Wednesday, September 03, 2008

Back to School

It's early September. Labor Day is past and the kids are heading back to school. For me, as a homeschooling Dad, it's time to get back to work- teaching. Less time on the golf course and more time at home also means more time publishing my musings to this blog.

Thinking back on the summer just passed a line from the Grateful Dead's Truckin' comes to mind- What a long, strange trip it's been.

Back when school closed in the latter half of June the commodities markets were on fire, but soon to roll over. Oil was trading at $135/bbl on its way to $145+ while Gold was hovering around $900 after a late March run above $1000, to cite two examples.

Many, apparently, got on the long commodity train only to find, in hindsight, that it was ahead of schedule. One such fund, Ospraie Management, LLC, has "exceeded the 30% drawdown threshold that provides investors a right to redeem their shares," and has decided to close shop.

This event, as The Oil Drum guys posted recently, is reminiscent of the collapse of Amaranth 2 years ago. Apparently, the old "rule" that oil prices (which lag demand) peaks between Memorial and Independence Days, still holds.

Interestingly, US petroleum (and product) stocks, at least according to the EIA's monthly data, peaked in Sept. '06 at 1,785M bbls (87 days of use), as Amaranth was shutting down. As of 8/22/08 (thus not inclusive of Gustav effects) US petroleum (and product) stocks are 1,700.6M bbls (84 days of use). While Gustav was no Katrina, current levels of petroleum stocks, having climbed some 50M bbls since March '08, may also prove to be a local peak.

Timing, when trading with leverage, is everything.

2 comments:

STS said...

Dude,

Welcome back. I keep popping by to see if you're posting. Always a pleasant surprise to see a fresh post.

It would be interesting to hear more about your motivations/techniques for home-schooling, if you're inclined to share. My wife is homeschooling our son, so I'm definitely sympathetic, FWIW.

With commodities in retreat, where are you on the great '-flation' debate? I know: "fiat currencies breed inflation" and all that. But credit collapse is often sudden and self-reinforcing in a way that attempts at reflation are not. I suspect that "my animal spirits trump your fiat currency" under some circumstances.

Did you ever get around to reading "Golden Fetters"?

Dude said...

STS,

My apologies for a delayed response. I didn't notice your comment until today.

My main motivation for homeschooling my son is to give him the best education I can.

The public school where I live is more than adequate (I went there) but 1 on 1 beats 25 to 1 any day. I can go on his pace and not fall prey to the least common denominator problem.

As for my educational philosophy I'm a classicist; grammar, logic and rhetoric. Right now my boy is a sponge and I'm feeding him- by directing his reading interests- as much information as I can.

I bought Golden Fetters and gave it a quick scan. I found the argument interesting even though I disagreed with it. Mr. Eichengreen, I believe, is a bit too broad in his view. The evidence in favor of hard currencies during periods of rapid economic change is compelling. It is during the mature phase that the "fetters" become onerous, in my view.

ciao for now