2011-02-16

S&P to hit 2,800 in just two and a half years according to Laszlo Birinyi

After Dow 36,000 and Oil 300, here's SP 2,800. And not so far away, since Laszlo Birinyi is expecting this target to be reached only 2.5 years from now. This means that he expects the S&P 2,800 to more than double in 30 months. Speaking of irrational exuberance?

Here is this fabulous interview as available on CNBC:


Airtime: Wed. Feb. 16 2011 | 11 15 00 ET
A look at how the S&P could possibly hit 2,800 in just two and a half years, 
with Laszlo Birinyi Jr., Birinyi Associates presiden

What I stated for Oil 300...
these kinds of crazy forecasts happen only in periods of extreme and irrational exuberance. It is fair to assume that two years ago, when oil dropped to $30 a baril, the supply and known reserves were about the same as today and that the fundamentals over a period of 10 years didn't change so much during these past two years to justify a price move from $30 to $300. So my opinion is that Dow 36,000 and Oil $300 and Gold $5,000 forecasts are generally made close to long standing market tops than floors. I'm thinking that oil will trade at $20 before it trades $300.
... is of course valid for the SPX as well.

11 comments:

Tiho said...

Haha pej, I love it. Oil at $20... I would love to see that. I would sell my house and go all in at that stage!

On average, today it costs $70 a barrel to drill the damn thing and we are not running out of Oil, but out of known reserves of Oil. We have not discovered a large field of Oil reserves in over 25 years.

The oil that is left in the ground - and there is plenty of it - is very hard to extract as it is in deeper and more remote places on the globe. It will cost $100 a barrel or more to drill and extract it out, at which point either Oil goes higher or producers will not drill. Either way, Oil will than go higher!

You have to understand, at $50, drillers are losing money. At $20 a barrel, the whole industry does not extract Oil at all for the global demand. You will not be able to fly or drive ANYWHERE after awhile! You will not be able to keep your house cool or warm either. Also your local supermarket would not be able to import foreign foods because they cannot be transported to you.

Demand and supply, that is what moves commodity markets. The only cure to high prices, is prolonged high prices. This is how commodity bull markets end. It is than that supply side will actually over explore, over drill and over supply - because high prices = high profits. And it is also than that supply will overwhelm demand and prices will decline.

This is a commodity bull market and we have not discovered any major Oil fields in the last 25 years, since the last commodity bull market. Oil will not go to $20, but in a decade or earlier it will at least double from here. And that is not crazy at all, because inflation adjusted Oil would still be lower than it was in 2008 peak.

And by the way, no one said Oil would go to $300 a barrel tomorrow, but by 2020. Nine years is a long time. You are too bearish in a bull market pej.

pej said...

Hi Tiho,
Thanks for your comment!
I never said oil would drop to $20 and stay there forever. I'm just saying that it will probably drop to $20 before it reaches $300. Though I cannot bet on a $300 baril as it's too far away to be able to make any kinds of sane forecast.

Moreover, as a contrarian, I couldn't be happier to have my view ridiculed :-)

If you're buying oil at $100 hoping to reach $300 in 9 years, and are happy to sustain the loss of oil $20 before it reaches $300, be my guest! On the other hand, if you're so sure that it will reach $300 in 9-10 years, why not just buy calls for oil $200 or $250? that would be far more lucrative, and also put far less capital at risk.

Tiho said...

I'm long Oil. I think it's going much higher, but I dont know how high. I'm long all energy including producers of Gas as well.

I'm very sure Oil will not reach $20 anytime soon. I'm also sure you didn't do your homework on demand and supply. Otherwise you wouldn't be saying $20, but at least $150 again.

We are going to have a energy crisis very soon, as the IEA is begging people to listen... We are running out of Oil reserves.

Looking at my commitment of traders report, with large number of speculative long, you must be thinking it's a contrarian thing to do to be oil bearish. But that's not true, you are merely just trading against the trend, picking tops in a bull market. I've noticed a lot of other bloggers do his too.

Contrarian thing to do is to make a call that Oil will go much higher from here, because many are complacent about Oils price thinking it's too expensive. They are in for a surprise.

pej said...

Fundamentals do not drive markets. Stories do. Fundamentals over the past 3 years haven't changed, but oil went from $80 to $147 then to $32 then again to $95...

