Oil is going to $30

The long held adage is that bubbles fall faster and farther for a longer period of time than anyone ever expects. I honestly thought that, when oil was at $147, we were about at the end of the run. It proceeded to drop faster and farther than I expected. I thought about a 50% correction was in order. I was absolutely wrong. Looking at all the fundamental numbers, it seems like oil should be rebounding. Even with a bad economy. It isn't. What makes me think oil isn't going higher any time soon is that no one else is even thinking about a bottom in oil right now.

And don't even think for a second that OPEC has anything to do with prices. They are a bunch of smarmy, self interested scumbags. They "announced" a cut in production. Are they really going to cut anything? Don't even think about it. Think like a smarmy, self interested scumbag for a minute. What would you do?

Here are the things you would know:
1. You know the air is coming out of the biggest commodity bubble of our lifetimes.
2. You know the demand picture for oil isn't getting better for a while.
3. You know that supply disruption and hurricane news do nothing to move prices higher.
4. You know that hedge funds are selling anything that has value left, including oil contracts.
5. You know that the world is experiencing a credit crisis the likes of which we have never seen.
6. You know that there was a time when an oil bubble popped and prices went into the teens.

Knowing all this, would you cut back your production? Or would you crank out the oil as fast as you can to get as much of the inflated price that's left? Seems like a pretty easy answer.

So you as in investor, what is the trade? Very simple. In bear markets there are MASSIVE rallies before resuming a downtrend. Your trade is easy. Wait for a huge rally (5% or more) and buy puts on the USO. Which ones? A couple months out and near the money. Let the market come to you.

A more aggressive trade would look like this. Buy calls on the DUG when you get the same type of rally. This trade is a little more risky. You would need babysit it more because the trade can go against you quickly. This is a double short ETF and inherently more volatile. You can make a ton of money with either trade.

The trend hasn't ended here. There is a lot more money to be made. Take advantage of it. Until next time, stay low risk.