Pro Perspectives 11/23/21

November 23, 2021

As we discussed yesterday, the big tech trade has run into what looks like a catalyst for some unwinding.  The catalyst?  The re-nomination of the Fed Chair, Jay Powell, which confirms a new tightening cycle for interest rates

We ended yesterday looking at the key technical reversal signal on the Nasdaq chart.  We have the same signal on the S&P 500 chart.  Of course, both are heavily weighted and influenced by high growth tech.  

Why don't high growth stocks do as well in rising rate environments? 

Higher rates tends to bring about lower valuations.  When Wall Street analysts start plugging in a higher a discount rate (interest rate) into their cash flow models, they will get a lower price target (in some cases, much lower). 

Now, with this said, this should further confirm the shift in market focus to value stocks.  

Among the most interesting value stocks, we've talked a lot about the beaten down oil and gas sector.  

With that, I want to copy in an excerpt from my note from six months ago (May 20th) on the oil situation …

The globally coordinated "Clean Energy Revolution" promotes higher oil prices, not lower.  That's the structural driver for oil prices.  Funding for new exploration has been choked off.  So, foreign oil producers (particularly from bad acting countries) will be in the driver’s seat.  That movement is underway.  And these producers will command/demand higher prices, especially in a less competitive, lower supply world. 

As we discussed this dynamic back in February, I said "get ready for $4 plus gas."  With the monetary and fiscal backdrop that has evolved, and the inflationary pressures already bubbling up, it will probably be more like $6 gas

It will be self-fulfilling, and yet it will become the justification for the move to "clean energy

So, this has all come to pass.  And today, in an attempt to bring gas prices down, the President announced that he will be releasing oil from the Strategic Petroleum Reserve.

This only further solidifies the trajectory of oil prices (up). 

Not only have we, and much of the world, committed to defunding new oil exploration, and regulating down domestic supplies, we are now (adding insult to injury) drawing down our reserves

OPEC+ countries will be even happier now to sell us all the oil we will need (until we are all driving Teslas) just at higher and higher prices. And so will the domestic producers that have survived, thus far, this planned supply destruction of the fossil fuels industry. 

On the latter, these remaining domestic producers have become cash machines, producing at wider and wider margins, and distributing the cash to shareholders.
How are we positioned in our Billionaire's Portfolio for this oil market dynamic?  Join us here to find out.   

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