Oil as an investment

Yesterday I bought oil as an investment. Or at the very least it will act as a hedge against increases in energy costs. I plan build a position in oil in small increments over time as the opportunity presents itself.

I think this is a 12-18 month trade. There are a couple of different reasons for this.

First, the price of oil is depressed in the short term b/c of the global economic slowdown. Remember, the price of energy reacts quickly to changes in the supply/demand relationships b/c of storage costs. Recently, supplies have been building up so the price has been declining. I dont think this can last given OPEC is trying to cut back production, economic recovery expectations, and potential for Middle East conflict.

Second, the price of oil is also related to the value of the dollar. The dollar has strenghtened recently b/c its perceived to be somewhat of a safe haven amongst its global currency counterparts. When this trend reverses, oil prices should head higher.

At current prices of $40/bbl, I dont need oil to head much higher than the high $40s before I start to get decent returns. A price of $50 w/in 12 months would be a 25% annual return.

Not bad.

On the flip side, there is potential for prices to head lower from here. If that happens, I would look for another bottom similar to the one we are in now and buy a little more again.

Goldman reports earnings tomorrow morning.

Could it be that even God will be watching CNBC tomorrow morning at 830am?

That's when Goldman Sachs will report its first ever quarterly loss in its 80+ yr history as an investment bank.

A fitting end to the latest go-go Wall Street era.

The market has a consensus earnings number in mind. CNBC reports on it here.

Even though earnings are a lagging indicator, most of the market will be looking to see how bad the earnings number is tomorrow morning.

It will be viewed as a barometer for how bad things really got in the fall of this year and perhaps even as a signal of how bad things are going to get early in 2009.

Stay tuned.

Ben Bernanke and the rest of the feds might as well drop money from airplanes... that's the only thing left to do at this point

U.S. Recession officially started in December 2007

The National Bureau of Economic Research (NBER) claims the current recession in the US officially started in December 2007.

You can read the article here.

This is interesting partially b/c the NBER did not follow the typical definition of recession this time around. Typically, a recession is declared when we have had at least two consecutive quarters of negative GDP growth. While this is not the official definition it certainly is one that I and many other people thought to be a widely accepted one.

This time around dating the recession back to 12/2007 really has more to do w the peak in employment during the last bull market which occurred back in late 2007.

It is also interesting b/c it makes the recession 1 yr old already. Psychologically that is a long time. And it may well be late 2009 before the recession is declared over.

There is a strong possibility this could be a 2 yr recession which is long by post-WW2 standards.