Long day ahead..

Exams are finally over, now I can put some focus in reading up what was missing in between the period. Seems like the market is getting spooked again last night by the feds talking about the 'bad' economy moving forward. Dow was maintaining its support at the 13k mark before plunging back to the 12600+ mark again.
Apart from that, oil has made record again of closing above $USD130. With JPY/USD at 102.87-102.88 - 0.44, it has been trading around this range despite oil prices increasing. I remember reading 1 article or a video recently on oil, probably on money.cnn.com. The person was talking about oil prices, and why it went up and probably will move uptrend till a point where alternate energy has to be in place to replace the fast declining oil supply.
This was also re-enforced by Warren Buffett, where there was a question posted to him on oil prices. He mentioned that people tend to view oil prices on current day as compared to years ago, probably 5-10 years period. Probably 10 years ago, oil prices are factored at $30 (I'm posting a theoratical example), and supply was 100 compared to demand at 90. Taking note of the supply demand curve, you can't possibly sell at a higher price when supply meets demand or supply is more than demand. However, within our 10 year cycle, due to technological advancements, more sophisticated machineries etc etc, it is notable that consumption of oil will increase to support more production. Just like personal computers, it just gets more and more powerful, and in order to support that, you need more power a.k.a electricity to use it. In the oil case, probably as of now, demand is probably 200 and supply is at 90, and this overdemand will be interpreted as a under-supplied market and this only allows oil to increase in price eventually. Oil, eventually as a natural resource doesn't come that easily and it requires many years to be even made (complicated science that I think you can google it out (: ). Of course it is not as simple as this is, but this is a rough overview of how things move.

Oil, as compared to commodities like rice etc are almost the same though in my opinion. As technology advances, for example, better soil/fertilizers/machinery/cropping skills, with the same amount of land, farmers should be able to harvest more at a short time frame as compared to the past. However, take note of the increasing population globally as compared to the supply of such commodities. I don't have any information on the mean average annually on the rise in population, so I am just making some theoratical assumptions. Looking at history, baby boomers was the super rise in population right after World War II. That was the spark in the economy globally. If the supply from last time was 50 and demand was 50, commodity prices should be quite fixed and I believed the goverment policies protect commodity prices from soaring too high as well. This is indicated in the CPI, which sums up those basic necessities and provides an indicative value (CPI stands for consumer price index and it is used to indicate inflation). However, this is only indicative as I stated. The reason is because inflation hits us harder than we expect and this CPI is under-estimating inflation. To simply this rationale, the CPI probably takes the price of bread, rice, toothpaste etc, basically whatever we NEED to use for our most basic life. I forgot the actual formula for calculating but basically it sums up the value and derives a value from this. Taking into account for a normal hike in rice, this CPI will rise accordingly to the rise in rice. BUT, it doesn't take into consideration, that food sellers/distributors/wholesalers etc increase their price too. It's simple logic actually, MOST of the sellers(food sellers) will jump on the bandwagon to raise prices once they heard or suffer this price hike to minimise their cost. Basically if rice producers sell $1 more per sack to the buyers, do you think food sellers like those chicken rice stalls will remain the same price? In general, to retain their profits, they will raise their price to sell at $3.30 instead of $3 for example. I don't know how many plates of rice can be sold for 1 sack, More of the time is due to the media that is showing all these negativity. I hope this example clears up the air :) .

Currently, I am reading "the new Buffettology" and I do recommend this book to investors who wants to know more investing long term. I gain alot of insights from this book and it teaches alot of technical skills in terms of modelling a 10 year prediction of a company's EPS and earnings on average with a estimated deviation based on past results. The first thing to learn from this book on investing is to indentify durable competitive advantage. More to come when I complete the book.