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Timing & trends

Coiling up, BIG market moves near …


Posted by Larry Edelson - Uncommon Wisdom

on Monday, 01 October 2012 06:17

We are continuing to see a rather tight but volatile market, with all the markets literally coiling up in springs. It’s highly unusual for the September period to see such sideways, but volatile, tightening trading markets with volume in most markets literally falling off a cliff.

Ed Note: To watch it on video go HERE

So, I continue to be very certain that we are on the cusp of very big moves in many markets. And most likely, those moves will not be the moves you’ve seen recently.

I still remain bearish on gold, looking for a top in the stock market, and looking for a bottom in the dollar.

We are getting close to the point where there would be the potential for me to reverse those opinions, but we are not there yet. And I remain (convinced) with what my models are saying — which is to look for a top in gold, look for a top in stocks, and look for a bottom in the U.S. dollar.

Gold: As I wrote recently and you can see here on this chart, even (with) the latest rally — which occurred over Thursday and Friday of last week — gold has yet to take out its March 2012 high or its November 2011 high.

edelsongold

And given all the money-printing that’s going on — with China jumping in on the fray this past week — that’s pretty amazing.

That’s a subtle sign that we may be reaching a top here, and all this money-printing is not going to be the catalyst that sends gold to new record highs.

Ultimately, it will be — it was in the first phase of gold’s bull market. But we may have to wait for gold to really take off until the sovereign-debt crisis hits the United States. That’s the big atom bomb for the financial markets.

And we are not there yet. Most of the sovereign-debt worries are still, of course, focused on Europe.

Silver: Silver is pretty much the same. Silver hasn’t broken out yet despite all this money-printing. That’s somewhat not surprising because silver is more of an industrial metal; but nevertheless, silver has not broken out yet.

edelsonsilver

U.S. Dollar Index: The dollar is indeed trying to find a bottom in here. I believe it certainly will very soon. The euro has sold off rather sharply last week, and that’s lending support to the dollar. I’m starting to get some preliminary buy signals in the short- and intermediate-term for the dollar, so please stay tuned to my work there.

edelsondollar

Dow Industrials: The Dow Industrials are starting to show some signs of weakness. This is a longer-term chart here. But you can still see we haven’t critically broken out yet. The Dow requires a close above the 14,200 level and we’re not there yet.

edelsondow

There’s nothing wrong with buying a breakout on the highs. In fact, that’s what you want to do. There are some times when buying low, so to speak, and selling high doesn’t work. There are times when it’s important to buy only breakouts, for example, of new highs.

Having said that, I believe we are really critically close to some major market turns in here.

So stay tuned to all of my work. Have a good week. This is Larry.

Larry Edelson has over 34 years of investing experience with a focus in the precious metals and natural resources markets. His Real Wealth Report (a monthly publication) and Power Portfolio provide a continuing education on natural resource investments, with recommendations aiming for both profit and risk management.

Larry Edelson has over 34 years of investing experience with a focus in the precious metals and natural resources markets. His Real Wealth Report (a monthly publication) and Power Portfolio provide a continuing education on natural resource investments, with recommendations aiming for both profit and risk management.

For more information on Real Wealth Reportclick here.
For more information on Power Portfolioclick here.



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Personal Finance

Uncertainty/Risk Commodities Central-Banks Currencies & Russia


Posted by Various Authors & Jim Rogers

on Monday, 01 October 2012 06:06

“By ‘uncertain’knowledge, let me explain, I do not mean merely to distinguish what is known for certain from what is only probable. The game of roulette is not subject, in this sense, to uncertainty; nor is the prospect of a Victory bond being drawn. Or, again, the expectation of life is only slightly uncertain. Even the weather is only moderately uncertain. The sense in which I am using the term is that in which the prospect of a European war is uncertain, or the price of copper and the rate of interest twenty years hence, or the obsolescence of a new invention, or the position of private wealth owners in the social system in 1970. About these matters there is no scientific basis on which to form any calculable probability whatever.”

