My 1st Million At 33 – yes, you can do it too

Maybe you could have guessed it.

It’s peak oil. I have seen the show on History Channel, and I think the very same topic may be on CNN. When it makes the news, I think we are close to stage 2, or the wave 3 of Elliot wave in energy investment.

What is peak oil? I have blogged about it before, and you can read it in more details here. But to put it in one sentence, it’s world oil production at its peak. It’s NOT running out of oil. At the peak, there are supposedly half of oil left. Plenty supposedly.

So what is the problem? The problem is that world population and therefore oil demand keeps increasing, while the output starts to decrease. When you have a mismatch between supply and demand in a free market, the end result is that the prices will need to adjust. That is what we are seeing today, with oil price at $130 a barrel.

If peak oil is true, which I think it is, we should see $200 a barrel easily, and possibly $300 or above I believe. The gasoline prices at the pump can easily go to $7 or more (at today’s prices). If you adjust prices by inflation, it can go up even more. What do you think it will do to global economy? Energy is obviously the lifeblood of economy. It’s like a tax. The higher the tax, the less economic activities you will get.

The question about peak oil is always about when it will come, but not whether it will come. Oil is a non-renewable energy. We are basically using the fossil fuels accumulated through millions of years ago. It will simply run out one day. According to many people’s estimates, peak oil will not occur in 2050. But for some experts, peak oil has already occurred in 2005. My personal opinion is the same. It is behind us already.

Now, don’t rush out and buy oil & oil stocks. By all indicators, crude oil is way over-bought, and same for many energy stocks. If you are a long term investor, you can simply hold your position. Otherwise, wait for a pullback before you buy.

How should one play this unfolding energy crisis? In fact, the best returns won’t be in energy stocks, but rather in alternative energy stocks. These include solar, wind, nuclear, geothermal, bio, hydro-electric and ocean energy. Within energy sectors, you can also invest in oil, natural gas, coal, clean coal energies. And another area that I think deserves attention is the new technologies in zero-emission cars. In fact, I think these new cars can easily become the Achille’s heel for this “peak oil” phenomenon. It’s always best to straddle both sides of views and make sure that one is unbiased. With more than 60% of the crude oil going towards transportation needs in the US, if the transportation problem is resolved, the crisis derived from peak oil can possibly disappear overnight.

Here are some promising candidates. Especially with the first one (Air-Car), I’m totally impressed.
1. Air Car at 1000 miles per gallon.
2. Electric car from Ford.
3. Chevron owning patent on needed batteries for EV (electric vehicle), and killing the commercial EVs. This is a conspiracy theory. I have not investigated this enough, but it looks like there is some truth in it.

On one hand, the hard-core peak oil theorists see that peak oil signals the decline of human civilization. On the other hand, if the above technologies come online soon enough, the optimistic technologists believe that human innovation always triumphs. I don’t know how exactly things will turn out. But it is apparent to me that the technologies are not coming fast enough. There will be some economic chaos due to very high crude oil prices. And investing in alternative energies will probably be a winning bet whichever scenario it turns out to be.

Of course, the farther out you go out from oil, the higher volatility you will suffer. Just be prepared for the wild ride.