10 REASONS A SUPER-CYCLE IN OIL IS INEVITABLE
Article also featured on thestreet.com and Minyanville The argument has been made that the super-spike we saw in oil prices into 2008 was a simple aberration. It was seen as the type of cyclical event that takes place once a decade amongst different asset classes. As we are all slaves to the benefits of crude oil, this is the preferred path of thinking. Unfortunately, the reality of the situation is turning out to be much different. What awaits is a super-cycle in oil prices that takes crude oil prices to levels that are currently thought of as highly unlikely or impossible. Here are the 10 reasons why crude oil prices are going to rise far beyond a point that any of us can imagine: 1. An Arab world that will be struggling between fundamentalist Islam and the thirst for a democratic system for many years to come. 2. An Iranian government that will become all the more powerful as a result of the problem in all of the Arab countries that surround it. They will exert their power through quiet acts of influence similar to what they are doing in Iraq at present. Sunni and Shiite tensions will rise as a result. 3. A demographics issue with what is going on in North Africa, Middle East, Asia and South America. The age of information has brought a “why not us?” attitude to these regions. They are quickly building infrastructure and coming into the modern world, making up for decades of lagging behind the West. Everything that they are doing and will want to do will require oil. From the production of their food, to their transportation, to the containers they use to take their food home when they start serving portions that are far too large…a natural side-effect of becoming westernized. 4. A market for US Dollars that has been in decline and doesn't show any signs of changing its trend. 5. A Russian government that will extend its power base through the economic superiority that higher oil prices bring the country. Russia is one of the largest producers of oil in the world. The major difference between Russia and other large scale oil producing countries is that Russia has geopolitical influence and dominance on its mind. Very similar to another top 5 producer of oil - Iran. These countries realize that their power base will increase or decrease as a direct result of oil prices. The higher the prices go, the more opportunity and influence they will have. Given these aspirations and obvious realizations, they have every incentive to assist the price of oil in its march higher....
TODAY’S THOUGHTS: OIL SUPER-CYCLE, FINANCIAL BLOGGER BUBBLE, NEW RESEARCH, NEW CONSULTING GIG AND MORE!
Today's Thoughts is a nightly article sent to "Fire" level members of Zenpenny. I am posting it on the blog tonight, as I do once in awhile. Sometimes it feels like you're working on a million things and it becomes difficult to compartmentalize everything in your seemingly inadequate mind. For example, I have been wanting to write a report on what I believe is going to be the coming boom in everything oil related, lasting a good part of this decade for thestreet.com. Simply, haven't had time. And then an idea came to my head with respect to all of the financial bloggers out there who seem to be in this bubble of self-righteousness, when all they have become is professional regurgitators of news. It's rare to come across a financial blogger that offers any value. We are officially in a financial blogger bubble. I want to write about this...and will be soon. Then I have the issue of researching a new name I am considering putting together a research report on. It is looking great so far. I'm gonna need a couple of days to compile more info on it. Could be a 400% to 500% mover over the next 12-24 months...not bad. It is a more risky and volatile name than any of the others we are currently holding, which is why I want to be sure that it is worthy of joining the rest of the names. I am also working on putting together a proposal to consult with a couple of the major discount brokerage houses to revamp their active trader products. I think that there are a lot of big names in the industry that have fallen behind the curve. I have been working on ideas to enhance their products and will be presenting it to the executives of one of the companies in the coming weeks. Before trading on the institutional trading desk of Bank of America, I was in charge of getting their internet trading division up and running...until I wasn't. They couldn't make up their mind as to where on the list of priorities internet trading was...this was in the late 90's. I think they still have the same problem today. The general markets have taken on quite a bearish slant with today's action. All the while, the oil markets are looking like they want to challenge some important resistance levels in the coming days and weeks. The opportunity exists to make some serious money in the coming years in the oil markets. The perfect storm is upon us to take us into a super-bubble in oil: 1. An Arab world that will...
