Finance and Oil
By Chris ClairIf I won the lottery—I mean one of the big ones, like $200 million or more—I’d buy some land and buy or build a dozen or so of those 500,000-plus-gallon oil storage tanks. Then I’d start buying up crude oil futures and take the physical delivery. Sometime within my lifetime I’m pretty sure I would double, and possibly triple my money at today’s oil prices.
There have been two major stories playing out in the news of late: the oil spill in the Gulf of Mexico and troubles in finance. By “oil spill” I mean an economic and environmental catastrophe of epic proportions, one significant enough to affect oil production for years and possibly ruin not only the Gulf coast but also a good amount of at least the southern end of the Eastern seaboard. And by “troubles in finance,” I mean the exposure of shenanigans so egregious to the common man that it’s galvanizing political will on both sides of a sharply partisan Congress here in the United States and the disparate nations of the European Union to crack down through regulation.
I’m just not sure where we go from here. I don’t think it’s anywhere good. If we hope for an economic recovery, then as soon as one begins in earnest—one beyond adding Census jobs—we will see oil and other commodity prices rise. This dance will continue for a while, until the realization sets in that oil cannot be pumped out of the ground in sufficient quantities to sustain economic expansion at anything approaching the rates we’ve seen in the past. Once that happens, oil prices will rise permanently, and oil at $150 or more per barrel will be the new normal.
Without real economic expansion, what is there to trade, really, besides commodities? Just paper. And the way regulation is shaping up now, with strong business and finance lobbies still influencing the debate, imagine what might happen down the road, when the finance industry is weakened by world events and the results of the regulation we’re facing today. In five years, we are likely to have seen sovereign debt defaults on a scale previously unimaginable. That will weaken confidence in currencies and bonds as investments.
My oil play is really just a “money in my mattress” strategy, only I don’t even think I’ll want dollars, euros or yuan. I’m going to want to control something everyone else needs. And I’ll demand payment in gold. I’ll need something of value to pay the army that will be required to protect my oil, and me.
Strange and dark thoughts on this financial regulation- and oil-heavy news day. Maybe someone wants to weigh in from the glass-half-full side. Remind me that hedge fund returns were positive again in April, and that new housing starts are up. There’s good news out there somewhere, even for people who haven’t won the lottery. Right?
May 20th, 2010 at 4:30 am
You’re right to worry but I believe the scenario will work out differently.
First, on the positive side you’re not considering the improvements in technology ( alternative energies, fusion, savings,etc) which will slow down the decaying of civilization as we see it now.
Secondly, on the negative side, I’m quite convinced that the final product of this process will be a Third World War, say around 2020/25.
Even if you managed to keep your oil by that time (you would have spent most of it just to defend it) it would be taken away from you anyway.
Can I suggest that you give your money to politicians or spend it to become one yourself?
At that point you and your pals will have taxing power and the power to allocate. I have no doubt that you would know how to use both in your best interest.
In case you are still reading and think I’m a looney, let me say that my pessimism is based on a few simple consideration:
1) World population, which for centuries had been growing very slowly, if at all, has grown in less than a century ( 2 World Wars notwithstanding) from around a billion to just shy of 7 billions.
2) In the same period life expectancy has more than doubled. This amounts to something like doubling the population.
3) Consumption in the same period has increased enormously which (by the point of view of resources) is like doubling once again.
4) Most of the growth in population has occurred in the third world resulting in a huge amount of pent up future expectation and consumption.
All in all, a back of the napkin and unscientific calculation brings me to say that the process is not sustainable not only for its size but especially for its accelerating speed. Whenever an organism grows so fast eventually it grows uncontrolled.
Entropy, anyone?
Wars ensue because that’s the only way that humans have devised to re-set the system.
Do I need to point out that the 1929 crisis dragged on for more than a decade and ended only with WWII?
So, should you win that lottery, add my name right after the politicians: I will not be able to do anything to protect you but I’ll thank you profusely and make you feel good. I would consider that a good investment considering that you’d never be able to keep the money anyway…
May 26th, 2010 at 6:36 am
Errr - the oil is at risk of being altered by bacteria and become unusable. Bad plan. A better plan would be to buy an oil well and seal it. As a lot of people are doing now to drive up prices.