Tuesday, September 25, 2012


Something Wicked This Way Comes is a 1962 novel by Ray Bradbury. It’s about two Midwestern 13-year-old boys, who have a nightmarish experience with a creepy traveling carnival that comes to their town in October. This is a month that has sometimes been a very scary one for stock investors too. But it has also been a good month for them on numerous occasions. The month ends with Halloween, the trick-or-treat holiday.  

If something wicked this way comes in October, it is most likely to be a war in the Persian Gulf. The next two full moons over Iran will be September 30 and October 29. Israeli drones will have more light at night to assess the damage done to Iran’s nuclear facilities. Of course, another possible scenario is that Iran’s wicked President Mahmoud Ahmadinejad will once again deliver a vile speech before the UN General Assembly in NYC on Wednesday (on Yom Kippur!), and the only response will be that some delegates walk out of the carnival, as they did last year when he called the 9/11 attacks "mysterious."
Iran's lunatic already started to rant and rave yesterday, according to a story in Reuters that might very well convince the Israelis to go to war. UN Secretary-General Ban Ki-moon met Ahmadinejad on Sunday and warned him of the dangers of incendiary rhetoric in the Middle East. Meeting with reporters yesterday, Iran’s provocateur said: "Iran has been around for the last seven, 10 thousand years. They [the Israelis] have been occupying those territories for the last 60 to 70 years, with the support and force of the Westerners. They have no roots there in history," referring to the founding of the modern state of Israel in 1948. He added, "We don't even count them as any part of any equation for Iran. During a historical phase, they [the Israelis] represent minimal disturbances that come into the picture and are then eliminated." Let’s see if he can top that act tomorrow in his speech before one of the creepiest carnivals on earth.

If war is coming to the Persian Gulf, why has the price of a barrel of Brent crude oil plunged by $6.79 from a recent peak of $117.19 on September 14 to $110.40 this morning? As I noted last week, the global crude oil demand-to-supply ratio is actually quite bearish. However, all the latest saber rattling between Israel and Iran should be adding a war premium to the price of oil.

Despite the recent weakness in the price, large speculators are once again holding near-record net long positions in both crude oil and gasoline. Maybe they know something. Or else, that could be a good signal for contrarians to short oil, especially if they figure that a war isn’t likely. Alternatively, if a war happens, it would cause a temporary spike in the price of oil that would send the global economy back into a recession and oil prices much lower. What will the central banks' carnival clowns do for an encore in that event?

Today's Morning Briefing: Wicked. (1) The carnival is back in town. (2) Trick or treat? (3) October is a typical month, but with more crashes. (4) Fed and ECB punish risk-averse investors. (5) Next full moon over Iran. (6) Wicked Wednesday at UN carnival. (7) The Mad Man’s speech. (8) Why are crude oil prices falling? (9) Won’t be surprising if Q3 earnings are disappointing. (10) Not much deleveraging in the Fed's latest flow of funds report. (More for subscribers.)

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