We open today with more news from worn-torn Ukraine. Good news, perhaps, but whatever the label, the market is not overly impressed with it, which suggests it is still trying to finds its level.
- Russian stocks jumped the most in four months, the ruble rebounded and credit risk receded as President Vladimir Putin outlined a peace plan for Ukraine after agreeing with the country’s leader on steps toward a cease-fire.
A ceasefire would be great, but, in the meantime, I would be happy with more downward pressure on oil. It is enjoying a small revival of late with light-sweet crude climbing back toward $95. This must give a trader named Andrew Hall a minor lift. You see, this trader has bet millions on the future of oil.
- Hall is going all in on a bet that the shale-oil boom will play out far sooner than many analysts expect, resulting in a steady increase in prices to as much as $150 a barrel in five years or less.
He believes the shale boom in the USA “is a dud,” and he openly mocks those analysts who suggest the reverse will be true – oil will drop to $75 per barrel in the near future.
- “When you believe something, facts become inconvenient obstacles.” – Andrew Hall
I have to agree with him on his statement above. We see this all the time in the world of market analysis. Facts become irrelevant when belief takes over. I have made this mistake more than I care to admit over the years. Don’t you make it now.
- Andrew Hall – known as the God of Crude Oil Trading to some of his peers – has built his success on a simple creed: Everyone who disagrees with him is wrong.
It seems ironic that Mr. Hall is accusing others of missing the facts in deference to belief, but it is not hard to understand. After all, he is one of those market “icons” who gets it right big time and then the rest of his peers regale him as, well, iconic. Like Nouriel Roubini (aka Dr. Doom), and a few others, Mr. Hall made his bones predicting in the era of the great rises and the great falls.
- Hall has made billions for the companies for which he’s traded by placing one aggressive bet after another. He was one of the few traders who anticipated both the run-up in and the eventual crash of oil prices in 2008.
I am not mocking his market plays on oil. After all, he has personally made hundreds of millions betting on oil. That is success by any standard. What I am saying, though, as a market player, one cannot take him or herself too seriously when one has major success.
- He’s racked up losses in two of the past three years.
Keep in mind, there are always facts to bring to bear, and even though the facts might change, or they might fall prey to perception, they are still the best way to formulate and make a market play. They increase the odds of success immensely.
- Shale drilling has boosted U.S. oil output to the highest level in 27 years; it helped the U.S. supply 84 percent of its energy demand last year. Oil prices, far from taking the upward trajectory Hall predicted, have been essentially unchanged since 2011.
Five years from now, Mr. Hall might prove to be correct, even if I believe otherwise. As of now, though, between the shale-oil boom, the discoveries of major oil depositories in the Gulf of Mexico and elsewhere, as well as the lessening demand for oil as alternative energy sources take root, it seems unlikely he will prove to be correct. All things remaining equal, fundamentally he seems to be putting aside the facts to honor his belief, and his belief seems to come from his own sense of self – he is right and everyone else is wrong.
- Hall, based on comments in his letters to investors, is unfazed by the losses and secure in his view that the price of oil is destined to rise. In those letters, he regularly mocks those who are convinced that a shale boom will mean long-term cheap, abundant energy.
Two things to take away from my highlighting Mr. Hall’s “sticking to his guns.” First, stick with the facts. They will lead to success more than any guess. Second, don’t get stuck on yourself if you do beat the game big time. For most folks in this business, success is a slog, day in and day out. It is a job; it is work.
Sure, some “see” something coming in this crazy world and they have the nerve and pluck to make the big bet, but that is not the higher probability path to success. Working hard and making money on a regular basis is a more sure way to claim success in the game of risk.
Trade in the day; invest in your life …
