Principles of the Stock Market : OPEC

We Need To Move Past Oil!

Richard Schwartz — Fri, 25 Jul 2008 13:49:00 GMT

YOUR ALTERNATE CLEAN, GREEN ENERGY WEEKEND UPDATE

With not much stock market stuff to write about since I don’t want to recommend buying or selling this morning as we all should have our portfolios hunkered down and pretty much in place for a rocky and rough summer by now. Sure, stock market aficionados can always fine tune their portfolios and do some long and short trading, trying to scalp some profits here and there while long term investors stand pat, but with not that much going on, please let me rant and rave a little about those people out there who are slow in moving forward on American’s vital energy issue. And, don’t get me wrong, we all have to change our mindsets about energy and life in America and it will take everyone their own period of time since we’re all coming from different lifestyles, histories, jobs and places. Still, change is a coming now – I agree with George Soros who writes he sees America and the world moving from an established order and certainty to great change and thus greater uncertainty -- and we’ll all have to adapt. No problem for us Americans as that’s what we’ve always done; we’ve always adapted to change well.

“Drill, drill, drill!” I almost can’t believe Larry Kudlow on CNBC this morning. That’s his mantra: Drill, drill, drill. OMG (Oh my gosh!) I have to believe Larry, “a great American” no doubt and always bullish, is living on another planet or is somewhere back decades in time. He just doesn’t get it! But then I shouldn’t be so harsh on Larry. Millions of American’s still don’t get it as well. Though I’m delighted to see T. Boone Pickens gets it as he is now paying millions for TV ads publicizing The Pickens Plan, his idea to harness America’s wind corridor running north to south from Canada to West Texas, replacing natural gas as an energy source for cities and use that natural gas to power America’s vehicles.

Anyway, Larry just will have to realize that economic growth isn’t the be all and end all. Near term growth is just near term growth. We really need long term, sustainable economic progress to make the US and world a more prosperous place. And that switching from oil today, while a big burden now, is the best thing for us and for future generations to come. Thus we shouldn’t be doing anything to drive down oil and thus gas prices today. We need to leave them be because high and higher gas prices now will help drive America in getting off oil by creating profit in developing alternative power sources. That more and more Americans see this already and those that don’t will soon wake up to this fact going forward, and are or will be willing to sacrifice for the good of the country. And that this major change over – like moving to indoor plumbing, to railroads, to cars, to electricity in generations past – can be and should be done.

So my major #1 point is that we don’t want to drill for oil any more! Certainly not lift the moratorium on offshore drilling like President Bush has just proposed and Larry got all excited about. Or go up to Alaska and ruin one of the last remaining unspoiled parts of our planet and home. For what? Temporary relief and to lower by a dollar or so gas prices now? And then a few decades from now, when we use up that offshore and Alaskan oil, we’ll just have to address the same issue once again?

You’re not convinced? You still want to know more reasoning why we shouldn’t drill for oil any longer? Well, because we have to move beyond using oil as a power source. That’s the bottom line. We immediately have to start putting any and all plans in place now, today, to stop using oil and dirty coal as well. Now, I know what some of you are thinking: “Richard, get realistic! That’s impossible.” Maybe Larry Kudlow and George Bush 2 are thinking that too, that there’s no way to get off oil and coal. But someone has to give them a (loving) slap across their cheeks and wake them up to coming change. It is a total change of mindset but it’s happening here and all over the world. It’s happening here with movies such as Wall E. Lucy saw that movie with her granddaughter Elizabeth and says it make her more into a green believer. And the influence that movies have is great, thus every kid who sees the movie will be left with the unconscious thought that they’d better live a green, clean, low carbon footprint life.

And, as I’ve consistently written since December 2006, I’ve noted a critical mass already built up supporting a change in how we live on this planet. From scientists, to governments to large and small business alike, to venture capitalists, to individuals. Supported by logic, the reasoning that using a cleaner energy source will: (1) be a major, maybe knock out blow to global terrorism, (2) create millions of new jobs in the US and globally and thus spur the whole world into a new more prosperous phase and of course, be a big step forward in leaving Mother Earth at least as clean and healthy as we found it, just the right way to live. Back in December 2006 as a result, I took my own advice to you all and started using 95% of my IRA account to just buy small allotments of any and all companies involved in inventing, using, working on alternative, clean renewable energy sources. I’ve posited here time after time that fortunes will be made by those companies and individuals pursuing this same course. Thus I’ve listed many times in this space as many companies involved in alternative power as I could find. Solar companies, wind companies, battery technology, hydrogen tech, geothermal, thin film solar technology, energy savers, and on and on and on. And I must say this strategy has worked. My Ira has risen while the stock market has been on a slide for the last year now.

