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The Money Map Advantage
Thursday, October 20, 2005
By Horacio Marquez
Email – #14
** Looking Through the Valley: As the Bottom Starts to Take Form
I just hung up the phone with Sean Brodrick, my peer at our sister publication, The Sovereign Society. I consulted Sean, who breathes and drinks oil, to review my market outlook, and found out that we are thinking along similar lines. I am convinced that the sector to be in is oil services, especially oil rig supplies. I have not changed my views.
Why? Because even though oil and gas prices might suffer a temporary setback, the demand for drilling remains as strong as ever. Natural gas prices alone justify this…
There is a chronic imbalance in the U.S., where demand growth outstrips supply growth. And globally, demand just keeps growing at a torrid pace. China posted a 9.4% GDP growth in the third quarter, and India, the fifth-largest energy consumer, is showing no slowdown. The remaining emerging markets are also doing well.
Yesterday, the McKinsey Quarterly outlined the predicament that India is going through in meeting its energy needs. “The country’s consumption of coal, oil, natural gas and electricity is projected to rise by nearly 40% over the next five years and almost double by 2020. Already, surging energy demand is outstripping supply”
The expected seasonal respite in oil prices is here, aided by three things: The possible release of some more gasoline by the IEA to supply the U.S. refineries, massive imports of gasoline and a drop in consumption as people adjust to sky rocketing prices. But the lower oil prices will not remain for long… So, enjoy the buying opportunity while it lasts.
The U.S. economy continues to grow strongly, and the reduction in gasoline prices will re-spark consumption. Also, the rebuilding of New Orleans will kick in next year.
Therefore, my positive outlook for Tenaris is unchanged and I recommend adding in steps. The one-year chart shows Tenaris (NYSE: TS) as way oversold, and the bounce-back, when it occurs, could be dramatic. The remaining members of the OSX also look like they are bottoming out. Just look at Maverick (NYSE: MVK) and Transocean (NYSE: RIG) both users of seamless tubes.
Meanwhile, all global equity markets are being dragged down by the strength of the US dollar and fears of inordinate Fed tightening. Game theory dictates that the incentives are for the Fed to err this time on the side of being slow, not quick, in tightening:
- Would you rather risk breaking the back of the US consumer and mortgage market, so that you have to then bail out Fannie Mae and Freddie Mac, as well as a multitude of banks concentrated in home mortgages and home-equity loans?
- Or the other alternative? Accepting a slightly higher inflation that dilutes the high levels of consumer debt?
The Fed will likely continue with “verbal intervention” to prevent the markets, especially commodities, from running away with this scenario and forcing them to really tighten. So far it seems to be working. And later this year, we’ll “look through the valley” and refocus on the New Orleans rebuilding, the end of the Fed tightening and renewed dollar weakness – all of which favor our remaining picks.
Enjoy and profit,
Horacio Marquez
Market Watch
NASDAQ
1528.95
0.00
SP 500
813.88
0.00
DJIA
7749.81
+89.84
As Of 6:11AM 3/26/2009
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