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Ignore the Talking Heads; The Recovery is Underway

by | published February 23rd, 2013

A little girl named Carol Anne became famous for saying “They’re h-e-r-e” in the 1982 movie Poltergeist.

She was talking about the “TV people,” and they ended up being from way out of town.

Well, we have our equivalent digital denizens, and they’re also returning in force. Except ours are largely from the investment shadows, awaiting the next opportunity to brandish heavy fear tactics to convince you the energy market is about to collapse…again.

It makes me want to shout, “They’re b-a-a-c-k!”

It is enough to prompt a recall of that old saw about market analysts.

You know, the one that says they have correctly predicted eight of the last three recessions.

At issue this time is the latest financial obstacle the market must overcome: the sequestration scheduled to hit a week from today. Now the draconian cuts will occur automatically, although it will also take some time for them to have any impact.

Most will not result in anything significant for at least a month.

Of course, the markets are not going to wait that long. For the past two days, the first wave of nail biting started. It will get worse as our darling Congressmen return from their well earned (satire here folks, satire) vacation to play politics instead of reaching an agreement.

There will be a stopgap move after some wailing and gnashing of teeth.

After this, we will get back to business. We can ignore those talking heads for one major reason.

A developing and accelerating economic recovery waits on the other side.

Leading Indicators Point North

Most of the signs, especially among the leading economic indicators, are now pointing in that direction.

That’s good news for us, since most of those indicators are energy sensitive. Well before the recovery arrives in the broader market, the energy sector is already advancing because of the front-loaded demand in a returning production, industrial and commercial process.

We need to get through the current waves of unrest and investment misgivings. But that will not be easy.

Congress does not come back into session until Monday and the sequestration is slated to take effect at close of business on Friday. That’s going to make for a long and vexing week.

First, there will be the recriminations and finger pointing. Then, there will be the pundits suggesting the severe cuts may not be a bad thing. Sure, they will derail a recovery, wreck havoc with military procurements, Medicare payments, Project Head Start, and every other government program, while throwing a large chunk of the working population back on the unemployment rolls.

On the other hand, these sages of the airwaves will declare that it will make the budget look better.

Now don’t get me wrong. There are massive problems in Washington on both the revenue and expenditure sides of the ledger. They have been developing over the years, and putting the brakes on them will be difficult and painful.

The simple observation, however, is this. Neither Congress nor the White House will allow the recovery to be sacrificed. After questioning each other’s parentage, some uneven and out of focus compromise will be reached.

We should not expect the underlying problem to be solved in short order. We just want the Washington children to go pout in the corner, get out of the way, and let us make some money.

This brings me back to the fear mongers.

Don’t Buy the Hype

You have probably heard the naysayers over the last few days claiming oil is about to go down to $50 a barrel. Just a month ago, many of these pundits were then saying crude would fall to $40, so it seems they are mellowing a bit.

Whenever events pressure oil down, these masters of misdirection are back to remind why you need to invest with them, or buy their analysis, or wish upon a star. However, they are wrong about this on a massive scale.

Yes, oil goes up and down.

Yes, matters outside the oil sector have an irritating habit of upsetting the dynamics of supply and demand.

Yes, sometimes energy moves down faster than the market as a whole.

Still, this is not the normal move, nor is it a strategy upon which to invest in any medium-term perspective. Our advisory poltergeists are right only if the markets are permanently in recession (or worse).

Remember, these folks have only three objectives.

First, they need you to buy into the inevitability of a collapse in oil, resulting in investors bailing out and a further decline in price, thereby allowing the doomsayers to continue making money. You see, those in this category have been shorting the market all along and will continue to benefit if oil is driven further down.

Or second, they have another direction in mind altogether. In this scenario, they are really pushing gold, grain, another commodity, or some other investment area altogether. They have no real expertise or genuine interest in energy. They see an opportunity to deflect investment flows and go with it.

Third, there are some who actually believe the world is about to end and we are all going to freeze this (or next) winter.

The first are deceptive, the second disingenuous, while the third are simply wrong.

I appreciate a good piece of horror fiction as much as anybody does. It’s just never an acceptable roadmap for investment.

Sincerely,

Kent

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  1. enthusceptic
    February 23rd, 2013 at 10:54 | #1

    Before when I commented I was angry about the way US politicians behave, but now I see that oil prices will rise over time in spit of them or other setbacks. The world will keep on developing needing ever more energy, and that means prices wil rise.

  2. MJ
    February 23rd, 2013 at 11:19 | #2

    Kent,

    I am a land and mineral rights owner in the Uinta Basin in Utah,…outside of Vernal and Roosevelt. Crescent Point recently bought Ute Energy and now we have a new partner developing our property.

    I have read that CPE is very good at enhanced recovery techniques….in particular.

    Can you write about what is going on in the Uinta Basin and the real potential there. Our wells have varied in early (first 60 days of production) from 75 bpd to 400 bpd on land that contiguous. I can’t figure out how to project what we will see over time….are these likely 30 yr wells or 20 year wells or something else?

    The guys working in the field say these are traditional vertical wells that go down about 10,000 feet,…+/- into the upper Wasatch and lower Green River formation… they say there are several pay zones available to them in each well. How and when do they decide to frack and tap into other zones? Would they do that simultaneously or wait until a particular zone drops below a certain level to tap another? They have to truck the oil out from each well, and it must be heated to flow….as it is a waxy based oil…with lots of paraffin in it. I have seen samples and it won’t even pour out of a beaker at room temps. How and when is a decision made to start enhanced recovery techniques?

    I realize you may not pay any attention to this region,…since it is not like the Baaken or the new Australia find….anyway,…thanks for your time…

  3. enthusceptic
    February 23rd, 2013 at 11:24 | #3

    Seeing the optimism in this article, it’s a bit strange to get a link to a – old – doomsday article. -Or am I missing something? I suppose the point is that if we invest wisely we can make it through hard times!?

  4. Leslie Belden
    February 23rd, 2013 at 11:57 | #4

    So, what are you selling?

  5. Ken Smith
    February 23rd, 2013 at 12:07 | #5

    Kent, Thank you for keeping focused on what really matters. Your sarcasm is greatly appreciated. I found myself quoting you to my friends once again. Thanks, Ken

  6. Chuck S
    February 23rd, 2013 at 17:17 | #6

    Split thoughts –
    Obama’s anti-business policies are likely to continue hurting the economy. He’s likely to oppose more drilling. Maybe he’ll attack fracking, which could affect 90% of US oil and gas production.

    On the other hand, I heard that we may have a big economic boom from energy production – mostly from private lands, despite Obama’s opposition. Also, I’ve heard that some manufacturing is coming back to the US because wages have gone up a lot in China. Also I’ve heard that 3D printing may mean a big boom in US manufacturing.

  7. Robert Page
    February 24th, 2013 at 07:44 | #7

    Draconian cuts? There will be no cuts! Even if sequestration passes, spending will still increase by about $15 billion this year. The proposed spending cuts of $22Bn will be merely a decrease in the planned increase in spending of about $40 billion this year. $22 billion represents a decrease of 0.6% of the planned $3.7 trillion in spending this year. For the last five years, we’ve been overspending by at least $1 trillion per year. Every year, the $1 trillion of over-spending becomes the new baseline. Slowing down this rate of massive over-spending is not a spending cut!!

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