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Good day, all and thanks for another exciting episode of Monday Thoughts.
On a Tuesday, because of the King’s Birthday, which, I overheard at the golf club yesterday, is the longest consistently running Australian Public Holiday we have.
A cracking arvo standing in the winter sun on Sunday for the annual Beer Food Footy Festival at the nicest ground in all sports, North Sydney Oval.
Fills my heart to see so many out there watching the footy and encouraging the return of my Bears to the adults table. Won’t lie though and I always try to support the smaller brewers, but there’s only so much craft beer you can drink before it becomes too much of a pain and you find yourself looking for the Carlton Draught again.
“Another $11 can of cherry-infused lager, Jimmy?”
“Yeah…nah…maybe I’ll just grab a VB from the main bar.”
That being said, the winner for me was Freshwater Brewing Co. with their Freshie Hazy Pale. A lovely drop that doesn’t knock your head in.
Speaking of the golf club, the conversation there often revolves around portfolios, especially when the old boys hear what I do for a crust. Invariably, there’s a view on gold and I’m standing by my long-term target of 5000 USD. As for the goldies, now that Gold Road Resources has been taken over (great pick by BPC Research there), we need another key pick and I’m still sifting through a few names trying to literally find the gold.
We talk about allocations at length on the latest episode of the Theory Of Thing podcast with special guests Billy Leung of Global X and Kieren Berry of RiverX.
Link Here if you want some deep insight and laughs.
In this morning’s advisor meeting, we discussed oil and future directions, so I thought I might post a few things on the space since I think it’s going to move shortly.
Source: Bloomberg NEF
Jet Fuel demand has not been stymied by Tariff Man.
Difficult reconciliation for me is that I do believe the US heads into an extraordinarily thin recession, too. This is on the back of things not getting to shelves in time for summer purchases and other tail effects from what I’m now calling “Stupid April” (I’m working on a better name)
However, it will be such a thin recession it won’t even be called one. A blip on the radar, but enough reason for multiple rate cuts.
Jobless claims are at 8-month highs in the US, and I see more to come.
If you want to get really negative on things, there’s a Twitter thread about participation that is a grim prediction on the economy. Fewer people are in the workforce, and not by choice.
Source: Julien Bittel, CFA - X
Oil looks forward, though and at a basic level it’s a production story anyway.
In the US Shale space, rig counts continue to implode.
Source: Captain Foresight - X
As the cost to produce is just too much compared to the price received on sale. The cyclical nature of the oil market means this will help stabilise the price.
As the saying goes in commodities, “the cure for commodity prices is commodity prices”
Expect oil to tilt up a little from here.
Technically, WTI is knocking on the door at these levels.
Source: TradingView
Pass through $65 and $72 comes into play, then we’re on. For that to happen, with really do need the wheels of global trade to properly turn.
There are two small-cap oil names we prefer that I won’t go into here, but I’m more than happy to walk through them with anyone who wants to get set in the space.
Also, there’s no better inverse predictor quite like Barron’s
Source: Barron's
Now to broader markets, and we are a bit stretched in the states, but with EPS estimates getting to a fresh all-time high, there’s enough “E” to justify the “P”. The current PE of 22x is higher than I’d like to get really bullish, and the VIX at low levels means insurance is cheap for downside shocks.
Source: FactSet, Edward Jones
But since the market is just seven stocks, it’s not a clear indication of the broader economy. Markets are not economies anyway (except in India)
And a reminder why you never try and get cute with the core of your portfolio. If you miss the best 209 days of the year, you are absolutely toast.
Source: LPL Research, FactSet 3/23/20
On a final note, here’s RIO’s Aluminium Smelter needing a bailout due to energy costs.
Source: Financial Review
They use about 10% of NSW’s generation.
Finally finally, Locksley Resources completed the raise, and the stock has rallied on the back of it and other news. Happy to buy here and hold.
Stay safe and all the best,
James
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