US markets at all time highs is not really a surprise considering Mr Trumps upcoming mid term elections. He’s been constant with his view that the Stock Market is healthy under his guard so it would not be beneficial to him or his party if the market took a dive pre-elections. As highlighted before on TheShareHub, the markets knee jerk reaction earlier in the year to a Trade war with China was certainly a sign of common sense returning to the markets. 9 months on and the Trade war is in full swing. It’s no longer a possibility, it’s a reality. Yet here we are with the usual blatant ignorance being exhibited by a market that just doesn’t know when it’s too hot. Some steam will need to come off at some point soon but I doubt it will happen until after the US mid terms. Bonus season and the usual Santa Rally might keep things frothy for a few weeks after but come 2019, it’s likely to be correction time. More recently, the commodity sector has bounced on higher demand across metals and Oil with the exception being Gold. The latter should come into its own in 2019 but it may need a prolonged corrective phase before investors finally get their teeth sunk into the gold bars. A broad brush is often applied to equities when bear markets kick in so it will be interesting to see how Gold focused equities play out against a market downturn and a rising Gold price.
PoO has performed well and many of the doubters touting $10pb are long gone. Many ‘apparent’ guru’s of the market cited OPEC’s inability to work with their own members nevermind non OPEC giants like Russia. Compliance was the first potential weakness to be highlighted followed by oil tankers/storage. The latter has been drained and the former is working together better than the US government, better than the UK government and the entirety of the EU. Some had called OPEC ‘dead’. Big mistake. OPEC are very much alive and they have the globe in their hands. If Saudi’s turn off the taps, we are all in deep trouble. US production has stalled, rig counts going nowhere fast. And this is with PoO in the $60’s and $70’s. There might be some gains to come but infrastructure issues are holding the US shale revolution back. That and funding of course. Once bitten twice shy. Many funds are reluctant to get stung twice and the Saudi’s have shown that they will flood the market if or when they feel the need. For the moment, there is not an analyst out there that can tell you how much oil is coming to market from non-opec sources. So many projects have been shelved. So many large developments abandoned. It’s this lack of investment and development that should ultimately drive M&A. It’s cheaper to buy the reserves than explore/discover them these days. Recent activity across the Gold/Copper sector can be seen through BHP’s acquired 6% interest in SOLG (part of ShareHub 2018 picks) and the huge Randgold/Barrick merger deal. The latter will create the largest Gold miner in the world. It will have the competition quaking in their boots. Expect more M&A to follow across commodities especially in the Oil sector. Premier Oil and Tullow both look easy targets for the deeper pocketed bigger fish seeking huge reserves at a cheap price.
Week 38 review:
TheShareHub commodity focused picks are beginning to get a jog on mainly driven by Oil price and the buzz of M&A. SOLG was the worst performer in the top ten picks dropping from 30p entry price to 20p not long ago. BHP’s small 6% nibble has certainly got the stock going again. Some good updates from many of the SharHub picks of late have contributed to a solid performance in week 38. Stocks like HUM, CERP and AMER should be performing better although the latter has recently updated on a duster (not quite a duster but as good as one). There’s more exploration to come from AMER, so today’s near 15% fall looks way over done – I would expect a decent bounce in the coming weeks. Premier Oil continues to plot its way back to recovery levels although at 135p, the stock is still 165p away from the 300p level last seen when PoO was in the $70’s just a few years ago now. Dilution has occured since then but debt has fallen, reserves bolstered and production looks steady. Any move through $90pb on PoO and Premier should be eyeing 200p levels again. That’s a ten bagger from 20p lows last seen at the height of the recent Oil crisis. A risky business picking bottoms but clearly very fruitful if well timed.
The newspaper picks are recovering a little now, although the Guardian is going to need a miracle to get over the hurt caused by retailer Footasylum. Just 12/13 weeks left to the finish line.