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Energy Insights: Energy News: Patient Capital Management: So Much For Peak Oil!

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Patient Capital Management: So Much For Peak Oil!



The situation in the Ukraine is intensifying. Russia seems intent on reclaiming what it feels is lost territory while the United States and its allies feel an obligation to protect developing democracies in Eastern Europe. The West and Russia are potentially on a collision course that could rattle financial markets.

Large developing world economies are slowing dramatically. Brazil, Russia and China are all in various states of turmoil. Russia is experiencing a deep recession and currency crisis due to sanctions imposed by the West and the fall in the price of oil. Brazil has been similarly impacted by low oil prices and is experiencing political instability and China’s growth has fallen from historical highs.

Closer to home the Canadian economy will definitely be impacted by the fall in energy prices. The economy is already exhibiting weakness with low economic and job growth. In addition, real estate prices are at all-time highs fuelled by record household debt levels.

The aforementioned risks have been apparent for some time. However, market participants are ignoring or “pricing out” risk from both the fixed income and equity markets. Fixed income markets offer very low current income and a very unattractive risk/return trade-off. From current historically low levels the probability that rates will increase is high and thus the liklihood of capital losses in the fixed markets is also high.

Equity markets are also ignoring risk as evidenced by the following:

These conditions are very similar to those in early 2000 when we first started Patient Capital. Our investment portfolio was the same then as it is today; a large percentage in short term government securities and very little equities. Like today, we could not find many investments that met our criteria for quality and value; we felt that it was critical to keep our capital safe and patiently wait for far more favourable opportunities. While we can’t predict the future, and there are no guarantees, we believe that the next fifteen years are likely to produce the same outcome as the past fifteen years.

Patient Capital Management Peak Oil

Patient Capital continues to grow through your increased allocations to us and by your kind referrals. We appreciate your continued support and are truly humbled by the trust and confidence that you place in us.

Vito Maida

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