It was all Worth it in the End

Pfäffikon SZ, Switzerland – Oil reached 5-year lows this week. During the seventies in the previous century – during the oil crisis – an increasing oil price signalled a recession. Moreover, the oil price would increase when geopolitical tensions increased. But today, everything is different. Geopolitical tensions in the Middle-East regarding ISIS or the game of chess being played in Crimea in Ukraine do little to sway the sentiment of the resource investor. Gold and oil – the traditional hedges against unrest – continue to slide into the abyss. Particularly the central bankers are struggling with the decreasing oil price, because it has a deflationary property. Which is the last thing central bankers want at the moment. Moreover, oil seems to have become the ball in the game that is the shadowy world wide currency war. The Kuroda put has become a reality.

Nosedive
First level thinkers are repudiated, even though they continue to believe in their views – which is a dangerous and expensive trait on the stock market. My former boss – late Adri Strating – always said: “Everyone gets to be right on the stock market, as long as you have deep pockets and time to live”. Regular readers know that I do not concern myself with investing in gold or silver. I have noted this time and again. Oil related investments are a different story. There are several emerging opportunities that I am investigating. The recent nose dive by former Dutch stock market gem – Fugro – is in that respect significant. The dirt researcher at the Damrak is perhaps taking her job description too literally. It is more than sad to have to drink this poisoned chalice as current shareholder. I do not have enough information on the matter, nor have I ever been shareholder in Fugro, but I suspect the management, the supervisory board and the banks need to put their own houses in order. One can only hope that after the debacle at that other Dutch stock market gem – Imtech – a second fiasco is not knocking at the door at Beursplein 5.

Benefits
In any case, a decreasing oil price has many benefits and can result in additional growth. And growth has become a word nearly forgotten in Europe. With thanks to Saudi-Arabia, that would supposedly be pulling a stunt with the oil price to suppress the rise of shale oil. Goldman Sachs has calculated that a decrease in the oil price of $10 – within the S&P 500 – would result in roughly $1 in extra profits per share in 2015. This trend would continue into 2016 at which point $4 per share could be added as extra profit. It is unnecessary to assume this is a bullish signal, the increasing sombreness of central bankers notwithstanding. The fly in the ointment is the increased dollar, which will come back to haunt the US business sector sooner or later. The decreasing oil price then carries with it an upward force and gives spending an extra impulse. It was all worth it in the end.

It remains for me to wish you a good weekend.


Jan Dwarshuis is a senior asset manager at Thirteen Asset Management AG, where he is responsible for the Thirteen Diversified Fund. Dwarshuis writes his columns in a personal capacity and is not paid for them. Nor is he paying for his columns to be placed. Professionally, he holds positions in major European, American and Russian stock funds. The information in his columns is not intended as professional investment advice or a recommendation to make certain investments. At the time of writing, he has no position in the above shares and has no intention of doing so in the next 72 hours.