TGIF! December 5, 2014

It’s been 50 years since the USA was the world leader in energy production. Finally, we are back.  The U.S. has surpassed both Russia and Saudi Arabia as the top energy producer. It began with the Energy Renaissance 10 short years ago.

This Fall, oil prices collapsed for the first time since the $100 decline during the financial crisis.  What’s interesting to us is the fact that oil prices fell even as geopolitical events in Russia and the Middle East became more dangerous.  This was new.  Historically oil prices spike amidst such global threats.  It’s a powerful message.

America’s  recent energy independence has disrupted global politics. Really hurting are nations like Russia, Saudi Arabia and Iran, which seriously depend on high oil prices as exports dominate their economy.  On the other hand, some American oil producers are cutting drilling because low oil prices compromise their profitability.  As a result, Energy stocks have been hit hard lately.  The decision by OPEC on Thanksgiving Day NOT to cut production was a game changer for us, as it is clear they are prepared to drive the price lower.  It’s political as well as economic.

We have an internal motto:  If the facts change, so do we.  We have restructured our portfolio strategy as it pertains to energy, swapping the volatile and more speculative investments to higher quality with lower cost operations.  We have also reduced our exposure to the sector; a theme that will continue, as we believe energy prices will stay in a lower range for a while.

On the bright side, lower energy prices mean cheaper gas at the pump.  The result will be more money in the pockets of Americans to spend for the holidays.  Flights will be cheaper as airlines spend less on fuel.  American made products are more competitive now, both in the cost of manufacturing as well as distribution.  These strategic benefits are enhanced by the prospects of US energy independence.  And it comes on the heels of a strong job report. This is all very positive and validation that the US economy is in sound shape.

Santa’s on his way with DOW 18,000 in his sack. Have a great weekend.  We’ll be back, dark and early on Monday.

By: Mike Frazier

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