I couldn’t help but comment again on the wonderful “Alice in Wonderland” world of finance we live in. Yes, it is very complex and shrouded in darkness but that is no excuse for ignoring it and burying your head in the sand. We all need to be watching for economic indicators that help us know whether to expand our businesses aggressively or proceed with caution. Now more than ever it is vital that an innovator learn as much as possible about the money system because it is so complex and can severely cripple an organization if it is not navigated carefully! And “times they are a changin.” In the old days things were much more straight forward, what you saw was what you got. But now, a market like petroleum can be piggy backed by so much hidden Over the Counter Derivative liability that collapsing prices can cause more damage than good. The dominant belief today is that markets need to be controlled and intervention is a good thing. The arrogance that causes this belief has a perfect record of bringing about financial collapse in the past and that is a pretty strong guarantee that it will have the same affect in the future. In the past a fall of energy prices by 50% would have been a great event that had very little down side. Fast forward to today and the fall of energy prices now has lots of hidden land mines that can cause more devastation than high energy prices! How can this be you ask? The answer is in a little known financial invention called the “Over the Counter Derivative contract.” Learn as much as you can about this market and you will begin to understand why there can be more financial loss created by falling energy prices than high “Stable” energy prices. Financial institutions have made bets and written a type of insurance on the price stability of a commodity such as petroleum that far exceeds the entire value of that market. So, when the market price does not behave in a way they had planned they can be facing huge losses. The infamous energy company Enron went down in flames for this very same reason. So, what does this have to do with your business you ask? Number one, enjoy the lower fuel prices as long as it is available for sure! Number two, consider the lower oil prices as a sign of ill economic health rather than “happy times are here,” when determining how to guide your business and invest for the days ahead.
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