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Re: Peak Oil
Old 07-22-2005, 03:29 PM   #21
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Re: Peak Oil

Thanks for the response Ha. After some eyeballing, energy does seem to add to one's diversification. I've not seen actual numbers, but it seems energy either has a low correlation or is un-correlated to the overall market. I've seen them do the opposite of each other on some days, and on others one may have a big day and the other average (like today)

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Re: Peak Oil
Old 07-22-2005, 03:50 PM   #22
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Re: Peak Oil

Quote:
Originally Posted by Laurence
Wasn't the original peak date somewhere in the '80's?
No; the originally predicted US peak (by King Hubbert) was for about 1973. The actual US peak was more like 1970.
Quote:
* I mean, the theorists could be essentially correct and yet we could not really feel a pinch for 40 years, and that's just too far out for me to worry about (as far as my portfolio goes).
Even the Cornucopians arenít this optimistic.
Quote:
Plus, as oil goes up in price, certian demands on oil will fall away as viable substitutes become cheaper relative to oil.* My prediction: soft landing.*
And you could be right. As the man said- you pays your money and takes your choice.

Ha
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Re: Peak Oil
Old 07-22-2005, 04:02 PM   #23
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Re: Peak Oil

Hmmm...and you know I didn't think about the low correlation and diversification aspect. It's just hard to think about dipping my toe in after this huge run up.
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Re: Peak Oil
Old 07-22-2005, 04:29 PM   #24
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Re: Peak Oil

I hate to buy anything near highs too Laurence but I do find the potential diversification play interesting. Some of us hold gold for protection and low/negative correlation but it can be a pain in the ass to hold. Oil may very well be a better commodity to own for protection from what I see despite gold having a lower correlation to equities. I haven't dipped yet but I am considering.

HaHa -

You are correct. The logic behind the naysayers reasoning is flawed. Even if the US becomes more efficient in energy use it does not guarantee a damn thing. And developing nations are far from being efficient users of energy (not talking about the nations that still use animals for everything so scratch that argument).
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Re: Peak Oil
Old 07-22-2005, 05:09 PM   #25
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Re: Peak Oil

Quote:
Unfortunately, the number of oil consumers is increasing
Good point. This has been true for a long time because of population growth, but the industrialization of China has accelerated the trend. Commodities are probably a good long term play, although there are sufficient alternative energy sources to absorb even Chinese demand, at a price.

Quote:
I wonder if an eventual showdown with China is inevitable?
They have been heavily arming themselves, but mostly for an assault on Taiwan. They don't yet have the ability to project massive force very far from their borders, so a blockade of the Persian Gulf in unlikely in the near future.
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Re: Peak Oil
Old 07-22-2005, 05:16 PM   #26
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Re: Peak Oil

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Originally Posted by HaHa
Hi Bookm-

I can't say about short term movements.

Ha
My short term movements have been good, but then I eat a lot of bran.

JG
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Re: Peak Oil
Old 07-22-2005, 07:06 PM   #27
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Re: Peak Oil

Quote:
Originally Posted by brewer12345
Actually, I take it back.* I missed some things in my original poking around.* Cash on cash returns actually look like they would be on the order of 18%!* Here's the math:

~$15k PV system cost
Less $10k rebates

Total cost ~$5k.

System would generate 2,920 kwh, based on 2 kw @ 4 hours avg. per day.* I pay about $.11 a kwh.* The state forces utilities to have a certain percentage of capacity from renewable/green sources.* One of the way they do this is to buy credits from owners of PV systems at about $.20 a kwh.* So net-net, the PV system would produce electricity and credits worth ~$.31 per kwh.* 2,920 times .31 is $905.* $905 divided by $5k net system cost is ~18% yield, tax free.

I am still trying to confirm that this approximates reality, so if anyone has thoughts, feel free to air them.
Brewer, you might want to find a neighborhood PV system owner to tell you what their actual power generation is. Most inverters carry RAM & software to track their performance and you may find that a 2 Kw system generates less than the math predicts. Especially if that math is coming from a vendor or installer.

