Article

2008-05-27 -Short Attention Span Theater-

George Soros: rocketing oil price is a bubble

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Posted by gorb 2008-05-27 05:29|| || Front Page|| [11130 views ] Top

#1 I'd tend to trust Soros, as he caused the Asian financial crisis of 1998 with nothing but speculation. He knows how to irresponsibly bring down economies.

Posted by gromky 2008-05-27 06:28|| ]">[ ] 2008-05-27 06:28|| Front Page Top

#2 Soros is wrong. It's not possible to have a bubble in a consumed tradeable commodity. Bubbles occur when people overpay for property based on the percieved future gain. Spot oil and near futures will be consumed in the near term. When that occurs they no longer exist and obviously can't have a future gain (or loss).

Soros is talking down the market, which probably means he is on the wrong side of it. I hope he is taking a bath.

Posted by phil_b 2008-05-27 07:47|| 2008-05-27 07:47|| Front Page Top

#3 The bubble was in Money, and that was caused by Greenspan's evisceration of Bank reserve requirements.

These are the effects of that bubble. The massive deflationary effect of low Chinese wages masked the monetary inflation until now.

Posted by Bright Pebbles 2008-05-27 07:48|| 2008-05-27 07:48|| Front Page Top

#4 Other 'experts' have written that about $60 per barrel of the price is due to speculation. There is a lot of cash floating around that was being invested in real estate (various funds and 'products' invested in junk-grade loans) that has been looking for a new home. Oil futures may have been one such home. At some point those 'investments' mature, but the 'experts' can keep bidding them up until they chicken out, and then they need a sucker to be left holding the bag. One hopes that sucker is the Saudi royal family, but I wouldn't bet on it (check where your union retirement funds are being invested.)

There is increasing belief that the world has already reached 'peak oil', and that future demand curves will be FORCED to flatten to match. If so, futures bidding may actually continue to make profits for the buyers.

Posted by Menhadden Snogum6713 2008-05-27 09:51|| 2008-05-27 09:51|| Front Page Top

#5 Thing is, if he wanted to MAKE it into a bubble, he could start a big short position, and pay off a few key government people in China to postpone and reduce buys for a few months. That, and the short position, and the people speculating on futures woudl cause a panic crash.

Not sayign there is a bubble, but of all people, Soros could create one with his cash and his buying off of influence.

Posted by OldSpook 2008-05-27 09:57|| 2008-05-27 09:57|| Front Page Top

#6 And after this bubble pops, the price of gas will go down to pre-bubble levels. No, really! You just watch! It'll happen! Yeah. For sure.

Working on 'historical' models, the purveyors of your petroleum who jacked up prices daily as the records were posted in the market will argue that the 'new' oil will have to process through the system before the decrease will appear. Never ever answering the begged question that if 'new' oil processing delays a decline why it didn't delay the increases for the same reason.

Posted by Procopius2k 2008-05-27 09:58|| 2008-05-27 09:58|| Front Page Top

#7 Aside from that, force anyone with a futures contract to take delivery of 10% of that contract.

That will push the speculators out of the market.

This kind of fiscal manipulation by people whio cannot use the product is a distortion and destroys the utility of the market place for that actual consumers.

Futures? Yes allow them. but make the people bidding and buying prove that they can actually use or store the material.

Posted by OldSpook 2008-05-27 10:01|| 2008-05-27 10:01|| Front Page Top

#8 Phil, not sure about the "consumable commodities" theory - what about the tulip bubble of 1637? That market was supported by a million different futures/options/gamble/hold/shufflereel type market instruments too.

The present bubble cant be accounted for in terms of basic supply/demand, as neither has changed dramatically in recent months. If this is not a bubble, then it must be a correction, meaning that oil has been historically priced too low?

Posted by Admiral Allan Ackbar 2008-05-27 10:03|| 2008-05-27 10:03|| Front Page Top

#9 It's not possible to have a bubble in a consumed tradeable commodity.

Oil keeps for decades and the cost of storing it is low compared to the cost of keeping e.g. grain edible. There's room for bubbles of all kinds in oil.

Posted by lotp 2008-05-27 10:34|| 2008-05-27 10:34|| Front Page Top

#10 However, Mr Soros warned that the oil bubble would not burst until both the US and Britain were in recession, after which prices could fall dramatically..."You had the nice decade," he said. "Now that is over and you are in a straitjacket."

His words incriminate him. Hope he drowns in a bubble bath.

Posted by Thealing Borgia6122 2008-05-27 11:10|| 2008-05-27 11:10|| Front Page Top

#11 People tend to forget that oil prices can be manipulated by OPEC countries (none of which have any sympathy towards the US). If you go back to the 2004 US elections, you will see a large spike in oil prices just before the election. That was OPEC trying to get John Scary elected.

Yes the price of oil is artificially high. However the price increase in Euros is not nearly as much.

Al

Posted by Frozen Al 2008-05-27 12:09|| 2008-05-27 12:09|| Front Page Top

#12 BP identified the primary bubble. Real estate was next.

Oil and higher educationbubble poppings are coming up........I hate to agree with Soros on anything, but I believe he's onto something with oil prices.

Posted by no mo uro 2008-05-27 12:12|| 2008-05-27 12:12|| Front Page Top

#13 Another factor that's been bandied about is the recent rise of commodity mutual funds. Funds whose mission is to invest in commodities. There have been big moves already and more money is pouring into these hot bull markets.

The last time we had a serious drop in the price of oil was during the Asian Financial Crisis that caused a worldwide recession that also hit Russia and Latin America pretty hard. Didn't Long Term Capital Management get bailed out around this time? The price of oil almost hit single digits.

