Tame Trading an easier way to trade

The Rant:

First a quick review: the back of the rally in Oil is broken. Yes, this is a good thing for pretty much everyone, except those long oil with no intention of taking delivery. Since oil peaked at $147, open interest in the GSCI Energy components is relatively unchanged. Despite a 20% fall in the price of oil, the shorts have not covered and or if you prefer, the folks long oil when it was $147 have been unable to close their positions.  

Commodities are a zero sum game. For each long there is a short. When prices go up the longs get the money the shorts are losing. When it goes down the longs hand their money over to the shorts. Commodity markets don’t make or destroy money the way equity markets do. They just move money from here to there and back again. The level of open interest determines how big the flows are.

The commercial Oil producers are not happy about having sold the bulk of their future production at lower prices. Despite what oil executives may say on TV they have a pretty good handle on how much it costs to get oil out of the ground, refined, and delivered to the pump, which means the oil companies know exactly where oil should be trading. When Oil prices are above their internally known price area they sell short locking in above average profits. When oil prices are below, they will buy oil for less than they can produce it, locking in above average profits. If they missed out on selling at higher prices, they are not worried, time is on their side. They intend to deliver the oil to those that bought it and can’t take delivery.

I can’t emphasize this point enough. Oil is coming down. If you are not happy about lower gas prices, well, the rest of America doesn’t care. I bought gas for $3.59 per gallon today…Oh my, how sweet it is.
Consumer confidence is rebounding as oil continues to plummet (though oil is due for a bounce.) Assuming the trend in oil continues lower as it should, consumer confidence should continue to rebound…into the election perhaps? (I wonder which campaign’s strategy is counting on this likely trend.)

The rise in consumer confidence should be just enough to make the economic reports look, well, not as terrible as they really are. Oops, there it is:
Economic and banking reality. We are half way home. Total bad loan write offs

Editor’s Rant:

After the week’s wild ride I can’t help but touch on a few long running themes.

It (the rally in oil) won’t be over until we hear a story about “Some poor sap” that lost it all betting on oils continued rise.  The point of said comment was that once oil finally broke down that it would come crashing down hard and fast.
In one month Oil is down 21% from its high of 147.3 to 114.97. And apparently, (heard via rumor as opposed to confirmed fact) CalPERS, (California’s 250 Billion Dollar Retirement Fund) has decided in fact that it has little need for its suspected $5 Billion investment in raw energy commodities (read: Oil and gas futures) and has begun reducing its position.