I'm currently not short any commodity, but I'm indeed contemplating shorting all of the commodities via the CCI or something similar. Silver, Cotton, are probably the most overvalued, but oil is as well by a far extent.

I'd most probably use put options, as volatility is extreme these days. :-)

Tiho said...

You are right about one thing, but you just haven't done your research enough my friend. The part you are right about is that fundamentals over the past 3 years haven't changed. That is spot on. We were running short on Oil supplies 3 years ago and we are still running short on Oil supplies. So Oil fundamentals are improving and not changing since early 2000s When Oil was at $10.

Where you missed the boat is the part when Oil went to $147 then to $32 then again to $95. You have failed to comprehend the story of the last 3 years. You see Bernanke cut rates in 2007 when Oil was at $80 and then it went ballistic. By the time Lehman failed in 2008, as well as AIG, we went into forced liquidation and it is a well known fact that Lehman and AIG had huge Oil holdings and had to to sell due to going bust.

As soon as Oil crashed, in 2008 the same way stocks crashed in 1987, it once again picked up where it left of from... going up because this is a secular bull market! You can force sell Oil into a crash for six months, but the demand for the black gold will be evident for years and years to come. We are working our way into a energy crisis soon! It takes a long time to notch up Oil production, this is not Corn or Wheat, where you can plant more next year...

You see stocks also crashed in 1987 during a bull market due to forced liquidation and picked up where they left off too! So my advice to you is to start studying history and demand & supply for commodities, instead of reading Bloomberg and CNBC articles.

Tiho said...

I'll see you at at least $200 a barrel in a few years time... or maybe sooner the way middle east is going!

pej said...

@Tiho

I got massively long all oil producers when oil was trading between $40 and $32 (meaning while prices were on the decline). I got out too early, obviously.

That said, it doesn't mean that I am wrong: prices might very well fall to $20 within the next few months, and then raise to $300 within the next 10 years.

It is interesting though, how you do not connect the dots between the massive and huge number of speculative long futures position and the forced liquidation (that might happen again the same way as 2008).

Given the size of the long positions (historically high by far) and the current price of oil (less than $100 compared to $147 in 2008), it's easy for me to guess that the $32 floor will break and we will get very close to $20.

The fact that you keep on bringing on the "fundamentals" and studies of IEA reminds me of myself before I had realised that there was nothing fundamental behind market forces.

BTW, where are you based? will you drop your email address?

PEJ said...

@tiho
yet another case for oil to drop:
http://theartofcontrariantrading.blogspot.com/2011/02/crude-oil.html

Opulenta said...
This comment has been removed by the author.
Anonymous said...

Tiho: I figure the reason you do not bring fundamentals up is because you haven't studied them...

You cannot be serious if you think that looking at the Commitment of Traders and other sentiment indicators makes you a contrarian for shorting a bull market? That is not contrarian investing, that is merely picking tops in a bull market, just like that link of that blog. He printed some front cover of NY times and that is now apparently a magazine indicator. WOW everyone is a contrarian now... what a joke!

When Time magazine prints "WORLD ENERGY CRISIS - WE ARE OUT OF OIL!" that is when I will get out.

What is COT report gonna do for you? In the commodities markets for every buyer there is a seller. Do you know how futures markets work? So who are you condemning when you say speculators are moving prices up? The buyers or the sellers. Come on man, seriously, that is what CNBC and Bloomberg bag on about.

When speculators go long 200,000 contracts in the latest COT report, that also means commercials are 200,000 contracts net short. For every buyer there is a seller. What are you talking about buddy? Why would you wait for a COT report to tell you about where Oil prices are going in the next few months or years? All that means is that speculators are overly optimistic in the short term and you should not buy when they do.

I'll tell you right even more sentiment indicators than COT. Did you know DSI stands at 91% bulls as of Tuesday, where Crude Oil usually corrects and will jump much higher by the next report due to a spike. I got all that data, including Rydex sentiment and ETF flows. So what? Is this the end of the bull market due to high sentiment?

Quote - "easy for me to guess that the $32 floor will break and we will get very close to $20."

Good luck with that "easy guess". I know I will be buying after a correction.

pej said...

@Oppulenta

I guess you're right, I'm a bit pedantic with my "easy guess". I shall rephrase that sentence.

As for the COT, it looks like you do not understand the difference between speculative positions and commercial hedging... It does matter, in fact.

More to come on the matter of oil toping.