So fellow Tulipians, is oil the new gold?

[Hypatia1]

Have we missed something fundamental here? Now that we are at the peak of the "Carbon Age", has oil replaced gold as the ultimate currency? I realize that gold is immutable and infinitely reusable, while oil goes up in smoke. And gold can be worn on fingers and dangled from ears, while oil can't (or at least shouldn't). It just seems like gold is out of fashion these days, while oil is hot.

Have we missed the boat?
Are we approaching a Mad Max world? Should I dump the soft metal and invest in petrol and black leather?

[Guest]

Re: So fellow Tulipians, is oil the new gold?

Hypatia -

What you are expressing is latent frustration with the fact that gold has severely lagged oil's rise. You are expressing a yearning to become a follower of the "hot trade". In fact, of the two, the gold is the deep value play at this time.

It is extremely cheap vs. oil, and oil's rise from here despite even savage corrections will be inexorable. We need to train ourselves to always prefer the lagging investment, especially in this case, when gold's tendency to revert to an equilibrium ratio relative to oil is highly reliable. Both are intricately tied up wth inflation.

Don't look a gift horse in the mouth. Oil's sharp rise and exceedingly strong fundamentals going forward render gold a white hot trade for the next 3-5 years and beyond. It's cheap relative to the rises of many of the base metals too. Not sure why you are not readily recognizing this.

[Hypatia1]

Re: So fellow Tulipians, is oil the new gold?

Lukester wrote...

What you are expressing is latent frustration with the fact that gold has severely lagged oil's rise....

Actually, what I'm expressing is a latent boredom at work and a frustration that I'm too poor/cheap to buy physical gold, or join iTulip Select and read the good stuff. Just trying to spark some discussion.

Anyhoo, here's where I am.... Most of my money is in a 401k, with limited choices and I've spread my investment over international funds, money market, and a PIMCO bond fund. Is that reasonable?

I've got a smaller Roth IRA, which I moved mostly into gold funds in back in 1999-2000 after reading a quirky little web site that compared tech stocks to flower bulbs (Thanks, EJ! My $10k IRA has grown to nearly $40K without any contributions).

Hyp.

[Guest]

Re: So fellow Tulipians, is oil the new gold?

Hypatia - I would not feel constrained by my 401K - the premises it's predicated on, tax sheltering your b0nar proceeds, are a canard in our near future environment. Bond funds and most stock funds are a dog of a set of choices for the next ten years. We will have a high inflation, range bound see-saw market for stocks very much like that of the 1970's, which was the worst market for stocks bar none (worse even than the 1930's). High inflation kills real stock returns. Also, regarding gold, several people I'm reading see a fairly modest upside for it beyond $1000 - by that I mean it may triple, but not very far beyond that. Silver however will at least double gold's performance and anyone who thinks that it will fall persistently in a global recession in the 2000's or 2010's, has not done their homework. It is very volatile, but that is a totally different thing to being a weak investment.

There is in my view a very high probability that it will at least double gold's upside from here. Do some homework on where it sits in terms of criticality to global industry, and relative cheapness within the current commodity complex. If Jim Rogers remains as unerringly right on the commodities for the next decade as he's been so far, silver is going to run. So if you have a smaller nest egg and want to get some serious leeway in this commodities bull market, if it were me I'd ignore the protests of my financial adviser and all of my peers, sell all the crappy "defined portfolios" and pile into silver with a serious chunk of the proceeds for a quadruple or better across the next six to eight years. Time to get serious, and aggressive in playing the global advent of Peak Oil and the collapse of Bretton Woods, two very large trends now thoroughly entrenched in our near future. A lot of cautious charlies here will disagree (although I bet Jtabeb and Grapejelly wouldn't).

[GRG55]

Re: So fellow Tulipians, is oil the new gold?

Have we missed something fundamental here? Now that we are at the peak of the "Carbon Age", has oil replaced gold as the ultimate currency? I realize that gold is immutable and infinitely reusable, while oil goes up in smoke. And gold can be worn on fingers and dangled from ears, while oil can't (or at least shouldn't). It just seems like gold is out of fashion these days, while oil is hot.

Have we missed the boat?
Are we approaching a Mad Max world? Should I dump the soft metal and invest in petrol and black leather?

Don't know about oil and gold, but in this age of "peak everything" the view that we are at the peak of the "Carbon Age" could be misplaced.

Carbon taxes are being sold to the public as something "good". So were tobacco taxes. Now that the recipients of tobacco taxes have squandered that windfall...

