Stop Listening To Blowhard Oil Bulls

Some investors truly deserve a gold medal. The mental gymnastics they execute to avoid evidence contrary to their beliefs is amazing.

Instead of objectively assessing the avalanche of data that runs against their long-held opinions; they spin, distort, and bend over backwards to twist reality into what they want to be true.

Why? Because nothing is more important to these people than proving themselves right… even if that ultimately means staying wrong.

This human foible is perhaps no more prevalent than in the financial commentary space. And currently, the greatest examples of this are the indefatigable commentariat of oil bulls.

A year ago, when oil traded at $75/bbl, they said, “prices are low… crude’s a bargain!”

At $60/bbl, it was “deals like this come around once in a decade… the smart money is buying hand over fist.”

$40/bbl, they screamed, “this is unsustainable… supply/demand says… yada yada yada.”

Crude broke through $31/bbl today… and these people are still opining on a bottom.

It is one thing to be wrong. Everybody who participates in markets will get things wrong, and they’ll be wrong often — that’s just part of the game. But it’s another thing to stay wrong. To refuse to acknowledge that your analysis is incomplete or completely off-course in light of evidence that directly says so.

This is especially true in the oil market; a commodity whose supply/demand is affected by every country around the world; whose pricing is influenced by currency movements and impacted by the actions of sometimes deranged leaders on the international stage. The only thing a trader can be sure of is that they don’t know all the variables.

A dose of humility and acceptance of one’s ignorance are important virtues for traders — especially those that dabble in texas tea.

Bullish oil crusaders who speak in absolutes, lack these virtues… and I would add, credibility. It has reached such a low point that now some have resorted (quite ridiculously) to blaming the continuing drop on “algos, manipulators, and momentum traders!” They want you to believe that they’re not wrong… just unlucky!

This framework of thinking about markets is not only disingenuous, but also unhealthy for one’s portfolio. At Foundation Investing, we view the world and markets, not through dogmatic lenses, but rather through the scope of probabilities.

We develop numerous hypotheses about what is driving an asset and where its price can go. We then assign certain weightings of likelihood to each, continuously updating them as new information comes in — price action being a vital piece of information.

This keeps us flexible in our analysis and allows us to quickly realize when we’re wrong… something oil bulls have failed to do over the last year.

Currently, our highest probability scenario (one that we’ve held since September of 2014) has crude hitting the low $20’s and possibly even the teens before there is true capitulation of this trend. There will be blood in the oil producing streets before a real bottom has been reached, and that hasn’t happened yet. 

What so many self-proclaimed oil experts fail to understand are the large secular drivers behind this trend. The three primary forces pulling oil lower are massive demand destruction resulting from a collapsing China, a strengthening dollar due to a tightening Fed, and of course the improvement of fracking technology . These three trends are nowhere near finished. (But of course, we could be wrong. And we’ll quickly about-face should new information tell us to do so.)

The oil market is much too liquid to be “manipulated” by algos or short-sellers over long periods. Investors should not waste time reading analysis by commentators who strive to be the broken clock that’s right twice a day.

Markets are difficult and complex systems. Investors need to have “strong opinions, weakly held” and build all hypotheses upon a foundation acknowledging their own fallibility. Ego and the reluctance to accept when one has misjudged are hurdles too difficult for many investors to cross — but they are necessary to conquer, in order to build long-term profits.

 

 

Stop Listening To Blowhard Oil Bulls

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Brandon Beylo

Value Investor

Brandon has been a professional investor focusing on value for over 13 years, spending his time in small to micro-cap companies, spin-offs, SPACs, and deep value liquidation situations. Over time, he’s developed a deeper understanding for what deep-value investing actually means, and refined his philosophy to include any business trading at a wild discount to what he thinks its worth in 3-5 years.

Brandon has a tenacious passion for investing, broad-based learning, and business. He previously worked for several leading investment firms before joining the team at Macro Ops. He lives by the famous Munger mantra of trying to get a little smarter each day.

AK

Investing & Personal Finance

AK is the founder of Macro Ops and the host of Fallible.

He started out in corporate economics for a Fortune 50 company before moving to a long/short equity investment firm.

With Macro Ops focused primarily on institutional clients, AK moved to servicing new investors just starting their journey. He takes the professional research and education produced at Macro Ops and breaks it down for beginners. The goal is to help clients find the best solution for their investing needs through effective education.

Tyler Kling

Volatility & Options Trader

Former trade desk manager at $100+ million family office where he oversaw multiple traders and helped develop cutting edge quantitative strategies in the derivatives market.

He worked as a consultant to the family office’s in-house fund of funds in the areas of portfolio manager evaluation and capital allocation.

Certified in Quantitative Finance from the Fitch Learning Center in London, England where he studied under famous quants such as Paul Wilmott.

Alex Barrow

Macro Trader

Founder and head macro trader at Macro Ops. Alex joined the US Marine Corps on his 18th birthday just one month after the 9/11 terrorist attacks. He subsequently spent a decade in the military. Serving in various capacities from scout sniper to interrogator and counterintelligence specialist. Following his military service, he worked as a contract intelligence professional for a number of US agencies (from the DIA to FBI) with a focus on counterintelligence and terrorist financing. He also spent time consulting for a tech company that specialized in building analytic software for finance and intelligence analysis.

After leaving the field of intelligence he went to work at a global macro hedge fund. He’s been professionally involved in markets since 2005, has consulted with a number of the leading names in the hedge fund space, and now manages his own family office while running Macro Ops. He’s published over 300 white papers on complex financial and macroeconomic topics, writes regularly about investment/market trends, and frequently speaks at conferences on trading and investing.

Macro Ops is a market research firm geared toward professional and experienced retail traders and investors. Macro Ops’ research has been featured in Forbes, Marketwatch, Business Insider, and Real Vision as well as a number of other leading publications.

You can find out more about Alex on his LinkedIn account here and also find him on Twitter where he frequently shares his market research.