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Investment Strategy Addendum
Buy, sell or hold? I think it is too late to sell. The question in my mind is whether to “catch a falling knife” or wait until there is some confirmation of a bottom in technical or fundamental terms. Countless pundits have warned against ever trying to call a bottom in a real bear market, which this clearly is. But the other mandate is to “buy when there is blood in the street” - buy when fear grips the market, sell when greed is peaking.
To decide which philosophy to follow I am looking at both the technical condition of the market and a gut feeling on fundamentals. I think the financial crisis may be peaking although the real economy has only just started to drop, and I think stocks look about as cheap as they are likely to get from an historical viewpoint.
Below is a Goldman Sachs chart comparing current values with those at past market bottoms. Note that the current data is through 10/7. Prices are nearly 10% lower now. Seems like today’s market looks like ‘73 and ‘00 in terms of the drop - beating all drops except ‘29 - and compares favorably (lower) in terms of P/E with all but ‘29, ‘73, and ‘80. But in regard to the latter two remember that current interest rates are a lot lower, so a higher P/E seems to be justified now.
On the basis of this technical analysis it seems like a bottom may be fairly nearby.
Looking at fundamentals, the financial crisis may be peaking, although it is impossible to say for sure, but the main thing that makes me question that the market has bottomed is the fact that the debacle in the real economy has not had time to catch up with the damage to the financial markets. We still have a lot of trouble ahead. I expect bankruptcies for Ford and G.M. before this is over. While that might be good for both companies and for the economy by eliminating some untenable legacy contracts, it would probably spook the market further. There are also more challenges to the banking system coming from credit card and car loan defaults. A fair amount of unemployment is coming. And for energy investors in particular, oil prices have further to fall I believe.
As I mentioned in my recent newsletter, a viable strategy may be to start buying in fairly small quantities now and “dollar cost average” in over the next few months back to what you consider a full investment position. I am planning to follow that sort of a plan although I will certainly feel my way as events unfold.
Among the first stocks I will buy is TBS International. This shipping company has staked out a unique territory as a sort of “Federal Express of shipping.” Instead of being a bulk shipper of commodities like most shipping companies, TBSI concentrates on serving particular clients, often with fixed price contracts that are booked well in advance. The clients are often entities constructing enormous projects, like building a new refinery, for which they need very large items shipped in. TBSI has a significant service component to their product adding substantial value over the bulk shipping rate and drastically reducing the level of competition they face. Thus their earnings are not completely tied to the Baltic Dry Index that has been dropping like an anchor recently. In fact during the most recent BDI drop before this one TBSI’s earnings kept growing. I doubt they will be completely immune to this current downturn and I expect analysts to begin dropping their earning expectations that are currently running north of $6 per share for both ‘08 and ‘09. EBITDA is substantially greater than earnings. The stock meanwhile at $8.50 is more than 80% below its $71 12 month high.
I also like the midsteam natural gas players about which I recently posted. They provide a stable business model and attractive dividend to support their stocks. Moreover, I expect the use of natural gas to be expanding in the U.S., even as the price of the commodity continues to languish due to over-production. Many of the midstream players are compensated on a volume basis, not on the basis of the price of gas.
Some of the financial plays may bounce back rapidly. While I am not by any means an experienced analyst of finance stocks it seems to me that Goldman Sachs (GS) and Blackstone (BX) have business models that are well positioned to profit in coming years from the problems that other firms are experiencing in the lending area. They can be bought for 1/3 to 1/4 of prices they commanded earlier this year. While they may experience a year or two of poor earnings, I think they will remain category champions and it’s hard for me to imagine a purchase at this point not being very profitable within two years.
In summary, I come out somewhere between “don’t try to catch a falling knife” and “buy when fear dominates”. My sense is to begin buying on a phased in basis. I don’t want to get caught up in the mania if we see a huge up day, and it would not surprise me to see a day when the Dow gains over 1,000 points. And I don’t want to despair if we continue to see red all over the screen. I’d like to just buy in slowly, particularly after market declines, to the extent that I have investable cash. One other thing: you may have noticed that oil and gas producing stocks are not the first ones that I am buying.
Please note: everyone needs to make her own investment decisions in consultation with her professional advisors, of which I am not one.
Tags: peak oil energy investments
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56 responses so far ↓
1 paultaut // Oct 12, 2008 at 11:09 pm
I couldn’t agree more but I go with the 73-74 outlook because of all of the historical similarities Especially the Graphical one.
Timeframe S&P 500 1969 to 1979 vs 1999 to present. They are uncannily similar.
When it starts, the move to the upside will keep people out for a while since they will be waiting for another shoe to drop.
I follow 2 graphs in the Barron’s Online edition. First there is the Panic/euphoria which has yet to go into panic mode, second it the Bull/Bear insider trading graph which is close to entering the Bull section.
What I would like to see is deep insider Bullishness prior to Panic entry.
