After attending a conference this week it is safe to say the overall economic outlook is pretty bleak. Speakers ranging from the nation’s top real estate owner to a CNBC analyst and technology entrepreneurs from all over the country gave us a pretty simple overview of their opinions. In summary, they are bearish on real estate and new technology and bullish on energy. And they are not alone.
Energy traders all around the world have been buying oil and fuel futures at a pace not seen since the reopening of our economy at the end of the pandemic. Oil is hot again, and it likely won’t stop being a too-asset class for quite some time.
We live in a time of high inflation, rising interest rates, and growth-political turmoil all across the globe. This volatility is starting to be seen from all walks of life now.
As China reopens its economy, which has already begun, we will begin to see a steady increase in the demand for oil, most specifically crude oil.
Demand is a major piece of the puzzle and it could be greatly enhanced if the federal government takes proper strides to replace the hundreds of millions of barrels they sold from the strategic petroleum reserve over the last 18 months.
As predicted here at King, the industry’s supply side is now the focus of the market. After constant handcuffing from the current administration, U.S. production is expected to be low over the coming year. OPEC+ also announced yesterday that they have no intentions of increasing their production to meet increasing demands. This is quite a quandary in the market, but one that we have prepared for over the last 9 months.
From our vantage point, and the general consensus in the market, we see a very bullish year ahead for the energy sector. Demand creates sales and real price scarcity creates profits. Both of these market conditions seem to be lining up perfectly for the year ahead.
But aside from these major indicators in our sector, we are seeing indicators from other sectors that allow us to see an even brighter future ahead.
With the National debt at all-time highs and struggles within the government around the debt ceiling, it has become a general market opinion that taxes will most likely be raised in 2023. The reasoning behind this opinion is easy to explain. If the government cannot borrow money to make debt payments, they must raise taxes. Investors of all walks are actively looking for tax advantages investments since the government put an end to conservation easements. This gives oil and gas yet another advantage in the coming year.
High inflationary and interest rate environments drive capital to commodities, and as time moves on, energy will become even more valuable. As interest rates rise, so do mortgage rates. This is already causing tremendous difficulties in the real estate investment world. We will continue to see traditional real estate investors shifting away from their usual real estate investments to avoid further exposure to interest rate hikes. King is a perfect home for this type of capital right now because we are not using leverage in our current offering.
Inflation, interest rates, and the debt ceiling are major issues and they are starting to converge into a potentially devastating outcome for the markets. As rates rise to counter inflation while the debt ceiling is capped, political pressure is being applied to raise and even eliminate the debt ceiling.
If spending limits are not implemented as part of a negotiation we could see a scenario where rates begin to fall as the ceiling is lifted and a massive new print of dollars. This would cause hyperinflation and other really bad issues for the U.S. economy that will spread throughout the world. Of course, this is simply speculation at this point, but it is a possibility and on our radar.
In the end, we are approaching a 24-month cycle in the market where investors will be looking to save as much as possible on taxes, and increase passive income to offset inflationary pressures while still focusing on larger returns to build wealth and limiting their exposure to the volatile interest rate environment.
King is uniquely positioned for such a time as this.
