2016 certainly has been a volatile and ugly market. However, with uncertainty comes opportunity. Markets have revalued themselves, small stocks are down significantly, and we think the economic fundamentals don’t show the method behind the madness. One part that sticks out to us is the price of oil. With the Iran nuclear deal online, oil has plunged to a level we haven’t seen since 2003. We’ve said this before: there are lot more users of oil than producers. More oil is being used than ever before. Supply and demand will meet: that is the iron law of economics.
No one seems to remember 5 years ago, when we were decrying the lack of oil and trying to drill in the ANWR. Well, we figure oil at the high $20 per barrel is a good price to buy at, so we are moving a small portion of our strategic income portfolios to our dedicated energy fund. This is a small tactical move designed to take advantage of the low prices. We are confident oil will go up: when the price drops, producers quit producing and drillers quit drilling. When we shut down a well, it takes 6-8 months to deactivate. February is typically maintenance month, so we expect supply will trend down.
So today, we see the opportunity in the oil field. As prices change, we’ll adjust. This is not a big move, but a small one that is intended to take advantage of an aggressive selloff.