Contrarians, Cheap Oil, GM, & Bailouts

by John Dalt

Dec 22, 2008

Friday I was feeling sure of myself on predicting oil rising to heretofore-unknown levels by the end of 2009.  That was not my intention.  I cannot predict when oil will begin its ascent to $150 a barrel and higher.  I just know that it will.  I believe the price will depend not on the world economy, but the perception of it.  The price will not depend on shortages at the moment, but the perception of supply disruption.  Right now, it seems we are blissfully buying gas and chuckling about OPEC taking it in the shorts.  I would not be too quick to think the U.S. consumer has won just yet.  I made my verbose prediction in this spirit.  I have a contrarian streak that I try keep in check, but when something is too good to be true…..Friday, the January Oil contract closed at $32, a five year low. 

Being a contrarian can sometimes lead us into a twisted thought process that we can identify an ignored profit opportunity.  I always try to remember my “rat brain” and make sure I am not making a primitive subconscious decision that will lead to my destruction. For example, if you own GM stock, sell it.  GM is bankrupt at this time; the market just does not seem to want to admit it.  They are choked by union contracts, heavy debt, and declining sales.  The bailout offer will force them to become an agent of the government.  Do you really want Barney Frank on your board of directors?  I am reminded of the story about the IRS foreclosing on the “Mustang Ranch”.  They tried to operate it while they looked for a buyer.  The government lost money.  If they cannot run a world famous whorehouse and make money, what makes you think they can run GM? 

Commercial Real Estate developers have written a letter to Treasury Secretary Paulson asking for $200 billion to bail out the commercial real estate market.  The line just gets longer of people and industries that think they should get a bailout. 

I am in a better mood when the market is up, I will have a better letter tomorrow! 

WARNING:    The information presented in this newsletter is based on generally available news releases, corporate filings, current events, interviews and the editor’s opinions.  It may contain errors and you should not make investment decisions based solely on what you believe you have read here.  Do your own research, it is your money.  If you lose it, it is your responsibility, not ours or your grandmothers!  The editor may or may not have a position in any securities discussed.  The editor may have held a position in a security earlier, or in the future.

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