Make Big Profits During Bad Times
by Michael Shulman 08/07/08
The Trader -- This trader actually manages a small chunk of my personal money, which is up 20%-plus in the past 11 months. He trades volatility using some proprietary math and credit spreads, although he has to apply a bias and it is to the downside -- and he maintains it will remain that way for a while. At lunch a couple of weeks ago, he pooh-poohed a decline in oil prices and gave me the following great data point:
The average American consumes 25 barrels of oil per year. Indian and Chinese people -- and there are many, many more of them -- consume a mere two barrels a year.
If Americans cut usage by 20% (down to 20 barrels each) and people in India and China grow at current rates, their annual use will grow to three barrels of oil in a heartbeat and there will be no net decline in the price of oil.
These five conversations confirmed for me that it's a traders' market with a downside bias that will send companies with poor fundamentals sharply lower from here. And that is great news for us on the short side!
Crude oil futures closed at $144 a barrel on Thursday and pulled back a bit today, but many speculate that it's just a reprieve on the way to $150. Because it seems that what goes up (i.e., oil) means that something else (i.e., the market) goes down -- and since the world's usage of and need for oil is far from abating anytime soon -- I'm confident in my prediction that there are lots of opportunities ahead in the near future to make big profits in bad times.
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