Thursday, November 01, 2012

Investors Look to Commodities for Yields and Safe Havens

Conventional investments in European and US bonds do not provide much of a yield these days. Investors might be forgiven for looking elsewhere in search of safe yields. Commodities are often considered a "no-lose" proposition, given growth in emerging nations over the past decade or two.

Crude oil has long been the darling of the commodity- shortage crowd, and when its price rose to $145 per barrel in July 2008, many became convinced that the world would soon run out of oil.

This “peak oil” crowd was sure that no big economically feasible oil fields remained to be found, so new finds would continue to fall short of demand increases. What they discounted is that reserves are often underestimated because oil fields produce more than original conservative estimates. Nor did they expect significant substitution for petroleum from conventional and shale natural gas, liquefied natural gas, the oil sands in Canada, heavy oil in Venezuela and elsewhere, oil shale, coal, hydroelectric power, nuclear energy, wind, geothermic, solar, tidal, ethanol and biomass energy, and fuel cells.

Yet human ingenuity and substitutes have always overcome shortages quickly. New extracting techniques cut the cost of mineral production. Caterpillar Inc. (CAT) recently introduced a mining shovel that lifts 120 tons, the equivalent of five pickup trucks. Joy Global Inc.’s new entry is even bigger, 135 tons.

Agricultural productivity increases as nations develop better seeds and fertilizers to be used on larger fields with efficient mechanized equipment. Improved breeding and veterinarian care reduce the cost of producing meat. The advent of plentiful natural gas from shale, the collapse in U.S. prices, and new crude oil finds have shattered the theory of a near-peak in global energy output. _A Gary Schilling
The Peak Oil belief in perpetual oil shortages was put to the test in the summer of 2008 and found wanting. Millions of investors lost huge portions of their portfolios and life savings, losing that wager. You might think that people would learn from that rapid bust.

In science, when predictions fail, theories must be revisited and often overhauled or rejected outright. In mass movements such as religions and the Peak Oil movement, when predictions fail believers often double down on their beliefs.

But life is full of surprises. And since "chance favours the prepared mind," if the mind accepts uncertainty and learns to deal with it, the owner of that mind will be in a better position to adapt and prosper.

A firm belief in doom is simply one manifestation of a clinging for life to certainty in a tormented sea of uncertainty. For those unwilling to subject their beliefs to a constant and merciless criticism and test, the future will be less kind.

Everyone needs a reason to get up in the morning and do the things that have to be done. Most people do these things for their families, or for their self-respect. But many require a sense of "deeper purpose" in life, in order to go on with things. This is typical for members of mass quasi-religious movements such as peak oil.

More: A better way to find your purpose.

Remember: Peak oil websites and similar sites are simply online mausoleums where weak minds go to zombify. If you want your mind to come alive to the possibilities, you will seek out new mind-stretching and innovative ideas.



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