(Houston)

Investors in oil need to be aware—the market is increasingly looking like a price surge is in store. Supply constraints are currently looming over the market, which has pushed prices to a 3.5 year high. Now, some are calling for a spike that would take oil to $150 or, almost double the level of now. The call comes from renowned research house Sanford Bernstein. The logic is that the oil price tumble over the last few years has caused “chronic underinvestment” in supply which will power the next “supercycle”. According to Bernstein, “Any shortfall in supply will result in a super-spike in prices, potentially much larger than the $150 a barrel spike witnessed in 2008”.

FINSUM: The view here seems sound. However, we must saw\y that there is one overarching logic that bothers us about this call—that the world has bountiful oil that has becoming ever cheaper to extract. That makes us think supply constraints could be overcome more quickly.

(Washington)

In a cruel twist of fate, guess who the biggest losers are when a country imposes tariffs on imports? Its own exporters. The reason why seems to be two-fold. Firstly, the tariffs on imports take cash away from foreign countries to buy exports. Secondly, such tariffs often lead to retaliations, which then shrink the size of exports (e.g. what is happening to Harley Davidson right now). The link has been well understood by economists for almost a century, but new research shows it concretely in trade flows. Overall, the trade balance does tend to improve, but exporters suffer significantly.

FINSUM: The problem is that trade wars are almost a zero sum game. That said, the US has a better bargaining position than usual in this one.

(New York)

We have been hearing it for a couple of months now—it is time for financial stocks to shine. Yet, financial shares are having a pretty poor year. The reason appears to be the flattened yield curve. However, a new academic study finds that it is not primarily the yield curve, but rather short-term rates alone that dictate most of financial share performance. The spread between government and corporate bonds is also a factor. Looking at historical performance of financials as compared to rates, it seems like financial shares are about 9% below their fair value.

FINSUM: As our readers will know, we are not fond of historically-driven strategies, but we do give this one credit in that it is finally a new way of looking at the situation in bank shares.

(New York)

One of the bright spots in the stock market right now is that analysts have been revising up their earnings estimates. That is a break from usual practice and is being driven by increasingly rosy views of how tax cuts will play out for companies. But those revisions create opportunities, especially for stocks which are seeing enhanced forecasts but whose share prices have been stagnant. According to Barron’s, Intel, Marathon Petroleum, Lockheed Martin, and Michael Kors, all look likely to do well in the near-term because of this mismatch. Intel, for instance, has seen soaring revenue numbers and trades at only 13x projected earnings.

FINSUM: The logic on these picks is interesting, as it seems to be a short to medium-term value play. Interesting and diverse group of names to look at.

(Chicago)

It was only a matter of time until US industry started to feel the pain of the current American-led trade war. Now it is happening. US manufacturers are reporting rising costs and difficulties in sourcing ahead of the tariff deadline. These companies say that the metal tariffs, combined with the threat of falling export business, all caused by tariffs, is threatening to make them stop hiring or making new investments. “We had a good year last year, and we’re in the middle of a good year this year. But we are very concerned about the tariffs”, says an Ohio manufacturer of excavation equipment.

FINSUM:That penultimate sentence is the most scary of all—that manufacturers may stop hiring and investing. That would be a leading indicator of a coming recession, especially if it has a trickle down effect to other sectors.