Investing in Oil, Food, Alternative Energy, Gold or Water? Yes, All of the Above
November 6th, 2007WARNING: This is not a recommendation to buy, sell or hold any financial instrument.
Over a roughly 24 hour period, I received four emails from readers with questions about investing in oil. (Has there been some specific event in the media that has touched off a lot of interest? Just curious. I don’t have a TV so I don’t know what people are being fed on that thing.)
The tactical calculus on oil is extremely difficult. Forget any fundamental analysis of the thing, because the people providing the numbers simply lie about their reserves. Peakers will tell you that the companies and countries involved are lying about how little oil they have, but only an idiot would believe that they don’t lie the other way as well. That’s just the nature of the business.
So, if fundamentals are just slightly better than worthless, what about the technical side?
From a long perspective, the oil charts look more terrifying than gold!
Some people have no problem with buying high and hoping to squeeze more out of a chart that has gone vertical. Not me, brother. I never played the game that way (unless I was going in heavy for a few minutes or hours on momentum, in which case I didn’t even get up to use the toilet until the trade was closed). I liked oil back in the low $50s, and told you guys all about it. But now, the oil chart has gone vertical and oscillators are pegged in extreme overbought territory on the weekly interval.
I don’t chase moves like this. I just don’t do it. My trading philosophy has always been:
“Buy low, sell high,” or “Short high, cover low.”
“Nobody ever went broke by taking profit.”
“Pigs get slaughtered.”
“When the money honies are paying a lot of attention to it, with the oscillators pegged in extremes, consider exiting the trade, hedging or even reversing the position.”
Could oil just keep right on going? Absolutely. But high oscillator band long entries, especially on the weekly charts, aren’t my cup of tea. I know. It hurts to watch a thing continue to go vertical when discipline tells you, “Don’t do it.” If you’re thinking about chasing a move on something like that, get your husband or wife to duct tape your hands to your desk so you can’t click the buy button on your broker’s web site. Here’s an idea for a product: a firewall that prevents you from buying anything in your portfolio or watch list when the weekly stochastics are over 80.
Considering long on oil, after looking at those charts I immediately thought: Not only no, hell no, and maybe even consider throwing some money away on some deep out of the money January put options.
But some people can’t help it. If you feel as though you want to be in on this, I wouldn’t allocate much on the options, futures or any ETF that tracks oil directly, unless you really know something. That is to say: Event risk is always a factor on oil, but I don’t know anything about the timing of such things, and, chances are, neither do you.
As usual, diversification, diversification, diversification.
I’d look at using a basket of energy ETFs AND I would strongly consider hedging with out of the money put options on oil directly until the weekly oscillators unwind a bit.
There are dozens of energy ETFs out there. And I don’t like having to mention funds that hold so many earth murdering corporations, but if we’re talking about making money on oil, I’ve got to put a clothes pin on my nose and try to force the bile back down.
Look at the energy spiders and vipers: XLE and VDE.
The expenses on these funds are very low. That’s good, considering that the companies involved are responsible for enslaving us all and killing the planet.
Rather than hedging with put options on those ETFs, I’d consider put options on the oil itself. Options are such a crap shoot, I’d only consider them for hedging at extremes. Like on oil and gold right now. Look at some out of the money January strikes on oil puts to go along with your long term energy holdings. You could, of course, just wait for those spiders and vipers to dip and keep your powder dry, in FXF Swiss Franc Trust, for example. If the dollar mounts some unthinkable rally, you can switch out of FXF in an instant (see criticism of doing this with ETFs vs. Forex).
In summary, on oil: The chart has gone vertical. Danger. Warning. Caution. If you must play, use ETFs to spread the risk around, and strongly consider hedging your long positions with put options near term. Consider waiting for the ETFs to unwind a bit. In the meantime, avoid exposure to the dollar with something like FXF.
