Oil of “Oh HEY!”
While @EquityDiamonds main focus is on finding the absolute best returns at the absolute BEST times to buy the assets with the highest odds of success, sometimes we come upon some interesting history as we calmly monitor the world around us, and put it into HISTORICAL PERSPECTIVE. We use commodity gyrations to gauge where to LOOK in the vast sea of opportunity, which is our world ecosystem, for the NEXT great investment [1]; we turn our gaze unto Oil prices.
Recently? West Texas Intermediate (“WTI”: our typical barometer for oil prices in the US) is trading between $45–47. While you might not think this is cheap compared to many historical prices, you’d be wrong. EquityDiamonds uses a simple inflation-adjustment to PROPERLY measure commodity prices, and when we apply it to Oil we see a low low LOW price right now. But is it low enough?
What we see now is historically significant enough to burn an albino unicorn in to the Bain de Soliel model…
The last time oil (crude, not tanning) was this cheap….
Allow us to walk you thru oil price history — the LOWS of history. We will list all the times oil prices have looked similar to today, so YOU can draw your own conclusions — before we give you ours. Here’s the list of comparable times to our bargain-basement oil prices of March 2020…
January 2016: The nearest comparative.
…when oil traded for about $30. (It didn’t actually bottom until Feb ’16 at $26.06). This was the 2nd cheapest oil had ever been in its short 162 year history. We say short, because oil is a relatively new market in the annals of mankind. Electricity, Frozen Orange Juice (does anyone drink that stuff anymore? Trading Places tho, great movie!), and Bitcoin (commoditized computation) are much newer markets!
Here’s what oil did after this period:
What are the OTHER times besides Jan/Feb 2016 Crude Oil’s gotten this cheap?
Let’s list them out:
You might have guess the awful Oil times right during the “Great Recession”? Nope, not Dec 2008 ($30.28 low), we are actually south of that price today. Let’s go back further. The next closest similar time to our 2020 funk?
1986:
…when oil traded for $10.83. Today we are less than 10% away from that price. That’s pretty bad.
Before that?
1973:
When oil was $3 per barrell. Today we’re also inside 10% of that price. 1973 and 1974 combined were two of the worst years in US economic history. Stocks down heavily — crushing capitalists, commodity prices up squeezing the American consumer, jobs lost, crime up, etc….
Oil going to multi-decade lows should be a great thing, for those filling up their tanks, but not if you owned the post-Nixon US Dollar. They didn’t call him “Trick-Dick” for nothing.
Before that? The Great Depression…
1935:
$0.97 per barrel (3rd lowest ever, 2 yrs after gold made illegal to HODL in US)
1931:
$0.65 per barrel (2 years before gold was made illegal to own in the US). 1931 is right smack dab in the middle of once of the worst asset-price collapses in US history — if not THEE worst. Things like brutally low oil prices, which can help bring BACK an economy, were made worse when the US government instead devalued the savings of Americans by ~40% on a single day in 1933.
1893:
$0.51 per barrel. 1893 might stick in your head a bit, especially when you insert “Panic of…” in front of it.
LAST BUT NOT LEAST: The Big Cahuna of cruddy oil prices…
1861:
$0.10 per barrel. REALLY oil was pretty much free that year→ as oil men begged anyone to cart away the dark stuff as it was overflowing with no way to ship it to end customers. Remember, back then oil (refined into kerosene) was used as a cheaper replacement to whale oil to create indoor lighting in American homes. Maybe whales were in abundance that year too? Bad news seems to bunch up sometimes, eh?
1861 was the year the Civil War “officially” began (really it began in 1857 with the warring bloody “feuds” in Nebraska and Kansas Territories). The oil market in 1861 was just in it’s 3rd year of human existence; worldwide oil drilling had not yet busted out of Pennsylvania yet! Twas but a seedling fighting with blades of grass for sunlight.
The Civil War bottom in Oil will likely never be “bottomed” (topped). In today’s fiat-inflationary dollars, $7 per barrel equivalent would need to be achieved to go lower than this all-time low. Since we are milling-about in the high $40s at the moment, even to an Energy bear $7 is a bit absurd.
Tesla’s Musk sure wouldn’t be happy in that situation! Imagine driving around in a $40,000 Model E whose battery replacement will someday be on the order of $15,000-$30,000, but others are driving around in Toyota Yaris’s at 40–50 mpg with gasoline per gallon back to a 1970s-like 40¢! Perhaps if we had a SECOND American Civil War, it’s possible? In which case driving around in a Yaris is probably unappealing anyway.
