Miller/Howard Investments
Miller/Howard Commentary
Trump's Impact on Financial Policy: How does "America First" impact your portfolio?
Part 5: Outlook on Automation, Geopolitics, and Energy
Michael Roomberg, CFA, Portfolio Manager/Research Analyst
Part 1: A Review of the Markets Since Election Day
Part 2: Our Views on Oil and Gas Industry Regulation
Part 3: Coal Will Continue to Decline, Regardless of Politics
Part 4: LNG Exports Provide Trade and Job Growth Opportunities
Part 5: Outlook on Automation, Geopolitics, and Energy


Nathan Dean: So the first question I have for Henry and Michael is are we underestimating the medium/longer-term risks of the current administration impact, given that almost 75% of the Cabinet positions are not appointed, most don't even have a candidate. Given that it is the Cabinets that will implement the policies, is this something that we should be taking more into account?

Michael Roomberg: I would say that, “the old saw” that markets likes, kind of gridlock or status quo, I think is a good thing. I think it's an accurate one. And if you look back to the Obama years, it wasn't necessarily that Obama was the best President for stocks, or that he was the worst. It was that there was this sort of stalemate between Obama and Congress, and I think that led to an environment where there was a little bit more of an understanding of the parameters of where we are.

With Donald Trump, clearly we're in uncharted territory, and markets have a great ability to not look more than one horizon over. And so, certainly there's probably long term implications of this presidency. I think there's probably even greater long term implication of the movement that spurred his candidacy and his presidency. How do you create jobs for people who are inevitably going to be laid off when five million truckers and taxi drivers lose their jobs to automated vehicles? These are real serious policy problems that need to be solved, and I think the most encouraging thing for the markets long term that you'll have thoughtful policymakers that are competent and can think about these issues, and how to address them in a way that is least disruptive for society.

Henry Peabody: I'd go back to the currency issue, and geopolitics, and one of the main risks that's being underappreciated. The S&P hit highs, I don't think factors that in, all that said it's a very hard event to trade in the short term. I think your point about employment is a real one, and does there need to be a conversation about some sort of universal basic income, I think that that's probably something we need to discuss in the next handful of years. Not necessarily enact something, but certainly have the discussion about displaced labor.

So yeah, I think that the market is underappreciating some of the risk, particularly on the geopolitical side. Yeah, I do.

Michael Roomberg: But I think, I just want to, I agree with everything you've said. I also think that the market has an underappreciation for the power of compounding growth over time. And so, there are still plenty of opportunities. There's going to be plenty of opportunities around the automation of vehicles that are going to create great wealth. It's going to change the way that we live geospatially, in terms of the way that we organize our lives. I wouldn't mind commuting an extra 45 minutes if I didn't have to actually operate the vehicle and could work and do e-mail.

So I think that there's great opportunity and great promise, but also a lot of risks, and that's why having competent leadership is more important than any real ideology.

As an energy manager, I have to make a plug for energy. The rise of autonomous vehicles will actually be one of the biggest net positives for natural gas of anything that could be, and electric vehicles, of anything that could come on the horizon. Because where does that power come from? It's not going come from windmills, it's going to come at night when you're sitting in your garage, and we'll be commuting longer distances. I just highlight that because there are opportunities in areas where a lot of people view just risk.

Nathan Dean: And one of the questions here is directly to that point. They're asking, “Where is the price of oil headed?”

Michael Roomberg: Where is the price of oil? I don't know. Do you know? Look, here's what I think. I think that shale caps the price of oil on a soft basis around 60 dollars a barrel. At that point you see west Texas, North Dakota, South Texas light up with rigs, and push the price back down again. If you are to drill a well, an individual well in the best area of west Texas, the breakeven prices are about 35 dollars a barrel. You add in the corporate overhead, and your breakeven average company operating in the shale basins is probably requiring about 50 dollars a barrel.

In the Middle East, Gulf states, the actual direct costs of production might be only 10 dollars a barrel. But if you added in the cost of keeping peace and stability, and all the social governance programs, those countries ... very few of them are fiscally sustainable at sub-60 dollar oil indefinitely. Frankly, I think one of the biggest bull cases for oil over the longer term is that one or more of these countries is no longer perceived to be a reliable source of supply for the world.

Now OPEC could abandon this agreement. Frankly, they should have finished the job rather than talk about a freeze 18 months ago, I think that would have been more beneficial. But for the cartel, not necessarily for shale, but I do think that they can't sustain another price war, so they're kind of in a position where they burned through a lot of their rainy day funds, and while there could be volatility between here and there, the long term bull case for oil, I think, is just that. That the U.S. is a safe, and secure, and politically reliable place that will continue to take market share from places abroad.


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