The Mara River Meets Wall Street

[Svenwulf]

found this and thought it was worth the 3 minutes to read:

from Steve Sjuggerud's Daily Wealth:

The Mara River Meets Wall Street
by Tom Dyson
September 18, 2006

Every year in June, in search of grass and water, three million wildebeest move from the Serengeti grasslands in Tanzania to the Maasai Mara grasslands in Kenya. And every October, they go back again.

The scale of this migration is hard to imagine. Try this: From a satellite in space, the animals look like a black stain moving across East Africa.

The Mara River crossing is the final – and most perilous – hurdle of the long journey. It’s nature’s way of controlling the wildebeest population. The banks are mostly jagged and cliff-like, so in most places, it’s a long drop into the river. It’s easier to cross the river where the banks are depressed and there’s less vegetation. The herd gathers at these points.

The river is high from rains upstream and the current is strong. The mud beside the river is very heavy too. But a worse danger lurks in the water: crocodiles. The waters are crowded with Nile crocodiles. They know there’s a walking banquet on the way, and they gather at the fords.

The animals pace up and down the bank, grunting loudly, eyeing the dangerous river. They are anxious. No one wants to go first. Finally one animal takes the lead and lunges in. The crowd then surges into the river behind.

Carnage follows. Thousands of wildebeest charge the river. Some animals are trampled to death. Others panic and dive in where the bank is too sheer. Many drown, especially the young. And all around, crocodile jaws thrash about in the water, snapping at the weak swimmers.

It is estimated that up to 25,000 wildebeest die at the Mara River each year.

I love Africa… and I’ve written about investing there many times this year. But this column is not about Africa. It’s about the manic behavior of investors in the commodity markets this month. They’re acting like wildebeest. And right now, the crocodiles are tearing their guts out.

News of huge inventories is spooking the energy pits. “Storage is almost maxed-out,” said one analyst. “Soon they’ll have to cap the gas wells.” Oil is down 19.6% in the last 35 days. Natural gas hit its lowest price in two years yesterday.

The Financial Times says the panic in oil and gas has spread to the metals. Gold is down $65 in the last eight trading days, a 10% loss. Silver is down $2.50 over the same period; a 21% drop.

Wall Street says this is the beginning of a new bear market in commodities. I found research from Morgan Stanley, Deutsche Bank, Merrill Lynch and Citigroup in the last few days on this matter.

Wildebeest. Don’t believe them.

The fact is, commodity investing is a volatile business. These panics are nature’s version of the Mara River. If you don’t have conviction in your long-term investments when the panic hits, the crocodiles will eat you. They call it “shaking out the weak hands.”

So the message is this: Commodities are in a bull market. Don’t panic. These corrections are good news. They make the herd stronger by culling the weak and they give us an opportunity to buy more at cheaper prices.

Good investing,

Tom

[TonyM]

Interesting analogy, I'm not keen on Crocs...I think I'll hang back until their belly's are too full to have any interest in me :wink:

[Svenwulf]

sounds like you gotta outa DK tony? just posting this propaganda because i am still taking the pain. actually adding anytime i hear cnbc talk about how much blood is in the oil ring. not trying to toot my own horn, but i called the top in the middle of july (will gladly repost hehe) still say we have a few weeks before bottom. that said, i would never be foolish enough to think i could call tops and bottoms, and this is why i continue to scale into BOB crudes and golds. definetly not for everyone (guess thats why they call it contrarian) i am confident these companies are highly profitable even with $50 crude.

[Svenwulf]

i am not alone- more propaganda:

