Looks like bubbles have 7-year itch. Every 7 years one bubble starts bursting based on recent history:
- 2000-2001 - Dot-com bubble started to unravel
- 2007-2008 - Housing/Finance bubble
- 2014-2015 - Could this be unravelling of great energy bubble which was forming around oil and shale gas
If oil price is any indication (down by nearly 45% in one year), that seems to be case. In capitalist system, there are always excesses which need to be adjusted by these bubble-bursting events. In today's WSJ, there is article about unravelling of oil boom which provides pointer to seed of this oil bubble. Ironically it was planted right when previous housing bubble started bursting. I am sure if we go back to 2000-2001, we would notice that similar seeds were planted for housing bubble. Are these 7 year bubble cycles would be new norm? Similar to technology bubble which mostly impacted high-tech areas like Silicon Valley, this time pain would be mostly around oil producing states like Texas, North Dakota and Middle-east, Russia etc. Consumers would get some well deserved relief in terms of lower gasoline prices. So as investor, what should one do? In midst of financial crisis, there were excellent opportunities (like buying BAC at $3 and Citibank at $1). Most of us could not benefit from these due to fear on street. IMO, similar opportunities would come in form of equities in energy sector. Challenge would be to find right ones (which would survive this mayhem) and showing the courage to take plunge. It's too early to recommend any individual stocks in Energy sector since many of those may not survive. Best bet would be to buy ETF like VDE or XLE in Q1CY15 which is when oil would hit bottom.
Till then, Happy Holidays!
/Shyam
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