Displaying items by tag: energy

(New York)

Because of how the polls are trending, very few seem to be thinking about the fact that a Republican sweep of all three chambers of the government could happen. When you step away from the polls and think about the fact that Republicans currently control two of the three chambers, it becomes more realistic; and even more so when you consider that polls are likely skewed towards Democrats because of “silent” Republican supporters. If the Republicans sweep, or even just if Trump wins, then the sectors that will surge are energy, banks, healthcare, and defense. In particular, think names like Marathon Petroleum, Bank of America, Pfizer, and Northrop Grumman.

FINSUM: This may be unlikely, but it is not as wildly unrealistic as some make it sound. Perhaps smart to have a portion of the portfolio in these sectors headed into the election?

(New York)

This COVID crisis has made whole areas of the economy uninvestable. Many companies have had to halt operations entirely and as the lockdown drags on it has become more clear that many may not reach their previous levels for years (if ever). One problem is that many stocks and sectors appear to be “stubs”, or stocks that have very binary value propositions. Unless things go very right, they are worth almost nothing. Energy is a good example. If oil prices don’t come back and demand for oil stays low, what is the US oil sector worth? Big brock and mortar retailers are the same—what are they worth if the re-opening doesn’t go well?

FINSUM: This is a useful way to think about some sectors, but the outcomes are probably not as binary as they may seem right now.

(Houston)

The oil market has been the story of the week for markets. The price of black gold fell to -$37 dollars on Monday. The market would technically pay you to take oil off its hands. Even at $20, most of the US oil industry is out of business, so what can the President and the government do to save the market? There are several options. For instance, the government could buy a hundred million barrels of oil for its strategic reserve, or it could create new storage space. However, the option the markets favor is for the government to buy mountains of oil while it is still in the ground, and have producers pay them back as they extract it.

FINSUM: If the government wants to save the US oil industry from a mass bankruptcy—and resulting rupture in the high yield market—it will need to take action.

(Houston)

Is the oil market a leading indicator of what is to come in the economy? Do we have way more supply and infrastructure to deliver it than there is demand to gobble it up? Oil was at $11 a barrel this morning, a mind boggling price. Stocks, on the other hand, have rallied hugely, to the point where it sometimes seems like investors have forgotten the country is shut down. Oil is obviously an idiosyncratic market, but if you really take a look at the situation, it is falling because of a big plunge in demand.

FINSUM: Is the oil market just smarter than equities right now? It does seem entirely possible that given the inevitable contraction in consumer spending, we may have more infrastructure to produce and delivery goods and services than we do demand, which means stocks could be in for a very rough patch.

(New York)

This is a dark day economically. New data is flowing in from many sources, and all of it is pointing to a severe decline in demand that seems ever more likely to push the US into a depression. Unemployment claims came in at another 6.6m this morning, meaning a total of 16.6m Americans have applied in the last three weeks. In other data, fuel and energy demand has fallen so far that it is now at 1960s level. Electricity usage has plummeted on the back of the sharp decline in industrial output.

FINSUM: Let’s do some rough calculations. The US workforce is about 164m people. We started this coronavirus lockdown with just under 4% unemployment, and have since added 16.6m people. By a rough calculation that means we likely have already hit 14% unemployment.