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In 1938, Mexico nationalized its oil industry, taking over all aspects from production to final distribution. This ban on ownership by foreign companies continues today; however, changes are underway.
Under the leadership of Mexico’s new president, there is a growing desire and need for the knowledge and technical skills developed by foreign companies, many of which are U.S.-based, to stem the decline in oil production and revive the industry in that country.
I think this will be a tremendous investment opportunity for oil stocks going forward. Mexico still has a tremendous amount of energy commodities under the ground, but many need advanced technology to extract them. And U.S.-based oil stocks are among the leaders in the world when it comes to extraction technology.
By allowing foreign-based companies to help develop projects, oil stocks would profit from having access to new reserves, and Mexico would benefit from having billions of dollars in funding and access to those with top-notch technical skills.
There are several different types of oil stocks that would benefit from this investment opportunity. One company that I’ve liked for some time is Halliburton Company (NYSE/HAL), a global leader in the oilfield service industry.
While Mexico has not yet changed its legislation and we don’t know which companies will obtain these oil rights at this time, Halliburton has been extensively offering its services in Mexico for a number of years. I think it’s highly likely that Halliburton would benefit from more work as this investment opportunity opens up.
When investing in oil stocks, one has to consider the company’s current level of production, future reserves, and potential for growth … Read More
Oil prices are heading higher on the chart with the cash West Texas Intermediate (WTI) crude rallying back toward the $100.00 level after threatening to test $90.00.
Steady economic signs in the United States, China, and Japan—the three largest economies in the world—along with some muted growth in the eurozone and Europe are adding some spark to the oil futures… But hold on; doesn’t the buying seem somewhat premature?
I’d say so, as I believe oil prices may have limited upside unless something dramatic surfaces in the Middle East that impacts OPEC oil.
The Organization of the Petroleum Exporting Countries (OPEC) has also come out and said it would maintain its current daily production quota and not cut supply in order to add support to oil prices.
I doubt we will see $130.00-per-barrel oil prices anytime soon—unless, of course, tensions escalate in the Middle East and a war breaks out across a wider region that would impact the flow of OPEC oil. The current nuclear agreement in Iran has also added some stability to the region.
And the futures market for oil supports my view, too. A look at the oil futures actually shows expectations for oil prices should decline back towards $92.00 by the end of 2014, drop below $90.00 in 2015, and continue downward to $80.00 by 2018. The December 2022 futures contract points to $78.00-per-barrel oil.
The chart of WTI oil below shows the downward channel and recent breakout, which I doubt will have much holding power as it nears the $100.00 level.
Chart courtesy of www.StockCharts.com
Now while the prospects over the next eight years don’t … Read More
One of the hottest investment strategy themes over the past few years has been to invest in emerging markets. For years, these markets were very attractive to investors, as these economies tended to have much higher growth rates when compared to growth in the developed countries.
However, this investment strategy is now beginning to look questionable, as it appears that growth rates are much lower than many had expected.
The latest look at emerging markets from a fundamental standpoint comes from Paul Polman, CEO of Unilever PLC (NYSE/UL).
Polman stated that he believes that economically, these markets will continue to remain quite slow for some time, as these nations now need significant structural changes following their boom years. (Source: Bloomberg, December 2, 2013.)
This type of information is certainly a negative for any long-term investment strategy in the emerging markets. Structural reforms do not happen overnight; here in America, it’s obvious how slow and difficult it is to make any real structural changes.
For many, the investment strategy in emerging markets appears enticing because it seems so exotic. But comments such as those from the CEO of Unilever should be an eye-opener to these investors. Unilever obtains most of its revenue from emerging markets, so the company can feel the pulse of what’s really happening on the ground in these markets.
Frankly speaking, this isn’t a surprise to me; in these pages, I’ve mentioned seeing several warning signs that have alerted me to the weakness in not only the domestic economy, but the emerging markets as well.
Chart courtesy of www.StockCharts.com
The three-year chart above shows the activity of the … Read More
Taper or no taper? When? How much? These are the worries that are currently driving tensions in the stock market on a daily basis. As I wrote in a previous article, no one seems to care that corporate revenue growth is muted and consumers aren’t spending.
Last week, we saw jobs market data that helps support the Federal Reserve’s reasons to begin tapering its bond buying program.
The non-farm payrolls reported the generation of 203,000 new jobs—better than the consensus estimate of 180,000 for the month of November. This represented the second straight month that more than 200,000 jobs were created, and while the jobs market has a long way to go, this is positive news. Jobs numbers were revised upwards in September and October.
Now it may be true that the quality of jobs created could be improved upon, as much of the increase in the jobs market continues to be driven by the service sector and other lower-skilled jobs. However, the results do suggest some action may be taken by the Federal Reserve.
The unemployment rate fell to a five-year low of seven percent, much better than the consensus 7.2% and October’s 7.3%. The rate appears positive on the surface.
The Federal Reserve had said it wants to see the unemployment rate fall to around 6.5% before it considers raising interest rates, but with a seven percent rate, you have to wonder if the Federal Reserve is thinking hard about when to rein in its monthly bond buying and reduce the stock market’s dependency on cheap money.
Yet I don’t think the Federal Reserve will begin tapering until … Read More
The S&P 500 may be entering bubble-like territory: that’s what I’ve been writing for the past few months.
Now, it appears as though I’m not the only one who’s worried about asset classes beginning to form bubbles from the excess money printing. 2013 Nobel Prize-winner Robert Shiller also recently stated that he is concerned that prices have risen far too quickly across many asset classes, from real estate to stocks.
As I’ve written several times over the past couple of months, investing in stocks at these elevated levels is quite risky. My belief is that much of the upward move in the S&P 500 has been primarily based on the liquidity (money printing) being pumped by the Federal Reserve.
Investing in stocks with this premise can only work for the very short-term trader who’s quick enough to get out when the tide begins to turn.
Because people are not investing in stocks based on actual fundamentals right now, one can’t expect the value in the S&P 500 to remain elevated once there’s a change in monetary policy, since much of the move has been artificially supported.
Let’s take a look at how the S&P 500 has been affected by monetary policy over the past few years, and how investing in stocks at the current level is becoming increasingly risky.
Chart courtesy of www.StockCharts.com
The first quantitative easing program by the Federal Reserve lasted from December 2008 until March 2010. This period is not shown on the chart above, as one could argue that the S&P 500 became extremely oversold and that investing in stocks for the long-term made sense at … Read More