Print This Post
The Times They Are A-changing
Russia’s adventure in Georgia followed by Bush’s advancing the timetable for putting “defensive” weapons in Poland, followed by… Well, this could keep on going for a while. Nobody has any appetite for a hot war but it looks like a cold one is here. Bush is like a jilted lover - he thought he saw Putin’s soul but the calm glint in Vlady’s eyes was only naked ambition slaked by his knowledge that Russia is gaining the advantage every day according to their bank deposit records.
I think Putin is smart enough to know that it does not pay to push too many buttons when your opponent is both heavily armed and an idiot. Besides, he does not want to overly excite his European energy customers. So I truly doubt we will see any hostilities between Russia and the West. But I also doubt that Putin will cede his control of Georgia. He won’t consolidate his position in Georgia quickly, but I would not be buying any stock in Mr. Saakashvili.
These new international tensions are unsettling the commodities markets, particularly oil which is having a little reversal of the counter-trend. Let’s look at that in slow motion:
The Trend: bullish, hitting $147,
The Counter-trend: bearish, down to $111.50 so far,
The Little Reversal: bullish, up to $122 so far.
Oil has bounced off $111+ several times, lending that level some psychological significance. Now it’s trying to rally, buoyed by some negative supply events, the Russian tension, and a bullish opinion from The Smartest Guys in the Room. (That would be Goldman, right?)
What I don’t know (among very many other things) is whether the Counter-trend is propelled by a technical correction in a temporarily over-heated bull run or whether it is propelled by real supply/demand issues. That is: rising OPEC supply and decreasing global demand growth based on weakening OECD economies and much slower Asian growth, particularly China and India which are both concerned about growing inflation.
If the Counter-trend has been a technical correction to over-enthusiastic traders then this upside “Little Reversal” could keep going and eliminate the Counter-trend to lower prices. But if it truly is based on the global economic cycle turning weaker, we could see the Counter-trend continue with oil headed toward $100.
One thing I’m pretty sure of is that the U.S. economy - probably along with western Europe - is going to continue to slow. The U.S. looks to become very weak over the next year based on continuing lower home prices and ultimately a slowdown in consumer spending.
On the other hand, I’m not so sure the slowing OECD economies will lead to much more reduction in oil demand. I rather suspect that the “easy” savings in oil demand have already happened. Those who are willing to cancel summer travel plans or begin to carpool or to take public transport or to stop driving the kids around at their every whim have done so. It will be somewhat harder to “destroy” more demand for oil in the OECD economies based on more economic weakness.
So the possible continuation of the Counter-trend down is more a matter of:
a) whether the Asian growth story is going to slow down for a while, and
b) whether global supplies of oil are growing for the moment based on OPEC expansion that may last for anther year or so.
I’m inclined to believe we will see both a) and b). Moreover, since we are virtually certain to see a lot more U.S. slowdown, which tends to convince U.S. oil traders that oil should be weak, I suspect that the Counter trend will be back soon, that we will test $111 again, and that oil may well go back to testing $100.
On the other hand, this Russian problem is not going away. International tensions will probably keep the price of oil from going under $100. Therefore, since I now judge it unlikely that oil will go lower than $100 it is less risky to own energy stocks. Moreover, the possibility of “an event” disrupting global oil supplies has to be rated as somewhat more likely now than before Georgia.
For these reasons I have put back on part of my options-on-oil-futures strategy; I have increased my exposure to energy equities, particularly drilling/services stocks and oil sands stocks; and I have also (for other reasons) reinstated a full position in SQM, the Chilean mining company with a dominant position in lithium, along with a few small positions related to hybrid electric vehicles.
So the bottom line is that I still have a healthy cash position which I will look to invest if/when oil tests $100. But I have more of a bullish oil posture. I regret all this trading and I wish the world would just sit still for a while, but that does not seem to be our fate.
Tags: peak oil energy investments
Print This Post
30 responses so far ↓
1 Robert Essian // Aug 21, 2008 at 11:49 am
Jim, better to be early than late.
The geopolitical problems will be heightened in the year ahead because if we know there’s a problem with Supply and Demand I would imagine the real players know too…
2 paultaut // Aug 21, 2008 at 12:09 pm
Ride it out in the CanRoys. With some of the Chart patterns emerging, I expect a sideways movement in crude to continue to the end of September. Unless a major Hurricane impacts the gulf significantly. The dollar might drop below 75 but I do now expect a retest of the 80 breakdown level before the next significant decline.
I don’t know about India but expect they will follow China’s lead. China has already announced that inflation is no longer their primary concern.
3 Mike // Aug 21, 2008 at 12:47 pm
Okay, as Jim rowed away from the sinking ship two weeks ago, I remarked I had been caught flat footed rearranging the deck chairs as the ship sank. I hoped I could come back up to the surface in an air bubble…guess this Russian business is the bubble I was hoping for….some times a little gas is good. !
