Posted by Big Gav
Ken Deffeyes has delivered an unusual seminar to a small investment firm in Portland. One look at my portfolio this week shows that being long energy is a thoroughly rewarding move at the moment (and I believe most of the big boys here are upping their recommendations on the energy sector this week, hence today's large jumps in many oil and gas stocks).
Obviously if you listened to Deffeyes you'd be long the military-industrial complex as well (not well represented on the ASX unless you count Metal Storm), but I'm sure US investors could take a punt on the likes of Halliburton getting lots more no-bid contracts to partake in the "reconstruction" of future war-ravaged OPEC members and globally-warmed hurricane disaster zones. Assuming that all the corrupt crony-capitalists infesting Washington don't end up in jail where they belong of course.
War. Famine. Pestilence. Death. It's a mid-September Thursday night, and these calamities are projected in bold, black letters onto the wall of a basement conference room in the downtown Portland Marriott. Those are a few of the bleaker scenarios predicted once global oil production begins to dwindle, explains Dr. Kenneth Deffeyes, a Princeton geologist and author of Beyond Oil: The View From Hubbert's Peak. Published earlier this year, the book offers a less-than-optimistic view of the coming global energy crisis.
"I took those words from the four horsemen in the Bible," Deffeyes jokes at the podium. The audience of about 250, a bizarre mix of dreadlocked enviros and clean-cut financial types, laughs nervously. They're here for a seminar on energy investment hosted by MKG Financial, a local trends investment firm.
Deffeyes, the keynote speaker, is among the leaders in a growing faction of scientists, politicians, and activists-known as the Peak Oil movement-who are clamoring that the Age of Oil is about to end. Soon. In fact, Deffeyes predicts that global oil production will peak this Thanksgiving, thus beginning a long, painful slide to zero.
Judging from his own financial advice, Deffeyes is a strange choice to speak at an investment forum: Earlier in the day, he half-jokingly advised me to put my savings into 1/8th-ounce gold pieces. His argument: "They'll be easier to make change with" than larger pieces in a post-apocalyptic economy.
Bubba put together a Texas sized peak oil portfolio recently, which is something I've been meaning to do a post on all year. If I'd done it back in January I'd look like a genius now, although if I was honest about it any fool with some spare cash would make money on the ASX this year - I probably would have done better just buying Macquarie Bank shares. As it is I just gaze fondly at some of the green numbers on my screen from time to time - and I'll take the risk that we aren't on the verge of a global meltdown and give you my recommendations.
Please note that I'm not a financial adviser and only the truly unwise would go and buy shares (or take anything else I say overly seriously for that matter) based on the rantings of someone calling themself Big Gav and who pretends he is a crocodile.
Obviously there are a number of industries to avoid like the plague (or the bird flu) - the chemical industry for starters, along with airlines (never a good bet at the best of times), aircraft manufacturers, fertiliser companies, suppliers of car companies that aren't heavily hybrid orientated, aluminium smelters, car rental companies, toll roads etc - basically anything that is a heavy user of energy. And at this point anything that is exposed to consumer spending and outer suburban housing construction is probably a bad bet too.
So what is good ? Companies with big oil and gas reserves compared to their current production rate (ie. ones with long life reserves). Companies producing other forms of energy (especially renewables, but also coal, uranium etc - this isn't going to be an ethical portfolio I'm afraid). Oil services companies (anyone with drilling rigs or who provides services to the industry as it goes into an exploration frenzy). Recycling and waste processing companies. Manufacturing companies that compete locally in sectors with a large component of imported goods - as transport costs rise they will become more competitive. Companies producing renewable energy producing equipment.
Obviously most of these have already had huge runs, so you may be buying in at the top of the market - you won't make money if the US economy falls through a trap door (in which case gold may actually be a good bet, but I've never been a gold bug). In a lot of cases on the ASX it is hard to find pure-plays as well, so companies with exposure to the good may also be exposed to the bad.
With that in mind, here is my starting effort. I'll pretend I have $140k to spend, and keep $20k in the bank for now. Every month or two I'll see how its going and make a change or two. Note that most of these finished at record highs today - its not for value investors.
|Oil Search (OSH)||2520||$3.97||$10,000|
|Worley Parsons (WOR)||965||$10.35||$10,000|
|Centennial Coal (CEY)||1980||$5.05||$10,000|
|ROC Oil (ROC)||3570||$2.80||$10,000|
|TAP Oil (TAP)||1690||$2.96||$5,000|
|Aust Renewable Fuels (ARW)||3185||$1.57||$5,000|
|Compass Resources (CMR)||3155||$1.58||$5,000|
|Downer EDI (DOW)||820||$6.08||$5,000|