Hawaii has one of the nation's highest rates of sunny days and we live in an area of Oahu that has some of the island's highest insolation (22 degrees latitude). Yet our 1.1 Kw system had several days in March that were less than 3 KWhr, and we don't have to shovel snow off our array. This month, at the height of Hawaii summer, we have mostly 5 KWhr days with a number of 4s. We have yet to break 6. Even if our array keeps chugging all winter at 140 KWhr/month, as it produced in June, that's only 1680 KWhr/year. But you're expecting 95% of that optimistic performance in an area of the country that's considerably farther north-- and I suspect it's also rainier & cloudier in New Jersey.

But I nitpick. Even if you barely clear 1500 KWhr a year, your 2 KW system retails at only about 75% of a comparable Oahu system-- but your rebates are far higher. You're paying 25% of the net cost that Oahu buyers pay ($10K/KW) and your electricity is still 65% of our costs. So your cash-on-cash yield could still easily beat 8%-- and if generation costs keep rising then your payback could be under a decade.

You know you'd buy a cheap stock with an 8% yield if you could hold onto it for the dividend. So if you're planning to stay in that house for a while then I'd jump in with both feet.

If New Jersey will buy power from you (or if you use enough of it) then you might want more than 2 KW. After you get a great deal on the first 2 KW, buy cheap/used panels to boost total power to match your inverter's capacity.

Quote:
Originally Posted by TromboneAl
P.S. Note that this problem is caused by, or at least greatly aggravated by, overpopulation.
I think it's caused by under-exploration and insufficient pumping!

Many oil reserves are difficult to extract for various reasons that make them uneconomical. Yet when the price rises, somehow those old wells are persuaded to part with a few more barrels. When the price rises, exploration technology also seems to improve and soon there are more discoveries.

If we were running out of oil then I'd expect the price to be rising faster & higher than even the wimpy hedonics version of the CPI. However it's lagged the CPI for decades. And gasoline in some areas is cheaper than bottled water...
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Re: Peak Oil
Old 07-22-2005, 08:13 PM   #28
 
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Re: Peak Oil

Well, in 1968, when population was a popular issue, the world population was about 4 billion, compared with over 6 billion now (U.S. 200 M vs. 270 M today). If at that point the world obtained and maintained zero population growth (I know, unlikely), I don't think we'd be talking about peak oil for another 20 years.
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Re: Peak Oil
Old 07-22-2005, 08:55 PM   #29
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Re: Peak Oil

Quote:
Originally Posted by TromboneAl
Well, in 1968, when population was a popular issue, the world population was about 4 billion, compared with over 6 billion now (U.S. 200 M vs. 270 M today). If at that point the world obtained and maintained zero population growth (I know, unlikely), I don't think we'd be talking about peak oil for another 20 years.
While overpopulation may be an issue for some areas, I don't think it plays as large a part wrt fossil fuel consumption. The countries that consume the most and have the greatest increase over the last half century have had slow (U.S.), flat(Japan), or even negative(some countries in Europe) population growth. Even China has only a very small percentage of the population driving cars, most are still living in the 19th century....
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Re: Peak Oil
Old 07-22-2005, 09:55 PM   #30
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Re: Peak Oil

Greetings wildcat:
Quote:
I hate to buy anything near highs too Laurence but I do find the potential diversification play interesting.* Some of us hold gold for protection and low/negative correlation but it can be a pain in the ass to hold.* Oil may very well be a better commodity to own for protection from what I see despite gold having a lower correlation to equities.* I haven't dipped yet but I am considering.
In a recent article on moneycentral, David Dreman believes that oil stocks are still a wise play. Interesting, coming from a value maven:

The integrated oil companies, which encompass everything from drilling to gas stations, and the pure exploration-and-development companies still provide good value despite large rises in their stocks. Because their profits are up smartly as well, their price-earnings multiples have stayed low.

