For those out looking for the best oil proxy…it seems like the Holy Grail. Likely because it is – think about it, you can’t buy oil, without having to pay to store it. Anyway, this pdf should help, in your hunt/decision making/trading.
Keep in mind that PDF is written by the guys that want you to buy their Macro Shares – and those have discount/premium issues as the shares move on supply and demand themselves, which of course they don’t mention. And I laugh at how treasury exposure is treated like an upside somehow. Those funds are going to get ruined when the treasury bubble inevitably implodes on itself. Unless they’ve done something about it, maybe they have, because the correlation between the macro shares and TLT seems to be fading. DBO – my favorite so far, isn’t in the document. I need to figure out, exactly what DBO is doing, right now (not what they were doing when the fund started).
A take away -> Any ETF could have treasury exposure, depending on how they track their various indexes, and what they do with spare cash. Anybody using swaps or other contracts to provide the NAV of their ETF, could literally be boiled down to a simple pile of cash/treasuries AND a pile of contracts. Likely many ETFs are holding cash now, rather than using creation money to buy treasuries – as the people that run these aren’t dumb.
BTW, my new favorite blogger, is Gregor. You can put me firmly in the camp that says oil is going to 3 digits, even if it hits the 20’s first. Especially if it hits the 20’s. Or at least back to a demand destructing level. I know things are shitty out there, I’m staying optimistic ITS A CYCLE and so what we’re seeing in oil’s price action is a summation of more than just falling off demand. We’re seeing: 1. Deflationists who are shorting. 2. Falling Demand (duh!) 3/4. Supply Dumping/Panic. 5. De-leveraging. 6. Momentum traders who are short.
All of these, are temporary, and killing supply projects. The longer it stays low + the lower it goes, the more violent and awesome the upside will be, since cheap oil price is the the best stimulus package the world can have right now. Can’t get that effect in any stock.
If you’ve followed me, you know I rarely buy plain vanilla, I think the oil upside, warrants it. So I have tucked away a few (and will hold even if they go to zero) $70 2011 strikes on USO.