I’ve decided to stop posting to the Energy Investment Strategies web site and to take the site down eventually.  There are two reasons.   One is that I need to concentrate my efforts on fighting my cancer.  The other is that I think to a large extent my original aims for this site have been accomplished.  The site was started to educate investors about “peak oil”, its implications for potential future energy shortages, related increases in the importance and value of energy-related equities, and ways investors can best participate .  …

[Read more →]

The stock market and the oil market both seem to engender feelings much like summer vacation time when I was a kid.  Kinda boring, not much happening, a time to wander around, allow your attention dwell on whatever news of the day happens to come along and rest your mind before getting back to the “real world” some time around Labor Day.   So we can be distracted by Gov. Sanford’s bazaar behavior, the political drama of health care reform, Berlesconi and his babes, or Wimbledon - all of which are …

[Read more →]

In the conclusions to my latest newsletter I noted that, “Nearly every analyst is saying the market has come too far too fast and needs a pullback.  Great, let’s have one.”  Today I want to consider the pullback scenario further.  While it’s true that when “nearly every analyst” says something that thing is probably wrong, still  I think it might be reasonable for investors to take steps to protect the portfolio gains of the past couple of months in preparation for a potentially serious pullback.   Let’s hope that it …

[Read more →]

There is reportedly $4 trillion parked in U.S money market funds and other cash equivalents getting a return of approximately zero.   That’s a large cash allocation.  Breaking even seemed great a few months ago when most investors were being crushed by falling equity prices.  But now pessimism is waning and the last couple of months’ returns have been record-setting.  So cash is now starting to feel under-appreciated, pun intended.  One principle of investing always holds true:  funds must land somewhere.   So cash funds will either be re-invested where they …

[Read more →]

Are stocks and oil bottoming?

Was last Tuesday’s 350-point rally the beginning of the end of the bear market or just a false “bear trap?”  And a related question: “Did oil bottom at $33 and will it get re-tested?”  Let’s see what we know.

Some things we know

Sometimes the objective observable facts can yield fairly clear conclusions.  Usually that’s not the case.  Usually you can use the available facts to make a decent argument in either direction.  But sometimes the facts seem fairly clear.

For example, there should have been clarity about being …

[Read more →]

Some companies are cutting compensation levels and hours rather than cutting employment.  For example, here is a report on Visteon, the car parts supplier, that is putting 2,050 employees on a 4-day week and cutting their wages by 20%.  If you Google  “wage cuts” you get 529,000 responses.

Cutting wages and/or hours is a more humane way to downsize than firing people outright, in my opinion.  But to the extent that wage and hour cuts has been and will continue to be a trend, it disguises the unemployment numbers.  So …

[Read more →]

Here’s what Nouriel Rubini says about deflation:
Deflation is dangerous as it leads to a liquidity trap: nominal policy rates cannot fall below zero, so monetary policy becomes ineffective. Falling prices mean that the real cost of capital is high and the real value of nominal debts rise, leading to further declines in consumption and investment - and thus setting in motion a vicious circle in which incomes and jobs are squeezed further, aggravating the fall in demand and prices. 
The simple way I like to think of deflation is that falling …

[Read more →]

Robert Shiller knows something about real estate and if he is correct in the predictions contained in the above chart then U.S. housing prices have a good deal further to fall and they won’t begin to level off until about 2013.  It seems unlikely that economic contraction will end before housing prices stop falling.  Thus, the problem of deflation, at least in regard to housing, would have quite a long way to go if …

[Read more →]

Here’s a Chinese parable that I try to keep in mind.

  Good Luck Bad Luck!

A farmer used an old horse to till his fields. One day, the horse escaped into the hills and when the farmer’s neighbors sympathized with the old man over his bad luck, the farmer replied, “Bad luck? Good luck? Who knows?”

A week later, the horse returned with a herd of horses from the hills and this time the neighbors congratulated the farmer on his good luck. His reply was, …

[Read more →]

On November 23rd I wrote the following: “Deflation, The Economic A-Bomb: make no mistake, the most difficult problem we can face would be deflation.   It is a virus in the economy that seizes upon the public mind and causes a vicious cycle of reduced spending, reduced production, and reduced profits.  As Krugman recently noted, the deflation of the 1930’s came about during the interregnum between Hoover and Roosevelt.   None of the downturns since the Depression has included deflation.  Let us hope this one does not either.” Now, …

[Read more →]

The price of oil has been brought low by the collapsing global economy as we all know.  What next?  To see how far the economy may have to fall (and thus how long we can expect the oil price to be under pressure from reduced demand), let’s look at the bursting bubbles that are causing the economy to implode.  They include a bubble in housing construction and housing prices; a bubble in financing - both stocks and credit expansion; and a bubble in executive compensation. 

The first two bubbles have been …

[Read more →]

Cars are the challenge de jour on several obvious levels. 

   1. There’s no currently discernable path to profitability for G.M. and Chrysler and thus no exit strategy for the bailout funds they need.  So G.M. and Chrysler are like suicide terrorists wandering around the business community threatening to blow up both themselves and everyone else in the room.  Nobody knows whether to feed them or shoot them. 

   2. Cars cause America’s “oil addiction” which in turn has caused so much of America’s balance of payments and foreign policy and military …

[Read more →]

America is sad today for many reasons - investment scams, credit market scams, housing scams, political scams - and  not the least cause for sadness is the death of General Motors.  In typical sleepwalking mode, the management of this once great company - despite having been forced by its legal people to retain bankruptcy counsel - is as yet unaware of the fact of their own death - or the fact that it was a suicide. 

A deeply researched, comprehensive, and ultimately emotional obituary was just published by Bloomberg and …

[Read more →]

Blow as power demand falls by a third By Guy Dinmore in Rome Published: December 3 2008 02:00 | Last updated: December 3 2008 02:00 Italian industry has slashed its electricity consumption by almost a third in two months in a stark sign of the force of the recession and serious blow to efforts by Silvio Berlusconi’s centre-right government to play down the depth of the crisis. Terna, the company responsible for electricity transmission across the national grid, recorded a 30 per cent fall in October and November, Flavio …

[Read more →]

Energy investing - for me, at least - is mostly on hold.  I do have some mid-stream gas pipeline companies that pay great dividends but little else besides cash.  When will it be time to get back into energy stocks in a core portfolio sense?   Lets work back from the new fundamental realities of oil prices to their implications for energy stock prices.    Before 2003 (except during the politically related oil crises of the 1970’s) there was only one condition in the oil market: plenty of oil.  So oil …

[Read more →]