it doesn't matter that you wouldn't lose 100% of your capital until $53. the point is, you would lose HALF your capital if crude simply fell $10. so then you have to ask yourself how happy will you be with losing half your capital, and at that point you will still have the risk of losing it all.
your answer to that is you will bring in the cavalry:
I have other capital that I can transfer over if this unlikely event took place.
but what is this other capital sitting in? things like COP LEAPS and long positions in COS and SU and CNQ?
I have all my money in 6 stocks COSWF, SU, CNQ, ECA, NXY, and PWE. I am heavily overweight both crude oil future contracts and the Canadian Oil Sand companies. I am on very little margin and therefore have the ability to defend my oil futures contracts all the way down to the 30’s by transferring money over from my stock account.
if crude drops 17 bucks you can be pretty sure any energy equities will also tank. so you'd be in the position of meeting your futures margin calls by selling out your equities into weakness.
I will not be force to sell anything. I will go heavily into margin if this highly unlikely temporary event takes place.
my aim is to be on the other side of this trader. i am typically 40-60% equities (40% now), with the rest in cash and other positions which are non-correlated to the equities. right now most of my cash position is in JPY. i also have positions which are bets on the unwinding of the housing bubble and credit bubble.
I would rather stick with oil. I am extremely confident that oil prices are going over $100 in the next 14 months.
there are few things i am sure of in investing, but one of them is that energy equities (and commodities) will again face a brutal unwinding that will result in huge amounts of distressed selling and provide good entry points for those with the capital available at the right time.
I think the next move is up.
there are certainly scenarios where huge leverage on the commodities will provide the best results
I think $20 is adequate to defend purchasing a December 2011 contract from margin call. I don’t think that we will see the December 2011 contracts trade at $53 ever again. All the news that I have been reading over the last two years has been bullish for crude prices. I can’t remember when I last heard an intelligent argument for lower crude prices going forward. I’m at the point where it is not a question of whether oil prices are heading higher. It is when will they break $100 and how high are they going to go?
Here is an interesting article that I think you should read:
except - Six of the largest oil suppliers to the U.S. are poised to significantly cut exports by 2012.....The forecasted cuts by Mexico, Saudi Arabia, Venezuela, Nigeria, Algeria and Russia are the subject of a keynote address that Jeff Rubin, chief market strategist and chief economist at CIBC World Markets will deliver at the firm's Industrial Conference Oct. 2 in New York City.
money.cnn.com
The conference call:
veracast.com
password: industrials2007
Peak exports is not rocket science. It is just extrapolating the currents trends into the future. It is obvious to me that the price of crude oil is about to go up significantly. |
