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Mental-Distancing Investing For The New Economic Paradigm

Jennifer Warren profile picture
Jennifer Warren


  • A new and different investment paradigm is upon us as the pandemic alters business as usual.
  • Economic recovery is being pushed out further into future time horizons, according to various analyses.
  • The rebalancing of oil markets won’t likely occur until later in 2021 or 2022.
  • The idea of increasing interdependence is going to play out within countries and between countries.
  • My new approach is to sort of mental-distance from former investing habits.


From the recent data and analysis occurring across multiple sources, the economic environment in which we find ourselves is looking tepid, to understate things. Dallas Federal Reserve Bank President Steven Kaplan stated in a Reuters interview that he does not expect the global oil glut to be absorbed until some time in the second half of 2021, even into 2022 if economic recovery is weaker than expected. He further expects that U.S. oil and gas producers will reduce output to 10.8 million barrels a day by year end, roughly about 2 million barrels per day below last year’s level. Producers have cut capital expenditures by one third. Oil markets have generally been a factor that I consider when assessing how economics and geopolitics are changing.

Oil demand and supply are in a state of rebalancing in the near term and the longer term. OPEC+ agreed in April to cut output by 9.7 million barrels per day (b/d). The pact will be discussing the easing of curbs to 8 million b/d between July and year-end. However, the Saudis wish the 9.7 million to be maintained. Russia, pacified by $40 oil, wants to ease curbs by July. Russia believes that demand is recovering faster in China, Europe and the U.S. The Saudis need an oil price closer to $84 to match their spending levels.

The two major world producers will probably meet in the middle both in timing and cuts, notes the Wall Street Journal article. According to Oil and Gas 360: “OPEC and its allies agreed in April to cut output by 9.7 million bpd, with 6.084 million bpd to come from OPEC members. In May, they cut 4.48 million bpd, Reuters reported–74% compliance with agreed upon cuts.” A compliance factor typically exists with the production agreements.

Economic Impacts of COVID-19

This article was written by

Jennifer Warren profile picture
Jennifer's areas of expertise include energy trends —their economic and geopolitical implications—and resource sustainability issues. She considers her investment approach eclectic, drawing from a multidisciplinary pool of work. Lately, she is working on market making in an impact area, trying to match capital to beneficial projects. With partners, she works from the ground-up through to a final end game, with some projects that are enduring or long-lived.Other interests include the energy transition, the impact of shale oil and natural gas, climate change, clean and efficient infrastructure, China, India, and the energy-water-resources nexus—all interrelated in various ways. Her work has been published in various academic, policy and business publications such as Far Eastern Economic Review, Economist Intelligence Unit’s Executive Briefing, Journal of Structured Finance, Lloyd's List, D CEO, Energy Trends Insider, Financial Sense, and many others. From Dec 2010 to April 2013, she was the CEO/President of a global affairs organization focused on cutting edge geopolitical and macroeconomic trends. She organized and moderated panels on global gas, energy security, energy infrastructure finance, and urban development. She has a master's degree from London School of Economics, and bachelor's in finance/marketing. She is principal of Concept Elemental, a strategic communications consultancy focusing on knowledge work, and includes over fifteen years of financial services industry work. She works with a top University, "translating" cutting edge research as well.Recent interview:https://podcasts.apple.com/us/podcast/wednesday-may-10-montana-world-affairs-council/id1511606812?i=1000612517083

Analyst’s Disclosure: I am/we are long HASI. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article.

Seeking Alpha's Disclosure: Past performance is no guarantee of future results. No recommendation or advice is being given as to whether any investment is suitable for a particular investor. Any views or opinions expressed above may not reflect those of Seeking Alpha as a whole. Seeking Alpha is not a licensed securities dealer, broker or US investment adviser or investment bank. Our analysts are third party authors that include both professional investors and individual investors who may not be licensed or certified by any institute or regulatory body.

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Comments (25)

MAYHAWK profile picture
Excellent article, Jennifer. I, too, have noticed an uptick in traffic. I live on Main Street in my town and whereas for the last several months it has been very quiet, in the last week or so the amount of traffic has increased substantially, especially night traffic. In the city Sunday morning, I noticed more traffic than I have encountered since mid-March. Life is slowly returning to normal.
Jennifer Warren profile picture
Thanks, Mayhawk. Many new proxies to figure out.
tjhoppe profile picture
My observation from central Florida is that the overall traffic did not diminish much and the amount of truck traffic is enormous. Although the schools and theme parks are still closed, it seems that many "snow birds" stayed in place here rather than return to NY, NJ, PA OH, MI and IL for example and face lock down upon arrival. I belong to four golf clubs and now in June it can still be difficult to get your preferred tee time due to lingering snow birds (boo-hoo, I know) The beaches have reopened a couple of weeks ago and are crowded but groups are maintaining their space and the police and lifeguards are on regular patrol to keep it that way.

Something that is on my mind is that people in the big cities (I am originally from Chicago and rode the big commuter train ((not the 'L')) downtown quite often to the office) may at least initially avoid public transportation, and Uber and Lyft, as they return to work. Time to trade in that beater for a new purchase or lease auto so may be good for the auto manufacturers and dealers and of course increased demand for gasoline......maybe, just maybe.
UndiversifyBC profile picture
Think there 'd a good chance oil bounces quicker than you expect. Given U.S. demand makes up at least 50% of the loss over the last few months. Without any huge import spikes like recent past, that should produce noticeable draws in inventory. That's before any further decline in reported production or reduced imports due to reduced foreign production, both which may be probable.

