[Tanada]

When I speak to knowledgebell people about peak oil I often get te answer that the price is going up because of hedge funds and speculators. The bring up the price not a world shortage of cheap oil.

Some say that we pay at least 30 to 40% to much because of speculation. Could there be some truth in this. Afterall who doesn't want to make money... And oil seems an easy target.

Others say it is because the Dollar is so weak and the EURO is strong.

Right now the Hedge Funds are a major driver, thats why oil dropped into the $50's over the winter, the Hedge funds lead the way. As it stands now all of the major players are still getting all the oil they want, the real question is what happens when demand exceeds supply between the major players in the global market?

[Newsseeker]

As it stands now all of the major players are still getting all the oil they want, the real question is what happens when demand exceeds supply between the major players in the global market?

TSHTF. Next question...

[greenworm]

Some say that we pay at least 30 to 40% to much because of speculation.

It is hard to say since the baseline for comparison is always what we have been paying. However, if you graph supply/demand up against the price change you will be amazed to see that the price is rising much faster than the supply/demand curve would suggest. Believe it or not we should get an oil glut soon if the refinery bottle neck is true.
But in the end, the price of a barrel of oil is determined by the traders so enjoy your lifestyle degradation while they suck some money out of you.

[JBinKC]

I agree with Mr Simmons synopsis he provided in late April. He thinks the money will be made in the small cap oils that can add to effectively add to reserves. He is also high on the oil service sector. You also could take a lazy approach and invest with Sprott Asset Management. He manages the fund with the highest yearly return over a 10 year period and the first investment manger to take on the peak oil theme in the late 90s. A portion of my investment research is devoted to what he is doing next. For instance, he was a very big factor to the recent strength in the molybdenum market with his newly created closed-ended moly fund.

Personally, I have converted to EPA approved wood heat and the investment payback on it now has reduced to slightly above 2 years (down from my 3 year estimate) I am also considering switching to propane powered vehicles with my idle tank.

[Pops]

Gotta put in my future scrap value of 2 pennies…

Knowledge, skills, tools and land.

Keep chasing the stuff to buy Plasma Screens if you think that is the real hedge.

Power to you.

[MrBill]

Gotta put in my future scrap value of 2 pennies…

Knowledge, skills, tools and land.

Keep chasing the stuff to buy Plasma Screens if you think that is the real hedge.

Power to you.

"Knowledge, skills, tools and land." Too true.

Ironically, my grandparents are 91 years old and getting nearer to the end when I can appreciate all their years of experience throughout the dirty 30s just as we may need their generation's collective wisdom once again. Their tools and land we kept! ; - )

[halcyon]

You've got the right idea but instead of black gold, go with yellow.

Can you explain why?

Traditionally gold has risen WHEN oil price rise is high enough to trigger an inflation, against which people hedge through gold.

Then the primary rise has been oil, not gold.

As such, why not invest in oil if it is the primary drive for gold AND becoming more scarce?

Further, investing in both is not very diversified approach, unless one truly believes gold will become detached from oil prices (It may, I have no idea).

[MrBill]

You've got the right idea but instead of black gold, go with yellow.

Can you explain why?

Traditionally gold has risen WHEN oil price rise is high enough to trigger an inflation, against which people hedge through gold.

Then the primary rise has been oil, not gold.

As such, why not invest in oil if it is the primary drive for gold AND becoming more scarce?

Further, investing in both is not very diversified approach, unless one truly believes gold will become detached from oil prices (It may, I have no idea).

It is very hard to invest into crude oil directly for example. The contango is killing many buy & hold investors. Even in ETFs.

If you buy oil company shares you have basis risk between the underlying price of crude and the performance of their shares. For example, although the price of crude (WTI specifically) is low right now, the margins for refining crude into gasoline and diesel are high, so refiners are doing good as well as oilfield service companies. They do not need higher prices to do well. They need positive margins. Whereas crude oil futures for example DO require flat price appreciation.

Of course, the same hold true for gold producers. They have to subtract from the price they receive from gold, in US dollars, all their costs of extraction, usually expressed in local currency terms. This may make some miners break-even at $250 an ounce, but many may have higher cost structures. A gold miner is no different than buying stocks in McDonald's or Wendy's. They both make money on the margin. Strict cost control is as important as the final price they receive for their product.

You are right, however, if you overlay any commodity chart for oil, gas, minerals or commodities and you will find pretty much a positive correlation over the past 7-8 years. Longer if you count the decline previous to that period. Therefore, it is not a diversification to invest in both gold and oil stocks or futures. They are intertwined. Especially as gold mining is both energy intensive and one of the most environmentally destructive pursuits I can think of? Ethanol from corn looks environmentally benign in comparison! ; - )

[halcyon]

Thanks for the further clarification. I don't personally invest in oil (as a business, not a commodity), although I understand that small player (esp. in service sector) have been recommended by many.

