[Daryl]

$this->bbcode_second_pass_quote('qwanta', '')$this->bbcode_second_pass_quote('Daryl', 'I') think peak oilers who are advance trading and positioning themselves say 80% invested in gold or grains are taking a huge risk. They are betting the farm (no pun intended) that their vision of the future is the correct one. I don't pretend to have such certainty about the future and try be prepared for as many forseeable outcomes as possible.

[Mechler]

Daryl,

Optimists - and I'm not saying you are one - have been having a hard time on this site lately. Maybe instead of optimists I should say non-doomers...

Anyway, I think your response is valid. This is the Trader's Corner, after all, and you don't trade on something that may happen in 2-10 years. Having said that, though, I am overweight in commodities and that has done well in the last few years. But so has tech and the overall market (until lately).

So, I appreciate everyone's responses. Points are taken on both sides...

[Iaato]

$this->bbcode_second_pass_quote('Daryl', 'I')'m wasting my time here so this will be my last post.

[cube]

A word of caution:

The number of "professional" investors/speculators out there are very few indeed. When I say "professional" what I mean is does the person:
1) pay for the roof over their head
2) pay for the food on their table
purely through investments and have NO other job? VERY few people on this planet fit that description, unless they work in institutional investing but that's a different story. Individual investors are some of the most rarest people you will ever bump into in life if ever. MOST people who have attempted such a profession eventually "switch careers" if you know what I mean.

as for the rest who stuck around.....
examples of previous "professional" investors/speculators:
1) Jesse Livermore - committed suicide at age 63
2) Arthur Cutten - died of heart attack at age 65
3) Munehisa Homma - murdered by jealous rivals

anybody here still want the job?

[Daryl]

$this->bbcode_second_pass_quote('Iaato', '')$this->bbcode_second_pass_quote('Daryl', 'I')'m wasting my time here so this will be my last post.

[drew]

$this->bbcode_second_pass_quote('Daryl', 'I') think peak oilers who are advance trading and positioning themselves say 80% invested in gold or grains are taking a huge risk. They are betting the farm (no pun intended) that their vision of the future is the correct one. I don't pretend to have such certainty about the future and try be prepared for as many forseeable outcomes as possible.

[MrBill]

Thanks for all your comments. They are all appreciated, but please respect other people's points of view. They are equally valid. Group think is not conducive to original thought.

If I wanted to know what Jim Puplava thought I would go over to Financial Sense dot com and read his stuff. I prefer to do 100% of my own technical and fundamental analysis based on my twenty years in capital markets versus rely on someone else's opinion. It is my money at risk. Not theirs.

I only post other comments and articles here if I think they help shed light on trends that I think are happening. I hope they are appreciated, but the last thing I am trying to do is preach to the converted or even convert non-believers.

RE peak oil and a growing economy

Asset prices change relative to one another, so yes there is a lot of money to be made in both bull and bear markets as well as markets that simply go sideways. Part of your investment strategy - based on your analysis - is to figure out where we are in the business cycle. And if you want to calculate post peak oil depletion into your investment strategy then fine.

Energy and the delivery of energy is a multi-trillion dollar industry. If we remove petroleum from our current energy mix then other alternative sources of energy - coal, nat gas, nuclear, solar, wind, wave, geothermal, hydro, bio-fuels - rise in value to compensate for that loss of supply. That is simply supply and demand analysis. Less supply and static or rising demand.

Therefore, the value of the energy industry as a percentage of the overall economy can easily double or triple from its current level. Say, if energy and the delivery of energy is 10% of a $65 trillion global economy then as energy becomes more expensive, as supplies dwindle, then it could rise to 20% of a $65 trillion global economy or even 40% of a $37.5 trillion one. The point is that the price of energy - an asset - becomes more expensive relative to other prices. Labor for example.

The same for the price of grain. As energy becomes more expensive, so will the price of food as it costs more to grow and to distribute. Also, as we have to substitute more labor and other inputs to compensate for the loss of cheap energy. Therefore, the price of farmland should hold its value relative to other assets. Labor for example.

I cannot accurately predict everything that can or may happen. So saying that investment decisions about an uncharted future are based on "the certainty comes from facts and science" is simply wishful thinking. In my twenty years the future has never looked so uncertain. And many asset prices are high by conventional standards. The trend is your friend, until it isn't. Did someone mention the Internet bubble?

