Now, here's the bubble that I like
To pay $130 for a barrel of worthless liquid hoping that an even greater fool will buy it from you for $140 is bad enough, but at least you can burn it, producing some calories in the process. Now, buying shares of producing companies, drilling companies, exploration companies,and oil rig producing companies, and paying a PE of 10 for these shares at the very peak of the bubble is a much crazier idea. You have a dying industry that has maybe 10 years of life ahead of it, and you buy at the moment when the price reaches a level that would be unsustainable even in the absence of wind, solar, ethanol, etc., and you think 10 times this year's profit is cheap? Think again. The typewriter industry was profitable in 1985, but how many years of profit were still left ahead of it? How much money would you earn buying typewriter producers for 10 times 1985 profit? Well, let's see, you make 10% in 1985, 9% in 1986, 8% in 1987, then your company has to upgrade its manufacturing facilities to roll out its new line of electronic typewriters, so you get zero profit in 1988, then you earn another 5% in 1989, then your company spends the entire year 1990 fighing obsolescence of its new products that are no longer new, then it breaks even in 1991 and 1992, loses money in 1993 and 1994 and closes shop in 1995...Hopefully it did not get into debt...if its balance sheet is not a total disaster, then someone might conceivably buy the company for the sake of the crumbling factory building...Fast forward to 2008. You have solar companies that are about to achieve grid parity (think 80286 ready for launch), and you have investors standing in line to buy oil companies just as they are busy squandering their windfall profits to invest in infrastructure that can produce oil at a profit as long as prices stay above $80. Good luck with that! And now comes the sweetest part of the deal. When these speculators crash and run to Benny B. for help, what kind of help can he offer? The only way to make them solvent is to support oil prices, making everybody else pay $4 for a gallon of gas. Sounds like an easy bill to push through congress, doesn't it? House flippers were at least rational, they knew that the government would bail them out if the bet goes wrong.