-John Maynard Keynes, The General Theory of Employment, 1937

“... there are known knowns; there are things we know that we know. There are known unknowns; that is to say there are things that, we now know we don't know. But there are also unknown unknowns– there are things we do not know we don't know.”

-Donald Rumsfeld, Secretary of Defense, 2002

“There are four types of men:

1. One who knows and knows that he knows... His horse of wisdom will reach the skies. 
2. One who knows, but doesn't know that he knows... He is fast asleep, so you should wake him up! 
3. One who doesn't know, but knows that he doesn't know... His limping mule will eventually get him home. 
4. One who doesn't know and doesn't know that he doesn't know... He will be eternally lost in his hopeless oblivion!”

-Ibn Yami, 13th-century Persian-Tajikpoet

For the past 80 years, we have created ever more sophisticated models of risk in the economic and investment worlds. With each new tool we create to measure risk, we seem to think we have somehow gained more control over our future. Paradoxically, we appear to believe that the more we understand risk, the more we can somehow control our exposure to it. The more we build elaborate models and see correlations between events and the performance of our investments and the economy, the more confident we become.

And if by some ill fortune we encounter a period of lengthy stability in our models and portfolio performance, we are likely to imbibe a cocktail of collective hubris: we actually think we understand some things in a quantifiable way. We thereupon seek to take on more risk at precisely the time when additional risk is the most disastrous. This week we explore the difference between risk and uncertainty. Perhaps we can even tie all this into our understanding of secular bull and bear markets.

Commodities, Central Banks, Currencies, Russia

by Jim Rogers via video HERE

Obsessing on Risk, Ignoring Uncertainty

by John Mauldin Outside the Box

Investors in the stock market, especially professionals, are obsessed with risk, your humble analyst included. We try to measure risk in any number of ways, looking for an edge to improve our returns. Not only do we try to determine probable outcomes, we also look for the “fat tail” events, those things that can happen which are low in probability but will have a large impact on our returns.

I have found that it was the surprises that were not in my model that were the true drivers of portfolio performance. We like it when surprises produce a positive result, and we often find a way to congratulate ourselves for our wise choices. No one in 1982 thought that price-to-earnings ratios would rise by five times in the next 18 years. Yet that simple driver accounted for 60% of the last bull market (20% was inflation and only 20% was actual increased earnings). And while a few people began to invest in technology in the early ’80s, many of those early technology stocks ended up being disasters. (Remember Wang? Osborne? Sorry, I know, you were trying to forget.)

“In 1910 the British journalist Norman Angell published a book called ‘The Great Illusion’. Its thesis was that the integration of the European economy, and by implication the global economy too, had become so all-embracing and irreversible that future wars were all but impossible. The book perfectly captured the zeitgeist of its time and fast became a best seller.

“In some respects, the early 20th century was a period much like our own – one of previously unparalleled global trade and exchange between nations. Human beings appeared largely to have outgrown their propensity to mass slaughter, and everyone could look forward to to a world of ever increasing prosperity. War, Angell compellingly argued, was economically harmful to all, victors and defeated alike. Self interest alone could be expected to prevent it happening again.” (Jeremy Warner writing in The London Telegraph)

On the eve of World War I, bond markets throughout Europe were not pricing in a conflict. Everyone “knew” there would not be a war. It was all bluff and bluster. And then the world got a surprise. Archduke Ferdinand was assassinated and armies began to march. And while no one expects a war today in Europe, there are certainly plenty of tensions.

An Uncertain Spain

The Spanish government announced this week a rather severe austerity budget. They promise they will hold their budget deficits to 6.3% while slashing spending almost 9% and raising taxes. And of course there will be no wage increases for government workers. They also assume that growth will only fall to -0.5% in the face of that austerity, which most observers think is woefully optimistic.

Even though the ECB has committed to buying Spanish bonds, they have made it clear that they will do so only as long as Spain is committed to bringing its deficit under control.