SCHWARTZ SUMMING UP. Sure we still need oil and coal today and let’s find more where we can, where we’re already drilling. But we need a new mindset in America and I see it as already occurring, already in place and inevitable that it’s going to change America and the world as we know now it. Better to ride this incoming tide, open up our minds to new thinking by ourselves rather than have it forced down our throats. Some will not see this major change coming or resist it, not being able to adapt to a new world ahead, but not so my readers, I hope. There’s so much support already that there’s no going back so the sooner we all cross over to the other side of this vital energy issue the better.

Is This Your Portfolio?

Richard Schwartz — Fri, 27 Jun 2008 15:14:00 GMT

WHERE YOU SHOULD STAND TODAY. The Ideal Portfolio (another Schwartz View).

Yep, let me offer up one man’s view of what the ideal portfolio should be today and why:

· Very minimal exposure to the stock market! This major, modern day margin call on institutional investors is causing havoc. I’ve likened this margin call to the one which wiped out many individual investors quickly back after the 1929 stock market crash, only this time around its institutional investors getting slaughtered and thus the process of meeting their margin calls is being stretched out. All are deleveraging their portfolios big time and since the securitized investments killing them are so opaque and illiquid, it’s a terrible, long, drawn out process.

· Where you do have exposure, have some in the Energy Service sector. Business is going to remain strong and money is going to funnel into this sector as long as oil stays up there, even if oil tanks 50%. The world is in now in a new competitive battle to secure our energy futures. Thus companies which help countries like Brazil find and produce oil should do well.

· Where you can, hedge your long stock exposure. One does this by having some inverse mutual funds and/or ETFs (exchange traded funds). Happily today, investors have access to this modern day invention of being able to go short (bet on declines) with inverse investments. You just buy a fund or ETF which goes up as the market goes down. I would recommend having small inverse positions, especially in financials. This allows you to ride through a day like yesterday knowing that a part of your portfolio is rising while your long positions are falling. The next day you check your portfolio’s value and see how you did. That’s what I do each morning. Say the stock market fell -3.00%, like yesterday, & your account lost just -0.20% like my ProFunds managed account did you might figure your hedge is just right. Just tinker with the hedge until you get it right.

· Hold NO BONDS. I’ve been recommending this for some time now. Yes, we may get a deflationary collapse at the end of this 25 year “too much of everything” Kondratieff disinflationary economic backdrop we’ve been in since former Fed chairman Paul Volker broke the back of runaway inflation in the early 1980s. But the world is now experiencing our first return to higher inflation jolt. Thus we’ve started a new bear market in bonds. I can’t help but remember when I first became a stockbroker with Merrill Lynch back in the late 1970s, the client who say she would never, ever buy a bond again, after losing money on bonds going back two or three decades. Well, we’ve had a 25 year bull market in bonds and its over or close. Thus, my recommendation is no bonds. (Except some very short term laddered US Treasuries for income.)

· Hold a little Gold. Yes, some will keep warning of a deflationary collapse ahead, when the economy really tanks and thus say gold will collapse as well. But gold is in a long term uptrend, a bull market, and no one knows quite how it will react in various market and economic scenarios. Buy SPDR Gold Trust (symbol GLD) as opposed to the miners themselves, thus eliminating one unneeded uncertainty. FYI, I’ve seen gold rise and gold sector funds fall, so watch yourselves.

· Hold a little foreign currencies. Again, in today’s modern day investment world, the individual investor can easily bet on foreign currencies … by buying their ETFs or tracking stocks. I’ve been recommending & still am, buying Swiss francs & Japanese yen, symbols FXF and FXY. Both are Big Picture superstar guru Jim Rogers’ picks and are in long term bull markets and dipping now so it’s a good spot to buy in on weakness. Today let me add the Chinese renminbi, symbol CNY, to the buy list since there is a exchange-traded note in existence. Not a fast mover but it’s also in a long term bull market and probably is now one of the most reliable bull markets going.

· Hold a little agricultural commodity position. The middle class global world has grown tremendously, yay!, and thus the general commodity bull market has now spread out to foodstuffs. A larger global middle class, means more and better food is needed, especially increased protein. Food commodities are up so only buy on pullbacks here if you don’t own any now. My picks have been and remain symbols RJA and DBA. Again buy the commodities themselves as much as possible and not the companies which produce such although ETFs like MOO have been doing well to this point. Today, let me add iPath Livestock ETN (symbol COW) to the buy list if I haven’t already, a livestock play. Looks like with corn prices so high, cattle is being killed off (thus one can still get steak and hamburger at $1.99 a pound) because it costs too much to feed ‘em. But that will change too and red meat prices will skyrocket.

· Finally, hold small positions in lots of alternative, clean green energy stocks. I see new fortunes being made by those riding the wave of the US and globe getting off oil. The best way I’ve found to buy these is to keep the shopping list of alternate, clean green stocks I’ve compiled and posted for you back on June 6^th in this space handy. (If you don’t have it email me and I’ll send you a copy.) Buy a bunch of these stocks on weakness. I bought one for myself yesterday.

Disclaimer! I hold or plan on holding many of the ideas recommended above.

