This oil eruption in the Gulf represents another example of how corporations of great wealth can lead us into disaster. This seemingly unstoppable oil hemorrhaging seems very similar to the confidence bleeding occurring as a result of the current economic crisis.
The great trading houses are now revealed to have no real insight into anything other than the ability to be a huge dating sight for large money changing which is about keeping the money running in order to keep transactions churning. The model is everyone involved gets a piece of the transaction of a bad trade. It has nothing to do with price discovery and everything to do with investment managers herding vast sums of money into pathetic returns.
A thousand point dinger in May was in part about two trading worlds, one rapid, one chicken, colliding at just the right time. But it was also about the underlying confidence that has been ebbing out of the markets. When I walked onto the trading floor in the early eighties, the seventies inflation fires were being battled and would become the single great struggle of the Fed as it ultimately became the great enabler of giant value distortions because of its dependence on a view that every economic downturn could be avoided by continually easing rates to accommodate bad judgment. Now we stand at the absurdity of zero rates and twelve hundred dollar gold. The first representing the ultimate battle against deflation, the latter a classic example of how mass investment plays become driven by fools.