JUST DON’T DO IT …yet
Despite Oil’s historical cheapness right now, UNLIKE our recommendation to buy oil and related oil-energy stocks in Dec 2015-Feb 2016, we do NOT recommend buying at the moment. We don’t like ANYTHING in energy sector for that matter. Why?
We will most likely have a “2nd round” of mass bankruptcies in Energy in the next 3 years — far worse and extensive than the late 2015 early 2016 shakeout of a few shoddy solar companies and some awfully leveraged drilling-companies/suppliers. It wasn’t that long ago, speculative plays like Diamond Offshore (NYSE: DO) had a somewhat respectable balance sheet vs its uglier peers (We stopped following oil-related companies really, so not even sure it’s uglier-balance-sheet siblings are even solvent anymore — lost track). But Diamond Offshore today just looks like a stock with a red crosshair on its forehead. If it survives you can probably make 10x your money — but you must risk a “zero” return to go for it. Pass. There are FAR better things to do with your money.
What about STOCKS?
Stocks seem like a great buy right now, given the market was down 16% from it’s mid February all-time high. We think it’s a coin-flip from here, despite not being worried about Coronavirus (COVID-19) whatsoever. [2] But the coin flip has unattractive odds.
On Friday, by OUR proprietary calculations, stocks were down 33% from the 9 year Dow peak of September 2018– 18 months ago. There’s a somewhat recent historical precedent for stocks going up 50% from here — that’s your upside should you jump into markets today during the seemingly ridiculous Corona Virus scare. HOWEVER…
The stocks downside from here, also using historical precedent, is the stock market dropping off a cliff 1929-style. So while stocks are sort’ve in coin-flip PROBABILITY mode right now, it’s just the (odds — on the coin-flippish bet) downside is far worse than the upside — for Dow stocks at least.
While we will promise to always recommend buying the most attractive stocks at their best valuations regardless of stock market gyrations, overall we recommend sitting on your investment hands for the next 3 years. The limited upside in Dow stocks just isn’t worth the risk. We are in the 9th consecutive year of an upswing; thus, were playing somewhere between the 16th and 18th holes on our way back to Bottomsville Country Clubhouse where we can recharge our batteries and get ready for the 2-decades long revolution in computation known as BitCoin (Satoshi Vision). We DO, however, still recommend certain investments which must be made when they are attractive, with no regard to foreboding market cycles; we’ll mention some of those below.
RATES = CANARY in COALMINE
Like all downturns, in modern fiat times, the stocks peaked roughly around the same time the Fed went back to lowering rates (in fear — of what?). We simply note this as yet another warning sign, to batten down your hatches, and gather up your nuts for the long hard winter.
SNAP!
We continue to recommend SNAP as your biggest long EQUITY position, as it’s a counter-cyclical with a miles-long advantage on its internet-advertising peers, particularly the old facedbook platform but also against it’s closer comparison of Instagram. We recommend staying as far away from FB stock as you can, on many many different levels — but we’ll save that for another day.
BSV (BitCoin Satoshi Vision) continues to be our #1 asset pick for 2020, despite the nearly 600% gain it posted from Fall 2019 to January 14, 2020 ($66 to $450). Our outlook is 20–25 years, not months, so you must be prepared for more volatility madness. So long as you can “strap-in”, we like BSV in the near term, the medium term AND the long term.
While we like it as the best pick for 2020, we’re working on many other investment opportunities which amazingly might even have higher upsides, but which are related. BSV happens to the THEE solution to what ails the world at the moment (psssst, hint, it’s double-spending by literally every national government in the world who controls a fiat currency, please see our “What is Money” article from last month), but those solutions typically precede the problem showing it’s full head of steam. Buckle up!
Money Button: pitts@moneybutton.com
RelayX: PiZeroOne
$handle (Handcash) = $JOHNPITTS
BAEmail.me : pitts@moneybutton.com
Twitter: John Pitts, @EquityDiamonds
TWETCH! John Pitts, user @462
Bibliography:
[1] Equity Diamonds searches constantly for investments which can turn an investor’s life around inside a decade or two (and sometimes — as is the case like #BSV or $SNAP in the past year or so — inside a year!). Please see our first Medium article for our Coat of Arms.
[2] We fully acknowledge Q1 and Q2 earnings reports can and will be affected by the Coronavirus panic. But a person who needs to buy a car now, and doesn’t bc he doesn’t want to leave his house out of fear, still needs a car when the panic subsides. Unless of course all hell breaks loose in which case we concede COVID-19 won’t matter anyway.
BSV app-usage chart courtesy of BitCoin Blocks Live
Other sources cited in pictures themselves.
Relative Oil Prices in history: Equity Diamonds uses a proprietary inflation-adjusted algorithm developed in house. (We told you we’d give you answers, not methods — see our first Medium article)
