May was my best investment month ever!

[gzz]

9% return in 1 month when SPY was flat.

I was short tech and long oil. My California muni funds also did well.

YTD up 4% versus SPY down 13% and bonds down 8%. Maybe that 17% outperformance is even higher since all the oil stocks and HY bond funds yielded a lot more than the SPY or average bond.

Don’t ask me about 2021 however, it was brutal.

I am gradually adding to the oil investment and covering the tech shorts.

COIN, WE, and MSTR were free to short when I got in, then had a reasonable 1-2% borrow fee. This past week they went to nearly 10%.

WeWork is really a pets.com level disaster. Spend $1.50 on luxury office space and then rent it for a $1. There probably is a very small and slightly profitable niche for luxury coworking space, but WeWork is overexpanded and locked into leases.

I’ve done depositions in places like this. The nicest one was a british company called Regus with a brand new complex in exurban Cincinnati. Only 1 floor of 1 of several 6 story buildings was short term and co-work space. It just isn’t a big market.

[gzz]

I am looking into buying oil future options, which will require me to upgrade my brokerage account type.

I thought I could just get options on the USO etf, but they seem too expensive. USO is also high fees and I don’t trust it based on prior problems it had.

Calls on oil companies that are short dated and only a bit out of the money seem like a good deal still. If WTI, now at 120, hits 150+ in late summer, wouldn’t exxon go up from 99 now to 120-130? Yet September calls at 105 and 115 are still cheap. I think even if oil stays at 120 and gas at 8.50, XOM is worth 140.

Even cheaper are calls on TTE, the biggest french oil company. There’s a risk in Europe of windfall profits taxes. However, I don’t think it is particularly high.

If you adjust for inflation, oil peaked at $143 in 1979 and 167 in 2008. JP Morgan in late 2021 predicted $125 oil this year and 150 in 2023.

Real per capita GDP has doubled in the USA since 1979 and much more than doubled in China. I believe that unlike in the 1970s, the demand impact of 150-200 oil would be quite small.

[sdrealtor]

Congrats! Great month for you. How have you fared since pandemic? Since Jan 2020. It’s been quite a ride!

[gzz]

SDR I don’t see how to pick an arbitrary start date like 1/1/20, but I am up a 63% according to fidelity since account opening on 7/31/15 thru 5/31/22, compared with 284% for SPY and 18% for Bloomberg bond index.

June is looking great so far too.

The oil equities and calls have been paying off big. I sold a few of my XOM calls today for a 3x gain in less than a month. I also closed a short put I wrote for $75 that was $360 when I wrote it, and probably will continue to write XOM puts in little bits.

My best straight oilco purchase is MRO, up 31% in less than a month and SU, up 50% since February 2022.

My worst performing oil stock is Total, TTE. It is still up, but badly lagging the rest of the major oilcos before I purchased, and still lagging. I read their last annual and quarterly report and can see no good reason for their extreme underperformance. They are only up about 50% from their 52 week low when most others are up at least 100%.

I have long learned and accepted that giant European companies usually trade at a large discount to similar American companies, but that doesn’t explain it.

I have now dropped the idea for now of buying oil futures directly and think more TTE calls are the best bang for buck.

My worst long position right now are warrants in the Trump SPAC, down about 40%. I continue to think it will be a insane meme stock once the deal closes. If you want a crazy bet that could easily 5x, it is DWACW.

[gzz]

Most OPEC and Opec+ members are producing below their production quota every month.

https://bisoninterests.com/content/f/opec-spare-capacity-is-insufficient-amid-global-energy-crisis

That’s quite the change from when I was in college and OPEC was used as an example of how members of cartels cheat by overproducing.

There’s just no reason for a small exporter like Angola to produce below OPEC quota month after month, except for the fact that they can’t produce more.

Russia will soon have to start shutting down production as its storage is getting full and there is simply no capacity to replace short ocean distance and pipeline exports to Europe with long distance shipping to India and China.

I wonder if we end up diverting some corn from ethanol gasoline blending into humanitarian aid to nations impacted by lost Ukraine grain imports. That would further increase demand for oil.

[sdrealtor]

I chose the date simply as an easy place to measure from around the start of the pandemic. Sounds like you did fine. Not as good as some and better than others

[gzz]

I keep looking for the bear case on oil and oil stocks, and I can’t see it.

The most credible one is oil drops as part of a global recession.

But (1) the economy is still strong (2) any recession is going to be caused by central bank tightening that can be reversed (3) it is far from clear any downturn would reduce oil demand more than supply.

Excluding the effect of Russian investment one-time writeoffs, BP had a PE of about 4, and is planning on buying back about 9.5% of its shares over the next year, and it will still have huge cash flow to pay dividends and reduce debt.

There is some justification for this low valuation: futures markets suggest a long term oil price of about $65. While I think that is certainly possible, my base case is that it will be more than double this amount.

And the $65 oil in 2030 the futures market suggests would require oil companies to invest in new production when they are reluctant to do so at $120 oil, and also end user oil expenditures as a percentage of GDP be a very low historical levels.

In 2016 Apple had a PE of 10.6, and 6 if you backed out its large net cash position. That didn’t make much sense, Warren Buffet started buying in, and the stock went up 7-fold.

[gzz]

Not a good day for oil, but my DocuSign short paid off well.

I shorted it when I realized that it is expensive to use and a bunch of other companies do the same thing for free. My business uses PandaDoc which works perfectly. Even if we went paid, which we won’t, we’d likely use Adobe.

DOCU has a forward P/S of 7, and its net loss is growing much faster than revenue.

These are such dangerous stocks to own. There’s really no reason they shouldn’t be 70-95% less than they are now. Value investors won’t touch them, so there’s no floor for when they go ex-growth but still lose money.

[gzz]

Down 2.04% v -3.88% for the SPY. Win!

I keep buying more oil stocks and calls every trading day.

Here’s an article about how on top of crude oil soaring, refining margins are also exploding.

https://www.bloomberg.com/opinion/articles/2022-05-09/crude-hovers-at-110-a-barrel-but-the-refinery-margin-makes-us-pay-a-lot-more

Even as the market crashed today, crude oil still went up another $1. Even more bullish news:

– Last week was the largest release from the Strategic Petroleum Reserve in history.

– Libya’s civil war is causing a complete shutdown of all oil exports.

– US diesel fuel stocks are at a 17-year low.
https://www.eia.gov/dnav/pet/hist/LeafHandler.ashx?n=PET&s=WDISTUS1&f=W

[gzz]

OPEC May production dropped again despite soaring prices.

Nigeria’s production is the lowest since S&P started recording.

Nigeria also happens to make the highest quality crude (Bonny Light) of any of the 40 or so standard grades.

When the Ukraine war started, OPEC increased production quotas, but other than the gulf states, there’s no spare capacity.

My projection is if oil and gas prices stay where they are, TTE will make about 18/share. At a P/E of only 6, that suggests it will go above 120.

While certainly prices could drop or taxes could unexpectedly rise, I think this is offset by a higher chance prices just keep going up and investors start piling into oil, so $150+ seems quite possible too.

[Author]

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