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

Here's a comic strip that pokes fun at the investment banking business

Here is a link to a comic strip about investment banking and finance culture if you are interested.

It pokes fun at a lot of things that happen in the finance biz and is very funny given everything that's going on the world right now.

www.alexcartoon.com