As 2022 winds down and investors reflect on a horrendous year, they can take some comfort in the fact that the big guys had their share of misses.
Among them is Harris Kupperman, the president of hedge fund Praetorian Capital, who recently blogged about his 2022 calls he nailed — a selloff of big tech names— and those that missed the mark — a sustained surge in oil prices.
Kupperman is doubling down on the latter in our call of the day, as he predicts 2023 will be “the year of oil crushing all other” investments, with a barrel of crude possibly hitting $200, laying that out in his AdventuresInCapitalism blog (h/t Quoth the Raven)
Oil CL00, -0.10% CL.1, -0.10% is set to finish with a gain of around 6% in a year that saw U.S. benchmark futures surge to over $130 a barrel after Russia’s invasion in Europe, before a steady ratcheting lower on recession worries as central banks fought to contain inflation. West Texas Intermediate crude was trading just below $80 a barrel on Wednesday morning.
From early 2022, he explained, “there has been minimal spending growth on exploration, while global demand has continued to rebound and grow. The postponement of my theme was mainly caused by the unexpected purge of SPR inventory, along with China going offline due to germs. These two trends seemed destined to reverse in 2023,” he said, adding that Russian oil production is “permanently impaired and likely in free fall.”
Note, China’s rapidly fading zero-COVID policy took another bold step on Tuesday as the government announced it will start issuing passports. However that has also triggered concerns about COVID spread and inflation fallout (more below).
Paying off for Kupperman were energy investments — Valaris VAL, -0.20% and Tidewater TDW, -3.58% — which he said would likely to continue leading energy markets higher in 2023 due to their valuations. And while his oil futures and futures options positions didn’t work out as well, he’s patient.
“Once again, I think it’s important to repeat that if you haven’t stress-tested your portfolio for oil prices north of $200, you’re going to suffer dearly when that should come to pass,” said the manager.
Kupperman also foresaw continued housing market strength in 2022, but is now tossing the names he was holding in the sector that’s rolling over due to rising interest rates. “While I remain bullish, I’m going to wait for construction activity to bottom and begin its recovery,” he said.
The manager also explained the tech rout call that he got right. Since 2019, he’s been pounding the table over what he referred to as “Ponzi Sector” companies — Lyft LYFT, -3.33%, Uber UBER, -0.97% and Peloton PTON, -8.44% that had “no ability or desire to ever become profitable.”
He predicted those companies would falter in 2022 and drag down the so-called “Tiger-40″ — high quality but overowned large-cap tech stocks such as Microsoft MSFT, -0.74%, Amazon.com AMZN, -2.59%, Meta Platforms META, -0.98%, Roblox RBLX, -1.57% and DoorDash DASH, -4.46%, based on top 40 holdings of hedge fund Tiger Global Management. He notes that “over-owned” fund was aped by most big portfolio managers.
“This is likely caused by an anticipated economic slowdown, due to rapidly increasing interest rates. One could say that the market is looking through a period of over-earning and penalizing their share prices — despite many of these companies trading at low single-digit earnings multiples on full-cycle earnings,” said Kupperman.
Not quite accurate was his call for a “mother of all sector rotations” for 2022, as investors switch out of those top names. Value names haven’t performed as good as he’d hoped.
“While my exposure remains subdued, I have an amazing shopping list of near-monopoly value names to purchase when The Pause comes, if it becomes obvious that the long end doesn’t completely panic. I’ve spent much of the year building on this list, but have done little besides continue to learn the names better,” he said.
Overall, 2022 was a year to avoid land mines and “fight another day,” said Kupperman. “For now, I want to stay conservative, stick to low-risk setups and stay highly liquid. I think that 2023 will be difficult for longs, especially as oil crushes everything else,” he said.
Read the rest of his blog for more positions that did and didn’t work out.
Stock futures ES00, +0.30% YM00, +0.33% NQ00, +0.28% are modestly higher, as bond yields TMUBMUSD10Y, 3.816% pull back. The dollar DXY, -0.15% is flat, but surging against the ruble USDRUB, +2.91% as western sanctions are apparently starting to bite, and oil CL.1, -0.10% is lower.
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U.S.-listed shares of Hong Kong travel group Trip.com TCOM, +4.32% are up after China dropped travel restrictions, though fears of a new wave of infections have led countries such as Japan and Italy to tighten restrictions on those travelers. The U.S. is reportedly considering similar moves.
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