. If you would listen and do your homework you would see that I believe the same thing.

You seem to me an unwise person who uses many words to say little in the hope of gaining much attention.

May you live in interesting times.

--Fred

[tobyguy]

You are arguing with yourself. If you would listen and do your homework you would see that I believe the same thing.

You seem to me an unwise person who uses many words to say little in the hope of gaining much attention.

May you live in interesting times.

--Fred

Truly amazing....You know what they say about people who resort to using personal attacks when discussing political and economic issues.

I won't go down to your level and I'll leave it at that.

Tobyguy

[Gordo]

Figures lie and liars figure. If there was any long term influence by speculators in oil, they had to be taking delivery.

That may be true, but WHO is talking about long term. For that matter, what IS long term? Oil (and nealy all other commodities) speculation ramped up over a period of about 4-5 years, with the bulk of aggrssive buying in the final year which is always the case with any bubble I've looked at. Do you consider that long term or short term? Does it matter?

China & India were used as an EXCUSE for rampant speculation. It was always a house of cards that was doomed to collapse. The housing boom also added fuel to the fire. People like Jim Rogers were continuously pumping commodities and setting up commodities funds. Dozens of new commodities related ETFs were created. All of this contributed to the speculative bubble. As long as demand is strong enough, these things can continue - but as soon as demand weakens, the speculators are crushed - which is exactly what happened.

[freddyv]

Truly amazing....You know what they say about people who resort to using personal attacks when discussing political and economic issues.

I won't go down to your level and I'll leave it at that.

Tobyguy

You attributed things to me that were not said by me and you ignored specific evidence I posted to back up my argument. As well, you have shown by your consistent ability to keep an argument going and away from facts or statistics that you believe what you believe and won't be swayed by anything, including facts. Yes, I think I was correct; you sir are a fool.

We are now dealing with massive excesses and corruption that have been building up for decades.

This is not the cause of "social mood" but is caused by human nature and the basic forces of fear and greed that we see playing themselves out over generations as those who lack first-hand experience with life get it first hand.

So, tobyguy, in the previous sentence I told you what I believe is the underlying cause of our current conditions; I would love to have you explain to me and all of us here what it is you believe in one or two sentences because one thing I have learned over the decades is that truth does not hide and is quite simple and obvious...to those who seek and accept it.

Other than the fact that everyone else is incorrect, what is it that you believe?

--Fred

[tobyguy]

You attributed things to me that were not said by me and you ignored specific evidence I posted to back up my argument. As well, you have shown by your consistent ability to keep an argument going and away from facts or statistics that you believe what you believe and won't be swayed by anything, including facts. Yes, I think I was correct; you sir are a fool.

We are now dealing with massive excesses and corruption that have been building up for decades.

This is not the cause of "social mood" but is caused by human nature and the basic forces of fear and greed that we see playing themselves out over generations as those who lack first-hand experience with life get it first hand.

So, tobyguy, in the previous sentence I told you what I believe is the underlying cause of our current conditions; I would love to have you explain to me and all of us here what it is you believe in one or two sentences because one thing I have learned over the decades is that truth does not hide and is quite simple and obvious...to those who seek and accept it.

Other than the fact that everyone else is incorrect, what is it that you believe?

--Fred

It's sad to see people on this forum having to resort so low as to continue to insult people who disagree with their views. It also says a lot about you as a person (and maturity I may add).

I will try to make my point clear, so even you can understand - as it obviously is not getting across (to you anyhow).

Back to the topic at hand (and trying hard not to resort to your level).

You can let me know points you made that I haven't addressed, and I will address them. But for now I will try to summarize my main point in a couple of sentences.

Fear and greed are the key components of social mood. Fear and greed is what moves markets. Investors are quick to brush aside economic, political and other so-called "fundamental" issues/problems/factors at a moments notice. The forces of greed and fear are responsible for pushing prices higher and higher or lower and lower (respectively).

When fear sets in and people run for the exit, they point fingers at the problems that had been well known and in plain view for some time (for oil it was China demand, regional conflicts, hurricanes, OPEC, trading on margin, computerized trading, etc.). Other markets are no different (as we've all witnessed - and ALL at roughly the same time).

Like during times of great fear, in periods of great optimism, rational thinking goes out the window. People follow the crowd and are driven by a "herding mentality". This is why bubbles and depressions exist.

Got it?

