I was wrong…

In a previous blog I had set the bottom for oil at $100-110.  I was wrong.  I had not anticipated the size of the unwinding of positions by the hedge funds.  On a relative basis, I was right.  However, the actual low is yet to be determined.  We are on the brink of an energy crisis independent of the financial crisis.  To sell a barrel of crude at these prices is an injustice to the imminent crisis of energy.  High prices evoke a response of conservation.  These prices send a false signal that "everything is back to normal".  The Far East will continue to increase its consumption as the overall supply continues its decline.  The Presidential election will lull us to sleep on the energy front.  Airlines should lock in their futures prices for fuel as Southwest did on the last round prior to sizable energy price increases.  They will look as smart as Southwest.

There will be continued volatility in the market.  As margin calls are satisfied, cash will replace energy "positions".  As redemptions occur in the mutual funds, quality assets will be sold to raise cash.  For those who understand fundamental supply and demand, there are some great opportunities for discounted stocks and related assets.  When people are afraid, guys like Warren Buffet are investing.  I expect oil back up over $100 in the next few months.

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