“European Central Bank Executive Board member Joerg Asmussen said on Friday that he would only support purchasing the bonds of struggling euro zone countries if pressure on them to reform their economies remained high. ‘Only under strict conditionality and only if there is continued pressure to reform,’ Asmussen said of the bond purchase plan announced by ECB President Mario Draghi earlier this month.”(Reuters)

And if things were not already difficult enough for Spanish Prime Minister Rajoy, one of my favorite regions of Spain, Catalonia, which includes the beautiful city of Barcelona, is seriously talking about seceding from Spain. As much as 20% of the population (1.5 million) turned out for a march supporting independence last week.

Prime Minister Rajoy met with Catalonia’s president and flatly rejected any autonomy or more money. Catalonians are not happy that they send a great deal of money to Madrid, which goes to other regions as they deal with their own crises. So much for “all for one and one for all.”

The situation is complicated by the fact that the Basque region of Spain has been given a great deal of autonomy in its budget. If Spain were to compromise and give Catalonia the same deal, it would cost the Spanish government a great deal of money and enlarge the already gaping hole in their budget.

“Separately, the parliament of Spain’s most economically important region, Catalonia, approved holding a referendum on independence. Ms Saenz de Santamaria threw down the gauntlet to Spain’s most economically important region, arguing that Madrid could use a constitutional measure to block any attempt at a separatist vote. ‘Not only do instruments exist to prevent [a referendum], there is a government here that is willing to use them,’ she said.” (The Financial Times)

Casually browsing news on the Catalonian crisis, I came across an article on previous referenda concerning independence, held on a city-by-city basis in Catalonia. Independence was favored in nearly all cities by margins of 90% or more. This was rather surprising to me, as I am not certain I could get 90% of my neighbors to agree on the time of day.

In addition to the Basque and Catalonian regions, there are two other northern Spanish regions that send net revenues further south. If you give Catalonia budgetary autonomy, let alone political autonomy, then what do you do for the other two?

Which brings up the uncertainty in the entire euro project. It is one thing to create a common market in which goods and services can freely trade. It is another to impose monetary and fiscal authority on a sovereign nation. If economic tensions within the regions of Spain begin to move voters to push for independence from central control, how much more inclined will voters in the various eurozone nations be to do so?

Germany is just now entering a recession that has the real potential to get much worse. If Germany is asked to write checks and send them to other countries when they are in the midst of their own financial crisis, how will that play in Bavaria?

The only thing I can be certain about regarding Europe is that Europe is an uncertain mess. But the markets go on treating all these pressures as if they were not real. And, indeed, perhaps the mess will all get sorted out.

It is my belief that we focus on risk because it is something that we can model. The economics profession has physics envy. Economists like to think of themselves as scientists, but I must say that I am not convinced. Economics has a great deal to teach us, but it cannot tell us much about certainty. It can’t even help us all that much to avoid risk.

I fear we don’t pay enough attention to uncertainty because we cannot reduce it to an equation. How did you price in the risk of Catalonia succeeding from Spain, even two months ago? The answer is that no one did.

The US market seems to be focused on the “fiscal cliff” that will inevitably create a recession unless Congress does something. The fact that doing nothing will clearly create a recession gives me some confidence that even Congress will figure out a way to avoid doing nothing. What has not been priced in is what Congress will do about the deficit. Depending on what they do, what we get will be hugely positive or negative. But we remain totally uncertain as to what they will actually do. And so for years we have ignored the looming train wreck that is unfunded liabilities.

It is the fact that the results of inaction on the deficit are uncertain that allows Congress to keep postponing the inevitable.

“About these matters there is no scientific basis on which to form any calculable probability whatever.”

We live in most uncertain times.

