I’m a little past due but it’s time to do a mid year portfolio check up. TheMoneyWriters came up with the idea of doing a portfolio update to see how we are all doing thus far. Honestly, I would be surprised to see anyone with any significant portfolio growth at this point in 2008

Non-Reg Account:

This account is difficult to track as most of the cash was withdrawn to increase the down payment for the house that we built. Ideally, I should liquidate the whole account, but I’m waiting for some of the securities to increase in value. Stubborn, I know.

This account consists of cash and individual securities.

• Started year with: $45,200
• Withdrawn for down payment: $24,300
• Value after withdrawal: $20,900
• Current Value: $19,200
• Gain (loss): -8.1%

Smith Manoeuvre Portfolio

If you’ve been following, I have been posting a monthly update to my leveraged investment account.  If you’re interested in the contents of this account, check out my latest smith manoeuvre portfolio. Since that update however, I have initiated an energy position in my portfolio.

• Started with: $50,000
• Interest Cost: $575
• Total Capital: $50,575
• Current Value: $49,475
• Gain (loss): -2.1%

Our RRSP Account

Our RRSP accounts consist of a self directed account with a major bank, a mutual funds account with the same bank along with a self directed RRSP account for my wife. With the Canadian markets just below breaking even so far this year, our RRSP accounts have been resilient with a small return.

The contents of our RRSP accounts are all over the place. A large portion are individual stock picks and a smaller portion are globally indexed via mutual funds. Moving forward, I will be looking to increase our indexed allocation.

Here are the details:

• Started 2007 with balance: $48,300
• Contributions thus far in 2008: $6,700
• Current Value: $56,200
• Organic Value (value before contributions): $49,500
• Gain (loss): +2.42%

Overall Portfolio Performance:

• Initial Capital: $119,775
• Current Value: $118,175
• Gain (loss): -1.35%

It seems that the big declines in the Canadian and U.S markets have resulted in a small loss in my portfolio thus far in 2008. How has your portfolio been performing this year?

Here are some investment portfolio numbers for the rest of TheMoneyWriters:

• Lazy Man and Money -7.22%
  
• The Digerati Life -7.3%
• My Dollar Plan -7.8%
• Brip Blap -9.85%
  
• The Sun’s Financial Diary -12.2%
• Generation X Finance -13.32%
• Money Smart Life

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A quick reminder that today @ 5pm EST is the deadline to enter in The Answer - book giveaway.

The Restaurant Blogger writes about some memorable customers, good and bad!

Generation X Finance writes about Top 12 Money Mistakes Most People Make.

Canadian Dream explains why government bailouts don’t work.

Lazy Man and Money has a great article that explains How to Save on Gas (35 Tips Inside). Here are some of my tips on how to save gas.

Canadian Capitalist asks (and answers) how large is the Canadian bond market?

The Digerati Life shows us that Stock Market Diversification Works! The Proof.

The Sun’s Financial Diary has a short video clip that gives us A Taste of China.

Brip Blap tells us that work-life balance is a false choice.

Money Smart Life has a primer on exchange traded funds.

My Dollar Plan gives us 4 Things to Consider When Picking the Right Investments.

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This is a guest post from Ed Rempel (CFP and CMA).  For those of you joining us recently, Ed has written a number of controversial articles for MDJ in the past.  Today’s article is a continuation from yesterdays post with a counter argument that it’s not peak oil but an oil bubble..  Make sure to participate in the poll at the end.

In his 1998 book, “The Roaring 2002’s”, demographics expert Harry Dent predicted that the large block of baby boomers in their peak earning years would cause one financial bubble after another. Since then, we had the tech bubble, a real estate bubble in the US, nearly an income trust bubble in Canada, Chinese stock market bubble, and now what looks like an oil and resources bubble.

Just like the unlimited potential of the internet that led to the tech bubble, there are real explanations for oil’s rise, but they do not explain a price increase from $10 to $145/barrel.

Arguments in favour of a Oil Bubble

1. Index futures for oil and resources have been created in the last couple of years and have resulted in massive speculation that has driven much of the oil price rise. Many institutional investors are allocating a portion of their assets to commodities primarily through the futures market, which has created incremental “investment demand”. Commodity index futures are about 80% oil. Because of the comparatively high price inelasticity of both oil supply and demand, relatively small disruptions in supply or increments in demand can have outsized effects on price.

According to a May 19, 2008 report titled “Blame It on Your Pension Fund” from Probability Analytics Research in Chicago, open interest in the West Texas Intermediate (WTI) crude and Brent Crude oil contracts traded have more than tripled over the last 5 years, rising by 1.3 million. At 1,000 barrels per contract, this represents incremental demand of 1.3 billion barrels of oil, or about 53% of the increase in world oil “consumption” over that period. Index speculators would not necessarily have accounted for all of that increase in open interest, but Michael Masters (Masters Capital Management), in testimony before a Senate subcommittee on May 20, 2008, estimated that over the last 5 years, index speculators through the futures market increased their net exposure to petroleum products by the equivalent of 848 million barrels of oil, an impact roughly equivalent to the 920 million barrel increase in demand from China over that period.

