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What Cheap Oil Means For The Shale Boom

Shale oil production is more expensive than traditional oil production – It costs more to get shale oil out of the ground. So when the price for oil drops, like it has, it hurts shale oil production a whole lot more than with other production methods. Bloomberg estimates that the price of oil needs to be over $80 a barrel for US drillers to make any profit. Oil is hovering right around that figure now.

For more reading:

Bloomberg’s Quick Take

Oil at $80 a Barrel Muffles Forecast for US Shale Boom

Large Caps Continue Positive Trend

Despite a 6 week long correction, large cap stocks continue to gain new ground. The global slow down, threat of Ebola, protests in Hong Kong, potential Ukraine-Russia conflict, weakening of Europe’s economy and many, many other dark clouds, the US market is finding a way to push forward.

Quartz has a nice piece illustrating the improving US economy

The chart below summarizes some of the key headlines from Reuters over the last few weeks. It helps to put the market in perspective and helps us recall the crisis-du-jour.


Small Caps Continue to Dance Around the Long Term Trend

With all the discussion of the Fed, the referendum vote in Scotland, the S&P 500 hitting new highs and the IPO for Alibaba, some investors may have lost track of the small caps. They haven’t been so fortunate. Here’s a good article that helps to put this trend into perspective and why it hasn’t seen returns like the S&P 500:

SocGen Warns Small Caps Are Headed For a Big Correction


Pay Attention to Your NU Stock

For those of you who hold NU stock, you may be excited to see that it has been reaching new all-time highs at over $47 per share! So, let’s take some time to evaluate it as an investment. Recently, we noticed an abnormality that warrants some discussion:

  1. With some unease in the market, investors flocked to a more conservative investment, many of whom turned to utilities for their relatively stable performance and nice dividend. NU pays an annual dividend of $1.57 per share which is a yield of 3.38%. It’s paid off for investors so far this year. The utility industry has been doing very well compared to the S&P 500 so far this year. This, in part, has contributed to the healthy performance for the NU stock.
  2. But comparing the NU stock to it’s peers (other utilities) paints a different picture. NU outperformed its peers for most of 2013. But in 2014, it started to lag. While NU has been performing well this year, the industry as a whole has been doing better.
  3. S&P has recently downgraded their opinion on NU shares to “Hold”, from “Buy”. The rating agency also forecasts the price of the stock 12-month from now to be around $47.

We’re not suggesting that you sell out of NU. Such recommendations are made on a case-by-case basis only. But it’s important to put this performance in perspective. Now may be a good time to evaluate the position to make sure it’s still an appropriate investment.


Should You Be Rotating Out of Bonds?

This past summer, we may have seen the warning we needed when it comes to the portion of your portfolio in bonds. Interest rates can’t go down any more, they can only go up. This could result in the value of your current bond holdings going down. This is discussed as “The Great Rotation”. Investors who flocked to bonds in 2008 and 2009 are now starting to rotate to stocks. On the surface, many investors think it’s time to drop bonds altogether.

And it’s not just investors thinking this way. Many of the top financial institutions agree (great chart on that here)
When the consensus is that bonds will be a weak investment, it’s easy to jump on the band wagon. But markets often do exactly the exactly opposite of what you would think.

Instead of following the heard, perhaps investors should simply review their bond holdings and look to upgrade the quality of the funds. Not all bonds or bond funds will be affected by rising interest rates the same way –something the chart and most investors don’t follow.