RE:RE:RE:RE:Interesting day in the market todayGreat points.
Exactly when should one jump off the train before it plunges into the abyss?
I have plunged 3 times already, each time taking years to claw myself back up.
The first was the dot com bust, crashing hard as I went down with my strong buy secure holdings recommended by my bank to buy the dip. In hindsight, I should have taken a short position when it turned.
The second time in 2008, I was even more cautious and I saw it coming. I held a huge position in gold as a hedge. It was no hedge, as everything got sold off in the carnage. I learned the hard way, gold is NOT a safe haven. In hindsight, I should have taken a pure short position when it turned.
The third time was just recently in 2020, when my investments, mainly oil, went down 90% as Covid hit. At the low, I was down to about 250k, and selling off everything I owned, furniture, toys, tools etc.. In hindsight, I should have taken a pure short position when it turned.
At the ridiculously insane low, I knew either the world was going to end, or the market would rebound. It is hard to win when the world was ending, so I went heavy long in oil again instead.
Today, the accounts are up about 3000% from the low, even as we may continue to head towards the abyss. This time, if I see a turn, I can exit with a few keystrokes in a few minutes. I already did that once and sold half of all holdings on March 9, when I suddenly heard that news clip on Twitter that Ukraine was willing to accept Russia's terms on the Donbass, and oil was tanking. I was able to buy it all back cheaper over the next days after the short algos had their day, and the war situation had not changed.
Recently, I am also increasing short positions to hedge a market downturn. The Nasdaq will be the most vulnerable with so many overpriced stocks with minimal or no earnings that will be sold off first in a market panic, like the EV makers. SQQQ. A pure leveraged short position, albeit with decay.
If I start to plunge into the abyss that I am so familiar with, I will exit my long oil holdings like the ejection seat on a fighter jet. I will rush to short Nasdaq, and SP500 within minutes.
However, until that day comes, I'll keep feasting on the lump of cheese sitting on the trigger in the mousetrap as every day there is more and more cheese. We are now heading into a spectacular earnings season for oils at the same time the general market is getting nervous. I hope to be faster than the spring bar. Past experience tells me that it might happen quite fast, and the exit might even cost me a drop from 3000% to 2000% of gains. I'll just have to get by on that kind of profit I guess.
On another note, I see that daily volumes on the Canadian large cap oil producers are dropping compared to normal. This may be a sign of caution, although share prices have been rising. Perhaps money is not going into the big players, but into the small and midcaps as per the Nuttall thesis. I'm keeping an eye on it.
As far as Suncor performance goes, I agree with many posters here that it has been unrewarding compared to it's peers, and is the worst performer in my collection. However, it has been the most stable in downturns, offering a lot of stability. For me, the dividend makes it free to hold on margin as it covers the margin interest. It should be trading much higher, and on that measure alone, has the most upside for further appreciation to it's realistic valuation.
Experienced wrote: Obscure1 wrote: I always enjoy Experienced's posts as they are well thought out and based upon his very useful Experience. His Lone Wolf argument is cute, but there are lots of very smart people that agree with him
Based upon his posts, it appears that Experienced is well versed in Economics.
One of the principles of Economics is the Elasticity of Demand and Supply which I think Experienced hasn't taken into consideration.
I was going to start a detailed description about the factors that determine the measurement of Elasticity of Demand but ........zzzzzzzzzzzzzzzzz.
Suffice it to say that Ineleastic Demand happens when Demand remains relatively the same regardless of price increases (typically caused by supply chain interruptions).
Experienced has correctly identified that Demand destruction will eventually take place when prices get so high that people will stop using a product. Until then, be prepared for more inflation.
Governments know that they can't control the Supply or Demand for oil (even thought they tried to create an alternative reality with Go Green rhetoric), so they are now faced with the delicate game of using higher interest rates to create a soft landing for the economy as hard landings create unhappy election results. Good luck with that soft landing in a world where everyone is so distrusting and antagonistic.
Oil was selling for about $62 per barrel pre-covid. Demand destruction on biblical terms happened at the beginning of covid as the world shut down, temporarily taking oil prices down to a historical low. Even with many industries and the general movement of people shut down, the demand for oil quickly began to recover. With oil currently trading $40 per barrel above pre-covid prices, the Demand has recovered to pre-covid levels. That is Inelastic Demand.
So, the real issue is Supply when it comes to oil.
The politicians and the idiot press had everyone thinking that the Demand for oil was going to collapse overnight before our eyes. Nope!
Then Russia got pushy with Ukraine expecting a repeat of its invasion of Crimea. Nope!
Once America got is anti-Russia PR team working overtime, Russia, the supplier of 10% of the world's oil suddenly found itself with an inability to transport its oil to markets that would buy. Sounds kinda familiar to what the Americans did to Alberta.
The world, or more specidically Europe assumed OPEC would just open up the spigots and take care of the Supply interruption. Nope!
It turns out that oil reserves deplete and unless you spend money acquiring and developing new reserves, you can't respond to an increase in Demand.
Oops, Inelasticity of Supply!
You can bet your sweet asss that if OPEC could pump more oil. it would because they love them some petro dollars, especially at three figure prices.
Until Russia gets pipelines in place to China and India which was expected to take 3 to 4 years but now may be delayed, Russia doesn't have a market for its oil.
We haven't seen it really hit home yet because of the 3 month time for oil to get from the well head to refineries around the world, but its coming, and its coming soon.
The fact that Europe is aghast at what it is witnessing in Ukraine will only exaccerbate the isolation of Russian Supply as Europe doesn't want to finance Russia's "military manouvers".
I expect the decisions by Sweden and Finland on joining NATO is the next big international event that could really upset the apple cart.
One thing we know for sure is that the Demand for oil is very Inelastic.
I don't expect significant Demand destruction until oil price goes higher. How high? I dunno.
I do expect that "ambitious" oil companies will find a way to increase the Supply of oil at sky high prices, but it is going to take years for greed to overcome the Supply destruction created by Putin's ill-advised move on Ukraine.
I'm holding on to my SU shares.
I agree that the demand for oil is price inelastic. Anyone who has the "pleasure" of taking Economics 100 knows all about this.
The reason that I didn't mention this in my post is that not that I have forgotten about it but rather it is not relevant to my argument.
The key thing is that interest rates are going to go up and right now inflation is outpacing wage gains, depending on the country by anywhere between 2 and 5%. In addition to this, world GDP has been fueled by excessive Government spending (recall GNP = C+I+G+X-M). These factors (plus others) will reduce economic activity and reduce the demand for oil. Higher interest rates and inflation will reduce both the C and the I in the equation and fiscal restraint will impact the G in the equation. All leading to a lower GNP = lower demand for oil.
This reduction in oil demand will lead to surpluses at current production levels and result in a decrease in oil prices (not good for oil producers and their shareholders).
There is a lot of rot in the system that needs to cleaned out. One way of looking at it is to think the garden around your house. If you don't trim your bushes they eventually grow out of control and get sick and die. If you periodically trim your bushes, yes, for a while they are smaller than were before but they grow back bigger and stronger. We haven't had that triming in the economy for almost 15 years due to manipulation by Central Banks and excessive deficit financing by the major economies.
If you and others wish to "whistle past the graveyard", I wish you all the best and hope it all works out for you. For my part, based on how see things playing out, I will continue to take less risk in my portfolio. If I am wrong about this and you and others make more money than me, I doubt that I will need to stand in line at the Foodbank.
Anyway, great discussion and I hope that we both have given some people here a few things to think about so that they can make more informed investment decisions.