Oil Rally Surpassed Dot-Com Craze

Do you agree that the current oil rally mirrors the dom-com mania's? Many seems to agree and are now predicting the fall of oil to be similar to the dot-com crash too. My comments are in RED.

Bloomberg: The rally that drove oil to a record $139.12 a barrel last week surpassed the gains in Internet stocks that preceded the dot-com crash in 2000. Crude rose 697 percent since trading at $17.45 a barrel on the New York Mercantile Exchange in November 2001, and reached 28 record highs this year. The last time a similar pattern was seen in equities was eight years ago, when Internet-related stocks sent the Nasdaq Composite Index up 640 percent to its highest level ever, according to data compiled by Bloomberg and Bespoke Investment Group LLC.

The Nasdaq tumbled 78 percent from its March 2000 peak, erasing about $6 trillion of market value, as investors concluded that prices weren't supported by profits at companies such as Broadcom Corp. and Amaazon.com Inc. Billionaire investor George Soros and Stephen Schork, president of Schork Group Inc., say oil is ready to tumble because prices aren't justified by supply and demand. ``There's nothing different between this mania, the dot-com mania, the real estate mania, the Dow Jones mania of the 1920s, the South Sea bubble and the Dutch tulip-bulb mania,'' said Schork, whose Villanova, Pennsylvania-based firm advises the Organization of Petroleum Exporting Countries, Wall Street firms and oil companies on the outlook for energy prices.

MyTake: It has never been easy to predict a crash in a market. Predicting the fall for oil commodity may not be same as predicting the fall of stock market even though investors' "irrational exuberance" is mainly the culprit. The Nasdaq reached a record intraday high of 5,132.52 on March 10, 2000, in a rally that started in June 1994 but tumbled down back almost 1,000 in 2003. Do you believe history will repeat itself over and over again? It should be noted the further fall in Nasdaq was compounded by the Sept 11 2001 terrorist attack and US recession. Although I suspect the high crude oil will have some air bubble being let off (ie sell down) soon as it climbs too fast but it may also quickly continue on its uptrend again latter due to commodities bull as stated here previously. One of the major reason why crude oil's bubble could last longer than stock markets is that crude oil has finite supply compared to stocks. Somehow, besides speculation, I must agree that the rise of crude oil is partly supported by real and anticipated demand, limited supply and dwindling of reserves. So what would be the catalyst for the oil bubble to burst? My answer would be the further appreciation of USD, the reduction of money supply, the tightening of regulation for futures trading, the slowing down of economies with the expectation of recession, OPEC suddenly agrees to up production (I really doubt so) and of course "no more scary news of supply disruption".

* The above ship is Emma Maersk built in 2006 at a cost of USD145 m. Its country of origin is Denmark. Probably the largest cargo ship in the world, the ship's lenght is 1,302 ft with a width of 207 ft. It has a capacity of over 11,000 containers. The ship's biggest customer is China. It usually carries full load from China to the rest of the world but goes back to China almost empty.

* Prices from transporting commodities such as iron ore, coal and grain by sea had their biggest tumble on record yesterday as per the Baltic Dry Index, which measures the price of transporting bulk commodities. The index slumped 8.7% yesterday.

* Futures TradingBloomberg: Commodity index traders account for about 40 percent of the open interest, or outstanding contracts, in the 12 agricultural commodities for which the Commodity Commission.

* Malaysia Finance Minister: "From 10.5 m working Malaysians, only a million pay tax and only 38,000 of them pay taxes at the highest rate of 28%. Total income collected from income tax is RM10b. Government's revenue this year is expected to be RM147 b". Talking about income tax, please be reminded that all self employed individuals (including myself here) need to submit their income tax by June 30. I will most unwillingly submit them on the last day every year!

* HSBC: "Cut exposure to emerging Asia stocks. Asia is facing the threat of inflation and aggressive monetary tightening and diminishing value of currency. HSBC recommends global equity exposure of 54.5%. Cash holdings is recommended at 11%".