4 pmundkur // Aug 21, 2008 at 12:50 pm
Yes I agree with paultaut - I think best to ride out with the canroys (including COSWF). At least the yield beats holding cash - so one can hope to sit tight - even three, four years or more - before stock prices come back.
Tough for me to trade in and out - I doubt I can time that just right.
I do find the Committment-of-Traders report useful though. I am happy to be all IN when the speculators (large and small) are both short OIL…as they were as of the last report.
cheers
pvm
5 KV // Aug 21, 2008 at 1:34 pm
There is a simpler way to invest in volatile times, called covered calls. One writes the calls on security for the expected gains or protection and if the call is assigned so be it. One collects the premium for the duration and hopes there is no assignment if he/she wants to keep the position, or buys back the call and writes a new call in time, or price or both. One also sells puts against cash when market favors such action.
When one really learns this method, it is not really that important what you have invested in! It is all about %ages…
6 KV // Aug 21, 2008 at 1:43 pm
Bush is a lameduck and Putin knows this. Iraqis know this (read troop withdrawal talks). Rest of the world knows this.
Unfortunately, Bush does not know this, as he was hanging out with bikini girls at olympics and acting undignified as the US press and showing the true idiot that he is.
Did the real president (Cheney) say anything about what is happening?
7 KV // Aug 21, 2008 at 1:47 pm
Jim,
I agree with SQM reinvestment but only as long term investment: ~50 lbs of lithium per little Volt, and 100,000 Volts by 2012, and another 100,000 cars with Li-ion, adds up to pretty good Li demand just from GM.
I wish you share your projections on Li assuming success of Volt and similar cars.
8 fran // Aug 21, 2008 at 2:36 pm
to repeat–
the russians are acting as they have since the czars-predatory, suspiious, devious.
the chinese and indian gov’ts are attempting to catch up on economic status of oecd while maintaining some level of control over the hordes.
the eu attempts to keep the peace through treaties, political hypocracy and liesure[30hr work week and 8weeks of off time.
the usa relishes in its economic stupor[sometimes hot, sometimes tepid, but recently aimless]. persuing irrelevant issues, ignoring vital issues.
what has really changed but world population growth with attending increased resource consumption?
and faster, wider spread communication.
none of the basic driving factors has really changed on the world scene.
9 John // Aug 21, 2008 at 3:01 pm
Strange how you can call Bush a idiot but I dont see you calling the leader of Russia a idiot. Hummmm And what party is blocking any drilling in our own country??? Enough said……
10 Robert Essian // Aug 21, 2008 at 3:22 pm
My research says that India has inflation where they want it and moving lower, $2500.00 gas consuming auto’s for sale and cash to burn. One hot item selling in India are home generators which of course eats lots of fuel.
China growth will be in the neighborhood of 8-81/2%, 1-300 million middle class citizens with savings accounts of 25%. So energy will be consumed by them and their thriving economy.
Vietnam and other emerging economies are growing.
KSA are using more and more of their crude and my gut feeling is their going to deplete their oil reserves by way of Mexico and Canterell.
Ad to that another major headache in Russia and oil won’t see $110.00 again. At $110.00 all the oil companies will be great growth companies. So if you’re long whats it matter.
Our next President will announce a Nation Energy policy and it will be comprehensive and we will need lots of energy just to build this huge project out.
As Jim would say “all bets are off” if the next President is just as much of a knucklehead as our current lame duck idiot.
11 paultaut // Aug 21, 2008 at 3:29 pm
Fran, agreed but both sides of aisle have their own idiots…because neither side is willing to look to the future as a Nation rather 50 different states with their own individual agendas.
Putin is not an idiot, he is former KGB through and through. These boys never give up. Now Russia is in a position to do what Reagan did to them, use economics on us. The USSR could not keep up with the money Reagan shoved into defense without riots in the Streets because of lack of basic essentials. Now they are in a position to deny the same essentials.
12 paultaut // Aug 21, 2008 at 3:41 pm
Bob, lets say our Lame Duck president tried to get an energy policy moving but was prevented because the Politicians wanted to know what had been said in confidentiality.
This occured early on. He did not want a major panic so instead started shoving oil into the SPR as rapidly as he could.
Instead of telling the truth as seen through the eyes of the major oil companies, he instead opted to prepare for the worst. Maybe in the hope of Tech. coming to the rescue. Or maybe hoping that they were wrong. But 9/11 came along and there were bigger fish to fry.
Back in 2000 with sub $20 oil, what would have been the reaction to “we are running out of oil”?
13 poetslife // Aug 21, 2008 at 3:52 pm
I just cashed out a large postion in EUROX because of Putin’s war lust. Several others have as well. About 9 billion Russian rubbles were converted into dollars the first day of the invasion. So, rather than calling Bush the idiot, you should reserve judgment until you see how investors punish Ivan. As McCain said so wisely, “When I look into Putin’s eyes, I see KBG.”
