What Looks Out Of Place Here?

I will offer a hint, as I have highlighted Antero Resources (AR), Southwestern Energy (SWN), and Range Resources (RRC).

If you can figure out why, you are well on your way to earning substantial rewards.

Best of luck to all,

WTK

Quality Over All

Earlier today, a public article I posted about Antero Resources (AR) was published on Seeking Alpha. You can find it under this title & link, “Antero Resources Is A Generational Buy: Dispelling The Myth Of Antero As A High-Cost Producer“. While writing this article, and spending a lot of time researching commodity equities, and more specifically energy equities the past 5 years, really the past 7 years, that has snowballed to an almost obsession now, due to the inherent undervaluations, I have slowly worked to the conclusion that most market participants have become over obsessed with quality and/or perceived quality.

What do I mean by this?

In the case of Antero, almost all long/short fund managers I know, are long Cabot Oil & Gas, and short Antero. The relentless price action in favor of this trade, has essentially eradicated valuation sensitive and price sensitive money out the door.

Building on this narrative, the Darwinian survival funnel of the markets, has led almost all investors to the same securities the past decade, a ending place where quality and dividends are praised above all, and the perceived quality, and sustainability of dividend growth, and/or yield is worshiped.

The end result of this process is a bubble that is bigger than the late 1990’s bubble, more pervasive, and more driven by longer-term sovereign interest rates than anything else.

Wilshire 5000 Version

Looking back to 2018, GMO laid out a path for a classic bubble for the S&P 500 Index (SPY), and we are there, as the following graphic illustrates.

Looking at the above, once we peak, and roll-over, the path is frightening, something many market participants have some how forgotten following 2007-2009, and 2000-2002.

Really, though, it is worse than that, as yield-oriented investors have been pushed out the risk curve, and the perceived quality equities, namely the dividend payers, have become essentially the longest duration bonds.

I wrote about this with my Procter & Gamble (PG) public article, titled, “Procter & Gamble Is Historically Overpriced.”

Jumping straight to the punch line, what happens when almost all market participants embrace quality, perceived quality, and are piled into essentially the longest duration assets, chasing yield, when longer-term interest rates rise?

Who is prepared for this?

Will this lead to the historic bifurcation between the “Have’s” and the “Have Not’s” being closed?

My vote is a resounding yes!

My July 18th, 2016 Oil Forecast

(Travis’s Note:  This article was originally published on May 14th, 2018, and is being republished on October 28th, 2018, to add to the archives).

  • The snapshot below shows my 7/18/2016 oil price forecast.
  • How it helped.
  • How it hurt.

One of my long-time members of The Contrarian, a friendly fellow from New Zealand, bookmarked my July 18th, 2016 oil price (USO) forecast, and posted it to our forum several days ago.  Here is the snapshot of the oil forecast below, with the forecast highlighted in yellow.

Ultimately, knowing the “macro”, and getting it right, is usually helpful, however, in this case, it has been very painful, at least in the short-run.

Why is that?

Well, despite a near tripling of oil prices from their 2016 lows, there has been a dramatic divergence in energy equities (XOP), (XLE), (OIH), particularly the energy equities that should benefit the most from higher oil prices.

This has created a huge opportunity right now, IMO.

Hopefully, many can take advantage of this divergence, which is just starting to get resolved,

WTK

Disclosure: I am/we are long the positions in the contrarian portfolios.

Additional disclosure: Every investor’s situation is different. Positions can change at any time without warning. Please do your own due diligence and consult with your financial advisor, if you have one, before making any investment decisions. The author is not acting in an investment adviser capacity. The author’s opinions expressed herein address only select aspects of potential investment in securities of the companies mentioned and cannot be a substitute for comprehensive investment analysis. The author recommends that potential and existing investors conduct thorough investment research of their own, including detailed review of the companies’ SEC filings. Any opinions or estimates constitute the author’s best judgment as of the date of publication, and are subject to change without notice.