The Stupid Phase of Oil

Sunday, April 03, 2005 | 08:13 AM

When I guesthosted Squawk last month, I told Mark Haines that we were about to enter the "STUPID" PHASE of Oil. He raised an eyebrow on that one.

Yesterday's Goldman Sach's call for $105 Crude --and the markets reaction to it -- was a perfect example of what I was referring to.

At $40, we heard every rational for why Oil was overpriced -- but at $55, suddenly everyone discovers religon. Now, Oil is -- apparently -- going to a gazillion.

Here's an excerpt from our prior discussion about the "Stupid Phase:"

"We find it ironic that oil doubters -- the ones who were so harshly negative when Crude was between $40 and $45 -- have suddenly found religon. We recall hearing about the $20 "terror premium," the $15 bumb that speculators were causing. We were even warned that the Chinese economy was slowing (that implied lower oil, also).

Indeed, we had heard every "excuse" for the price of oil - except for the one that mattered: A gradually improving global economy, one that was concentrated in Asia but particularly in China and India. We would be remiss if we failed to note that over half of the vehicles in our neighborhood are gas-guzzling SUVs . . . 

As oil passed $50 on the way to $55, something intriguing occurred: The Oil Bears became rip roaring Bulls. We now enter what we academically refer to as “the stupid phase,” with calls for $100 crude and unsustainable gains in the energy sector.

Consider Jim Altucher's view:

"Goldman only changed its range from $50-$85 to $50-$105. The fact that the price of oil moved so quickly on a change in range from some analyst at Goldman tells me this move has nothing to do with the reality of oil's supply and demand and everything to do with short-term traders jumping in and playing the game." 

As we've observed previously: Its rarely the news, but rather, the reaction to that news which is so telling.

Sunday, April 03, 2005 | 08:13 AM | Permalink | Comments (8) | TrackBack (0) add to | digg digg this! | technorati add to technorati | email email this post



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was volatility falling when GS issued their report? Falling vols are never good for market pros.

Posted by: bernard1 | Apr 3, 2005 10:33:44 AM

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