14 Robert Essian // Aug 21, 2008 at 4:30 pm
Not wanting to get off message I will not attempt to debate whether President Bush was anything but a total and complete baffoon.
I am very bullish on oil, now, near term and long term.
If the World from a Supply and Demand perspective is to be in irreversible decline starting in 2010 then it is my belief that the positioning for the most important energy source the World has ever known will be jockeyed for from this point going forward.
So geopolitical pressures will be high because no one is going to wait 15 months for an old fashion land grab, the land grab is now especially since we are most vulnerable.
Just an opinion I’m willing to invest in…Respectfully
15 Jim Kingsdale // Aug 21, 2008 at 5:13 pm
John: if you look at the relative financial strength of the U.S. after nearly 8 years of Bush compared with before he came on the scene I don’t see how anyone can judge him anything but an idiot. We are bankrupting this country through both the fiscal and trade deficits and wallowing around with no energy policy as oil is becoming scarce. Meanwhile he fiddled around while the mortgage business went off on an obviously bazaar binge. No adult supervision. It is really shameful.
Russia, on the other hand, is prospering more every day, growing stronger financially and politically as Putin has centralized political and economic power - just as the Russian people like to see it. Russia owns the oil and gas that puts them in the drivers seat and we are doing nothing to limit our oil dependence, thanks to Bush.
So who is the idiot? Seems fairly plain to see.
As for drilling, that will solve nothing. I’m not opposed to it, but it doesn’t mean a thing.
KV: my detailed, precise lithium projection given some success of the Volt and other li-on cars: enormous compared with past usage. Enough to make SQM shareholders very happy.
16 robert essian // Aug 21, 2008 at 5:57 pm
Yeah…What Jim said…
17 LEH // Aug 21, 2008 at 7:05 pm
Yes, lithium is the future for HEVS, PHEVS and the like, and SQM seems perfectly positioned.
Bush is indeed a complete buffoon, and the Olympics was a perfect reality show platform to expose him as the total feckless dick that he is. As Beavis and Butthead might say, what an a-hole!
If McCain wins in November, I may have to look for another country–seriously.
18 paultaut // Aug 21, 2008 at 10:03 pm
How quickly history is rewritten. Bush had an 84% approval rating during the first 2 years of his presidency.
The major “blunder” was the acceptance of the “facts” provided by all of the Major Intelligence Agencies of the World. All of them said the same thing WMD in Iraq. When none were found, immediate withdrawal should have followed.
Bush acted stupidly by not moving every one into Afganistan. By doing so he would have averted the current situation in both countries and probably captured Bin Laden in the process.
Meanwhile, millions of Iraqi would have died in the Religious Cleansing (bloodbath) which would have followed US withdrawal. The Bush Bashing Media would have Blamed Him for leaving just as it is now for the Overstay.
The Cleansing would be over by now and Iraq would have been split into at least 2 maybe 3 parts. Our stay has only prolonged the inevitable.
That’s why Saddam was not replaced during Desert Storm, a civil war would have ensued with the Power vacuum created. After all of these years, we may have wrapped up the external pressure on Iraq, but it doesn’t matter whether we leave now or in a few years, the aftermath is yet to come. There are Scores left unsettled and deaths to be avenged. The allegiance of the tribes come and go and they usually unite only for a goal. After that, “it is in the hands of Allah, be praised”.
19 fred poppe // Aug 21, 2008 at 10:20 pm
It seems like none of above commentators ever lived/worked in Russia or even did business with the country. I prefer ’stupid Bush’ over ‘tough Putin’ anytime. While our politicians are failing us, it is still the USA where innovation, enterpreneurship, guts and skills will lead us out of the energy dilemma.
20 KV // Aug 22, 2008 at 1:06 am
John: Granting Bush an idiot status is very gracious. There are really no printable words in English to capsulate this administration (Bush is a puppet front, stringers are in the background).
What hase been done in last seven and half years is dismentling the very essence and ideals of America.
21 wynn // Aug 22, 2008 at 8:13 am
love the debate on Bush the idiot..i vote with jim and with who ever said Putin was smart/lucky.
also last time i looked, the smartest guys in the room were Enron.
oil is headed for $80.
wynn
22 Robert Essian // Aug 22, 2008 at 10:08 am
I am not going to be drawn into this Bush thing at all.
My message will be on point.
I would like to ad just a little something though. Paul you know I respect you very much. The 84% approval rating was because of the after math of 9-11 and was more a reflection of unity towards the troops who have represented us with valor and courage. Bush gets a foot note because he is our President.
Regarding Bush, he should just go back to what he does best and that is posing for the picture on the MAD magazine cover.
