To The Moon

Last week, oil prices fell on recession fears. Helped by the weakening dollar, the difference between the price of petrol and the price of electricity has become so small that many hybrid motorists are better off driving on petrol (or diesel) than on electricity, a kind of reverse energy transition. German industry also sees the advantages of oil as an alternative to natural gas. Demand for oil may also get a boost when the Chinese economy opens up. Furthermore, supply is being squeezed by developments in Iran and it is hoped that components of Western oil companies will hold up in Russia this winter.

Based on several variables, the outlook for energy is the best (incidentally, directly followed by basic materials mining and agriculture). The outlook for technology, until recently the market leader, is mediocre. Defensive sectors score poorly. The market seems to be gearing up for a cyclical turn, helped by the spike in inflation and the spike in interest rates.

Meanwhile, US strategic oil reserves (SPR) have fallen back to 1984 levels, which is almost the lowest level ever because these strategic reserves were established after the two oil crises of the 1970s. In recent years, the strategic reserves have been continuously drawn on to depress the price of oil. Now that the elections are over, there is less need to keep oil prices low.

The number of drilling rigs in the United States is rising but still lags behind oil price trends. There is less investment in oil than before, which inevitably means there is a constant threat of shortages.

OPEC+ can't produce much extra either. OPEC+'s last cut was 2 million barrels per day. Effectively, it was less than 1 million because even before that, many countries could no longer supply.

There are growing objections to Big Tech companies in particular. There, operating margins are double what they were before the pandemic and double compared to other tech companies. High margins attract more competition and although many monopolies in technology have been created by disruption, basically any technology company can be competed away by new technology in a few years. If a monopoly can still be excellently defended, it is time for the government to intervene. The government has already taken some measures that particularly affect tech companies. For instance, they are most affected by the 15 percent minimum tax rule. The tax on international transactions is also mainly targeted at big tech companies. Also annoying for these Big Tech companies is that acquisitions are becoming increasingly difficult. Appeals to market power and distortion of competition are holding up the boat. This while growth companies like YouTube and Instagram could be taken off the stock market for next to nothing by Google and Facebook, respectively. Microsoft's takeover of Activision, for instance, is proceeding with difficulty. Furthermore, in recent years, tech companies have been spoilt and not good at cutting costs. Based on normalised margins, they still have to pay a hefty price. This while the cash flow in the energy sector is so high that this cash flow allows these companies to delist themselves within a few years.