How can you profit from peak oil?

There are some people and blogs out there concerned with energy stocks and what investments in the energy sector might look like in the coming future. I'm not particularly up on investment issues, but blogs like New Era Investor are thinking about how issues like peak oil and baby boomer retirees are going to affect stocks, bonds, gold and silver in the near future. Michael McAllister's Energy Stock Blog seems like a more standard day-to-day accounting of how the energy sector is doing, but also reports on peak oil. For example, he also recently discussed Berman of the Houston Geological Survey (see the two posts below), although McAllister has a somewhat more approving view of him than we did.

OK, well, I would expect that analysts covering the energy industry are going to downplay the types of concerns that we raise here, but at least people like McAllister are taking the issues seriously.

But imagine my horror at seeing this google text ad come up on the side of my gmail account:

World Oil Production Peak
How can you potentially profit? Free report from GA Funds.

Guinness Atkinson Funds is estimating the global peak oil production year will occur between 2015 and 2020 (see chart at right). We suspect that soon, daily oil demand will outstrip daily oil production capacity, potentially creating an opportunity to profit from the ownership and exploitation of the world's dwindling hydrocarbon reserves.

Truly, America at its very finest. As civilization is slowly disintegrating, you too can profit! Of course there's always going to be investing in energy (read: petroleum) even when we're seriously conserving and developing alternative technologies, but to actually advertise your fund by telling potential investors they can capitalize on peak oil? That's pretty shameless.

Here are some more quotes from the prospectus:

  • (p21) The Advisor believes that growing demands on existing energy supplies, in particular petroleum-based energy supplies, could lead to higher prices for this and other traditional energy sources and the profitable development of alternative sources of energy.
  • (p22) You may lose money by investing in this Fund if any of the following occur:
    a. Stocks that comprise the energy sector decline in value;
    b. Prices of energy (oil, gas, electricity) or alternative energy supplies decline, which would likely have a negative affect on the Fund's holdings;
    c. A government expropriates or nationalizes assets of the Fund or companies in which the Fund invests;
    d. Political, social or economic instability causes the Fund's holdings to decline
  • (p28) Prices and supplies of energy may fluctuate significantly over any time period due to many factors, including international political developments; production and distribution policies of the Organization of Petroleum Exporting Countries (OPEC) and other oil-producing countries; relationships among OPEC members and other oil-producing countries and between these countries and oil-importing nations; energy conservation; the regulatory environment; tax policies; and the economic growth and political stability of the key energy-consuming countries.
Wow! This sounds like a great fund to me! Anyone else interested in buying in now?

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Trying to get rich off of Peak Oil is the best thing you can do for the world! This is the miracle of the market, that by seeking to fatten their own wallets, investors and speculators do a service for everyone. In this case, buying oil or speculating in futures raises prices today, smoothing out the climb as we head towards the peak and motivating more investment in alternative sources. Likewise with other investments that are thought to be profitable in case of a peak, such as unconventional oil. There's nothing wrong with greed, in a free and unfettered market. It does far more for the world than the handwringing and meaningless self-denial often practiced by peak oil believers.

While I don't know the details of this or any other "investment opportunity" which attempts to make money from the oil peak, it is true that speculators are sometimes essential for the smooth operation of markets.

For example, it's my understanding that commodity futures markets could not operate with nearly as much liquidity were it not for speculators, one of whom will typically always be available to take the other side of a hedge position.

If markets start to "believe" the peak oil story, that MIGHT be a good thing if it happens well in advance of actual price moves on the spot market.

Panic would be a bad thing, but a healthy futures market would, I suspect, help eliminate some of the surprises that can cause such a panic.

Yeah lets all drive up prices and buy the future or spend other peoples future which ever way you choose to look at it ;)

Greed is good, but investing in this fund is risky, especially if oil prices collapse:

Personally, I see water as the oil of the 21st century. Wringing oil out of oil sands requires water. Same with oil shale. Nuclear reactors need water. We need water to make the hydrogen for hydrogen fuel cells. Bio-diesel and ethanol require water.

And oilman T. Boone Pickens is buying up water rights. That's the kicker for me:

If only there were some way to get water... if only it were a renewable resource... But such folly! We all know that water doesn't just fall from the sky!

What about profitting from WAR! It will happen if war over oil happens and Matt Simmons is talking like it's 1938 and war clouds are on the horizon:

What would you propose Joe-401k investor do? Cash out, buy gold, and head for the hills? If you have a 401k, you have to put your money somewhere. Though only a fool would sink all of his retirement money into a single specialized mutual fund, energy isn't a bad choice now--especially compared to tech funds.

Assuming civilization survives this, and financial assets don't completely evaporate, it seems appropriate for people to continue making retirement plans that don't rely on social security.

For the record, I don't necessarily think that investing in energy either now or in the future is a bad idea. Indeed, we're going to need investors in order to (a) wring out of the ground what we can, and (b) prop up companies who are working toward developing alternative technologies.