Finally, once again we are all going to be a part of a great revolution in America that will clean our waters, the air we breathe, will put so many people back to work rebuilding our infrastructure and making us more secure through the mass destruction of the use of fossel fuels. The money saved can be used to better educate our kids and pay down debt and rework our Social Security System to name a few examples.
This will happen with our next President and I anticipate it with pick and shovel in hand. Granted I’ll hand them over to my son’s and supervise because my back just can’t handle what it used to.
PS: I hope we are not graded on spelling. I spelled tsar instead of Zsar so in the future please forgive me… Peace be to your God
23 KV // Aug 22, 2008 at 11:41 am
RE - You closed your note with:
Peace be to your God
What a wonderful concept, this overcome “my God is better than your God” stuff beautifully! If all Gods are in peace, there is no war in the name of God.
I hope you would not mind if I plagerize this in my writings in future.
24 Robert Essian // Aug 22, 2008 at 12:17 pm
Thank you KV…
25 paultaut // Aug 23, 2008 at 8:23 am
Csar or Tsar, Russian, but never Zsar.
I respect Bush for uniting the Country when it was most needed.
What followed was indeed Idiocy. His biggest flaw is his support for his friends be they right or wrong.
In real life, this might be applauded. For a President, it is unforgiveable. But Continued Bush Bashing will not provide solutions.
When the Next President Takes Office, the can of worms will be his. The Bashing will continue with a New Name.
26 fran // Aug 23, 2008 at 10:23 am
jim k. and others–
i must have been badly educated years back. i was taught in our gov’t, the executive requests, the congress approves, the executive administers within bounds approved by congress. did i get this wrong or has there been change in the costitution while i occasionally napped?
given my learning to be correct, congress sets spending limits, approves trade treaties, approves debt limits/levels, etc,etc.
sounds like a shared job[screw-up if such?].
but behavior by politicians have always been questionable.
our spending problems were magified with the adoption of unified budget. something pres johnson and congress concocted for an earlier war.
am i wrong on this???
27 robert essian // Aug 23, 2008 at 11:05 am
Fran, If I may…The President recommends based on information given to him by his staff. He then stratagizes with his cronies and then spins it to the American people. In Bushes case he completely misrepresented the truth and built his case to an emotional public. The politicians blindly went along. All technically are wrong (EXCEPT THE DISCENTING VOTE) but the people that must pay are you and me.
Our kids are being killed, mutilated and harmed emotionally, for what.
Our national debt is mortgaged to the hilt, housing crisis (still unfolding) and God knows what else.
Katrina and a slew of other issues were handled terribly all on his watch.
Afghanistan I agree with, Iraq I do not. I think it should have been handled more diplomatically first and with the consenses of the United Nations. Similar to the way we are handling Iran.
Now we are vulnerable so Russia takes advantage and the geopolital problems escalate with strategic air defence in Poland. What next?
So to finish, I have no idea how annother president would have handled this but in all my years he is most certainly the worst…I’ll shut off the lights.
28 fran // Aug 23, 2008 at 4:35 pm
robert essian–
like i said, a shared result by “both” branches!
am i incorrect in my learning in my grad school civics?
i don’t give a hoot who/what party[ies] are represented/involved.
the electorate put them “all” in office-for too many years.
the electorate is “us’ns.
if it was done to us, we did it to ourselves.
29 paultaut // Aug 23, 2008 at 11:05 pm
Yes we did. Limits on Congressional terms should have been passed years ago. No one should be able to steer the Congress other than the People.
All of the Lobbys should be sequestered. Access should be granted but only after the Public has had a chance to voice an opinion. This is decidedly easier now using the Internet.
I have a dream. I believe in the People and want them to be the first priority not just a footnote.
30 robert essian // Aug 24, 2008 at 11:59 am
Fran, the rules as I understand them makes all you have said correct.
I would like to add that I am trying to follow them.
However, when you have 100 Senators and 4oo Congressmen all making between 100 and 200 hundred thousand dollars a year the least line of resistance in showing some green is this body of work.
So do I think they represent the people? No.
So the game plays on and as I expressed we pay the price.
My goodness they all seem to spend many millions of dollars to get re-elected for whom. They get elected by us but they do not represent us.
They tell us what we want to hear because we get the fact that Social Security needs fixing, Education needs fixing, Health Care needs fixing. We need an infrastructure to get away from our reliance on foriegn oil, the cost is around 1 Trillion dollars. Lets just not go into Iraq for the last 6 years and this project would have been over half completed and our security and treasure would look so much better today. People would be in a better position to pay their mortgages, credit cards and car payments. Maybe Bear Sterns doesn’t collapse and Banking is stronger. Who benefited from this? Big oil and Halliburton to name a couple. Now I ask who does Bush and Chaney represent?
Leave a Comment