As someone who is not at all an expert (as you seem to be), I would agree that it hasn't seemed like the markets have priced in the oil shock very much at all. There seems to be this idea that DJT will somehow fix this and everything will go back to normal instantly. But when you're talking about physical commodities that need to be moved around the world, the effects can last for a pretty long time. COVID shutdowns should have showed us how long supply shocks can have an effect.
I generally am betting on incompetence and stupidity from this administration leading to higher oil prices for the long term. And that doesn't seem to be showing up in the markets yet.
Even if the war concluded tomorrow, it would take 6 - 9 months at minimum to i) turn back on production that has been turned off in the middle east, and ii) refill strategic reserves that are currently getting drained. Enough damage has been done already that it starts getting hard to underwrite < $85 oil by year-end even if things were resolved tomorrow.
This administration and trump himself has stated that it will not go back instantly. They are aware that it will take some time for things to normalize. It’s not a secret that they traded this aspect for what they see as longer term stability with Iran going forward and into the future. As far as botching it time will tell.
Every time someone starts screaming that the sky is falling after a trump administration action has turned out to be pretty much wrong. Tariffs and stock market crash anyone? The market makers for sure are going to do what they do. They will take advantage of any news and will play the market just like they always do.
And please don’t turn this into a political bashing contest.
They already botched it. The current admin would have never got involved here had they thought for a second that the Straight of Hormuz could be closed as a result. To their defense, Iran couldn't close the Straight, nor did they close the Strait, so they were right there. What they didn't underwrite though is that the insurance agencies could effectively close the straight by cancelling policies to any ship who dared the passage, which is what ultiamtely happened here.
Regarding your 'sky is falling' comment. This is different. This can't be fixed with a tweet. We are talking about upwards of 20% of global petro inputs stalled for over a month now. You're living in a fairy tail if you think this is anything remotely like the tarrif shock. Institutional capital has de-risked over recent weeks..
Sure, could trump tweet tomorrow that a deal has been reached? would equities surge? and oil tank? Yes, that is all very much realistic. But that would be a short term, knee jerk-like reaction to a structural contagion that was already let loose. I'd be trimming my broader equities exposure, and buying oil producers in this event. Similar to what I did last week when the ceasefire was announced when I put in a significant buy on Petrobras.
I'm neutral equities today so don't think we'll see things decay too quickly; But Sticky oil prices, inflation and rates, will ultimately lead to a win for the bears by year end should that occur, in my opinion. I'm trimming on overly optimisitic market reactions to Trump tweets and expect to be underweight equities shortly!
One to watch here is one I bought and recently and recommended here that has gone through a tough streak and its starting to move- BX. They are the gold standard in their space...though many of the private equity companies have taken it on the chin.
It seems that storm is starting to subside in private equity....their earnings come out on the 23rd and there must be some inklings or leaks that it will be good because the stock is up $5 today on no real news. Plus, it pays a 4.13% dividend at today's price....so better than the UST money market funds. FWIW, I recommended it a month ago or so here.....I still think it's a good LT buy now.
I wouldn't invest in the equities of asset managers directly today. I would, and do, dabble however in some of their underlying BDCs where private credit contagion fears have been overblown. Names to consider there would be GBDC and SLR for example, though both are already starting to recover slightly in recent couple weeks.
If you want PE, buy into a recently launched interval fund. You'll avoid all the market related volatility of holding the equities such as BX. CAPVX is where I park ~17.5% of my 401K and would fit your bill here but isn't easily traded and need to be willing to sign up to a longer vision.
interestingengineering.com
