Peak Oil -New definition

[peakbagger]

I liked John Bogles advice, an individual investor cannot beat the market in the long term. All he can do is try to match the markets return and how to do that is index investing. Bogle founded Vanguard the biggest investment firm in the business and the only big one that is not owned by shareholders, the shareholders ar the investors. Their expense ratios are the lowest in the business unless some other firm decides to drop rates on one or two funds to steal them away from Vanguard. Vanguard also has various policies that keep out the frequent traders. I managed my own investments for years and did okay but I was lucky with the market and rarely traded. About 3 years ago I handed them off to Vanguard Personal Financial Services, they do the investing and are far better at keeping my portfolio balanced than I was plus they keep track of the tax implications of sales and transfers far better than I do. That means my highs are not as high but my lows are not as low when the market drops. It is the lowest cost investment management out there. No front or back end loads, no commissions. All I pay is .003% of the actively managed portfolio. If its not actively traded like reserve funds, the dont charge commissions on that portion. They factor all my investments including non Vanguard and when I retire they will help me maximize tax efficiency.

Its sad when I hear folks having their investments managed by other firms like Edward Jones. They are paying a bundle and the brokers who are running it make great commissions. Good for the broker but not so good for the investor. The usual reason is they like their broker. Most retail brokers like Edward Jones recruit car salesman instead of folks with financial degrees. Its a bit less personal with Vanguard, I get plenty of reports and can one on one with my advisor anytime I want to. BTW my advisor is Fiduciary which is an important thing to ask anyone handling investments. As a fiduciary they have to act on the client's behalf, not the brokers or the company.

 

[UpStateNY]

In 1972 I was interviewed for a book called the Student Perspective. In 1972 I was quoted saying, " In 2020 we will run out of oil and why isn't the government doing something about it now." Wow who would of predicted in 1972 we would find enough oil to pollute the atmosphere enough to cook the entire earth. In 2018 my wife and I were in Venice, Italy where the day time temps were well above 100 F degrees, which as a real problem for tourism.

 

[SpaceBus]

I liked John Bogles advice, an individual investor cannot beat the market in the long term. All he can do is try to match the markets return and how to do that is index investing. Bogle founded Vanguard the biggest investment firm in the business and the only big one that is not owned by shareholders, the shareholders ar the investors. Their expense ratios are the lowest in the business unless some other firm decides to drop rates on one or two funds to steal them away from Vanguard. Vanguard also has various policies that keep out the frequent traders. I managed my own investments for years and did okay but I was lucky with the market and rarely traded. About 3 years ago I handed them off to Vanguard Personal Financial Services, they do the investing and are far better at keeping my portfolio balanced than I was plus they keep track of the tax implications of sales and transfers far better than I do. That means my highs are not as high but my lows are not as low when the market drops. It is the lowest cost investment management out there. No front or back end loads, no commissions. All I pay is .003% of the actively managed portfolio. If its not actively traded like reserve funds, the dont charge commissions on that portion. They factor all my investments including non Vanguard and when I retire they will help me maximize tax efficiency.

Its sad when I hear folks having their investments managed by other firms like Edward Jones. They are paying a bundle and the brokers who are running it make great commissions. Good for the broker but not so good for the investor. The usual reason is they like their broker. Most retail brokers like Edward Jones recruit car salesman instead of folks with financial degrees. Its a bit less personal with Vanguard, I get plenty of reports and can one on one with my advisor anytime I want to. BTW my advisor is Fiduciary which is an important thing to ask anyone handling investments. As a fiduciary they have to act on the client's behalf, not the brokers or the company.

Indeed, Vanguard is a great company to invest with, and I have investments with them.

 

[stoveliker]

Actually, in the 1970s many already were warning about the warming effect of CO2 on the global climate.

 

[stoveliker]

Productivity Chart

Many people have left the labor force since March 2020. Economic output has rebounded much more than the number employed. This means more $$$ per employee, which is productivity.

Supply chain problems are largely bc of understaffing at the current level of demand and production. The people who are working are scrambling. And asking to be paid more for said scrambling.

I understand what you mean by productivity. However, you mentioned this related to total economic output ("Stocks go up because the economy grows faster than inflation, due to higher per capita money AND higher productivity AND due to population growth." - all are factors in total economic output).

So let me rephrase: Given supply chain issues, I am surprised that economic output is up (leading to stocks being high).

 

[begreen]

So let me rephrase: Given supply chain issues, I am surprised that economic output is up (leading to stocks being high).