Earlier this year Williams (WM) created a pipeline trust, WMZ which has a mandated .28+ qtrly payout. Current payout is .31 with an 11% yield.
I want a spike to the downside here with a yield in the 15% range. With a little luck, I will get it.
2 KV // Oct 13, 2008 at 9:59 am
Bloomberg Columnist on Mark-to-Market. Link:
http://www.bloomberg.com/apps/news?pid=20601039&refer=columnist_berry&sid=a2VMZQ7uujvw
Present influx to satisfy MTM is so large that massive inflation will ensue, unless the housing market comes back increasing asset values at banks.
When to invest in gold? If the housing keeps falling even after untold trillions flooding the world.
3 paultaut // Oct 13, 2008 at 11:03 am
18 ct gold jewelry preferably in the for of chains. Buy as gift, keep as insurance, average up/down, do it online at a site like MauiDivers.com, to keep markup minimal go to their specials section.
Dow has the potential of closing a gap above 10,000 and S&P around 1050.
A gap up has been created in S&P this morning, it will be closed sometime in the future.
The dollar was off 2% this morning, is now down less than 1%. Not a good sign, 3 month LIBOR tomorrow will tell the tale.
4 robert essian // Oct 13, 2008 at 11:55 am
Congrats to Paul Krugman a well deserved honor and a must follow during these questionable times.
Thanks Jim for turning me on to his work/column.
Jim, yours and everyone elses insight over these last 9 months have been insightful and a great learning experience.
Today is a good day because all the time and research spent has not been in vain. The knowledge accumulated is being applied and working out just fine.
Thanks again…Hope you are all seeing green today. Its been awhile.
Want gold on the cheap, have a party. People are willing to part with the stuff for wine and cheese. It’s a can’t loose proposition.
5 robert essian // Oct 13, 2008 at 12:06 pm
PS: Forgive me, nothing is “a can’t loose proposition”. Of course it is. My bad.
6 KV // Oct 13, 2008 at 2:13 pm
RE - I would not part with my wine and cheese, for gold!
Actually, you can invest in gold through GLD (sym); but gold has taken off, silver has not, and I am cautious in investing in gold at this time, unless it is accompnied by deep in-the-money calls that return better than current interest. As long as $ is the only legal tender, we don’t have choice but to price everything in $. Enjoy the day!
7 paultaut // Oct 13, 2008 at 2:39 pm
Silver is more of an Industrial play and you should be taking your cue’s from its lack of movement. Gold will easily top $1200 in next six-12 months.
Fiat money from all developed nations… Trillions, Trust for paper money will have to be earned again. As people regain the ability to withdraw deposits the world over Gold bullion will be perceived as being more reliable than Fiat money.
Gold/silver ETFs/companies, gimme a break, who knows what sort of lies they are telling the public. Who verifies the gold holdings? What if what you see is gold painted lead.
8 Isaac // Oct 13, 2008 at 3:25 pm
“one man said its hard to run with the weight of gold, another said its just as hard with the weight of lead…” Grateful Dead 1969
9 robert essian // Oct 13, 2008 at 5:35 pm
KV, your bottles must be covered in dust and the cheese moldy. That’s called living large…
Sixty cents on the dollar KV and you wouldn’t do it?
In case I’m drifting….How about those Red Sox
10 KV // Oct 13, 2008 at 7:28 pm
RE - Some of those wines go for more that $30,000 a bottle. Most expensive (per Forbes) was >$150,000. At the end, one goes with a style! At those prices, you can throw cheese for free, and throway a few nuggets in the river!
Paul - As long as people by painted lead as gold, anything goes. Heck, we collected tulip bulbs, why not gold chains? Why not gold ETFs? By the way, what stops other ETFs to do the same, like, more GE stock certificates.
11 paultaut // Oct 14, 2008 at 2:41 pm
I made my comments on GE after their earnings release, they did a good job of hiding things, The Market goes up a thousand points and another 400 intraday while GE is down both days, enough said.
Well put, especially the commodity ETFs, come on face the truth, there is no way to get the physical commodity to a location or out of same without instantaneous transfer.
The reality is that the commodity ETFs can only approximate what should be in their wharehouses at any given moment. The perception of what should be there is just a perception. Its has no basis in reality.
12 KV // Oct 14, 2008 at 4:42 pm
Precious Metals Funds
The precious metal bullion funds are very safe. These include the SPDR Gold (NYSE:GLD - News), iShares Silver Trust (AMEX:SLV - News) and iShares COMEX Gold (AMEX:IAU - News) ETFs.
These funds hold physical precious metals bullion as their sole asset. The metal is stored in a vault with a custodian bank. It is not like a cash deposit where there is deposit risk.
There are circumstances under which these holdings can be lost—terrorist attacks, acts of God, etc.—but they are extraordinary.
The bottom line:These funds are as safe as, well, as safe as gold in a bank vault.