Consider some alternative energy ETFs as well. Higher fees, but definitely worth a look, in my opinion. Seeking Alpha lists several of them, along with many other conventional energy ETFs:
Claymore/LGA Green ETF (GRN)
First Trust NASDAQ Clean Edge ETF (QCLN)
Market Vectors Environmental Services ETF (EVX)
PowerShares Cleantech Portfolio (PZD)
PowerShares Global Clean Energy Portfolio (PBD)
PowerShares WilderHill Clean Energy Portfolio (PBW)
PowerShares WilderHill Progressive Energy Portfolio (PUW)
Van Eck Global Alternative Energy ETF (GEX)
Since any post on oil is really a post on commodities in general, keep in mind that any portfolio that doesn’t have exposure to the apocalyptic rises in food prices seems boneheaded to me. I don’t see the food price increases as speculative bubbles. When you look at the underlying causes (top soil depletion, drought, costs of fertilizers, energy, doomed agricultural practices, etc) you realize that these rallies could have a long way to go. The problem is: How to play? I’m not saying to become a commodities trader, but take a look at parking some treasure–long term—in the the PowerShares DB Agriculture Fund.
Last but not least, when thinking in terms of scarcity: Think about water.
Water should be the primary strategic consideration at the front of all of our minds, yet it’s just assumed, even by many Cryptogon readers. People ask me lots of questions about investing, but they never ask about investing in water.
Here are some water related ETFs to check out:
PowerShares Water Resources Portfolio (PHO)
First Trust ISE Water Index (FIW)
PowerShares Global Water Portfolio (PIO)
Claymore S&P Global Water ETF (CGW)
With so many ETF options, there’s absolutely no reason to keep too many eggs in too few baskets.
Giggling Robot Becomes One of the Kids
November 6th, 2007Via: New Scientist:
Computers might not be clever enough to trick adults into thinking they are intelligent yet, but a new study shows that a giggling robot is sophisticated enough to get toddlers to treat it as a peer.
An experiment led by Javier Movellan at the University of California San Diego, US, is the first long-term study of interaction between toddlers and robots.
The researchers stationed a 2-foot-tall robot called QRIO (pronounced “curio”), and developed by Sony, in a classroom of a dozen toddlers aged between 18 months and two years.
QRIO stayed in the middle of the room using its sensors to avoid bumping the kids or the walls. It was initially programmed to giggle when the kids touched its head, to occasionally sit down, and to lie down when its batteries died. A human operator could also make the robot turn its gaze towards a child or wave as they went away. “We expected that after a few hours, the magic was going to fade,” Movellan says. “That’s what has been found with earlier robots.” But, in fact, the kids warmed to the robot over several weeks, eventually interacting with QRIO in much the same way they did with other toddlers.
…
The researchers measured the bond between the children and the robot in several ways. Firstly, as with other toddlers, they touched QRIO mostly on the arms and hands, rather than on the face or legs. For this age group, “the amount of touching is a good predictor of how you are doing as a social being”, Movellan says.
The children also treated QRIO with more care and attention than a similar-looking but inanimate robot that the researchers called Robby, which acted as a control in the experiment. Once they had grown accustomed to QRIO, they hugged it much more than Robby, who also received far more rough treatment.
A panel, who watched videos of the interactions between the children and QRIO, concluded that these interactions increased in quality over several months.
Eventually, the children seemed to care about the robot’s well being. They helped it up when it fell, and played “care-taking” games with it – most commonly, when QRIO’s batteries ran out of juice and it lay down, a toddler would come up and cover it with a blanket and say “night, night”. Altering QRIO’s behaviour also changed the children’s attitude towards the robot. When the researchers programmed QRIO to spend all its time dancing, the kids quickly lost interest. When the robot went back to its old self, the kids again treated it like a peer again.
Research Credit: DJ
PetroChina: First Firm Worth $1 Trillion
November 5th, 2007Via: AP:
PetroChina became the world’s first company worth more than $1 trillion on Monday, surging past Exxon Mobil as the Chinese oil producer’s shares nearly tripled in their first day of trading in China.
State-owned PetroChina Co., a unit of state-owned China National Petroleum Corp., is the country’s biggest oil and gas producer. Its Shanghai initial public offering of 4 billion shares raised $8.94 billion — a record for a mainland bourse.
