RPT-COLUMN-Clausewitz and oil prices: Kemp

Thu Dec 18, 2014 8:00pm EST
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(Repeats Dec. 18 item. John Kemp is a Reuters market analyst. The views expressed are his own)

By John Kemp

LONDON Dec 18 (Reuters) - "If we consider the actual basis of this (intelligence), how unreliable and transient it is, we soon realise that war is a flimsy structure that can easily collapse and bury us in its ruins."

German military theorist Carl von Clausewitz was writing about the role of intelligence in warfare, but his insight about unreliable information is equally applicable to traders, investors and business leaders trying to understand whether oil prices have fallen far enough or have further to drop.

"Many intelligence reports in war are contradictory; even more are false, and most are uncertain," Clausewitz explained in his 19th-century treatise "On War". "The effect of fear is to multiply lies and inaccuracies. As a rule, most men would rather believe bad news than good, and rather tend to exaggerate the bad news."

Only experience and a sense of the laws of probability can help an officer make sensible decisions amid a welter of conflicting and often inaccurate information.

Modern military forces, led by the United States, expend enormous amounts of money on the acquisition and processing of information about the state of the battlefield in real time to improve decision-making.

But for the most part, decision-makers in commodity markets must operate in an information vacuum where data is mostly estimated, incomplete and out of date.

Not only is the future unpredictable, we are not even sure what is occurring at present or has happened in the recent past.   Continued...