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Strategies & Market Trends : The Residential Real Estate Crash Index
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To: Elroy Jetson who wrote (28314)3/18/2005 5:56:43 AM
From: Wyätt GwyönRead Replies (2) of 306849
 
that's consistent with what i've read. i can tell you that's music to my ears as an energy investor. it tells me that energy prices won't come down because of oversupply, but rather only through demand destruction, which is bad news for the world economy.

it's kind of like a Tragedy of the Commons, but in reverse:
The best (non-cooperative) short-term strategy for an individual is to try to exploit more than his or her share of public resources. Assuming a majority of individuals follow this strategy, the theory goes, the public resource gets overexploited.
en.wikipedia.org

"overexploit" means oversupply for our purposes. in this case, however, energy is already by far the most profitable sector on the planet. energy co profits might account for 20% of 2005 SPX profits given the current strip, and maybe a lot more if we get an implosion in the financial sector. in spite of this, and in spite of the outperformance of the shares, the PEs and PBs are the lowest of any major sector. so a lot of risky organic growth through the drill bit is not likely to be rewarded by a google-sized PE but it will increase career risk.

but this self-preservation strategy of "underexploitation" is bad for the economy as a whole.

in any case, it does not eliminate the problem of "reserve growth" at the majors. it makes me think that at some point, they will try to "grow" by buying up the smaller players, so we could see a lot of M&A.
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