Is inflation good for energy stocks?
- Thread starter noblehawk
- Start date
I don't have an answer but I have a comment:
Central Bank fueled asset price inflation has been very good indeed to all stocks thus far
Your questions is reversed. Petroleum is the biggest non-labor) input in energy and production. Therefore, is energy good for inflation? You should really be looking at oil is the primary cause of inflation.
Anyway:
1. Inflation and higher USD may cause lower demand for Petroleum which is one of our biggest exports.
Utilities is a bit confusing. While people are dumping utilities because of the discounting of cash flows, at the same time they are actually getting in a position to negotiate higher rate increases with the federal government regulators.
2. "Property", I think you mean real assets. Leads to chicken or the egg argument.
Anyway:
1. Inflation and higher USD may cause lower demand for Petroleum which is one of our biggest exports.
Utilities is a bit confusing. While people are dumping utilities because of the discounting of cash flows, at the same time they are actually getting in a position to negotiate higher rate increases with the federal government regulators.
2. "Property", I think you mean real assets. Leads to chicken or the egg argument.
Unfortunately there are way too many different types of inflation and other factors influencing inflationary regimes for there to be one "best" inflation hedge.
Gold, REIT's, energy stocks, gold stocks, T-Bills, and TIP's are all at different times depending on what type of inflation we're dealing with.
I realize your question was different than the answer I gave but thought I would throw that in.
There are many good, widely available white papers on the subject.
More to your question, energy stocks can be, but aren't always well correlated with inflation.
Gold, REIT's, energy stocks, gold stocks, T-Bills, and TIP's are all at different times depending on what type of inflation we're dealing with.
I realize your question was different than the answer I gave but thought I would throw that in.
There are many good, widely available white papers on the subject.
More to your question, energy stocks can be, but aren't always well correlated with inflation.
Nice discussion.
Another reason i see the big inflation will come to US is the import price from China is increasing. China will not make cheap products any more.So far because our HomeDepot, Walmart and other giant companies' buying power to keep China make cheaper products and worse quality,but now it already touch the bottom and bounce back. As far as i know, many Chinese factories donot want to do business with HomeDepot, Walmart any more, because of their cheap purchase price,they used to think it as glory to do business with them.
Another reason is so far US QE money went to 2 areas:
(a) US companies' stock buyback program
(b) China market (1) betting real estate growth (2) betting Chinese Currency rising over USD
But now above 2 factors of China are going to adverse direction, USD is flowing out of China since last year.
Back to our energy stock with inflation. To be honest, i live in LA. I do see the products price at supermarket and food is increasing gradually. For example: egg!!!! the price double the past 2 years!
So if the environment is inflation because of too much money outside,every products with real value is arising. including energy stock because of the value of oil, steel, copper. But is energy stocks the best choice to for inflation protection comparing with other choice or other category stocks, i donot know. But one thing i am sure is at this moment: the energy stocks are so cheap comparing with other stocks. the return should be the biggest.
How about USD/Oil price: because oil price is accessed by USD, maybe it will bring the pressure over oil, but if it is just inflation, i donot see much pressure can stop the oil arising.
How about the demand: yes, it is true that we have more oil supply because of US shale oil.
But does everyone know about one secret the shale oil will not tell you? all the new shale oil rig can only be used for 3 years! the productivity of shale oil rig is down to 25% after 3 years' usage. So i think the shale oil period will be over for middle long term. I am not an expert, if anyone know it better, please correct me.
Thank you
Another reason i see the big inflation will come to US is the import price from China is increasing. China will not make cheap products any more.So far because our HomeDepot, Walmart and other giant companies' buying power to keep China make cheaper products and worse quality,but now it already touch the bottom and bounce back. As far as i know, many Chinese factories donot want to do business with HomeDepot, Walmart any more, because of their cheap purchase price,they used to think it as glory to do business with them.
Another reason is so far US QE money went to 2 areas:
(a) US companies' stock buyback program
(b) China market (1) betting real estate growth (2) betting Chinese Currency rising over USD
But now above 2 factors of China are going to adverse direction, USD is flowing out of China since last year.
Back to our energy stock with inflation. To be honest, i live in LA. I do see the products price at supermarket and food is increasing gradually. For example: egg!!!! the price double the past 2 years!
So if the environment is inflation because of too much money outside,every products with real value is arising. including energy stock because of the value of oil, steel, copper. But is energy stocks the best choice to for inflation protection comparing with other choice or other category stocks, i donot know. But one thing i am sure is at this moment: the energy stocks are so cheap comparing with other stocks. the return should be the biggest.
How about USD/Oil price: because oil price is accessed by USD, maybe it will bring the pressure over oil, but if it is just inflation, i donot see much pressure can stop the oil arising.
How about the demand: yes, it is true that we have more oil supply because of US shale oil.
But does everyone know about one secret the shale oil will not tell you? all the new shale oil rig can only be used for 3 years! the productivity of shale oil rig is down to 25% after 3 years' usage. So i think the shale oil period will be over for middle long term. I am not an expert, if anyone know it better, please correct me.
Thank you