The Oil Drum: New York City

Helping New Yorkers understand, prepare and adapt to the implications of Peak Oil

Monday, August 15, 2005

Financial Preparations for Peak Oil

Events in the oil markets seem to be moving even faster than I had originally expected. While political leaders at all levels of government seem oblivious to the growing imbalance between supply of oil and the worldwide increase in demand, each of us at a personal level have the ability to cushion the financial impact to ourselves.

I am not a financial genius and do not have any credentials in the area of financial advice. That said, I have read much about the different ways that people are protecting their hard earned capital in advance of the coming oil crunch. As always, do your own due diligence and keep in mind what your investment time horizon is. Here are some general ideas to consider:

Precious Metals: The most conservative approach would be to simply buy some gold and silver. If the US dollar were to be undermined by high inflation, this seems to be a logical hedge to preserve your capital. Gold is normally positively correlated with oil prices and negatively correlated with the stock market. There are two schools of thought on gold - buy an ETF backed by gold like ticker symbol GLD or buy the actual physical product and store it somewhere safe. You choose which better fits your mindset (level of alarm) about peak oil.

Alternative Energy Stocks/Funds: As oil becomes more expensive, all alternative energy sources will become relatively more economically viable and government may start to provide more incentives than ever before to accelerate technological innovation and adoption. If you are not sure about individual companies, one way to invest is to buy one of the alternative energy funds that is out there, like Powershares Wilderhill Clean Energy Fund (Ticker: PBW). I would look at the composition of their portfolio for individual stocks, such as Evergreen Solar (ESLR), Ballard Power (BLDP), Plug Power (PLUG) and many others.

Rail Companies: As tractor trailer fuel costs rise, freight rail transport will become increasingly more cost efficient. Plus there are few players in the North American freight rail game, making competitive entries nearly impossible. The main players are Union Pacific (UNP), Canadian Pacific (CP), Burlington Northern (BNI), Genesee & Wyoming (GWR), Canadian National (CNI), CSX (CSX), Norfolk Southern (NSC). The current capacity expansion that is going on has helped boost shares of new IPO Freight Car America (RAIL), which produces rail cars that are lighter weight (aluminum instead of steel).

Oil and Gas: Many of us in the online community that have become aware of the peak oil issue early are probably more environmentally friendly than the general population, but we are still going to need new supplies of oil and gas to be developed to make it through the next few decades and hopefully have a softer landing and transition to whatever the next phase will be. I would steer clear of the big oil companies simply because they will be under the public spotlight and I can imagine Congress taking a share of their super-profits. I would look at smaller companies like Valero (VLO), Suncor Energy (SU) and some of the companies that Matt Simmons is involved with through his Investment Bank, like Superior Well (SWSI), Stolt Offshore (SOSA).

Many people have different opinions about the real estate market. I think there is a bubble in the suburban real estate market since they are based on cheap transportation costs, but I could see urban areas and areas near rail hubs become ever increasingly popular.

That's just my own suggestions. I am very open to suggestions if anyone has any others.

For full disclosure, I own GLD, PBW, RAIL, CSX and ESLR. I'm looking to buy into one of the rail companies and oil service companies once I sell more of my tech stocks.

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21 Comments:

At 9:00 PM, Anonymous Anonymous said...

Good analysis. Just remember to hedge your bets with some more traditional defensive stocks (e.g., Proctor & Gamble, Clorox, U.S Tobacco).

 
At 11:35 AM, Anonymous Anonymous said...

Hi, helpful suggestions, thanks. I've hard the hardest time figuring out how best to buy physical gold in New York City. Is there a place/shop you can suggest going to around NYC? I'd want to buy bullion or coins. So far, I've used goldmoney.com, which offers pretty good rates for exchange.

regards,
T

 
At 10:06 AM, Anonymous Anonymous said...

kitco.com has worked well for me for buying physical gold

 
At 3:28 AM, Anonymous Anonymous said...

Might be a good idea to mention the obvious... keep debt to low levels or none; ditch assets that will decline in value rapidly (like a winter cabin 1000 miles away, or that spare bimmer in the drive way).

And don't forget to invest in natural gas co's too.

 
At 3:22 PM, Anonymous Anonymous said...

Don't forget about silver either. It has explosive potential. Some silver coins might even be handy as ultimate survival money in the distance future.

Finally, don't completely ignore the need for food and water in a crisis. The recent hurricanes proved this to me. You might want to have some food and a $100 camping water purifier stored in your house just in case.

 
At 3:22 PM, Anonymous Anonymous said...

Don't forget about silver either. It has explosive potential. Some silver coins might even be handy as ultimate survival money in the distance future.

Finally, don't completely ignore the need for food and water in a crisis. The recent hurricanes proved this to me. You might want to have some food and a $100 camping water purifier stored in your house just in case.

 
At 1:43 PM, Anonymous Anonymous said...

"Might be a good idea to mention the obvious... keep debt to low levels or none"

This is bogus. If you have a good sense of what to invest in, then leveraging debt is logical, given the potential for inflation and the record low interest rates.

The obvious is to not have adjustable-rate debt, like credit cards.

 
At 11:21 PM, Blogger FreeStocksTips said...

We are finally starting to see the beginning of governmental support with billions of dollars flowing into developing solar panels. Solar Panels are the answer. Nobody wants to store nuclear waste anywhere near their city, state, or even country.

Forget ESLR. DSTI, XSNX, and SPWR are the three pure solar panel stocks to watch. DSTI and XSNX have already seen major gains in the last 6 months, and SPWR is the new IPO that will sky rocket now that the CPUC has voted to add over 3 billion dollars of incentives and rebates.

 
At 4:11 PM, Blogger FreeStocksTips said...

ESLR got hit hard today after their silicon provider will no longer ship them the silicon they need.

 
At 4:30 AM, Blogger Oil Shock said...

Very helpful tips

Oil Shock

 
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