Paul Hoff's Library tagged investing →  View Popular

First, for
high
net worth investors, who hold most of the world’s wealth, these
weights in risky securities (disregarding cash assets) are about
as follows:



• 35 percent
  in stocks
• 24 percent
  in bonds
• 18 percent
  in real estate
• 23 percent
  in other assets

Then I suggest
dividing the bonds into half domestic and half foreign bonds. The
real estate may be divided into 1/3 domestic and 2/3 foreign. However,
I could not argue with a 50-50 split. The stocks can be divided
as 40 percent domestic and 60 percent foreign, based on estimates
above.




We then have



• 14 percent
  U.S. stocks
• 21 percent
  foreign stocks
• 12.5 percent
  U.S. bonds
• 12.5 percent
  foreign bonds
• 10 percent
  U.S. real estate
• 20 percent
  foreign real estate
• 10 percent
  gold

Conclusions

1)If the global decline rate of existing production of 4.5% continues, oil production is likely to plateau at a level of 90 million barrels per day around 2010 until the end of the next decade, after which a moderate to sharp decline sets in.

2)If the global decline rate of existing production of 4.5% slows down to 2%, thanks to the addition of 500 billion barrels due to reserve growth, production will likely increase with some bumps towards 95 million barrels per day at the end of the next decade, after which a slow to moderate decline sets in.

3)If the global decline rate of existing production of 4.5% increases to 8%, due to the effect that the end of the era of giant oil fields and declining deepwater production has, production will likely peak around 2010 at 88 million barrels per day, declining slightly to 80 million barrels per day at the end of the next decade, after which a sharp decline sets in.

commodities such as oil are significantly different from securities like stock shares, and it is very important to remember this.

Commodities are consumables; new units of commodities are produced, delivered to the marketplace for exchange, and then destroyed (hopefully to produce something of value). This creates an entirely different dynamic than a stock market where the same pot of IBM shares is effectively around today and five years from now. A commodity futures contract is an agreement involving a unit that may not even exist today!

oil futures might be more linked to consensus - but consensus about what? There are three elements here:

• Cost to produce,

• Ability to deliver, and

• Demand for the product.

n't the best safe haven from Peak Oil, uh, oil?

Yes I agree. In the UK you can buy rolling futures of Brent and WTI contracts - and of course a stellar array of oil cos. I guess my main point is right now historic precedents may get blown out of the window and I'd prefer invaluable uranium (nu.l) to essentially worthless gold. Gold is a manifestation of greed that consumes vast amounts of energy to produce - and that's it.

If you BELEIVE in Peak Oil, then a backwardated oil market is a GIFT FROM GOD!!! You believe that prices will rise, but the market says because current demand is so great, the price in the future is LESS!!! So, purchase an out-month contact 1 or 2 years in the future. It costs less than the current price, so, e.g., 2 years from now the price would have to drop below your purchase price (which is already lower than today's price) for you to LOSE money. YOU DID SAY THAT YOU DID BELIEVE IN PEAK OIL DIDN'T YOU?? WELL, YOU NOW HAVE A WAY TO COPE. IF YOU ARE RIGHT (TALK IS CHEAP) AND OIL GOES OVER $100 IN TWO YEARS, YOU WILL MAKE ENOUGH OFF OF ONE CONTRACT TO PAY THE GASOLINE PRICE INCREASE FOR 5 YEARS.

I do it mostly with oil & gas stocks. I am 66, and my energy bill is zero for the rest of my life (unless I screw it up and lose all of my profits over the past 5 years).

I thought backwardation existed because of interest rates - the carry cost of MONEY. Oil is cheaper in the future, because investors think that prices will be nearly-flat into the future, but in the interim they can earn more income from other assets. When there is any reason to think prices will be higher at any point in the future, that raises the value of ALL contracts.

The oil you buy for 2012 isn't being held in a tank somewhere, it's still in the ground, and that's where it's staying until the contract matures (or shortly before). There's no "carry cost" for leaving the oil there, and there's no acceleration clause - you couldn't demand that "your" oil be pulled out and handed over today, for you to keep in your own tanks.

Low trading in longer dated contracts is not unique to oil. Eurodollar futures (think taking delivery on a truckload of Eurodollars) behave similarly with almost no volume past the first year or two, even though they are quoted out to 30 years!!!

Why should this be?

In the interest rate world, long-dated Eurodollar futures are redundant instruments that can be created from other, very liquid instruments in the market.

I don't know why this is the case for oil futures. Perhaps it is cheaper to get the long-dated oil exposure by directly purchasing oil assets. Perhaps speculators are more interested in the OVERALL LEVEL oil price over a long period of time and do not want exposure to the volatility of owning oil on a specific day. Owning an oil company would be more effective.