I am not the only one confused at this juncture in time and business cycle.
Investors enter 2008 in fog of uncertainty

Based on certainty that the US dollar is sinking and commodity prices are rising how do you explain copper prices down 23% from their highs, while the US dollar slipped minus 10%? That means that copper denominated in US dollars actually sunk 33% as measured in euros for example. And the cost of extracting copper most certainly rose this year due to higher energy prices.

I know, I know, you're all long-term investors, so a 33% decline does not faze you, right? But for the rest of us mere mortals that is a large chunk of change. If I was not properly diversified - through broad asset allocation - then that would hurt. Unless, of course, the size of my investment was so small that it does not make a difference anyway. Then it is chump change and not a strategic investment using my peak oil compass to guide me. Buying on dips works, until it doesn't!

There are many here at peak oil dot com that believe conventional oil production peaked in 2005. Maybe they are right? But then how do we explain that the world economy grew by 5% in 2006 and 2007, and will likely grow by at least 4% in 2008? Not only that but some Asian economies are growing by 10% p.a. despite being net energy importers, and oil prices have risen some 600% - from admittedly extreme lows - in the past 5-6 years. They must be substituting relatively cheap inputs of labor, capital and technical know-how for relatively expensive inputs of energy and/or the value of their output is worth more than the cost of all their inputs. Including that expensive energy. Maybe energy was just so cheap that it is only now reverting to its long-run average relative to the cost of other assets?

If you think you have all the answers you're probably not even asking the right questions! ; - )

And finally a note about investing into long-term bear markets. The objective as Daryl notes is not to get rich, but to maintain your purchasing power. If the general market declines 75% from peak to trough - and your portfolio only drops 37.5% - then relative to other investors your purchasing power has doubled. If you multiply that by all the assets in the economy then your nominal losses still mean that in real terms you can afford to buy many assets that are now cheap.

Precious metals may be a part of that defensive strategy, but they are not the only way to that goal of financial independence.

Yes, there is money to be made investing on the backside of post peak oil decline. And yes, there will be an economy despite higher energy prices and the removal of petroleum from our current energy mix.

I am much more worried about climate change than I am about the effects of peak oil per se. I am much more worried about people's reaction to higher prices, scarcity and falling living standards - for the masses - than I am about the technical details of coping with peak oil as well. That's just my opinion. However, two different opinions does a market make. Its my money and my risk. But that is just how I was raised! ; - )

[Daryl]

$this->bbcode_second_pass_quote('MrBill', ' ')I am much more worried about climate change than I am about the effects of peak oil per se.

[shakespear1]

Mr. Bill

My present anecdotal observation may not explain the drop in copper prices but it may be informative as to why certain trends may be observed which in the long term would be expected to go in just the opposite direction.

This summer I spent a lot of time on the farm ( here in Poland) where I am building a log cabin. While there I heard over and over how depressed pork prices are for the farmers. My cousin raises pigs and he was telling me how uneconomical it is for him to continue to do this. When he is set to sell, he drives the poor creatures to the market and waits. If no buyer is found he is forced to drive return with them. Hence the transport cost is lost. Feed, energy prices are zooming in Poland and he is convinced that it makes no econ. sense to keep him. Hence he expects to liquidate what he has and get out of this.

I suspect that many more farmers are in the same mode of thinking. Hence if many more do the same there will be a large influx of pork into the market which may drive the price down. However once these pigs are gone new ones will not take their place without a long delay and the upward price trend will return. Unless people start to eat less pork.

This trend was seen by some on the DRUM in the following post

$this->bbcode_second_pass_code('', 'Food Price Inflation

Posted by Stuart Staniford on December 17, 2007 - 9:58am
')

$this->bbcode_second_pass_code('', 'GreyZone on December 17, 2007 - 4:57pm | Permalink | Subthread | Comments top

Stuart, if you follow the Chicago Board of Trade data back for lean hog or even most other meats, you should find that sudden price drops like the most recent drop are almost always followed by a nasty spike. The price drop is usually a result of farmers bringing meat to market due to the meat being too high in cost to continue to raise. This produces a brief drop in price as meat goes on sale, followed by a sharp spike upwards as there will be far less meat coming into the supply chain again until the next generation of piglets is ready to butcher. This behavior is just supply and demand at work. The more interesting question at any point in time is whether the underlying cause of the decision to dump meat on the market has become an ongoing problem or is a one time problem.

