To me, the Market (Dow/S&P 500) is a bit of a binary trade right now. It’s pretty clear to me that the Market is determined to retest its late August lows. If it bounces, I think I can safely buy stocks and likely add to my biggest position again at a good price.
If the Market cuts through the August lows, I would suggest investors are in for a rough ride for a few months. Tax loss selling will be coming quickly.
Investors haven’t had a real bear market for a long time; many have forgotten how ugly and demoralizing they can be. I may look at my portfolio and think—wow, I’m actually pretty well positioned as I have low valuation stocks with good and growing cash flow….but bear markets don’t work that way. NOTHING gets spared. (So I’m not putting much faith in the up-move in the Dow today).
So as you all watch your portfolios over the coming 3 weeks—put it in the context of this macro situation.
I suspect most stocks will move lower in the near term as the Market determines what it wants to do. The crux will come sometime in October and I’ll decide how to invest once the Market makes up its mind.
Income stocks will certainly be less crushed, but in a bear market they go down too. I would likely move to a larger cash position should the Market break below the August lows—and just wait for my opportunities.
And there are a couple VERY intriguing stocks out there right now that I’m researching.
Of course, the question is—when will this all play out? Well, I think you can pencil in October 14-15 on your calendar. I’m flying to Dubai late on the 14th on business, and will likely be completely out of internet for the entire 24 hour odyssey. It makes perfect sense to me that will be when the Market pushes for a decision. ;-)
I will be back at my post on October 21; but I will likely try to write one colourful update on life in Dubai while I am there.
OIL—I just want to repeat here—NOBODY KNOWS. There is NO SMART money in the oil trade right now. I do not waste much of my time reading what Morgan Stanley or Goldman Sachs or PIRA or IHS CERA or the CEO of Exxon or Chevron thinks—or anybody else thinks–about the oil market right now.
I’m happy to be an agnostic and opportunistic investor. I’ve shown I can make money in any market with some out-of-the-box investment ideas.
The last bit of real news in the oil market, IMHO, was when I became aware there is a HUGE “plug” number in the EIA data right now of well over 1 million barrels a day, which leads to a big possibility that demand is very under-reported and therefore the market is much tighter than the Market gives credit for.
But that will only matter when it matters, and not before.
It’s like my good friend and colleague Bill Powers’ thoughts on the natgas market going into undersupply—he has great data that creates a compelling argument—but he’ll be right when he’s right and not a moment before.
I’m certainly not going out investing on any of these “dark” theories. There is no point in trying to guess anything.
I think it’s fair to say US production is declining, but again Canadian oilsands production is making that up so far almost barrel for barrel. US declines should outpace that growth soon however—but when you see projections of US production going down to 8.8 M bopd from a peak of 9.6 M—everybody conveniently leaves out 500K bopd of Canadian production coming back online this year after wildfires and maintenance shut it in, and then ANOTHER 300K-500K bopd over the coming 5 years.
Outside of that, there are just too many fast moving factors in the global oil market for anyone to have a strong handle on what’s happening.
I do believe the Market is mispricing the risk in the 2 M bopd of alleged spare capacity right now—i.e. oil prices should be higher—but that and $3.49 gets you a latte at Starbucks.
SUBSCRIBER SUMMIT UPDATE
Two things—one is we are now full with a waiting list for Thursday October 8 in Vancouver. If you signed up to come but now realize you cannot make it, please email email@example.com and let her know she can release tickets to others.
Second—I am very, very sad to say Scott Ratushny at Cardinal Energy has bowed out of the conference. He shot me an email yesterday explaining that his legal team doesn’t want him marketing during this financing.
THE GOOD NEWS is that Richard Thompson, CEO of Marquee Energy, (MQL-TSX) is coming now. I do have a full report on Marquee in the Members Centre for subscribers. But their Michichi asset just NE of Calgary is a prime example of a high quality conventional asset that helps a producer get through these lean years and be set up perfectly for any oil price rebound. Low cost wells, low decline wells that pay out in just 14-16 months at US$50WTI.
I caught up with Richard in Vancouver last week and got a full update. I’ll incorporate that into the report in the coming days.
In conclusion–a) I have a couple new ideas I’ll be sharing with you in the coming weeks as the Market sorts itself out.
b) SIS next Thursday, October 8. Granite Oil CEO Mike Kabanuk is bringing the best stock chart of any energy producer in North America to the conference–if you want to attend or if you want to cancel, email firstname.lastname@example.org
Looking forward to meeting you next week!
EDITORS NOTE–I bought my largest position EVER during the dark energy days of summer 2015. Even though the stock is up 30% and paying me a 10% yield, analysts say the stock is still cheap because cash flow is increasing so quickly. It’s the Out-of-the-Box Trade for 2015–and paying off. It will save a lot of energy portfolios this year. Get the symbol right HERE.