Out at the peak

Saturday, January 14, 2006

Energy, Iran, and Euro scare

Historically, energy will soar right before a recession (which we are in, but it can't be reported yet) and then taper off. However, more and more of the world is becoming reliant on energy so a demand basis should increase in some proportion to civilized populations. Imposed costs could force consumers to use less heat/cooling as well as more efficient transportation costs. In effect luxury demand could drop. I am hopeful for renewable energy to take place of traditional energy, but places like China are so behind in this movement.

I cannot foresee an event where demand drops low enough to ease supply channels. If demand does drop, the price will drop and governments will stock reserves. Plus consumers might feel free to use more of their heating/cooling or gas guzzling SUV as prices are reasonable again. Energy companies get to push supply in either case.

Iran (second largest OPEC oil supplier) is getting reported to the UN because of uranium refinement, and sanctions could be imposed. This would hurt many and demand will outstrip supply and non-Iran energy companies will profit nicely. It would hurt Euro's potential if PetroEuro trade does not happen. The Iran vs USA's Shadow Government wildcard really makes the outlook cloudy. This could cause a crisis that hurts everyone. China would be mad as they heavily rely on Iran supply. Do we want to upset China too? China could threaten to stop USD purchases, but that'd hurt their current holdings.

In any case, I am confident in my PVX and FDG positions. I expect the 10% and 15% dividends to continue for the foreseeable future. The question is: will I get scared out of my earlier Euro position?


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