Link: http://biz.yahoo.com/indexuniverse/081010/4638_id.html
13 paultaut // Oct 14, 2008 at 9:25 pm
GLD is supposed to reflect a specific amount of Gold Bullion being held in that Vault. The ETF trades on the basis of the content in the “Bank” reflecting the Market Value of Gold. Gold rises from $840 to $880 in one day. Was there a truck that picked up some gold from someone and did they put it into the Vault after the Market’s close?
Gold drops from $900 to $840, did someone go to the Vault and remove the Bullion and give it to another party after the Market’s close.
Are you telling me that’s what happens every day? This runs contrary to everything I’ve read recently. Gold, tons still sitting in the Vault even as the ETF tanks.
The ETF not releasing the Bullion. This is Old news, within the last two weeks. The Commodity ETFs were not designed to handle this type of volitility.
Physical Delivery systems do not exist that can move with the spot price on a daily basis, Sometimes not even on a settlement basis.
14 KV // Oct 15, 2008 at 5:29 am
Paul - I am not an expert at ETF, but when the GLD units are created, they are backed by a certain amount of gold that is really put in the vault. When gold price rise, so does the price of GLD units and everything is fine. Same when gold goes down, GLD goes down. The whole idea is to not to chug along a hunk of metal.
The issue is whether they have one to one correlation between gold and GLD (actually real 10:1 = 10*GLD price/gold price).
15 Paul // Oct 15, 2008 at 7:31 am
Unless these ETF’s are complete frauds, the gold there is safe. If you buy “an ounce of gold” via an ETF they put that ounce into the vault, which content is being audited. So that is not the problem with holding gold.
The problem is that governments have complete control over the price of gold.
Suppose gold would threaten the dollar as currency. In order to restore “the stability of the financial system” the government could outlaw possession of gold as quickly as short selling, and, e.g. force everybody to return gold at a price of say $100 per ounce.
Or the government could scare everybody into selling gold holdings. The US government holds about 8000 tons of gold. ETF’s hold about 800 tons. If the government dumped 10% of its holdings into the market, the price of gold would drop like a stone.
Annual “demand” and annual mining output is completely irrelevant, because there are huge amounts of gold above ground locked away. The price of gold is determined by how much of this gold is released into the market; the tiny amount of gold mined each year pales in comparison of what has been mined over the last 1000 years and is still there and to a large extend owned by governments.
16 KV // Oct 15, 2008 at 8:00 am
Paul - what would be the motivation for the US Govt. to do what you said, unless, it is wild, wild west!
It appears that, today, GLD holds ~98% of its NAV in real gold; it sells a small amount to cover expenses mostly for storage and security, and every year, the gold stock goes down, and someday, they may have to do negative split to rebalance the holding, again, if the gold price keeps going up - like the housing was suppose to - there will never be any problem!
Oil below $80, Wolf of FT thinks it is going to $60, and Merril thinks it s $50, and demand destruction is going on at unbelievable pace. I am afraid the slide may take us down to mid-$40 before long.
17 Paul // Oct 15, 2008 at 1:50 pm
It has happened before. With the “gold confiscation act” Franklin Roosevelt outlawed the possession of gold in 1933, with a prison penalty of up to 10 years attached. Gold had to be returned to the government within 3 weeks at a set price of $20.67. Ford re-legalized possession in 1974.
Paper money allows the government to fight recessions by inflating the money supply (right or wrong) and also to inflate away their debt. Governments will therefore not allow that this (perceived or real) power to stimulate the economy and to get rid of their dept cheaply is being eroded by gold creeping up as alternative currency.
As long as gold is no real threat, as long as its price rises slowly and orderly, government intervention is probably unlikely. But if in a crisis things turn to wild wild west, intervention would come with force.
18 KV // Oct 15, 2008 at 2:29 pm
Paul - you excel in taking things out of context! In 1933 we were on gold standard, not now. Ownership of a metal is ownership of a metal, except there is supply, demand and speculative instinct. We just went through speculation in oil, the last bubble of modern history, that basically broke the back of our country; or, at minimum, severly strained that we may have to rest for couple of years.
The problem is we went to unneeded war and wasted nearly a generation worth of resources to be squandered with nuts with light pens looking for places where Sun don’t shine.
19 paultaut // Oct 15, 2008 at 8:44 pm
You presume too much.
What if GLD and its brethren are unable to find A. Sellers of the physical or B. buyers of same.
Hedge funds are still unwinding and will not step up to the plate.
What if gold drops and GLD is unable to sell the bullion it must at the price reflected by its ETF price? What does it do then? Forced selling that exacerbates the downside. Gold rises and they have to find sellers but there aren’t any, Do they bid up and help push it higher than it would have been otherwise just to square the books.
I’m sorry, but you are about to find the Dark Side of owning Commodity ETFs which “store” the commodity.
