FOSSIL FUEL CONSENSUS (Negative Consensus/Bull Market Indicator) Apocalypse now?

May 6, 2015

If it wasn’t enough for the Canadian oil patch to deal with the price of their precious liquid gold falling by 50 percent in a very violent matter creating upheaval and retrenchment in the sector, the stunning defeat of the long-time ruling Alberta Conservatives by the left-of-centre fringe New Democrats has elevated the angst to a new level. The media has done its part to feed this arrival of the apocalypse. Witness the post-mortem headlines from the Fifth Estate:

Alberta’s Oil Patch Faces New Era of Uncertainty After NDP’s Shock Victory

How Alberta’s NDP Victory Could Spark a Stock Selloff and Stall Investment in the Oil Patch

Alberta’s Orange Wave Could Mean Red For Energy Stocks

Alberta's oil patch now in uncharted waters with NDP premier

'Completely devastating:' Investors brace for stock selloff and investment drought in Canada's oil patch

Clouds Hover Over Oil Patch, Executives and Observers Warn

 These front page headlines are bound to make Bay Street take a second look at their capital allocations in the sector, which has been over-the-top the past few years as triple digits have created a stampede of capital pouring in.

The problem with these type of hyperboles is that they are based on an assumption that politics and investing go hand-in-hand. Recent history has shown this to not the case. Witness the following charts (props to Barry Ritholz for highlighting this).

Exhibit A: The Bush Tax Cuts

Back in 2003 there was a lot of consternation by pundits (Democratic ones at that) that the aggressive tax cuts enshrined by George Bush would be negative for the US economy and especially stocks.

Turns out those trillion dollars in tax cuts led to a stock market going up 90 percent over the subsequent 4 years.

 

Exhibit B: Obama!

To be fair and balance, lets go to 2009 where Obamacare was a phoenix rising. Again the pundits led by Rush Limbaugh pounded the table shouting the end of America and the end of the stock market.

Take Obamacare, add some FASB regulations, rock bottom interest rate policy and a market that many talking heads said was oversold and what we come up with is stock market that surged over 140 percent in 4+ years.

In the short term there is hysteria, but if you stick with the long term plan, stock have the tendancy to turn the page pretty fast on these type of events and move on.  The lament by the oil czars that the big bad anti business socialists will legislate them out of the province will be heard. The reality is that oil didn’t fall 50 percent because of the Keystone or Alberta politics. It’s about supply and demand. There’s a lot of oil right now. Eventually demand will whittle it down and prices will settle where it needs to. Timelines? Who knows but the hysteria displayed could present a long-term opportunity to pick up some quality, strategic assets on the cheap.