Another thought might be that the drop in oil prices might be due to an unnoticed demand drop, an early sign of recession. Because economists, whatever school of theory they promote, are united in their inability to forecast recessions. They are good at offering explanations but only after the event.
I have an explanation for the forecasting failure. Classical economists model their “science” after physics where the track of objects obeying gravity is predictable. The science of complexity, which includes markets and the economy, doesn’t play out in a simple field of gravity but on what Stuart Kauffman calls a “fitness landscape” that constantly changes as the agents compete and learn.
Oil was humming along down a “known path” until they invented fracking which changed the industry’s fitness landscape. All of a sudden it was no longer the Saudis on top of the game, the frackers took top position. Then the Saudis fight back. And so it goes. Making predictions is mostly futile. But the underlying laws of supply and demand remain constant which is to distribute product as efficiently as possible and the market’s function of eliminating unnecessary profits also remains in place. Within these lose guidelines it is possible to make educated guesses. Mine is that eventually oil prices will rebound as supply and demand get closer to equilibrium and eventually the players (agents) change their game once more.
At some point I will probably make a bet on better oil prices. But it will probably be in a company that can survive low prices for a long time. Maybe EOG or NOV.
A lot of PFIE investors have been cost averaging down. Not me. I discovered that I cannot make money on constantly falling stocks because I won’t sell short. I didn’t sell either for reasons I have explained before. So I watch and wait, wait and watch for the landscape to turn in my favor.
Yesterday there was a bullish article on Profire at SA:
Profire Energy: An Undervalued Opportunity
Mar. 27, 2015 12:16 PM ET | 2 comments | About: Profire Energy, Inc. (PFIE)
- Undervalued company that is currently affected by the low price of oil.
- Strong revenue and sales growth over the past five years highlight a company with strong potential; increased regulation in the future offers even more opportunity for growth.
- No debt and a large amount of cash on hand allows company to weather the low price of oil for the next 12-18 months.
“Undervalued Opportunity” is not the same as “Buy Now.” Just keep it on your watch list.