- 2023 prospects for a highly profitable (highly volatile) industry
- Zach Scheidt: “Some of the safest income generators” today
- James Altucher on AI’s playground (with a “price tag”)
- A censorship KO in Arizona
- The debt ceiling drama drags on… Terrible ideas never die… And more!
Go figure: The hottest sector of the stock market in 2022 remains the most unloved of 2023.
The energy sector returned 65.7% last year — in contrast with the S&P 500’s drop of 18%.
The three biggest Western oil companies — Exxon Mobil, Chevron and Shell — booked $132 billion in profits last year — of which $78 billion was returned to shareholders via buybacks and dividends.
“Yet many investors are still keeping their distance,” says the front page of today’s Wall Street Journal.
“Some shareholders deserted U.S. shale after incurring losses in the industry’s debt-fueled oil boom in the 2010s, and fear a repeat. Others such as pension funds, endowments and faith-based organizations have sold some or all of their oil-and-gas holdings, citing concern about the industry’s greenhouse-gas emissions.”
The Journal story implies those might be insurmountable headwinds. That’s not the view from here at Paradigm Press Group…
Still, it’s a fair question: The energy sector runs notoriously hot and cold. After such a huge run-up in 2022 (and 2021 before that)… isn’t it time for a cooling off?
It’s true, as the Journal piece points out, that many investors got burned by the shale boom and subsequent bust a decade ago.
The energy sector was an early beneficiary of the Federal Reserve’s massive money-printing extravaganza post-2008. Companies took on ungodly amounts of debt to fund huge and costly new projects on the assumption that $100-plus oil would last forever.
But then oil prices started to collapse in mid-2014 — bottoming out in early 2016 at a low, low $26 a barrel. Bankruptcies and reorganizations followed.
Boom and bust… It’s an old story in the energy patch.
“Oil companies are often seen as incredibly volatile investments,” acknowledges Paradigm’s income-investing specialist Zach Scheidt. “In other words, they typically carry a lot of risk alongside their potential reward.” Not conducive to the reliable, long-term income streams he seeks out for readers of Lifetime Income Report.
“But oil stocks could be moving away from highly cyclical investments to become some of the safest income generators in today’s market,” Zach suggests.
For one thing, oil and gas companies pulled in their horns once the 2014-16 bust began to unfold. Result? “Years of underinvestment in oil and natural gas projects mean we aren’t producing nearly enough fuel to meet demand. This imbalance laid the groundwork for surging prices and high volatility in the energy markets.
“Other factors like the ongoing war in Ukraine and the historic OPEC cut are applying added pressure to the oil supply outside of the regular ebbs and flows. Again, these factors provide long-term support for high prices.
“Even though crude oil’s price has pulled back some from its peak, I expect it to rebound quickly and potentially soar even higher over the next several months. This next surge in oil prices could trigger another wave of payouts for shareholders of big oil companies.
“These companies have already used their profits from earlier this year to attract new investors and make their businesses more resilient overall.” [Zach has several energy names worth your consideration in the Lifetime Income Report portfolio — perfect to insulate your finances from the ongoing ravages of inflation.]
Even if a recession sets in during 2023, energy prices are set to remain robust, in the estimation of Paradigm macro maven Jim Rickards.
“While demand is declining because of the coming recession,” Jim wrote his Situation Report subscribers last week, “it’s the case that supply is declining even faster.
“Unlike early 2022 when the supply disruptions were largely logistical and geopolitical, the supply problems today are fundamental.”
They include the Biden administration’s limits on oil and gas production as well as the green-energy subsidies loaded into the “Inflation Reduction Act.”
“Energy companies will keep existing fields in production, although they are rapidly depleting,” Jim says. Meanwhile, “new fields are not coming onstream because of the hydrocarbon animus of the Davos crowd.”
Bottom line: “Oil companies will prosper in this environment not because of new output or higher volumes, but because of much higher prices on existing levels of production.”
In the meantime, oil prices are slipping again today: A barrel of West Texas Intermediate is back below $73 for the first time in over a month.
The major U.S. stock indexes are adding to Friday’s losses, but it’s nothing extreme: The Dow is off a quarter percent at 33,829… the S&P 500 is down a half percent but still holding the line on the important 4,100 level… and the Nasdaq is down nearly three-quarters of a percent, back below 12,000.
Bonds continue selling off, pushing rates still higher: The yield on a 10-year Treasury note is over 3.6% after dipping below 3.35% only last Thursday.
Precious metals are getting their bearings after the stomping they got late last week — gold at $1,868 and silver at $22.27.
“Artificial intelligence will continue to be a fun and revolutionary playground up until one very specific moment,” suggests Paradigm’s James Altucher, a veteran of the venture capital space.
“Someone will slap a price tag on it.”
