“Only” 12 Times?

With long-term fundamentals for oil tankers rapidly improving, we decided to bump up our exposure to tanker companies in Insider a few weeks ago. Based on this piece in Business Insider, it seems like that wasn’t the dumbest move:

Shipping oil from the US to Europe now costs 12 times more than it did at the start of the year, Bloomberg data shows. Prices haven’t been this high in two years — since the early pandemic – to send out a mid-size oil tanker as there are fewer ships available globally.

Earnings per day for Aframax vessels heading from the US Gulf to northern Europe have jumped to $57,000 this week, according to Baltic Exchange data calculated by Bloomberg. These cargoes carry roughly 600,000 barrels of crude, and that price represents a twelve-fold increase from the start of the year.

The article also touches on the danger of letting “market consensus” guide your decisions:

“The market consensus was too pessimistic about Russia’s capability to re-route volumes to other buyers,” IEA analysts said. “Russia’s exports adjusted towards other buyers without a serious disruption to its production.”

What’s that saying? When everyone is thinking alike, then nobody is thinking.

From an investment perspective, everyone can think alike on a particular issue and be correct. That happens most of the time, actually. But when this happens, ask yourself the question. How is any particular asset or sector priced when everyone has the same view on it?

The answer is: fully. Fully priced.

Putting aside the bullish fundamentals, it’s the reason why we believe our tanker trade has much longer to run.
 

  All Things Transitory…

Feels like a lifetime ago, when — back in February 2020 — we started warning that lockdowns will bring about inflation and shortages. Fast forward to today, and this pesky stuff is now part of our daily lives. We recently set up a dedicated inflation channel in our Insider private forum, where members can share their own experiences with all things “transitory”.

Lately, the channel has been buzzing with bizarre accounts from European and British members.

Here’s one from member Sean:

My sister was telling me she went to M&S today and that she noticed that the shop was a lot darker as some of the lights had been turned off (to reduce the energy bill)!

The following insight from Insider member Stefan shows that no industry (not even “hot” sectors like tech) is immune to soaring energy costs:

I was at the pub last week with someone who is a cfo for a company that is essentially a data farm. He said their server electric costs have gone up 10x. He was a tad concerned

We’ve seen a lot of whacky “expert” advice over the past couple of years. Par for the course, this one (shared by Sean) doesn’t disappoint:

Cold showers? Fine, we’ll take it. But pubs closing at 9 pm? That’s where we draw the line!
 

  Project Zimbabwe: Update

Our buddy Kuppy recently penned an update on his “Project Zimbabwe” thesis.

The whole piece is well worth a read for anyone trying to figure out how to navigate the current macro environment, but here are a couple of snippets to whet your appetite:

It is clear that we’re in the early innings of “Project Zimbabwe” and we just had our first real shake-out. Plenty of speculators were over-levered, mostly in Ponzis. They got shredded for staying too long in last-cycle’s rolling bubble. They missed their chance to pivot into the next rolling bubble. The only thing that matters during “Project Zimbabwe” is staying as levered long as you can be, while correctly choosing the right rolling bubble. Energy is one of the few asset classes that is still up on the year—it’s giving you a clear message about what’s coming—it sure feels like energy is going to be the next rolling bubble. Miss it at your own peril.

But it’s not only about where to be invested… but also where NOT to be invested (aka tech):

All great bubbles have an echo-rally. Tech is having its echo rally now. It is giving JPOW the message that he needs to keep pushing on rates. I think he gives it a few more whacks and finally succeeds in breaking something.

Here’s how we can expect it to play out over the next couple of weeks:

When JPOW declares that The Pause is in effect, the market will positively explode to the upside and the IV will spike as the skew shifts. The next up-surge will make the last cycle’s trading in monkey JPEGs look tame—except this time I expect it will be an energy bubble. Every time I think about it, I realize that I need more long-dated upside exposure before the dealers realize just how badly offsides they are. The turn, when it comes, will stun people.

The Pause is coming, but first we need some real pain to get inflicted by energy on the speculators. The Energy Vigilantes took the summer off. This fall, they’re going to re-assert their control of the narrative…

You can read Kuppy’s latest thoughts on his blog here.
 

 Week’s Humour

In the world of soaring energy prices and increasingly common rolling blackouts, “dark humor” gets a completely new meaning (h/t to Insider member Sean for this one).

Have a great week!

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