Local Knowledge
Sometimes the answers are right in front of you
We’ve done rather well in being conservative in our investing in the last month.
The S&P is down 4.1% from its highs, the DJIA off a similar 4.6%. Oil, while showing continuing strength on the back of a screaming commodity sector rally including natural gas prices in Europe, cannot maintain its own price above $70 a barrel, even with the continuing difficulties in the Gulf of Mexico caused by hurricane Ida.
But, the question going forward is obvious – when do we wade back in?
There hasn’t been a dip in the last 12 years that hasn’t paid dividends when it’s been bought – and I’m hardly the guy to tell you that this time is different. Even the pandemic collapse in March of 2020 was just another opportunity where stocks roared through previous highs even in the midst of a national health crisis.
Particularly in oil stocks, this dip in the markets has to be considered temporary. The crisis in energy in Europe is showing just how premature the aggressive reliance on renewables can turn out to be – with good old fossil fuel supplies struggling to meet ever increasing demands for energy — of any sort — in Europe.
The US isn’t going to find itself in that kind of energy shortage, we have too many fossil fuel choices still. But the upshot for us as investors is that the global dismissal of fossil fuels – and the energy companies that make them – for the coming renewables ‘revolution’ has made this sector the best value by far in a very overvalued market overall. Whatever downturns oil stocks take on the back of a tightening FED or ramping Delta variant infections are going to prove to be added bonuses for buyers of those stocks at some point.
But when? That’s always the question.
Sometimes your personal experiences can give you a bit of extra insight. Let’s leave the Fed tightening alone, assuming that they’ll not be swayed by this latest dip in stocks and will restrict bond buying by the estimated $15b a month in November, as predicted by Goldman Sachs and others. Here are three examples in my life surrounding the Covid-19 Delta variant that keeps we wary:
1- Performances of all types in the NYC area continue to be canceled for the coming season. The orchestra I organize has had recent musician drop-outs and put our own season in jeopardy. As Delta numbers increase, this is only going to get worse, not just for entertainment, but restaurants and travel as well.
2- My own broker has had a breakthrough case of Delta, bad enough to require the Regeneron treatment. She’s doing better, but had already canceled her wedding last year in October, and was hoping to do it next month. I don’t think it will happen again. The medical wisdom has said that vaccination will protect you from serious Delta illness. It mostly has, but these breakthrough cases requiring monoclonal antibody treatments has people increasingly (and rightly) nervous about their own health.
3 – Cases are blossoming here in New York, despite being a largely vaccinated state. The re-opening of schools with unvaccinated kids has made them serious spreader agents. Whether you are in a mostly vaxxed state or not, the numbers are headed in the wrong direction, with October looking rather bleak.
Put it all together and I’m not at all convinced that stocks are done going down. This weekly chart of the S&P500 shows an RSI breakdown that looks like it’s far from over:
For all these reasons, we’re going to stand pat with our positions for the rest of September – and likely much of October as well.
There’s a time to be aggressive, and a time to lay back. So far, we’ve been right about laying back. Let’s extend our summer of relative inactivity a while longer.
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