Skip to main content

Oil vs. Nasdaq: the "bubble" view

As crude oil worked its way back towards the $140 mark last week, the recently favored view of oil as a "speculative bubble" was on full display in the media.

On June 13, a week after crude oil prices made a record move to $139.12 a barrel, Bloomberg covered the bubble view with a story entitled, "Oil Rally Topped Dot-Com Craze in Speculator's Mania". Investors Michael Masters and George Soros were there offering their views of prices in the crude oil market:

``I don't know if you can classify it as a bubble or not,'' said Masters. ``But there is no question that investor demand is having an effect on price. Very little of it has to do with physical supply and demand of crude oil.'' Masters testified at a Senate hearing in May on the role of speculators in commodities markets.

Gains in oil are the result of a ``bubble'' caused by speculation from index funds and a tight balance between supply and demand, Soros said in testimony before the Senate Committee on Commerce, Science and Transportation on June 3. ``The bubble is superimposed on an upward trend in oil prices that has a strong foundation in reality,'' he said.

So according to George Soros, the upward move in oil prices, "has a strong foundation in reality", while Masters thinks the move has "little... to do with physical supply and demand of crude oil". Interesting.

Well, differing views make a market, but it does kind of make you wonder where Michael Masters is getting his information on crude oil from, considering the recent phenomenon of shrinking global oil supplies meeting steadily rising global demand.

But, listen, I promised you the "bubble" view, and the bubble view you shall have.

Check out this nifty little chart that Bloomberg put together comparing the run up in crude oil prices to the decade long bull market in the Nasdaq and technology shares: "Crude rally surpasses dot-com boom".


So what do you think? Are recent oil prices a bubble or is this a bull market largely driven by supply and demand fundamentals?

Related posts:

"Oil: inflation meets tight supply" - Finance Trends Matter.

"The future of energy" - Finance Trends Matter.
Labels:

Popular posts from this blog

Lessons from Hedge Fund Market Wizards: Scott Ramsey

Today we continue our series, "Lessons from Hedge Fund Market Wizards" , with a look at Jack Schwager's interview with Scott Ramsey of Denali Asset Management.  Ramsey, a futures trader and CTA who works on the island of St. Croix, spoke to Schwager about his first foray into the markets, his evolution as a trader, and the process he stands by to protect and grow his clients' money. 1) . Ramsey started trading in college. He was roped into the OTC metals market via a broker's ad in the Wall St. Journal. The broker charged customers a flat fee to buy and sell as much as they wanted in a particular market for six month. At the time, Scott was a novice and didn't know about futures, so he traded metals in this fashion through the inflationary run-up of the late 1970s. 2) . Scott had to rethink his trading strategy after he bought silver at $50 an oz., only to watch it collapse to $26 following a long string of limit-down days. He sold as soon as the market...
Read more

How to "Pull the Trigger" on Your Trading Ideas

In our last post, I quoted hedge fund manager, Jim Leitner on the importance of following up on your investment ideas.  Today I'd like to follow up and share some thoughts on how you can learn to consistently "pull the trigger" on your best trading setups and investing ideas. In order to help you do that, we'll take from the best and offer up key insights from interviews with top traders and trading psychologists like Alan Farley, Brett Steenbarger, and Doug Hirschhorn .  Now before we get to their key insights on overcoming trading anxiety and pulling the trigger on your trading ideas, let's remember what Jim Leitner said in his interview: "Learn to love to listen to people and when you hear something interesting, follow up on it. Don't just think, "Well that's an interesting idea" only to find out a year later that the company you could've bought shares in is now up 500-fold. You never want to say woulda, coulda, shoulda...
Read more

Moneyball: How the Red Sox Win Championships

Welcome, readers . T o get the first look at brand new posts (like the following piece) and to receive our exclusive email list updates, please subscribe to the Finance Trends Newsletter .   The Boston Red Sox won their fourth World Series title of t he 21st century this we ek. Having won their first Se ries in 86 years back in 200 4, the last decade-plus has marked a very strong return to form for one of baseball's oldest big league clubs. So how did they do it? Quick background: in late 2002, team own er and hedge fund manager, John W. Henry (with his partners ) bought the Boston Red Sox and its historic Fenway Park for a reported sum of $ 695 million. Henry and Co. quickly set out to find their ideal General Manager (GM) to help turn around their newly acquired, ailing ship. This brings us to one of my fav orite scenes from the 2011 film , Moneyball , in which John W. Henry (played by Ar liss Howard) attempts to woo Oakland A's GM Billy Beane (Brad Pi...
Read more