Last year, I wrote about 3 Unconventional Investment Moves to Make in 2011. This was a look at a few unconventional investment moves that went against the grain of common wisdom at the time. When the herd is running in one direction, it might be for a good reason, but sometimes, there are benefits to running in the opposite direction and this is where the real gains can be made.
Did this hold true for the 3 unconventional investment moves of 2011? Let’s take a look and see how these investments did.
Conventional wisdom holds that there is a glut of natural gas, with too much supply and not enough demand to meet this supply. Natural gas is not as easy to transport or convert as other fuel sources, so bringing it to the places where there would be demand is also more difficult.
It’s true that there is a glut in natural gas, but on the other hand, oil and derivate products have become a lot more expensive over the past few years. Natural gas would be a great alternative energy source for electricity generation, and one that can be easily exploited starting today. This glut simply looks like an opportunity in the making and a great chance to get in at a low price.
Natural gas prices were $4.73/GJ in January 2011, and are $3.76/GJ this month, down about 20%. Environmental protests have slowed down the exploitation of natural gas sources (though perhaps the environmentalists don’t realize that this would help us to reduce reliance on coal, a dirtier fossil fuel), and ongoing debt crises and excessive government intrusion have slowed down the economic recovery. If there is an opportunity here, 2011 was not the year for it.
Winner: Conventional wisdom.
The U.S. Dollar
Everyone knows that the U.S. debt is unsustainable and that at some point, some time, the value of the dollar is going to have to drop precipitously in order for the U.S. to meet all of its future funding obligations, in nominal terms. The only alternative is for the U.S. government to renege on its promises and legislate a different set of promises for the future generation. Which is easier? Devalue the dollar so that the promises can still be met in nominal terms, or start a political firestorm by reopening the debate on medicare, social security, etc…?
The U.S. debt may be unsustainable in the long-term, but this is a trend that is still in the making, and the U.S. dollar is still the lingua franca of the world economy. Money also floods into the U.S. dollar due to short-term disruptions, such as the ongoing debt crises in Europe and turbulent equity markets. It’s possible for the dollar to get oversold in the short term due to excessively negative investor sentiment, leading to a buying opportunity.
The U.S dollar index was around 80 at the start of the year, and around 79 at the start of last year. However, we saw the index dip below 75 at times, which would have presented better buying opportunities. The U.S. dollar may plummet eventually, but 2011 wasn’t the year for that to happen.
Winner: Contrarian viewpoint.
GLD and SLV ETFs
It’s actually hard to say what conventional wisdom should be here. Gold is not usually looked at kindly by the mainstream, but when I wrote the article last year, conventional wisdom at the time seemed like gold prices had nowhere to go but up, and that now was a good time to get in before fiat currencies went to hell and it was too late.
For a contrarian viewpoint, I suggested that it might be better to short the GLD and SLV ETFs. Physical gold and silver themselves may be going up, but how do we know for sure just how much actual gold and silver are owned by investors via these ETFs?
GLD rose from about 130 to 152, and SLV stayed roughly around 27. Silver did run up in a big bubble in the middle of the year, which burst rather quickly as well. Shorting from that bubble would have been a good idea, but it’s a wash from year beginning to year end. Shorting GLD from its own peak in August would have likewise been a good move, but shorting would have cost you money from year beginning to year end.
If GLD and SLV are flies in search of a windshield, then they did a pretty good job of avoiding all of the cars in 2011.
Winner: Conventional wisdom.
Reader, what are your thoughts on these unconventional investing ideas, and do you think that circumstances might change in the future? What do you think are the most unconventional investments for 2012?
Disclaimer: This post is for entertainment purposes only and is not to be taken as investment advice. Do your own due diligence and talk to your financial advisor or security professional before making any trade. I got creamed in TSE:PMT, but I still have that small position. I also hold some physical bullion and a few U.S. dollars around somewhere.