Energy, and every thing else is getting to be a riskier trade now. I've had a large energy stocks position (have not traded, a fundamental investment holding), but have sold a third of my long term cap gain holdings (on the surges) so far in 04. I'm eyeing things warily, as keeping these nice big profits would be a good thing. Kind of praying for another pop, and I'm gone on another third.
Here's the other side of the China story, as it also applies to energy, from Morgan Stanley's Andy Xie.
morganstanley.com
I've emphasized one of his points here. Looks dicey on all commodities at some point, and I think sooner than later. The world in fact may hit a very serious bottleneck wall very shortly. Look at the transport cost of shipping crude around: DOE petroleum inventory update, tanker rates at RJ:
rjcapitalmarkets.com
There is also a very large spec position built in crude now (record short commercial short position), but for some reason not nat. gas as yet:
commitmentsoftraders.com
Xie on Speculative Excesses
In our view, the situation in China is caused by the low Fed funds rate and the weak dollar.
Excessive credit expansion is causing excessive speculation in China. Shanghai’s commodity futures market has become extremely active lately. Its one-month futures price for wheat averaged US$24 higher than CBOT’s price per ton in September last year; the gap widened to US$50 in December. We have observed similar trends in other commodities. Speculation has been a driving force in the rapid rise in commodity prices in international markets, in my view.
Of course, where there are large price gaps between offshore and onshore markets, there would be arbitrage activities. To complete the trades, Chinese speculators have to take the physical deliveries offshore to make the deliveries onshore because the Chinese currency is not convertible. That force has driven freight shipping rates through the roof.
Commodity speculation eventually leads to inventory in China, which could cause onshore prices to fall below offshore ones. The losses have to be borne by someone. In China, the banks usually end up holding the bag. |
