Economic Picture

There are several things I want to cover today. My thoughts are all over the place, so this will probably be kind of random. However, there are some very important market developments out today.

The first is oil. The mainstream media keeps reporting that "supply pressures" are causing price pressures. This is patently false. Iran, at this moment has 10 VLCC's full of crude that it has yet to sell floating in the ocean. That's about 20 million barrels, $2.5 billion, or a lot of oil. One of the reasons for skyrocketing oil is the falling dollar. The other major, but unseen, reason is hoarding. Evidence of hoarding: Iran using VLCC's to store oil (VLCC's aren't cheap. Current spot price is $160K/day), Bush pumping up the Strategic Petroleum Reserve, oil producers leaving it in the ground as part of their monetary policy (see Hussman's market report for this one), etc. Seeing that this price run-up is part of a lie that is not widely understood inclines me to buy into this trend. However, there are two things that make me wary: the strength of oil prices over the past month, and the fact that producers, such as Iran, have now joined in the hoarding. This shows arrogance and overconfidence in the trend. However, there is an explanation, although it is complicated. The story is that Iran produces high-sulfur sour crude, which is processed mainly by Asian refineries, which are currently undergoing their season maintainance slowdowns. The best investment for this play, at least until a pullback in oil, is probably Frontline Tankers. I wonder if any hedge funds have the balls to charter a VLCC for a couple of months ($9.6 million) and fill it with $250 million in oil......

Next, Citigroup announced that they are selling everything. I wonder what they'll get....

Finally, the Democrats in Congress are trying to push through a $300 billion housing bailout. Bush has promised to veto this. All this will do if passed is to prop up the housing market for 6 months while the losses will show up in higher Treasury interest rates down the road.