Boy, am I glad I own oil stocks

Good morning!

I don’t know about you, but I wish they’d just take away the mic from Fed heads! The constantly changing viewpoint creates uncertainty, which, in turn, roils markets. Not to mention nerves.

This morning, the major averages are all in the red as I type ahead of the open… on comments from the Fed’s Bullard who says rate hikes have had “only limited” effects on inflation so far. 🤦‍♂️

Here’s my playbook.

So glad for my oil stocks!

Chances are good that anybody who’s invested in oil stocks is smiling ear to ear while anybody who hasn’t is crying into their beer. Or at least having a comparable experience.

Oil ticks all the boxes in a market like the present one:

  • Oil lines up with the “5Ds,” which means that trillions of dollars will get spent on it, no matter what the Fed does next, no matter who’s in the White House, and no matter what shenanigans Wall Street wants to pull.

  • The world can’t live without oil, yet the Strategic Petroleum Reserve is at the lowest levels since 1984!

  • Long-term demand is still rising, despite temporary concerns about a short-term demand drop.

My favorite company has tacked on 115.63% over the past two years while the S&P 500 has put up a healthy but still far less 12.20% over the same time frame. Upgrade to Paid

Short sellers get the shaft

Short exposure against ETFs has reached the lowest levels all year, according to GSP Data.

What this suggests is that a) short-sellers have gotten cleaned out, picked off, and otherwise separated from their money by the recent rally, and b) the “overhead” holding prices back has vanished.

Why savvy investors and traders should pay attention. Clearing out the hot money (short-sellers) paves the way for what I call a “sustained burn,” meaning broad buying. There are obviously no guarantees, but this data point represents a potentially significant change in psychology, which is why, of course, smart investors and traders should zero in on this.

Remember: There are two paths to profit. 1) Buying the world’s best companies when nobody wants ‘em—and selling when others cannot resist buying; and 2) keeping risk as low as possible at all times.

Why Russia won't collapse anytime soon

This is a big, big deal!

Top Chinese oil refiners are seeking Beijing’s nod to keep Russia flows moving. According to a Bloomberg story on Yahoo! Finance, Chinese state-owned refineries are worried about their ability to work out the payments, logistics, and insurance needed to keep buying from Russia after December 5. (Read)

Last July, JPMorgan warned of a worst-case scenario that could send oil to $380 a barrel if Russia enacts retaliatory cuts to counter the very purchase restrictions that now have Chinese refiners worried. I think we talked about that if memory serves.

My POV: I believe oil will run to $105 a barrel by early 2023. I think oil will run to $105 by December, but probably not much higher than that because Russia and China are both masters at working around sanctions. I expect Indian refiners to step it up as part of the “solution.” Don’t waste the opportunity if oil prices drop first.

Random Thought Bubble: As much as people are dumping on crypto, don’t forget our conversation about the Chinese yuan. It’s already been rolled out (partially) but could play a key role in bypassing Western sanctions. The fact that Westerners cannot buy it—the digital yuan isn’t a coincidence.

Bezos warns: Why what HE says is different

Billionaire Amazon founder Jeff Bezos is warning about a serious recession ahead and urging small-business owners to stockpile cash while foregoing equipment upgrades, etc. He’s also telling Americans to stop buying big-ticket items like cars, fridges, and other schtuufff.

People forget that Bezos was once a small-business owner struggling to make ends meet, just like many Americans. He understands not only how to turn a buck but has the mental chops needed to back it up. Unlike the Fed, and unlike politicians, he understands how real money works.

I think we’ve been in a recession since the first part of the year... and the fact that things are so bad the boffins have to change the definition is proof positive that’s the case.

Keep your hedges in place in case the selling accelerates. And, of course, sharpen your pencil. Your “buy list” could come into play. Lowball orders, selling cash-secured puts… these are all tactics that could work exceptionally well as a way to capitalize on rising volatility.

You do have a buy list, right? 😊

FTX will ROCK the legal system

FTX will ROCK the legal system. Professor Jonathan Lipson of the Temple University Beasley School of Law observed that “there will be very, very difficult forensic accounting questions and some really important questions about concepts, like, how do we understand what cryptocurrency is.” (Read)

What he’s really driving at is something we’ve talked about many times… the world wasn’t ready to deal with the technology foisted upon us by Silicon Valley’s whiz kids. The Technocrati have repeatedly leapfrogged the legal system and regulators for years because they thought they were smarter than the rest of us. Now the tables will turn.

Investing Implication: At the risk of sounding like a broken record… if you can’t explain what a company does to a five-year-old, do NOT buy it.

Bottom Line

You can still be an economic bear but a market bull and vice versa.

As always, let’s MAKE it a great day!

Keith 😊