Posted on 09/26/2006 5:18:54 AM PDT by PajamaTruthMafia
Those obnoxious hedge fund managers and their super-rich investors think they’ve been trapped in a nightmare this month.
They haven’t. They’ve been trapped in a movie.
Namely: a 2006 remake of the old Eddie Murphy and Dan Aykroyd classic, “Trading Places.”
In the film, two tycoons expect an orange juice shortage and try to corner the market.
When it turns out there is no shortage, the price collapses in panic selling and they lose their shirts.
This time it’s oil, not OJ. But it works the same way.
Amaranth Advisors, a Connecticut hedge fund open only to the super rich, just lost a huge chunk of money - $6 billion - on oil and gas prices. And it’s not alone.
The word in the markets is: Don’t be surprised if we hear about more Amaranths in the coming weeks.
One money manager downtown told me, “We’re clearly in panic-selling mode. God knows where this might level out. We’re in the hands of fools here - including all the Wall Street firms who are now denying they were ever bullish of energy.”
The reason: Hedge fund managers were busy all summer buying up energy stocks and futures. They were anticipating another Katrina-style hurricane, and another fuel shortage.
No Katrina, no shortage. And they were left holding the bag.
The result? Panic, and a price collapse. Funds are rushing to sell before anyone else. And they’re losing billions.
How bad is it?
Oil futures: $61 per barrel, down from a summer peak of $78. Gas futures: $4.52 per 1,000 cubic feet, down from $9.25. Shares have collapsed across the sector. It’s a bloodbath.
What does this mean for you?
I spoke to a handful of money managers who really know what’s going on. Their take? They are watching like a hawk, and getting ready to buy energy stocks.
These may yet fall further, they warn. Especially if there is more panic selling. But some are already starting to look pretty cheap.
Their picks? Canada’s Suncor (SU, $66.14), ConocoPhillips (COP, $57.33), Chesapeake Energy (CHK, $28.73), and Devon Energy (DVN, $60.64).
For those who like to sleep easy, exchange-traded energy funds like State Street’s “Energy SPDR” (XLE, $50.35) or the Global S&P Energy Sector iShare (IXC, $97.32) invest in a basket of stocks. I have some money in IXC.
Naturally, these are bargains for the brave. They may get cheaper still. Ditto if the whole stock market tanks - and it might. You wouldn’t want to bet all your chips, least of all at once.
But these are conservative, well-managed companies and you can buy them at sale prices. History is pretty clear: On a long-term view, that’s where the ordinary investor can make money.
Everyone is afraid to buy. And where two months ago the mainstream business media was breathlessly quoting predictions that oil was about to go to $110 a barrel, now they’re breathlessly saying it’s going to $40.
Do you think the bull market in oil is over?
Maybe . . . if you think two billion Chinese and Indians are going to stop building shops and factories, buying cars and installing air conditioning.
And remember: Even after the 1973-1974 energy crisis sparked widespread conservative changes, worldwide oil consumption still went up by 11 percent over the next five years.
It took a second crisis in 1979, and a global recession, to reduce global consumption.
Temporarily.
I read earlier that oil prices rose slightly today on fears that OPEC may trim production levels and the ever looming possibility that an asteroid may hit the Saudi Oil fields.
The hedge fund industry went from a handful of very sophisticated operations to thousands overnight. In order to justify their high fees they have to deliver big returns. Lately the returns have been about equal to T-bills, so they started making stupid bets.
Not only this summer, from the very beginning of the phony "shortage" due to what were we told? "Delivery problem(s)"?
HA!
"Jerks."
GREEDY jerks, all enjoying a richly deserved slow drown.
...ain't gravity great.
Bingo ! OPEC is as hooked on $60 oil as we are.
That doesn't matter anymore as price has become disconnected from inventory levels. All that matters is how many dollars the hedge funds pump into the market.
http://www.freerepublic.com/focus/f-news/1680716/posts
Since I just filled my SUV at $2.45 per gallon, I would be happy to open any windows for these hedge fund managers if they should choose to jump!!!
Yes but inventory levels are very similiar to 1988 when oil traded for $15 per barrel?
What has changed?
I meant 1998.
My tactical reserve is still good for a couple of weeks.
After the BS last year, I made sure I could go through August and Labor Day without the necessity of buying petroleum.
So you replenished your tactical reserve at or near the peak and are still stuck burning expensive fuel while the rest of us are enjoying the dropping prices?
That'll show them...
/sarcasm
I hope $oro$ is one of those losers.
####
I second that emotion.
The regulation of oil trading was changed in 2001. Look at a price chart since...nearly straight to the moon Alice!..Straight to the moon!
Trading mistakes usually come to down one of two things: fear or greed. In Amaranth's case it was greed. How they could not take profits on the massive Natural gas rise into hurricane season is beyond me. And dont they have any technicians there? Nat gas had a big spike then retacement, then a new high made, with a big sell divergence. That was a clear sell signal for anyone who has taken even the most rudimentary technical analysis course.
Should all Americans be able to store even a month's worth of fuel, a slow reserve buildup, followed by two weeks of no purchases for local driving, there would be a demand negative spike that might wake a few people up. Doing this a couple of times might result in some longer term supply contracts at fixed prices being made available to retail customers. To a large degree the execution of the WOT is in many ways constrained by our imported oil consumption.
It seems like most Americans are looking to the gov't to make other people do something about their personal consumption. I tend to believe in the benefits of personal initiative and am too old to be taken into the military to be able to directly take action.
What are you doing to help?
I would love to be able to buy my natural gas, gasoline and electricity, and water in the form of futures contracts...to take delivery from my local distributors..
He must have been managing it himself. :-)
It's also pretty moronic to sit and watch for a year as your portfolio loses 80%. Didn't he ever hear of a stop loss?
One can only hope that "Mama T" wasn't in this too heavily or John Kerry will be out looking for another rich widow.
Disclaimer: Opinions posted on Free Republic are those of the individual posters and do not necessarily represent the opinion of Free Republic or its management. All materials posted herein are protected by copyright law and the exemption for fair use of copyrighted works.