Victoria Greene, founding partner and chief investment officer at G Squared Private Wealth gave an interview to Bloomberg in which she tempered expectations of a stock rebound, and talked energy. Some quotes follow.
On if we have seen a bottom:
I don’t think we found a bottom yet. I just think we’re not done yet. I think this is a little bit more the first leg because I always ask, what is our catalyst, how are we going to get growth? You really haven’t seen a lot of earnings revisions…. If you look for the signs of capitulation — the 90% down days, the VIX spiking — we’re just not there yet. Yeah, cash balances have definitely increased and yes, we’ve seen some equity selling, but not a well and true panic. Not to sound like a snob, but I need a solid panic. We just haven’t seen that solid, absolute capitulation, everything selling off. …we are going to have to wait until the Fed can send the economy into a recession to stop some of this.
On the energy sector:
And as you may see, Russia removed from the market, you’re seeing all of this rebalancing of supply and demand and it’s hitting commodities harder. It’s not just energy it’s hitting. It’s fertilizers, it’s all of the exports and some precious metals, palladium. They’re a huge, huge supplier of palladium. And so you’re seeing this rebalance and shift and all of these things take a lot of time to redistribute and build up supply chains. So our base case is oil is staying elevated for the next 18 months. I don’t see it coming back down. I don’t see the demand crunch happening. Yeah, China, you kind of live and die by China some, but if you look at the travel and the consumption in the United States and Europe and where the trends are, most developed nations do not have a zero-Covid policy anymore.
… generally speaking, $90 to $100 a barrel for the next 18 months I think is distinctly possible.
… you’ll see this theme in the oil and gas stocks that I like, the Devon, the EOG, the FANG (Diamondback Energy), and the Pioneer — they are US-based with a big footprint in the Permian. They have low break-evens and they’re absolutely pushing cash to shareholders. They are not putting it back in the ground. They are saying, ‘Thank you shareholders for trusting us. Here’s your money back.’ Like ‘Really sorry we didn’t make you money for a decade, but here you go. Let’s make some money now.’
But you’re not seeing that wildcatter mentality that happened with other oil-price spikes because that would happen and you’d have this massive inflow of, ‘Let’s get more rigs out there,’ and just supply and demand would eventually flip it over. If you look at the slope of how the rig count has increased, it’s a much lower trajectory. Nobody’s really pushing a ton of money back into capex. So we love the stocks that are giving our shareholders just a better return right now — like Devon Energy at $100 a barrel is like a 16% free-cash-flow yield. They’re pushing out 50% of their free-cash flow in a variable dividend every quarter. You’re talking a lot of money to sit and wait, plus you might get price appreciations still because they keep making more money. And if you look at where earnings revisions are happening, about the only place that we’re thinking earnings are going to go up is energy. And so the P/Es there are actually still, even with this massive price moving up in a lot of these stocks, the P/Es are actually still very nominal and very value-oriented.
One thing none of these characters ever consider is powerful investors taking control of chokepoints, and controlling the supply, with an eye to manipulating valuations throughout various sectors of the economy.
Notice, the Russian situation is going to be highly controllable very soon. When Russia completes it special operation in Ukraine, there will come a period after, where the war has ended, and presumably Russia will leave Kiev, and the other unimportant parts of Ukraine. At that point, sanctions will remain, and be able to be removed at the whim of western governments, which are obviously to some degree indebted to political contributors and responsive to their requests. I view that as an opportunity to crush the oil price through a controllable means, namely the removal of sanctions.
Similarly we posted an article yesterday on the Biden regime approaching oil companies and trying to persuade them to reopen shuttered refineries now, something which may come to fruition within a similar window to when sanctions are going to be able to be lifted.
It is possible there will be a point in a year or so when the supply may be able to be predictably enlarged, quite suddenly, through increased refining capacity, increased shale extraction, and and the simultaneous removal of Russian sanctions, triggering a collapse in energy costs which will then pass through the economy in a predictable, step-wise fashion.
If investors are able to predict how that tsunami of low energy prices will flow, and I have no doubt there are very powerful people who know, there will be a ton of money to be made.