In a tight market for physical oil, how large a price impact could the incremental investment demand from commodity indexers have had? Probability Analytics Research estimated the equilibrium oil price without investment demand is $60-75 per barrel, with investment demand adding roughly $60 to the price of oil.

2. Demand is not out-pacing supply. In the last 12 months, world oil demand is up only 2%, while supply is up 2.5%. Meanwhile, the price has nearly doubled. How can this be anything other than pure speculation?

3. Most oil experts assume the proper oil price should be between $60-90/barrel. Almost all oil analysts assume a price of $80-90/barrel when valuing oil company shares. The $60-70 range is often quoted by Saudi Arabian oil minister Ali Al-Naimi as being a realistic price for oil, since that is the marginal cost of production for alternative energy sources. In fact, OPEC, which controls 40% of the world’s oil, states that there is “no justification for oil above $80/barrel” and that “fundamentals do not support a price above $80/barrel”.

4. Anecdotal evidence is that the long-awaited demand reductions resulting from high oil prices may have begun. The widely-used quote is: “The cure for $145 oil is $145 oil.” Airlines—choking on $4 per gallon jet fuel prices—are slashing capacity. Sales of gas-guzzling SUVs and light trucks are collapsing in the U.S., while small cars and hybrids are flying off the lot. Public transportation use is increasing. Many are changing jobs to be closer to home, or moving closer to their job. Oil demand is starting to drop off throughout the OECD. Demand responses take time, but we may have reached a tipping point. Gary Becker, an economist at the University of Chicago, has calculated that in the past, over periods of less than 5 years, oil consumption in the OECD dropped by only 2% to 9% when oil prices doubled. But over longer periods, consumption dropped by 60%.

5. Oil supply increases may be on the way. Six years is not a long time in the context of the time it takes to develop an oil field. The last doubling of oil prices has occurred in the last year or so. No supply response over that time frame could have been reasonably expected. The largest new field for years was just discovered in Brazil and is estimated to contain 5-8 billion barrels.

6. Huge amounts of oil are thought to exist off-shore. George Bush just lifted an executive ban that has existed since 1990 on off-shore oil drilling. If the legislative ban is also lifted, then off-shore drilling can finally start. Drilling is banned in many other regions rich with oil or gas resources due to long-term energy strategies and environmental concerns.

7. Oil-producing countries do not necessarily have the incentive to increase production as rapidly as oil-consuming nations may want. They may believe that they will maximize the long-term value of their oil reserves by developing them more slowly.

8. Oil price subsidies in many countries will become increasingly difficult to maintain. Higher gas prices in these countries would result in lower demand. The latest jump in oil prices is making subsidies much more costly, and strains on governmental budgets are forcing some nations to lift subsidies. On May 24, Indonesia raised fuel prices by +30%, followed shortly by Taiwan (+13%) and Sri Lanka (+24%). China has just recently increased its gas prices, since the subsidies that amounted to about 1% of GDP.

9. Many European geologists, especially in Russia, still believe in the abiogenic theory. Oil is widely considered to be a fossil fuel in the West, but this belief is far from unanimous world-wide. The abiogenic theory states that oil is created by carbon released by microbes that migrates upward from the earth’s mantle. It has been popularized in the West recently by Thomas Gold, professor at Cornell University. If it is correct, then not only can oil be continuously created, but there may be far more oil in the earth than most believe. Oil companies have not drilled in areas most likely to contain abiogenic oil. Most geologists consider oil to be a fossil fuel, but the abiogenic theory has not been proven false.

10. Governments have not responded with official policies and have not officially expressed concern. Peak Oil has been discussed endlessly in the press and in the financial industry. Governments must know what is going on and are not concerned.

11. Alternative fuel sources will reduce our need for oil. Humans are adaptive. There are many fuel sources available now and high oil prices will make alternative sources much more viable.

12. Peak Oil is being a marketed. Most of the strongest proponents of Peak Oil are in the investment industry working for companies that have made huge amounts of money from rising oil prices.

13. Many oil industry insiders believe this is a bubble. Those that believe this is a bubble include OPEC, Saudi Arabian oil minister Ali Al-Naimi, Richard Rainwater (Texas oil billionaire), and George Soros (legendary hedge fund manager).

What is your opinion?

Many readers of MDJ are well-read in many issues, so your opinions here would be very interesting. What is your opinion? Which are we currently witnessing?

A. The beginning of Peak Oil.

B. An oil bubble.

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