HEALTH & SCIENCE By Susan J. Landers, AMNews staff. Feb. 17, 2003. Washington -- ...Growing state budget woes are causing more and more legislatures to take this step, shifting their share of the $206 billion master settlement agreement to other needs... Monday . Jun 30, 2008 ...Total state funding for tobacco prevention, $717.2 million, amounts to less than 3 percent of the record $24.9 billion the states will collect this year from the tobacco settlement and tobacco taxes. Just 6.4 percent of this tobacco revenue would fund prevention programs in every state at CDC minimum levels. The amount states are spending on tobacco prevention pales in comparison to the $13.4 billion a year the tobacco companies spend on marketing and the nearly $100 billion in health care bills tobacco use costs the national each year... http://www.tobaccofreekids.org/reports/settlements/

...desperate governments are looking for the next cash cow.

Taxation of carbon, in one form or another, is it. And just as they really don't want to kill smoking because they make too much money from the taxes, they won't really want to discourage carbon usage either.

Now if they could only find a way to exempt drivers, to improve re-election chances...:rolleyes:

[P.S. Her Majesty's Loyal Canadian Opposition, the Liberal Party, just came out with a major policy proposal to tax carbon. Of course drivers of gasoline powered vehicles are exempted. Never, ever underestimate the desire of a politician to get elected, or the cynical lengths they will go through to achieve same].

[bill]

Re: So fellow Tulipians, is oil the new gold?

...desperate governments are looking for the next cash cow.
Taxation of carbon, in one form or another, is it.

The Draft Scoping Plan II, June 2008 discussion draft pursuant to AB 32:

Climate change draft scoping plan
http://www.arb.ca.gov/newsrel/nr062608.htm

Draft Scoping Plan II. Preliminary Recommendation
41
2. Carbon Fees
Carbon fees can play two distinct roles in implementing AB 32. Fees can be used as
a powerful tool to incent emission reductions by affecting the relative prices within
the economy. By making carbon-intensive fuels and GHG-intensive products
relatively expensive compared to low-carbon fuels and low-GHG products, carbon
fees can affect consumption and investment within the economy and reduce GHG
emissions. Fees would also provide a source of revenue to pay for reductions or
achieve other goals related to the program. Both roles for carbon fees are discussed
in this section.
Even if they are not used to manage emissions, fees will be part of the overall AB 32
program in more targeted ways. For example, relatively modest fees similar to the
public goods charge on electricity could be applied to water and to pay for targeted
efficiency programs or other measures aimed at reducing GHG emissions. Targeted
fees are also likely to be included to help pay for implementation of some of the
measures included in the Plan. At a minimum, ARB will develop a fee structure to
pay for administration of the AB 32 program.
ARB is also including evaluation of carbon fees to incent significant emission
reductions in the ongoing evaluations. Such fees would need to be sufficiently high
to change behavior over time and be widely spread across those sectors of the
economy responsible for a large majority of GHG emissions. While some fees could
be levied at emission sources, broader coverage could be achieved using an upstream
approach to cover virtually all GHG emissions from the combustion of natural gas,
petroleum, and coal in California. Other mechanisms could cover sources of
industrial process emissions, high-GWP gases, and electricity imports. In practice,
for GHG emissions from in-state combustion sources, the fees would be levied at key
delivery points for natural gas, gasoline and diesel. For other emissions, the fees
would be levied on industrial process sources, on suppliers of high-GWP gases, and
on imported electricity through a mechanism similar to the first jurisdictional
deliverer approach being considered for the cap-and-trade program.
The level of the fees would need to be set based on economic evaluations identifying
the amount of emission reductions likely to be achieved from different fee levels. To
incent significant reductions, fees would likely need to be set between $10 and $50
per metric ton CO2E. For every $10/metric ton, the fees would increase the wholesale
price of coal-fired electricity by $0.01 per kilowatt-hour, of gasoline by $0.10 per
gallon, and natural gas by $0.05 per therm. While this type of price signal would
have some effect on consumer buying patterns, the larger effect would be on the
investment decisions and fuel choices made by suppliers of goods and services.
Fees could be widely applied to most emissions sources, likely generating billions of
dollars per year in revenue that could be directed toward various purposes, including
programs that achieve GHG emission reductions more directly. Every $10 per ton, if
placed on all emissions of GHGs in California, would result in more than $4 billion
per year through the life of the program.
II. Preliminary Recommendation Draft Scoping Plan
42
The revenue generated through broad or targeted carbon fees could be used to
decrease the costs borne by consumers and to increase the economic, environmental
and public health benefits of the program. Possible uses include providing incentives
for additional reductions, investment in efficiency and renewables, research and
development and deployment of green tech, mitigation of consumer price increases,
or adaptation. Revenue use is discussed in more detail in Section C.
Carbon fees, while supported by a number of interests, have received less attention
during the development of the Draft Plan, in large part because they provide less
certainty in California’s ability to meet specific emission targets, as required under
AB 32. Such a program could also provide a useful transition to a larger regional or
federal system by creating a financial incentive for California companies and
consumers to incorporate GHG emissions into their economic decision making. This
approach could be similar to that recently adopted by British Columbia, which has
imposed a carbon fee that includes provisions for a transition to a future regional capand-
trade system.
Carbon Fees Implementation
Implementing an upstream carbon fee would require the development of a monitoring
and reporting system to track all fossil fuels produced in or imported into California,
as well as fuel exports. The Market Advisory Committee describes what this type of
program would look like for an upstream cap-and-trade program.29 The
administrative details relating to who is regulated would be the same for an upstream
carbon fee or for an upstream cap-and-trade program.
For transportation fuels, ARB would establish a system to monitor the amount of
carbon sold by refiners and importers in the form of gasoline and transport diesel fuel.
Approximately 30 such sources are located in the state (including refiners, importers,
and blenders).
The fees would be levied on all natural gas processing plants, the state’s seven
interstate natural gas pipelines, and pipelines from Mexico. Data on fossil fuel flows
are currently collected by a diverse group of municipal, state, and federal regulatory
agencies, though this information is of varying quality and collected for different
reporting periods. A system would be needed to track imports of coal. Some
industrial sources that have significant process emissions (mainly cement and nitric
acid production) and suppliers of high-GWP gases would also need to be included.
Emission fees for California-bound electricity that is generated by power plants
outside the state would need to be assessed on firms that deliver electricity to the
California power grid. These entities would include independent power marketers
that purchase electricity imports for sale to California utilities, California utilities that
import their electricity from other states, and independent out-of-state electricity

