A Dive Into the 2022 Power Trends - Trend No. 1: Energy's Swan Song
In January, I wrote… No matter how "doomed" crude oil may be over the long term, it could deliver some spectacular short-term gains. In the here and now, demand for oil during the last several months has been rebounding sharply. As it continues to rebound, it could reach about 104 million barrels per day (MBPD), which would be about two MBPD higher than the world's oil producers have ever supplied to the market. Mind you, this was before Russia decided to wreak havoc on Ukraine, subsequently catapulting oil well over $100 and disrupting more supply chains across the globe than one can count. This trend is still going strong. Even though in recent weeks, oil and energy stocks have experienced minor pullbacks, they are still outperforming when compared to the market. And as I said in mid-June, energy stocks are delivering gains when almost nothing else is. And as I have emphasized on many different occasions, I expect the energy sector to produce even greater gains over the next several months. Oil and gas booms rarely flame out quickly. Sure, they will suffer periodic setbacks along the way – like the last few days – but they usually last a while. Midpoint Review Takeaway: Even the most powerful of trends stagger when the bears come out to play. But it is the philosophy behind (and the mounting evidence backing them!) these trends that will power them to higher highs after temporary lows. - Trend No. 2: B.M.N. (Borrow Money Now) and Trend No. 3: The Revenge of Caution
Trend Nos. 2 and 3 go hand-in-hand in some ways, so I'm discussing them both under the same bullet point. In January, I wrote about BMN… Interest rates have been falling for the last 40 years, more or less. But two major bugaboos might cause that long-term trend to reverse decisively in 2022. Those two negative influences are sky-high inflation and sky-high federal deficits…. If rates do move higher… it is enough of a possibility to warrant concern… and perhaps a portfolio hedge or two. And I wrote the following about The Revenge of Caution… I expect the "character" of the financial markets to shift noticeably from a "risk-on" bias to "risk-off." In other words, I expect investors to behave more cautiously and timidly than they did in 2021. Generally speaking, therefore, I'm expecting relatively cautious investments to outperform their relatively risky counterparts. I don't need to tell you that caution has paid off this year… perhaps even more so than the tail-end of 2021. And to explain how closely these trends are intertwined, we're going to travel back to October 2021, when I addressed an Investment Report subscriber's question of, "What's the best way to hedge against a possible sell-off or bear market?" I responded to that question with this two-part answer: Part I of my response is a simple and unimaginative one: Hold cash. Part II is less simple: Concentrate most of your investments in "megatrend" opportunities. At first blush, Part II of my response may seem to conflict with Part I. But I see these two parts as complementary components of a disciplined long-term strategy. Let's begin by examining cash. Cash is the one and only infallible hedge against loss… Cash occupies a very unique and essential place in the world of investing; there's nothing like it… You can't buy a great stock with cash you don't have… For this simple reason, I recommend maintaining significant cash levels at all times… Cash is like stored kinetic energy – like the water behind a dam, just waiting for the moment to cascade into the opportunity that can power major investment gains. Turning to the second part of my answer, I suggested that "one of the best ways to reduce risk is… to embrace it… selectively." In other words, play defense by playing an intelligent offense. I have been pursuing that exact strategy over the last several months, just as I have done throughout my career… and I expect this strategy to deliver outsized rewards over the coming months and years. The rewards may not be immediate, but they could be considerable. Midpoint Review Takeaway: Holding cash where you can is vital. It is an infallible asset, one that does not fall prey to market flips and flops. But when you can invest some of your cash, play defensively. Now is not the time to be dishing out every penny into an IPO your buddy told you about over drinks last week. Instead, now is the time to hedge against assets that are falling… and make sure that you have some cash to back you up. Regards, | 
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