20 KV // Oct 15, 2008 at 9:48 pm
Paul - GLD is traded in the market as a computer number backed up by gold, and the legal tender for the trade is $, again the dollar, not gold. As long as there is gold market, there is market for GLD, and surprise surprise, both of them are priced in dollars.
I suggest that you go to GLD’s sponsor’s website and read the prospectus.
According to you, I should buy the gold chains from Maui (which has at minimum 50% mark up for 14 or 18 karat gold). Then, I have to worry about selling when I need dollars, which means that I am going to get something less than what I paid.
With your negative thinking, it would be best if we just went and purchased salvadorian red beens and rice. It might be better than gold! You might sell a bowl of beans and rice for a gold chain from Maui.
21 KV // Oct 15, 2008 at 9:50 pm
Paul - also forgit! If GLD is not able to sell bullions, then you would not be able to sell Maui chains.
22 Paul // Oct 16, 2008 at 1:45 pm
Paultaut: Gold can fall, but there always will be a market. I’d buy all 800 tons from GLD myself, if the price approaches that of iron. So there is no need to worry.
KV: If people lost trust in the paper dollar and Wal-Mart would only accept gold coins, then there would be a new “gold standard”. That’s the wild wild west.
But government intervention would come much sooner, because the price of gold is also a self-feeding panic indicator. If a few people drove the price up too fast and too far, many other people would fear that the dollar became worthless and would also try to exchange dollars for gold. The government can break that cycle by dumping gold into the market.
Holding some gold is probably not a bad idea, but holding a lot and betting on much higher prices means speculating against the government. (Only Soros pulled that one off once, but against a much smaller country than the US).
23 KV // Oct 16, 2008 at 3:03 pm
Paul (2) - Walmart can not accept gold coins, it will be illegal and Walmart managers will be arrested! No kidding! Unless there is no USA!
In that case, you would be pretty brave to go out with gold coins to go to Walmart!
If you invest in gold, it is an investment in metal in $ terms.
If you bought gold as a safe haven against dollar’s collapse, also buy a few good machine guns and good bit of amo to defend your gold.
I see no difference in gold and oil. Oil was run up to an unsustainable level in a very short time, and it is crashing, unfortunately too fast, creating more carnage in the investment world.
Someday, gold would trade to $2,000/oz. (per one of my friend), but not in near future (less than couple of quarters).
I still think, beans and rice should be priority if you think the US currency and its government are going to fail as you probably would not have gas to go to Walmart.
24 paultaut // Oct 16, 2008 at 3:26 pm
US minted Gold coins are legal tender in the US at face value. Go look it up.
You can go to any Gold dealer and sell any amount of Gold in any form and receive US dollars. That’s another fact.
GLD the ETF was designed to not only track GOLD but to hold the Physical Bullion that would be the Counterparty to the price of the ETF, or have you changed your earlier comment about the “Vault”.
Considering gold’s decline and its reflected ETF price, If shareholders sell this ETF enmass, will they have to dump a reflective amount of Gold to keep its equilibrium with the number of PAPER ETF certificates outstanding?
25 paultaut // Oct 16, 2008 at 3:29 pm
Sorry, not outstanding but held by investors.
26 robert essian // Oct 16, 2008 at 6:58 pm
Guys, a question. What happens if OPEC breaks apart. What are your thoughts about the supply of oil, potential costs and would it speed the process of Peak Oil assuming for now you believe in Peak Oil…Thoughtful response is anticipated…Peace
27 KV // Oct 16, 2008 at 7:47 pm
Paul - So for a five dollar face value gold coin, I get five dollars, but I get nearly $300 dollars if I sold to a coin collector.
2. indexuniverse stated: The metal is stored in a vault with a custodian bank.
I believe GLD ETF has a bank that does this.
3. Heck, you can sell anything enmasse, and take that company to hell: that was one of the problem with financial companies, shorts were having a field day. That can happen to GLD as well. However, GLD has real gold backing up its units, and Paul(2) would be the first in line to buy that gold, and so would I. We will let you buy Maui chains. I really think you simply do not want to understand how GLD ETF is constructed and maintained. You can lead horse to water, but can’t make him drink.
28 KV // Oct 16, 2008 at 7:56 pm
RE - Thanks for getting us back to oil, I am done with GLD!
I do not know what would motivate OPEC to break up; they have been through oil down to near ~$12 or $15 after 1970s oil crisis. Many of the members produced more than the quota, but that is always the case.
Nobody cares about peak oil in the short term; oil could be hitting $35~$45. My Kuwaiti friend claims they would be happy producing for $15, for last 30 years, they burned off the natural gas as that was the cheapest way to dispose it.
29 KV // Oct 16, 2008 at 7:59 pm
RE - I forgot to add: as Iraq brings its oil in the market, we are likely to see much more supply than demand depressed by financial crisis. Peak oil is not the main interest, neither are the commodities - steel, copper, ores, all going down, so is dry goods shipping as well.
