Great write up Jonathan. I also agree, as I am also finding great deals abroad. Much of my portfolio now comprises ex-US companies.
I have to say, I personally am quite bullish on Poland, Vietnam, and some specific countries in South/Central America. There seem to be some great deals in those markets, and they are experiencing some major economic tailwinds.
To keep it even simpler, I think one could do worse than simply just buying an EM ETF and letting it ride for a few years...or more.
Jonathan, great write up. You should also take a deeper look at Pampa Energia, Argentinas, the world's second largest shale deposit. Great value play regarding macroeconomic headwinds and actual energy transitions.
Haha, I actually wrote a full report on them 6-9 month ago for Vintage Value Investing, now FinMaster.
Make me think I should ask them if they are ok for me to write an update of my own, as this might compete a bit with the paid report they have in archive :D
It was a double report, with Pampa in parallel to Copel, a still very cheap and veeeeery dividend generous hydropower producer in Brazil (of which I own share myself)
I would say at the moment, my favourite energy stock are RIG, Petrobras, Copel, CNOOC and Pampa, more or les sin that order.
I am a bit afraid Pampa will have supply issue + Argentina general expectation of screw up and be so slow a doing shale at scale it might miss the boat
In argentina, I own Cresud, very cheap land and bunch of offices and malls for free despite the commoditiy boom
Jonathan, thanks for your quick reply. Three questions: 1. Petrobras: What do you think of the problem of a political shift in Brasil after the next elections. If Lula gets elected don't you fear a massive shareholder delusion of Petrobras stock? There is quite a history of left politician's pressuring Petrobras to suck some money out of them and make some easy gifts to the people and therefore killing the dividend. If you read the discussion under different SeekingAlpha reports concerning Petrobras you might get a feeling of what is the risk there.
2. I really like Cnooc, Pampa and Cresud. What do you think of Glencore? Coal might well be a transitory energy solution until solar and wind are not fully scaled and still growing and atom is still fighting to get a certain lobby. So Glencore with their massive mines and a nice dividend might be a winner for the next couple of years.
3. What's your personal opinion regarding Energing Market ETFs? I have read the comment of one of your readers who suggested in your article ,,The emerging pendulum
A 2-decades long cycle is turning''
that investing in an Emerging Market ETF might be as simple and clever as investing in a basket of certain companies. For me the question is if that is the case and if so, if it's better to invest in an ex China etf or not.
If you invest in ex China the etf will likely have a 20 percent stake in Taiwan with TSMC and other semiconductor companies and will also suffer, even if there are no chinese companies included. But if you invest in an ETF with China the etf has the greater China risk but also a bigger upside. Nevertheless both ETFs do not seem worth the risk right now or in the coming months/years ahead. What do you think?
Regarding Brazil politics, I am a bit worried of it. Overall, lessons seems to have been learned, and frankly, if the current 40%+ dividend yeild went down, I am not sure this is really a bad thing, less political exposure. Previous problem were political stupidity PLUS terribly low prices.
Glencore, not sure. I like coal in theory, but this will the first to crash bad from politics and carbon taxes despite the crisis or if the crisis get less intense.
Also no shortage of spare capacity and quick to re-open mine, not like other commodities. So if high price last, easy to see a flood of new product killing the price anyway.
I do not trade ETFs as a rule, as i have poor access to it with my bank/broker. Also, I like to pick stuff myself, ETF are full of things I would never buy.
I personally feel less worried with a concentrated portfolio of things I understand. Like for example, China ETF are really just China tech. Maybe the tide will turn, but with a large profit going not to tech but heavy industry, or consumer goods or construction companies. ETF don't let your refine an idea.
Might make sense when the bet is a general industry but picking the winners is borderline impossible (exploration miners, R&D biotech etc... )
It is also a good choice for amateur investors that have no time to do or read research. No decision to take is good if you have no data or knowledge to make a decision to begin with.
today I read an article, which really gave me something to think of. I would like to hear your perspective on this.
Kyle Bass, a hedge fund manager, today gave an interview to Cnbc, in which he predicted higher oil prices as we are heading into a recession.
Quote:
,,Bass predicted on Tuesday that oil demand likely won't begin to decline for at least 15 years, as the transition to renewable energy unfolds over a decades-long time frame.
"We believe that you won't see any kind of decline in organic or inelastic hydrocarbon demand south of 2037, 2040. And that's if we really adopt these things at record pace," the founder and chief investment officer of Hayman Capital Management told CNBC.
Bass argued that limited supply of hydrocarbons, like oil and natural gas, will create "enormous moves in the macro world," as countries like Germany see a massive spike in their spending on energy.
"I don't know where these prices go," he said.
Bass contended that the jump in energy costs in places like Europe will lead to more "frictions in society" as lower-income people struggle to pay their heating and power bills.
The hedge fund manager attributed the current dislocation in energy markets to an attempt to transition too quickly to renewable sources of energy. This led to a lack of overall supply, he contended, as people have generally underestimated the amount of time it takes to make a switch in energy sourcing.
