<HTML><BODY style="word-wrap: break-word; -khtml-nbsp-mode: space; -khtml-line-break: after-white-space; "><BR><DIV><DIV>On Mar 7, 2006, at 12:31 PM, Hal Finney wrote:</DIV><BR class="Apple-interchange-newline"><BLOCKQUOTE type="cite"><DIV style="margin-top: 0px; margin-right: 0px; margin-bottom: 0px; margin-left: 0px; ">Samantha Atkins writes:</DIV> <BLOCKQUOTE type="cite"><DIV style="margin-top: 0px; margin-right: 0px; margin-bottom: 0px; margin-left: 0px; ">The markets, as anyone who plays them knows, are not altogether <SPAN class="Apple-converted-space"> </SPAN></DIV><DIV style="margin-top: 0px; margin-right: 0px; margin-bottom: 0px; margin-left: 0px; ">rational.<SPAN class="Apple-converted-space"> </SPAN>So I find it unlikely that examining market price <SPAN class="Apple-converted-space"> </SPAN></DIV><DIV style="margin-top: 0px; margin-right: 0px; margin-bottom: 0px; margin-left: 0px; ">structures will give good evidence for or against Peak Oil.</DIV> </BLOCKQUOTE><DIV style="margin-top: 0px; margin-right: 0px; margin-bottom: 0px; margin-left: 0px; min-height: 14px; "><BR></DIV><DIV style="margin-top: 0px; margin-right: 0px; margin-bottom: 0px; margin-left: 0px; ">Yes, the markets are the worst predictors around.<SPAN class="Apple-converted-space"> </SPAN>Except for everything</DIV><DIV style="margin-top: 0px; margin-right: 0px; margin-bottom: 0px; margin-left: 0px; ">else. :-)</DIV><DIV style="margin-top: 0px; margin-right: 0px; margin-bottom: 0px; margin-left: 0px; min-height: 14px; "><BR></DIV><DIV style="margin-top: 0px; margin-right: 0px; margin-bottom: 0px; margin-left: 0px; ">The reason markets are a good source of information is so obvious that it</DIV><DIV style="margin-top: 0px; margin-right: 0px; margin-bottom: 0px; margin-left: 0px; ">never seems to be written down.<SPAN class="Apple-converted-space"> </SPAN>Unlike other opinions, market opinions</DIV><DIV style="margin-top: 0px; margin-right: 0px; margin-bottom: 0px; margin-left: 0px; ">are backed up by the hard-earned cash of the people asserting them.</DIV></BLOCKQUOTE><DIV><BR class="khtml-block-placeholder"></DIV><DIV>Yes obviously but also No. Markets are full of speculations not only about the underlying but about the actions and opinions of other persons and entities in the market. It is a dynamic attempt to model the likely future behavior of the other players as much as the actual merits of the underlying commodity. Speculation is rampant across multiple dimensions.</DIV><DIV><BR class="khtml-block-placeholder"></DIV><DIV><snip..></DIV><DIV><BR class="khtml-block-placeholder"></DIV><BLOCKQUOTE type="cite"><DIV style="margin-top: 0px; margin-right: 0px; margin-bottom: 0px; margin-left: 0px; min-height: 14px; "><BR></DIV><DIV style="margin-top: 0px; margin-right: 0px; margin-bottom: 0px; margin-left: 0px; min-height: 14px; "><FONT class="Apple-style-span" color="#000000"><BR class="khtml-block-placeholder"></FONT></DIV><DIV style="margin-top: 0px; margin-right: 0px; margin-bottom: 0px; margin-left: 0px; ">Suppose you have a belief about some future event, and then you are</DIV><DIV style="margin-top: 0px; margin-right: 0px; margin-bottom: 0px; margin-left: 0px; ">informed of the market consensus and it is very different from your</DIV><DIV style="margin-top: 0px; margin-right: 0px; margin-bottom: 0px; margin-left: 0px; ">belief.<SPAN class="Apple-converted-space"> </SPAN>For example, many Peak Oilers agree with oil analyst Matthew</DIV><DIV style="margin-top: 0px; margin-right: 0px; margin-bottom: 0px; margin-left: 0px; ">Simmons that oil will be over $200 a barrel by 2010.<SPAN class="Apple-converted-space"> </SPAN>Simmons made a</DIV><DIV style="margin-top: 0px; margin-right: 0px; margin-bottom: 0px; margin-left: 0px; ">famous public bet about this a few months ago.