The correlation is not direct. Stocks are high in part because there are few other places for money to invest and get a meaningful return.

 

[peakbagger]

The fed has been printing and pumping money into the economy for many years to prop up the stock market. Good for stock holders but the traditional buyer of bonds, the elderly and pensions have either been nailed by interest rates kept artificially low or forced into the stock market which has been on roll over the long term but choppy on occasion for the short term. The problem with pumping all this money in the market is inflation and an ever balooning deficit. At some point that becomes a real problem.

 

[ABMax24]

Just wait until interest rates start to rise, how will this affect those with margin accounts? Could this ever cause a large enough drop to trigger margin calls on accounts?

What happens to the economy when interest rates increase and disposable income disappears, and is instead used just to pay interest on enormous sums of debt?

We have an economy built on ever increasing debt, at some point, in some way or another, this trend must end.

 

[mcdougy]

Quantitative Easement..........I notice that the show I mentioned previously is not available anymore on video (which I find interesting why it was taken down?) ......but it is available as a podcast.....if you search" Frontline" which is the name of the show the podcasts are available and this episode is called "The power of the fed" ....It is worth a listen if your interested in what is a major cause of the current market situation and the effects it has on most people. We are in uncharted territory and the effects of Quantitative easement long term are unknown but definetly a possible disaster in the waiting.
I would post a link for the podcast but I can't figure out how to do it......

 

[begreen]

Actually, in the 1970s many already were warning about the warming effect of CO2 on the global climate.

The effects of the industrial age were noticed early on. The greenhouse effect was first discovered by Fourier in 1824. This theory was further refined in 1896 by Svante Arrhenius who noted that CO2 was a particularly good greenhouse gas. In 1938 Guy Callendar first gathered numerical data and published figures showing that between 1890 and 1935, the Earth had warmed by about half a degree Celsius.

 

[stoveliker]

I know. I mentioned Arrhenius in another post. Was not aware of Fouriers contribution to (also...) this issue. (If this is the same Fourier as the one of the well-known math discoveries.)

 

[SpaceBus]

I think humans were impacting climate before the industrial age. Huge forests were cut down and burned for metallurgical purposes prior to and during the bronze age. Obviously this influence was not as pronounced as what happened when coal came into the picture.

 

[begreen]

I know. I mentioned Arrhenius in another post. Was not aware of Fouriers contribution to (also...) this issue. (If this is the same Fourier as the one of the well-known math discoveries.)

Yes.

How Joseph Fourier discovered the greenhouse effect

That’s Maths: French physicist’s study of heat conduction led him to analyse why Earth was so warm

www.irishtimes.com

 

[woodgeek]

In ice cores, they can see the dip in CO2 when the European forests regrew after the Black Death in the 1300s.

 

[EbS-P]

I’m going to post this. I just had time to skim it. Seems plausible and supports my thinking that OPEC has no incentive to increase capacity. But I think there are a lot of speculation.

Gas could hit $5 a gallon – here’s how | WRAL TechWire

Gas prices have been top of mind for many Americans, leading to concerns about the economy. Now, JPMorgan Chase says the oil price spike is just getting started.

www.wraltechwire.com

 

[woodgeek]

I’m going to post this. I just had time to skim it. Seems plausible and supports my thinking that OPEC has no incentive to increase capacity. But I think there are a lot of speculation.

Gas could hit $5 a gallon – here’s how | WRAL TechWire

Gas prices have been top of mind for many Americans, leading to concerns about the economy. Now, JPMorgan Chase says the oil price spike is just getting started.

www.wraltechwire.com

Meh. My Volt uses 93 octane and the price has been over $4 for awhile now. But I fill up (8 gallons) less than once a month so it hardly matters.

Huh. Actually, I think OPEC does have two incentives to increase capacity...

(1) Competition: When the price of oil get higher, other producers 'turn on'. For example, the 'frackers' in the US, and the tight oil people in the Permian basin in Texas, both came of age and drilled their holes when oil was expensive. Their breakeven is poorly defined (some holes are easier than others), but a lot of them can make money at current prices. At $100 or certainly $150 they can make stupid money and drill a lot of holes. And then that boosts US output for years, and depresses prices. Ofc, oil is a 'boom and bust' cycle... investors in the near future of $100 oil might lose their shirts when it dives to $50 next year, but many investors will probably still line up.

