Gil’s Musings

Stick with Energy


Segment’s strategies have been overweight to energy since the collapse in prices drew us in back in 2020. We did trim some positions earlier this year as oil prices got lofty. Last week was a rough one for energy, and we went back to full overweight accordingly. We also raised cash in our reallocation, reflecting our optimism in energy and pessimism for the market in general.

As green energy and global climate policy take center stage in the Biden administration, we had concerns that he would see the light and pivot, potentially harming our energy bet. But his recent doubling down on bad ideas like price controls and a windfall profits tax gave us the green light to go full tilt since he appears to be willing to ride this to its certain bitter ending. Every time he opens his mouth, Jimmy Carter falls out.

The nemesis in our thesis isn’t Mr. Biden’s policies; they are actually fuel for our fire. Our risk is that once this spirals out of control, and we may be there already, demand destruction tends to send prices plummeting.

But energy consumption tends to be at the base of our demand hierarchy of needs. Heat, cooking, and transportation are surely inelastic, and try as we might to shift fuel costs elsewhere (i.e., free H‑E‑B delivery), that effort immediately shows up in the prices of our goods. The switch to green will hit a multitude of brown spots, and the complexity, resourcefulness, and interactivity of prices and choices will not be altered by the simpleton policies of heavy-handed central planners.

In the meantime, we marvel at the clear economic negatives that unfold in predictable fashion, and we keep our finger on the switch.

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