I’ve been thinking long and hard about a proper New Year’s newsletter for general publication, and to tell you the truth, I’m not sure my mood is in the right place for it as 2022 begins. It shouldn’t be that way – I should be celebrating with you – the new year has already done some very good things for oil and oil stocks.
Oil continues to rally as it has been doing through much of December, after the first possible horrors of the Omicron variant were discovered and digested. And as Brent inches above $80 a barrel again, the oil stocks that normally follow oil have finally looked like they’re breaking out too, after being stubbornly stuck in a range since October.
This is the strong reversal rally move that I first wrote about on Black Friday to subscribers when oil and oil stocks fell out of bed on November 25th, suggesting my subs ‘go shopping’. Then I confirmed that recommendation in the next two or three newsletters and my conviction that any oil stocks that were bought during this dip would pay decent dividends in the New Year. They have certainly done so. Even then, the preliminary indications were that Omicron would represent a lesser threat than either Delta or certainly the original Alpha strain, now that we had successful (magical!) vaccines and a reasonable percentage of the population smart enough to get one.
So, why am I currently so skeptical instead of crowing about the great buys we made in December?
That’s what’s got me so deep in thought. It’s tough to figure. It seems the higher the oil markets go, the more skeptical I become.
What’s that about?
I know I’m afflicted to a great degree by a common problem these days of pessimism and utter exhaustion – but we must get on with caring for our future, not least the investments we’re making, right? So let’s talk about it all and try to get ourselves straight as 2022 begins.
Even though the stock market seems completely nonplussed by the Omicron variant, the way we’re currently living our lives certainly aren’t disconnected from it’s effects. Masks are back, as are limited shutdowns of shows, bars and gyms as the number of infections from the virus go berserk. In New York City, there’s a meme going around that you’ve either got Covid, or you’re saying you don’t – and are lying about it. If you’ve been going out at all, whether to restaurants or other group gatherings, there remains a palpable fear that’s reminiscent of earlier days of the pandemic, along with frustration from continuing distancing and quarantining guidelines. The news channels feature a steady stream of doctors cautioning feverishly about transmission, and the fresh pressures Omicron is putting on the health system and ICU units at hospitals. In my city, you have to stand in line for hours if you want one of the fast-disappearing nasal swab tests.
But if you look at the markets, everything’s just swell – levitating to new highs (as usual) in spite of it all.
Other places outside of the stock markets are yielding a seemingly disconnected from reality bag to me too. In the energy world, I remain as convinced as ever of the futility of environmental initiatives that don’t involve market integration, including global carbon pricing – this was the key point I made in my last book that, at least so far, has gone completely ignored here in the United States and globally at COP26. Still, the hopeful enthusiasm and positive noise surrounding ESG investing would make you think that the oil companies are about to be the latest buggy whip manufacturers of 2022, and soon to be out of business from marketing an obsolete fossil fuel product. Every top business school has an overflowing class for ESG investing, and the “coolest dudes” in mutual funds, Branson and Musk wannabes all, are running over each other to embrace it on Wall Street. If you instead start focusing on popular media, the fever pitch for embracing climate change apprehension couldn’t be more at an extreme: “Don’t Look Up”, the David Sirota produced, star-studded Netflix apocalypse parable for climate change has gotten big audiences and rave reviews, and books like “Warmth”, literally mourning the world as if it is on an unstoppable path to self-destruction have only one message that they care to deliver: “All is Lost”.
The stock market is about the only place that feels rosy about itself and the future, and as an oil guy, you feel doubly beaten down, despite the good buys and rising returns you might have made for yourself in 2021.
Want to feel even worse? Check out this pile of 2022 “risks” from Eurasia Group. Now, I’ve met Ian Bremmer in a few green rooms and he’s a very smart guy, no doubt about it. But he really loves the media and seems to like to message a bit like a shock jock to pump up views and likes. But even for Bremmer, I read this Nostradamus list and started reaching for a knife so I might kill myself. Most of it is geopolitical boilerplate in breathless prose and worthless charts, but sheesh, there’s not a lot of hope in it.
This may be a passing thing tied to a country currently politically split in two and a never-ending pandemic, or it may not be a passing thing, I don’t know. I note obviously, as you all must have as well, that the world seems to throw up more things to worry about by the day than most of us have the ability to comprehend and digest. I don’t think that’s changing in 2022, which is probably the only thing we can rely upon. For me as an investing advisor, the bottom line has been that I’ve always listened to the markets to tell me what to do and tried like hell to ignore the noise surrounding it. It’s a philosophy that’s served me well.
But these days the noise is so damn loud. Even I’m finding it all tough to ignore.
Where am I going with all this? I’ll tell you.
I’ve got to simply try and quiet as many of these outside noises that are running around in my head as I can, as tough as that is. I’m not saying to ignore these things completely, hardly that. Lord knows that the challenges we’re facing will not respond to sticking one’s head in the sand and ignoring them, but for the sake of our mental health, if not less for our investing health, we’ve got to keep everything just a bit more in perspective – less frantic, less hyperbolic – quieter.
I have cash on the sidelines during a melt-up like this. I’m invested, but still keep nearly 30% in waiting. It’s the way I’ve always played the game – you need some way to take advantage of market drops, while participating in the good times, too. In these markets, I look for opportunities to deploy some cash on dips, like we had in December, and I get some back into the pot when the markets rally high enough to assign a call to a position I’ve hedged, or rarely, something I’ll outright sell for whatever reason I decide to just take a profit. But, I’ll tell you this: Every time I try to be a “smart guy” and make up my own mind, put together a wiseguy trade based on my feelings and not listen to the markets, I get walloped.
NEVER FAIL – EVERY TIME.
This market isn’t going to go straight up – no matter how bullish, it never does. It’ll give you dips, just like it did in 2021 and just about every year before it. And although the noise is screaming in my ears at a volume of eleven, I’m going to try to stick to the fundamentals of what I’m seeing as the primary long-term trend in energy:
Oil demand is going to get stronger, supply is no longer able to grow enough to meet it and the world needs oil and gas far more than it’s willing to admit.
That’s what I suggest you do too. Stick to the plan. Deploy cash as the markets dip. Be patient and wait for those dips, because they inevitably come. When they come, don’t be a wiseguy and assume that something spectacular has changed, only assume that you’re getting a temporary opportunity to buy some stock. So, buy some stock. Don’t go all in, just buy SOME.
If the markets go down from there, buy a little more. If they go up, watch. If your stocks get called and turned back into cash, be happy and wait for the next dip to deploy that cash again.
Wash, rinse and repeat. And hopefully, it’ll all work out. It always has in the past.
As for me, I’m going to try and suggest that you also go ahead and look UP – No matter how loud the noise, the truth is that the meteorite that’s coming towards us, no matter how close it looks, has only the most infinitesimal chance to actually hit.
Think about it. Do you know how big the galaxy really is? It’s big. Really, really big. Makes our own earthbound ‘big sky’ theory look like a kiddy sandbox, and makes that Netflix film look more like the comedy it was meant to be.
Happy New Year.