30 paultaut // Oct 16, 2008 at 9:51 pm
Iraq’s cost of production is $110, Iran’s is $90, Russia’s is $70. Saudi production costs about $50. All the above are breakeven costs.
Good luck on the supply side.
Before I quit on GLD, let me try a very simplistic approach. This ETF does not have an assigned number of shares outstanding. The number of shares fluctuates. So, lets say only 10 investors each own only 100 shares. A hundred shares are worth an oz. of gold. So what is in the vault is 10 oz. of gold reflecting the Ownership of 1000 shares. If the price of Gold is stable and 5 of these investors sell their shares, does the amount of gold held in the vault remain or is it sold on the open market?
If it is not sold on the open market, then I maintain that the remaining investors have just seen the value of the ETF double for themselves. They now have 2 oz. for every 100 shares. The ETF no longer reflects the price of Gold but the amount of gold in their coffers.
To me this appears to be obvious, but I’ll back off because I’m tired of hitting my head on the wall.
31 KV // Oct 16, 2008 at 10:31 pm
Paul - Why go through hypothetical when you can download the prospectus and read how they do it. Also it will save you your head.
Where do you get all these numbers for oil production cost? They are BS.
32 KV // Oct 16, 2008 at 10:36 pm
Paul - ETFs are different from CEF - closed end funds, in CEFs they have a “fixed” number of shares outstanding, and CEF price fluctuates with the stocks held in the fund.
GLD will create and redeem shares per demand: each creation will require placing gold in the vault, and each redemption will require removing gold from the vault, unless somebody else wants to buy the units. Then, there is market in GLD units, and gold remains in the vault.
33 robert essian // Oct 17, 2008 at 3:36 am
Guys I expected more than that. The information you gave me was insulting to your intelligence.
Iraq’s oil supply is in serious doubt because of pipeline line issues (rusting).
It appears that the system in Iraq could very well shut down for a host of reasons. One of them being environemental issues.
Seriously, I need you guys to give this some thought, without bias one way or the other regarding Peak Oil.
I’ve enjoyed your debate. Its brought levity to my day…Peace
34 KV // Oct 17, 2008 at 7:16 am
RE - For me, peak oil is a long term trend, and frankly not material for knee jerk investing we do! As long as there is gas to be had without line, and below a good lunch per gallon, I don’t care. RE, I am not sarcastic, just factual. I drive small cars and I get 30 mpg, as cars with high mpg are available I trade these in and I don’t care!
Further, I don’t care about Iraq. Why? We have learned to live without Iraqi oil without shortage. If Iraqis can produce fine, but we need to stop subsidizing Iraqi so they can get 35 cents a gallon. How? Simply get out! Oh, but what about the bloodbath if we leave! We honestly don’t care about bloodbath, genocides etc., we never did. They have been killing each other every 50 or 100 years, and they will do it!
Same about Iran. What if they had a bomb? Frankly, I don’t care! Why? If Iranians are fools to seek their own obliteration, fine. It will be less than 15 minutes before Iran will stop existing ifthey did foolish stuff. No mullah will ever see another day brighter than that day. Anybody has ever read Ali Sistani’s web page? Hell, those guys are concerned about sex in places I don’t care.
And, those Bible readers and believers, vengence is God’s, not yours, and Israel will take care of itself.
So, where the oil price going is not as important as how fast are they going there, and at what destruction, that I care. At this point, oil is in free fall, and investing is like catching a falling knife. Look at all the oil stocks - CHK, COP, XOM etc.
So, for couple of years, peak oil is dead! I hope it idoes not kill solar and wind. I hope we subsidize solar and wind, and hybrid electric cars. Why? I ask, why not?
35 paultaut // Oct 17, 2008 at 8:59 am
http://www.Zawya.com
Middle Eastern news. The estimates were made a few weeks ago. Kuwait’s was $29 BTW.
INRE Iran, this about Religion, nothing but that. Moses saved the Israelites a few thousand years ago. Nothing has changed inbetween. One religion will try to stamp out the other. Each is doing what it has to do. The danger lies with the possibility that A Nuke producing facility is created in a country with a Zealot at its head and in the middle of an area producing more than 35% of the world’s oil.
I’m glad that you have finally agreed with me KV. Gold is added and subtracted from the Vault. Hedge Funds have started selling Gold ETFs, and if no one steps in to buy them, where will the gold that is removed from the Vault go?
36 KV // Oct 17, 2008 at 9:40 am
Paul - you are nuts! GLD adds and substracts only in a basket, not for every trade! There is a market in GLD!! Get it? The GLD owner add and substract only when some authorized dealer (basket trader) comes to either buy or sell a full basket (look up the size of the basket in GLD prospectus - I bet you still did not read). And, if there is buyer of the WHOLE basket, the GLD owner will TRADE basket than move the gold around!