Key oil producing and/or middle eastern countries spend disproportionate amounts of household income on food

via Agicapita

73

 

 



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Gold & Precious Metals

DEVELOPING NATIONS FUELING SURGE IN GOLD PURCHASES BY CENTRAL BANKS


Posted by World Gold Council via Hard Assets Investor

on Saturday, 29 September 2012 09:38

Managing director for the World Gold Council says yellow metal headed for 12thstraight bull year on back of centrals banks, eurozone woes and monetary easing.

Marcus Grubb is the managing director of investment for the London-based World Gold Council, where he leads both investment research and product innovation, as well as marketing efforts surrounding gold's role as an asset class. Grubb has more than 20 years' experience in global banking, including expertise in stocks, swaps and derivatives. After the WGC released its Gold Demand Trends Survey this month, HAI Managing Editor Drew Voros spoke to Grubb about the current state of the gold market and what is behind the yellow metal’s recent run-up.

HardAssetsInvestor: Gold and silver are peaking at three-month highs. What’s behind this? There hasn’t been a lot of news going on in the last couple of months and gold has been pretty stagnant. Why the sudden move?

Marcus Grubb: A number of factors are crystallizing to create a path of least resistance that now is upwards rather than downwards. One of them is the fact that looking into the second half of the year, talking to investors around the world, there’s still a lot of concern about the health of the financial system and the eurozone in particular. And also some challenges in the U.S. around the fiscal cliff and the sustainability of the economic recovery. However, it is clear that the U.S. is recovering better than many other Western countries around the world.

This has led investors to continue to weight towards more cautious asset allocation, increase their exposure to gold. And I think to some degree they may be diversifying from overweight positions in Treasurys and U.S. dollars.

HAI: Are you expecting gold to appreciate for the 12th straight year?

Grubb: Yes, we are expecting this to be a 12th year of the bull market for gold. And we also expect a better second half in terms of the supply-demand dynamics of the market. The first half of the year was quite challenging. We saw a small decline in gold demand. A lot of that was driven out of India. The Indian market has had some specific challenges this year—import tax, strikes in the jewelry sector—and then most importantly, a weak currency against the U.S. dollar, and one of the weakest in Asia against dollars. Gold has been very expensive in India as it’s been consolidating in dollars for about a year. It’s actually been near an all-time high in terms of rupees, which has had a dampening effect on gold demand for the first half.

In the second half of the year, you usually see stronger demand in India. We have the stocking period ahead of the Diwali Festival in October and November. And then we have the end of the monsoon rains before that, and usually you see incomes increase in rural areas and gold purchasing picks up in September, October as well. The rupee will probably still be weak, but we do think you should see a seasonable pickup and demand in India. And that will, among other things, help demand in the second half.

.....read more HERE

 



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Stocks & Equities

5 Dividend Stocks For The Next 5 Years


Posted by David Alton Clark via Seeking Allpha

on Friday, 28 September 2012 08:14

The Gist

These five stocks are U.S. S&P 500 basic materials companies with market caps of 2 billion or better which pay dividends all yielding more than 3.% to as much as 6.4%. Furthermore, these companies have great stories, positive catalysts for future growth and solid fundamentals. Some have been pushed lower by recent negative comments by analysts and present a buying opportunity in my opinion.

This may be a good point to start a position in these high-yield dividend-paying opportunities for two reasons. These dividend-paying stocks have the potential for both capital gains and income production. With central banks across the globe playing a game of catch-as-catch-can regarding the competitive devaluation of their currencies, these basic materials names should benefit from a reflationary trend. The combination of potential capital gains and income production makes these stocks attractive for the long run.

The Goods

In the following sections, we will perform a review of the fundamental and technical state of each company to determine if this is the right time to start a position. 

Cliffs Natural Resources Inc. (CLF)

The company currently pays a dividend with a yield of 6.40%. The company is trading 49% below its 52-week high and has 36% upside potential based on the consensus mean target price of $53.13 for the company. Cliffs was trading Wednesday for $39.09, slightly up for the day.

cliff

Fundamentally, Cliffs has several positives. The company has a forward P/E of 5.83. Cliffs is trading for 88% of book value. EPS next year is expected to rise by 28%. The company has a net profit margin of 24.43%. The company has an ROE of 24.31%.

