[rseiser]

Yes, refining is a problem and a bottleneck at times that can drive up prices, but it doesn’t tell the whole story. At least not yet. Crude oil costs about $75/42=$1.8 / gallon. If you add transportation, taxes, gas-stations, credit-card fees, you are already at about $2.50, so refining costs about $0.70. Also, recently most of the refining is done in the Middle East and even in Europe to make up for our shortage in refineries. Yes, we could earn more, and we currently give away some profit, which is stupid, but it’s not the only problem. Higher crude prices have their validity, and some it is justified simply by inflation.

[rseiser]

I talked to Peter Schiff last week, and he mentioned to have a job opening in his Newport office. He told me it was a sales job, and that’s why I wasn’t interested. But who knows maybe you like it. I am sure you could make a convincing case shifting all home-sellers into gold, natural-gas trusts, and foreign equities. 🙂

[rseiser]

On some Windows versions, you can also simply choose: Recording Device: stereo mix instead of microphone, and then use any recorder (e.g. sound recorder) to record.

[rseiser]

I am not so sure that oil will go over $100 by next year or to $200 in the next 10 years, both of which would indeed beat inflation by far. Oil has had a fantastic run, and lots of things are happening already: Slowing US economy, slowing world economy, slowing construction, people buying smaller cars, alternatives coming along, people starting renting and commute less, recycling. Also, there are some products that will be switched to the less energy/oil intensive form, including insulation or air-conditioning heat-sinks in the ground, heat-pumps. Also, moves to natural gas, LNG, tar-sands. Yes, I know the current path looks like unsustainable and cannot be changed in a few years. But so are the supplies, we are not running out of them either that soon. While I don’t dispute peak oil (if it turns down, there is a peak, I guess), there are still a lot of resources. They talk about unconventional reserves being 100x larger than conventional ones, and some of that might be feasible. I mean, look at the tar-sands costing $25. It is not so much different earning $75 or only $50. And natural gas is still 30% cheaper than oil on average. If global warming gets serious, nobody will be allowed to burn excess oil, that will dampen the price.
I don’t have a crystal ball, but you see that there are so many aspects, short-term and long-term, and I just wouldn’t bet too strongly on a commodity that has risen that much over the last years, in the face of a slowing construction and economy (and over-consumption).

[rseiser]

Here is what the Stalwart had to say:
“But John Bergthiel of JP Morgan points out that some metals seem to be rising in price, regardless of their supply-demand mechanics. In copper, for example, inventory levels appear to be equal to just two weeks’ demand, so a price squeeze is understandable. But in nickel, inventories are equal to 11 weeks’ demand, and it is still being pushed higher.
Something else is clearly going on. The answer seems to be that institutional investors are increasingly moving into commodities, having become convinced that they offer returns that are both attractive and, importantly, not correlated with other assets.”

I agree that you should stay away from industrial commodities, especially the ones that have gone up a lot. This field is something for insiders (e.g. commercials), who know a lot of details, and might hedge or SPECULATE. Even though I own some futures myself, I can call it nothing other than SPECULATION.
These are the potential risks:
-Demand is slowing due to world recession.
-Demand is slowing due to more efficient use.
-Supply increases due to more efficient production or increaed by-products.
-Industrial commodities have NEGATIVE YIELD, since they degrade and are costly to transport and store.
-Unless futures trade at “backwardation”, you pay more for futures than for spot. Again NEGATIVE YIELD.
-There will always be replacements to be found for one commodity if it gets too expensive (see Palladium).
-There will never be long-term investment demand. It is a waste to hoard these materials.

I am not saying they can’t go up more. I am just saying this is not worth jumping on a bandwagon.
Jim Rogers might be right, since his index also owns agricultural commodities and gold and silver, and everything will go up more or less during inflation.
But you must beat inflation not trail inflation to come out even!

[rseiser]

Yes, and just to make sure everyone can see the year over year changes (rounded):
-2%, -1%, -6%, -7%, -6%, 0%, -1%
They don’t seem big but persistent. Certainly not small if one considers that they should be a few percent positive due to inflation. And even worse if one expects them to be a few percent above inflation.

