RE:RE:RE:RE:Performance bonus
Oil producers are my prefered sector presently.
One of the best public portfolio managers of the last 50 years is Peter Lynch. His book "A Random Walk Down Wall Street" is an easy read, and should be read by anyone who wants to be a successful investor (regardless of your educational background).
One of his statements about investing that has stuck with me, is you should be able to explain why you are investing in a particular company in a single sentance. That sentance should make common sense, and should stand alone.
The single sentance for oil is that the current leaders of the largest and fourth largest oil producers (US and Canada), are both anti oil.
As long as that statement is true, oil will be my prefered investment.
Biden can say he is doing everything to increase oil production - but his actions are the opposite. Look at his recent decision to change the US Clean Water Act so Indian Tribes are to be treated like States, and can object based on "holistic" reasons. That change is one example of many. It puts a stop to pretty well everything.
In the past, high prices resulted in more supply. As long as US and Canada try to phase out oil, high prices won't work like they did before to increase supply in a meaningful way. Many investors don't yet understand that paradym shift. Yesterday I had lunch with a protfolio manager friend. His analysis was still stuck in the old paradym, that high oil prices will soon lead to increased supply, and prices will tank - thus he was avoiding the sector.
In my view, that paradym has changed. High (oil) prices now are limited to working on reducing demand. We've never seen that before. Its a new world, and we don't know what it will look like.
We do know that oil demand is very inelastic. That means as price increases, demand doesn't drop much. Past evidence indicates that a serious recession will reduce oil consumption by about 2 million barrels (about 2%). If that is all a recession can do to oil demand, then a recession may not be able to do much to oil prices.
I don't fear increased production killing oil prices over the next few years.
I am concerned about a recession killing oil prices. But if a bad recession can only lower oil consumption by 2 million barrels, then maybe that is not something to be feared. Maybe thats enough to keep oil in the low $100's, instead of the high $100's. Time will tell.
I'm not concered about a technical recession - when GPD is negative for two quarters. That is not going to impact demand for oil.
I'm watching employment numbers carefully. They are still rising. As long as people are employeed, then in my veiw there is no risk to oil demand. Last months US number was nearly 400,000 new jobs. In the post 2008 financial crisis jobs were being lost at the rate of 500,000 - 700,000 per month. That is what a bad recession does to employment. We are nothing like that presently, and I have a hard time seeing that happenning with higher interest rates. If only because the US fed will stop raising interest rates if they see meaningful employment declines
All of which means rising interest rates leading to reduced oil demand (to the point that prices materially decline), probably isn't going to happen.
Now back to the original question - what other sectors are appealing.
Rising long interest rates are good for life insurance companies. These companies take in money today, in exchange for paying it out in the future. The present value of their future liabilities (payouts at death), declines as interest rates rise. That is the only sector I know of that is better off when long term interest rates rise.
Banks tend to make more money with higher interest rates, but they also face much higher loan loss provissions from defaults on previously issued loans. So banks are tricky. They are also too internally complex to forecast.
There are lots of very well run companies out there, that I appreciate, but they are all over valued - companies like Visa, Wallmart, Costco, etc. Fabulous companies, but they are 2-3 times what I would want to pay.
Maybe 2-3 years from now, oil companies like OBE will be fully or over valued themselves, and companies like costco will be undervalued. Maybe then my portofolio will be made up of Costco et al. Who knows.
In the mean time it is very interesting to watch what is happenning to OBE et al today. Those who invest by selling short and buying back later are having a spectacular day.
My mind doesn't work that way. I buy undervalued things. I know that I can't time when they will be worth more, but if timing isn't an issue, then I'm certain I will end up with more than I started with.
The short sellers mind works differently. Timing is their critical success factor.
You get peaks and bottoms when price change stalls on high volume. There are some indications of that appearing in BTE today starting at about noon EST. Successful short sellers are hyper sensitive to those events. I'm curious to see if those who sold recently, start buying back today.
Share prices have dropped a lot given that oil hasn't moved much (WTI has been US$104ish and Brent US$110 ish all day). Those who have sold recently must be thinking they've got pretty well all the gift they are likely to get, and the best at what they do may start to buy back.
In retrospect it would of been nice to sell at $15 and by back at $10 a couple weeks later.
Presently the OBE share price is C$9.60. Who sells at that price? Probably just those with margin calls or panic attacks. I suspect even the short sellers are hesitant to sell at this level!
If it can hold this price level until June 30 close, then there is an extra $5 million to be added to Q2 FFO