MBCC TH 4th Jan'23 - "Why are Oil stocks falling if they are so "cheap"? Do we chase Gold here? Financial is NOT physical!

Today we have Sanford Bernstein talk about how cheap European Oil integrated stocks are and that they would be the BEST sector for 2023. Wow! The fact that all these analysts have been calling for Oil to go to $150, then down to $120, then $100, it seems they just don’t get it. Look at EU and US gas, same thing!

It is important to distinguish the cyclical factors vs. the secular ones. The timing of the two can save you 20-40% PnL! It makes ALL the difference in the world. Oil stocks are cheap, but go back over the past decade, they have ALWAYS been cheap. Value does NOT drive Oil Equities, Oil does! Cheap can get cheaper.

Last year we started 2022 with the tightest of inventories as demand was strong from 2021, then winter was super cold, together with Russian attack, that exacerbated the tightness with Chinese closures. What these analysts failed to realise was that demand would not keep growing at the 2%+ linear assumptions they had in their models. Of course it seemed Oil was running out, as we know about supply.

It is a timing game, MBCC looks at our cross asset model signals timing the global macro cycle to zero in on being LONG or SHORT the sector. Oil prices are down < $80/bbl. Brent and as we start the new year, sector rotation implications from Long Onlys has HUGE implications as to the direction of Oil stocks. Where can they go? What is our target?

We also discuss Gold after its latest rally to $1860, what is the trade here ? Do you want to make 20%?

This year is not about buying and holding, those days are gone, we are back to ACTIVE Money Management.

What are our cross asset models saying about the macro, we look at 8 indicators and then we look at physical markets to see what they WILL DO, not what has happened.