This final review for my 2018 forecast is the energy sector.  As someone who has been called "prolific writer”, I didn’t have a lot of content on my energy forecast.  Yet the message was pretty powerful.

There are basically 2 subsectors of energy that are economically viable at this time, which is oil/gas and uranium.  Wind, solar, algae farms, all the alternative forms of energy are improving but not yet economic at large scale without serious government investment and tax breaks.  So I purposely avoided those topics.

I did touch on the oil and gas realm as well as nuclear.  On the nuclear front I noted a couple major shutdowns (Canada and Khazakstan) of uranium mines would likely cripple the supply chain and we would see a commensurate rise in the price of yellowcake. And that clearly happened as we transitioned from surplus to projections of deficit for 2019.  Uranium was up nearly 20% on the year. And by the way, for all the bad press uranium gets, it’s actually the most economical form of energy currently known, and the cleanest as well.

The other subsector of energy, as I said, is oil and gas. Most analysts predicted $80-$85, even $100/barrel for oil by the end of 2018, and that was on track until America became the largest producer in the world, surpassing both Russia and Saudi Arabia.  My suggestion for oil and gas was not to go into the drillers, save for something called a streaming company. And I also said that midstream companies, the transportation and storage arm of the energy industry would fare well. That didn’t work out as well as I thought though.

Neither streaming companies nor midstream companies did well last year.  It was kind of confounding, and the entire Wall Street establishment can’t figure it out. I've spoken to fund managers and analysts who sit at their desk staring at their computer screens with the same look on their face And the fundamentals would have forced both energy subsectors to outperform.  But there were a couple things negatively affecting both.  First is sentiment.  As you may or may not know, Wall Street has a very strong herd mentality.  So if the sentiment has not changed yet, the herd doesn’t change its direction either.  Second is what became known as the FANG trade, which was Facebook, Apple, Amazon, Netflix, Microsoft, & Google.  These six stocks accounted for most of the gains on the NASDAQ last year and also kept sentiment firmly entrenched in tech.  That began to unravel with revelations about Facebook’s privacy policy, but this herd doesn’t change direction too suddenly until it’s too late.

The third factor that I think held back energy streaming companies and midstream companies was debt.  The entire energy industry is probably one of the most heavily indebted industries because of the cyclical nature of natural resources. And as interest rates have risen, that puts more and more pressure on the price of the shares.  The one bright spot in these two subsectors was dividends and distributions, which remained very strong, with some companies and funds distributing 7, 8, and 9% per year.

That wraps up my review of my 2018 forecast.  Thanks for reading Volume 32 of the The Macro Market Wrap Up With The Mad Genius.  If you have any questions, leave those in the comments. And remember that there is always a bull market somewhere in the world, and on the opposite side of crisis there lies opportunity.

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