I frankly don’t care where the gold goes as long as it is not going to Maui chain makers who add copper and silver and than sell at the twice the price.
37 KV // Oct 17, 2008 at 10:47 am
Paul - post a link to a page where your numbers are substantiated, otherwise, it is a BS!
I think if I owned an oil well, and it cost me $100 to produce a barrel, and I only get ~$70 for it, hell, I made -$30, and I will be so rich with all those minus dollars that I will own all the minus dollars in the world! Wouldn’t it be great!
38 robert essian // Oct 17, 2008 at 11:28 am
Guys my question was what are your thoughts and its effect if OPEC breaks apart.
For example how would that effect supply, would country’s be more inclined to sigh seperate, long term contracts with the oil producers as China and India are doing etc…
How would that effect price if all these contracts were signed on other countrys poored countries or on major consumers like the U.S. etc…
I asked you guys because you generally leave no stone un-turned and I respect your input. In addition you challenge each others to think outside the box. Now help me out with this question…
39 KV // Oct 17, 2008 at 1:25 pm
RE - It is about supply and demand, and most of the OPEC countries have to produce to live.
If OPEC falls apart, production will increase, oil prices will go down further , and we will be driving SUVs. We live again on cheap energy!
So would the rest of the world, at OPEC countries expense. So OPEC breaking is useless to consider.
Paul - Moses and Iranians had no fight, it was Egyptians, and Israel has peace with them for a while.
40 paultaut // Oct 17, 2008 at 1:27 pm
Opec is in the process of adding members, Brazil will probably be next. Opec has a monopoly going as far as how low the price is allowed to go. They can not control the upside when demand finally exceeds total production. Today, Opec is totally different from 10 years ago. The demand for oil is totally different also, None of the Bric+ nations were included in the Demand equation at that time. Indonesia was still a net exporter, Mexico was Chugging along, Nigeria was not even a twinkle on the Horizon. Peak Oil was a theory that few people knew about.
Nigeria is part of Opec, Indonesia is not, Mexican Production is tanking and some of the North Sea Platforms have stopped producing. Norway is proceeding with some high tech pressure schemes to keep oil going but This is just a respite.
So China signs a 22 year contract with Iraq, Gazprom buys all of Libya’s production. Iran has a pipeline sending 100k of oil directly to China. Russia wants to control the pipelines trying to prevent oil flow from circumventing its oil control to the EU.
China warns the Majors to steer clear of drilling in Vietnamese waters.
The land/sea grab is underway, Last year a Chinese company paid cash for a Canadian Oil Trust.
Oil drops a bit just like it did in the 70’s and everyone heaves a sigh of relief and starts to do what they did before. Projects are postponed, Feasibility studies are scrapped and the blank hits the Fan again. But this time it will be far worse. Other nations are actively pursuing assets on a Governmental level, while we are thinking of taxing our own producers.
41 Paul // Oct 17, 2008 at 1:47 pm
Paultaut: Any source on the production cost of oil would be helpful.
What I recall to have read somewhere: Saudi oil production cost is $2, total transport to a US refinery adds $5 maximum. Production cost for oil from tar sands is between $40 and $90.
What fits closer to your numbers is the minimum selling price of oil at which these countries can maintain their current standard of living (i.e. cover the cost of their frugal governments).
(On gold: the only reason to buy gold chains instead of coins, bars, or ETF’s is that the 1933 gold confiscation act did not include jewellery. But if history repeated itself, it wouldn’t have to do so exactly).
Robert: OPEC doesn’t seem to break apart; they are just about to hold a meeting to decide on production volumes. If they did break apart, this would weaken - but not eliminate - their ability to react in a coordinated fashion. Their interests would still be aligned. So perhaps more short term volatility. But it would have no or very little impact on peak oil timelines, which is the real story.
42 paultaut // Oct 17, 2008 at 1:47 pm
KV, you told me to read the prospectus. I gave you the site where I got my info, do what you told me to do. I gave Jim K. those same figures some time ago. Not Saudii or Kuwait but the others.
For the most part, I willingly share what I know with the group. What I don’t share are stocks which are highly illiquid and in which I have not built a full position.
The only Opec countries not producing at Full Tilt last june/July were The Saudi’s and the Nigerians who had problems.
The projects in the Middle East need cash, Oil will rise to feed those multiTrillion Dollar projects.
43 paultaut // Oct 17, 2008 at 2:03 pm
Paul, I don’t bother to copy everything down and keep a list of where I read what, at the time.
The figures came from that site to which I am now a subscriber. I have too many feeds. I scan for pertinent info but don’t bother to keep copies because I do it for myself and I do not need to reread what I’ve read. Unless its some stupidity regarding Charting or historical applications of the same. I am not a researcher for hire, I’m not paid to post anything here.
I give opinions based on facts as I know them.
Gold will continue to drop until the Hedge Funds are done selling their ETFs, If I am totally wrong about what the net effect of this selling will be, then Gold, the Bullion will not go down. IMHO, gold is about to drop below 700, next month or two, Gold shares have been leading the way.