If oil prices hold near current levels, significant room for multiple expansion exists. Most companies have already paid down a good part of their debt and can now apply their enormous cash flows to share buybacks and dividend increases



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Re: Peak Oil
Old 07-22-2005, 10:13 PM   #31
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Re: Peak Oil

O.K., so I started this thread with one opinion and I can honestly say I'm being swayed, I'm considering an oil play of some sort. Wildcat mentioned PRCIX, any others? If you held nothing oil related right now (except for what falls in the basket of index funds) what would you be buying right now, y'all?
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Re: Peak Oil
Old 07-22-2005, 11:00 PM   #32
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Re: Peak Oil

Laurence -

I still say iShares global energy ETF is a good play for oil
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Re: Peak Oil
Old 07-22-2005, 11:15 PM   #33
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Re: Peak Oil

You probably meant Pimco's commodity fund - PCRIX and not a T Rowe Price fund, I assume. If you want oil, you'd be very disappointed with Pimco's fund. Fourteen of its top 15 holdings are U.S. Treasuries. * Perhaps Bill Gross had something to do with that. But right now, that fund is off doin' its own thing.

There aren't many inexpensive energy funds available unfortunately. I found UMESX several months ago, which has a very high ER for my normal tastes. The larger holdings had relatively low P/E's, and it didn't have too many holdings when I bought (less than 50 then). But with an annual return this year of over 34% right now, and considering its 3-year annualized return is over 31%, it's hard to envision the upside potential Dremen mentioned. Then again, I haven't found much that I consider cheap among the diversifying asset classes like oil, REITs, EM, etc.

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Re: Peak Oil
Old 07-23-2005, 02:37 AM   #34
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Re: Peak Oil

There is a lot of oil in the world, but some is harder to get than the rest. The easy stuff has pretty well been gleaned by now. The rest keeps getting more and more expensive to get out. Alternatives become available as costs rise and conservation helps, too. There is an unknown but finite amount of oil in the ground in various forms. We are certainly consuming it, so there is less and less left. Oil prices go up and down but the long term trend will certainly be up.

I was recently thinking about this at the same time that I was thinking that I needed more international in my funds. My solution was to commit the dividends collected in my MMF to FICDX (Fidelity Canada Fund). FICDX has more bounce than VEIEX or VTRIX (but I still have those), and the volatility should make rebalancing more interesting. Canada has a resource/extraction economy which is doing quite well these days and owing to the incredible potential of the oil sands, should continue to do well into the future. However, pure plays bother me, so I did it this way.

I was quite surprised (try astounded) to learn recently that the federal government of Canada does not run a deficit. They overestimate liabilities, obligations and costs and underestimate revenues--on purpose. Some may say that the Canadian economy is in lock-step with the US economy, but I think the currency issues will bring us some divergence.

More divergence, that is. I have been working up here for almost two years now and I keep getting raises as the US dollar falls against the Canadian dollar.

Not only is my job dependent on oil being dear and getting dearer, I am betting a portion of my retirement money on it. I think this is one of my safer bets.

What do you think, HaHa? You are stuck in the tar baby, too.

Cheers,

Ed
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Re: Peak Oil
Old 07-23-2005, 08:34 AM   #35
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Re: Peak Oil

Quote:
If you want oil, you'd be very disappointed with Pimco's fund. Fourteen of its top 15 holdings are U.S. Treasuries.
I don't think you understand how the fund works then

Quote:
There aren't many inexpensive energy funds available unfortunately. I found UMESX several months ago, which has a very high ER for my normal tastes. The larger holdings had relatively low P/E's, and it didn't have too many holdings when I bought (less than 50 then). But with an annual return this year of over 34% right now, and considering its 3-year annualized return is over 31%, it's hard to envision the upside potential Dremen mentioned. Then again, I haven't found much that I consider cheap among the diversifying asset classes like oil, REITs, EM, etc.
ETFs offer low expense ratios. Oil stock despite gains still trade at the low end of the P/E range. That is normal so I wouldn't say oil stocks are terribly overvalued and I do think Dreman's analysis could happen. But Dreman usually just buys the cheapest large companies and I don't think he cares as much about what is happening to the fundamentals of sectors.
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Re: Peak Oil
Old 07-23-2005, 09:17 AM   #36
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Re: Peak Oil

Re: PIMCO's commodity fund. I heard in the past that this fund bought treasuries and then used the interest and loans on them to buy various commodity derivatives, i.e. bought long and borrowed short to make a little extra money on the spread.

Laurence: I still like tar sands for a long term hold. I'll be buying on the (serious) dips. Suncor (SU) has a break even price of about $20/barrel. I still think we have an oil price pull back at some point. But I'm wrong alot, especially about timing buys and sells.

