Is the talk of a bubble in stocks, bonds, and oil double talk? Alan Greenspan is warning of a bubble in stocks and bond king Bill Gross is warning about a bubble in bonds and now some analysts are saying that oil is in a bubble. If Alan Greenspan is right about the stock market bubble than maybe oil has a problem but the basis of these predictions of an oil bubble based on a record hedge fund open interest is a dangerous misreading of the commitment of trader’s report.

One of the world’s most foremost authorities, on the Commitment of Traders (COT) report, is Gary Kamen of “Trends in Futures”. Gary is the author of the book “What Lies Beneath the Trends” that is all about how the COT report and what the players are doing impacts the markets. He says the reason the market keeps rising, even as large speculators and hedge funds increase positions to record heights, is because who is on the other side of the trade.

Kamen says that swap dealers have amassed the biggest short position in history as they hedge oil for trade of crude quality differentials as well as hedging ETF’s. These swap dealers, in many cases, are much larger than the spec side and are among some of the biggest players in the industry. Names like JP Morgan, Bank of America, Citi Corp, as well as the newest bank to up their crude oil forecast to match the earlier predictions by me in the Energy Report, Goldman Sachs.

In fact, Kamen says that this balance between record hedge fund longs versus record swap dealers short is bullish not bearish. It reflects a very tight crude oil market and extremely strong demand. So, in other words this COT report, with a historic spread between swap dealers and large hedge funds, is more evidence that the global oil market is a supply versus demand deficit. Kamen says you can see clearly why crude has moved like it has based off this COT report. If this buying and selling was not taking place, oil would not have moved like it has.