Adding the value of PetroChina shares traded in Shanghai, Hong Kong and New York — and those still owned by the government — the company’s total market capitalization ballooned to just over $1 trillion, compared to Exxon Mobil Corp.’s $488 billion.
However, more than 85 percent the shares outstanding — 157.9 billion shares — are held by PetroChina’s parent company CNPC and are unlikely to trade in the market any time soon.
Saudi Prince Loses $4 Billion on Citigroup
November 5th, 2007Priceless.
Via: Telegraph:
The lift in Prince AlWaleed bin Talal’s Saudi Arabian Kingdom Holdings building has just two buttons. One is marked “ground floor”, while the other says, simply, HRH. AlWaleed is Saudi’s most famous businessman, a nephew of King Abdullah, the grandson of a former prime minister of Lebanon and a friend of Charles and Camilla.
He is a bedouin leader who still holds court to thousands of followers at his desert camp. And his hobbies include travelling the world in a custom Boeing 777 jet and taking the yacht to Cannes for the summer. You simply couldn’t make this stuff up.
He is also the single biggest shareholder in Citigroup, the bank in the eye of the sub-prime storm. Like other shareholders in Citi, he has seen his investment lose 32 per cent of its value this year – but in AlWaleed’s case that accounts for a whopping $4bn. The prince has not been afraid to throw his weight around at the bank in the past and will no doubt make his next trip on the corporate jet a visit to New York to make his presence felt with the bank’s remaining board members.
Research Credit: Ebbing
If Stocks Tank, Watch Gold
November 5th, 2007WARNING: This is not a recommendation to buy, sell or hold any financial instrument.
Lots of very serious weirdness in the markets at the moment. The banking sector is on the ropes and isn’t catching any breaks at all. If U.S. equity markets sell off hard today—the futures are tanking at the moment—let’s see what gold does. If gold sells off hard, in lock step with stocks, you know that the current gold rally is blown full of speculator BS, and that they’re covering losses on stock derivatives. Now, if gold sells off just a little, stays flat or rises, it might mean that 800 is a real support, and that the people holding gold at these levels are strong longs.
I don’t like watching gold sell off with the stocks, unless, that is, I’ve got spare cash on hand to buy more gold.
I’m surprised that we haven’t seen a big sovereign gold dump by now on this rally. I know. Gold bugs don’t want to think about that possibility… But so what: Stay hedged. Stay happy. And if/when They dump, know that They can’t keep dumping it forever.
Death Threats for Analyst Covering Citigroup
November 5th, 2007“At some point, this thing is going to start looking less like a financial crisis and more like a mob war.”
—Unloading Toxic Waste Mortgage Backed Securities: “We Americans Were Very Cleverâ€
Via: Globe and Mail:
Canadian Imperial Bank of Commerce analyst Meredith Whitney says she’s received multiple death threats because of a research note she wrote that sparked a selloff in shares of banking behemoth Citigroup Inc.
The 37-year-old analyst, who is based in New York, is standing by her research, and lashing out against what she characterizes as analysts’ fear of negativity.
CIBC spokesman Rob McLeod said the bank is also standing by Ms. Whitney’s decision to downgrade Citigroup.
“People are scared to be negative, especially when a company has such a wide holding,” Ms. Whitney told The Times of London. “Clients are not pleased with my call, and I have had several death threats.”
Citigroup CEO Resigns, Replaced by Former Treasury Secretary Robert Rubin
November 5th, 2007“Such a tight relationship between politicians and business in the making of policy has probably not existed in the United States since the time of the “robber barons” in the late nineteenth century.”
—The Democratic Facade by Daniel Hellinger and Dennis R. Judd Brooks
To understand the nature of power in the United States, one has to look at the subgovernment—the network of iron triangles, revolving doors and corporate/government rat lines.
Americans sometimes get their knickers in a twist over the separation of church and state.
But what about the separation of Wall Street and state?
Not so much.
This Rubin situation at Citigroup is just the latest example of the gruesome blur of interests that I call the American Corporate State. Recall, of course, that Henry “Hank” Paulson, the current U.S. Treasury Secretary, is a former CEO of a little mom and pop operation called Goldman Sachs.
