[DEBATE] : (Fwd) Oil as financial bubble
Riaz K Tayob
riazt at iafrica.com
Mon Jun 23 08:19:25 BST 2008
What is speculation, according to some, even hawkers selling on the
street are speculators - as opposed to "traders" - so ...
Patrick Bond wrote:
> Dotcom crash, credit crunch ... oil bubble?
> Jane Merriman | London, United Kingdom 20 June 2008 04:15
> The dotcom boom and bust shook the world economy almost a decade ago,
> last year the credit crunch seized up financial markets, and now an
> oil price bubble may cause more havoc.
> A rapid price surge, big investment inflows and a chorus of bullish
> analysts are some of the characteristics of the oil market that have
> echoes of the internet boom of 2000.
> In the dotcom era, securities analysts and strategists talked of a new
> economic paradigm created by the internet and high-tech companies. It
> didn't matter that many "new economy" companies had barely any
> revenues or profits.
> This time analysts and economists point to a structural shift in the
> price of oil. Supply will struggle to keep pace with huge demand
> growth from China and India for years to come.
> The word "bubble" has started to appear regularly in investment bank
> research and in the media, given oil's virtually uninterrupted climb
> this year.
> "Bubblemania" was the title of a Barclays Capital note published
> earlier in June.
> If oil were to reach $150 a barrel, it would bring the market
> capitalisation of oil and gas equity in the S&P 500 United States
> stock market index to more than 25%, exceeding the valuation of
> technology stocks at the peak of the dotcom bubble, Deutsche Bank
> estimated in a research note.
> "The obvious parallel in our mind is we think oil is overvalued where
> it is priced based on the underlying fundamentals, which is a parallel
> to the dotcom boom and bust," said Michael Waldron, oil analyst at
> Lehman Brothers.
> Oil has doubled in price in the past year and has climbed by 40% since
> the start of 2008 to nearly $140 a barrel.
> The Nasdaq stock market index, where many dotcom companies listed, hit
> a peak of more than 5 000 in March 2000. But by the end of that year
> it had halved in value.
> Some predict a similar fate for oil.
> "If there is a genuine downtrend in industrial growth, there is going
> to be a fall. If that happens, then you can expect a fall as sharp as
> the rise has been, maybe even sharper," said Sunjoy Joshi, a former
> Indian Oil Ministry official now at the International Institute of
> Strategic Studies in London.
> Politicians in the US and Europe, facing protests over high fuel
> costs, blame speculators for the price hike. They point to hedge
> funds, investment banks and even pension funds, which have moved into
> oil and other commodities in search of portfolio diversification.
> In 2003, 10 investment banks paid out $1,4-billion in a settlement
> linked to conflicts of interest in equities research after a
> regulatory crackdown that followed the Dotcom crash.
> US politicians are already looking at possible curbs on pension funds,
> institutional investors and investment banks in the crude-oil futures
> markets. One proposal would ban pension funds and institutional
> investors with more than $500-million in assets from futures markets;
> another would set trading limits on investment banks.
> Barclays Capital has estimated investment flows into commodities
> totalled about $225-billion at the end of the first quarter this year,
> but the bank does not believe there is a price bubble. "Nor do we see
> the involvement of institutional investors as being a cause of price
> rises," it said in a note.
> While dotcom parallels exist, there are also some major differences.
> "Oil is a physical commodity with a finite amount while internet
> stocks had an unlimited supply that was created out of thin air," said
> Evan Smith, of asset manager US Global Investors.
> Analysts point to real supply constraints in the oil market that
> result from under-investment, both upstream and downstream, that has
> coincided with the emergence of China, India and the Middle East as
> new large consumers on the world scene. -- Reuters
> DEBATE mailing list
> DEBATE at debate.kabissa.org
More information about the Debate-list