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  • harehau harehau Jun 24, 2008 9:14 PM Flag

    Evaporated property

    Peter, I have to admit that I don't know how to break out the speculative premium in oil or any other investment for that matter. We didn't seem to be too bothered by speculators in residential real estate until after the market had collapsed. How could one have quantified the speculative element in the internet frenzy a few years ago. In fact, I tend to believe that markets currently are dominated by speculators and not investors. Politicians have to have a villain to vilify. Blaming supply and demand and the assumptions about future supply and demand wouldn't get much attention. Read an editorial recently by a nobel economist that said the presidential candidates avoid talking about currencies because they don't have a clue about the dynamics of the issue, which admittedly is fairly complex. I have never understood our saying that we have a strong dollar policy and all of our actions support the opposite position. It is complex, but people like Soros have made fortunes by recognizing extreme relationships and making bets on a move to equilibrium. Trying to gage the speculation element in any investment is difficult. And I don't know how you take the speculators out of the market, any market. I'm not sure why we would want to. I do however think there is currently an element of speculation in the energy markets, investors that are betting on the upward trend with no underlying basis or long term commitment in the physical asset, same could be same of gold, copper, corn etc.... The speculators have already made billions at the expense of the operating companies but that's the way it works. More importantly is the idea of regression to the mean and I think that's what everyone is grappling with. If it is not $20 per barrel, then what is the appropriate level. It may be $150 or $50.

    I did hear of the 4% drop in demand and I think that fact is significant. Replicate that for the rest of the developed world and you have a significant change in behavior. But, also heard that China demand for diesel is up over 30% from last year. No one is ready to throw in the towel in the China and the developing markets. But I want to believe that they are connected to the plight of the developed markets for the near term and their demand will respond in a like manner.

    Having said all that, the reason I read the posts on this board is that somewhere in the blending of all the insightful and wise comments is the best guess of what is going to happen. Cheers. Hare

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