So, we’ve got the former head of the most powerful financial black ops firm in the world as the sitting Treasury Secretary and a former Treasury Secretary taking the reigns of Citigroup, one of the very largest corporations in the world—which also happens to be in deep, DEEP trouble.
How are these pricks going to pull the fat out of the fire this time?
Via: Yahoo / AP:
Citigroup Inc. Chairman and Chief Executive Charles Prince, beset by the company’s billions of dollars in losses from investing in bad debt, resigned Sunday and is being replaced as chairman by former Treasury Secretary Robert E. Rubin.
The nation’s largest banking company announced Prince’s widely expected departure in a statement following an emergency meeting of its board. Citi also said Sir Win Bischoff, chairman of Citi Europe and a Member of the Citi management and operating committees, would serve as interim CEO. Rubin, a former co-chairman of Goldman, Sachs & Co., has served as the chair of Citi’s executive committee, and it was also expected he would take a greater role in leading the company.
In a separate statement, Citi, which took a hit of $6.5 billion from asset writedowns and other credit-related losses in the third quarter, said it would take an additional $8 billion to $11 billion in writedowns.
“It was the honorable course, given the losses we are now announcing,” Rubin said of Prince’s resignation in an interview with The Associated Press.
New Zealand: Geneva Finance Hits the Wall
November 5th, 2007Via: National Business Review:
Geneva Finance has secured a moratorium on capital withdrawals for the next six months at a shareholder meeting in Auckland today.
The moratorium resolution passed by an “overwhelming majority,” the company said in a statement.
During the moratorium investors will receive interest payments monthly. Geneva will continue to trade and lend to build up cash reserves, but will accept no new investments.
A third party, on behalf of the trustee, would monitor Geneva to ensure it kept to the conditions of the moratorium.
No Email Privacy Rights Under Constitution, U.S. Government Claims
November 4th, 2007The most fascinating aspect of this is that lots of people assume that their plain text email communications are private!
Via: Register:
On October 8, 2007, the United States Court of Appeals for the Sixth Circuit in Cincinnati granted the government’s request for a full-panel hearing in United States v. Warshak case centering on the right of privacy for stored electronic communications. At issue is whether the procedure whereby the government can subpoena stored copies of your email – similar to the way they could simply subpoena any physical mail sitting on your desk – is unconstitutionally broad.
This appears to be more than a mere argument in support of the constitutionality of a Congressional email privacy and access scheme. It represents what may be the fundamental governmental position on Constitutional email and electronic privacy – that there isn’t any. What is important in this case is not the ultimate resolution of that narrow issue, but the position that the United States government is taking on the entire issue of electronic privacy. That position, if accepted, may mean that the government can read anybody’s email at any time without a warrant.
Related: NSA, AT&T and the NarusInsight Intercept Suite
Related: The Ugly Truth About Online Anonymity
Chicago Data Center Robbed… Again
November 4th, 2007And all the video security equipment was taken too.
Via: Register:
In the most recent incident, “at least two masked intruders entered the suite after cutting into the reinforced walls with a power saw,” according to a letter C I Host officials sent customers. “During the robbery, C I Host’s night manager was repeatedly tazered and struck with a blunt instrument. After violently attacking the manager, the intruders stole equipment belonging to C I Host and its customers.” At least 20 data servers were stolen, said Patrick Camden, deputy director of news affairs for the Chicago Police Department.
The Chicago location has been hit by similar breaches in the past, according to police reports. One report detailing an occurrence on September 23, 2005, recounts a “hole cut through the wall coming out onto the hallway of third floor.” During a September 20, 2006 incident, an intruder “placed a silver + blk handgun to [victim’s] head and stated ‘lay down on the floor.'” The victim, a C I Host employee, was then blindfolded, bound with black tape and struck on the head with a weapon, according to the report.
To add insult to injury, C I Host representatives haven’t been particularly quick to alert customers of the robberies. It took them several days to admit the most recent breach, according to several customers who say they lost equipment. According to James F. Ruffer III, support people told him his server was down because the company had a problem with one of its routers.
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