You can call our prediction about falling oil prices just before an election coincidence, but you cannot ignore the fact that we were right. In 2004, I warned investors about an impending oil crisis that was getting ready to grip the world. And in the month of August I told investors that energy prices would fall in the months heading into the election.
Now, is the fall in energy prices before the November mid-term elections just coincidence, or is it something more?
Here is my next prediction;
After the November elections, if oil prices remain weak (below $60/bbl), OPEC will begin to cut production to keep prices about $60.
1) On August 09, 2006, I wrote an article on Futures Traders Driving Up Oil Prices. At the time I was not aware that the speculation came from hedge funds and investment banks borrowing money at zero percent from the Bank of Japan. Hedge funds are un-winding their positions which is setting us up for a nice buying oportunity.
2) On September 8th, I wrote;
I find it odd that the May highs marked the top of this years market run, and these highs came to a screeching halt after the Bank of Japan is co decided to end their zero interest rate policy. BOJ Governor Toshihiko Fukui said monetary decisions should be "made early" and "in small increments", and speculation has it that hedge funds and investment banks were borrowing money from the BOJ at zero interest, and using the money to buy futures contracts on oil and commodities.
Now that the zero interest rate policy in Japan is gone, rumor has it that speculators in oil and commodities futures are selling and running for cover.
All of these complicated and behind the curtain transactions are way beyond the comprehension of the average investor. How can these hedge funds and investment banks do this without us knowing about while it is happening? Why do we have to hear about these moves after the fact?
If energy prices stay down for a few months, year over year earnings for energy companies will be flat to slightly down. As Jim Cramer said a few days ago, we have six more weeks of weakness in energy stocks.
I happen to believe this since there is about six weeks left before the mid-term elections. The next surprise jump in energy prices may come from a production cut from OPEC. I am going to add some of my favorite oil and commodity plays to my portfolio now and in the weeks ahead.
