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Kass: Speculators Helped Spawn Oil Crisis

Doug Kass

"This (high level of oil prices) is not about blame; it's about supply and demand.... All the research I have done, speculators have had very little impact on this.... Speculators don't set the trend, but they follow trends.... It's not about financial investors."

--Treasury Secretary Henry Paulson

In the past, I have called several of our policy leaders in the Administration, Treasury and Federal Reserve "The Three Stooges of 21st Century Finance." And these Stooges never seem to disappoint me.

"The trouble with the world is that the stupid are cocksure and the intelligent are full of doubt."

-- Bertrand Russell

This week's aforementioned comment (see quote above) by Treasury Secretary Paulson is a glaring example. In the interview with CNBC's Maria Bartiromo, Paulson dismisses the influence of traders/speculators on the elevated price of oil.

Treasury Secretary Paulson -- one of those wonderful members of the Administration that brought us the notion that the residential real estate market had stabilized in early 2007 and that the economy (at that time) was in balance, had stabilized and would shortly recover -- again has his head in the sand. (As it has been said, leaders should have an innate talent that questions conventional wisdom.)

While not easily documented, the last leg up to the recent climb in the energy complex's price did not appear to be stimulated by any meaningful change in demand and/or supply. Rather, from my perch, it had to have been importantly influenced by speculators -- some of which are those wonderful folks who gave us the previous bubbles in Internet stocks in the late 1990s and in housing in the early 2000s.

It seems like deja Buffett all over again.

Some of those speculators, like T. Boone Pickens, often appear right in front of our eyes when they exploit the media (where they are almost universally praised and revered despite the fact that they are partially responsible for the rise in the price of crude, which is effectively an increased tax on the consumer) to "talk their books."

I have seen this movie before, and I have profited from it. It is all too familiar.

A new paradigm and, of course, another CNBC special -- this time on the "oil crisis." On the latter score, this week's CNBC special on the oil crisis, moderated by buddy/friend/pal Dylan Ratigan, is eerily reminiscent of the CNBC town hall special on the housing crisis at the peak (in prices and activity) of the residential real estate market done back in 2005. (Not surprisingly, I was on that panel, representing the negative/contrarian view of the housing market's outlook.)

There is little doubt that, for a host of reasons, there is a fundamental problem with the balance of long-term demand and supply for energy (and other commodities), but, to me, it is also increasingly clear that speculators have exacerbated the intermediate- and long-term issues in many commodities.

At the risk of being slightly premature, I say to the oil longs -- sold to you! -- which is exactly my game plan as I expand my energy-related shorts via a long position in the UltraShort Oil & Gas ProShares (DUG Quote - Cramer on DUG - Stock Picks) and a short in the Oil Services HOLDRs (OIH Quote - Cramer on OIH - Stock Picks).

Doug Kass is the author of The Edge, a blog on RealMoney Silver that features real-time shorting opportunities on the market.