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January 12, 2016

The Worst Oil Analysis on the Street

By EconMatters

I happened to tune into CNBC while grabbing a bite to eat and CNBC welcomed Adam Longson, Morgan Stanley Head of Energy Commodity Research. Adam`s analysis of the oil market is so bad on so many levels that I hardly know where to start. But if this is what traders at Morgan Stanley are basing their trades on then no wonder Morgan Stanley`s stock has been getting killed, and talent is leaving this firm like rats on a sinking ship. 

The analysis is so bad that I have a mind to short Morgan Stanley`s stock. If this kind of analysis and talent is representative of what the best and brightest at Morgan Stanley are up to these days ( I thought they were about sales revolving around money management like the old Merrill Lynch model) but whatever, then their earning`s report is going to be really bad. In fairness to Adam he is also a Chartered Financial Analyst besides being a CPA, but he is way over his head as an energy research analyst.

I refuse to do his job for Morgan Stanley, so I am not going to show why his analysis is incorrect. He just fails to analyze from a trading perspective what drives the oil markets. It just goes to show how bad talent levels are at many investment banks these days. 

All the good talent works for hedge funds these days, or has gone out on their own as individual traders trading their own money with much less headaches. This analysis is so flawed, and just plain wrong. If no one at MS realizes why and how this is just flawed analysis, then that is a serious problem at Morgan Stanley. 

This has nothing to do with where the price of oil is going, it very well could go to $20 a barrel, but it sure will not be because of a strong dollar. I will post two charts and let the reader and Adam figure out why his analysis is so flawed. He might want to start with that “Food Analogy” and ask why that is a flawed analogy between the comparisons he is trying to make with the oil market. 

This comes down to a basic understanding of logical differences. The funny thing is that I am sure Adam worked on this Food Analogy, as these are great in the analyst community for selling to clients, but no one at MS called on the fallacy inherent in his analogy. The bottom line is given this oil analysis Adam Longson has no business being an energy analyst.

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Item Reviewed: The Worst Oil Analysis on the Street Rating: 5 Reviewed By: EconMatters