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What Legendary Trader Paul Tudor Jones Thinks About Oil…

Posted by timothysykes on Wed 16th of Jul, 2008 11:34:38 AM
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You know how I’m always saying don’t listen to anybody in the financial media cuz none of them have any major trading gains/wealth, all just claim to have “experience”. (And no, Cramer’s $50mil does not count as “major” trading gains.) Well, there are a few good men out there that have more than experience, they have fortunes, so when they talk, you should listen.

Before I featured what billionaire George Soros had to say about the economy (see interview HERE), now it’s time for you to hear what fellow legendary/billionaire hedge fund manager Paul Tudor Jones (see bio HERE), a guy who banked during the 1987 crash, now oversees $18 billion, and hasn’t had a down year since he began in 1980, says about oil coming at you thanks to an article in Alpha by way of a great post on 1440:

Is the price of oil high for fundamental reasons, or are hedge fund managers and Wall Street driving it up?

It’s a very bullish supply-and-demand situation, and the peak oil theory is probably correct. But the run-up in prices is now bringing in an enormous amount of speculative, nontraditional capital such as pension funds and university endowments — principally through index products.

Commodities have been the worst-performing asset class behind stocks, bonds and real estate for the past 200 years, but Wall Street doesn’t highlight that long history when selling commodity index instruments today. Instead, it shows a chart of the bull market of the past 12 years to rationalize why some pensioner should be long cattle futures in the derivatives markets as part of a basket.

I am sure they were using similar logic about tulips three centuries ago. Oil is a huge mania, and it’s going to end badly. We’ve seen it play out hundreds of times over the centuries, and this is no different. It’s just the nature of a rip-roaring bull market. Fundamentals might be good for the first third or first 50 or 60 percent of a move, but the last third of a great bull market is typically a blow-off, whereas the mania runs wild and prices go parabolic.

Click the links above to the original article, but yes, you heard it from the billionaire himself–he thinks the oil bubble goes pop. Interesting, to say the least, especially for longterm shareholders of Exxon Mobil Corporation (XOM), Chevron Corporation (CVX), ConocoPhillips (COP), Schlumberger Limited (SLB) who have all become fat and cocky with too many profits. Now, there are several billionaires who would disagree, but they mostly got that way through investing in the industry whereas PTJ is one of the greatest traders of all time.

On a slow pump and dump day like today, this is something to think about…a fun little guessing game. A few months back, I was fortunate enough to have an hour or so chat with PTJ’s right hand man, Peter Borish, and came away thoroughly impressed so based on that convo and PTJ’s track record, I’d go with them, just as people thinking about trading Penny Stocks should learn from someone with a superior track record like me (see the ultimate guide to Penny Stock trading aka PennyStocking HERE!)

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  • yaktipper
    The bubble will pop, and the top is impossible to guess. Is it possible to guess when the first 60% of the move is over? The top could be a barrel in from now.
  • Alex
    I have no oil in my basket. If there's an index fund that shorts oil I 'd probably go that route soon.
  • yaktipper
    I meant to say the top could be (insert random dollars here)a barrel in (insert random years here) from now.
  • bestdeception
    That's why I've got my DTO ready to go. Take a gander if you want volatility. Bought some 2 weeks ago, and more last week. Wish I had more now.
  • Alex
    Yeah, no use trying to call the top. But if you had enough money you could short some oil companies or an index fund and hold a few years and probably make some decent money.
  • getshorty
    Shhh.... cris and mnlu are sleeping.....

    Any microcrap making a move at this time?
  • younggunz
    Nice article...I agree with PTJ completely about the oil bubble. There are more people than the media likes to portray that realize that this oil crisis is another bubble. To be honest I think as long as it pops relatively soon it will trun out to be a good thing. So far it has gotten major businesses to get their asses in gear and start making more efficient and environmentally friendly products. It also gave crop prices a shot of adrenaline with so focus being put on ethanol, which is a joke of a solution for alternative energy.

    I just hope this stupid bubble bursts soon. My yearly raise didn't come close to cover the cost of living increases of the last year.
  • getshorty
    Really good article, but.... any microcap in the move now?
  • brent
    Alex: there is such a vehicle to short oil. Buy the DUG, it is adn ETF thats does opposite oil. Check it out. It is actually up about buck and a half
  • monkiman
    interesting.....very interesting....
  • John
    Tim, when are you going to list those 36 testimonials that you mentioned on twitter?
  • bestdeception
    The DTO is 2 times the inverse of oil DUG is not just oil, but nat gas, heating oil, etc. DTO is just oil. It's all over the chart, but you time it right, you make some serious $$. Up almost 15% the last 2 days.
  • brent
    bestde... i stand corrcted. thx...
  • getshorty
    WOW !!!!

    One thing is to say the guy is soundly, completely fundamentally and indeniably right... and another complete different thing is to try to time when the market is going to finish playing musical chairs with a bubble, thats even beyond my acme branded crystal ball capabilities.