44 paultaut // Oct 17, 2008 at 2:47 pm
the site I mentioned costs roughly $2K annually to subscribe.
I use what free news I can get, to do a historical search I would need to pay the Fee.
One thing that Opec expects to do is spend a couple of Trillion in the next 2 years, only 40% will be on energy related projects. If Funding cannot be purely from Oil Prices, they say they have about $2.5 Trillion available to use from Foreign Investments.
Go figure, either oil goes up and we pay, or they will cash in their Treasuries and we will pay even more.
45 KV // Oct 18, 2008 at 4:53 am
Paul - See comment 12, in which, I provide a link to an html page that will contain the story.
RE - As I said before, everybody was very happy selling oil at about $25~$30 a barrel even after six months of Iraq war. All of a sudden, it traded up to ~$150, first loss of Iraq’s production, then demand from China & India and other bull, then Russia can’t produce, then we are not allowed to drill anywhere while the oil companies are sitting on untold millons of acres of land with drilling rights, then people stopped using that much oil, and then the bubble collapsed, then those who were predicting $250 per barrel started predicting $45 a barrel, all within last four years.
We have been taken for a ride by bunch of snake oil salesmen.
Can we avoid this in future? I doubt it unless we take advantage of this lull, and invest and support alternate energy forever. If oil gets cheap enough tax it to fund the alternate energy projects.
For those getting pissed about taxing oil, just look up the tax code on subsidies provided to oil and gas exploration, production, distribution etc. It is one of the highly subsidized commodity.
46 KV // Oct 18, 2008 at 8:39 am
Paultaut - Re-read your posts 42 through 44.
1. You did not read GLD prospectus.
2. In 43 you stated: I give opinions based on facts as I know them. Bush/Cheney said similar stuff about WMD.
3. Give the darn link, and let the visitors decide whether they want to pay $2K.
4. Read Paul’s comment (#41); I think he is correct. Get to Bush level, at least, say: “mistakes were made!”
.
47 paultaut // Oct 18, 2008 at 10:49 am
Read Jim K’s first post.
Read what you receive as a FreeBee at the Zawya site if you register. Or do you speak/read Arabic because after a week, almost all of the news is converted to that language.
They will send you Weekly Emails with current events in English with about 20 links on various sectors. But I wouldn’t have to bother explaining this if you would have read what was available.
On the way up, GFD bought gold as Cyber Certificates were created and equal amounts of Gold reflecting the number of Cert.s O/S were Banked.
Yes or No?
If no one steps up to the plate, and selling accelerates, these same Cyber Certs disappear, they no longer exist, and to reflect the value of the current Certs O/S the amount of physical Gold in the Bank must be removed. Yes or No?
As the physical Gold is returned to the market, The overall supply of Gold available to other Non-ETF investors will increase: Yes or No?
Increases in Supply of Oil create drops in price, why wouldn’t Gold act the same way?
As Gold drops in Price, the ETF automatically drops in price also. Sell Stops are Triggered or margin calls made…it becomes a self sustaining downward spiral…
I couldn’t care less what the Prospectus says. I am providing the Potential Dark Side of such an investment.
I read an article somewhere, sorry no links, that this ETF had more gold in the Bank than it was supposed to have given the price of the ETF( about 65,000 oz.). To me it seemed quite obvious that they couldn’t find buyers. Their system had broken down. The ETF was effectively mispriced. The Vault had too much gold.
A hedge fund went belly up as oil dropped last month, they had some XYZ million barrels stored in containers which had to be liquidated. Oil had dropped rapidly that week but no one knew why. The following weekend revealed the Hedge failure and the flood onto the open market as they liquidated their assets.
Unlike, the Cyber reality of the Certs, they have the physical metal itself. And Just like the Hedge Fund, if there is forced selling of this ETF, how will they be able to return the money to the Investors without selling gold on the open market.
I am sorry for using common sense. I missed the entire last year of the Internet Bubble because I was totally in Cash. My wife thought I was Crazy for about a year and a half.
Prospectus? oh yes, Red Herrings, thats what they are called. They are all filled with Disclaimers.
48 KV // Oct 18, 2008 at 11:41 am
Paultaut - 1. So you don’t have a link. By the way, do you know who owns that website? Why not admit an error?
2. What is GFD and what cyber certificates are you talking about? As far as GLD is concerned no new certificates are created just because gold price goes up, no certificates are destroyed because the gold price goes down. On average nearly 19+ millions of GLD shares trade daily, with yesterday’s close at $77.21.