James makes the following analogy: “You receive a fishy email. It’s from a generic name, like William Johnson or John Williamson. You may know someone by that name, it’s hard to remember. It might be something related to your work, or a contractor you reached out to, so it’s probably a good idea to read the message. But your guard is up.
”William or John supposedly talked to you in September about getting some work done on your house, which rings true as you were thinking about getting your deck redone. You keep reading.
“Mr. Johnson or Mr. Williamson only needs $100 now in order to get started on the job, which he can supposedly do for only a quarter of what other contractors are charging!
“There it is. Get out of there. Nothing sets off your fraud detector like a highly visible price tag.”
James saw it happen with dot-com stocks in the late ’90s. “When people were introduced to websites and email, there wasn’t a mind that went unblown. The possibilities were unlimited.
Then came the dot-com stock. A price tag.
“After that, there were 10 websites for every one worthwhile idea, and a stock to go along with each one.”
He saw it happen again with crypto: “When Bitcoin first hit the scene in 2009, it was the perfect answer to the closed-door finance that sunk the economy in 2008. At the time, nobody expected cryptocurrency to become almost synonymous with fraud.
“The ‘crypto moment’ will quickly follow the monetization of AI,” James avers.
“You’ll soon have to be wary of whether an AI can actually quickly and affordably diagnose your medical conditions. Or if you should give a revolutionary new machine-learning antivirus program full access to your computer.
“An AI rogues gallery will eventually fill out, just like how SBF and Do Kwon ended up playing the roles of crypto villains.”
All that said, “Dot-com stocks didn’t kill the internet,” James concludes, and “FTX won’t kill crypto. These technologies attracted fraud because opportunists saw opportunity. They just didn’t have any good ideas to back up their ambition.”
Others will. Our editors will separate the wheat from the chaff — so you don’t have to. Stay tuned.
In the meantime, James is eager to alert you to an opportunity made possible by something called Senate Bill # 700. He believes it has the potential to deliver early investors 56 times their money over the next couple of years.
James is so enthusiastic about this tiny company that he’s convening an exclusive briefing set for this Thursday at 1:00 p.m. EST. Access is open right now at this link.
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A judge in Arizona has just struck a blow against crony capitalism — and censorship.
As you might be aware, the Super Bowl is next Sunday in Glendale, Arizona. With many visitors descending on downtown Phoenix, the NFL prevailed on the city to enact an ordinance declaring a “Special Promotional and Civic Event” area in which all yard signs had to be authorized by the NFL or the Arizona Super Bowl Host Committee.
This edict was anathema to Bramley Paulin, owner of two downtown properties. “Paulin said he hoped to sell advertising space on his building to brands like Coca-Cola’s Powerade,” reports KTAR radio. “But court documents said Coca-Cola turned down his offer, noting that his property was in a city-designated ‘clean zone.’”
So Paulin sued, with the help of the Goldwater Institute: “The ordinance effectively gave for-profit companies the unrestricted power to choose what messages they were willing to allow in a large section of one of the nation’s biggest cities,” says a statement from the Goldwater Institute.
Even worse, there were no specifics in the ordinance about what was and wasn’t permitted. No wonder Coke’s lawyers were wary.
It was all too much for Judge Bradley Astrowsky: “There is no legitimate government interest in content-based regulation of signs,” he ruled, “let alone regulation of signs based on the content preferences of private businesses that are given special privileges by the government.”
Hear, hear.
“I have to credit Danielle DiMartino Booth for this insight, but let’s suppose that the debt-ceiling debate drags out until June, and then the ceiling is raised,” writes a member of our Omega Wealth Circle.
“Up until that time, the Treasury is prohibited from selling any more bonds, bills or notes, so they ‘borrow’ from other accounts to keep paying other bills.
“Then the debt ceiling is raised, and suddenly, they need to sell a trillion dollars or so in new debt to restore the money they borrowed. Meanwhile, the Fed has said that they will continue their quantitative tightening (and thus would not be buyers of this debt), and other countries seem likewise to be reducing their holdings of U.S. debt.
“So the question is: Who is likely to buy a sudden huge slug of debt? In her words, ‘Could get interesting!’”
The 5: Jim Rickards is hard to reach right now — he’s en route to Antarctica, matter of fact.
But we suspect he’d tell us the Fed and the Treasury could simply order their network of “primary dealers” — a couple dozen of the biggest banks — to buy the Treasuries whether they wanted to or not.
Yes, that would put a dent in bank profits — which ordinarily the powers that be don’t want to do. But in a pinch, they’ll do it anyway.
Then again, it might not come to that. We’re already seeing a revival of interest inside the Beltway in the issuance of a trillion-dollar platinum coin — proof that terrible ideas never die, they’re just pulled off a dusty shelf as expediency dictates.
Best regards,
Dave Gonigam
The 5 Min. Forecast
