For a minute there I thought I had to get off my couch, when all the while the fact is we don't have to do anything much but keep things afloat for just a few decades more! In fact, we'd best shut up about PO, because if our offspring finds out we knew about it all along, they'll turn and wring our necks come 2036!
Joined: Dec 18, 2004 Posts: 43 Location: Salt Lake City
Posted: Mon Dec 20, 2004 11:23 pm Post subject: Is anyone here actually long oil?
Okay, let's say that you are totally convinced that we are on the cusp of the Era of Oil Scarcity, and you want to hedge your financial well-being against dramatic spikes in the price of oil in the next five years. Wouldn’t it make sense to simply take a long position in some oil contracts on the NYMEX? For example, as of this writing with a margin account of less than $8000 you can buy 1000 barrels (one contract) of December 2009 light crude at $38.16 per barrel. Surely between now and December 2009 the price of oil will experience dramatic spikes because of scarcity, making this position a sure winner if you can ride out any possible dips.
What are the arguments with some real probability against a strong rise in oil over the next 4 years, aside from the fact that we don’t really know what Saudi production capacity is?
For example--- even though the price of oil has risen dramatically in the last 24 months in dollar terms, in euros this rise has been modest. The 2004 price spike is really a dollar devaluation more than a supply/demand phenomenon. If you take a long position in oil at the current time, it is a currency speculation as much as anything.
The US dollar is getting a lot of trash talk, particularly on this board. It is indeed a fiat currency, but you're comparing it to other fiat currencies with their own problems. For example, the euro-zone public debt as a percentage of GDP is rising and will be 70+% in 2005, which is more than the USA. Japan’s is well over 100%--- point being that the USA is not an outlier in the developed nations in terms of federal deficit or gross national debt. Europe has future unfunded public expenditure commitments every bit as daunting as the USA does, and is perennially less productive. Europe has a horrible demographic problem with increasing pensioner to worker ratio with no relief insight, (except for more than 120 million people less than 20 years old in the League of Arab Nations, about half of whom would like to immigrate to Europe.)
I remember when the dollar went through a weak period in the early 1980s. There was talk at that time of monetary crisis/dollar meltdown, just as there is now. A good friend of mine lost a fair amount of money shorting the dollar against the deutschmark at that time. Actually trading commodities in real-life is a nerve-racking and sobering reality check on your theoretical explanations of world events. It really is "putting your money where your mouth is." What if the euro rise against the dollar has largely happened? which is why everyone's talking about it now. Buying oil now might be a classic mistake of buying at the top, in terms of the relative currency valuation of oil.
What if the Bush oil grab in Iraq works? What if the January elections come off more or less successfully, some sort of government emerges that is stable enough to pump oil, with the USA of course first in line to purchase that oil at the prices to which we have become accustomed.
Would you really take a long December 2009 oil position at $38.16 per barrel?
Joined: Aug 10, 2004 Posts: 1104 Location: San Diego, CA, USA
Posted: Mon Dec 20, 2004 11:57 pm Post subject:
I'm long on oil via Vanguard energy fund. Personally, I have no interest in options. Investing is a gamble. Life is a gamble. But I can make some long-term, e.g. five year, bets that oil will be a good source of income over the next five years.
My money is in the Pimco real return commodities strategy mutual fund. It's done very, very well.
I wouldn't go long oil futures because that is something that sophisticated investors do. I am not a sophisticated investor. Even though I have my series 7, 66, 31, Life Agent, and a couple other licenses, and even though I've been to a number of classes on trading strategy, I wouldn't feel comfortable doing anything like that. You can actually lose more than you put in on futures. If I had a couple million to throw around I'd probably try it, but I don't.
Buying physical gold is a no-brainer. Shorting the dollar is probably a no-brainer. The problem is that we're entering a time of chaos. I would want a really solid grasp of how commodity prices, currency values, real estate prices, and employment figures relate to each other. It's not an easy thing to figure out, you know.
There are very sophisticated models out there that relate these values to each other. I had a friend who ran the swaptions desk at Deutsche Bank for a couple of years, and it turned out Goldman Sachs had a poorly executed model. They had about twenty people on their swaptions desk, and my friend ran them all out of the business because he was smarter than all of them put together. I understand that I am a very small fish in a very large pond.
Joined: Aug 10, 2004 Posts: 1104 Location: San Diego, CA, USA
Posted: Tue Dec 21, 2004 2:57 am Post subject:
Ayoob_Reloaded wrote:
My money is in the Pimco real return commodities strategy mutual fund. It's done very, very well.
I'm in this as well. I love the idea behind this fund. It's frightening to watch it on a daily basis: up, down, up, down, up, down--but it's a great way to stay ahead of inflation.
Pimco has an unhedged foreign bond fund that I've considered putting some money into. They opened it around April or so. Not much performance data yet.
Well, if you count energy/commodity-related funds and shares like some of the other guys here, yep. _________________ Live quotes - crude oil, gold and currencies
http://www.post1.net/lowem/page/livequotes
I don't pretent to understand futures (and I know it's risky business!) but I think it would take (1) a minor miracle (2) the US government to allow the strategic oil reserve to collapse or (3) a rapid world-wide swing towards renewables, to cause a barrel to be worth less than $38 in 5 years.
Of course, there is always the future value of money to consider. The best advice for me comes from my father-in-law (who used to be a stockbroker) and his first advice to people is usually "stay away from futures!".
Joined: Dec 18, 2004 Posts: 43 Location: Salt Lake City
Posted: Tue Dec 21, 2004 8:37 am Post subject:
americandream wrote:
How do you go about taking these positions. Any tips? Cheers
You open an account at a discount futures broker (I'm familiar with Lind-Waldock in Chicago.)
You fund the account. 1000 barrels of oil at $38 per barrel is worth $38000 so if you put $38000 in the account you can be sure you will never be forced out of the position or lose more than you put in. Realistically I think about $15000 would be enough. If Dec 09 oil drops to $28 you will be down $10000 and would get a margin call. Then you would be forced out unless you put in more cash. But for that to happen the present price would have to drop to about $24 because normally the time value of money is structured into forward prices. (They're backwardized now because traders are assuming there is a "fear premium" in the current price).
You take the position. A broker can guide you on your first try.
You take a valium and enjoy the ride! It's simple really.
When oil hits $90 a barrel in 2008 you close the position (takes 2 seconds) and profit $52000!
(I'm not a broker or trader. I'm just a middle class Joe. I tried commodities in the early 90's (shorting speculative bubbles) but it's too nerve-racking for me. But I am seriously considering the above scenario.)
Joined: Aug 10, 2004 Posts: 1104 Location: San Diego, CA, USA
Posted: Wed Dec 22, 2004 9:48 am Post subject:
2007 wrote:
goldmund52:
Quote:
When oil hits $90 a barrel in 2008 you close the position (takes 2 seconds) and profit $52000!
Yes, but will money be worth anything in 2008?
I think so. Money will not cease to exist at the national and international level. I expect the dollar will be unstable over the coming five years as trade imbalances adjust, the US standard of living drops, and energy prices increase. But there will still be something called money into which one can convert one's financial instruments.
But I have no interest in abstract financial instruments, particularly over the long-term. Owning a share in an oil company, or an oil services company, or a mutual fund that purchases these shares: that, I can deal with. But I have little interest in personally owning futures, options, and similar instruments. One caveat: I own PIMCO commodities real-return, and they are using the futures market to track inflation. But they use it to augment the income from TIPS--PIMCO does not believe the Govt is honestly reporting inflation, and therefore commodities must be used to better track inflation.
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