5. Energy prices have continued to move up over the last few weeks, recovering from an oversold position. On one hand, drilling in short-term projects continues to be cut back, but on the other hand, global production continues to rise and Iran is looking to increase production by over 1 million barrels per day immediately after a nuclear agreement is agreed to by the June 30 deadline. The spin in the papers is that the reduction in drilling could lead to a spike in prices down the line if there is a demand increase. That is a large exaggeration. If prices recover much more from current levels, expect drilling to recover quickly, especially for the low-hanging oil shale projects. As is, inventory levels continue to build substantially week after week. Watch storage capacity!
The financial markets around the world rose last week as optimism keeps building that the global economic recovery is underway, albeit slow by historical standards. Currently there is no shortage of money, labor and commodities so inflationary pressures are several years down the road. Monetary authorities everywhere are hoping that the recovery will lead to price increases rising to 2 percent per per year. Sort of amazing! Do I think that interest rates are ridiculously low in some areas of the world? Absolutely! Would you buy an interest rate instrument with a negative yield unless you felt that the world was coming to an end? No! Globalization has crept into the financial markets everywhere, as capital flows freely from one market or region to another. Conservatism at all levels and the need for corporations to keep evolving to survive and thrive go to the heart of our investment thesis.
Listening to managements discuss first quarter results and their plans for the future was certainly a sigh of relief for me as my thesis for successful investing was reinforced by some many of them. I really suggest that you read the transcripts of several of these calls. Start with Alcoa and end with Microsoft. We own both stocks. Positive change is everywhere as the status quo leads to a slow death like for Kodak, Xerox and even IBM.
I want to thank all of you for your comments. This has been one of the best periods in my investment career. Our funds have outperformed the average several times while keeping our net invested exposure below 95 percent with unusually low turnover.
This really is a time to review all the facts, step back and reflect on all that is happening both on a macro level down to each company; decide on asset allocation and regional emphasis; and do your homework on each company you are interested in investing in. There is a difference.