The Oil Factor: How Oil Controls the Economy and Your Financial Future

Rating:
Summary: Great Book, But Misses One Largre Factor
Review:
This was a great read and makes some compelling arguments on how oil prices will shape our economy over the next ten years. While I agree with the authors, they forget to mention the key role that outsourcing will have on our economy and inflation over the next ten years. In a global economy, where labor can be bought cheap, companies are able to offer products for lower prices since they are not paying as much for labor.

With this said, I do highly recommend this book.

Rating:
Summary: Unevenly assembled concept; much practical investing advice
Review: "The Oil Factor" is a comprehensive and practical investing book disguised in a misleading title. The book is best described as a very lengthy investment newsletter that describes how to use the price of oil to time major investment decisions.

For a book with the word "oil" in the title, you expect discussion of concepts such as Hubbert's Peak and the state of current oil production. Mr. and Mrs. Leeb do not disappoint and present these topics in a way that is palatable to the uninitiated. However, this is not the main focus of the book.

The main focus of the book is the use of a market timing indicator that they call "the Oil Factor". They describe a way to use the price of oil to predict the direction of the US economy and thus the direction of US stocks. The premise is that all economic activity in the US involves energy and the principle energy source is oil. It is an interesting idea and they have a decent amount of back-tested results to show how utilizing the Oil Factor to switch between the S&P 500 index and Treasuries would have resulted in a doubling of your returns in the tested time period. This indicator is surprisingly simple and can be easily calculated and monitored by anyone. It is so simple, that it occupies only a single chapter to describe in full.

The bulk of the book is subsequently used to present the case that the economy is in for hard times and investing strategies that will help you prosper. A surprisingly thorough treatment of the entire US Economy is presented. The book is an unexpectedly excellent summary of the bear's case for the next decade. The recommendations are surprisingly specific. Mr. and Mrs. Leeb name specific companies, believing strongly that their recommendations will stand the test of time that is demanded of books but not demanded of magazines and newsletters. Complete model portfolios are presented. They describe a model inflation portfolio for when the Oil Factor swings in one direction and a model deflation portfolio for when the Oil Factor swings in the opposite direction.

The highly specific and pragmatic nature of the book will surely be a breath of fresh air for those accustomed to theoretical treatments, but very serious flaws of construction undermine the main thesis of the book.

The first is that the Oil Factor is yet another simple mechanical method perfected through data mining. That is, they found something that correlates with market performance and have made the assumption that what worked over the past 30 years should work into the next decade. Suffice to say that out of countless models invented over the past century that utilize simple rules to outperform the market, none has ever stood the test of time. Some may remember the once popular "Dogs of the Dow", one of the more recent demonstrations of such a failure. I see no reason why the Oil Factor should survive and in fact see many reasons why it should fail. For example, the back-tested strategy uses only the past 30 years. The past 30 years excludes an enormously crucial factor clearly visible into the future: China. Strangely enough, Mr. and Mrs. Leeb discuss the enormous impact that industrializing China will have on the world's oil supplies, but neglect to discuss how this might influence the reliability of the Oil Factor, which has never seen a nation of 1 billion people pushing into the industrial age.

A second serious flaw is that even if you accept the premise of the Oil Factor as a method of switching between stocks and cash, the authors then go on to argue that you should not use the Oil Factor to switch between stocks and cash, but rather to switch between an inflation portfolio and a deflation portfolio. They do not bother to backtest this strategy, but present only forward-looking fundamental arguments of why this should work in the future. It is a flaw stacked on top of a flaw.

In summary the book is a poorly unified in concept. It should be noted, however, that the proposed deflation portfolio and inflation portfolio are excellent. Few people have arranged diverse asset classes under these banners. This alone makes the book worthwhile. If you believe that we are headed for inflationary or deflationary times, you may want to buy this book and skip to the last few chapters to find out what to buy.


Rating:
Summary: What will you do when the inflation comes?
Review: "The Oil Factor" is an economic analysis of two parts.

Part 1 evaluates the effect of oil costs upon economic conditions. This analysis has determined that US economy has been a benefactor of low-cost energy, and thus has literally had the fuel for growth.

However, due to the effects of worldwide supply peaking in 2010+/-10, coupled with quickly rising demand (especially from China), the price of oil will soon start on a long uptrend that will create an inflationary cycle possibly a lot worse than the 1970s period.

Part 2 evaluates the effect that an inflationary cycle will have on asset valuations. The authors describe why this cycle will have the effect of driving down equity P/E ratios (from lower profits - the authors detail the reaons for this change). However, they also describe exactly what asset valuations will actually benefit from these changes, and offer specific recommendations of how, why, and when to adjust asset allocations.

The main component for the economic evaluation, and resulting asset protection mechanism is a formula that the authors call "the oil indicator". This indicator is intended to provide a simple and clear "positive signal" or "negative signal", and certain assets should be re-allocated at the time these indicators signal future economic results.

I believe that these authors are absolutely correct on the economics of oil, especially as to future dramatic price rises and the results of high inflation. Also, the resulting investment advice is soundly backed by economic and political analyses.

This book is an easy read, and not technically based. If you are
looking for the statistics underlying the economic analysis of oil you will not find it in this book. Rather, the authors are presenting the big picture of finished analysis.

Investors are strongly advised to read and retain this volume.

