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2016-02-04 16:35:31 Post No. 1077438
Post No. 1077438
Currently, Energy is the worst-performing sector and everything has pretty much lost its inflated value and contracted to their base one. If the deal for the oil production cuts is signed, the oil prices will obviously jump back to the $50-60 range (or even higher), which will bring back the sector's performance to green.
And, as everyone knows, the oil prices are highly unlikely to drop below $25, and almost impossible below $20, since that would mean bankruptcy for almost any company in that sector (without the sector having enough flexibility or time to move away from oil to renewables), which in turn means 1929 on steroids.
So, we can conclude several things from this:
>First option, go long on the energy sector, which would mean that the throughput costs for the factories will increase as the price for energy rises, lowering the profit of almost anything else and forcing a lot of companies to borrow
>Second option, go short on the energy sector and pretty much everything else, since the resulting scenario will most likely be a recession
>Third option, ignore everything else and go long in industries that are unrelated to the energy's volatile price, like Biotechnology, Banks (and the Financial sector as a whole) and possibly bet on companies like Tesla
So, which option would be the most logical step to take?