QUICK THOUGHTS
- It seems that the Phase 4 investor stampede, signaled an intermediate term top to this market almost perfectly. - Today's downdraft seems ominous. Lots of important support points being taken out just as the markets were attempting a crucial recovery. So begins our correction phase. Choppy, with a downward bias ahead. - Oil/gas stocks will be the play of 2011 and beyond. Do you research. The smaller the market-cap the more chances for aggressive gains. We're up nearly 400% on ours since October of last year. Got a tiger by the tail here and I ain't lettin' go. - High-beta tech will have you offering unsavory favors in exchange for illicit drugs over the coming months. Don't go out like Willy Lump-Lump. It's the last place you want to be. - Working on a possible new long-term position in our portfolio. Still doing the research. Initially it looks very promising,...
THE OPPORTUNITY THAT IS BAKKEN
The Bakken Formation is an oil reserve that occupies parts of North Dakota and Montana. It is one of those things that everybody knows about, yet nobody really knows about. It's very well known inside of the oil/gas community, yet for the most part undiscovered amongst your average investor class. I'm assuming this is because a majority of investors are more focused on risk/reward plays such as gold, silver, popular tech stocks etc. that tend to cater more to their masochistic, self-destructive side. I'm a relative newbie when it comes to the Bakken Formation, but have been reading everything I can get my hands on regarding what has become one of the larger oil finds in recent decades. My thirst for knowledge about Bakken isn't because I want to be geophysicist or have an intense passion for the oil markets, but rather due to the fact that our largest and most profitable current holding is directly involved in Bakken. Therefore, I am eager to learn in order to grasp the full realm of possibilities with our current holding, as well as any potential future investments I will make involving Bakken exploration and drilling. One could write a book about the history, revised estimates over time, technical difficulties in recovering oil and technological advancements that allow for recovery in Bakken. I don't have the time nor the patience to write a book, and am probably under-qualified to do so. That's why I am going to offer a cliff notes version of the reasons why I feel the opportunity in Bakken is so spectacularly profitable. Whether past, present or well into the future, there is no shortage of opportunity. The possibilities that Bakken offers in terms of oil reserves have been known for decades. However, the technology has been absent to recover the oil from the rock formation. Advances in technology have been increasing at a fantastic pace due only to the fact that a surging price of oil has made the increased allocation into research and development by oil companies a top priority. It's a lot easier to justify hiring a bunch of expensive engineers to discover ways of getting oil out of an extremely difficult formation when the oil you are going after is priced at $100 as opposed to $30. Now that technology exists to recover the oil from the reserve, the question becomes how much oil exists in the reserve for oil companies to profit from? The question of existence and recoverable are two different areas entirely. There have been estimates of 500 billion barrels of oil below the surface at Bakken. However, the recoverable percentage has...
TODAY’S THOUGHTS
"Today's Thoughts" is a nightly email that is sent to ZP Fire level members. Once in a great while I get a wild hair up my ass and decide to post them on the blog. Here you go: An important article to read on the blog tonight about core strategies versus periphery strategies http://www.zenpenny.com/?p=943 If you are able to develop a good periphery strategy to compliment a strong core strategy then it can be an immense help in increasing the performance of your portfolio. I will be focusing more on periphery strategies over the coming months. Of course, our core micro-cap strategy will always be our "go to guy". However, I think all members will benefit from the trading strategies, watchlists and eventual trading triggers than I introduce here. Our portfolio pulled another yawner today. We have been fortunate in that we haven't been bashed by the recent volatility in the market...that's a big positive. Being involved with a temporarily boring portfolio is much better than being involved in one that is losing money. As we approach the end of this trading week, I don't see any short-term or longer term setups that are tradeable at the moment. I could give out less than premium potential trades in order to satisfy the "trading hunger" that is within all of us...but then that would make Zenpenny like every other site out there...and that's not what I'm aiming for. I will only pass along trades when the potential risk/reward setup is such that it demands our attention and our dollars. At this juncture, none exist...and I ain't in the mood to try and squeeze some juice out of dry lemons. Not my game...and it shouldn't be yours...
