Any market appears fickle to an ordinary capitalist like myself. The mystique of economics and the psychology (pathology?) that drives buy/sell decisions oftentimes confounds us mere mortals. A case in point is the current oil futures price that has seen no news that did not send it soaring to new heights. I’ve pondered on what would crowd such a bandwagon, one that apparently had no end to a line of investors that would continue to pay higher and higher prices. A market that was the very definition of “irrational exuberance.” Was there nothing that could turn this tide? Well today may have witnessed the secret handshake to the down escalator. A piece in the National Review Online by Larry Kudlow got me to thinking about how the perceived future price is influenced by a sound bite.
Traders took a look at a feisty and aggressive George Bush and started selling the market well before a single new drop of oil has been lifted. What does this tell us? Well, if Congress moves to seal the deal, oil prices will probably keep on falling. That’s the way traders work. They discount the future. Psychology and expectations can turn on a dime.
What if congress did the same and the media announces contracts being let for new oil drilling rigs; the softening of environmental approval; new and more promising mineral leases. If the relaxing of President Bush’s executive order alone can fire one over the bow, how much effect can a true team effort have on global oil futures?