My reasons are not purely economic reasons though, so it's my private investment limitation, rather than a strategy I advocate to others.

All in all, I have found it fairly difficult to hedge myself against PO and severe asset correction on the worldwide markets, IF I would also prefer at the same time to:

1) help with development of sane alternatives (no corn ethanol, please)
2) support economically sustainable business (ExxonMobil may not be the best option here, or any other OilCos)
3) still have a return on profit that hopefully beats the current monetary inflation rate most of the time (c. 10% y2y in Eurozone, more than that in many others)
4) and do all this without training and becoming a full time trader (i.e. long term investment, instead of day-to-day trading)

Of course, I don't have much wealth to speak of, so it's not a huge problem. However the little I have, it'd be interesting to see if I could make it sustain or grow using the above principles of limitation.

As it stands now, my money is in liquid form, in a certain type of bank savings (below 10% return), losing value and still probably being invested by the bank in businesses that wouldn't pass the above criteria.

Difficult the investing is

[mmasters]

I'd say have your money where the action is when the big PO related events come, ride the wealth transfers and cash out.

The only problem with that is you need to really know what you are doing. Day-trading is a great way of losing/making money extremely quickly.

The other caveat is that if/when the shit really does hit the fan, the realworld value of fiat will likely evaporate at a parabolic rate. Do you really want to be trying to cash-out your oil-futures, and then queuing to buy physical gold, when everybody else has had the same idea? No.

As a compromise with your idea, i'd say go 50/50 physical metals / fiat assets.

Not exactly.

The idea is seeing where the global herd of paniced investors will go when TSHTF and being there far in advance (i.e. now). Then when the stampede comes along you simply shift your money into something else.

Get in the safe havens early and kick back, then you only have to time getting out whenever the event comes.

[pup55]

Fidelity

On November 30, 2006, I made a "recommendation" in this thread, and it's time to see how we did.

The suggestion was to put the minimum $2500 into this mutual fund, to try to offset any increase in fuel prices that happen.

If you had done what I said on the following day, December 1, despite the fact that I am just some guy on the internet, and despite the fact that you should never follow the investment advice of anyone who has a job, and despite the fact that I do not work for Fidelity or any other mutual fund company, you would have paid $53 per share, the current price is $58.17, so you would have made a $243 gain. Also you would have collected a $3.08 capital gain dividend, plus a 12 cent actual dividend for your 47 shares, for a grand total of $393.

This is about a 16% gain for the period, not quite six months.

Here is the nationwide average fuel price for the first of each month since that time, per the EIA:

Dec 2.34
Jan 2.38
Feb 2.23
Mar 2.55
Apr 2.75
May 3.09
June 3.25

Given the same assumptions as in the original thread, namely 500 gallons per year purchased (42 gallons per month) and an original price of $2.38 on December 1, you would have paid only an additional $54.60 during that time, using the beginning of the month price for your 42 gallons per month.

Even if you count June, which it is not yet, it only comes to about $100 additional, over and above what you would have paid.

We also do not know how the mutual fund will do in June.

But, dear viewers, the moral is this. It worked. You would have hedged against the short term pricing issues that we have had since then, and in fact, you would have fattened up.

Secondly, I would go so far as to say if you had the choice between buying a Honda Accord Coupe, at $21,000 at 24 miles per gallon and a Honda Accord Hybrid, at $31000 and 28 miles per gallon, you would have been much much better off by taking that $10K and putting it into the same mutual fund and buying the coupe, unless the price of gasoline goes up so stupidly much that you do not want to drive anyway, or there is some disconnect between the fuel price and the mutual fund price.

Car Prices.com

Whether it would have worked against PO over the long term remains to be seen, obviously.

[eastbay]

Pup55,

The energy fund, FSENX, which you recommended on 01DEC06 has made a remarkable upturn since 01OCT06 when I jumped in. This fund includes primarily oil companies which is reflected in the holdings. Many of the companies in this fund are at or near historic highs, but then again we're entering a new era so this isn't a major concern, at least at this point IMO.

Another Fidelity energy fund which one might consider is FSESX, which is primarily made up of energy service companies. This fund has also enjoyed a very nice run-up since 01OCT06 when I bought a few shares. Again, many of the companies represented in this fund are at or near historic highs but considering we're now reaching for the hard-to-reach fruit, it's not much to worry about yet IMO.

Combined, these two funds have enjoyed about a 40% up-move since last October, but there may be some minor corrections in both of these funds as summer draws nearer. When the Atlantic storms begin to form and the geo-political situation intensifies, these two plays are excellent IMO with significant expected upward movement. Bear in mind further that Fidelity restricts the number of transactions into and out of these funds. In other words, they're intended for mid and long-term holds.

Between oil companies and oil service one can probably in the mid-term guard against the economic effects of peak oil. The scarey boogie man ever lurking in the shadows with these two investment sectors is recession.

