FYI | Dec 24 2008
“To be honest, I thought you were an idiot.”
Ten days ago I had a telephone conversation with one of our many readers. The quote above was the second or the third thing she said to me after I had properly introduced myself. She continued by explaining how she had been telling all her colleagues at work, her husband at home, anyone she encountered “there was this guy who believed oil was going back to US$70 or US$80 per barrel”.
What an idiot.
Obviously, by now we all know how this story developed. Oil did not only come back to US$70-80, it did so very quickly, and that was still only an intermediate pause on its way down to US$32-something last week.
I could easily throw in a dozen more anecdotes since May. I have had people approach me on the ferry, and I estimate more than half of the party poopers at a recent Christmas event asked me about my view on the direction of the price of oil.
Looking back since the turn of the share markets in November 2007, we have done a lot of good things here at FNArena. It may seem far off and totally irrelevant now, but in February I pointed out that market fundamentals were changing for copper and the market had yet to catch up on this.
Weeks later copper producers were among the very few who had managed to post share price gains amidst the total carnage that had taken place in the market back then already.
In August I warned everyone (who paid attention) that the largest correction was coming for commodities for as long as people can remember – well, we’ve all seen how correct that one proved to be.
These are only a few examples, but you get the idea. Yet, it seems that when people look back into the year past in relationship to FNArena and all most can think of is: oil.
And so it is that the most asked questions these days are about oil. Do I think it will bounce? Yes, I do, eventually. Do I think it will go lower? Yes, as a matter of fact I do.
I have seen commentators publicly eat humble pie, stockbrokers declaring it is simply a mystery and “nobody could ever predict it” and I have seen experts hold on to their forecasts that oil will be back at US$90-100 next year – I do not want to belittle their views and expertise, all I can say in response is that I felt very firm in my analysis back in May and I have felt similarly all through oil’s price fall from US$147 the whole way down until this week.
We’re going to have a synchronised global recession. The world is deleveraging. Investors have been burnt, and burnt again. I see signs on a daily basis that global oil demand is in decline, and in decline faster than what happens on the supply side of the market.
US$80 per barrel? Sorry, but I simply cannot see it happening, not any time soon, and not until things change dramatically – which is, I believe, highly unlikely for the months ahead (see previous paragraph).
Investors willing to play what appears to be an oversold oil sector should take their cue from the latest oil price revisions by securities analysts, in my view, and these are centred around US$45 – as an average for 2009 in its entirety. Forget about US$70, US$80 and higher. That’s future music.
And so I wish for 2009 that amongst the many good things to which I aspire, I will be able to see what I did with copper in early 2008 – but this time it will have the magnitude and the appeal of oil, or of commodities since August. Maybe some readers might then start addressing me differently in their emails.
Above all, however, I wish a much better year ahead for all FNArena readers and subscribers. I feel truly privileged being able to operate a truly independent financial medium, in the way we do it at FNArena. We could not do this without your support.
The best thing we did this year, in my view, is that we never tried to talk any of you back into the market. It has been an approach that has generated many “thank you” emails throughout the year. None of them has been as powerful as the one we received recently from reader John B. I am replicating it in full, as John suggested I should:
“Dear Rudi,
“Your realism and pessimism has resulted in me remaining 75% in cash since the market highs of 2007. By that reckoning you have saved me several million dollars in losses and set me up to make several million in profits when all this ends!
“Your moderate subscription was a little price to pay for all that!! Thanks to FNArena I sleep soundly every night. Publish this note if you want, as an endorsement of the wisdom contained in your site.”.
What has been the worst thing? In my view it was our apprehension in going fully bearish early in the year. We had finished the previous year on a worried note, my first story in January concluded with: why would you want to step into this market?
It should have been: get the [beep] outta here!
Just shows you there’s always room for further improvement.
FNArena is now taking a break. It has been a hectic and intensive year. Your heroes are in desperate need for something else than worse than expected developments in China and broker expectations behind the curve. We’ll be back on January 7. Our website remains accessible at all times. We recently improved our dividend search functions – check it out via the FNArena Sentiment Indicator.
Before I leave, however, I have a few more snippets I’d like to share.
1.) (for all the bargain hunters that got burned this year) What’s the definition of a stock that has dropped in value by 90%
Answer: that’s a stock that first dropped 80% in value, and then halved.
2.) A quote from one of many victims of “the largest correction for commodities for as long as people can remember”, this one is reportedly from Brian Rear, managing director of failed CopperCo:
“If copper is a dog and all you produce is copper, then you’re a dog.”
3.) And this one has made me laugh for at least half an hour a day since I read it somewhere: The modern definition of a resources analyst?
Answer: “Wronger for longer”.
4.) The most commonly used excuse in the market these days:
“Nobody else predicted all this either” (in various variations).
Let’s be honest, most experts have been way too slow to adjust and catch up with what is happening. Some have been, on my observation, at least 75% on the sorry side of the market in everything they said and wrote throughout the year past.
Meanwhile, there have been voices around that did look into the right direction, and did not dismiss indications simply for the sake of telling a positive story.
5.) It is not our aim to be on the bullish side of the market, or on the bearish side, but on the correct side of it.
While many readers have taken the view that FNArena often publishes what they perceive as “bearish” news stories and analyses, I’d like to point out that the motto above is what we adhere to. Facts are facts, hope is hope. (In case of doubt: there is a difference between the two).
I’d like to think we have been correct very often since the term “sub-prime” hit international headlines in mid-2007. I can only hope this has been the perception of many of our readers too.
With these thoughts I leave you all,
Best Wishes, Prosperity and all you can possibly desire,
Your editor,
Rudi Filapek-Vandyck
(supported by the Ab Fab team of Greg, Andrew, Grahame, Chris, Joyce, Pat and George).