THE 3 IMPORTANT BENEFITS OF A CORE VERSUS PERIPHERY STRATEGY
As any of you who have been reading this blog for longer than a fortnight know, I am an advocate of having a core strategy that allows you stay in peace, while giving you the maximum potential for profit possible. For some of you that strategy may involve trading 40 times a day, taking multiple ticks out of the market. For others it may be a consistent method of investing in stocks that exhibit a certain price pattern. And for the chosen few, perhaps it's actively trading the markets while high on prescription drugs with a variety of costume clad woman keeping you company (true story - don't ask for details). Whatever the strategy may be, once a core strategy is established then and only then are the advantages of a periphery strategy felt. A sound periphery strategy (definition: a strategy you don't rely on for your primary investment gains, but instead rely on to compliment the performance of your core strategy) will allow you to bring in that spinach and macaroni money, while your core strategy is what you rely on for the steak and potatoes. A sound core strategy paired with a sound periphery strategy should accomplish the following: 1. A solid core strategy will make your periphery strategy that much better due to the fact that you don't *need* the periphery strategy to make your dough. Therefore, you can allow trades that your periphery strategy generates to come to you. There is no rush or need to force a trade. You are, therefore, empowered to only take the best risk/reward opportunities. That is unless you are a mouth breathing, compulsive button pusher. In which case, no strategy will be of benefit. 2. A periphery strategy will allow your core strategy the extra cushion it needs when it goes through its inevitable drawdown periods. As much as we all think we have that one system that is immune to drawdowns, it is inevitable that you, me and the next guy will suffer as a result of one. The magic of a good periphery system is that it allows you to absorb the drawdown by whittling down the pressure, at least somewhat. This will allow you to keep your mind in balance, which is essential when you are getting bombarded, while holding your head and praying that you don't end up going the way of Willy Lump Lump. 3. Psychological comfort. Knowing that have two methods of taking cash out of the market, gives you that much more confidence. Important note here: don't fool yourself into thinking you have two methods that compliment each other well and allow...
THE IRON MAN – WALL STREET STYLE
Any test of a trader or investor's portfolio does not come when the market is going up day after day, similar to what we have been witnessing recently. It comes when the market drops. That is when you know if you simply have a portfolio that is either a high or low beta version of the S&P 500 or a portfolio that trades independent of the market averages and will be able to sustain returns through most conditions of the market. Today was the Wall Street version of the Iron Man. Only the most fit, long biased portfolios finished with anything resembling a gain today. To the point where a small fractional loss would be considered a great outcome given the carnage today across all asset classes that don't count on the end of world being their formula for success. With that being said, I was very happy to see our portfolio bring in a gain today. We posted yet another new high in the managed portfolio. It was mostly due to a super-tiny micro-cap stock that we own with an enormous spread sporting a small buy at the end of the day, which made it close up 10%+. If it wasn't for that we would have had a very small fractional loss, which I still would have considered a great victory. Either way, all 3 of our concentrated portfolio names held their own. Our largest holding was down a little over 2% and our second largest holding posting a gain of greater than 3%. Iron Man - Wall Street style. In the first race, we finished top of the heap. We'll see how the second race goes. Never too late to join Zenpenny. We now have two membership options. And both are...
BORING? YES! HOPELESS? NOT BY A LONG SHOT!
