> if there is a recession/depression--How to oil stocks do?
> people still have to drive cars etc.
In a worlwide recession the price of commodities falls because
there is less manufacture and transport.
This happened in 1998 when Russia and Asia (save China)
went into recession. Oil fell to $8 in 1999 from around $16.
Posted by dumbstruck on January 14, 2008, 7:18 pm
> > if there is a recession/depression--How to oil stocks do?
Yeah, what port in a storm? Depends what kind of storm... a false
alarm, or a hardcore slowdown that takes fed rates way down, or a
stagflation where the fed has to hold rates up? You could speculate
now, or wait and see, or spread your bets now into generic
diversification. My favorite is a little of each, but mainly catching
onto what proves to work.
Diversification sounds nice, but so many old approaches rise and fall
in lockstep. For instance much of geographical diversity seems to play
follow (or even amplify) the leader. Bond values may go the same or
opposite way as stocks. I used to do great with those diversifiers in
the past, but now it seems harder to find the magic decoupled bullet.
Other ideas?
It may be the "new" thing that isn't yet efficiently priced and
understood. In 2001 era slowdown, you could do pretty good by
selectively choosing hedge-like mutual funds, like buyout/arbitrage or
long/short. Now those types seem wrung out. You could just watch what
is weathering the storm, besides the obvious (overpriced?) things like
oil/gold... I remember doing well with a fund of small cap mortgage
issuers I think (maybe dead now). I only dimly understood they
benefitted by the plunge of fed rates, but certainly could see
results.
So keep your eyes open for the oblique plays, for instance "frontier"
markets. Of course they are chancier than emerging, but look at the
case of non-oil Arab stock exchanges like
http://finance.yahoo.com/q/bc?t=5y&s=%5ECCSI&l=off&z=m&q=l&c=&c=%5EDJI . A tornado of oil money is flowing into their financial and
construction industries. Won't this do better than the obvious and
probably highly priced healthcare or energy? I wish yahoo or someplace
could chart backwards further to show decades of trends. Oil has gone
high, then way low. Japan is spectacularly lower than it was - there's
some decoupling for you.
Oil in particular shouldn't have such great prospects, since almost
infinite tar and shale sources are feasible if barrel prices stay
anywhere high. The Airforce which is one of the biggest US users of
oil is ramping up cheap synthetic jet fuel from coal and gas-wells
that should later be applicable to airlines. Supply is artificially
constrained by the dysfunctional management and backwards technology
of major nationalized oil companies. Consumption is artificially high
in the very emerging countries that are driving up the world cost,
because their gov't hugely subsidizes the local cost of oil so it
isn't rationally used (China, Iran, etc.).
Posted by pallav on January 15, 2008, 11:49 am
One possibility, seeing the run-up to oil, is to invest
in natural gas which is trailing much far behind in prices
compared to oil. If oil stays at current level, natural gas price is
going to increase (to close the gap). If oil comes down,
natural gas price is still going to increase (given
the concern about global warming, it is a cleaner burning fuel, still
need to heat the house, and the fact that it is produced/consumed
locally
rather than being imported like oil).
Oil has had a great run last year and it might or might not
continue to do well. Natural gas might have a great
run this year or in the coming years. I own a mutual fund in natural
gas.
Also one poster above mentioned the profits from
Middle-eastern nations being dumped back into financials/service
industry in the 'frontier' markets. If you want to tap into that
consider something like TRAMX - T Rowe Price Africa and Middle
East Fund which started last year and has done great so far.
I don't own any of it.
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