Oh yeah, as we often saw back in the 1970s, these price swings downward for meat are a great time to stock up and a reason to buy that freezer you may have been considering.
')

[Iaato]

$this->bbcode_second_pass_quote('MrBill', 'T')here are many here at peak oil dot com that believe conventional oil production peaked in 2005. Maybe they are right? But then how do we explain that the world economy grew by 5% in 2006 and 2007, and will likely grow by at least 4% in 2008? Not only that but some Asian economies are growing by 10% p.a. despite being net energy importers, and oil prices have risen some 600% - from admittedly extreme lows - in the past 5-6 years.

[Daryl]

$this->bbcode_second_pass_quote('Iaato', ' ')

Shadowstats-John Williams

[shakespear1]

Iaato

Check out the thread on the DRUM.

Food Price Inflation

Some of the comments there are very enlightening.

The farmer here in Poland I am almost sure is being "whipped". Grain prices , as an example, on the world market are going up and yet on the farm they do not see this effect. There is a middle, middle, middle man who buys from them and sells .... Hell, who knows whom he sells to and at what price in the end.

The same farmer goes to buy bread and sees the prices going up 20% in no time while his effort to cultivate wheat is makeing no economic sense. Something is wracked !!!!

[Doly]

$this->bbcode_second_pass_quote('MrBill', 'I')n my twenty years the future has never looked so uncertain. [..]

I am not the only one confused at this juncture in time and business cycle.

[MrBill]

$this->bbcode_second_pass_quote('Daryl', '')$this->bbcode_second_pass_quote('MrBill', ' ')I am much more worried about climate change than I am about the effects of peak oil per se.

[Daryl]

I started out with Lomborg's new book Cool It!, which is entirely about global warming and all his stats are up to date. That led me to get the Skeptical Environmentalist, which I just finished. He wrote it in 1997, but revised it in 2001. He probably needs to release it again to address new developments. Here's another guy for you, in case you are not on to him already, Thomas PM Barnett, a former Pentagon think tank guy and unabashed globalization optimist. Here is his blog http://www.thomaspmbarnett.com/weblog/ This guy is exerting alot of influence right now, especially in the military.

Wanted to get your take on a couple of things, maybe next week if you find a little time.

You know the whole leftist/goldbug criticism of fiat currency and dollar "hegemony"? Doesn't this rest heavily on the conspiracy theory regarding US econ statistics, especially the discontinuance of the M3 releases? I mean, if you claim that he US gov is just prints up fake money whenever they need to pay a bill, wouldn't you expect inflation to be much higher than it has been? That's why they keep maintaining that inflation is much higher than reported.

Here's another one. The popular theory for the last 5 years, was that the US economy was being artificially propped by the real estate bubble, as consumers used their home equity as an ATM blah blah blah..... But it appears housing prices peaked 2 years ago. That means there has been no additional income source from home equity for over two years now, yet consumer spending has not fallen. I think another 12 months of steady consumer spending and this theory is going to have to go into dustbin with the thousands of other economist explanations that neatly explain the past, but fail to predict the future.

[MrBill]

I am not really sure on the M3 issue. To be honest I had never even given it two minutes of thought before until it popped-up on these boards in the context of the link between money supply growth, inflation and the fiat currency debate. i.e. the general confusion between banks creating money and banks creating credit. That was a long and difficult argument because even the Fed's own webpage seems to use the two terms almost interchangeably to explain money velocity and the multiplier effect of fractional banking! ; - )

MODERN MONEY MECHANICS

However, when I defer to the definition of M3 I see that the definition is

$this->bbcode_second_pass_quote('', '
')One measure of the money supply that includes M2, plus large time deposits, repos of maturity greater than one day at commercial banks, and institutional money market accounts.

[MrBill]

$this->bbcode_second_pass_quote('gnm', 'J')ust glanced at the poll up there...

I guess $91.00 is _near_ $75? Don't you hate it when we are collectively TOO OPTIMISTIC?



-G

[shakespear1]

I suspect Mr. Bill that deep down in your psyche you did not imagine a price that high and this was reflected in your band of choices.

[MrBill]

$this->bbcode_second_pass_quote('shakespear1', 'I') suspect Mr. Bill that deep down in your psyche you did not imagine a price that high and this was reflected in your band of choices.

[Daryl]

$this->bbcode_second_pass_quote('MrBill', ' ')I dunno, but I would not be so sanguine? The current global credit crunch against a backdrop of global imbalances and rising inflationary pressures is not a great place to be when you're over-indebted and living on credit cards. I don't care who is sitting in the White House come January 2009 eventually the $1 trillion deficits add up to some serious money. Pity the pensioner on a fixed income and spar a thought for the future generations of taxpayers that will pay for that bill when it comes due! ; - )