Other recent
entries in this blog:
26 October 2008
Is Oil Cheap?
Any investment adviser will tell you to buy when something is cheap and sell
when it is expensive, whether it's a house, a stock or a commodity. Unless you
are Methuselah, for that rule to be useful your target purchase must have a
volatile price over reasonably short time frames. How about oil? Or rather,
a proxy for oil such as the shares of oil companies.
Per barrel, using inflation-adjusted dollars, the price of oil varied between
USD10 and USD20 after WWII until 1970, when it was about USD14. Because of the
Yom Kippur War and the Iranian Revolution, the price rose to a high of about
USD40 in 1973, dropped back to USD30 and then shot up to USD70 in 1978. Then
the price fell sharply to USD20 in 1986, pushed up to USD30 because of the Gulf
War, but fell again to USD14 in 1996. With a minor dip in 2001 and 2002, the
price then didn't look back, reaching USD150 a barrel in 2008, before falling
precipitously to today's USD63.
Much as OPEC would like to think it controls the price of oil, in reality it
has been almost completely unsuccessful in changing this roller-coaster ride.
Perhaps its actions flatten the trends, but they don't make any real long term
difference.
It's easy to make money with hindsight in any market, but with a rule that
says, sell when the price you paid has doubled, and buy when it has halved from
its most recent peak, here is how my initial USD1,000 in 1950 (I wasn't born
yet, but, hey, this is just a game) would have fared:
Stock in 1950, 71 barrels (at USD14)
Sell in 1972 at USD28, giving cash of USD1,988
Then the price peaked at USD70 in 1978, and the next buy, at USD35, would have
been in 1984, giving me 57 barrels.
The price fell to USD14 in 1996 (boy, was I sick!) and reached a sell point
at USD70 in 2006, giving me USD3,990.
Then I get to be sick again as the price hits USD150, but this week I bought
at USD75, giving me 53 barrels.
Now I need USD150 a barrel again before I can sell, and I'll probably still
be sitting on my oil when I'm 90. At least I can use it to keep warm when my
blood starts to get thin. And soon after that I'll be going to the great kerosene
heater in the sky.
Suppose though that I can sell in 2020, netting USD7,950. That's a gain of
700% in seventy years. Sounds good, eh? Not so, I'm afraid - my actuary boy-friend
tells me that this is a compound return of 3% almost exactly, so I'd have been
better off with Treasuries, and I wouldn't have had all that hassle with the
Fire Department over what they claimed was a UXB in my woodshed.
Oh well, back to the drawing board!
04 October 2008
Thank You, Mr Paulson
So Congress caved in to Wall Street's hissy fit and gave the Treasury carte
blanche to spend USD700bn on buying worthless mortgages. And just for good measure
it added 150bn of unfunded tax breaks.
That was quite an expensive day, even by Washington's standards, coming to
about USD4,500 for every US taxpayer. And what will it buy?
Well, how about a big steaming pile of moral hazard? Oh, and don't forget the
blank check that Congress now has to shoot itself in the other foot by passing
a whole raft of anti-investor legislation next year once there is a Democrat
in the White House and a rock-solid Democrat majority in both houses.
The most remarkable thing, perhaps, about this whole sorry mess is that it
has been instigated by a high priest of Wall Street who was himself at the top
of the capitalist pile. He is an honourable man, Secretary Paulson, so I'm sure
he didn't do it for his friends. But then who did he do it for? Not for you
and me, it's clear.
The markets showed how they would have reacted to the bill's failure on Monday
and Tuesday, after the House threw it out, and it wasn't that terrible. And
just in case you missed the message, they fell again after the bill was signed
into law on Friday afternoon.
It won't make any difference to what is going to happen, anyway; it will just
transfer a trillion of our money into the pockets of the owners and operators
of financial institutions once this is over and it all starts up again.
Meanwhile I for one won't be putting any money into the dollar or US stocks
or bonds. There's only one way they can go for the next few years, and it isn't
up! Perhaps I'll buy US bank stocks in 2010; they should be nice and cheap by
then, and I'll reap my harvest in 2020, just before the next crash.
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Latest
25 entries from all other blogs:
19 November 2008
You Don’t Know Until You Go!
09 November 2008
A Keynesian Vacancy The IMF Can't Fill
02 November 2008
You Can't Escape; Resistance is Futile
28 October 2008
Why the Financial Crisis Doesn't Really Matter
19 October 2008
Tax Harmonization Is Coming!
14 October 2008
The British Government’s ‘Ill Considered’ Use of Anti-Terrorist Financing Legislation against Iceland and the Wider Implications
12 October 2008
How To Commit Collective Financial Suicide
07 October 2008
How and Why You Should Buy Physical Gold Offshore
22 September 2008
Scam Busters: Second Citizenship and Passport
07 September 2008
EU Defeated By Bean-Counters
05 September 2008
Offshore Banking: Failure to Open a Bank Account
31 August 2008
A New Lord Of Taxation
29 August 2008
How to Avoid Envy by Keeping a Low Profile
21 August 2008
High Yield Offshore Investment Programs: Do They Exist?
20 August 2008
Blacklisted Offshore: Private Consultant's Opinion
18 August 2008
Why taking a vacation can improve your health – and wealth!
11 August 2008
Your Ships Come in Over a Calm Sea
10 August 2008
Taxpayers: 1; India 0
07 August 2008
While Offshore Banking Giants are in Trouble
05 August 2008
Microchips with Everything
03 August 2008
It's All The Fault Of The Speculators
25 July 2008
How to Leverage Offshore E-Commerce in Your Existing Business
25 July 2008
Is Dominica Good for Your Offshore Business?
20 July 2008
'I Love Tax' - Anonymous Offshore Banker
16 July 2008
Is there a trade-off between Freedom and Security?
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