3. Your “darkside” scenario is a BS. The price of GLD tracks the market price of gold; if gold collapses so does GLD.
4. You likely have a mushroom syndrome. Live in dark and feed …
5. Might want to listen to wife! She may be right! But forgot, you know what you know, and it is always right.
49 paultaut // Oct 18, 2008 at 9:05 pm
I don’t claim to be right, You do. My claim is very simple. When GLD, the ETF, is sold enmass by Hedge funds, the certificate amount o/s will shrink. As the o/s base shrinks, what happens? New shares were Created on the way up, as new investors bought shares, there is no limit on that aspect.
But what happens on the way down and the ETF has to maintain its price based not only on That of Gold but also on the number of investors holding shares. The price of Gold is irrelevant the amount of gold held is.
I tried to simplify it, you chose to ignore the example. “Stable Gold”
50 paultaut // Oct 18, 2008 at 9:47 pm
I never said I had a direct link, I gave you the site where I found the info., thats all.
My applications and personal data are stored on my computer. My Internet browsing, mail, are all done from within a virtual buffer zone. My computer is safe from trojans, viruses, hackers, adware. I don’t have any of those after the fact Protective applications. Don’t need them. Don’t have a firewall, phishing filter is disabled.
So, I roam the Web, linking wherever from wherever. If I find an interesting site, I will subscribe to whatever FreeBees I can get. Zawya is very, very informative. That’s why I provided the site.
Forex, Platts, Kitco, Mineweb, Investmine, Asian news feeds, European, Australian.
I’m awake when they are live. You get to see news that sometimes is never seen again.
If it was false to begin with, a later retraction is made, if I never see it again, I try to write down what I remember for future use…it has been squelched.
I have my opinion as to how the Gold ETFs scenario will play out, You have yours.
“I can feel the dice begin to roll in my head.”
51 KV // Oct 18, 2008 at 9:54 pm
So we depend on your memory to be unfallable, and you are right, everybody else is wrong.
I could care less what you on your computer do, as long as you post that is verifiable.
May be this would make sense to you: what happens if every mutual fund started selling MSFT? Then you will see the BS in your argument.
I don’t know about dice in your head, on a second thought they are round, like marbles may be.
You still did not read GLD prospectus.
52 KV // Oct 19, 2008 at 7:43 am
Saudia Arabia’s production costs.
In early 1990, the net well-head cost of production from 14 operating fields, with the Ghawar axis of fields taken as one unit, was estimated to average between 50-63 cents/b.
Read the rest at Link: http://www.allbusiness.com/mining/oil-gas-extraction-crude-petroleum-natural/550563-1.html
Allbusiness.com is D & B website.
53 paultaut // Oct 19, 2008 at 8:50 am
You obviously haven’t read the “Wheel of Time” series.
One more time, read the first article up above. And please review what I intially wrote. “All of the production costs are Breakeven”, “Opec has Multi Trillion dollar projects to feed.”
I read the Disclaimers, Have you?
According to MSN.Money Mutual Funds only held 1.8% of MSFT as of 6-30-2008. However, Institutions held about 59%. If the Institutions sold all of Their shares, Microsoft with all of their Billions would not be able to buy back all of them. It would drop like a ROCK.
The real question is whether Msft is honoring the promise made earlier this year, about buying back shares if the price dropped below $24. Money flow suggests otherwise. Open Market Insider Buying doesn’t exist. They could probably Offer to Buy Back 1/3rd of their shares at $15.
54 KV // Oct 19, 2008 at 9:14 am
Paultaut - I have so many projects that I could use out all the resources of the world, if I could! OPEC will have to choose what they can afford.
Paul in comment 41 is correct, and you are wrong.
May be this will help you: a meteor lands on your head, you loose all your round dices and start seeing the market as it is: supply-demand and speculations.
For you it seems it is penny stocks and the world is ending but before that your illiquid stocks will hit the sky, but being illiquid nobody interested in buying, as there is no market!
I think Jim has been way more gracious and Paultaut, I will not respond to your posts, not because I am pissed or anything, I simply think you are an illogical animal, who only can think in Yes/No - like Palin’s Pro-America Americans and Anti-America Americans. See the irony in that?
55 paultaut // Oct 19, 2008 at 9:19 am
Again, I never made any claims whatsover, I voiced facts and I have no Idea what “unfallable” is. I stated what I had read. Apparently, I was off on the Saudii number $55 vs $49 but they have added a few projects recently, Zawya.
The Gulf States expect to increase, their Aluminum production from 4% to 10% of the Worlds Supply within 2 years. Do your own research. Believe only what you see in Links which were written by people with their own agendas. If you don’t like the opinion of others, don’t read them. I read everything I can.
If I don’t agree, I will voice why. But I will not try to force feed my opinion down someone’s throat.
Red Herrings are all the same, this model this and this should work like this. But All of them Include Disclaimers as to how the whole thing could come tumbling down. They are designed to protect themselves if the Projected model fails. If this ETF were perfect it would not have a disclaimer, it does.
56 paultaut // Oct 19, 2008 at 9:26 am
Inre #41, my response #43 “I give opinions based on facts as I know them”.
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