</DIV><DIV style="margin-top: 0px; margin-right: 0px; margin-bottom: 0px; margin-left: 0px; min-height: 14px; "><BR></DIV></BLOCKQUOTE><DIV><BR class="khtml-block-placeholder"></DIV><DIV>Without some really good news in alternative energy it is imho certain we will at least see spikes this high. </DIV><BR><BLOCKQUOTE type="cite"><DIV style="margin-top: 0px; margin-right: 0px; margin-bottom: 0px; margin-left: 0px; min-height: 14px; "></DIV><DIV style="margin-top: 0px; margin-right: 0px; margin-bottom: 0px; margin-left: 0px; ">Now, the oil futures market price for 2010 oil is about $64, a big</DIV><DIV style="margin-top: 0px; margin-right: 0px; margin-bottom: 0px; margin-left: 0px; ">difference from $200.<SPAN class="Apple-converted-space"> </SPAN>Once you find out about this discrepancy between</DIV><DIV style="margin-top: 0px; margin-right: 0px; margin-bottom: 0px; margin-left: 0px; ">the market consensus and your beliefs, you have two choices.</DIV></BLOCKQUOTE><DIV><BR class="khtml-block-placeholder"></DIV>There is no reason to place an extravagant bet that far out at this time, is there? </DIV><DIV><BR><BLOCKQUOTE type="cite"><DIV style="margin-top: 0px; margin-right: 0px; margin-bottom: 0px; margin-left: 0px; min-height: 14px; "><BR></DIV><DIV style="margin-top: 0px; margin-right: 0px; margin-bottom: 0px; margin-left: 0px; ">One is to change your belief to match the market consensus.<SPAN class="Apple-converted-space"> </SPAN>This is</DIV><DIV style="margin-top: 0px; margin-right: 0px; margin-bottom: 0px; margin-left: 0px; ">what I aim to do.</DIV><DIV style="margin-top: 0px; margin-right: 0px; margin-bottom: 0px; margin-left: 0px; min-height: 14px; "><BR></DIV></BLOCKQUOTE><DIV><BR class="khtml-block-placeholder"></DIV><DIV>I don't see any real compelling logic to this.</DIV><BR><BLOCKQUOTE type="cite"><DIV style="margin-top: 0px; margin-right: 0px; margin-bottom: 0px; margin-left: 0px; min-height: 14px; "></DIV><DIV style="margin-top: 0px; margin-right: 0px; margin-bottom: 0px; margin-left: 0px; ">The other is to accept that there are positions you could take in the</DIV><DIV style="margin-top: 0px; margin-right: 0px; margin-bottom: 0px; margin-left: 0px; ">market, bets you could make, that have a positive expectation.<SPAN class="Apple-converted-space"> </SPAN>That is,</DIV><DIV style="margin-top: 0px; margin-right: 0px; margin-bottom: 0px; margin-left: 0px; ">you have to believe that the markets are giving away free money.<SPAN class="Apple-converted-space"> </SPAN>And</DIV><DIV style="margin-top: 0px; margin-right: 0px; margin-bottom: 0px; margin-left: 0px; ">the more divergent your beliefs are from the market, the easier it is</DIV><DIV style="margin-top: 0px; margin-right: 0px; margin-bottom: 0px; margin-left: 0px; ">to find such positions and the greater the profits.</DIV></BLOCKQUOTE><BLOCKQUOTE type="cite"><DIV style="margin-top: 0px; margin-right: 0px; margin-bottom: 0px; margin-left: 0px; min-height: 14px; "></DIV><DIV style="margin-top: 0px; margin-right: 0px; margin-bottom: 0px; margin-left: 0px; ">Right now, for $5,000 you can buy a $100 call option that expires in 2010.</DIV><DIV style="margin-top: 0px; margin-right: 0px; margin-bottom: 0px; margin-left: 0px; ">This will be worth 1,000 * (oil price - $100).<SPAN class="Apple-converted-space"> </SPAN>So if oil does in fact</DIV><DIV style="margin-top: 0px; margin-right: 0px; margin-bottom: 0px; margin-left: 0px; ">go to $200 as those people believe, their $5,000 option would be worth</DIV><DIV style="margin-top: 0px; margin-right: 0px; margin-bottom: 0px; margin-left: 0px; ">$100,000, 20 times their investment.<SPAN class="Apple-converted-space"> <BR></SPAN></DIV></BLOCKQUOTE><DIV><BR class="khtml-block-placeholder"></DIV><DIV>I would be tempted by that position if I had $5000 I didn't mind tying up for that long and if I could sufficiently discount the possibility of a good replacement energy technology in that timeframe. I would be placing a bet both about the availability versus demand for oil. Peak Oil does not actually entitle me to rule out new technology. I would rather trade the $5000 on shorter term positions. I suspect that many traders feel the same.</DIV><DIV><BR class="khtml-block-placeholder"></DIV><DIV>- samantha</DIV></DIV></BODY></HTML>