Oil could trigger a market meltdown!
So go the headlines at the mo.
Yawn.
We already went over this yesterday. Oil at US$75 a barrel is no big deal.
Even US$150 is bearable. You and I survived 2022, right? Oil got up there for a bit.
I wonder, too, how headlines like this are reflecting another era, and the age of their audience.
Oil was a big macro influencer fifty years ago. The OPEC embargo shook even mighty America for a moment in time.
But it’s not 1973 anymore.
Oil and energy are a much smaller component of the economy…and the stock market.
Economist Saul Eslake is quoted in the AFR today saying the following…
“A sustained increase in petrol prices is a bit like an increase in interest rates in the sense that people don’t have a lot of choice as to how much petrol they use,” Eslake said.
“So if the petrol price goes up, they spend more on petrol and have less to spend on other things.”
All fair enough. But unlike in 1973, if the price of oil got bothersome enough, you can buy an electric car now. You can use Uber.
Maybe you negotiate to work from home 3 days a week, or all week.
In other words, oil is less likely to bring the economy to a grinding halt than it once did.
The US and Australia used to be substantial manufacturing nations.
Neither is anymore.
Energy is still important, but not as big as it was at a macro level (of course, for the individual business owner, it can be very acute and nasty).
It’s services and semiconductors that matter more these days
I remember doing a ton of study on oil back in 2018.
In hindsight it was a waste of time. I should have just read about bitcoin and Nvidia.
Ha!
Hindsight is a wonderful thing.
The oil price is a very difficult thing to forecast. I don’t bother anymore.
Admittedly, I have help on this front. I outsource it to somebody else, an absolute gun in the space. I’m not going to do better than him.
I reckon this is an important observation around investing. You can’t be across everything.
Better to pick an area or two to specialise in and back your edge in from there.
The difficulty is there will be times when your area of the market goes through a rough patch. Nothing goes up forever.
However, oil in general is falling away in importance.
Yes, there will be cyclical rallies and the occasional bump from a situation like now.
But…really…why bother stuffing around with it when you can learn everything you can about AI?
Hell, AI can teach you about AI!
Even if a share is unrelated…
…AI is going to impact any company you DO take an interest in.
Scott Galloway is a well known business commentator. He recently made this comment…
“America slowly but surely has become an economy that is optimized for the top 10% at the cost of the bottom 90%.
“If we can find someone to work for $7.25 an hour, and they can’t afford food, f*ck you, that’s too bad. It’s gonna help me get richer if I can hire a bunch of people at $7.25.
“AI is designed to amplify the capabilities of the top 10% in any field — whether it’s law, finance, or design.
“These high performers will use AI to enhance their productivity, reduce reliance on lower-level and average workers, and capture an even greater share of the spoils. AI is making America more like itself.”
Think about it. Economists and politicians will talk about macro concepts a lot – employment, GDP, wage rates, etc.
This is usually sold to us as being important for the stock market because companies once relied on a healthy domestic economy to grow.
Those days are history. The traditional economy is rotting away, but the Mag 7 have monstered it for years.
All you and I had to do was buy those, and forget the rest.
The Mag 7 trade is running out of steam now. The next big winners are going to be related to AI in some way, but different to what these giants are doing.
Finding these potential superstars is the challenge now.
Best wishes,
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Callum Newman,
Editor, Small-Cap Systems and Australian Small-Cap Investigator
By the way, my colleagues over at Strategic Intelligence say AI is leading investors to a potential bonanza in old American tenements. AI can potentially “unlock” millions in wealth left behind…because it can “see” what old discovery technologies couldn’t. Check out what they’re saying here.
Murray’s Chart of the Day –
Uranium
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| Source: Tradingview |
The uranium price has been in a downtrend since January 2024.
After a surge of interest in uranium during 2023, with the price catapulting higher from US$50/lb to over US$100/lb, the music stopped and a slow grind lower in the price ensued.
Uranium stocks did a fabulous job of shaking out any weak hands over the last year.
But that period appears to be over.
Trump came out recently in support of uranium, with a plan to ease the regulatory and financial path for new projects.
The uranium market continues to face structural supply deficits. Global production remains below reactor requirements by an estimated 30–40 million pounds annually.
Limited new mine development and extended timelines for bringing new projects online exacerbate this shortfall.
The escalating conflict between Israel and Iran has heightened concerns over global energy security. While the immediate impact is more pronounced in oil markets, the broader energy sector, including uranium, has experienced increased volatility.
Utilities are actively seeking to secure uranium supplies amid concerns over future availability. Notably, a recent request for 500,000 pounds of uranium went unfulfilled for over six weeks, indicating a tightening market.
When you look at the chart above it is clear the sell-off over the last year was just a correction within a longer term uptrend.
Any weakness in future should be seen as a buying opportunity.
Regards,
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Murray Dawes,
Editor, Retirement Trader and Fat Tail Microcaps
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