Technically, Cliffs is definitely still in a long-term down trend. Nonetheless, all the major moving averages are starting to change the angle of decent and flatten out somewhat. The stock is cooling off from a recent spike off the 52 week low of $32 on heavy volume at the beginning of September. Cliffs' beta is 2.34.

The company is down over two-fold from its 2008 high of $110. The stock recently bounced off a multi-year low and has moved substantially higher smashing through the 20 and 50 day smas only to give half the gains back in recent days. The turmoil in Spain has many taking profits as the third quarter comes to a close. The significant dividend yield combined with the fact the stock is near 52 week lows makes this a buying opportunity in the name. Yes, this stock is currently out of favor. Counter intuitively, that is exactly the time to buy. If you want to reduce risk further, wait until earning due out on October 22nd.

ConocoPhillips (COP)

COP pays a dividend yielding 4.63%. The stock is trading down 3% from its 52 week high and has 10% upside potential based on the consensus mean price target of $62.47. COP was trading Wednesday for $57.01, down nearly 1% for the day.

conoco

The company has many fundamental positives. COP has a forward P/E ratio of 9.59. COP is trading for 1.5 times book value. The company has a net profit margin of 10.55%. ConocoPhillips plans to achieve growth by focusing on high margin production. The company plans to reinvest cash flows to achieve organic reserves replacement of over 100%.

The stock has been in a well-defined uptrend since the start of June. The stock has pulled back to approximately 1% above the 50 day sma and is near the bottom of the current uptrend channel. I see the recent pullback as a buying opportunity.

Chevron Corporation (CVX)

Chevron pays a dividend yielding 3.10%. The stock is trading down 2% from its 52 week high and has 5% upside potential based on the consensus mean price target of $122.18. Chevron was trading Wednesday for $116.30, down nearly 1% for the day.

Chevron

The company has many fundamental positives. Chevron has a forward P/E ratio of 9.30. Chevron is trading for 1.76 times book value. The company has a net profit margin of 10.79%. Chevron's EPS is up 47% this year. The ROE is 21.68%.

The stock has been in a well-defined uptrend since the start of June. The stock has pulled back to approximately 4% above the 50 day sma and is currently still in an uptrend. The stock is up 28% for the year. Chevron is a solid performing low beta stock.

With the Eurozone crisis coming to the fore recently, the Euro has taken a dive driving the dollar higher and consequently, dollar denominated commodities such as oil lower. Use this weakness as a buying opportunity.

E. I. du Pont de Nemours and Company (DD)

DD pays a dividend yielding 3.41%. The stock is trading down 5% from its 52 week high and has 12% upside potential based on the consensus mean price target of $56.36. DD was trading Wednesday for $50.50, up slightly for the day.

Dupont

The company has many fundamental positives. DD has a forward P/E ratio of 11.15. The company has a net profit margin of 8.66%. DD's ROE is 31.53%.

The stock has been in a well-defined uptrend since the start of July. The stock is up over 235 over the past 52 weeks, yet has pulled back to 4% to just above the 50 day sma and is near the bottom of the uptrend channel.

Any pullback in the stock is a buying opportunity. With the recent droughts and various weather events across the globe driving crop prices higher, the demand for DD's product will only rise. Moreover, the recent QE programs being implemented by central banks should provide support for the stock as well.

Freeport-McMoRan Copper & Gold Inc. (FCX)

Freeport pays a dividend yielding 3.18%. The company is trading 18% below its 52-week high and has 24% upside potential based on the consensus mean target price of $48.89 for the company. Freeport was trading Wednesday for $39.28, down slightly for the day.

freeportmcmoran

Fundamentally, Freeport has several positives. The company has a forward P/E of 8.18. Freeport is trading for 2.25 times book value. EPS next year is expected to rise by 42.86%. The company has a net profit margin of 21.98% and an ROE of 20.38%.

