Skip to main content

Oil vs. Nasdaq: the "bubble" view

As crude oil worked its way back towards the $140 mark last week, the recently favored view of oil as a "speculative bubble" was on full display in the media.

On June 13, a week after crude oil prices made a record move to $139.12 a barrel, Bloomberg covered the bubble view with a story entitled, "Oil Rally Topped Dot-Com Craze in Speculator's Mania". Investors Michael Masters and George Soros were there offering their views of prices in the crude oil market:

``I don't know if you can classify it as a bubble or not,'' said Masters. ``But there is no question that investor demand is having an effect on price. Very little of it has to do with physical supply and demand of crude oil.'' Masters testified at a Senate hearing in May on the role of speculators in commodities markets.

Gains in oil are the result of a ``bubble'' caused by speculation from index funds and a tight balance between supply and demand, Soros said in testimony before the Senate Committee on Commerce, Science and Transportation on June 3. ``The bubble is superimposed on an upward trend in oil prices that has a strong foundation in reality,'' he said.

So according to George Soros, the upward move in oil prices, "has a strong foundation in reality", while Masters thinks the move has "little... to do with physical supply and demand of crude oil". Interesting.

Well, differing views make a market, but it does kind of make you wonder where Michael Masters is getting his information on crude oil from, considering the recent phenomenon of shrinking global oil supplies meeting steadily rising global demand.

But, listen, I promised you the "bubble" view, and the bubble view you shall have.

Check out this nifty little chart that Bloomberg put together comparing the run up in crude oil prices to the decade long bull market in the Nasdaq and technology shares: "Crude rally surpasses dot-com boom".


So what do you think? Are recent oil prices a bubble or is this a bull market largely driven by supply and demand fundamentals?

Related posts:

"Oil: inflation meets tight supply" - Finance Trends Matter.

"The future of energy" - Finance Trends Matter.

Popular posts from this blog

Seth Klarman: Margin of Safety (pdf)

Welcome, readers! Signup for free email updates at the Finance Trends Newsletter . Update: PDF links removed due to DMCA notice. Please see our extensive Klarman book notes below. New visitors, please check the Finance Trends home page for all new posts. Here's something for anyone who has been trying to get a look at Seth Klarman's now famous, and out of print, 1991 investment book, Margin of Safety .  My knowledge of value investing is pretty much limited to what I've read in Ben Graham's The Intelligent Investor (the book which originally popularized the investment concept of a "Margin of Safety"), so check out the wisdom from Seth Klarman and other investing greats in our related posts below. You can also go straight to Ronald Redfield's Margin of Safety book notes .    Related posts: 1. Seth Klarman interviews and Margin of Safety notes     2. Seth Klarman: Lessons from 2008 3. Investing Lessons from Sir John Templeton 4.

Slate profiles Victor Niederhoffer

Slate's recent profile of writer/speculator, Vic Niederhoffer has been getting some attention from traders and finance types in recent days. I thought we'd take a look at it here too, to offer up some possible educational value from Vic's experiences with trading and loss. Here's an excerpt from Slate's profile of Victor Niederhoffer : " I've enjoyed getting your e-mails. It sounds like you've thought a lot about being wrong. Well, the reason you contacted me, to call a spade a spade, is that I'm sort of infamous for having made a big, notorious, terrible error not once but twice in my market career. Let's talk about those errors. The first was your investment in the Thai baht, which pretty much wiped you out when the Thai stock market crashed in 1997. I made so many errors there it's pathetic. I made one of my favorite errors: "The mouse with one hole is quickly cornered." That is key. There are certain decisions you make in li

William O'Neil Interview: How to Buy Winning Stocks

Investor's B usiness Daily founder and veteran stock trader, William O'Neil share d his trading methods and insights on buying winning stocks in an in-depth IBD radio interview. Here are some highlights from William O'Neil's interview with IBD: William O'Neil's interest in the stock market began when he started working as a young adult.  "I say many times that I didn't get that much out of college. I didn't have much interest in the stock market until I graduated from college. When I got married, I had to look out into the future and get more serious. The investment world had some appeal and that's when I started studying it. I became a stock broker after I got out of the Air Force."    He moved to Los Angeles and started work in a stock broker's office with twenty other guys. When their phone leads from ads didn't pan out, O'Neil would take the leads and drive down to visit the prospective customers in person.