Tobyguy

[John]

From a web site reader:

> One of the most cogent attempts to explain the oil price spike
> over the past years that I read about was 'queuing'. Its that when
> short term supply and demand are very closely matched, the market
> behaves like a queue when the average number of people entering
> the queue are the same as the average number leaving the queue.
> What happens is that any little 'shocks' to this system (like
> someone fumbling for change, or trying different cards, etc) mean
> that a queue can quickly form. On the other hand, any 'reverse'
> shocks - like someone just asking for a price check or something -
> can quickly reduce the queue to nothing.

> In the oil market the queue is the price - it will swing wildly up
> and down as long as supply and demand are closely matched. The
> world demand for oil has not dramatically collapsed over the past
> half year - although it has been reduced. This modest reduction in
> demand is not enough, on its own, to explain the collapse of oil
> prices, I think. Rather, it was enough to 'clear the queue' for
> oil, causing the price to plummet. I think that in this case the
> price may well swing up quite fast, without a 'boom' in demand
> either.

This is an interesting way of looking at pricing at the margin, since
presumably all the people in the queue in this model are marginal
buyers.

Sincerely.

John

[freddyv]

...
Fear and greed are the key components of social mood. Fear and greed is what moves markets. Investors are quick to brush aside economic, political and other so-called "fundamental" issues/problems/factors at a moments notice. The forces of greed and fear are responsible for pushing prices higher and higher or lower and lower (respectively).

When fear sets in and people run for the exit, they point fingers at the problems that had been well known and in plain view for some time (for oil it was China demand, regional conflicts, hurricanes, OPEC, trading on margin, computerized trading, etc.). Other markets are no different (as we've all witnessed - and ALL at roughly the same time).

Like during times of great fear, in periods of great optimism, rational thinking goes out the window. People follow the crowd and are driven by a "herding mentality". This is why bubbles and depressions exist.

Got it?

Tobyguy

I understand fully what you are saying but your perspective is limited and your disrepect for those who have greater experience than you is obvious.

"Social mood" is determined by other things such as Generational Dynamics. Generational Dynamics determines social mood; social mood does not determine Generational Dynamics.

Greed, when not balanced by the fear of having lived through a period such as the Great Depression, creates excess which then eventually becomes so great that the bubble bursts and fear sets in. A new "social mood" then sets in, caused by people seeing their life savings evaporating and their jobs disappearing; "depression" is a great example of a social mood, IMO. "recession" is an economic condition of an economy receding while "despression" is a social mood and is much more difficult to define. Only when the bubble that bursts is big enough will the social mood be changed since a social mood is very difficult to affect.

Arguing that supply and demand is not the cause of high oil prices is incorrect.

Supply and demand is the thing that you would point to first in the chain in identifying high oil prices because, as was pointed out, China's use of oil was growing rapidly. According to the sources I found China's use was increasing ever more dramatically in the past year or two and that is after growing rapidly prior to that.

If a bubble bursts and the social mood turns sour people then point out the social mood as a cause but Generational Dynamics is the container into which all of these fit. Human nature itself, IMO, is the great container into which all of the above fit.

To explain a little further: It is our very nature that should you take any one man and any one woman and started all over from scratch you would end up once again with generations that again and again use greed to create bubbles which burst to create a new social mood which will eventually be forgotten, creating a new bubble, and on and on and on.

As with Gordo I see clearly that your vision is limited by your life experience and so you both act like an angry child when confronted with opposing viewpoints. Viewpoints that you really can't understand unless you respect your elders, and there's the rub. John points out again and again how this is classic generational behavior, becoming more and more desctructive with each generation until finally we hit bottom and start all over. I have a few years on you and I respect the opinions of those older than I so I believe them when they tell me something, even if they tell me I am wrong...no, especially when they tell me I am wrong. That is the only way that I see to break the generation crisis, or at least for me not to be taken down by it.

One of the things you may notice is that I tend to cut John more slack than I would you or Gordo, that's because John is older and I assume he knows more. He's not always right but he sees from a higher perspective than I. As I have become more aware of Generational Dynamics I have found it is a new source of wisdom for me that I could only otherwise achieve through actual experience. I find that I can often tell a persons' age by his writing and thinking and that is a very powerful tool, if one chooses to use it.

Perhaps you could sit back for a second and re-read some of your posts and note how you react when you are criticized? To me it seems that you only want to argue and fight without any attempt at coming to a conclusion or learning anything new. Imagine if you could truly come to respect the voices of your elders, especially when they point out that you are wrong.

--Fred