Monday, December 8, 2014

Monday, Monday -- December 8, 2014; Berkshire Hathaway Up Nicely Today

Updates

Later, 11:04 p.m. CT: although the market pulled back, way back (about a hundred points), I see CNBC noticed the same thing I did: Berkshire Hathaway trading at all-time highs. Buffett's wealth balloons
 
Original Post

I have just finished the biggest part of the blogging day. So, you all may want to come back later tonight when I hope to have more updates.

Based on what I've read so far this morning, I'm in a pretty good mood. Oil continues its free-fall, now down over 3%, and the equity market is clawing its way back to positive territory. I find that interesting -- the near-term disconnect between the plunge in oil prices and the Dow trading at new highs. If the market has priced in $55 oil, it makes sense, doesn't it?

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There is one man that has taken a huge bet on America. And he says that every year. He really said it when he bought BNI (BNSF) some years ago. So, in today's "down" market, I was curious how BRK-B was doing. I did not expect this. BRK-B is up almost 1.5% -- this is quite incredible. There are two headlines for BRK-B today:
  • Berkshire Hathaway wins Singapore license
  • Cheapt oil isn't the only reason Warren Buffett's latest fracking bet looks so risky
I'm curious. What was Warren's "latest fracking bet?" Oh, that? Lubrizol purchasing Weatherford International's engineered chemistry and drilling fluids. The writer is worried about CO2 fracking. Okay. Won't happen in Warren's investing lifetime.

The bigger story is the Singapore story. Just a few days ago, the blog mentioned Singapore in a different setting. Singapore was #71 on BloombergBusinessweek's list of 85 disruptive ideas over the past 85 years.

What is UNP doing? down almost 2% -- probably on back of continued slide in oil prices?

T? up slightly in a down market. And paying more than 5%. And a secure dividend.

ENB down almost 4%, but dividend will make big different.

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The Market

The big question for many: how will the slump in oil prices affect the overall market and global economy. My thoughts:
1. I think the bigger companies, and Saudi Arabia, are protected with hedges through first half of 2015. [Later, see first comment -- generally integrated oil companies -- and probably countries -- don't hedge; they refine.]

2. In the short term (one year, maybe two years), regardless of where oil finally settles, there has been a massive "re-set" of market value of all oil companies. That won't change in the near term, and I think it has pretty much already reflected in the market.

3. In the long term (at least 2 years, maybe it will take 3 years), the price of oil will move back to $100-oil in 2014 dollars.

4. If one thinks the "re-set" for the oil industry has already taken place, then the oil sector (the "direct" oil sector) won't have much more negative impact on the market.

5. If the oil industry cuts back big time then the indirect industries are yet to be affected: making tank cars for the railroads, laying pipeline, etc.

6. However, in the big scheme of things, most of the world does not produce oil and most of the world is not directly involved providing resources for oil (China, being a a good example). So, one has to argue whether the huge drop in the price of oil will help the global economy or hurt it.

7. If oil levels out where it is right now, I'm betting the global economy benefits. Europe, China, India, and Japan will all benefit from lower oil prices.

8. For the US, I think folks are starting to see exactly how formidable the US is in regard to energy -- all forms of energy. Don sent me a link to a great story that supports that view; I will get back to it later.
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The break means this post may be updated later.

2 comments:

  1. Generally big companies don't hedge. iOCs.

    But, they refine. PetChem. That gives some balance.

    Anon 1

    ReplyDelete