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Every drop in the SPR makes SLB more valuable

Jan 20, 2023

Good morning!

Futures were up strong ahead of the bell, largely as a result of Netflix’s hat trick. However, the markets have already split, with the Dow turning red, even though the S&P 500 and the Nasdaq remain green as I type in the early going.

Stay focused on the best, ignore the rest!

Here’s my playbook.

Netflix: What’s wrong with this picture, other than everything?

Cheers: Netflix reported 7.7 million new subscribers and completely pasted Wall Street’s expectations for 4.6 million. Buyers predictably went bananas, pushing the stock up sharply after hours.

Jeers: EPS came in at $0.12 versus expectations of $0.45. Netflix says this is due to euro-denominated debt because the USD’s depreciation during the quarter wasn’t an operational loss. That’s not quite “dog ate my homework” groveling but passable.

MyPOV: Millions of people left cable TV because Netflix (and other streamers) offered an ad-free, à la carte experience. Now we’re supposed to celebrate an advertising-driven tier building business??!! Oh, and by the way, Netflix also announced that it’s no longer going to give subscriber guidance either.

Makes me wanna buy puts!

Bruno Le Maire

France has announced that “China cannot be out, China must be in”—or at least that’s what French Finance Minister Bruno Le Maire said in Davos. (Read)

Cue the baiju, a traditional Chinese wine.

China is pushing hard behind the scenes to usurp the US, and this is the highest-profile confirmation that its charm offensive is working. EU officials say China is a strategic rival, yet in the same breath they want to develop commercial ties and—you guessed it—work together against climate change.

You just knew he had to get that last part in there … the climate change. After all, Le Maire was speaking in Davos where, presumably, he arrived via private jet. 🤦‍♂️ Macron is apparently going to Beijing to chat about energy and trade in the next few weeks. Double doh!!! 🤦🤦‍♂️

OBA Application: Reinforces the notion of a mid-year shift as outlined in the 2023 Outlook. Upgrade to Paid

Pichai to Googlers: Hit the road, Jack

CEO Sundar Pichai delivered a textbook-perfect “sh!t sandwich” dismissal via email that will apparently send more than 12,000 workers packing. (Read)

If you’re not familiar with the term, it’s a popular tactic erstwhile managers used to deliver tough news by first offering up positive commentary. Then pivoting to the four-letter variety.

Great leaders do NOT use the sandwich approach because they know employees and investors aren’t stupid. So they cut right to the chase instead of delivering a carefully crafted email like Pichai did as a way to assuage guilt and a de facto admission that they’ve failed as manager.

I’ve repeatedly counselled investors to avoid Google, but you know that old saying about taking a horse to water just as well as I do.

There are better choices out there!

Every drop in the SPR makes this SLB more valuable

Schlumberger knocked earnings out of the park. Revenue for the fourth quarter came in at $7.8 billion—an increase of 26.6% year over year. The international rig count stood at 1,872, which is 22% higher than last year. Clearly, the world still needs dino juice. (Read)

Meanwhile, the Strategic Petroleum Reserve (SPR) is at 371.5 million barrels, its lowest level since December 1983. The Department of Energy announced it was going to fill the SPR up in 2023 and start by accepting bids for 3 million barrels. So far, that has failed.... it’s no shock why. Oil companies aren’t going to sell oil for $67 per barrel when current market prices are hovering around $80 per barrel.

The lower the numbers sink in the SPR, the more valuable Schlumberger becomes. The demand for oil is still there... that’s clear by the SPR draining more than 200 million barrels from the reserve in 2022.

I hope I’m smart enough to buy more.

REIT investors beware

First Blackstone blocked REIT redemptions.

Now KKR is doing the same thing.

According to Reuters, KKR has blocked investors from cashing out of the firm’s $1.6 billion non-traded real estate income trust after withdrawal requests exceeded pre-set limits, according to regulatory filings. And I am hearing rumours of similar behaviour in smaller registered, non-traded REITs too.

Why this is important. Every fund has pre-set limits in place to ensure that there’s enough money/credit available at all times to function properly. A redemption run means that somebody’s got liquidity problems farther up the food chain. Asian investors, generally speaking, love real estate but tend to use a lot more leverage as part of the process than their western counterparts. Chinese money, in particular.

Hmmm...

OBA Application: Many REIT investors are gonna get blindsided as rates rise, particularly if they’re invested in choices where redemption requests are at risk as valuations drop. I’ve seen this several times in my career around the world. The key to making sure you don’t get caught up in the wash is buying REITs that have relentless demand and a rock-solid portfolio which—ta da—is exactly the case for the one I’ve recommended. Upgrade to Paid