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Strategies & Market Trends : The Epic American Credit and Bond Bubble Laboratory

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To: bart13 who wrote (68542)	8/20/2006 8:21:38 AM
From: Wyätt Gwyön	Read Replies (1) of 110194

give 5 guys the same chart and 5 different interpretations can come off it. my wording was "suggests to me". i mean that as nothing more than a guess that could be very wrong. the world is different than it was in the 90s and early 2000s, so who knows. the things those charts do show is that absolute demand did not drop through the floor. demand growth disappeared, and there was a slight drop in absolute demand. but demand did not disappear. Do keep in mind that in '91, WTIC went from $18 to $40 and back to $20 or so. In '93, it dropped from about $20 to about $14. From late 2000 to early '02, it went from $34 to under $20. in the early 90s Saudi Arabia could singlehandedly raise or lower the price of crude. the reason they could do that is that they had a lot of spare capacity they could bring on by opening a few valves. that is not the case anymore. and of course, nobody else has any spare capacity either. if there were spare capacity, prices wouldn't have risen like they have the past few years. this is also why somebody like Grantham can say there's been a paradigm shift, and it's the first he's ever seen in any asset class. Grantham is a longtime student of bubbles, calling the 90s US stock bubble, the housing bubble, etc. but he doesn't call crude a bubble. anyway, because there is no longer a supply response to higher prices (OPEC is no longer relevant), i believe it's important to look at what demand might do. significantly lower demand can indeed lower prices greatly. i doubt flat demand like we had in 2002ish is going to cause prices to drop to $40, but we shall see.

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