[rseiser]

My response to PS: Generally, coffee beans would be ok too, to preserve value. But not as good as gold, since gold has about zero yield, but coffee beans actually have a negative yield, that being the cost of storage and degradation. Also, coffee beans might be produced more efficiently in the future and have a larger consumption as well as production volume which can make them fluctuate more(?). Gold has shown over history, that most of it is still held, and not so much can be found easily anymore. Regarding the cost of extraction, good argument from the reader with the land, and I want to add that of course the marginal cost counts. If demand rises fast, and you wanted to extract more from the ground quickly, the extraction cost would be very high indeed. Quick note to the demand curve: During gold bull markets it actually becomes inverted, since investment demand drives speculation: The higher the price, the more people want it (not less like normal goods). This doesn’t help you in the long run though, since it will go in reverse again at some point. But it is surely fun to watch it on the way up.
Coffee could still be a great speculation too, if it is even more underpriced relative to history, supply/demand imbalances, and the fact that it could be volatile and not produced fast either. Jim Rogers recommends it and thinks it could go up several times.

[rseiser]

Doesn’t rent control fall into the same category of trying to defy free markets. The common wisdom on that is: If landlords aren’t allowed to charge high market rents, then nobody will build or develop any apartments for rent, leading really to a shortage down the road, with even higher prices for the overall system. I think we all agree that there is nothing wrong with the current system of a free market. I think we don’t blame people paying more for a place in San Diego than somewhere in the Mid-west, or that prices will rise when people are moving to places where the land area is small. What we do complain is that the government does interfere with free markets, by fostering speculation (Home-ownership Society), subsidizing loans/removing risk (Fannie Mae), Prop. 13 (subsidizing the status quo), forcing interest rates down to 1% (less than the rate of inflation), exempting capital gains when lived in for two years. These are all mechanisms that blow up prices artificially in the short-term, but do nothing long-term, since they are either reversed (interest rates) or at least reach a new plateau from which new incentives would be needed.

[rseiser]

Yes, I will come too.

[rseiser]

I think the option calculation on buying the COP calls (listed further above) is not entirely fair. It looks easy when choosing a stock that has gone up 10% in one month. But there can be so many other scenarios. What if it goes down 8%, down 2%, or up 4%? That’s not unreasonable since stocks might go up about 1%/month on average. Sure, I understand the volatility and downside protection, but you still need to make many decisions along the way when to sell or hold. E.g it could go up 20% in three months and then loose 15% in the remaining two months. Or it could loose 15% first and then gain 25%. I am just saying making money in options is not easy.

[rseiser]

I glanced over all your comments and wanted to leave some random answers:
-Parking money in gold? I would say it’s a valid approach depending on the amount and time. A few percent of one’s assets never hurt, since there is always the risk of central bankers turning lunetics. Besides that it’s usually a good time when interest rates are below inflation (e.g. the last few years) or when no alternative yields are present (probably a few more years). I am sure, latest when they stop raising rates, will be a good time too.
-Don’t buy CEF before checking the premium over net asset value. If it’s above 10%, you are buying against a strong headwind of possibly shrinking premium.
-This brings me to the next suggestion: Never, ever, throw away 5-10% additonal gains by thinking you can make 30%. People making 25%/year have become the richest people in the world, and they were very smart people. If you don’t use tax advantages or pay too much premium for options or futures, it is very hard to outperform in the long-run.
-Know your edge and limitations. If you use a trading system that does not earn a fundamental income (such as dividends, rents, interest, etc.), you are relying on gaining at the expense of other people loosing. But how do you know when to stop? When it stops working two times, five times, or when it has erased one year’s gains?
-I like writing covered options too. It keeps you disciplined and helps you get over some corrections or flat markets. But it has risks too, such as missing some big opportunities. For these opportunities, by the way, you also have to be ready and don’t tie up all your capital too early.

[rseiser]

I am also driving down from Irvine. On weekends I am usually in San Diego, so those would work better for me.

[rseiser]

Yes, similar as in the equity markets: “Foreigners are always the last to buy, right at the market tops.” (from Tomorrow’s Gold by Marc Faber)

[rseiser]

People not able to refinance is certainly a huge factor that I hadn’t thought of. I always thought every reckless borrower will get bailed out by the (still) low long-term yields. We will see what will be the predominant reasons for the no-refinance situations. Sure, missing equity comes to mind, this either through falling appraisals or if the ARM was with negative amortization. Maybe credit standards are already tightening, too. Do I understand this correctly: Suppose the Fed raises the short-term rates again for a few times. Even if the yield-curve inverts and offers attractive long-term yields, some people might be stuck with whatever contract they signed initially, which could even mean paying higher rates than the 10-year. They are screwed!

[rseiser]

I am more interested in your sinus infection. I have good precautions, tips, and remedies. Don’t take antibiotics lightly (they are like ARMs), using your own brain works better. Let me know if you are interested.

[Author]

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