If our current portfolio was an entertainer, we would have been booed off stage and asked never to come back. Not because the performance was terrible, but rather due to the fact that the performance has been boring. We have seen our investment portfolio more or less meander sideways for the first month and a half of 2011. When sideways periods like this occur for a period of weeks or months, it's important to consider where the portfolio was prior. Analyzing a portfolio of stocks is really no different than analyzing an individual stock. Often times, the pattern you see in the behavior of the whole portfolio can tell you lots of things about where the portfolio is headed as a whole, similar to price patterns and technical analysis of individual stocks. Our portfolio, after bringing in triple digit percentage gains in only the last 6 months of 2010, has now gone sideways. It is literally scraping the top of its all time highs just a couple of percentage points away from a new high. While it has been a boring first month and a half of 2011, I can't think of a more bullish scenario for our portfolio over the long-term than this type of consolidation following such steep gains during the second half of 2011. Boring...yes. Hopeless, not by a long shot. Think we'll be seeing some upside here sooner rather than later. A sampling of our current portfolio can be viewed...
GOTTA “BORN TO LOSE” TATTOO?
It's all about the losses. I know, I'm not telling you anything new. Everybody realizes that the financial markets are all about controlling your losses, yet 90% of people who do this lose money. It's one thing to know and another to be able to implement what you know. Just as with anything else in the financial markets, there are a million different ways to control your risk. And just as with all other things in the financial markets, you must discover the method that best fits you and your psychology. If, for example, you are a guy who never leaves more than a 10% tip and has a case of Two Buck Chuck in your garage, then a strategy involving close stops that makes your broker rich is probably not the best strategy for you. As with anything, it's important to find what you are comfortable with...not what some guy you read about in a book has done to accumulate his fortune. The better your research and entries into trades, the more high probability those trades should be. There are so many out there who enjoy the rush of being in a trade so damn much that they don't care about the probability of success. If they are out of the game, they feel as if they are missing the train. Truth of the matter is that being in the game constantly with new trades and ideas only further prolongs your misery, as your batting average for successful trades will consistently decline as your frequency of trading grows. Our philosophy...why bother? We only take on a handful of well-researched investments each year. You know what that means? It means that over the past year, we've only been forced to take losses on two of our investments. We took a .03 cent loss on a .35 cent stock recently. Yep, we gave up .03 cents or about 10%. But guess what the result of our GSIG investment was, as just one example? A total gain, with all purchases taken into account of just over 200%, and we're still holding a small portion. Not a bad ratio of winner versus loser. Here's our take on risk control: 1. Do your research 2. Be extremely selective about where you put your money 3. Don't jump around the financial markets like an addict looking for his next fix 4. When you find an investment that works, don't be afraid to allocate heavily into that investment. Diversification was invented by a duo named LarryDiversi and Johnny Fication, both of whom did terrible research and overtraded. It's unnecessary to follow their path if you...
THE GOOD OL’ BOY NETWORK IS ALIVE AND WELL
Last night, I sent out a flow chart to members going over a good ol' boy network that is operating in our largest holding. Good ol' boy networks. You know, when a group of well-heeled gentlemen put together a business with the sole purpose of enriching their network of people. It's typically a closed door affair, catering solely to members of the network. Stumbling upon an established good ol' boys network can be a monstrous find if you come across the right group. These networks only exist due to past successes. The members are not in the position they are due to being a bunch of sheep who have been fleeced and hung by their toes in the past. Good ol' boy networks can rarely stand more than one failure. They quickly dissolve. You can assume that if you find one with a well established history, their most recent investment will have a very high percentage chance of succeeding. We've come across a doozy of a good ol' boys network. We're talking a staff of executives at a newly created company that have been in business with each other for decades, having formed numerous ventures that have created hundreds of millions in wealth for members of the network. And now they are involved in their newest project, buying up stock through private offerings, as the public markets cannot absorb their massive demand. One member of the network is buying stock in the company for his wife's retirement account. How many men do that without absolute confidence in the potential outcome? It's a bunch of friends and family here. All well to do, well established people. Through research, we've stumbled upon their latest venture...and it's our largest holding. Not just because of the good ol' boys, but also because of the raw potential we see in what the company is doing. There is a reason this group of good ol' boys has been together for as long as they have, and it's not because they suck. Join Zenpenny today and receive a 12 page research report, outlining this opportunity, as well as our 3 other...