What I found distasteful was the marketing of this particular fund. To me, the way the ad is worded makes it sound like a get-rich-quick scheme at the expense of other people. Sure, that's how capitalism works, but it still rubs me the wrong way to see it so blatantly presented like that.

Furthermore, the risks of this fund, which will probably all come true at some point, really make it seem especially foolish to get involved. Aren't there less risky ways of getting involved in energy investing? "A government expropriates or nationalizes assets of the Fund or companies in which the Fund invests"? Yeah, undoubtedly. "Political, social or economic instability causes the Fund’s holdings to decline." Just wait until China can't get all of the resouces it needs.

I don't see personal property going away any time in the next generation or so. Land is probably a reasonable thing to look at putting money into, especially if it is connected with a river, spring or major stream. It's the grab for speculative commercial and residential land that is driving prices up.

As long as you aren't insistent about living directly outside of a major metro area or on the west coast, land can be had at a reasonable price. It is something you can use and live on, its value doesn't depend much on market performance except in a general way and you can leave it to your children in a trust to get around a lot of taxes.

My retirement is basically in a mattress, with interest rates so low and banks basically unregulated in their investments, and a chunk in land as well. Now, do you stuff the mattress with gold, silver or dollars? Gold may go nuts, it may stay flat. It isn't likely to drop precipitously as most of the large deposits have been found and factored into the market. Silver is "poor mans gold", in that it is lower in value but generally tracks with gold - hence it's use as a currency for thousands of years. The dollar? Just look at how many there are in the world, and you will get a picture of the real value of the dollar if things get bad. And they are printing more every single day... The market, adjusted for inflation and bubbles, has under-performed gold over the last 30 years.

What is truly a safe haven? I am 47 and not counting on SS. My plan is to enter old age with everything paid for and enough capital for some serious medical work. I don't plan on just sitting around, but if everything is paid for, my income needs change drastically. If I can build a place that can function mostly "off the grid", then I can survive on even less capital. It's called "self reliance", and it definitely takes a financial and time commitment.

My plans have been accelerated with a lot of what is going on around us. If it begins to look like being in suburbia is none too healthy, then I now have somewhere to go. When my kids want to go "do something" as they are wont to pine, we can always go "to the farm". It's funny how much my city-raised kids express this desire....

Anybody can do what I am doing - you just have to rearrange your priorities, set some realistic goals, and stop following the herd. And while I talk and blog and discuss a lot of things with people, I have a very satisfying feeling of security. I am "ready" for the most part, and the two worst cases are that things get so bad I really do leave, or else I have a simple "country place" for when I am older.

"Getting rich" on Peak Oil depends on what you define as riches. Is feeling secure while all this is going on worth something? To me it is. Is having a "hobby farm" a form of riches? For me, it is. Is living "off the grid" and "growing your own" a form of riches? To me, it removes quite a yoke from my neck - "the job". Investments? Your children should always be your biggest one, IMHO.

Then there was the story of the greedy monkey with his fist wrapped around the bag of nuts, unable to pull his hand out of the small-hole in the anchored coconut because greed forced his fist to clench ever tighter. And all the while he is screeching in hysteria as the hunters approach at their leisure with the aim of slitting his throat and having monkey soup for dinner.

What are you people talking about?

Can't you see you are cluster-f///d into a cognition cage of your own making?

Greed is good?

Think about it. Greed got us into this pickle.
If it were not for the greed of corporations to always maximize the short term return on investments (ROI), maybe some of these organizations would have looked at the big picture, back in the 1970's !!! and would have started developing alternative solutions for the approaching hunters. But no. Each fiscal quarter it was more important to satisfy Wall Street's "expectations" than to worry about saving the human race. That's why GM sells no hybrids.

Greed is good? Maybe for you and in the short run, but not for us and the long run.

BTW, after you've gotten "yours" and you get sick, how are you going to find good medical care in a collapsed society? Keep screeching.

Whoa step!!

Don't burst a blood vessel Dude...

Until people finally understand how money is the root of all evil, they will not "get it". And that requires a huge paradigm shift and change in personal values waay outside of the main stream American groupthink.

I think (as a final parting shot[I got 15 min left - LOL!]) that PG and HO and ianqui should put together a reading list in branched tree form so that newbies can follow it to the various long term views of where we are headed.

Population, pandemic, Liebig, Hubbert, especially money and money theory, etc.

Rajiv seems to have a link to anywhere in the known universe - maybe I should volunteer him as well...

Many of us already know this stuff, but opening eyes and minds is what blogging is about.

Keep the faith. It's been fun!

A couple weeks ago, I made my first foray into the futures market, buying one contract of Dec 2010 crude oil. (I am fortunate in that my financial position is that I could weather a $20/barrel drop.) I view this, however, not so much as a get-rich-quick scheme but as a hedge against peak oil. That is, if the price skyrockets, the profits on the futures will offset losses in my pension and profit sharing plans (which are limited to various equity and bond funds). I also figure that if the price of oil skyrockets, the disaster which is likely to first hit the Third World will prompt the need for greater charitable giving on my part.

