I remember talking to my fellow editors at the start of the year, with everyone lamenting that there was nothing really new going on in the market. At least nothing that would really change the slow upward burn. How quaint.
This is like the old trope about the cursed monkey paw that grants wishes — be careful what you wish for because they’ll bring unforeseen ruin as well.
We certainly have to keep worrying about the broad market moves. We were up 25% since the last bottom and only off 17% from all-time highs going into today, believe it or not.
However, there is a lot brewing out there that can and will pay off with time. Here are three I’m personally watching, in order from short-term to long-term…
Water, Water Everywhere, Nor Any Drop To Drink
To (poorly) crib from Coleridge’s The Rime of the Ancient Mariner, “water, water everywhere, nor any drop to drink.”
Except it is oil.
There is tons of the stuff out there, and absolutely nothing to do with it. Can’t refine it, can’t store it. So U.S. oil futures went deep into negative prices.
When you’re looking at massive contracts in your portfolio that require you to take delivery, something has to give.
In normal times of glut, it might mean paying a premium to someone else to transport and store it, incurring lost potential profits — there is a saying about unhatched eggs that applies — or even net losses. Now it means ditching that obligation to take delivery at any and all costs.
There is a great “blood in the streets” opportunity here by picking up shares of the United States Oil Fund (NYSEArca: USO), though I’m going to stick a pin in it and come back at the end of May.
Why? First, futures contracts settle on the third Friday of every month and it is universally expected that the next couple months are going to see more nasty price action in the oil futures contracts USO holds and rotates.
Second, USO management is starting to do some weird stuff. New issuance of shares has been suspended, making USO function like a closed-end mutual fund for now.
It is also changing the nature of how USO invests. Instead of rotating shorter-term oil futures, it is shifting into longer-term holdings at an 80% front-month/20% second-month allocation.
USO is easy to get into and not easy to understand, and shifting the underlying assets of it now gives a strong impression that the asset mix will keep changing going ahead. If you buy today you’re still functionally buying futures contracts that are plunging towards negative values too, and I’m sure you know how smart that is to do.
June WTI oil futures contracts dropped 50% and USO share prices, which were halted today before dropping far further, are off over 33% for the day while I write this.
USO is trading WAY down compared to four months ago, but it almost certainly isn’t done seeing some steep drops, and I’m comfortable keeping some “dry powder” for it. A day will come when USO around $2.50 a share will seem like a steal. I’m not ruling out prices halving again — or more — though, and I’m not going to try to catch this ‘falling knife.’
Gold On the Move
Gold has seen some fantastic gains over the last year or so. However, the price doesn’t always move in one direction. We’re being reminded of that now.
We’re seeing a relatively tame but significant pullback, and it is a great reminder that gold both responds to the relative value of the dollar, which has been moving up, and to broad market sell-offs as investors — especially very large, institutional names — move in and out.
However, the strong fundamentals that started the current rally long before the pandemic was even a tiny and curious ‘pneumonia-like illness’ a couple people had are still in place.
Gold reserves in the majors are still depleting and will continue to for a long time.
Exploration and mine development capital is still too low as it has been for most of the decade, and it takes at least a decade — often two — to get gold in a newly found deposit into a smelter.
Even if that weren’t the case, we’re still looking at months, if not the rest of the year, if not years of royally messed up “safe havens” like bonds as corporations and governments see their ratings drop into the quickly expanding junk category.
And we’re not even getting into the central banks doubling down on “QE Infinity” by moving into equity purchases and junk bond markets.
This is a once-in-a-generation, if not more, gold bull market that is developing, and it is becoming clear the last ramp up to over $1,900 per ounce was just round one of it. Now is the time to capitalize.
The Future of Clean Energy
One day we’re going to look back on all this insanity and see trends that started before the pandemic shake-out and rapidly advanced after.
One that is increasingly clear to me is the rapid advancement of fuel cell technology on both the technological and deployment front.
Jimmy Mengel has been covering it extensively for his readers and is doing great with his number-one pick.
Some good news is still coming out, even in spite of the economic uncertainty. Companies are aggressively pushing ahead with their investments.
The latest news comes from Volvo and Daimler forming a joint venture to work together to develop, produce, and sell fuel cell systems for heavy trucks.
Consolidation is coming into this corner of the clean energy sector alongside rapidly increasing investment by virtually all of the automobile sector.
On top of that, we’re seeing some very compelling new tech coming from labs — the kind that battery tech saw a decade ago and wishes it could still see today after lithium-ion batteries plateaued.
Northwestern University has developed a unique material that chemically self-assembles into a mix of organic molecules and metal ions that are incredibly porous and ordered.
The researchers compare it to a bath sponge that has the potential to revolutionize hydrogen storage by greatly driving down the weight of fuel storage systems AND increasing stored fuel by volume.
Fuel cell vehicles have incredible advantages, especially for heavy vehicles like trucks, trains, and ships, and this just makes them that much better.
They’re the future of commercial transportation, and Jimmy has you covered with his research.
