Trading Diary: Stepping back from oil and commodities
WASHINGTON, June 20, 2017 – It’s a fairly short column today, as I have to head out on travel this afternoon. That said, there hasn’t been a lot to write about, investment-wise, this June thus far, and we try not to waste too much of your time here if we have little constructive news to report.
As we noted in our companion column Tuesday, crude oil and oil-related stocks are taking a beating today on news of a creeping oversupply of black gold around the world. The current obvious state of oversupply was exacerbated by reports that long-dormant major oil producer Libya was getting back on line, big time, which will simply add to the projected glut.
Apparently the political situation in that currently failed nation – largely the handiwork of former Secretary of State Hillary Clinton and the bumbling Obama administration – has stabilized to the point where at least one political sector has enough control of the Libyan oilfields to begin extracting and shipping this high-quality crude.
At any rate, perception = reality in our world today. So whatever the real situation is over in Libya, the media tells us that high quality product is flowing from that country again, which should pretty much max out the amount of oil most countries can import, process or even handle. This means that the price per barrel of crude will continue to decline.
That’s terrible news for those who are heavily invested in the oil patch, but great news for U.S. drivers and vacationers who, once again, will likely see an abnormal seasonal decline in the price at the pump during the summer season when oil companies usually jack the price up to maximize profits. Poet T.S. Eliot once bemoaned a world of “certain certainties,” but we’d observe today that there are pretty much no certainties at all.
As seems to be our irritating habit, we’ve found ourselves once again a little too late to the oil party, having bought stocks in that sector that have done nothing but decline since we bought them. The late investment advisor and longtime “Wall Street Week with Louis Rukeyser” panelist Martin Zweig often preached to investors that they should “fear the Fed,” which was, and remains, pretty good advice.
Today, however, given the predominance of high-frequency trading and computerized “quant” trading, we’ve also learned to fear sector trends. As a result, we’re getting as leery of the oil patch these days as we used to be about the volatile stocks inhabiting the tech or “IT” sector. There’s not much room for error here, so, despite the fact we may get some recovery later in the year, we’ve determined that we’ll mostly exit this sector as soon as is practicable.
We’ve already dumped our small position in Conoco (symbol: COP), and are going to try to exit our even smaller position in Marathon Oil (MRO) as soon as it makes sense.
Likewise, if things don’t stabilize soon, we’re also planning to retreat from oil and gas servicing company Chart Industries (GTLS) and have already exited (for a nice profit, BTW) from our position in IPO stock, which – until today – was performing superbly in a bad market. That slightly early exit proved to be a good move.
In addition, this morning we trimmed our small positions in Schwab’s international and value stock REITs, namely FNDF, SCHE and SCHV. The Schwab ETFs beginning with the letter “F” are members of its “Fundamental” family of ETFs.
The company’s well-regarded “normal” ETFs beginning with the letters “SCH” are based on generally accepted and widely followed market indexes, while its Fundamental ETFs are based on a “quant” flavor of investment style, valuing other key factors beyond mere indexes.
Watching how these investments perform against one another, it appears, to us at least, that the “F” ETFs, like quant-style funds in general in 2017, are actually underperforming the straight index ETFs they were designed to beat. As with most things having to do with stocks, this situation may not persist forever. But it’s what we’re dealing with right now. For that reason, we don’t plan to return to these differently flavored ETFs until they can show some improvement over the more passive ETFs the company offers.
We’re leaving the foreign investment based ETFs because they tend to be influence by big drops in commodity prices like the one we’ve been experiencing in the oil patch.
We’re leaving the “value” ETF, whose holdings are generally heavy in the financial sector, mostly due to what we regard as the Federal Reserve’s apparently mindless interest rate policy, which seems, in the main, to ignore how the economy and employment situation are working for the average Joe the Plumber. This has kept consumer lending substantially below normal for nearly a decade now, and the situation will have to change before the financial sector can return to something that even remotely resembles growth.
In short, although we remain profitable at the halfway point of 2017, recent problems are eating away at our earlier gains. We should have sold more in May than we actually did, so we’re atoning for our sins by selling a fair bit more in June.