Positive on Oil, Precious Metals and Loonie and Oz dollars.

Is this the year for a major rebound in oil? Maybe or maybe not. But remember this. As precipitous as oil can fall as it has in the last year or so, it can go up almost back to the higher levels as well as “correlated” currencies. And gold has lost enough in US dollar terms over the years partly due to the now overvalued dollar.

What we now see is by the vast storage of oil that there is increasingly no where to store it and will be so on a reasonable price basis at some junction.

Revenue challenged and pressurized oil companies do not wish to make capital investments so much these days to store anymore than they have so as to maintain oil well proper pressure.

As we can see with shale and increasingly with oil sands production, even the current prices for these are not sustainable on the near which means they will provide less and less competitive pressures in the overall market months to a year down the line.

As well, defensive oil companies at the moment will not go on a buying spree buying up financially faltering small or even larger shale oil producers and certainly not high cost oil sands.

This does not mean that I am saying oil prices will return to the previous high normalcy plus 70 to a 100 US dollar a barrel. But within this year as many investment banks are pointing out or within a few years as my lesser optimistic scenario, oil will make a significant recovery. And when it does, this could create profits for the smart investor

First smashed down major oil companies or at least a good number of them and particularly the juniors and as well as service company shares are leveraged for healthy double digit returns and eventually in some cases a nice expansion of dividends.

Those juniors decimated but with good management, sound market position for their product and showing they can fight against plummeting prices are good medium to longer term bets, one could well argue. Solid research will find them over and above whatever algorithms Goldman Sachs uses.

Next are the badly beaten down partially oil price related developed country currencies. I am thinking especially of the Australian and Canadian dollats.

Those who like more risk can play other oil “correlated” currencies such as ones tied to Brazil, Malaysia, Indonesia, Russia, Mexico etc. Most of these have been way excessively battered but some are still very much open to geopolitical risk.

This is where gold comes in which appears on a bit of a rebound. Once Arab Gulf states get more US dollars into their reserves from more decent oil prices, they will have to put them somewhere beyond US treasuries. Not all of it will go into property but more may go to gold as predictably, what goes up must go down but so is the reverse and I am talking of the US dollar. That will also help support gold prices.

Here is the kicker. All those shale oil plays that will financially collapse due to such low oil prices may not have their production disappear forever.

Their decimated assets will be held by banks and repackaged for private equity and the broader market. Given the brilliant US oil production and service know how including the Brits, some of these will have their lost production come back in almost no time.

Then there is the fact that continental and and Alaskan US producers can export their oil almost everywhere, a new rule on the block that has not been fully calculated for longer term oil pricing.

I worked under a contractor for BP in Azerbijan and was exposed to the very high quality of trainers of the US- European multi nationals and even beyond oil.

These technically sophisticated giants – yes, even in light of bad environmental performance in some instances- will go back into shale given their enormous financial resources and cheapness of shale company shares combined with huge technical and ever growing innovations to reduce cost and efficiency of extraction.

And if they do not, vulture capitalist and private equity will or can when they see increasingly the profit generation possibilities. Look at how Black Rock massively bought up depressed housing real estate and made huge amounts of money.

Buy low, sell high applied to the shale industry which should at least experience a rebound in years ahead. Patient and savvy investors need to keep this in mind would be a reasonable view.

However, those who invest in emerging market oil in hope of a rebound must worry about geopolitical events and domestic politics more. Thus gold and other hedges are not so bad to have and are continually recommended by some top investors and ensuring portfolios having no more than five percent in gold. Again, this depends on the risk profile and goals of the specific investor.

Final thoughts that predictably savvy investor might state: I think serious top investors would want safety but more opportunity.

Buy into major and solid multinational oil companies particularly the ones with more sustainable policies and quality. This involves the likes of BP and Exxon. Buy into the better service companies such as Halliburton.

And buy Australian and Canadian currencies and avoid loan denominations in these currencies if US dollars are your end goal or euros. Many still like the Swiss franc as a hedge but is not as attractive as past decades when the central bank had tighter monetary policies. These Swiss officials must be careful how much they talk the franc down given the huge losses they have encouraged at the central bank with such policies.

On the riskier front, some might suggest now is getting to be a good time to buy Brazilian, Indonesian, Malaysian and Mexican and Russian currencies.

And on a even riskier front buy into their stock markets on a selective basis including major size to medium quality oil production. Great, great care must be taken here with smart hedge strategies.

Part of such strategies and because of technicals is to buy gold especially the real stuff from dealers like mints and bullion banks. But study the fees to see what deals you are getting especially for smaller retailer types. Bank fees can be monstrous but at least you know you are much more likely getting the real stuff and they can provide depositary facilities.

I believe given the energy efficiency of oil when you look at how many btus it can generate per dollar, it will be very very hard to replace in a significant way in even decades to come.

Am I happy about this as a conservative environmentalist that gave a happy sh’t kicking to the Canadian forest industry decades ago for having an atrocious environmental performance -absolutely not.

And I am certainly not happy with what BP did in the Gulf of Mexico but can tell you from working for them that they are now safety maniacs giving “red” cards for not holding onto handrails in office buildings.

They in many cases are moving into gas with a softer carbon print and would have further moved into alternative energies if they had not lost so much money in it or made so comparatively little in some cases. Clearly in my view and other conservatives like the late great Peter Lougheed, premier of Alberta, the Harper government was too ambitious about expansion of the oil sands.

Let’s face it Russian and Arab Gulf oil are environmentally cleaner overall and will be also needed for this reason whatever you think of the politics there. Their production is huge and cheap, too. (I lived in those countries for years and well survived them by the way.)

In summary a solid recommendation from serious investors is now to begin buying back into oil and gold and other precious metals and Aussie and Canadian dollars. The operative words are beginning, careful and hedging. So there it is. Enough said.

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