RE:Interesting ObservationTheBridge wrote: This evening Bloomberg's "Evening Briefing" included some interesting US economic activity that relates to the market and might be reflected in ours. The article included the following.
'Another day brings another wave of mea culpas over the US recession that never happened. Indeed, there are increasing signs that CEOs don't think a downturn will strike anytime soon. Across the country, they are opting to reinvest more of their profits in expansion projects rather than handing the money back to shareholders. New data shows the average company pushed up capital expenditures by 15% in the second quarter and buybacks among corporate clients have been tracking below seasonal trends since May. This after Bank of America joined the party and reversed its recession call.'
Doesn't fit GH's situation but if that is a trend it could have some impact on us down the road and it could very well be a positive impact.
Bridge,
Plenty of chatter in the news.
Recession is inevitable.
How long and how severe, that will depend on many other variables.
How is GH positioned for recession?
That will depend on our personal economic outlook for AB and commodity pricing.
Oil Bull is Here What we see today is something very unusual.
We don't normally see energy prices rallying while ecnonomy expects recession.
We've gone almost a full decade of underinvestment in future oil supply.
Pandemic lulled countries into believing that oil demand would fall.
As of today, we are close to 102mm barrel per day demand.
Growing at another 1mm next year, maybe more.
Supply isn't there.
US shale production may have peaked, or we are close to peak.
Real Estate Pain Higher borrowing costs are taking the froth out of overheated pockets of Real Estate.
Plenty of Borrowers are stuck. They paid $1mm for houses worth $500k.
Now their mortgage payments have tripled from $2k to $6k.
That's the recession.
They won't be able to spend.
Some will go bankrupt if they are forced to sell RE at a loss.
There will be corporate layoffs, happening already.
With all that said, GH may surprise us with steady Revenues through a period of time when some of their Canadian peers suffer.
Why?
Alberta Advantage is at work.
Many will see pay increases the next 24mo, AB RE was less expensive when compared to TO and VAN;
High income and less debt, that could be the theme of the Alberta consumer.
Back when GP and McMurray caused a lag due to commodity price sensitivities, we may now see both those regions outperform while Calgary slows a little.
Don't go bet the farm.
But GH is going to weather the Recession in a safer harbour than peers.
Big news is really Russia and Saudi Arabia adhering to their oil production cuts, even warning of deeper cuts if warranted.
Last time you could get this bullish on oil was 2002-2004.
Nobody wants to own oil companies at $70, they will start buying oil stocks when price is $100 and stocks have already doubled.
We are currently rallying on egg shells.
At $100 oil we will be rallying on cash flows.
A decade in the making...
Nobody wanted to own Western Canada because of the "Cyclical" nature of our energy exposure.
This time around, Everybody will want to own Western Canada because of our
Energy Exposure.
People are inherently greedy.
They will be drawn to O&G because of accelerating cash flows.
Buybacks and Dividends will be the big theme.
Maybe at GH too!