The KCR research team has worked in the investing business for an embarrassingly long time.  As in prior manias, the consensus view has become dogma today.  With legions of followers on social media, the effect is only more powerful in this cycle than in the past.  Those sucking investors into the most overpriced and fundamentally weak stocks since the bubble preach from a pulpit of uncommon power today.

You will not find KCR following suit.  The cacophony of freshly minted geniuses and their many admirers who echo their views can be found….everywhere.  Our Charts for the Curious, Quick Takes and in-depth Research detail the record levels of overpriced promises masquerading as credible investments.

We have been and continue to be bullish on America.  That we refuse to subscribe to a newly popular and arithmetically impossible set of promises from the greatest investors of the last couple of years does not make KCR a pessimistic organization.  Quite the contrary: as regular KCR readers know, we believe the mania underway has created some of the greatest investment opportunities in our lifetimes.

The Wall Street Journal wrote an article noting that the emergence of the Delta variant had rattled oil prices. We hope for humanity that this new strain and others like it can be shut down quickly.  Regardless, we continue to believe energy’s prospects look promising for long-term investors. 

The case for low crude oil prices comes from the intersection of the good intentions of ESG investors and the hype around “peak global oil demand.”  We use the term “hype” simply because we believe it is just that: hype.  Reuters recently published a convenient summary of various “peak oil” theses here.  Some brief details on our view are below and in our White Paper on Energy Investing next Wednesday. 

Today, we will keep it simple and appeal to what we believe are the most obvious facts.  Figure 1 shows the inflation-adjusted capex spending of all US energy companies is at levels last seen in 2000. 

Collapsing CapEx ESG Peak Energy Demand May Set the Stage for Higher Energy Prices

Oil Rigs and the Correlation with Rising Oil Prices

Legendary commodity trader, newsletter writer and mentor-to-many, Dennis Gartman would frequently quip that “the cure for low prices is low prices and the cure for high prices is high prices.”  Over many years that maxim has indeed proven true.  One of the KCR staff is forever indebted for his kindness and tutelage.


Figure 2 shows the incredibly consistent nature of this effect as the rig count reliably follows the oil price:

  1. The peak in oil price in late 2007 sent 2,000 rigs into motion – a number that produced millions of barrels per day in new supply
  2. Surplus oil production plus the economic slowdown from the GFC sent crude prices, gasoline prices and rig counts lower
icons8 vertical line 50
icons8 lock 50
  1. As a reminder for our Financial Advisors: our models are available on a continuous basis, and most have been in production for over a decade.  If you are looking for simple, concentrated, low turnover, and tax efficient model portfolios we would like to talk with you.  KCR also offers a wide range of easy-to-use but sophisticated tools.  Our toolkits can help identify mispriced stocks with the best and worst risk/reward characteristics, estimate a stock’s duration and warn you when a company is engaging in low-quality accounting. Over the last 12 years, KCR has built and offers time-tested and class-leading products built by experienced and proven money managers for fixed to low prices.
  2. Kailash Capital’s sister company, L2 Asset Management, runs market neutral, long/short, large-cap, and mid-cap long-only portfolios with a value and quality bias.  L2 employs a highly disciplined investment process characterized by moderate concentration, low turnover, high tax efficiency, and low fees. While nobody can predict the future, we believe the recent resurgence in risk-adjusted returns seen across all products is the beginning of what may be a long period where speculation is punished, and prudence and patience rewarded.

The topics discussed in this article are aimed at seasoned professionals, as such, we have included some extra reading for anyone seeking out more information related to the topics above.

  1. Click the following to read more about fastest growing stocks

[1] We recognize new variants of covid and other macro shocks could impact prices but believe the supply side is compelling

[2] US shale oil: can a leaner industry ever lure back investors? Financial Times

[3] We found energy expert Josh Young’s take on BP yesterday to be particularly thoughtful and to the point

[4] The Net Zero by 2050 Report from the IEA being a recent example of aggressive forecasting

[5] See the chart on page 9 of the EIA’s AEO2021

[6] We look forward to him yelling at us when he reads this line we snuck in


The information, data, analyses, and opinions presented herein (a) do not constitute investment advice, (b) are provided solely for informational purposes and therefore are not, individually or collectively, an offer to buy or sell a security, (c) are not warranted to be correct, complete or accurate, and (d) are subject to change without notice. Kailash Capital, LLC and its affiliates (collectively, “Kailash Capital”) shall not be responsible for any trading decisions, damages or other losses resulting from, or related to, the information, data, analyses or opinions or their use. The information herein may not be reproduced or retransmitted in any manner without the prior written consent of Kailash Capital. In preparing the information, data, analyses, and opinions presented herein, Kailash Capital has obtained data, statistics, and information from sources it believes to be reliable. Kailash Capital, however, does not perform an audit or seeks independent verification of any of the data, statistics, and information it receives. Kailash Capital and its affiliates do not provide tax, legal, or accounting advice. This material has been prepared for informational purposes only and is not intended to provide, and should not be relied on for tax, legal, or accounting advice. You should consult your tax, legal, and accounting advisors before engaging in any transaction. © 2021 Kailash Capital, LLC – All rights reserved.

Nothing herein shall limit or restrict the right of affiliates of Kailash Capital, LLC to perform investment management or advisory services for any other persons or entities. Furthermore, nothing herein shall limit or restrict affiliates of Kailash Capital, LLC from buying, selling or trading securities or other investments for their own accounts or for the accounts of their clients. Affiliates of Kailash Capital, LLC may at any time have, acquire, increase, decrease or dispose of the securities or other investments referenced in this publication. Kailash Capital, LLC shall have no obligation to recommend securities or investments in this publication as result of its affiliates’ investment activities for their own accounts or for the accounts of their clients.

August 25, 2021 |

Categories: Quick Takes

August 25, 2021

Categories: Quick Takes

Share This Story, Choose Your Platform!