The Market Will Fix It

By Rick Pendergraft

Dear Reader,

I was recently a guest on a financial radio show in Houston, Texas.  As the interview progressed, the conversation turned to the price of oil. 

It seems that the guest on just before me had suggested that oil trading should be limited to those actually involved in the oil business, eliminating the ability for individuals to speculate in oil.  The argument was that oil is too precious a commodity to let speculation drive prices.

Thinking like this and programs such as the Today Show updating us on oil prices every morning tell me that oil’s bull run is about over.  The suggestion that we should not allow speculation in oil is disturbing.  Let’s take away the freedoms of individuals and let only the corporations play in this game. 

Are you kidding me?  The market will take care of the situation, just like it did with the Internet stock boom of the ‘90s and the recent real estate bubble.

Any time you have individuals investing in something and they don’t have the experience needed to invest in that market, the market itself tends to fix things.  We don’t need regulation to fix the problem.  The amateurs who entered this market thinking they can actually trade, when in reality they are simply benefiting from one of the biggest bull markets in history, will be pushed out of the market by lack of funds once oil starts dropping in price. 

Funny how the market has a history of doing that. 

I remember talking to people in early 2000 that had taken early retirement and were just going to trade.  Again, these people benefited from a huge bull market, not any actual trading skill.  Many of these would-be traders were out of money and looking to go back to work by the end of the bear market in 2002.

The real estate market was the next bubble.  People who had no business buying and fixing up real estate were jumping in to this arena right and left.  The mantra of “real estate never goes down” was at the backbone of the jump.  And now, many of these would-be real estate barons are in foreclosure.

The advent of mini oil futures and ETFs such as the U.S. Oil Fund (USO) has allowed the little guy to speculate in the oil markets just like the seasoned pros.  But these amateur speculators may not realize when the market has shifted into a bear market.  The pros certainly will, because most of them have seen it before.

So my suggestion is to just let the market take its own course and it will eliminate most of the speculators.  Just give it time.  It might not be tomorrow, it might not be next month, but it will come eventually.  It always does.

Good luck and good trading,