    I would be glad to purchase that ultrashort oil fund once a downtrend is on place, since there is plenty of time after the reversal, it doesn;t make sense, no good risk-reward at all to play with this hot potato. You definitely don't want to be short in a news driven panick that get people to rush into oil futures.

    Will play, but once the reversal has taken place.
  • John
    Brent did you say that you were a college student?
  • brent
    TonyE: had to go to lunch. Almost jumped the gun on OFI. Held my ground though... Glad I did. What are your thoughts now?
  • getshorty
    Good I got out of CRIS, lesson learned some time ago from Tim, if the play does not work as you expected trash your wishful thinking, get rid of it and move on to the next hottie..... NEXT !!!!!
  • bestdeception
    shorty,

    what's to say the downtrend hasn't began? With the "uptick rule" of sorts being applied to some financials, the big boyz now have to buy back any shares that are phantom so they don't get slapped on the wrist by Daddy Cox. To raise money to cover naked shorts they sell the winners, energy. JMO.

    Might as well start nibbling on DTO....as always DYODD.

    BD
  • TommyTim
    Paul Tudor Jones can stuff it up his ass. Another clueless buffoon giving a worthless opinion. When does OIL pop? No one the fuck knows. It could hit 240 then pop down to a base of 150.
  • getshorty
    Just receive an email from citron trying to bring down hev, that's a first for me, spammers bringing down microcraps???
  • getshorty
  • Reaper
    getshorty - Citron is not a spammer. He's a very good fundamental short seller.
  • getshorty
    BD, your argument makes sense, you may be right and this may be the tipping point, I'll check for some trend confirmations if energy keeps on going down, plenty of time to play it.
  • PCola
    For the record, DIG and DUG are lon and short oil and gas COMPANIES, not the commodities. So if oil doubles but Exxon, etc share price falls, you still lose money.
  • getshorty
    Thanks Reaper, makes sense now.
  • TommyTim
    Don't be so short minded. WM, DSL, FNM, and FRE are all going under $1 within the month. This is a fake rally. Uptick rule is garbage and won't save these garbage financials. Oil is going to have a superspike soon to the 170 area on the collapse of the dollar. Next bank to go under will bring the market down 500 points.
  • TommyTim
    Jones hedgefund is a 4*23. Takes 4% of assets and 23% of profits yearly. Meaning if he lost money for the fund he'd still make 600 million just in asset fees from the 18 billion fund. 11% return in 07. He didn't even partake in the subprime collapse. His performance for 07 was 11%. When these guys get too big they don't know how to function. He was very talented as a youngster. Soros is still the king. The hungarian jew pulled in 3 billion last year and no one knows how he did it.
  • getshorty
    So no plays today, I guess I'll just close my station and actually get some work done, just set up some alerts in case cris mnlu or alth spike, otherwise I am done for the day with my $200ish gains.

    See ya later
  • brent
    Ohh god cramer is for re-instating the uptick rule... ehhgggccc..
  • AdamN
    Cramer was screaming for the uptick rule back in January when the market first took a major dump, which seems funny that he would be for it knowing that he made some of his fortune as a hedge fund manager, doing just that, shorting.

    In other news, MNLU is starting to show some life into the close.
  • getshorty
    Does that rule has any actual effect, I thought that it was removed because it didn't work to stop stocks from falling anyway. Am I wrong? Isn't this a worthless debate?
  • getshorty
    Say what? MNLU is awake?

    just sold 200 of my 600 position, will rebuy it with fury if it starts going up on volume.
  • pomalley
    Tim, i bought wachovia today at 9.08 its now at 10.08 should i hold or sell it
  • getshorty
    MNLU ask is going up, bid is not moving and the spread is becoming too big for my taste.... lets get some bidders.... anybody?
  • sending out update on MNLU to TIMalert subscribers right now...

    new post:

    http://www.timothysykes.com/timsykes/2008/07/16...
  • getshorty
    Come on MNLU let me see some volume !!!!
  • getshorty
    What is it Tim? haven't got the email and your link sends me to a bunch of books.

    Guess it is just the awesome $7.00 breakout waiting to happen.
  • Alex, you mentioned you were looking for a fund that shorts oil. DUG is the ETF that is ultrashort oil.
  • Jerry Zoom
    actually DTO is a more direct ultrashort primarily basing off crude oil
  • evan2024
    DUG is short oil stocks.
  • Carsten
    Are you crazy. He clearly says the first 50% can probably be attributed to fundamentals, and the fundamental for oil are bullish. To me that means
    ok maybe we see 75$ oil again but after that we probably will see 280
    So if your short do not forget to cover next February.
  • When we look back at this article, we know whey those people are so wealthy.
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Date Stock Buy Sell Net
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Oct 30 DDRX $25.70 $26.53 $812
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