I hope my own website is not promoting a whole new generation of Gordon Gekkos!

Let me tell you right away that making money in a continuously contracting economy is no mean feat. The first aim is just to hold onto what you already have. If you have $200,000 at the onset of Peak Oil, if you can still have that amount (adjusted for whatever inflation is going on) at the bottom, you can afford a smile. You have preserved your wealth, nothing more, but when others are losing theirs hand over fist, you have gained without the appelation of "greed".

Making money is a bonus and when a lot more people are out of a job, it may prove to be a source of income rather than a down-payment on a SUV (not that those will be seen much post-peak).

Making money by designing your investment plan around the consequences of Peak Oil will probably make you a lot of money - provided the financial system survives. A major contention of many of the Peak Oil theorists is that our financial system will not survive, and the collapse of finance will lead to the (at least partial) breakdown of industrial civilization. So, investing in this fund or vehicles like it will be great if you assume a case fairly far removed from the worst case.

Wouldn't it be ironic if all the gold bugs were right? Of course, gold won't be much use in the worst case scenario until enough time has passed for some sort of commerce to be rebuilt.

I am investing in hand tools and other things that will be useful to me without fuel or electricity. That, and spending a lot of time beefing up my knowledge of farming and trades that don't rely on fuel, electricity, or high speed transport.

Roy -

The only problem with gold is confiscation. When the economy finally has ground to a halt, and the dollar is worthless, the government will legislate confiscation. It's been done before, so it will happen again, because nobody will be taking dollars for trade when they aren't worth wiping your bum. The government will make the patriotic plea, and then make owning gold illegal. It will get repealed, but not for decades. The again, the government could collapse.

Land is probably the simplest way to hold wealth from my POV. And holding what you got while everybody else is holding dollars declining in value daily, well, that's actually building wealth in a crashing market.

And I wouldn't sweat the hand tools and simple life too much. We will be living in the ruins of our own civilization in the worst case scenario, and that means a lot of junk to be recycled! In the WCS (worst case scenario), most city people will simply starve or kill each other because they are too ignorant or lazy to make a go of it. They won't be able to get far (no gas or real survival skills), and they will not have a larder or garden to feed from, so it's off looting so as not to starve.

But this assumes no commerce, and I don't think it will get that bad. So buy some hand tools, but also think about what you can scrounge to make things easier. And have some land away from the city to live on...

and read the "whatif" series here:

j--like they won't take your land, too? I'm sure the history for that is even richer than the history for confiscating gold. Especially if your land has particularly good resources.

Last time gold was confiscated is the US, many folks sold their gold overseas. A lot of American gold coins wound up in Europe. Just don't keep it in a safety deposit box. It's my understanding that banks were obligated to confiscate any gold held in safety deposit boxes. Also, while silver was also confiscated, it was repealed sooner than the gold confiscation.

Gold, or other precious metals or gems can be easily hidden and kept in a safe place until owning them is no longer illegal (or the government that ordered confiscation collapses). Land cannot be hidden and is very easily confiscated, which is likely if the food production situation gets desperate.

Even in the apparently godforsaken times that we may yet get to live through yet, though, knowledge will be the most important asset of all. Only the knowledge that has enabled people to get rich in past decades may mostly be irrelevant - the knowledge that will be important will be knowledge that was commonplace in the 18th century but is now mostly neglected, if not outright lost.

Yes, I think gold (and to some extent silver) will be remonetized and that involves confiscation of gold in sufficient quantities to put enough currency into circulation. That is no bad thing - a stable currency.

The financial breakdown you speak of is nothing more than the fiat-debt-money system cracking under the strain of cascading debt defaults. Only a form of money that cannot be created out of thin air at will can rescue that situation - bring on gold!

If we really want to reestablish the gold standard for money, it would be far better to do that prior to Peak Oil and subsequent social/economic/financial/political chaos. With enough chaos and lawlessness, even gold doesn't help much as a store of value unless you survive through to the reestablishment of some sort of order.

ianqui -

What resources are you talking about?

I am talking about a home-plot agricultural setup.

I mean, if the whole system collapses into a "Mad Max" scenario, there is still land ownership. Until it becomes feudal in nature, with marauding armies enslaving people and annexing land, ownership will still be possible. As long as there is some lawful government that recognizes and secures ownership, ownership will be possioble.

I was speaking in terms of having an intact government somewhere. What era are you speaking of? I haven't heard of the government taking over farms by fiat- do you know something I don't?

Roy -

The fiat money system cannot exists with the gold standard. That was why it was killed - so the fiat has to die first. Fortunately, we started it, so when we collapse the world economy, the rest of the world can revert to it. And they just might, because it is fair and impartial, and disallows the kind of collapse we are heading for.

But I wish we could start it now - it would be nice to be ahead of the curve!