"You have to have more oil and gas for a longer period of time than everyone believes for us to get into a proper transition policy," he said. "These transitions take 40 years."
I am not so sure what to think about Bass assumption bacause Historically in all recessions oil prices were declining. Normally oil prices tumble amid fears of recession:
I will aim to make a more complete response in a full article, as this might be one of the most important question to answer right now.
Short version, I expect oil to stay in the $75-$130 (maybe $150) with BRUTAL volatility. Same for gas and LNG.
No matter the recession, short of a global Great Depression, we don't have enough supply. And that without Russia going partially offline, or Lybia, Irak, Iran or any other instable producers that will see riots from food prices and inflation.
So the template is the 70s, where energy worked well, even with several recession. Also because of out of control money printing by EVERYONE, from China, US, Europe, Japan.
You will get decrease in price, confirming the "Historically in all recessions oil prices were declining", but only for a while, as the supply is just not there and will not be for years.
Crash and bounce, crash and bounce.
I will not trade, just sit and collect dividends and watch offshore project dayrate double.
Everybody look a demand, but supply is the one missed.
We are already in a recession and still missing like 1 mmbpd at least. OPEC is maxxed out. Saudi reserve might be VERY much lower than they say.
Remove 2-3 from Russia and no recession is enough to compensate.
He is right that capital wasted on renewables instead of gas+nuclear+geothermal is the cause. Ukraine is just the match that lit the powderkeg we built obsessively for more than a decade now.
Overall, I would expect the problem to be somewhat solved in 7-10y, not 15 years. For sure nothing before 2027-2029, when new oil well come online and SMR nuke (notably by NuScale I cover in the last stock spotlight report) are starting to be put online.
Also by then, all Russia prod (OIL AND gas) will be exported to Asia, but it will suffer in the next 2-4 years
Great write up Jonathan. I also agree, as I am also finding great deals abroad. Much of my portfolio now comprises ex-US companies.
I have to say, I personally am quite bullish on Poland, Vietnam, and some specific countries in South/Central America. There seem to be some great deals in those markets, and they are experiencing some major economic tailwinds.
To keep it even simpler, I think one could do worse than simply just buying an EM ETF and letting it ride for a few years...or more.
Jonathan, great write up. You should also take a deeper look at Pampa Energia, Argentinas, the world's second largest shale deposit. Great value play regarding macroeconomic headwinds and actual energy transitions.
Good article to begin with...
https://seekingalpha.com/article/4415739-pampa-energia-bet-on-vaca-muertaplus-300-upside
Maybe you consider Pampa Energia for a deeper dive article....
Haha, I actually wrote a full report on them 6-9 month ago for Vintage Value Investing, now FinMaster.
Make me think I should ask them if they are ok for me to write an update of my own, as this might compete a bit with the paid report they have in archive :D
It was a double report, with Pampa in parallel to Copel, a still very cheap and veeeeery dividend generous hydropower producer in Brazil (of which I own share myself)
I would say at the moment, my favourite energy stock are RIG, Petrobras, Copel, CNOOC and Pampa, more or les sin that order.
I am a bit afraid Pampa will have supply issue + Argentina general expectation of screw up and be so slow a doing shale at scale it might miss the boat
In argentina, I own Cresud, very cheap land and bunch of offices and malls for free despite the commoditiy boom
Jonathan, thanks for your quick reply. Three questions: 1. Petrobras: What do you think of the problem of a political shift in Brasil after the next elections. If Lula gets elected don't you fear a massive shareholder delusion of Petrobras stock? There is quite a history of left politician's pressuring Petrobras to suck some money out of them and make some easy gifts to the people and therefore killing the dividend. If you read the discussion under different SeekingAlpha reports concerning Petrobras you might get a feeling of what is the risk there.
2. I really like Cnooc, Pampa and Cresud. What do you think of Glencore? Coal might well be a transitory energy solution until solar and wind are not fully scaled and still growing and atom is still fighting to get a certain lobby. So Glencore with their massive mines and a nice dividend might be a winner for the next couple of years.
3. What's your personal opinion regarding Energing Market ETFs? I have read the comment of one of your readers who suggested in your article ,,The emerging pendulum
A 2-decades long cycle is turning''
that investing in an Emerging Market ETF might be as simple and clever as investing in a basket of certain companies. For me the question is if that is the case and if so, if it's better to invest in an ex China etf or not.
If you invest in ex China the etf will likely have a 20 percent stake in Taiwan with TSMC and other semiconductor companies and will also suffer, even if there are no chinese companies included. But if you invest in an ETF with China the etf has the greater China risk but also a bigger upside. Nevertheless both ETFs do not seem worth the risk right now or in the coming months/years ahead. What do you think?
Thanks
Markus
Regarding Brazil politics, I am a bit worried of it. Overall, lessons seems to have been learned, and frankly, if the current 40%+ dividend yeild went down, I am not sure this is really a bad thing, less political exposure. Previous problem were political stupidity PLUS terribly low prices.
