(We think this is part of a trend toward greater protectionism. Our recent posts discussed this with regard to agriculture lately. The world noted the worrisome development of the U.S. postponing a trade agreement with Columbia this week. U.S. Democratic Presidential candidates are running on a protectionist ticket. Etc)
The consequence of continued nationalization of energy resources could be yet another impetus to commodity prices in the next couple of years -- via decreased production efficiency and less international trade -- until the growing bottlenecks result in a deepening global economic slowdown that significantly damps demand, as occurred in the '70s. We don't know when the impetus will be fully offset by the economic fallout. That is why we're not getting more bullish on Energy investments currently.
Chart (from VoxEU): Number of oil expropriations and oil price deviation from long-run trend, 1910-2006
Macro consequences: (1) another impetus to high energy prices despite the economic slowdown, (2) extended economic slowdown, (3) accelerating push toward "alternative energy," commodity yield enhancement of all kinds, booming resource optimization technologies and business practices.
Consequences for Asset Allocation: (1) Not overweight energy, but need to continue to guard against being underweight energy (see our previous post), (2) Need to identify investment opportunities in alternative energy and resource optimization, (3) Otherwise, need to be overweight counter-cyclical investments, rather than chase cyclical rallies that occur during the potential bear market -- We believe we're still only in the middle of the current financial crisis, which won't signal a "beginning of the end" until additional shoes drop. We don't plan to fully rebalance our underweight equity position at our mid-year rebalance, unless more of the crisis plays out before then.
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