Lets get something out in the open, for those of you who are just a little slow, it doesn’t matter where a country buys its oil from, it must still pay market price. Oil has a very inelastic demand. This, some of you may have already concluded, means that the talking heads on the TV do not understand economics 101. To be 100% clear: every country, including the USA, must pay market price for oil. Therefore it is completely irrelevant that the USA imports a marginal amount of their oil directly from Libya. If you can’t understand this, I suggest you taking your money out of the market, cash it out of your accounts, and light it on fire – as that would be a more productive use.
Next I would like to address the notion of high oil prices being detrimental to the economy. It is certainly true – however people (mostly Americans) assume ‘the economy’ means the American economy. High oil prices are so detrimental because they effectively reduce consumption worldwide, hence demand worldwide and also increase the input costs of things like… food. No one cared about the 41 million Americans on food stamps before this Libya mess, or the massive fraud in the housing markets, or that housing is still overvalued, or that unemployment isn’t coming down fast even with statistics wizardry, or the unsustainable level of government spending – but thats nothing to stop a rally in equities right? But god forbid we have $100 oil.
Bottom line: the American economy is fucked because they have exported their manufacturing base to China (ever wonder why there is no rare earth refining done in the USA), blown 2 massive bubbles in 10 years (on the way to number 3), are destroying their currency, fight in retarded and unnecessary wars, have shouldered the costs of policing the world (read: impose their will on others via military), and have a political system spawned from generations of inbreeding and fueled by corporate payoffs (read: lobbying) – NOT because oil is trading at over $100 a barrel. If you do not believe that, then likely you are listening to some politician who is blaming your woes on the ‘evil speculator’ because really, he hasn’t got a fucking clue and doesn’t care who you blame, as long as its not him (or her).
Sorry, now that that is out of the way, onto the market.
Today was a terrible day to be a bull, the gap up gave hope of a renewed uptrend – or at least a break through and hold of the 1330 level – only to viciously crush anyone who purchased anything in the first half hour (I got stopped out of a trade in ACI almost instantly). The bears clearly had control until later in the afternoon when the bulls managed to regain the 1315 level only to lose it into the close. Overall, today marketed the transition from bullish to neutral in the market, in my opinion. Accordingly I took the money from selling half my NGD calls on friday and invested it into some more GLD 140 April calls and a few SPY 130 April puts as a hedge. My portfolio is holding up very well as the market corrects. As I am heavily weighted towards the PM’s in my portfolio only a small hedge was required – and I am still net long biased. Today my largest kick to the balls came courtesy of GTE who loves to drill fucking empty holes. I am still holding my calls, as they are for May, and may even use this opportunity to add more – should the market find some direction. BG is also floundering, but as almost every stock is, I will give it some more room.
Finally, if you believe silver is overvalued because of the gold to silver ratio trading out of its range, I suggest you become a little less ridged in your thinking. A correction in silver is one of two ways the ratio could return to its normal (whatever the fuck that means these days) range. I suggest you think long and hard about the other alternative.
Charts will follow.