For reasons the Ontario Securities Commission (OSC) cannot disclose, an investigation into my blogging and trading activities has occurred in the past month. As something like this has not come up in the 13.5 years I have been blogging or 9 years I have been trading professionally since coming out of retirement, and according to the information the OSC provided to me was from files illegally removed from my secure computer systems and then used to make false claims, I knew from the outset I would be cleared, and I was, quickly. However, after reviewing the disclosure requirements for investment professionals, I have decided to publish monthly my holdings and to reveal a more complete picture every time I may mention a stock that I hold.
As you know if you have been following me in the past year, I moved into a business relationship with Owen Williams at Williams Market Analytics LLC (WMA) where I am now managing the WMA Cara Natural Resources Portfolio. By board resolution dated June 2017, Cara Portfolio Management Limited (CPML) has been converted to a new name, Sustainable Spark Capital Inc, under the business management and marketing vision of Mr. Navid Sadikali, a long-time reader of this blog. Most CPML accounts have been moved to WMA and the few remaining ones are expected to move before year-end.
Owen Williams and I are managing some SMA accounts directly at Interactive Brokers and Chas. Schwab. We also offer portfolio management services to other Financial Advisors and investment professionals. My decisions were made to enable me to restrict my time and resources to activities like blogging and managing a few portfolios, and have expert back-up from Owen. I think it’s a wonderful relationship that has started well. I wish I could say the same for my IT projects. In any case, we’ll see what happens there.
My WMA mandate to hold between 12 and 20 positions in the WMA Cara Natural Resources portfolio has started well. As you know, on September 1, I published an extremely bullish Report on Oil and Oilers that has been proven to be perceptive. We have invested ¾ in Oilers and ¼ in Miners, not because I liked the Miners – my Sept 8 report stated I didn’t particularly – but for diversification purposes.
Despite the pull-backs in all the Miners except HudBay (HBM), our strong bullish position for the Oilers proved us right. This portfolio, which had gained +8.75% for September, added an additional +1.72% for Oct through Friday Nov 3. Meanwhile our benchmark, the iShares North American Natural Resources ETF (IGE), which had enjoyed a gain of +7.92% in September, has since lost -1.09%. So, in the two months to date, our portfolio is up a commendable +10.47% while the benchmark IGE is up +6.83%.
Our largest gains to date have been in five Oilers: California Resources Corp (CRC +54.2%), Fairmount Santrol (FMSA +48.9%), Carrizo Oil & Gas (CRZO +33.9%), Devon Energy (DVN +23.9%) and Baytex Energy (BTE +22.0%). Five other Oilers have enjoyed double-digit gains. They are: Newfield Exploration (NFX +16.1%), Crescent Point Energy (CPG +13.5%), Helmerich & Payne (HP +12.9%), Callon Petroleum (CPE 12.4%), and Murphy Oil (MUR +10.8%). The other winners so far have been: U.S. Silica (SLCA +6.5%), Pioneer Natural Resources (PXD +6.4%), and Gulfport Energy (GPOR +6.4%). A single Oiler (Sanchez Energy SN -6.8%) dropped back.
Five of six Miners are down so far. Copper Miner HudBay (HBM +8.76%) is the only one that has gained. Major Uranium producer Cameco Corp (CCJ -14.3%) has not recovered yet from the sharp sell-off when a single bank analyst downgraded the stock. Gold and Silver Miners Hecla (HL -15.1%), Coeur (CDE -15.0%), and New Gold (NGD -9.6%) have pulled back a lot, while McEwen Mining (MUX), with a larger than expected reported loss plus a major acquisition, dropped -4.0%. A few weeks ago, MUX replaced EQT Corp (EQT), which is the largest natural gas operator in the Appalachia region of the U.S.
From our perspective, Industrial commodities led by Oil & Gas appear to have completed their long-cycle Bear phase. West Texas Intermediate (WTI) Light Crude and Brent Oil closed the week at $55.73 and $62.15 respectively, which is a high enough price to generate solid cash flow and earnings and much higher share prices going forward for the Oilers. Our forecast of oil shortages, not surpluses as many others believe, may be on the money as WTI has popped from about $47 at the beginning of September, the time we made our price trend reversal call in our report. Actions of the OPEC and major non-OPEC producing countries to reduce production and exports to rebalance supply and demand, which has been done to create sustainable oil prices at about $60 (WTI) and $65 (Brent), appear to be working.
For November, we will likely take some profits in some of the Oilers as Oil prices fill in and establish new support levels at about $55 and $60 or a few dollars lower. Over the next few months however, we anticipate gains of +10% to +20% in the Oil market, which many observers would find shocking. We do anticipate Copper, another major industrial commodity, to also lift in price, boosting the shares of our holding in HudBay (HBM) and perhaps leading us to buy shares in a second Copper Miner. The price of Gold & Silver is more uncertain and depends somewhat on the trend of the US Dollar, which is being impacted by volatile geopolitical events and proposed US tax reforms. Although we believe the recent sell-off in Gold and Silver is over-done and will recover somewhat, we still may reduce exposure there.
So, at this point, we believe the strong global economy is going to benefit the industrial commodity-based Oilers and Copper Miners the most and to some extent the Silver Miners, which are significantly more of an industrial commodity than Gold. Given that the commodity price inflation cycle has begun an upward advance, we see that as a late-stage development in the broad equity market cycle, one typically characterized by extreme price volatility, a time of higher risk as well as opportunity.
Should the stocks in our Natural Resources portfolio push further into an unsustainable late-stage market performance rally, we would interpret that as a precursor to the end of the secular Bull market in equities. As our job is to manage risk as well as seek high performance, we would try to sell ahead of a broad market crash.
From our perspective, a crash is unlikely to happen until central bank rates globally reach levels that become unacceptable to companies and individuals holding large amounts of debt. That condition is unlikely to happen for at least another year in our view, which means we intend to stay at least 90% invested. However, our portfolio has given us some humongous gains. As noted in our Weekly Report, there is evidence of parabolic price movement that is causing us concern. This is the time to be nimble.
On the home front, Pat and I have moved into a new house in Oakville Ontario and have the boat (“Time&Space”) for sale. We recently returned from a 10-day trip to Vancouver Island to see our daughter and her husband, who moved there a year or so ago. We also spent time with other members of our extended family and with Vad and Irena Graifer. Vad, who blogged here and presented at our investment conference for years, is truly enjoying life as a professional photographer and a writer of diet books and blogs. https://www.amazon.com/Vadym-Graifer/e/B001IQWBPC
Yes, Island life on the west coast is laid-back and inviting. We intend to visit often, and not so much to Bahamas or Cuba.
It’s that time in our own life cycle to settle into a more normal — I’ll call it laid-back — routine. Nimble yes; but slow and steady too.
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