Thursday, 10 June 2010

The link between deep sea drilling and dodgy derivatives

The news regarding BP goes from bad to worse and there would seem to be a case for suspending the dividend - not because the company cannot afford it but out of political expediency.

The dreadful ecological devastation resulting from the spill, in my opinion, only serves to highlight the fragility of complex business processes and the underestimation of the risks involved. If that sounds familiar that was how it was intended. While there may be little obvious comparison between deep sea drilling and the inventions of financial technocrats - when things go wrong the consequences are far worst than the worse case scenarios predicted by the "experts".

The weekly chart for the Amex Oil Index reflects this new heightened awareness of risk, as a clear buy channel, which was in effect during 2009 and until recently, has been convincingly violated as revealed on the chart below.

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