I'm watching refining demand very closely. Running about 25% off yr/yr, if it gets to anywhere near 10% down I'd be surprised if wti wasn't in the mid $40s.

The worry is, " oh boy, producers will open the spigots again!" Not so sure. They'll likely move with DUC's to offset decline as best they can but not new drilling guessing until mid $50s. With current rig counts at ultra lows, seems going to leave meaningful period of inventory relative draws.

Risks are probably virus re-surge and related demand damage or if Saudi and/or Russia do something stupid. Otherwise, it's up to demand going higher with probably oil prices going higher as well.
Jennifer Warren profile picture
It does seem that the Fed view is cautious regarding oil. I believe they are more sensitive to the course of the virus than, say, a set of administration officials. However, we haven't seen the evidence yet of the openings and now the protests' COVID-related effects. We haven't seen the impact of a large number of unemployed, and how it impacts the economy if job losses are slow to revert back.

In Dallas, cases are increasing more, as well as in Texas, having opened up in early May in stages. People are also not wearing masks, which I believe many Asian countries have adopted widely as standard protocol and have fewer cases. It's a mixed bag here. There is a good deal of traffic increasing week by week.

There is still a great deal of uncertainty. The next month or two will likely reveal more trend.
03 Jun. 2020
I am certain the problem is my own, ADS and all that. But, how is it that my mind is wandering all over the place while I TRY to stay focused on this article? The author makes some great points having real potential for more profit for the attentive investor. Yet I yawn, and slap my face, holler to myself, "pay attention!"
Just sayin'.
G H profile picture
@elba , try coffee. Works for me.
Interesting how HASI took an abrupt drop (with v hi vol >7Million) at the end of last Friday's market, as well as yesterday's. Any comments as to the reason?
Jennifer Warren profile picture
I'm not sure about the drop exactly, but it is up over 6% right now...Things get pulled down for general economic reasons, stock specific announcements and sectors these days; it's all over the map, the sources of volatility these days. Then you have algorithmic trading tied to sets of rules. I try not follow the day-to-day volatility too much...
G H profile picture
@drjoanv , Jennifer is exactly right to ignore the daily gyrations. Volatility means little. Astute management is the key, and HASI’s has demonstrated it repeatedly.
Timely insights, and my thoughts on this plane veer towards peoples all over the world settling down to focus more on themselves and their dear ones, slowing down generally, and taking time to care of themselves: physically, medically and pschologically. For the medical dimension, it would seem the US, some European and a handful of Japanese companies are in the lead, and always have been, and at this point, valuations are still reasonable, i.e. GARP, as their growth rates could well be healthy, going forward.

So, as always it is hard work, but coming up with a personal list of attractive pharma, biotech, medical technology and gene sequencing companies could well be worth the effort.

As for oil&gas, AZPN seems to have seen the worst of it......it is nice to see 1 software company that has a decent annuity revenue stream in the oil&gas sector!
Jennifer Warren profile picture
Good to hear from you alpine. We've all been forced to take many steps back to reflect on the past, present and future. Yes, the healthcare sector has many offerings. I've had exposure in a Roth for several years and it has done well. PRHSX, my best performer since 2012.

(Thanks to Jeff and Neanderthal too.)
Ms. Warren,

Thanks for another insightful well written article.

Your efforts are very much appreciated.

All the best!
Neanderthal_Philosopher profile picture
Thank you, Author.

Very well-reasoned article. Very nice writing.
@Jennifer Warren
Thanks for another interesting article! For some very interesting and different times!
Jennifer Warren profile picture
Thanks Capt.
mdfuller_OR profile picture
Well said and good read. Important I think to be patient looking forward, as the paths forward (scenarios) are varied and opaque- there are better bets that can be made, but still opaque imho. I btw think HASI is a greatly managed company with both a solid strategy and org wherewithal to execute - how rare is that? I am long and have been for years but am currently 50% of 2019 position - trimmed in2019. I would be a buyer in several scenarios later in2020.
Jennifer Warren profile picture
Yes, patience is a virtue right now, for many reasons, on many fronts.
jpsull57 profile picture
Very interesting read. I like HASI as well. Have you looked at YLCO? An ETF full of international utilities with a focus on renewables.
Jennifer Warren profile picture
Thanks for the suggestion.Cheers!
MtBudmoreView profile picture
You are always a must read. There is an avalanch of money priming to flow and in many ways is flowing already. Smart people always find it and in the case of natural resources the implication is more of everything because more investors are on the prowl. It's natural, count on it regardless what stories and reports are posted. As long as there are people, markets are created. Who and where are why I read you. More please.
Jennifer Warren profile picture
Thank you for that, truly.
tjhoppe profile picture
"mental-distancing" - love it, and sorry but I am going to have to steal that one. Thank you.
Jennifer Warren profile picture
No problem! Just cite the author!
tjhoppe profile picture
You can count on it.....
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