Saturday, March 11, 2006
The Energy Bubble
If you disagree with me on this chart, all else beyond this point means nothing. But I look at the diesel price chart and see the obvious impact of a trading bubble being created. Everyone that buys into the energy commodity sells for for a bit of a profit. Active trading drives the price up. Kinda of like activity in housing. You can see the clear progressing line that the chart has been following. But the laws of supply and demand have no relationship with this chart. Oil trading above $60 a barrel is a trading number. The fact is more and more oil is produced every day for less and less money. What can send the produce fuel commodities falling? A new refinery? Anybody knows what's going on south of our border where 50% of our oil comes from (that's right the middle east is only 15% how we ever allowed those clowns to manipulate what we think oil is worth is beyond my thinking)?
Mainstream thought here is that rising energy prices will drive consumer cost up, driving inflation, driving interest rates up.
For all it's worth there is another thought. Energy is a tax on the economy that slows the economy down. It does not makes sense to tax the economy twice with raising the interest rates.
But here is my though on the matter...
The diesel cost has a real impact on the economy. Every truck you see on the road gets about 3 miles to the gallon!!! This of course impacts the costs on everything you buy whether it's food, cloths, cars, furniture, ects., The more you are forced to spend, the less government can tax the people. We talked about the surging US Dollar and how because we have a system based off profits versus the European system of consumption. Our government should have a greater in flow of cash than European countries and our dollar should surge against them. AND IT HAS. The rising dollar is why despite rate increase after rate increase from the Feds our T-Bill rates have remained low keeping our mortgage rates low. But what happens if oil crashes?
If the cost of energy is a tax on all countries ability to produce wealth. Then a crash in oil should create a surge in a world currency. But in this world of relativity can this be measure? IT CAN AND IT WILL...
Gold will crash and burn with the collasp of energy cost.
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Called this one "spot" on. Good job. Energy prices will collapse back to long term trends not with new capacity but with even a modest drop in demand. Right now the refineries are near capacity but there are massive structural impediments to expanding gapacity. The oil refiners know that the cartel can drop oil to $25 any time they wish so they have to base investment decisions, $10s of billions on that price. THe Us and other 1st world nations impose monster regulations as well. Several OPEC nations are getting into the business "upchain" building refineries themselves and planning to ship finished product instead of crude. Who would go up against that market? Besides when you are a refiner with capacity constrains you can charge more, much more. Regardless of the potential investment returns expanding capacity REDUCES your profitability. Nope, increases in renining capacity are not going to happen beyond the long term trend in demand and based on the economics of $25 oil. We need a demand side solution to this usurious sitituation.
As a result of that chart (which is used by trucking companies to price in excallation in fuel cost prices) I have been told by my boss to add $.60 a ton per stone delivery (A truck carries about 20 tons of aggergate).
The chart is so freaking consistent that the answer on hoe to price your cost 6 months out from now seems obvious.
I'm thinking now is the time to play the reverse of the energy investment.
To produce portland cement (the magic powder in Cement) Lime stone with some various metals has to be heated to somewhere between 2,000*F and 3,000*F
Just as my bost told me to add $.60 to all the aggregate prices for summer deliveries. I'm guess the portland cement manufactures added BIG TIME. Actually I pay those bills so I know they added 12% for concrete cost and the protland cement is of course the main reason, yet it is only about 50% of the cost of concrete.
Cemtex looks like a good play to me. I bet their cost drops like a rock, leaving behind a huge profit margin.
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The chart is so freaking consistent that the answer on hoe to price your cost 6 months out from now seems obvious.
I'm thinking now is the time to play the reverse of the energy investment.
To produce portland cement (the magic powder in Cement) Lime stone with some various metals has to be heated to somewhere between 2,000*F and 3,000*F
Just as my bost told me to add $.60 to all the aggregate prices for summer deliveries. I'm guess the portland cement manufactures added BIG TIME. Actually I pay those bills so I know they added 12% for concrete cost and the protland cement is of course the main reason, yet it is only about 50% of the cost of concrete.
Cemtex looks like a good play to me. I bet their cost drops like a rock, leaving behind a huge profit margin.
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