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Re: Peak Oil
Old 07-23-2005, 11:08 AM   #37
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Re: Peak Oil

Quote:
Originally Posted by Apocalypse . . .um . . .SOON
Re: PIMCO's commodity fund.* I heard in the past that this fund* bought treasuries and then used the interest and loans on them to buy various commodity derivatives, i.e. bought long and borrowed short to make a little extra money on the spread.
Which brings up an interesting side effect of marketing investments to the general public.

My FIL showed me the PIMCO prospectus and said "This fund is all treasuries. How did they make so much money and what are these derivative things?"

When you read the document, it only lists the fund's treasuries. It doesn't list the derivatives as assets, show their marked-to-market value, or tell you any details about them. Yet when I read Tweedy Browne's reports, they list those details for their currency-hedging contracts. So, where are you guys getting PIMCO's additional info-- from their reports, their SAI, or some other document?
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Re: Peak Oil
Old 07-23-2005, 01:39 PM   #38
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Re: Peak Oil

Quote:
Originally Posted by Ed_The_Gypsy
Not only is my job dependent on oil being dear and getting dearer, I am betting a portion of my retirement money on it.* I think this is one of my safer bets.

What do you think, HaHa?* You are stuck in the tar baby, too.

Cheers,

Ed
Hi Ed,
I am definitely still a bull on Canadan oil sand plays. Right now, I am trying to get a grip on Firebag and other in-situ extraction methods, and to figure out who does what well. BY far my largest holding is Suncor. I am getting close to a 3 bagger on this.

I am also interested in energy other than oil-BP is well into wind farms, Texaco has a patented process to make diesel from coal, etc.

Nords mentions tertiary recovery in conventional wells. IMO, that will not do much to make up for decline in Saudi Ghawar, but still the right service companies should get* big run. Even the OIH was up 5% yesterday, so it might be dicey in the short term.

Any of your on the spot observations about oil sands would be very much on topic to me.*

Ha
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Re: Peak Oil
Old 07-23-2005, 05:15 PM   #39
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Re: Peak Oil

Yo, HaHa,

With respect to technologies, I cannot be very specific because I have special knowledge that I cannot share. However, it is safe to say that the newer, the better.

I find SAGD (Steam-Assisted Gravity Drainage, for outsiders) interesting because it does not involve handling enormous quantities of solids, does not tear up the ground all over the place and is the only way we can get at 80%+ of all oil sands deposits. By not bringing solids into the process, the astoundingly high maintenance costs--and the associated labor costs of a high-staff plant--of other designs are avoided. (I do not work in SAGD at this time, so no confidentiality problems.) Energy consumption is high because you have to literally heat up the world. I hear that plant capacities are less than originally anticipated, perhaps due to higher than planned heat loads. Water recovery is challenging but not impossible. (This is something I know about. I sense many opportunities for a knowledgable consultant in this area.)

Someday I will run some process calculations on SAGD to see what it really looks like. I suspect that some of the business models up here have failed to take into account realistic staffing loads and high maintenance costs, where SAGD may have important advantages. I imagine that it comes down to "Ohboyohboy! Let's dig another mine!" in the board rooms.

I would not buy one of these stocks based on technology. (I have done that before and learned that good technology does not make a good stock.) Buy a proven business: longevity, record of ability to make a profit, etc. Only consider companies that actually own the leases. I am skeptical of pure plays. Buy the industry.

Serious tip: If you would like to make the big money, buy a scaffolding company up here.

I agree that the right sevice companies may be a good way to play this.

Cheers,

Ed

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Re: Peak Oil
Old 07-23-2005, 07:28 PM   #40
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Re: Peak Oil

Quote:
Originally Posted by Laurence
O.K., so I started this thread with one opinion and I can honestly say I'm being swayed, I'm considering an oil play of some sort.* Wildcat mentioned PRCIX, any others?* If you held nothing oil related right now (except for what falls in the basket of index funds) what would you be buying right now, y'all?
ConocoPhillips for the oil play and Encana for the gas play. I'm buying Encana on the dips and I've made some nice change in the past week alone.
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