Wednesday, September 17, 2008

A Smart Analyst on the Energy Markets

From: Investment Postcards from Cape Town:

Rob Fraim’s Energy Call

The decline in the oil price over the past two months might not have surprised everyone but the severity thereof was certainly not widely expected. One analyst who got it right was Rob Fraim of Mid-Atlantic Securities. With crude down by almost 40%, a new report on energy has just been published by Rob.

This report is worth perusing for two reasons: (1) Rob’s good long-term track record in this sphere, and (2) his common-sense approach and findings with which I mostly concur. The paragraphs below are extracts from his excellent report.

Today I will tackle one of the (many) issues with which market participants are grappling. And I will have a sector recommendation that has “hero or a goat” implications for the writer of this missive.

I am cogitating on the disruptions and disasters in the financial sector – and the implications for the broad market. At some point you will hear from me on that subject as this mess unfolds and I feel that I have actionable thoughts to share.

Today though – we talk energy.

I’ll probably get tons of e-mail taking exception to my conclusions and citing multitudinous arcane bits of Economist World data. And I will gladly receive these and will appreciate the input. But that doesn’t have to mean that I will necessarily agree or find reason to change my conclusions.

I am approaching this … and I don’t want to use the word “gut feeling” – given that I believe that I have sound reasons for my opinion on this – but there is a certain amount of “feeling” involved in the process and conclusions. What I see in market action, what I hear from clients, what I sense in the mood of market participants, what I observe in the market’s reaction to events. And with all due respect to economists, the market is often more art than science. So I don my proverbial beret, pick up my figurative brushes and paint, and present my art project. Some fact, some feel, lots of opinion.

What a bleak mood in the energy patch. What a sickening slide. What the h*** happened? What an … opportunity?>>>MORE