Rating:
Summary: The Oil Factor is an eye opener. It is a must read for all.
Review: "The Oil Factor" is the best, most informative, investment book I have ever read. It's both frightening and encouraging but most of all I feel it is entirely truthful and accurate. It's frightening because it has convinced me that the world is probably going to be in the middle of a major energy crisis much sooner than anyone is talking about. As it explains, rising oil prices can lead to either inflation or deflation - it depends on how fast prices rise. But it's encouraging because it tells you how to prepare for each different scenario and how you can make money and protect your assets no matter what happens. It's really well researched and well written and it tells you what you need to know, without wasting words or time on unimportant matters.

Rating:
Summary: What will you do when the inflation comes?
Review: "The Oil Factor" is an economic analysis of two parts.

Part 1 evaluates the effect of oil costs upon economic conditions. This analysis has determined that US economy has been a benefactor of low-cost energy, and thus has literally had the fuel for growth.

However, due to the effects of worldwide supply peaking in 2010+/-10, coupled with quickly rising demand (especially from China), the price of oil will soon start on a long uptrend that will create an inflationary cycle possibly a lot worse than the 1970s period.

Part 2 evaluates the effect that an inflationary cycle will have on asset valuations. The authors describe why this cycle will have the effect of driving down equity P/E ratios (from lower profits - the authors detail the reaons for this change). However, they also describe exactly what asset valuations will actually benefit from these changes, and offer specific recommendations of how, why, and when to adjust asset allocations.

The main component for the economic evaluation, and resulting asset protection mechanism is a formula that the authors call "the oil indicator". This indicator is intended to provide a simple and clear "positive signal" or "negative signal", and certain assets should be re-allocated at the time these indicators signal future economic results.

I believe that these authors are absolutely correct on the economics of oil, especially as to future dramatic price rises and the results of high inflation. Also, the resulting investment advice is soundly backed by economic and political analyses.

This book is an easy read, and not technically based. If you are
looking for the statistics underlying the economic analysis of oil you will not find it in this book. Rather, the authors are presenting the big picture of finished analysis.

Investors are strongly advised to read and retain this volume.

Rating:
Summary: Reader from nowhere is an ostrich
Review: (...)Not fiction, but fact. We're using far more oil than we're discovering. Production is increasing, but discoveries have trickled off to almost nothing.

Now, you tell me, just how in hell do you think we're gonna support a population of 6 billion plus when oil discoveries have trailed away? Tell me, I'm curious.

There's no more oil to find, my friend, and when production declines begin--anytime after right now, actually--I hope you have a good solid hole to climb down into...you seem to already, to judge from your ignorance.

You think we'll be flying airplanes on solar power? Drive cars on coal? Running electrical grids with wind-power? If not, where exactly is the energy gonna come from? You tell me.

The population of this planet is *well* into overshoot even by optimistic calculations. You know how fast the dieoff will happen once the oil begins its decline to zero? Maybe you don't want to know, hence your denial.

5-10 years from now will tell who's right. Frankly, I wish you were right. But I know you're not. Get a clue and do a little reading in basic geology. And on sustainability. And on evolutionary biology.(...)

Rating:
Summary: Great big picture advice for your portfolio and politicians
Review: A few years ago I read the Leebs' book "Defying the Market." As a result I saved myself a ton of money by getting out of most of my tech stocks before the crash. So when I saw they had written another book, "The Oil Factor", I bought it at once. It is even better than their last book. Having read it, I feel that I really understand the big picture when it comes to investing my money in the years ahead. The book describes how oil and oil prices are the key things to follow in order to know what the economy and markets will do. It predicts that oil prices will continue to rise, bringing on inflation, and then describes exactly what kinds of stocks to buy and which to avoid. Everything is very logical and well supported. Everyone should read this book, including or rather especially our political leaders.

Rating:
Summary: Highly Recommended !
Review: Authors Stephen and Donna Leeb present a compelling futuristic investment scenario that leaves you thinking, "You know, they just may be right." Their approach avoids the sky-is-falling, bus-rushing-toward-the-precipice breathlessness that is common to many books that predict impending doom and gloom. The authors escape slipping on that particular patch of oil by basing their conclusions on established facts and keen analysis. For example, they rely on the widely accepted principle of Hubbert's Law when they assert that worldwide oil production will soon begin to decline. That's hardly news, but they take it a step further. They predict rising oil prices will spur inflation and the Fed will be unable to jack up interest rates to dampen it. High consumer indebtedness and the profound need to keep home values high (which props up consumer spending - the real engine that fuels American prosperity) will render the vaunted Fed feckless. Is it true? Well, about once a decade an Armageddon-is-coming book emerges that ought to be read by every investor, if only so that you know enough about what might happen to dodge it. We say this may be the one. One thing is clear regarding the global economic engine: it's time to check the oil.

Rating:
Summary: The Oil Factor: How Oil Controls the Economy and Your Financ
Review: Capital adviser Stephen and business writer Donna explain how investors can continue to make a bundle as they ride the petroleum economy into oblivion. They suggest oil and natural gas, gold, defense companies, and alternative energy. They also tell how to profit from real estate without owning any.

Rating:
Summary: Thought provoking and scary realistic
Review: I found this book to be quite informative on the growing concern of oil shortages. This is becoming a real problem in the world today. Oil producion in known fields have peaked over the past 40 years or so and there isn't much hope of unlimited new supply. People have talked about the undeveloped reserves in the Caspian Sea and how they rival the initial reserves of Saudi Arabia....I believe this to be true as well, but that's about 220 billion barrels of oil, the world consumes 85+/- million barrels per day and this number is ever increasing. At the current pace, these new reserves can supply the world for a mere 7 years, and probably less.

Overall, the book is one of the better on the topic at hand and it is a good start for anyone who is not well versed on the subject. I do however have reservations about taking stock pics from a novelist. The book is a little repetitive as well.