Although I'm not employed, you should nevertheless strongly consider that I may have no idea what I'm talking about.

[pup55]

FSENX

I just picked this one because it is nice and generic, and has no buy-in load, and the annual fees are nice and low.

It does not matter which one you pick. The point is, if you do this, you are no longer a "victim of high oil prices".

The second point is, at $2500 minimum investment, this is within the reach of practically anyone over 18. Therefore there is minimal excuse for sitting around and whining about the greedy oil companies making a lot of money.

It is quite true that you have some risk, if a recession hits and we go through a period like the 90's. But then, the price of gas would be cheap, so what are you worried about? Just do not go overboard and do some diversification. Buy survival supplies and a Glock 19 with the leftover funds if you want.

[Roccland]

Another one bites the dust. [url=http://www.marketwatch.com/news/story/story.aspx?guid={B3BE66B5-8544-4CA5-A6AE-267D9EEE856E}&siteid=rss]link[/url]

SAN FRANCISCO (MarketWatch) -- United Capital Markets, a leading broker in the asset-backed securities market run by John Devaney, said on Tuesday that it suspended investor redemptions on four of its Horizon hedge funds after suffering losses. United Capital said the redemption halts for the Horizon Fund L.P., Horizon ABS Fund L.P., Horizon ABS Fund Ltd. and Horizon ABS Master Fund Ltd. funds are temporary and it does not plan to liquidate them.

Credit spreads have widened dramatically across asset-backed securities, mortgage-backed securities and collateralized debt obligations as news broke about significant losses in a large hedge fund focused on the space, United Capital explained. The Horizon funds have cut their leverage and sold "a large amount" of cash securities

[Tanada]

Just one more signpost on the way to the greatest depression IMO!

[TommyJefferson]

One of Devaney's hedge funds, which had $620 million in assets, gained 40% last year,

Good times.

As we say in Texas "Ya gotta git it while the gittin's good".

Looks like they did. I wish I was in a situation to play with those big dogs. I could live large off just their crumbs.

[firestarter]

Contained my ass:

Another Bear Stearns Hedge Fund Is in Trouble By KATE KELLY, 31 Jul 2007:
Bear Stearns Cos., already forced to shut two hedge funds that bet heavily on the risky subprime-mortgage market, is now facing big losses in a third fund that has roughly $900 million in mortgage investments, according to people familiar with the matter.

The fund, known as the Bear Stearns Asset-Backed Securities Fund, ran into trouble in July and has refused to return investors' money for the moment, according to these people. One of these people said the redemption requests were postponed in hopes that the fund's assets would rebound in value. The fund contains a range of mortgages, but only a small slice of them that are considered subprime, the area that has given so many firms heartburn in recent weeks. Unlike the two other Bear funds that are being closed, this fund is not leveraged.

The asset-backed fund was up about 5% between the beginning of the year and the end of June according to these people. But faced with a slew of mortgage markdowns in July, its performance appears to have plummeted. It is not known how much, if anything, Bear owns of the fund. Its shares were down about 5% Tuesday, to $121.22.

The decline of the asset-backed fund is yet another setback for Bear's embattled money-management unit, Bear Stearns Asset Management. The weakening and eventual failure of two structured credit funds in June and July, known as the High-Grade Structured Credit Strategies Fund and the High-Grade Structured Credit Strategies Enhanced Leverage Fund, lost investors as much as $1.6 billion in equity and forced the ouster of the unit's chairman.

"There are no plans to shut down the fund," said Russell Sherman, a Bear spokesman. "We believe the fund portfolio is well positioned to wait out the market uncertainty. And we believe by suspending redemptions, we can ensure the best long term results for our investors. We don't believe it's prudent or in the interest of our investors to sell assets in this current market environment."

Suspending redemptions in a free falling housing market! Calling all lawyers.

[Eli]

There investors took the risk and were making money hand over fist let them eat the loss.

We are having a run on the banks, My Lord this is just like the great crash only bigger. We don't think it would be prudent to let you get your money because we don't have it. Wow that is reassuring.

Bear Stearns is going down.

look at this good news Bear, Lehman, Merrill Trade as Junk

[eastbay]

To help put this into proper perspective, $900,000,000 may seem like a significant sum of money, but that amount in mortgages is only the equivalent of a few thousand typical California mortgages. More than that number are heading into default daily.

It's chump change to Bear Stearns. And it's insignificant to America's economy.

[firestarter]

To help put this into proper perspective, $900,000,000 may seem like a significant sum of money, but that amount in mortgages is only the equivalent of a few thousand typical California mortgages. More than that number are heading into default daily.

It's chump change to Bear Stearns. And it's insignificant to America's economy.

You could not be more wrong here.

Redemptions being suspended, even on this amount, IS a big deal.

Also, given that this was a non leveraged fund that was barely tied to subprime paper, indicates that the spreading contagion is likely affecting even the so called safest investment portfolios.

Ever heard of the snowball effect?