Consider this piece when investing

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Oil experts see supply crisis in five years | Business | Money | Telegraph

Remember - our global economy is entirely 100% based on oil.

You may want to hedge.

[sweeps]

I don't necessarily disagree, but just to offer an alternative view...

First, if the cost of energy does continue rising, that will likely precipate a global recession. That in turn will drastically reduce the demand for oil, ultimately causing oil prices to plummet. (This is one of the reasons that OPEC doesn't like when prices go too high. It's bad for their business in the long run.)

Second, it can be dangerous to take a current trend, project it out many years, and take action on that projection. For example (see graph), someone buying into oil in 1981 as a hedge for future increases got severely pummeled.

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I forget what oil was running in 1981 but my guess is about $15/barrel.

Today it is $75 barrel.

Let's say there was an oil ETF back then. . .a person doubled his money approximately 2.5 times in 25 years.

Not exactly a "pummel" but yes, it would have done better in the market, figuring it takes about every 7-10 years to double your money there.

Again, I only mean it as a hedge and yes, I do think oil is better traded than held long term.

And I do think the world economy is different than in 1981 where you maybe only had a few countries consuming it in mass quantities.

It's the mother of all commodities now.

[sweeps]

I would consider a 70% decline in price a pummeling. It would've taken you 30 years to recoup your 1981 investment, adjusted for inflation.

I laugh whenever I hear that... the world is different now. That's what they said in 1999... The New Economy. That was just before the implosion of tech stocks and people lost 80% or more.

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The world is different.

Our economy is more global vs. American dominated. Currencies are based on the American dollar as China buys dollars up. China consumes a major part of the world's oil with India not far behind. These are all realities that weren't present in 1981. We as a world consume 1000 barrels per second of oil. Per second!!! That's a big number however you look at it. And it's not just that we consume it like we are consuming coffee or something.

We are utterly dependent on it. It brings food to the table. It fertilizes our crops. We drive on it. It makes plastics for that little gnome you put on your front lawn and for the syringes you get at the hospital.

But go ahead and laugh.

I kind of laugh when I hear the party line here - everybody buy S&P 500 with a smidgen of international and bonds. All together now. . .

[sweeps]

For the record I advocate owning a piece of everything. Large-cap, mid-cap, small-cap, international, bonds, real estate, commodities/metals/natural resources, cash. That is an automatic hedge against a range of problems.

Where I may part ways is overweighting on a certain area because of a current trend that's out of sync with historical patterns. I naturally hold more stocks because over the mid-term, the long term and the very long term, stocks wallop other assets. The dramatic rise in oil in the 70's, tech stocks in the 90's and housing until 2005 were all out of sync with historical norms and people who piled in late were severely punished.

Sure, the world is changing -- dramatically. But what never changes is emotional investing and overreactions by investors on the up side and on the down side due to current events.

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I know you think I am overweighted and that's fine - I'm not you and you're not me but I don't think my link here or my philosophy is based on emotion. The IEA is pretty much the authority on this stuff.

It's based on trends.

Of course, trends can be bucked and I am not a futurist. But let's face it - we are all somewhat futurists when we try to invest.

I don't think oil is going back down to $15 barrel ever. If it did, THAT would be emotion running the market place (a sudden glut in inventory making traders jumpy).

I do think it could drop to $50/barrel though, briefly. If you want to time, I'd buy it at $50-55/barrel and I don' t think anyone would get "pummelled" at that price. I'll probably split my silver to 50/50 oil/silver when it drops to that. If it drops to that. . .

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Consider another point - everyday on Yahoo Finance, what oil is doing is posted as one of the top 5 links to financial news.

There's a reason for that.

Iphones may be here today. . .gone tommorrow but the price of oil/gas affects everything.

[sweeps]

Your bet on oil could very well be spot on. I was just offering an alternative view.

Consider another point - everyday on Yahoo Finance, what oil is doing is posted as one of the top 5 links to financial news.

That is exactly what concerns me.

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Here's my take on it.

I am not as "alarmist" as you may think. I do beleive private industry and the gov't to a small extent is making strides to alternative energy. There was a great show on The Science Channel the other night outlining the unlimited energy sources around us just waiting to be tapped - a methane crystalline compound on the bottom of the Gulf of Mexico, wind, tidal power, solar, and fusion.

But there is a time element - it just takes time to convert your economy off of oil and onto something else. We probably should have been working on this 10 years ago but here we are.

There is also the political element. I think the IEA is sounding an alarm because if they don't and something does happen, they lose all credibility as a consulting agency. I beleive often they are under pressure to basically publish,

"Everything is going to be okay - all shortages are short term."

Even if that's not the case because they don't want to be accused of inciting panic.

You are correct though - if a global recession/depression occurs (PEAK OIL scenario), consumption goes down and re-moderates the price.

Believe it or not, there is actually beaucoup oil in the ground - it's just the "sweet" oil (easily refined) that's getting harder and harder to tap. We will rebalance our energy sources over the next 10 years - and oil will affect every part of your portfolio.

Don't worry - I am not too "doom and gloom" - I do beleive human are industrious and creative - which is why I am also thinking of moving some of my portfolio into an energy and utility fund. . .thanks for the discussion.

[m3racer]

Oil is here and its here to stay. Don't fool yourselves. The entities that control oil production will do whatever is necessary to keep the gravy train rolling....you can bet on that.