If I won the lotteryâ€”I mean one of the big ones, like $200 million or moreâ€”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 earnestâ€”one beyond adding Census jobsâ€”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 donâ€™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?