(2) Demand destruction: High prices reduce demand. The reason the US is full of pickups and SUVs is bc of cheap oil over the last decade. Not to even mention EV adoption. If you see a gas price spike, people will switch. I switched from heating oil to a heat pump when oil prices spiked 2005-2007, and that is 1300 gal/year of demand that is never coming back.

OPEC knows this. This is why they have tried to keep oil in a range $50-$80/bbl for the last 10 years. Not to say there can't be a spike up (like the one down last year), but they won't let it last very long. As for their hypothetical 'low' spare capacity (I read the article) demand destruction above $100 gal will take care of that.

 

[ABMax24]

Right now we are paying $5.30/gallon for gas, diesel is about $5, yet every dealer in town has cars and small SUVs on the lot, but good luck getting your hands on a one ton truck right now, especially if you want anything other than white paint.

I'm sure the is some demand destruction at $5/gal, but if you can afford a $100k truck an extra couple grand a year in fuel doesn't matter much.

 

[woodgeek]

Back to the topic....

The shale and tight oil drillers in the US are NOT jumping at current prices...

Article: https://commoditycontext.substack.com/p/shale-lackluster-oil-recovery

This supports the idea that prices could rise above $80 for 'longer'.

One narrative is that Wall Street has been burned by the last couple 'busts', and is now shy to pour money on the oil patch. The other narrative is that these companies are not being managed the same aggressive way as before (or are not being mismanaged).

 

[ABMax24]

Back to the topic....

The shale and tight oil drillers in the US are NOT jumping at current prices...

Article: https://commoditycontext.substack.com/p/shale-lackluster-oil-recovery

This supports the idea that prices could rise above $80 for 'longer'.

One narrative is that Wall Street has been burned by the last couple 'busts', and is now shy to pour money on the oil patch. The other narrative is that these companies are not being managed the same aggressive way as before (or are not being mismanaged).

The most aggressive oil companies are typically small to medium sized juniors, and they often rely heavily on credit to fund their development programs. Credit/investment dollars are hard to come by these days, and it is well known that interest rates are on the rise. Most of the companies I work for are taking advantage of the current price hike to pay down debt and remove the ability to obtain credit as a factor in their future growth.

As you've pointed out that means there won't be a sudden rush of new supply to control oil prices.

Western Canada is currently drilling with 160 active rigs, a far cry from the 500+ that would normally be seen at these oil prices.

 

[peakbagger]

Prior to the innovations that restarted the US domestic drilling, OPEC would establish a range of what was acceptable prices to plan their budgets on. Since many of the producers were marginally stable countries included in the desired price was the cost to placate their populations. The unrest in Venezuela is tied to the sale price of oil. When Chavez came into power oil prices were high so he diverted the money to the poor to keep his popularity up, when the rpcies dropped to increased US production, the cash cushion was spent and the various parties in the country ave been fighting over the scraps. Unfortunately, they drove out the oil majors who ran the fields and oil infrastructure so even without an embargo their output and cash flow has dropped.

OPEC really needs $80 to $100 to prop up their regimes and they are not going to go out of their way to help the US after the US dropped crude prices for several years, its payback time.

 

[begreen]

Meh. My Volt uses 93 octane and the price has been over $4 for awhile now. But I fill up (8 gallons) less than once a month so it hardly matters.

Gas locally is > $4, but fillups are so rare that I don't worry about the cost. Our 2018 Volt runs on regular and due to Covid our travel has been greatly reduced. This year for the first time the car turned on the engine for all driving in order to burn up gas in the tank that was getting old. That took me by surprise.

 

[DBoon]

Not to add more fuel to the fire (pun intended), but my Chevy Bolt costs me $0 in oil and essentially $0 incremental in fuel costs (uses pre-paid electricity from solar PV arrays). On long drives, I am amazed at the opportunities for free or very reduced cost charging (granted, some of these can be a little unreliable). There is a DCFC in Gettysburg that costs me $2 for 1 hour, free fast chargers in and around Williamsburg, VA where my mom lives and free Level 2 chargers near many shopping centers where my sister lives in Northern VA. Availability to them is great in off hours and decent in peak hours. Of course, this situation won't last forever, and were I to drive other long routes, I would not be so lucky. But it is pretty nice driving by all the gas stations with gas at $3.50/gal and not having to care about that anymore.

It does seem that oil drilling investment might be much more limited in the next 10 years with most oil majors viewing their existing oil fields as cash cows to take a lot of money from with little investment put into new fields.