Friday, February 17, 2006

Bob Marcin's Daddy is Bigger Than Your Daddy. The Dumb Money Slips on the Oil Trade.


I don't mean this to be offensive. But a lot of money in the oil futures market must be dumb. Let me explain.


I believe it's long/short equity hedge funds looking for juice! And for the most part, these funds are technically based, momentum traders. Dumb money, they know the sound bites but not the facts. They took natural gas to $15 in December and it hit $6.98 yesterday. Enough said.

A big part of my thesis on $45 oil this spring is the same dynamic. Momentum hedgies bail on the commodity as we approach the soft season for oil demand. Fundamentals get a bit soggy short term, and the technical traders get stopped out on the way down. Dumb money.

These are not dumb people, they're simply uninformed about the fundamentals of oil. To them, it's only a price on a Bloomberg terminal.

And I risk being very wrong if a geopolitical event occurs. But just as the dumb money drove natural gas to unsustainable prices in the short run, it did the same with oil.


At the time of publication, Marcin was short oil, although positions may change at any time.

I may turn out to be dumb, but:

a) I know OPEC is going to try to hold the line at $53.
b) I can count to 4, which is the number of potential geopolitical events that are currently in progress: Iran, Iraq, Nigeria, Venezuela. Note that these are all oil exporting nations. [And with the gas supply thing in Russia, maybe you go to 4.5]
c) I've noticed some people get snippy when their positions go against them.
d) Marcin is a smart guy, but as Pickens said, it doesn't make sense to be short oil now.