How Capital Waves Are Creating the Biggest Profit Opportunities in Today’s Markets
Back when oil was trading at a record high of $145 a barrel – and was generally expected to go higher – I concluded that the forces at play were speculative, not fundamental – driven by new institutional money looking to diversify away from too many concentrated equity bets. I argued these forces were temporary, and not entrenched, meaning that oil prices were actually headed for a fall.
The "forces" I was referring to are called "capital waves." Capital waves create some of the biggest trading opportunities in the markets today. Investors who are able to spot capital waves and identify their likely impact have a huge advantage over those who don’t.
With oil, for instance, pundits were calling for new highs of $200, $250, $300 and even $500 a barrel. But behind the curtain, there was a major capital wave at play: I knew that oil was being pumped out of the ground like mad, and that shipping rates were exploding because oil was being stored in offshore, idled tankers. I knew that as little as $20 billion had been "re-allocated" out of the equity markets and into this new-asset-class investment for pension fund accounts.
As a speculative frenzy seemed to be enveloping the oil market, I called for oil prices to plummet – to more than a few looks of incredulity or outright guffaws.
When the secondary capital waves took hold, the speculative advance in oil prices first stalled – and then oil prices plunged as capital exited in another wave.
Don’t feel bad if you missed this opportunity. That’s the important thing to remember about capital waves – they’re out there if you know where to look and how to interpret them. In fact, as good as this oil play was, I see even better opportunities ahead.
Are Coal Prices Ready to Burn Hot in 2010?
For most of the past 50 years, since the birth of environmental awareness, coal has been the "black sheep" of the power-production family. Now, thanks to more efficient furnaces, better exhaust-scrubbing systems and other technological advances, coal is regaining favor in the world’s energy markets.
However, the biggest factor in coal’s recent price surge is steadily increasing demand for the fossil fuel in power generation and steel-making process, abetted by rising costs for other types of fuel, like oil and natural gas.
The question for investors, of course, is will this rising demand continue – and how can you profit if it does?
The answer to the first part of that question is almost certainly, "yes," but solving the second part is a little trickier.
Oil Prices on the Rise as OPEC Holds Production Steady
Oil prices yesterday (Wednesday) rose $1.23, or 1.5%, to close at a two-month high of $82.93 on the New York Mercantile Exchange (NYMEX) a fter the Organization of Petroleum Exporting Countries opted to keep its production quotas in place.
However, it may not be much longer before prices take off again, possibly hitting $100 a barrel by the end of the year.
Current prices are "beautiful," Saudi Arabian Oil Minister Ali al-Naimi told reporters before OPEC’s meeting.
"The producer is looking at this price, the consumer is looking at the price, the investor is looking at the price, and everybody is saying this is great," he said.
OPEC, which supplies about 40% of the world’s oil, set its official cap at 24.845 million barrels per day (bpd) in December 2008 and has kept it there for five straight meetings. In that time oil prices have more than doubled.
Click here for audio and video featuring your favorite Money Morning contributors.
RSS