29

Market Advisory Committee. Recommendations for Designing a Greenhouse Gas Cap-and-Trade System for

California. June 2007. http://climatechange.ca.gov/market_advisory_committee/index.html

Draft Scoping Plan II. Preliminary Recommendation
43
generators that sell or contract electricity directly to the California utilities or the
California grid operator.
To provide the needed GHG emission reductions, carbon fees would need to increase
over time. The fees would be set high enough to drive investment and fuel use
choices toward more efficient and lower carbon options. The fee level and rate of
increase would be guided by economic analysis that considers the availability, phasein,
and cost of achievable technologies, and guided by a price structure that would
stimulate changes to lower carbon activities. Carbon fees would be administered by
the ARB, and would be assessed at the same rate per MMTCO2E. A specific fee
schedule would need to be established to define the rate of increase between 2012 and
2020.
ARB would closely monitor emissions reduction progress throughout the program.
The level of the fees might need to be adjusted from the schedule initially adopted by
the Board if emissions reductions are insufficient to support meeting the 2020 target.
Any adjustments to the fee schedule would be undertaken through the regulatory
process and involve public review and input. Because the economic modeling for the
Scoping Plan is still in a preliminary state, no estimates are currently available for the
level of fees that would be needed to meet the AB 32 emissions target for 2020.
The carbon fee and regulatory measures would complement each other. Emissions
and energy use from sectors covered by a carbon fee would also be addressed through
the recommended measures. As sources comply with these measures, affected
entities would reduce their emissions and therefore the amount of the fee they would
need to pay.

[GRG55]

Re: So fellow Tulipians, is oil the new gold?