Technically, Freeport has been in a well-defined uptrend since mid-June. The stock went parabolic after the Fed announced a new round of QE was forthcoming. The recent pullback is healthy for the stock technically.

This is an ideal time to start a long-term position in Freeport. They are big producers of both copper and gold. The company is down significantly from its all-time highs and has reacted well in periods where QE has been implemented. The stock is a buy here if you have a long term time horizon.

The Bottom Line

These stocks have solid long-term growth stories and pay hefty dividends. These facts coupled with the Fed's announcement that rates will remain at ultra-low levels for at least the next two years leads me to believe these stocks are a better hedge against inflation than fixed income instruments such as bonds and CDs. Factor this in with the statistic that historically dividend-paying stocks have outperformed non-dividend-paying stocks and you have a recipe for outstanding returns.

We are talking about buying and holding these stocks for over five years. Some may say that this means the entry point means little. I say that is nonsense. Since these will be long-term core portfolio holdings, take your time and build your full position slowly. If you choose to start a position in any stock, I suggest layering in a quarter at a time at a minimum to reduce risk.

 

About David Clark:

Clark received his BBA in Accounting from The University of Texas at San Antonio. Clark is a member of the Beta Alpha Psi National Accounting Honors Fraternity.

Clark writes of many divergent investing stratagems and uses fundamental and technical analysis to determine if value exists. 

Clark's investment strategies take into account his intuitions on the macro environment coupled with an in-depth analysis of the company's' management, the stock's technical status, competitive environment, growth prospects and fundamentals to include but not limited to; return on equity andprice-to-earnings. He takes into account all factors influencing the company's short and long-term prospects to include; macroeconomic outlook, geopolitical events, sector & industry head and tail winds, new product or service future catalyst and the CEO.

Additional disclosure: This is not an endorsement to buy or sell securities. Investing in securities carries with it very high risks. The information contained within this article for informational purposes only and is subject to change at any time. Do your own due diligence and consult with a licensed professional before making any investment decisions.

 
 
 


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Currency

Buy Gold, Sell Oil


Posted by Chris Mayer via The Daily Reckoning

on Friday, 28 September 2012 07:46

Yeah, yeah, I know…gold and oil are both hard assets, but that doesn’t mean they will both provide a reliable hedge against the inflationary trend Ben Bernanke is creating.

In short, I like gold much better than oil…at least for the next couple of years.

The best reason to own gold is also the most well-known reason. The US government prints a lot of money, as the nearby chart plainly shows.

DRUS09-27-12-1

In round numbers, the Fed conjures about 55 million fresh dollars into existence every hour. By contrast, the entire world’s gold mines only manage to extract about $15 million worth of gold from the earth every hour and US mines only extract $2 million worth of gold per hour. In other words, Ben Bernanke creates US “money” about 27 times faster than US gold mines.

Wild stuff.

It is hard to fathom a readjustment of gold to keep up with the amount of money created. But that readjustment seems inevitable.

Obviously, inevitable is not the same thing as imminent. But there is good reason to think the gold price will top $2,000 fairly soon. The Deutsche Bank report shows how the gold price has pretty much marched in step with the Federal Reserve Bank’s money printing since 2000.

Based on all this kind of statistical analysis, even the mainstream Deutsche Bank predicts gold will top $2,000 in the first half of 2013.

The obvious take-away is to own some gold. Second, look at gold stocks — which have lagged the metal for some time and seem to be showing some life finally. The GDXJ, which is an exchange-traded fund made up of small gold stocks, is up over 25% since early May. It remains a good way to play a gold stock rally if you don’t want to take on the risks and frustrations of owning individual gold stocks.

Meanwhile, the outlook for the price of crude oil seems much less upbeat. In fact, I think the price of crude is likely to tank over the next couple of years.

