Making Hay Monday – February 10th, 2025
Making Hay Monday
Looking Offshore
Hartnett, BofA
One consequence of the U.S. government’s repeated two-trillion-dollar annual deficits, unparalleled in peacetime and during economic expansions, is the impact on the labor market. Government and government-related (education and health) job creation has represented the bulk of hiring in recent years. As a result, per the above image from BofA’s chart maestro, Michael Hartnett, private payrolls are at recession-like levels. This once again raises the pressing question of whether America is in the throes of what this newsletter has often referred to as “pseudo prosperity”.
One of the main reasons the International Energy Agency (IEA) has been persistently and embarrassingly wrong in its forecasts of flattening global oil demand is its underestimation of consumption growth in the developing world. The IEA continues to confidently predict a looming peak in worldwide oil usage. Yet, based on the fact that there are nearly three billion people in China and India combined, and their per-capita petroleum consumption is a tiny fraction of the U.S., the IEA’s woeful track record is likely to remain intact. India, in particular, is likely to see its oil demand rise dramatically over the balance of this decade. (Thank you, Trader Ferg, for calling our attention to this compelling visual.)
“Most of the money I’ve made in my life has been when other people didn’t like what was going on. When things are cheap, that’s the opportunity.” -Cable titan, John Malone.
Offshore Treasures
Shutterstock
As many of you know, in last month’s Haymaker Webinar we hosted my great friend Trader Ferg. He joined us from the exotic environs of Bali where he spends much of the year with his young family. For those of you who joined us, you heard him touch on the appeal of the offshore oil service companies. To most investors, that sector is esoteric to the point of being totally off their radar screens. It is so obscure that Value Line doesn’t cover a single name from this energy sub-sector.
In this era of bidding up value-free meme coins to multi-billion-dollar valuations, buying real assets at substantial discounts to intrinsic worth has become a lost art. But like that Picasso that was discovered recently, long overlooked in an Italian family’s home and reportedly valued at $6.6 million, unearthing bargains in neglected market niches can be highly rewarding.
In addition to Ferg’s fondness for the offshore oil service companies, this group has another fan in the founder of Praetorian Capital, Harris Kupperman, popularly known as Kuppy. In his fourth-quarter letter to investors, he made a powerful case for companies such as Valaris (VAL), Tidewater (TDW), and Noble (NE). In it, Kuppy also disclosed his fund produced a negative return of 9.4% last year. This obviously lagged the S&P’s 2024 gains by over 30%. Despite that, since its inception in 2019 it has bestowed upon its investors a stupendous 711% net return.
Power-Punchers
The world’s largest offshore driller, Transocean (RIG) — which Kuppy doesn’t own but is a favorite of the legendary Jim Grant — actually has the weakest balance sheet among this group. Ironically, this is because, unlike several of its peers, it didn’t go through bankruptcy during the two epic oil busts of the last decade. (TDW also stayed out of Chapter 11.) Consequently, it wasn’t allowed to wipe-out its bondholders. …
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