Welcome. The content below is free to the public. It might be worth what you are paying for it. Having studied economics and being in finance for over two decades, I have learned that only one thing is certain - that almost nothing is certain. As we endeavor to come up with our best analysis of the world around us, the opportunities and risks, we have to try to overcome a myriad of issues including our own ignorance, biases and emotions. What follows are my attempts to overcome those obstacles. Welcome to my view - publishing Monday and Friday afternoons.
In January, Donald Trump became President of the United States to much consternation from over half of Americans and many abroad. In recent weeks, President Trump has appointed key people to his cabinet and started to transform the government. As I stressed in my annual letter for my investment advisory firm, Trump's overtly nationalistic rhetoric is very concerning to me.
Now that Trump is beginning to govern, we are seeing proposals and executive orders for immigration bans, a repeal of ObamaCare, to reverse environmental standards and largely remake the tax system that even more benefits the super wealthy and multinational corporations. No longer can people who voted for President Trump as a protest vote or as a vote against Hillary or a vote against the establishment fall back on "well, I didn't take everything he said literally." It is clear that President Trump mostly believes what he has said and means to create policy around those beliefs.
As both citizens and investors we must be wary because much of what President Trump believes is not supported by evidence. There is a rising likelihood of very bad unintended consequences if certain policies are implemented and various actions are taken.
Five years ago, in the article that landed me a role writing for MarketWatch, I said that there was "one general thing that changes everything for America." That one thing was the advent of American shale oil. The "fracking" revolution in the United States quickly went on to help oil prices crash and reduce America's dependence on Middle Eastern oil by half.
Today, we are on the cusp of massive interconnected changes in the oil industry. Three of these things all but guarantee that oil is headed back to $100 per barrel. The decline in oil production from existing wells, OPEC's control of low cost oil production and the revival of U.S. fracking growth will all drive oil prices higher.
Oil prices will not necessarily stop rising at $100 either. There are two more factors that could drive oil well past $100 that I will cover Friday. It all adds up to a golden opportunity to invest in certain parts of the oil complex one last time before electric vehicles and new methods of creating plastics take hold in the 2020s.
The rally in oil stocks since the OPEC agreement to cut 1.8mbd of oil production for the next six months has been tremendous. As usual, investors only seem to be getting the stock picks less than half right.
The stocks that investors should be buying are the low cost shale producers. Companies focusing on the Permian Basin, Eagle Ford, the STACK and SCOOP in Oklahoma, and the center of the Bakken have huge advantages to other producers, especially the oil majors who OPEC will continue to keep a thumb on.
Last week I asked if a Trump, China conflict could lead the U.S. into recession? The point of the question was how important the Trump and China relationship was to the U.S. economy. In one short week, Trump has antagonized China on two more fronts. Seemingly, he is deliberately trying to instigate with China. That is a very high risk move with little upside for America.
2017 is shaping up to be a reset year in the economy and markets. Already we have seen a trillion dollars shaved from the bond market. I anticipate we will see more losses soon, including in the stock, real estate and commodities markets. We will also see what I have called a "skip-straight recession."
The "slow growth forever" global economy is real. I've covered the evidence over the past few years and summarized in part one of this quarterly letter. Here's how I am investing in the "new normal" economic world.
For the past few years, I have been writing about how the global economy is poised for a very long period of slower growth. Early this year on MarketWatch, I dubbed what was going on as "slow growth forever." While I know that people want to believe that the global and U.S. economies can grow faster, the reality is that slower growth is structural in nature.
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