Monday, 17 December 2007

Selling some Crude futures, and Musing on Northern Rock

I just sold about $55,000 worth of Feb '08 Crude contracts.

6 month Chart of Feb '08 Light Crude Futures

The rationale is pretty basic behind shorting it. An economic slowdown WILL reduce demand, and a stronger dollar, combined with a change in market mentality regarding further weakening of the dollar. ie. consensus expectations seem to be that the dollar will continue to weaken, whereas my view is that other countries, particularly within Europe, are in equally dire straits, and the dollar is due a massive rally back as this enormous one sided trade on its further weakening gets unwound.

So a stronger dollar and slowing US growth, and slowing global growth, could easily take $20 off the oil price in short order. Plus, in a similar manner to the dollar, it seems like consensus is for oil prices to continue to rise, and I just love trying to identify when a sea change in opinion is about to take place, that's when the really big moves take place.

Sold about $55,000 worth of Feb '08 US Light Crude futures at 91.31.

On a side note, the portfolio has got off to a nice start, thanks to falling equity indices. One other trade I am looking at is buying some shares in Northern Rock, the UK lender who has been lent around £25bn by the UK government, as talk of nationalisation seems to be increasing, and on the back of that I read somewhere that under EU rules, the government would have to pay shareholders the average price over the last 3 years, which is something like £4+ per's trading today around 87p a share. Huge upside potential, but I'm struggling to find anything more concrete on whether that rule is true or not. This to me is the ONLY reason to be buying Northern Rock, as it probably is worthless fundamentally.


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