The Draft Scoping Plan II, June 2008 discussion draft pursuant to AB 32:

Climate change draft scoping plan
http://www.arb.ca.gov/newsrel/nr062608.htm

bill; Brings to mind the following:

• Government "picking winners" Fees can be used as a powerful tool to incent emission reductions by affecting the relative prices within the economy...
• More of those infamous complex models to support "sound" decisions [unemployed quants, here's your next gig] The fee level and rate of increase would be guided by economic analysis that considers the availability, phasein, and cost of achievable technologies, and guided by a price structure that would stimulate changes to lower carbon activities...
• Revenues will be used for "good causes" [same thing we heard about tobacco taxes] Fees would also provide a source of revenue to pay for reductions or achieve other goals related to the program...Fees could be widely applied to most emissions sources, likely generating billions of dollars per year in revenue that could be directed toward various purposes, including programs that achieve GHG emission reductions more directly...
• Big Brother is watching Such fees would need to be sufficiently high to change behavior...
• NND Bubblicious :p The revenue generated through broad or targeted carbon fees could be used to decrease the costs borne by consumers and to increase the economic, environmental and public health benefits of the program. Possible uses include providing incentives for additional reductions, investment in efficiency and renewables, research and development and deployment of green tech, mitigation of consumer price increases, or adaptation.

[Jay]

Re: So fellow Tulipians, is oil the new gold?

I wonder if owning forest land will be used as offsets. PCL bets anyone?

[The Outback Oracle]

Re: So fellow Tulipians, is oil the new gold?

Jay...they got in early here in Aus and confiscated all the trees!!!!! They no longer belong to the person who owns the land!

[Jay]

Re: So fellow Tulipians, is oil the new gold?

Jay...they got in early here in Aus and confiscated all the trees!!!!! They no longer belong to the person who owns the land!

There are trees down under?!

Hee-hee.

[Rajiv]

Re: So fellow Tulipians, is oil the new gold?

I thought this is what Australia looked like! ;)



No wonder they had to confiscate all the trees!

[Guest]

Re: So fellow Tulipians, is oil the new gold?

There are trees down under?! Hee-hee.

No, they import the foliage fully grown, plant it in the soil, and then sit around drinking Aussie beer and watching it die.

I thought this is what Australia looked like! ;)

Hey that's a swank looking truck. Very "suburban looking".

[Jay]

Re: So fellow Tulipians, is oil the new gold?

Hey that's a swank looking truck. Very "suburban looking".

Yeah, but what does it get for gas mileage.;)

[FRED]

Re: So fellow Tulipians, is oil the new gold?

Have we missed something fundamental here? Now that we are at the peak of the "Carbon Age", has oil replaced gold as the ultimate currency? I realize that gold is immutable and infinitely reusable, while oil goes up in smoke. And gold can be worn on fingers and dangled from ears, while oil can't (or at least shouldn't). It just seems like gold is out of fashion these days, while oil is hot.

Have we missed the boat?
Are we approaching a Mad Max world? Should I dump the soft metal and invest in petrol and black leather?

The official iTulip position on oil since 1999 is that oil is the only true money, and that everything else -- gold, fiat currencies, etc. -- are merely proxies for it. Gold is easier to store than oil, so we recommended gold in 2001. The high grade, easily accessed oil is running out, while the paper used to buy it is running out of value. See Energy and Money, March 2006

[Guest]

Re: So fellow Tulipians, is oil the new gold?

Lukester wrote...Actually, what I'm expressing is a latent boredom at work and a frustration that I'm too poor/cheap to buy physical gold, or join iTulip Select and read the good stuff. Just trying to spark some discussion.

Anyhoo, here's where I am.... Most of my money is in a 401k, with limited choices and I've spread my investment over international funds, money market, and a PIMCO bond fund. Is that reasonable?

I've got a smaller Roth IRA, which I moved mostly into gold funds in back in 1999-2000 after reading a quirky little web site that compared tech stocks to flower bulbs (Thanks, EJ! My $10k IRA has grown to nearly $40K without any contributions).

Hyp.

Something to consider: My wife's 401K money was also trapped and there were almost no good choices. Last spring, when I bought oil, gold, commodities etc with my IRA money, I had to settle for a international bond fund with the 401K money, which I rode up 10% before bailing near the top, thankfully. Meanwhile, the IRA money in other asset classes soared up maybe 35%.

Thankfully she left that job and the money was rolled over into an IRA and that money is up another 15% since that happened. If in the 401K it'd be earning 2.5% or so in a money market type fund.

Anyway, my point is that these are not typical economic conditions. At some point you may want to consider borrowing against your 401k and using that money to invest in assets that are actually headed up in value rather than languishing while inflation eats away their buying power. Borrow at 6%, earn at 30% is the idea. If you do think gold or oil or whatever is going to make a nice move up, you might consider it, as even the negative tax consequences are outweighed by the potential return. Just be sure you can make the repayments back to your 401k on schedule.

This is not a strategy I'd employ during normal times, but these are not normal times.