I can't see oil coming down until after the dust settles with Iran and their nuclear ambitions.

Posted by DK70 the Scantily Clad7177 2008-05-27 13:07|| 2008-05-27 13:07|| Front Page Top

#14 The article cites Britain because it's a British paper - Guardian or one of the other papers on the online Guardian cluster.

And yes, I agree that it sounds like Soros is talking down the oil market. I'd guess he's long in dollars and looking to prop up the value of his position. I don't know, he's the currency expert, not me.

Posted by Mitch H.">Mitch H. 2008-05-27 13:11|| http://blogfonte.blogspot.com/]">[http://blogfonte.blogspot.com/] 2008-05-27 13:11|| Front Page Top

#15 Soros has been betting and talking of the dollar's decline for several years. He's made a lot of money on it. Recently he has been talking the dollar up. You can bet his mouth follows his money.

Unfortunately for the dollar longs, I think those who control our government have figured put that the continued dollar decline (actually inflation) is in the national interest. Over the past 35 years trillions of dollars have been sent out and goods imported that the chance of ever exporting our way to the dollar's health is nil. Instead, by having sustained inflation over a decade or two, the real total value of the external dollar debt will he halved or quartered. A much more manageable problem.

The runup of commodity prices is a foreshadowing of the sustained inflation that will roll through the economy. Expect countries to abandon the dollar peg (e.g. China) as their import bills outstrip the value of their dollar based earnings.

Posted by ed 2008-05-27 13:45|| 2008-05-27 13:45|| Front Page Top

#16 A modest and modestly prolonged (lasting a few months) rally in the dollar will drive the speculators out of the market and act to reduce dollar denominated oil prices on two fronts. I expect we'll see a $50-ish dollar per bbl fall when that happens and I doubt we're more than a year or two away.

We're in the business here and folks I know and respect who've quite often been proven correct in their long-term assessments are telling me that it's time to dump all of our production as the combination of increasing liability and production costs, market uncertainty, future tax and environmental policy, alternative methods of production, alternative fuels & technologies, and current historically high prices is such that dumping the business now will be more profitable than operating it over the next couple of decades. FWIW (pure speculation) they see technologies and alternatives having significant market impact beginning ten-ish years out and government taking most of the profit out of the business beginning as early as next year.

Posted by AzCat 2008-05-27 14:08|| 2008-05-27 14:08|| Front Page Top

#17 AZCat, did Sen. Maxine Waters comments about nationalizing the oil industry punctuate those thoughts about dumping production?

Posted by DK70 the Scantily Clad7177 2008-05-27 15:04|| 2008-05-27 15:04|| Front Page Top

#18 Ed...I think you're right. But guys who have read this

http://oregonguythinks.blogspot.com/2007/11/you-must-remember-this-kiss-is-still.html

will recall that the US economy--dominated by US dollars, where rarely is spent a Euro or Yuan--is insulated from much or most of the pain experienced by a declining dollar as defined by its relationship of comparative value to other currencies.

It will make imports, like oil, more expensive. But for holders of contracts--think China?--it is seeing the value of those contracts contract while the goods it provides remain cheap.

Compare this to the inflation we generated following the first oil shortage of the 1970's. We made dollars cheaper but affected our domestic economy's ability to produce goods cheaply for domestic use or for export.

I actually prefer this new round of dollar expansion to the old. It does have our "friends" in an uproar. The EU countries are seeing the price of their goods vis a vis ours going up. We have worked for decades to force China to "unpeg" the yuan. Given the relative increase in prices for Chinese visitors to Milan, pressure is increasing in China for change. Grousing Politbureau members back from a European shopping trip are more important there than the will of the people, remember.

Posted by OregonGuy">OregonGuy 2008-05-27 15:22|| http://oregonguythinks.blogspot.com/]">[http://oregonguythinks.blogspot.com/] 2008-05-27 15:22|| Front Page Top

#19 DK70 - Not as much as narrowly defeated state legislation here that would impose unlimited liability on producers by creating a state funded attorney pool to sue producers whenever landowners choose to complain. Our pet senator whom we helped put in office assures us that we won't be able to derail the legislation when it is reintroduced next year. Personally I'd rather spend my time sitting on a beach than yammering away at the trial bar.

Posted by AzCat 2008-05-27 16:37|| 2008-05-27 16:37|| Front Page Top

#20 AzCat, what you're saying rings true with me as well. I'm seeing a hell of a lot of stuff being built for exploration. The last time this happened oil was $10/bbl ten years after the oil shock due to increased production. I see no reason to think it won't happen again, although hopefully this time we'll be able to make changes enough to get a lot of oil usage permanently converted to some other form of energy, like nuclear-supplied electricity.

I'd like nothing better than to be able to tell the ME to take their oil and eat it.

Posted by Thaimble Scourge of the Pixies4707 2008-05-27 18:03|| 2008-05-27 18:03|| Front Page Top

#21 I'm usually early on my calls: out of tech in '99, out of real estate in '05, etc. The bubbles are easy enough to see but you just never know how far the irrational exuberance will carry the markets.

There's an old saying among the oil guys around here, "When lawyers start buying leases it's time to exit." Over the past six months or so I've fielded inquiries from a number of my closest attorney acquaintances looking to invest in the energy sector.

On the other hand I attended a friend's wedding in December of '03 at which I spent a few hours chatting with a hedge fund manager who told me to back up the truck immediately on Canadian Oilsands ADRs and to purchase every lease I could get my hands on then hang on tight for five or so years. I suppose that's why I'm still working and those guys are making billions. ;)

Posted by AzCat 2008-05-27 21:52|| 2008-05-27 21:52|| Front Page Top

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