Profit from the Big Drop in Oil Prices


Peter Schiff
September 23rd, 2006 C.E.O. and Chief Global Strategist, Euro Pacific Capital, Inc.
pschiff@europac.net (pschiff@europac.net)
www.europac.net (http://www.europac.net/)
Over the past several weeks, oil and gas prices have fallen sharply, prompting many to conclude that the bull market has finally run its course. With oil prices back to $60 per barrel, most are now calling for prices to fall back below $50, and some see even lower prices dominating in the years to come. As there is no real evidence that suggests an abatement of those forces that pushed oil prices up from below $20 six years ago to near $80 dollars last month, such rosy forecasts really amount to wishful thinking. The recent sharp decline is likely technical in nature, providing long-term investors with an excellent opportunity to build on established positions, or create new ones.
Oil’s impressive gain over the past six years has attracted "hot money" from leveraged speculators, particularly hedge funds piling into the market. This has resulted in increased volatility, particularly on the down side. This week we learned that Amaranth Advisors, a $10 billion dollar hedge fund, blew up, losing better than 60% of its value as a result of highly leveraged natural gas bets that turned bad. The unwinding of these huge positions obviously exacerbated recent declines, and will likely help form a significant bottom to this correction. It is important to remember that the speculative money is not the driving force behind the underlying move. The fundamentals have been powering the energy market for years, and will likely continue doing so regardless of how many speculators tag along for the ride.
I have been buying oil and gas related stocks for my clients since 1996, long before the recent run up caught most investor’s attention. In the 2002-2003 run-up to the invasion of Iraq, when most strategists were calling $30 oil a temporary fluke, reflecting a “war premium,” I agued the reverse. My take was that oil prices actually reflected a “war discount” and that rather than falling when the war ended, oil prices would rise even further. See my commentary from March 13th 2003 entitled “There is no "war premium" in the price of oil!” available here (http://www.europac.net/archives.asp?year=2003&qtr=1). In fact, I was one of the first on Wall Street to officially forecast oil prices of $50 dollar per barrel. After that forecast proved accurate, and most top Wall Street strategist were calling for prices to collapse below $30 per barrel, I was one of the few who correctly forecast the move above $70 per barrel. In a Barron’s article dated November 2, 2004, with oil trading just shy of $50 per barrel, and oil strategist at both Merrill Lynch and Salomon Brothers predicting a quick return to the $30 level, I was the only one quoted who accurately predicted oil prices rising to $70 per barrel.
There are two primary reasons that I still believe oil prices will continue their long-term ascent. First, years of cheap oil, and the false perception that prices would stay low indefinitely, lead producers to under-invest in exploration and development, and consumers to over-utilize energy resources. As a result, it will take a long time for supply and demand to readjust to the new reality, ensuring high prices for years to come.
Second, once Asian central banks finally allow the U.S. dollar to collapse, Asian demand for oil will surge. That is because appreciated local currencies will not only make oil cheaper for Asian consumers to buy, but result in risings living standards throughout the region. As the values of their savings and incomes rise, more affluent Asian consumers will then be able to afford more energy utilizing products. Currently the purchasing power of Asian consumers is being suppressed by their governments' foolish policies of propping up the purchasing power of American consumers.
Since there will not be enough new oil to satisfy the explosion in Asian demand, it will instead be satisfied with oil previously consumed by Americans. The flip side of increased purchasing power for Asians will be decreased purchasing power for Americans. As a result, precisely when oil gets cheaper for Asians, it will get more expensive for Americans. As the value of Asian wages and savings rise, those of Americans will fall. The extra oil consumed by wealthier Asians will no longer be consumed by poorer Americas, who will therefore be forced to conserve and economize in ways currently unimaginable.
As the yuan or yen price of oil drops, the U.S. dollar price of oil will surge. Therefore American investors, who hold oil investments instead of dollars, will in effect be able to preserve their purchasing power and protect their current standard of living. One of the best ways to accomplishing this is by purchasing Canadian energy trusts. These unique investment vehicles offer tax-advantaged, consistently high, monthly income directly related to the price of oil and gas. With many funds off 20% or more from their recent highs, now is likely an excellent time to invest. To find out more about Canadian energy trusts, to see how adding them to your investment portfolio might benefit you, and for a fuller explanation of both the risks and rewards of investing, download my latest research report “Energy & Double Digit Yields: Canadian Energy Trusts Explained” by clicking here (https://www.europac.net/report/index_energy.asp?s=euroweb). This compressive, exclusive report, is offered free of charge, and is a must read for anyone considering investing in this area.

Peter Schiff
September 23rd, 2006
C.E.O. and Chief Global Strategist
Euro Pacific Capital, Inc.
pschiff@europac.net (pschiff@europac.net)
www.europac.net (http://www.europac.net/)

[TonyM]

sounds like you gotta outa DK tony? just posting this propaganda because i am still taking the pain. actually adding anytime i hear cnbc talk about how much blood is in the oil ring. not trying to toot my own horn, but i called the top in the middle of july (will gladly repost hehe) still say we have a few weeks before bottom. that said, i would never be foolish enough to think i could call tops and bottoms, and this is why i continue to scale into BOB crudes and golds. definetly not for everyone (guess thats why they call it contrarian) i am confident these companies are highly profitable even with $50 crude.

Nope, still holding. I'm not crossing that panic sell river is what I intended to imply.

Everytime I look at the company's fundamentals I just can't believe that they are losing money, the crack spread is lower but the refinery operation will still be making money. The earnings report will obviously be key, if they at least meet that .60 eps estimate I beleive the stock goes higher just because they hit the forecast with a massive drop in crude, proving the analysts wrong.

Crude costs less, so what? If you are a refiner your cost for raw product just went lower, so did your selling price for the finished product but it's not like you're losing money. I equate this thinking to the way insurance companies calculate losses in order to justify premium increases; ABC insurance Co expected to post $100 million in profits for 2005, however the actual profit was $80 million, therefore the company lost $20 million. I wonder if the IRS will let me use that strategy for next years tax return?

I think the oil bottom is close, and will likely bounce back and forth between $60 & $63 (give or take a dollar or so) until early November, I think OPEC announces plans to trim production at that time. I don't think there is a conspiracy to hold prices down due to the elections per se, but I also don't think any entity that could raise the prices would want to do so until the GOP is safely back in control (if they are successful) If the Dems take control, perhaps we get a fat increase so that when the Dems start pushing for more taxation the price can be allowed to drop where we are now so that it looks like a discount was given (indirectly). I do think the media is downplaying any news that affects oil prices rising and are reporting every little meaningless tidbit about anything that drives prices lower.

Damn, I rambled on about oil again, sorry for my biased bullish opinion;)

[Billionaire Boy]

My family has always voted republican, but if there is any chance that oil could jump because of extra taxes, I'll turn dem