Shiny Things..

[John.D Rockefeller]

Hey there, was wondering what your thoughts were on West Texas Intermediate WTI and United Ststes Oil Fund USO in light of appreciating USD against SGD

 

[Shiny Things]

Hey there, was wondering what your thoughts were on West Texas Intermediate WTI and United Ststes Oil Fund USO in light of appreciating USD against SGD

I think the outlook for WTI is pretty much the same as for all other major commodities - dooooown. The strengthening USD makes it a lousy trade to buy-and-hold commodities (that trade worked from about 2000 through to 2011, then abruptly stopped working, but people have only recently started to realise that); and as US interest rates go up then holding commodities instead of USD will become more and more expensive. (That's why gold and oil traded so low in the late 90s - why hold commodities that yield zero, when you could hold US treasuries that yield 5%?)

That said, I think a big chunk of the move has already happened. I wouldn't go short here.

And if you want to go long, buying USO is not a good option; you pay all sorts of roll costs, carry costs, and a 0.35% management fee on top of it. If you really want to punt oil, use the futures; it's the most liquid commodity futures market in the world. USO is a solution in search of a problem.

 

[John.D Rockefeller]

I think the outlook for WTI is pretty much the same as for all other major commodities - dooooown. The strengthening USD makes it a lousy trade to buy-and-hold commodities (that trade worked from about 2000 through to 2011, then abruptly stopped working, but people have only recently started to realise that); and as US interest rates go up then holding commodities instead of USD will become more and more expensive. (That's why gold and oil traded so low in the late 90s - why hold commodities that yield zero, when you could hold US treasuries that yield 5%?)

That said, I think a big chunk of the move has already happened. I wouldn't go short here.

And if you want to go long, buying USO is not a good option; you pay all sorts of roll costs, carry costs, and a 0.35% management fee on top of it. If you really want to punt oil, use the futures; it's the most liquid commodity futures market in the world. USO is a solution in search of a problem.

I can't do futures or options as I'm under 21..I only turned 19 a few weeks back lol

Alright, I will have a look around and find out more. Thanks Shiny!

 

[limster]

Oil ETFs suffer greatly from backwardation/contango. Depending on when you buy, it can be really bad. Spot price can go up 20%, but your ETF only gains 5%, after experiencing that, I no longer dabble in oil ETF, exiting with only a tiny gain despite big spot price increase.

At least it was a good lesson that the only winners are those that can lease oil tanker to hold the oil while waiting for spot price to recover.

 

[klarklar]

If you don't mind, a question to Shiny Things which is not related to oil.

How do you see gold and silver as an investment? One reason I ask you is because of your name. Gold and silver are indeed Shiny Things . So, you may have some special insights to these shiny things.

 

[Shiny Things]

If you don't mind, a question to Shiny Things which is not related to oil.

How do you see gold and silver as an investment? One reason I ask you is because of your name. Gold and silver are indeed Shiny Things . So, you may have some special insights to these shiny things.

Heh, yeah, I get that a lot. Funnily enough, though: I think shiny things are a terrible investment. In short: gold is a dog at these levels, but I'll buy it if it trades back to $600; silver is a dog as well.

For the first few years of my markets career, gold and silver were a backwater. They were dead markets. Gold hadn't done much in the previous 15 years, and silver was even worse: silver was the same price in 2002 as it was in 1990 (and don't forget: no dividends!).

Then, when the Fed slashed interest rates after the dotcom bust and September 11th, that's what started gold and silver (and for that matter the rest of the commodity complex) on their rise. Post-2008 ZIRP added more fuel to the fire. (I'll never understand exactly why the bubble popped in 2011 instead of lasting through until the first rate hikes, though.)

Here's the thing: gold and silver, just like oil, become very expensive dead weights in an environment of high (or even normal) interest rates. Central banks hated having gold on their books in the nineties; they wanted to sell everything they could, and move it into US Treasuries that yielded a hell of a lot more than zero. (Gordon Brown famously sold the UK's entire gold stock at the ding-dong lows and was hailed as a hero.)

And I think interest rates are headed back to normal levels. It'll take some time, but eventually we're going to get to an environment where you can get, say, 5% out of a US 10-year Treasury. And in that environment, only hardcore goldbugs are going to want to own gold. All the idiot EM central banks who bought up tonnes and tonnes of it will be looking at their huge piles of yellow stuff and saying to themselves "what were we thinking, how much can we sell this for?".

If I had to spitball where I think gold's headed: it spent most of the nineties bouncing around in a range of $300-ish to $500-ish. Adjust that for twenty years of US CPI (multiply it by roughly a buck sixty) and you get a range something like $500 to $800.

I'm definitely not a buyer of the shiny yellow stuff here. While I think it's a good idea to own a small bit for diversification purposes (like 5% of your portfolio), I wouldn't buy it until you can get it in the 500s.