Oil Near a Peak? Yes.

Richard Schwartz — Thu, 29 May 2008 18:56:00 GMT

OIL VIEW. I’ve been reading a lot about oil, the current state and the history of oil as we see prices keep rising and we all wonder where a top is. So below are some interesting tidbits which I’ve unearthed from the Internet (a great modern day development!) for you to ponder, some obvious, some insightful (I hope):

· OPEC has used oil as a weapon against western countries in the past. Schwartz View: A bad precedent. The October 1973 embargo effectively raised prices quickly and sharply to a new plateau (from $3 a barrel in 1972 to $12 a barrel) which lasted for the rest of the 1970s.

· The Iran revolution (getting rid of the Shah) in 1978 and the following war between Iraq and Iran in September 1980 again raised the price of oil quickly, doubling oil prices from $14 to $35 a barrel by 1981. Schwartz View: So both times oil rose sharply in price and stayed there.

· Oil is notoriously price inelastic according to some researchers. Another reports says: “The supply and demand for oil are both inelastic in the short run …” Which is what commodity guru Jim Rogers sees, that it takes many years for oil supplies to increase when demand increases which is his basis for the whole commodity complex to keep rising. Schwartz View: I’ve been waiting a year or so now for “higher prices to resolve higher prices.” Now I understand this is a too simplistic argument and why it hasn’t happened that way just yet. Another reason is because we are much less dependent on oil today. “Energy costs;’ share of GDP has fallen from 8% in 1973 to 2% today.” (From an Internet article written in 2005).

· Over time though, the supply and demand for oil is more elastic. Schwartz View: Thus the past history of oil prices rising sharply, then slowly sliding lower over time as more supply comes on board. Probably the price pattern we’ll follow again although we’ve likely raised the base price level or floor such as transpired in the past.

· Commodity (and China) guru Jim Rogers says his research shows commodity bull markets last roughly 17 years. Schwartz View: I see the price of oil slid from 1981 to November 1998 when it bottomed out about $13 a barrel. Just about when Rogers called a new commodity bull market.

· From the last bear market bottom in oil in 1998, we’ve had the first bull market leg up from the bottom in November 1998 to June 2000 as oil rose from $11 to $35 a barrel. Then after a price correction downward and a breather, we put in a 2^nd bull leg up from November 2001 at $20 to a peak around Hurricane Katrina at about $75. After that blow off peak, prices fell for five months coming back to $50. Since it’s been straight up in a third bull market leg. Schwartz View: Since we’ve now put in the normal three legs up which compose a full bull market we could easily be due for a sharp and severe pullback in oil.. Especially so since I see a guest on CNBC talking up $200 oil, bullish predictions being a normal sign of bulls getting carried away just before a top.

· The US placed price controls on domestically produced oil during the first energy shock in the early 1970s. This caused US consumers to pay less for gasoline than they otherwise would have. Longer term, price controls kept America from reducing our oil consumption in the middle 1970s and thus our dependence on foreign oil producers. Thus when the 2^nd oil shock hit in the late 1970s we were much more negatively impacted by prices jumping sharply. Schwartz View: This is why I advocate keeping oil prices high now, let America take the pain now, so money keeps flowing into developing alternate energy sources. Let’s not repeat the mistakes of the 1970s!

· History shows higher oil prices in the early 1970s, the late 1970s and then in 1990 after Iraq invaded Kuwait all led to recessions. Schwartz View: Maybe it will be different this time around but we all know predicting “this time it’s different” usually proves disastrously wrong.

· Here’s the rationale behind higher oil prices leading to recession: “Higher oil prices have historically led to recessions because they act as a tax on spending by absorbing consumer dollars that would be spent elsewhere, by reducing corporate profits through increased costs and lower demand, and by causing higher inflation which in turn causes higher interest rates.” Schwartz View: All of which seem to be developing today except, so far, higher interest rates because the Fed has been lowering shot term rates to free up the frozen-up financial system. These lower rates which ultimately should lead to even higher inflation.

· The 1970s were characterized by “stagflation” after sharply higher oil prices raised inflation levels while simultaneously reducing economic growth. Schwartz View: Isn’t the same economic ripple effect happening right now? I’d say yes.

· The 10-year US Treasury bond yield rose from 6% to 15% during the oil shocks in the early and late 1970s. Schwartz View: This time the 10-year, benchmark Treasury bond yield has stayed low because of the credit crunch and the “flight to safety” trade by investors. Doesn’t it seem logical that when the Fed stops lowering rates and/or says the credit markets are back to normal, long term interest rates will once again rise? Does to me. In fact, higher long term rates may be happening now. That’s one big reason why I’m not recommending bonds and haven’t been.

SCHWARTZ SUMMING UP. Actually I could go on and on researching and commenting on oil. And I’m interested in continuing my research so I may add a few more comments/insights in coming days. But for now the history & current spike higher in oil makes me predict that soon we’ll see some type of peak in oil very soon!