MM1: Well, I think we ran this oil trade up about as high as we can take it. Oil is running out of steam at $110 per barrel.
MM2: What makes you think we can't run it up any higher with all of the unrest in Libya and Egypt.
MM1: The long side of this trade is turning ugly. A few days ago I was watching CNBC and Maria interviewed an oil sheik from Saudi Arabia and on several occasions he had the nerve to state there is no justification for $100 oil. He claimed the supply demand equation didn't justify $100 oil and said LIbya only produces 2% of Middle Eastern oil and Saudi Arabia could replace that lost production in one day if necessary and it stands ready to do so.
MM2: I saw the same interview. It is pretty troubling when oil sheiks on CNBC are on the short side of the oil trade while we're long. All that fighting in Libya was good for about $20 per barrel but I guess this trade is over. Hard to believe the oil sheiks crashed our party. Remember in the good old days during the Carter administration when OPEC was a secret price fixing cartel? That was living fella!
MM1: I agree but those days are over so what do we do now?
MM2: We have to sit back and wait for a catalyst of some sort to distract retail investors so we can take profits and unwind this trade at their expense. Keep talking up oil and the threat from the unrest in the Middle East but as soon as there a big enough distraction we have to use that as the excuse to take profits and unwind this long oil trade.
MM1: As long as we're unwinding the oil trade have you noticed the Dow is over 12,000 now. This bull market rally is starting to get a little long in the tooth too. Tomorrow is the two year anniversary and we really can't take this market much higher from here. We really need a substantial correction in the Dow.
MM2: You're right. Why don't we bundle the unwinding of the oil trade with a nice 1,500 point correction in the Dow as soon as the opportunity presents itself. Retailers are just now getting back into the market so we can sweep our profits at their expense same as always then re-set the market for another 1,500 point run up.
MM1: I like it! I'm in. Hey, what's CNBC broadcasting? A Tsunami and nuclear disaster in Japan? Oh boy, there's lots of smoke at that reactor and several good explosions. That's a big enough disaster to keep everybody focused on Japan instead of the middle east. Perfect! There's our catalyst.
MM2: Right, we'll use the disaster in Japan as the reason to unwind the oil trade and take the Dow back to 11,000. Ben will panic and initiate QE III then we can jump back into the trade and go long on oil and stocks after the correction and it's easy money through the end of 2011.
MM1: This is hard work. You ready for lunch? What do you say we hit the drive through and pay Bernie a visit and bring him some burgers from Five Guys? He's always complaining about the food in prison and he really got the shaft poor guy.
MM2: Lunch with Bernie it is! Maybe he can teach us a thing or two while we there!
Dang and Goldie,
Here ya go!
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Seriously Bill? You just happened to overhear 2 MM's talking and remembered the entire conversation word for word? Did this convo take place in fantasy land and did you remember to take your meds this morning? Nice story...
Honest reality: Oil had a huge run up the last few weeks and traders are taking profits. It's called a technical pullback or a short term correction. Smart people took their profits about a week ago and those same smart people are taking positions now that there's blood in the streets.