low oil prices and volatile stock markets
TRANSCRIPT
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LOW OIL PRICES &VOLATILE STOCK MARKETS
10 Things Every Investor Needs to Know for 2016
OIL SANDS MAGAZINE • January 3, 2016
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1STQUARTERCommodity prices are cyclical and correlated to
the US dollar.
West Texas Int Crude
US Dollar Index
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Plunging commodity prices are bad - not good - for theworld's economies and usually warn of a global
economic slowdown.
TRANSLATION: never believeanyone who says low oil prices will
stimulate world economies
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1STQUARTERPrices tend to overshoot on the way up and
overshoot on the way down.
TOOHIGH
TOOLOW
WEST TEXAS(USD/BBL)
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1STQUARTERWe're a lot closer to the bottom than we are to
the top.
FLOOR
WEST TEXAS(USD/BBL) CEILING
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1STQUARTERBeware of oil producers carrying US denominated
debt.
Top 5 issuers of US-denominated debt since 2006(Source: Financial Times)
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1STQUARTERDividends in the energy patch are not sacred,
unless you've got lots of cash in the bank.
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1STQUARTERMergers happen at the end of a commodity
downturn, not the beginning.
1986-2003 oil bear market
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1STQUARTERKnow the difference between "Risk On" and "Risk
Off" markets.
flight to qualityhigh appetite for riskmoney flows out of bonds andinto equitiesenergy and material stocks aretypically best performers.
flight to safetymoney flows out of equities andinto bondsbest performing stocks: staplesand utilities worst performing stocks: energyand materials.
RISK ON RISK OFF
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1STQUARTERKnow the difference between "High Beta" and
"Low Beta" energy stocks.
higher risk & greater rewardstocks highly correlated to oilpricesshare prices fall harder when oildeclines & rebound faster whenoil prices recovereg. small cap energy producersand service providers.
lower risk & less rewardstocks less correlated to oilprices, move more slowlyshare prices don't fall asmuch when oil prices declineslarge cap energy producers, alsotend to also be more diversifiedand stable dividend payer.
HIGH BETA LOW BETA
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1STQUARTERWatch the banking stocks. They'll tell you how the
oil producers are really doing.
Weak oil prices are draggingdown Canadian banking stocks; banksand oil prices bottom & rally together
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