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Gold/Mining/Energy : Big Dog's Boom Boom Room -- Ignore unavailable to you. Want to Upgrade?

To: hilligas who wrote (39797)	3/5/2005 10:45:57 AM
From: jim_p	Read Replies (6) \| Respond to of 206198

hillgas, The problems we face today are the result of excess liquidity which started back in the Clinton years. First it caused a bubble in the stock markets. Once the stock market bubble popped excess liquidity began going into real estate. Excess liquidity has also caused increased global demand for goods and services and in places like China and India resulting in a squeeze on natural resources. The Fed is now trying to take the excess liquidity out of the system at a measured pace to avoid a disaster like we had in the stock market. So far it hasn't worked, but the Fed will to what ever it takes to accomplish their goal. If they fail it will only end a lot uglier on it's own unwinding. Having said that, China's per capita is less than 1/10 of what the per capita income was in the US during the oil shock in the late 1970's and they simply can not afford oil at it's current price much less any price higher. Many of us remember the down cycle that followed and lasted almost 10 years. I know Matt and L E Simmons and have hired they for projects in the past. L E is a lot smarter than Matt, but Matt has a larger ego and enjoys going around giving speeches. His story hasn't changes in the last 10-15 years. Energy is a simply function of price. At some price demand falls and at some price supplies increase. At some price we will mine the tar pits in Canada. At some price we will all have more efficient homes. My house in Houston was 4,000 sq feet and it used 10 times the energy of my current house which is 7,500 sq ft. At some price Congress will open up drilling in environmentally sensitive places. At some price even the residents in Fl and CA will beg for drilling off of their precious coasts. When I was an oil and gas investment bankers a client of mine had a major discovery off the coast of Santa Barbara and it is still sitting there undeveloped some 25+ years later. At some price we will all be using solar energy. At some price power will be generated by nuclear energy instead of NG. At some price we will build large dams in the bays and capture tidal energy and at some price we will mine hydrates from the oceans floors. There is probably 10,000 times more energy in hydrates than all the oil and NG energy in the world today. For those of us that have been around long enough to remember, back in the mid 70's "there was no more NG in NA". This resulted in the longest and most depressed down cycle in NG that lasted 10+ years. In the late 70's "the world was running out of oil" which led to a total collapse in oil prices that lasted almost 10 years and resulted in oil selling as low as $5.00 before the recovery began. The average price of oil has traded in a very narrow range for the last 100 years in today's dollars and has averaged about $26.00. For all those non-believers, it will be there again. Cycles are caused by the fact that there is a time lag of 12-18 months before a spike up in energy prices results in lower demand and the fact that it takes 12-24 months before new supplies come on which doesn't begin until the people in the oil business start to believe that "this time it is different" and we have a change in perception that results in management going out a bringing on new supplies that had much higher risks or much higher finding costs. There is plenty of oil in West Africa, but the finding costs and transportation costs are higher. This results in the same old cycles that we have been having ever since Drake discovered the first oil well in the 1800's. NG over $5.00 for a sustained time period will result in a flood on LNG terminals which will result in one the longest and deepest down cycles we have ever seen todate in NG. As far as weather is concerned, I believe in the current warming trend which is why I took all my oil profits out of Houston and moved to 7,000 feet here in Colorado As far as Venezuela is concerned any problems there will be short lived and the resulting oil spike will only result in a longer and more severe down cycle. The markets are very efficient. You have the choice of learning from history and playing the oil cycles and making a lot of money, or trying to get that last 10% out of the market and losing 50-100% of your hard earned gains in a matter of weeks once the smart money leaves which will happen 9-12 months before you see any down turn in the fundamentals. I see new posters coming over here talking about how 20-25X forward earnings are not expensive. No one should ever pay more than 10X peak earnings on a cyclical stocks, or 4-6 times "normalized" cash flow for an oil company. You buy when no one wants them and you sell when everyone starts to say "this time it's different" and every 3-5 years you can make an easy 300-400% on you investments which is a gift for those who are not greedy. JMHO, Jim