Yesterday’s Profit Watch contained a note of immodesty.
It suggested some recent wisdom in being wary of bank stocks.
Rest assured, oil continues to humble me every week.
The oil price surge after the attacks on Saudi Arabia has dissipated as fast as it came.
And yet news arrives that again suggests the danger of oil prices spiking higher.
Is this the investment gods laughing? They put every reason in play to send oil higher…but the price surge never comes.
Here in these pages we’ve talked about the decline of production from Venezuela and the crippling sanctions on Iran.
We’ve reported that Wall Street is cutting off funding for the US shale firms — an industry that has a spectacular record of losing money.
We’ve sounded a worried note about civil unrest in Libya, Nigeria and Algeria.
We even warned about an attack on Saudi Arabia — and it happened.
We’ve lifted our heavy eyes to the horizon to see the new IMO2020 rules due in January 2020 and the impact this could have on diesel prices.
I’ve written so much, and for so long, recalling how this trail began is almost a distant memory.
And now Reuters reports of another snowflake falling that could trigger an avalanche…
BBC News reports that 20 Iraqi protestors are now dead from violent clashes over the country.
Thousands are in the streets, angry at high unemployment, shattered and dysfunctional services and rampant corruption.
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How much genuine control does the Iraqi government have over the country? I have no idea.
But it’s no stretch to think that it could break down into warning militias in a worst case scenario. Or even oil workers being disrupted at the very least.
All this puts another worry of further disruption to another major oil producer in play.
And yet, oil remains rangebound…
IMO2020 still in play
If nothing else, oil’s subdued price response to all this puts the worry over the global economy in sharp context.
There’s just no bull narrative that looks likely to drive many investors to go long oil.
My thesis to take some positions here was not built on the idea of strong economic growth. It was around the IMO2020 environmental rules coming. These require the global shipping industry to convert to low sulphur fuel — and not use the dirty stuff they burn now.
These are a danger to economic growth.
They have the potential to drive up middle distillate cracks — and therefore oil.
We’ve got two months still to go to find out if this idea was worth the trouble.
Here’s one thing we know about investors: we’re an impatient bunch. We want big returns and as fast as possible.
There’s a constant temptation to ditch an idea that dawdles a bit too long for our liking.
That’s not always a wise move.
Impatience can be costly
The small-cap stock Credible Labs Inc [ASX: CRD] springs to mind here for me.
I recommended it last year around a buck per share. For eight months it drifted lower on low volume.
I saw a great opportunity and a management team going about things in the right way. I never understood the market indifference at the time.
But a falling price is always a tricky proposition with small-caps because they often don’t have profitable operations yet. The downside can loom large.
In this case it worked out. Credible took off like a rocket in the space of about four months. Go figure.
There are times when you can make a fast buck in the market.
But there are some companies where I’m prepared to back the team over the long haul. My energy stocks are like that.
They can still work out with oil around US$60. Any higher and things get really interesting.
It’s not as if momentum is easy to find in the market currently.
It’s choppy waters mostly. The good news is the recent results from the last quarter will start to filter through over this month.
These are usually good catalysts to get things moving again as the market prices in the new information.
This will be most interesting. The mainstream press is battering us all with negative headlines around recession and the usual negativity.
But the Aussie market has been very resilient this year. The heavy selling over the last few days has been atypical in the context of the whole year.
I don’t think it’s time to pull the plug on stocks just yet.