I have said before that I think the oil bull market is on its last legs. In this, I’m just playing the odds. History and economics dictate what those odds look like.

For example, we know stock markets don’t trade for 30 times earnings — as the US stock market did in 2000 — for long. That was a figure far above the long-term average for stocks. And stocks subsequently crashed.

We know housing prices can’t sustain a price of 32 times the cost to rent them — as they did when housing prices peaked in 2006. That was again far above the long-term average of just 20 times. Housing prices later crashed.

Similarly, we can conclude that the current oil price — which is currently 230% above its long-term inflation-adjusted price — won’t last either.

The current bull market began in 1998. The average oil price in 1998 was just $11 per barrel. So the current bull market is 14 years old. And the US oil price is nearly nine times what it was in 1998. It’s been a great run.

Just how great you can see by looking at the previous chart. Crude oil is 230% above its long-term average in inflation-adjusted terms.

Besides, it is not as if we can’t see what will slay the oil price. There are many sharp swords all over the place.

Let us consider demand. The biggest economies on the earth — the United States, Japan, China and the EU — are all slowing down or contracting.

Let us consider supply. New technology continues to unveil giant sources of supply once thought uneconomic. David Fingold, a portfolio manager at DundeeWealth, writes:

More oil? It turns out that on top of US oil shale, Alberta oil sands, West Africa and Brazil there’s yet another massive source of oil that may be coming to market. It’s called the Bazhenov Shale, it’s in Russia and it’s big. I’m no geologist, but I’ve been told it’s similar to the Cardium in Alberta. Exxon starts drilling there next year. The energy boom of the 1970s ended when the North Sea and Alaska North Slope came on line at the same time. It seems likely more than two major fields will hit the market this decade. It’s hard to see oil becoming relatively scarce anytime soon.

The Bazhenov shale could be another game-changer for the oil industry. It is yet another massive oil source to add to a list that keeps getting longer as new technology cracks open sources once thought unreachable.

People will come up with all kinds of reasons to discount the new oil supplies. But history shows that human beings are creative and tenacious.

I was among the early investors in the Bakken in 2008. I recommended Kodiak Oil to the subscribers of Mayer’s Special Situations. The stock subsequently doubled. Back then, I remember hearing some geologists scoff at the Bakken and its potential to produce significant amounts of oil at low costs. Yet, here we are. Even now, I think people still underestimate the amount of oil the United States could produce.

On oil, I must disagree with my friend Byron King, who writes Outstanding Investments and (in a revision to his older “Peak Oil” views) now says we’re at “peak cheap oil,” or the end of cheap oil. I could not disagree more.

So one thing is certain; one of us is correct.

I say it is also a certainty that oil will be cheap again. And then it will get expensive again. Then, cheap again. And so on. In other words, just like any other commodity, it will continue to boom and bust and go through cycles. Timing is the great uncertainty.

I am interested in putting my money in areas where the odds favor me. Increasingly, I don’t see the odds favoring me when it comes to oil prices. To me, oil is much like stocks in 2000 or housing in 2006. It’s overpriced and due for a sizeable selloff.

Regards,

Chris Mayer
for The Daily Reckoning

 

About Chris Mayer

Chris Mayer is managing editor of the Capital and Crisis and Mayer’s Special Situations newsletters. Graduating magna cum laude with a degree in finance and an MBA from the University of Maryland, he began his business career as a corporate banker. Mayer left the banking industry after ten years and signed on with Agora Financial. His book, Invest Like a Dealmaker, Secrets of a Former Banking Insider, documents his ability to analyze macro issues and micro investment opportunities to produce an exceptional long-term track record of winning ideas. In April 2012 Chris will release his newest book World Right Side Up: Investing Across Six Continents

Special Video Presentation: Urgent Message About Your Net Worth The single, solution-packed book that could... literally... mean the difference between growing wealthy or suffering an ugly, vicious decline in your net worth. Discover how to claim a FREE copy of this book, right here.

 

 



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