On Sunday, Crimea has their referendum to join Russia.   Even though there is a lot of tough rhetoric from Europe and the United States, Putin has the “energy card” that will allow him to keep Crimea with very little ramifications.  Putin is able to do this because Europe depends on the energy from Russia.  They simply can’t afford to be cut off.   Energy is the one thing that all economies need and no matter what happens in the economy, there will always be a need for it.   Global events like Ukraine only amplify the need, and show the vulnerability of countries relying on others for energy.   We saw this in the U.S. in the 1970’s as OPEC brought our economy to its knees.   Due to fracking, the United States is rapidly becoming energy independent.  Regardless of what happens in the Ukraine, investing in energy in the United States is a good long-term investment.

By now, most people are familiar with the energy renaissance in America.   In a very short time, the U.S. will become energy independent, and possibly even a net exporter of energy.   Jim had the fortune of driving through North Dakota and West Virginia last year (bringing his daughter back home from school in Montana), and saw first hand how the energy boom is transforming those state economies.  As usual, there will be winners and losers between companies in the energy area; however, it appears that investors are caught up on headline companies like TESLA and are paying little attention to the energy renaissance.   Not only are energy companies selling at lower multiples than the market, they have also lagged in performance (see the chart below).    Investing in a growth industry that sells at lower prices in comparison to other companies, is a recipe for successful long-term investments.

So what does this mean for investors?

In a world of uncertainty (Ukraine, Federal Reserve pumping, budget deficits, etc.), it is imperative to seek investments that should perform well over the long-term with the ability to also weather any storms that could occur.   Energy, especially infrastructure investments like Master Limited Partnerships (midstream pipelines), offer investors the ability to benefit from the energy boom in the U.S., as well as a protection if the situation in the Ukraine deteriorates significantly.

Interesting fact

Margin debt – which is money investors borrow from brokerage firms, usually to buy more investments – is currently at record levels of $488 billion.  This is higher than the margin debt peaks of 1999 and 2008.

Sincerely,

Your THOR Team