Recognize This False Construct

 | Aug 15, 2014 | 5:00 PM EDT  | Comments
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Now this insane market wants to see copper and oil up. The market wants confirmation that the slowdown isn't etched in stone and that the decline in oil was being viewed directly as a plummeting in business -- not a surfeit of supply -- and the decline in copper was meant as a sign of a China slowdown.

I think this fickle nature is 100% computer driven. When oil is up, people buy the oils with the most beta and they buy the industrials. When oil is down, they sell the industrials and they flee beta. When copper is up, they buy the deepest and dirtiest cyclicals. When copper is down, they buy the soft goods and consumer products stocks.

They do this regardless of whether it makes sense on a given hourly basis. They do it because it is something to do instead of thinking. I don't mind it. I just wish we would recognize how mindless it is.

If oil stays at $95 per barrel, for example, do people buy the oils or sell the oils or do nothing? The machines would say do nothing. If copper stabilizes, they do nothing.

In reality, though, these markets are no longer perfect tells of anything. For  my book, Get Rich Carefully, I examined the interaction among oil, the oil stocks, natural gas and the actual earnings of the companies. There was zero correlation on a quarter-to-quarter basis. All that mattered was production growth.

As for the price of oil, it is increasingly being set here and the decline in use isn't as important as the surfeit of supply. You think Rich Kinder would be setting up for tens of billions of dollars in projects if we weren't in much more of a glut than most realize? Go back over what Rich said when I interviewed him. He said we are getting set up to be a real exporter of oil.

When we do, there will be a backup of oil coming from Nigeria and Venezuela that will force oil down no matter what. Weakness? No. Supply.

Get used to it. That's why the relations aren't holding. Look for ten million barrels a day from this country in two years. We could do it now if we just had a place to put it. And stop relating the price of oil to the economy. It's a false construct. It's just something to do. 

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