Hey Big.......
You're probably livin' large like Elvis right now - aren't you ? ....instead of hopping on a Private Jet and flying to Vegas on a whim for a Peanut Butter Sandwich.... it's BBQ
...a man has to know his limitations.
The great lesson that I have learned over the years is this :
"It's all about Risk vs. Reward - Stupid"
- regardless of whether it's in Oil, Gold, the Financials, or the broad market.
I prefer to play where the Rewards are High comparative to the Risk.
The leap from Black to Yellow Gold in 2000 allowed this:
finance.yahoo.com
Many Oilpatch traders have traded 3-4 runs to OSX 135-140 over the last couple of years. The OSX today is at 165... only a 20ish% move up from multiple highs over the last few years.
We just got a bigger bang than that in the HUI trade up off of the bottom.
That Trade outperformed holding the OSX.
+ 40 for the HUI... + 25 for the OSX.
I chose to trade the Gold vs. Oil.
Who made the better trade ?
The Exit from the 'Patch in late 2000 was followed by a a near 8-fold run for the HUI Goldstock Index from 35 to 250+. There was simply exponentially better upside reward opportunities as opposed to risk in the goldstocks, as there was the Oil stocks - as that chart bears out..
While recently Oil has garnered many of the Markets Headlines and much of it's Cash Inflows - traders could have traded Teen Fashion, Internet Stocks, or Coffe Retailers and outperformed Oilstocks:
finance.yahoo.com
< although, the OSX is finally starting to catch up with Starbux <vbg>
...the lesson learned:
There's always a Bull Market somewhere ~ (or, a Bear).
Personally, I try to find the one's with the best Risk:Reward Metric's and have done pretty well outside of playing the Oilpatch.
Obviously the Oil's have done very, very well.
I've just found better Rewards as oppossed to Risk elsewhere... be it shorting FNM, occassionally the Homebuilders, or the Oils, or trading the Golds long.
We all make choices on where we find the best potential rewards for the least amount of risk.
I just see too much disconnect in Oil and have preferred to play in other sandboxes of late.
I honestly think that Oil has completely disconnected from both reality and it's underlying fundamentals here - and I use the analogy of the environment that existed at NAZ 3500. Being "right" on it being a "disconnect" will only get you wiped out - if you are wrong on the "timing."
So I will pick my spots carefully - ala SHORTING the top of the Jan to March run and I keep some "option" leverage via a straddle...but, ultimately - my major re-entry will be via a MASSIVE SHORT play on the Oilpatch....when, not if...it's coming.
I'm sure you saw the news today... China's demand for Q4 and more importantly, for 2006 has been lowered from 2005 levels.
Traders in the futures market have boosted Oil for storms that never hit, for threats that never unfolded and for reasons that I think are related to forcing the collapse of China's Economy and Communist Leadership.
People want to make fun of an "options straddle" but, in all reality - it is an ideal strategy to incorporate in this environment. My "straddle" position on Oil's presently is very small...I prefer to give the stocks a little more rope with which to hang themelves and then will increase my position on the short side.
I've continually pounded the Table that China's growth is unsustainable...is an anomaly related to a one-time 5 year plan in the race to showcase the "Modern China" during the 2008 Beijing Olympic's.
China faces a literal - IMPOSSIBLE TASK.
There is simply no possible way that the inherent Economic inefficiencies of the Communist State Owned Enterprises and their already Bankrupt Banking System can handle the massive influx of Hot Money and the population masses that are migrating from the rual farmlands to the inner cities - without a serious Economic contraction, if not a collapse...and/or the collapse of the Communist Chinese Leadership.
The Social, Cultural and Political stresses created by this mass migration of hundreds of millions of people from the rual farmlands to the industrial cities is unprecedented...and may place even more pressure on the Communist Regime, than will the Economic forces.
China requires 6-7 times the amount of Oil & Natural Resource input to produce the same output of GDP as does the USA, or Japan.
That same economic inefficiency was what was used to End the Cold War and ultimately collapse the Soviet economy and communist government....same game, just a different face.
Oil spikes do not occur within Economic vacuums. The impact of the spike of Oil and Gasoline Prices have been somewhat muted by the simultaneous Housing and more importantly, the REFINANCE BUBBLE...along with all of the cheap & copius credit as found in the current Auto Loan Programs, or being able to fill one's New House with new Furniture, or Electronic's and not having to make a payment for a year etc.
We just saw massive layoffs from a few US Corporations that recently cited surging commodity costs... US Consumers now have a "0" savings rate along with no "real" job, or wage growth.
Bad Macro Economic fundamentals - always trumps good micro fundamentals in the Oilpatch.
Imo, when, not if...
This Debt, Credit and Housing Bubble has merely delayed the ultimate effect that this Oil Spike will ultimately have.
Imho, it's created a "reverse coiled spring"... for it's ultimate downside.
With this EIA downgrade of Chinese demand... I am trolling for some short-sided nibbles in the Oilpatch as I type...
Just as at NAZ 3500 where the Tech & Internet Bears had to be patient in waiting to make their trade on being "right"...so too will the Oilpatch Bears.
Our time will come... when, not if ~
Good Luck,
Slider` |
