Dow at 36000 vs crude oil at $200

Book titles are meant to be provacative. During the dot-com boom when no company that had the word “internet” in its business plan could go wrong, two authors published Dow 36000: The new strategy for profiting from the coming rise in the stock market. This widely optimistic prediction became a Business Week best-seller. But the authors’ optimism was topped by another book called Dow 40000. That was still doom-and-gloom compared to Dow 100000 which trounced all competitors in the Business Week review aptly titled Talk about throwing the bull. Eight years after the bubble burst, the authors continue to provide amusement. Today the Dow Jones index hovers around 12750, about one third of the conservative 36K estimate while the book itself managed a whopping one-and-half start from a total of three reviewers on Barnes and Noble website.

Yet one equally outrageous prediction may be coming reality faster than expected. In February 2006 Steven Leeb and Glen Strathy published The coming economic collapse: how you can profit when oil costs $200 a barrel. Leeb is no stranger to playing the virtual Casandra when it comes to apocalyptic renditions of the peak oil theory. One year earlier he had co-authored Oil factor: protect yourself and profit from the coming energy, so the newer publication could be considered variation on a theme. But prominently committing to a specific price point in the title is a bold move– and as the authors of the Dow 36000 theory discovered, one that can make you look foolish quickly.

At the time light crude oil traded around $70, roughly where it had settled after the supply crunch following Hurricane Katrina. That was already considered exorbitant, prompting consumer indignation and posturing from aspiring politicians eager to call oil companies on the carpet for alleged price-gouging. Of all place in the US where cheap oil and even cheaper gasoline are considered foundational pillars, the prediction that this price would triple not as a temporary spike but a stable long-term inevitability would have been heresy.

Crude oil has recently cleared $125/barrel. This is not simply seasonal variation and the much maligned summer driving season. Between May 2007 and May 2008 alone it has more than doubled. The long standing weakness of the US dollar has played a part. But Goldman Sachs predicted the situation is not about to improve: one report recently set a target of $150-$200 barrel. For the authors of the oil-collapse book, it may be time for a revised second edition because their predictions will be given a reality check much sooner than expected.


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