Today I sold off nearly all of my oil and gas stocks. I still have a few shares of HEC and a pink sheet stock that's hard to unwind, but that's it. (This is sure going to be painful a year from now when I have to pay capital gains taxes on everything.)
People who followed my recent advice to buy HEC and EPEX lost money. Sorry.
This was a pretty tough decision, because I've been bullish on oil and natural gas since 2000. That's seven years of bullishness. But I suddenly realized that the oil and gas sector has been in a bear market for a year and a half now. I don't want to ride a sinking ship down further.
Some might think "ah ha, here is the final capitulation of a long time bull, and that means the market has bottomed." I sure hope that's not the case. I saw Phil Flynn on CNBC this morning being bullish on oil, so I would think that means I'm not the last person to capitulate. Phil admitted that oil will tank if the economy goes into recession.
The unraveling of the subprime mortgage lending market ought to be a clear signal that a recession is coming. Alan Greenspan said recently that there was a one third chance of a recession. And he has been an eternal optimist for ages. So while, in the long run, oil and gas are great investments because of the Peak Oil theory, in the short run it's a bad investment because of the coming recession.
That's my take. If there is now a huge surge in the oil and gas sector, I surely know that my investing magic is completely gone.
Yesterday I added my positions to oil & gas sector. It is true that the market hasn't gained much during last 1.5 years. But what I think is that market is expecting the recession and it is already in the prices. If you look at oil&gas valuations, they are rather low. Drillers and services especially. I think big oil and national oil companies are spending money regardless if there is recession in US or not.
But I'm am b&h -investor. I don't care so much stock prices. It is company cash flows that I'm interested in.
Posted by: tmm | March 16, 2007 at 11:02 AM
Still holding HEC myself. Seems like China should be able to pick up the slack in US demand for oil. But we'll see.
Posted by: bbartlog | March 16, 2007 at 02:09 PM
Hey Big Mike..
I thought you almost forgot about your blog.
Never complain about paying capital gains tax. It's a lot better than taking a deduction for your losses. :-)
Mike
Posted by: Michael Guzzo | March 17, 2007 at 02:45 PM
That might have been a bad idea depeneding on what you owned. A good write up about all the oil sector can be found at the Daily Reckoning.
http://www.dailyreckoning.com/rpt/OilInvestingReport.html
This will go into to detail for you whether or not you should buy or sell your stocks, and how you can gain profit from them if they are growing.
Enjoy!....Cheers
Posted by: dan | June 13, 2007 at 11:52 AM