Glencore, not sure. I like coal in theory, but this will the first to crash bad from politics and carbon taxes despite the crisis or if the crisis get less intense.
Also no shortage of spare capacity and quick to re-open mine, not like other commodities. So if high price last, easy to see a flood of new product killing the price anyway.
I do not trade ETFs as a rule, as i have poor access to it with my bank/broker. Also, I like to pick stuff myself, ETF are full of things I would never buy.
I personally feel less worried with a concentrated portfolio of things I understand. Like for example, China ETF are really just China tech. Maybe the tide will turn, but with a large profit going not to tech but heavy industry, or consumer goods or construction companies. ETF don't let your refine an idea.
Might make sense when the bet is a general industry but picking the winners is borderline impossible (exploration miners, R&D biotech etc... )
It is also a good choice for amateur investors that have no time to do or read research. No decision to take is good if you have no data or knowledge to make a decision to begin with.
To expand on Brazil. There is a risk, and essentially I hope to milk Petrobras for long enough to make the downside risk acceptable.
Collapse of Venezuela should have taught voter, but Colombia and Chile recently seems to display South America voters as utterly stupid...
A turn into Venezuela is the worst scenario possible, a mild socialism is acceptable and would be tolerable.
A probability game more than a prediction.
Overall, the current price have some of that risk already included, hence the almost 50% Petrobras dividend yield now.
Hello Jonathan,
today I read an article, which really gave me something to think of. I would like to hear your perspective on this.
Kyle Bass, a hedge fund manager, today gave an interview to Cnbc, in which he predicted higher oil prices as we are heading into a recession.
Quote:
,,Bass predicted on Tuesday that oil demand likely won't begin to decline for at least 15 years, as the transition to renewable energy unfolds over a decades-long time frame.
"We believe that you won't see any kind of decline in organic or inelastic hydrocarbon demand south of 2037, 2040. And that's if we really adopt these things at record pace," the founder and chief investment officer of Hayman Capital Management told CNBC.
Bass argued that limited supply of hydrocarbons, like oil and natural gas, will create "enormous moves in the macro world," as countries like Germany see a massive spike in their spending on energy.
"I don't know where these prices go," he said.
Bass contended that the jump in energy costs in places like Europe will lead to more "frictions in society" as lower-income people struggle to pay their heating and power bills.
The hedge fund manager attributed the current dislocation in energy markets to an attempt to transition too quickly to renewable sources of energy. This led to a lack of overall supply, he contended, as people have generally underestimated the amount of time it takes to make a switch in energy sourcing.
"You have to have more oil and gas for a longer period of time than everyone believes for us to get into a proper transition policy," he said. "These transitions take 40 years."
I am not so sure what to think about Bass assumption bacause Historically in all recessions oil prices were declining. Normally oil prices tumble amid fears of recession:
https://www.bloomberg.com/news/articles/2022-07-14/recession-fears-crash-strongest-looking-oil-market-in-years
Actually Kyle Bass seems to be very bullish towards oil prices. Earlier this year he predicted oil prices to head to 120 dollar:
https://www.bloomberg.com/news/articles/2022-07-14/recession-fears-crash-strongest-looking-oil-market-in-years
Is Bass ignoring the history of recession and oil prices or an I missing something? What's your general outlook?
Thanks,
Markus
I will aim to make a more complete response in a full article, as this might be one of the most important question to answer right now.
Short version, I expect oil to stay in the $75-$130 (maybe $150) with BRUTAL volatility. Same for gas and LNG.
No matter the recession, short of a global Great Depression, we don't have enough supply. And that without Russia going partially offline, or Lybia, Irak, Iran or any other instable producers that will see riots from food prices and inflation.
So the template is the 70s, where energy worked well, even with several recession. Also because of out of control money printing by EVERYONE, from China, US, Europe, Japan.
You will get decrease in price, confirming the "Historically in all recessions oil prices were declining", but only for a while, as the supply is just not there and will not be for years.
Crash and bounce, crash and bounce.
I will not trade, just sit and collect dividends and watch offshore project dayrate double.
Everybody look a demand, but supply is the one missed.
We are already in a recession and still missing like 1 mmbpd at least. OPEC is maxxed out. Saudi reserve might be VERY much lower than they say.
Remove 2-3 from Russia and no recession is enough to compensate.
He is right that capital wasted on renewables instead of gas+nuclear+geothermal is the cause. Ukraine is just the match that lit the powderkeg we built obsessively for more than a decade now.
Overall, I would expect the problem to be somewhat solved in 7-10y, not 15 years. For sure nothing before 2027-2029, when new oil well come online and SMR nuke (notably by NuScale I cover in the last stock spotlight report) are starting to be put online.
Also by then, all Russia prod (OIL AND gas) will be exported to Asia, but it will suffer in the next 2-4 years