Barton Biggs Better Begin Browsing Blogs . . .

As we noted last November, oil prices were approaching resistance at $32.25. As we noted, “if prices pop over that level, you could see a clear run towards $36-38.”

So now we read that a Wall Street legend avoided our good (and free!) advice:

“Hedge funds started a year ago by a leading investment strategist, Barton M. Biggs, have been stung by losses this year, partly because of a bearish bet on the price of oil at a time when the commodity’s prices are setting records.

Mr. Biggs, for nearly three decades a strategist at Morgan Stanley, set up his investment firm, Traxis Partners, in June 2003 with two other longtime Morgan employees. He now manages around $2 billion in assets. Mr. Biggs, 71, joined an exodus of scores of prominent Wall Street executives over the last few years who started hedge funds – portfolios managed on behalf of wealthy investors and institutions like pension funds.

Mr. Biggs’s funds were down more than 7 percent this year through July, net of fees, according to a letter to Traxis investors. A majority of the losses came in July, as the price of oil soared. Yesterday, crude oil for September delivery settled at a record $48.70 a barrel on the New York Mercantile Exchange. Futures prices have climbed more than $10 a barrel since the end of June.

In all seriousness, I rarely would want to be on the other side of a bet from Mr. Biggs. And, I expect that right here is where we should see some sort of topping action in Oil.

But that doesn’t mean we are going back to the mid-30s anytime soon; I’d be happy with low 40s.

Here’s an additional excerpt:

In his letter to investors, Mr. Biggs said he thought the price of oil should be closer to $30 to $34 a barrel. So convinced is Mr. Biggs of his investment thesis that he increased the size of his bet in July, even as prices were rising. “When the price of an investment goes against us, unless the fundamentals have changed, our inclination is to buy more,” he said in the letter.

Mr. Biggs said he considered oil overpriced because supplies were surging even as he anticipated a slowdown in the global economy. He also cited a “terrorism premium of at least $12 a barrel in the current price.”

His bearish bet on oil is the latest in a string of contrarian bets Mr. Biggs has made. He had a negative view on stock prices, for example, during much of the bull market of the 1990’s, although he turned bullish in late 2002 just before the market hit its lows.

“In our previous lives, we have been through investment cold spells similar to this one,” Mr. Biggs said. “Often the pain becomes most intense just before the turn.”

Source
Contrary Bet on Oil Is Costly to Year-Old Hedge Funds
By RIVA D. ATLAS
NYTimes : August 20, 2004
http://www.nytimes.com/2004/08/20/business/20hedge.html

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What's been said:

Discussions found on the web:
  1. anne commented on Aug 20

    Why do you think energy stocks have moved so little the past month or so?

  2. Fester’s Place commented on Aug 20

    Oil Prices Pt. 3

    the security premium that is being charged will still be with us in the future, and it is dependent on the US not going to war with Iran, on southern Iraq being relatively peaceful, on Al-Quaeda or other groups not getting effective in blowing up Sau…

  3. Fester’s Place commented on Aug 20

    Oil Prices Pt. 3

    the security premium that is being charged will still be with us in the future, and it is dependent on the US not going to war with Iran, on southern Iraq being relatively peaceful, on Al-Quaeda or other groups not getting effective in blowing up Sau…

  4. BOPnews commented on Aug 20

    The Oil Bubble, Updated

    This morning I advised people to liquidate their positions in the oil September futures market. It is not that I don’t believe that the fundamentals of demand are not going to push oil higher. On the contrary, the long term…

  5. Barry Ritholtz commented on Aug 21

    1. Energy stocks have a much lower correlation with the prcie of Crude than you would expect.

    2. Much of the gains come in the early stages of the commodity price rise — Oil has been trending higer for awhile now — but it really broke out late December over $32.25.

    3. In the scheme of things, a month is too short of a blip for the category of stocks that trade in large part on fiudamental concerns . . .

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