Over the last four years of writing, I have over time proved “more” correct on the consequences and “less” correct on the timing and magnitude. All the logic and math in the world often gets overwhelmed by “the emotion to save grandma.” But eventually, math always prevails.
Early in 2019, I called for oil and gas companies to stop growing production until OPEC spare capacity was fully depleted so that supply-demand fundamentals would play a larger and more predictive role without events like September 2014 and March 6/8 of 2020. I was 16 months early and it would be 3 years before it became the standard business model. Had we stopped growing in 2019, the US would have produced 300 mmbo less, Russia and Saudi couldn’t have flooded the market, companies could have better withstood COVID with less debt and oil probably doesn’t go negative.
In early 2020, I called for significant consolidation in the industry to reduce “the CEOs per bbl” and make the industry more capable of managing depleting inventory and increasing ESG pressures. In 2022, we see it everywhere and with stronger balance sheets, higher quality assets and better ESG greenwashing, Exxon has been named in the top 10 ESG companies. What a turnaround. Ironically, Tesla was removed, but we will return to Tesla shortly. I am still pulling for the Exxon / EOG merger.
From March 2020 - …. It’s unclear when it became more of the mainstream view but until then… - I warned of the consequences of COVID monetary policy, lockdowns and mandates. I could probably have been less extreme in my examples and call to action so as to bring more people along instead of alienating with visions of “you just want to kill my grandma” but for those that know me, I have a propensity for the dramatic and exciting. Plus, fear was being peddled by the government and media and independent voices were being censored and silenced, so it really seemed like a bat-$hit crazy position to take. But on March 22, 2020… I was writing about it.
Today, we are fully in the hangover from 2 years of horrific monetary policy and a trade war with China without bullets. Take note of their lockdowns today. Their buying coal. Their not releasing oil from their strategic reserves despite the global agreement. their buying our SPR oil released. And their alignment with Russia. It’s worth revisiting the article I wrote above for context. A great change is coming in the global reserve currency and the sanctions on Russia and freezing their USD foreign reserves was a huge mistake.
Meanwhile in the West, “We” created a bubble in assets (think companies with little to no profit or built on an app platform or on the construct of “fake currency” like crypto) that we are now seeing explode. An example? Tesla is, in my view, going to sub $50/share (not investment advice) and I have long said that Elon primarily wanted Twitter as an excuse to sell stock and remain the world’s richest man. This from April 14.
Thus far, he is winning, has exposed the censorship of the left, and put the SEC in a horrible position as a continuation of their multi year battle. So far, Elon for the win. I love it! The left who cried so much about his plans to Twitter it are now going to try to legally force him to buy it. What drama!! Welcome to the crazy stock and bubble burst year 2000, again.
Secondarily, interest rates on the heels of 2008 have remained far too low, especially through 2021, even if you can excuse the $6.5 trillion of American stimulus, much with nothing to show for it, much going to the top 10% and largely driving huge inflation. This cheap money and the love of houses led to a buying spree unparalleled since … well, 2008. As an example, the house we bought in Arizona in 2019 is up 150% in 3 years. I’m listing it for sale today. I learned from OneEnergy that when you have a win, you’ll never time the market but macro forces are more influential to gains than being a slave to “hold it for 30 years and I’m sure you will be fine.” I will buy back when the bubble bursts and I predict it will be down 30-40%. As a side note, I hope the buyer doesn’t read my morning notes.
So here we sit, the love child of 2000 and 2008 birthed, exacerbated by the exact same mistakes and the scales are about to be tipped further to disaster. We have been talking about the massive food and energy shortage for months that WILL hit the world this winter. Even removing sanctions on Russia won’t be enough and I truly fear the reimplementation of lockdowns to reduce energy demand and support food rationing globally. For a glimpse into what’s possible in a country near you, I strongly encourage this article by Michael Shellenberger on the collapse of Sri Lanka this week.
Thanks DRW. Really uplifting. I know. After this article I’m taking a week away to let everyone recover. There’s lots to read but even more to think about. I went down the rabbit hole day after day during COVID and I don’t plan on doing that with this topic. Moreover, I’d love to read your comments and thoughts but thus far and with extreme prejudice, I am positioning for collapse and remain long AF energy because we can’t live without it and until the climate and ESG narrative is irrevocably destroyed with all those espousing it swept from power, we will be short energy when the lockdowns inevitably end.
“We” followed “the Science(TM)” into economic theory, pandemic response and climate change. Reality called and it wants logic and critical thinking back. This, too, shall pass and we will go back to life “as usual.” My sincerest hope is we don’t repeat the mistakes of 2000 and 2008. But hope is not a plan so selling almost everything and watching from the sidelines is the best I got.
This is awesome. I'm getting ready to go about half cash and am also super long oil. Canadian O&G names that are doing buybacks at these pulled back levels are going to be amazing next year. Great article.
These past years are another reminder that technology may "advance" but people don't. My favorite saying in the Bible is "A prophet is not without honor, except in his own country, and among his own relatives, and in his own house. " Great feeling right? But protecting against the risk of ruin is the most important thing you can do to survive, and we apparently are in for another generation that will learn this the hard way.