Oil’s Demise Is A Symptom Of Something Larger

Wednesday, December 17, 2014
By Paul Martin

DEC. 16, 2014

Dear fellow investors:

The “well known fact” with regards to oil over the last decade read like this: because of huge GDP growth in emerging markets like China, there were going to be 400 million new middle class citizens born of uninterrupted prosperity; they were going to want all the autos, consumer goods, $10,000 watches and food that Americans have.

The demand for commodities was going to be endless because capitalism practiced under authoritarian control was going to be better than the “invisible hand” of the free market. No recessions or depressions required.

Now, with oil dropping from $95 per barrel to below $57 through the first half of December 2014, many pundits seem to focus on the over-supply of oil and falling demand in a slowing global economy. But we think they miss the long-term view.

As long-duration common stock investors, we don’t see oil dropping merely because OPEC and Bakken Shale have produced too much supply. Instead, we see oil’s demise as a symptom of something larger: the unwinding of a globally synchronized trade tied to the “well known fact” stated above.

The Rest…HERE

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