Oil could potentially be the best investment right now
The commodity has been on a tear with surging demand as the global economy reopens.
In an interview, Tawil stated that “supply is falling much faster than demand.” However, he acknowledged that the world is shifting away from carbon fuels, stating that “there will be some growth over the next few years, but this will become a melting ice cube very quickly, this isn’t a forever asset.”
He also believes that the targets set by companies and the government for weaning themselves off of oil are “far too aggressive.”
According to Tawil, the commodity itself is the best way to profit rather than trading stocks in the energy sector. Individual investors, on the other hand, may find this strategy more difficult.
Another important aspect of Maglan Capital’s case for oil is that many Americans have a lot of money and are planning to spend it. Tawil also believes that OPEC will not make any major moves anytime soon, stating that “they are in a happy place.” He also stated that “the cost of oil in this country will rise faster as the United States moves into a full-fledged re-opening.”
Many other hedge funds agree, but instead of betting on the commodity, they are putting their money into well-known oil stocks.
D.E. Shaw Group has been the most active player in the sector. According to recent filings, the firm’s largest investment in the sector is a $261 million investment in Chevron made last quarter.
In this case, however, they may have backed the wrong horse. So far in 2021, the stock is up 27.5 percent, ranking third to last in the S&P Energy sector, which is up 45 percent this year. D.E. Shaw has also been a big buyer of Exxon, Hess, Williams Cos., Phillips 66, and Marathon Oil, according to Symmetric, which tracks hedge fund activity.
So far this year, Marathon Oil has more than doubled. The stock is up 15% for the week after several Wall Street analysts upgraded it.
According to Symmetric, Marathon is also attracting investments from Voloridge Investment, Two Sigma, Gotham Asset Management, and Tudor Investment, in addition to D.E. Shaw.
The risks of buying AMC Entertainment and GameStop
Dan Niles, a well-known hedge fund manager, believes that the volatility in the meme stock market like AMC Entertainment would come to a stop once the Federal Reserve cuts down on its asset purchases.
Niles believes AMC shares, whose market cap has risen this week, could triple or even quadruple in value, similar to the GameStop frenzy earlier this year. However, he cautioned investors to be cautious when chasing stocks that are being pursued by both short-sellers and retail investors.
“I think you should stay away from this stuff right now unless you do it in very small quantities and have a basket full of them,” he said.
Followers of Reddit’s WallStreetBets forum gained prominence earlier this year after retail traders orchestrated a short squeeze in a number of stocks, most notably GameStop. The so-called meme plays are notoriously volatile.
Niles stated that his stance on meme stocks that he believes are overvalued will change once the Fed begins tapering.
“I think that’s when you can go in and say, ‘OK, we can potentially go after and short some of these highly overvalued names,’” he explained.
AMC’s stock reached a high of $72.62 per share on Wednesday, more than seven times its price in mid-May. Since then, the stock has recovered to around $51 per share on Friday afternoon, nearly doubling its closing price from a week ago.
AMC is not the only meme stock that has had a good week on the market. Shares of GameStop and Bed Bath & Beyond are up by double digits this week. BlackBerry has also increased by 42%.
Payrolls miss caught the market off guard as it braced for a possible hot print, allowing Treasury yields to ease lower and the taper discussion to stay on track. This results in a pure Nasdaq catch-up day, with the S&P returning to its previous closing high despite cyclical groups being soft and breadth being unimpressive.
The Nasdaq 100 is leading, but it is approaching its peak on February 12 – the date of peak enthusiasm for spec-tech, ARKK, SPACs, and IPO-type names. AAPL and AMZN both fell below their 200-day moving averages yesterday, accounting for more than 9% of the S&P dead money for the past ten months. They are up slightly today but still trailing the Nasdaq.
Today’s meme complex is calmer, thanks in part to mechanical reasons. The massive accumulation of weekly options positions expiring today limits traders’ ability to continue jacking the AMC and BB and other cult names by gunning call options at ever-higher strikes and forcing dealers to buy shares on the way up to hedge. One of the AMC apes claims that fair value is in the $20s, and having no real thesis other than “retail investors are here for the long haul” isn’t helping.
There is no way to predict how things will unfold from here, but it is still safe to regard the meme craze as a largely benign sideshow that is not yet causing stress in larger portfolios or raising overall market volatility levels. It is possible to have fun on all sides without the core of the market either dancing along with it or being cut off at the knees by it.
If anything, the large-cap mainstream market’s recent behavior has been textbook: Long consolidation following a massive one-year ramp; cyclical/value leadership established in response to a strong macro outlook, but cooling since the pace of economic acceleration peaked in March; inflation impulse priced in quickly and now moderating.
And, as trading volumes in AMC and the like skyrocket, Vanguard has been pulling in about $1 billion in net inflows per day over the last year, demonstrating that the tortoises of the market continue to trudge ahead and do well.
As previously stated, breadth is unimpressive today but has held up well during the index’s sideways slide. The NYSE is almost evenly balanced, and the Nasdaq is slightly positive.
The VIX is giving way, with the premium ahead of the jobs report spilling out, the meme trade-off the boil, for the time being, calm index action for weeks ahead, and summer approaching. VIX futures are in a comfortable setup, despite the fact that the downtrend is still intact. At the very least, there is nothing to be concerned about.