Tuesday, November 19, 2013

Is this end of the line for energy bulls?

Ah, those unfortunate energy bulls. Their returns over the last few years have been nothing to write home about.

As shown by the chart below, the relative performance of the energy sector against the market has been topping out for the last few years (blue line), though bulls can be console by the fact that the long-term relative uptrend that began in 1999 remains intact. From a technical perspective, there is a decent chance that the relative decline could be halted at the 50% Fibonacci retracement level, which roughly coincides with the long relative uptrend that began in 1999.

What's more depressing for energy bulls, the press and blogosphere has been full of bearish stories about oil prices, largely because of the shale boom seen in the US:
  • Recalling the false messiah of peak oil (FT Alphaville)
  • For Oil, Conventional Wisdom No Longer Applies (WSJ)
Is this the end of the line for secular bulls on energy?

Watch the smart money
Before getting overly bearish on the long-term outlook for the energy sector, consider this. Warren Buffett was interviewed recently and said that he thought stock prices were fairly valued and he couldn't find much to buy (via Business Insider, emphasis added):
[Buffett] noted that the equity market was fairly valued and stocks were not overvalued. Specifically, Buffett said “They were very cheap five years ago, ridiculously cheap,” and “That’s been corrected.” He also noted, “We’re having a hard time finding things to buy.” One has to take note when the world’s most high profile investor (a long investor), cannot find stocks to buy although he reports his business is improving.
If Warren Buffett is having such a difficult time finding values in the market, then why did he put $3.5 billion into Exxon Mobil and $500 million into Suncor Energy?

Just asking...

Cam Hui is a portfolio manager at Qwest Investment Fund Management Ltd. (“Qwest”). The opinions and any recommendations expressed in the blog are those of the author and do not reflect the opinions and recommendations of Qwest. Qwest reviews Mr. Hui’s blog to ensure it is connected with Mr. Hui’s obligation to deal fairly, honestly and in good faith with the blog’s readers.”

None of the information or opinions expressed in this blog constitutes a solicitation for the purchase or sale of any security or other instrument. Nothing in this blog constitutes investment advice and any recommendations that may be contained herein have not been based upon a consideration of the investment objectives, financial situation or particular needs of any specific recipient. Any purchase or sale activity in any securities or other instrument should be based upon your own analysis and conclusions. Past performance is not indicative of future results. Either Qwest or I may hold or control long or short positions in the securities or instruments mentioned.

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