Excellent Post
Terry I had to repost this. I guess this answers my last question about Peak Oil. Ironically I feel the same about the new bull market in energy just like tech was in the 90's. Interesting to know that energy only makes up about 10% of the market cap of the S & P 500. Doesn't energy make the world turn? I thought so. So does money. Any correlation? I Think so. Good Luck.
Interesting long term NG view:
by: joearenagates 12/25/05 10:29 pm
Regardless of fundamentals, investing in stocks is a zero sum game, and as such is a function of supply and demand, and the law of large numbers. Thus, when there is no one left to buy a stock, it ceases to increase in value.
Therefore, UPL can be viewed as a contrarian play in that, outside of the industry, it still trades in relative obscurity. Talk to the average investor, and you will find not only ignorance of UPL and the natgas/ E & P sector, but relatively little knowlege or focus on energy in general.
This phenomenon is also evidenced on Wall St, where the energy sector accounts for less than 10% of the market cap of the S & P 500.
When we are close to a top in energy and UPL, I would surmise that anecdotal evidence of the sector being overowned and overloved will be ubiquitous. How many investors have ever even heard of Hubbert's Peak? Before its all over, you will go to your local tavern and overhear Joe Six Pack not only discussing Peak Oil, but also the relative merits of 5 acre versus 10 acre spacing.
The current stage of the secular bull market is not unlike 1994 in technology, when the average investor thought csco was the food service company. And, before the top, everybody and his brother owned the stock.
Certainly, the lack of a vision on the part of our government to address the looming energy crisis keeps it from the forefront of many investor's consciousness. Moveover, the media is not covering the situation in a manner which is going to alarm anyone regarding how serious an energy crisis we might endure, and at what point a crisis will occur.
Given the dichotomy of opinions that exist regarding peak oil, it is dubious that the masses will come to realize the urgency of our current and future energy needs at any time soon. With Matt Simmons and CERA on opposite ends of the spectrum, many take both views with a grain of salt. Until there is some consensus among the masses, it is hard to imagine any sense of urgency for investors to overweight energy.
In addition, there are some who would opine that a doomsday scenario will occur when the major oil consuming nations on the planet initiate war over the last drop of oil. Obviously, this is so far fetched that it probably will never be on anyone's radar screen until it is too late. (as a side note, this reminds me of the famous quote by Albert Einstein when asked how WW III would be fought. He replied, "I don't know, but WWIV will be fought with sticks and stones)
However, given the potential for an energy Armageddon to occur, and the fact that we will indeed run out of fossil fuels in the future, the potential does exist for some type of parbolic spike to manifest itself. (although it must be asserted that if one pulls up a ten year chart of many energy stocks, they have already started to go parabolic)
Finally, my guess is that when a top is finally near and everyone is overweighted in energy, knowledge of mass psychology and market dynamics will be more important than a knowledge of UPL's fundamentals.
Until then, I am comfortable being overweight UPL until my accountant asks me about trading UPL LEAPS.
Finally, my guess is that when a top is finally near and everyone is overweighted in energy, knowledge of mass psychology and market dynamics will be more important than a knowledge of UPL's fundamentals.
Until then, I am comfortable being overweight UPL until my accountant asks me about trading UPL LEAPS.
