Matein Khalid
My periodic please-all summer asking my friends to accumulate energy stocks on the 77-65 Brent sell off in July has been vindicated with a vengeance this autumn as energy is the best performing sector in both September and October with the XLE now up a stellar 46%, who could have imagined that Oxy would rise from 10 to 35 when Brent was $35, the world was crippled with COVID lockdowns, Trump swaggered on the global stage from the White House and there was no vaccine in sight in the dismal summer of 2020.
Yet, humanity’s guardian angels led by Fed Chairman J. Powell waved their magic wand and Wall Street began its historic, even Promethean ascent as El Toro Mercado made new highs. To butcher the poet Wordsworth, bliss it was that dawn to be alive but to be leveraged long oil stocks was pure heaven.
BP at 29.76, Chevron at 109, Schlumberger at 33, Mosaic at 42, FCX up a yummy 7% again at 36 and oxy at 35 all make me want to echo the Boney-M hit “she’s crazy like a fool, what about it Daddy Cool”. Yet ironically, the real drama of my life is happening in the late stage Silicon Valley pre-IPO private capital markets but I am sworn to silence on that front until our companies file an S1 with SEC. So, cross my heart and hope to die.
Brent at $84 is not good for the global economy period. A friend from the textile market princeling told me that containers are not arriving from India because factories have no electricity and shipping costs have tripled. The same dismal story is echoed on a far bigger scale in China. US inflation has gone ballistic and the Fed’s $3 trillion QE monetary chickens will come home to roost even as the Leninist wing of the Democratic Party in Congress will demand the public beheading of Uncle J.
The storm cloud have darkened for the world economy but the bulls on Wall Street continued their Merry dance. Yet there will be no Fed lifeboats to bailout the survivors from the icy waters of the North Atlantic when the HMS Titanic finally hits the iceberg, which now looms menacing in the fog. The obvious short in this macro milieu is airline stocks who now face prospect of being wiped out by a surge in Jet Fuel prices as if the pandemic/lockdowns, labour shortage and terrorism was not bad enough.
I guesstimate that we will trade in the 4250 – 4600 range on the S&P 500 Index until the stock market absorbs the bitter truth about the commodities shock, inflation, China’s geopolitical intimidation of Taiwan, the resurgence of Daesh terrorism in Afghanistan, the rise in unit labour costs, dismal US job growth despite 10 million vacancies, the awful comps on earnings growth, the Fed’s tightening timelines and the spike in global bond yields.
Apart from all this, the Queen is at Ascot, the Tories are in power and all is well in this, the best of all possible worlds. So drink the Cool-Aid in boogie wonderland. Don’t worry, be happy, make money LOL.
Matein Khalid is Chief Investment Officer at Asas Capital
