Navigating the Opportunities

The U.S. oil market stood out as the top-performing sector in March, and it has been the second-best performing sector in 2024.

As emphasized previously, three critical market indicators, combined with energy CAPEX cycles rooted in fundamentals, suggest that an energy and commodity-led bull market is gaining traction.

Portfolios underweight in thoroughly researched and strategically positioned commodity producers are likely to experience a “lost decade” as fundamentals really take hold.

Throughout each of the 12-to-25-year lost periods in the U.S. stock market (chart below), commodities have surged under various economic scenarios, including the Great Depression, the 1970s inflationary period, and from 2000 to 2011.

Failure to grasp the energy CAPEX cycles, as exemplified by Warren Buffett and FMT Advisory, is likely to result in disappointing outcomes for those that fail to heed them.

The “Buffett Indicator” has now reached a level that Buffett deems as being in the “playing with fire” zone concerning the general stock market, particularly for large U.S. technology companies.

Conversely, the S&P 500-to-Commodity ratio indicates a highly favorable zone for investment in well-positioned producers, the area where Buffett has also focused his investments recently. Additionally, the S&P 500-to-Producer Price Index ratio points toward energy supply inflation, which is poised to trigger a substantial boom in energy and related services.

At FMT Advisory, we are heavily invested in the best-positioned producers and assets for the commodity bull market, and we’re determined not to let a good crisis go to waste.

As a reminder, FMT Advisory operates as a genuine fiduciary, with a focus solely on what we believe are the best-positioned and undervalued investments worldwide.

The optimal strategy to address our substantial power needs over the next decade involves investing in our top-ranked natural gas producer and uranium, both of which are performing exceptionally well. With federally subsidized manufacturing plants (reshoring), artificial intelligence data centers, government-driven electric vehicle adoption, and bitcoin mining on the rise, the demands on our grid are set to intensify significantly in the coming years.

On the oil front, the Permian Basin currently stands as the United States’ last bastion of oil production growth, having been the sole source of such growth since 2015. However, its growth is rapidly diminishing.

After conducting a data-driven screen for the best overall shareholder yield (including share buybacks, dividends, and debt reduction), it’s clear that energy investors are the primary beneficiaries of any for companies returning capital to shareholders. I outlined some of the reasons behind this in my Trending Reports piece titled “Energy,” and those reasons remain highly favorable for those of us constructive on energy. Despite the economic need for energy companies to invest heavily in growth, they are not doing so. Consequently, our energy producers are poised to deliver high returns over the next few years as a result.

We also initiated and maintain a position in what was the cheapest software company on the planet, located in Brazil, a few months ago. Zenvia’s founder, Cassio, has been acquiring the company alongside us, with numerous discussions held with management. Given Brazil’s abundance of energy resources, coupled with its thriving economy, software services—especially those facilitating customer engagement like Zenvia—should perform exceptionally well.

I can’t conclude without at least a brief comment on Bitcoin. Bitcoin is closely adhering to its long-term trend and its four-year cycle in this era. Our baseline projection is that Bitcoin will peak anywhere between $140,000 to $280,000 in this cycle, the possibility of significant upside remains.

Over the next decade, nearly every investor will likely find it challenging to surpass Bitcoin’s performance—the best-performing asset in human history. With minimal friction, unparalleled control, and the most secure fixed supply, Bitcoin’s substantial moat and performance continue to captivate investors worldwide.

As for the macro, policy makers have no choice but to lean on inflation over the next few years due to government indebtedness. The only entity that needs to worry about deflation is them, and they have “tools” to prevent it.

I had a great snowboarder trip with my son to Colorado, and I look forward to spending a lot more time there in the future (research during the winter is fun).

Best regards,
Nicholas Green, Fiduciary and CIO