Investing and peak oil

Jacob1234098 · Post by **Jacob1234098** » Sat Jun 09, 2012 10:43 pm

Do you believe the economy will start seeing a severe slowdown in the next decade? Where are you 'investing' your money? I am 80/20 stocks/bonds right now (mostly in broad-based ETFs) but feel VERY vulnerable. I don't know where else to invest though. Nothing seems like a good investment these days.

Post by **jacob** » Sat Jun 09, 2012 10:49 pm

Consumer staples and utilities.
Energy is sensitive to inflation (goes up) but also to economy downturns (goes down) and it's probably more substitutable than the peak oil crowd believes.

chenda · Post by **chenda** » Sat Jun 09, 2012 10:58 pm

The Permanent Portfolio
@ Jacob - Have your views changed on Peak Oil at all - I recall you were active in the peak oil community for a while ?

Post by **jacob** » Sat Jun 09, 2012 11:04 pm

@chenda - I now believe that peak oil will lead to an economy as we see now (which might persist on a permanent basis) and not the Mad Max scenario akin the the 1970s oil crises with people shooting at each other at gas tanks. I now see far more slack and flexibility in the system than I used to. I also think that the symptoms will be so subtle that the causes will be blamed on other factors ("cars are not freedom"-value shifts, oil is expensive due to evil speculators, ...) than actual supply constraints.

RelicO · Post by **RelicO** » Sat Jun 09, 2012 11:18 pm

http://www.bloomberg.com/news/2011-09-2 ... -grid.html

Jacob1234098 · Post by **Jacob1234098** » Sat Jun 09, 2012 11:22 pm

Jacob, you don't think the volatility we're seeing now will become much more extreme over the next few years? What is this 'slack and flexibility' you see in the system? I'm genuinely curious as I've only done limited research.

tac · Post by **tac** » Mon Jun 11, 2012 10:21 pm

Re: Oil, I think people are far more adaptable than sometimes given credit for, so as long as oil doesn't all shrivel up and die overnight, we might just manage. For example, back in 2008 prices out here were approaching $5/gallon. Results: people actually were driving less, using public transit, bikes, and feet more. Many people I know also got more vigilant about things like weatherproofing their homes, keeping the heat/AC at a lower setting (or turning it off overnight or when out of the house), and so on (I live in an area with a very moderate climate and don't use heat or AC so this was not an issue for me). Some of that stuck (some of it did not, but anyway...). Gas is currently up well over $4/gallon in my area and although there is grumbling there is not the same level of "OMG! WORLD IS ENDING!" that came in 2008. I do think people have adapted somewhat (though I think most people are still using too much oil). If gas hits $5/gallon I think there will be some shock simply because that's a big mental threshold, but again, I think people will figure out how to make do on a bit less. In turn, the steady reduction in demand will keep the price from skyrocketing overnight.
Then also as prices go up or technology develops new reserves suddenly become available (for example, all the fracking that is now making natural gas so cheap). I don't know how many of these there can ultimately be, but I do think they can stretch out and soften the peak oil decline for a while.

Post by **jacob** » Wed Jun 13, 2012 12:59 am

The slack and flexibility is inherent in the enormously wasteful consumer economy we've constructed. Given that we're now in the peaking/initial decline, any increase in energy demand is going to significantly increase oil prices because production can't increase. However, demand can easily decrease as people decide that maybe they don't need to replace their car or even own a car in the first place (apparently Gen Y does not consider personal car ownership to be a rite of passage in the same way that Gen X and Boomers did). Similar reductions in nonessential consumption goes on in the rest of the developed world's economies.
Where it hurts is when increasing energy prices spill over into food, e.g. the tortilla crisis. However, the developed world is still inured to this for a few more decades.
In terms of investments, a tight supply constraint on an inelastic product leads to very volatile pricing. If you want to invest in energy, it's best to trade actively until such a point where people with pricing power (such as those reading this forum) start competing for food at which point energy prices are going to skyrocket.

Chad · Post by **Chad** » Wed Jun 13, 2012 6:23 pm

"The slack and flexibility is inherent in the enormously wasteful consumer economy we've constructed"
All we have to do is look at U.S. energy use, which has declined recently, to demonstrate the flexibility.

KevinW · Post by **KevinW** » Wed Jun 13, 2012 7:35 pm

demand can easily decrease as people decide that maybe they don't need to replace their car or even own a car in the first place (apparently Gen Y does not consider personal car ownership to be a rite of passage in the same way that Gen X and Boomers did)
IMO this illustrates the Tao aka Stoic logos aka invisible hand at work. I bet most of the people feel they are making these decisions for noneconomic reasons unrelated to peak oil. But, they do pick up on the reverberations of third-order effects of the scarcity of petroleum, such as how information tech-oriented lifestyles seem more rewarding than gasoline oriented ones. Or how disabled veterans coming from oil-producing nations is a growing tragic problem. So, I have some optimism that these problems can work themselves out, slowly, even while most of the population remains uninformed of the root cause.

Chad · Post by **Chad** » Wed Jun 13, 2012 9:38 pm

I agree this is a bunch of small things (a few extra public transportation users, better light bulbs, thinking about MPG a little more on the next car purchase, etc.) that may or may not be related to economic reasons.