It's a great big world out there. I will use my favorite cliche once again and wrap a couple topics into this RM column. As a financial analyst, one is an amateur statistician - although some hedge funds do hire trained statisticians - and the numbers must always lead one's analysis. In this market there are only a few numbers that matter. Most prominent are the numerical yield on the U.S. Treasury 10 year Note, at 1.28% today, and the amount of Fed support of the bond markets, still at $120 billion per month. That's what U.S market players care about. Oftentimes it seems like this myopia is universal amongst U.S. fund managers. So, tech, tech, tech. Woot!
The only problem is that such non-analysis totally ignores the rest of the world. Granted the ECB is even more dovish than the Fed, but what is happening is that all this cheap money is flowing around the world. That drives up the price of commodities, and that, in turn, leads to "imported inflation" in the USA. Get used to it. It will only get worse. Much worse.
As I have mentioned in many (RM) columns, you should have exposure to these commodities to steel your portfolio against this inflation. I mentioned Exxon (XOM) in yesterday's column, but that is far from the only way to play commodities. Prices for oil and natural gas are at levels that are incredibly profitable for any company that is pumping them. As I mentioned in the XOM piece, natgas, as measured at the Henry Hub, is sustainably holding $4/mmBTU for the first time since 2014. Oil prices are down a little today, but both Brent are WTI are sustainably holding $70 per barrel also for the first time - barring a spike in 2018 - since 2014.
Thanks, JPow! Thanks, Janet! Not everyone is driving electric cars just yet, though. So, as fun as they are to drive, Elon's Teslas (TSLA) and the eco-friendly love bugs produced by Herbie (Diess, the CEO of VW (VLKAF) ) are still a very small part of the global vehicle fleet. Certainly less than 1% of the total global vehicle parc, and maybe 4%, probably closer to 3%, of global new vehicle sales in 2021.
There were four first-name references in the last column, but it is the guys (they are all guys) you don't know that run the oil majors that are creating shareholder value here. I couldn't pick Exxon's Darren Woods out of a police lineup, but if I did, instead of exonerating him, I would be charging him with the crime of insufficient share repurchase in the face of the commodities price boom. Ha! Sorry I couldn't resist that. I honestly have no idea who runs the world's other oil majors (I think BP's (BP) CEO is Bernard Looney, but would not stake a large sum of money on that) and I really don't care.
Like a coiled spring that is beginning to unwind, the energy companies that were wise enough to keep investing in the midst of the COVID crush are now reaping the benefits. Offshore plays like Guyana/Suriname, Nigeria and Namibia are proving to be extremely fruitful. Also, forward thinkers like New Fortress Energy's (NFE) Wes Edens (whose Milwaukee Bucks just brought home their first NBA title in 50 years) are all over the building of new terminals for the import/export of liquified natural gas. LNG is as hot as Finals MVP Giannis Antetokounmpo now. Make sure there is some exposure in your portfolio. I still like Flex LNG (FLNG) , and Edens' New Fortress now controls the LNG fleet of Golar (GLNG) .
But, as I learned in 2014, you can't have a portfolio composed entirely of energy names, enticing as the cash flow might be. If you want to short a few names to protect your energy, again, I would look at what is happening around the world. Pakistan just joined the 1 million-pus club today in the COVID case count - the 30th country to do so - and this virus, through its Delta variant, is now an endemic, not a pandemic. So, airlines and cruise lines are still scary to me here.
But there is nothing as scary as genocide, and that's my final name in this column. As hard as it is for me to see an ice cream company billboard above Penn Station that features a failed NFL quarterback (sorry, Niners fans, but I think Kaepernick is still trying to find a wide-open Michael Crabtree 8.5 years later; he certainly couldn't do it in Super Bowl XLVIIt) that's just a game. But what Unilever's Ben & Jerry's brand did in Israel this week is quite literally nauseating to me. As with many oil company CEOs, I had never heard of Unilever's CEO (Alan Jope) until this week. But I know him now. His company's half-hearted denials and subsequent buck-passing to Ben & Jerry's "independent" board of directors for the decision to stop working with a distributor in Israel's Judea and Samaria made me as sick to my stomach as eating Ben & Jerry's horrible ice cream does. I am sure that RM's editors are very happy that I am out of column space here, but I am never out of mindspace or portfolio space.
So, I checked this morning and my clients and I have no exposure to Uniliever and I am quite certain we never will. It's a great big world out there. Make sure your portfolio reflects everything that is happening in it. Everything.
