Forecast 2025: There's Muscle in the "Old Economy"
Energy, shipping and Colombia offer intrigue — and profits ...
“When you get right down to it, Bill, I’m a dinosaur. Tech … AI … all the ‘hot stuff’ … they do not move me. Conversely, dull-and-obscure ideas excite me. The more arcane, the better … I believe we are entering a decade when capital-intensive businesses will shine. The reasons are widely discussed: Capital starvation, lack of personnel and political stupidity, to name a few.” Mihail Stoyanov
Tech stocks, innovations like The Cloud, the Internet of Things (IoT), artificial intelligence (AI), cryptocurrencies and other “fast-movers” have been (pardon the pun) the “apple of investors’ eyes” for a decade and running.
Those are part and parcel of what folks refer to as the “New Economy.”
And most of them are U.S.-centric.
But my good friend Mihail Stoyanov sees value in “the basics” — energy, commodities and other stalwarts of the “Old Economy.” And he sees value outside America’s borders — specifically in Argentina.
That’s Mihail’s investing comfort zone, which is why he’s labeled his Substack as The Old Economy.
I introduced you to Mihail as part of our mid-year review and our “Desert Island Stocks Challenge.”
I invited him back to review 2024, and to share his forecast — and best investment ideas — for 2025.
Here’s what he told me …
When you look back over 2024, what surprised you the most about the year?
Honestly, I learned to expect the unexpected from the markets.
The last four years have been so intense, so this is the only way to remain level-headed.
Nevertheless, 2024 brought astounding changes in the Southern Cone. Argentina and Javier Milei’s decisive actions amazed me. I expected Milei to be another demagogue who overpromises and underdelivers. Luckily, I was proven wrong.
What did you get right? What did you get wrong? What was your best stock pick?
In the markets, we are wrong until proven otherwise. However, we must differentiate what it means to be wrong.
To close a profitable trade, we need to be correct about price direction and time frame. More often than not, we are engulfed by stock picking at the detriment of timing.
That said, I made a few right calls and, of course, some sloppy ones. I assume the wrong ones are directionally correct, yet I made them too early.
Let’s start with failures.
The timing for my PGM (platinum group metals) thesis is off. Despite the supporting fundamentals, PGMs and the respective miners have been in No Man's Land. I have a strong conviction (weakly held) that the PGM bull market is imminent. Let’s see how it plays out.
Another wrong call was oil rigs and drill ships. The fundamentals suggest that we are in the early innings of the expansion cycle. Mr. Market disagrees. And who am I to disagree with him? Apparently, I was too early for that party, too.
Now it's time for some bragging. Two of my thematic bets, Argentina and floating energy infrastructure, delivered outstanding results. Argentina made an epic comeback. Look at the MERVAL Index, the top performer of 2025. My Argentinean picks for 2024 — and, I believe, for 2025 — are YPF Sociedad Anónima (YPF) and IRSA Inversiones y Representaciones Sociedad Anónima (IRS).
Floating energy infrastructure performed excellently, too. My pick is Golar LNG LTD (GLNG). Curiously, Argentina and YPF have played a role in Golar’s recent share bull run. The company contracted FLNG Hilli with Pan American Energy to exploit the Neuquen Basin.
As the best individual stock pick, I would say Navios Maritime Partners LP (NMM). Just a year ago, Navios was a textbook bottom fishing play. Twelve months later, it is one of the few shipping companies that delivered double-digit year-to-date returns.
Last, but not least, I would like to share my worst stock pick of 2024. It is Braskem SA (BAK). I expected the company to be acquired by Abu Dhabi National Oil Corp. (ADNOC). Everything was fine until ADNOC stepped back. To make things worse, the Brazilian Real tanked and took down most of the Brazilian equities. Braskem is down by 58% year to date.
That story reminds me of the importance of risk management.
I followed the Braskem/ADNOC development closely. When I saw the first sign of fracture, I exited the position, limiting the loss to a tiny fraction of my book.
Make a prediction for the New Year. What do you see? And why?
Given the broad market performance, 2024 was an outlier year. More moderate returns usually follow such years. My bingo card has three main scenarios.
The first one is an inflationary boom. The liquidity gods in the face of PBoC and the U.S. Federal Reserve will care for the market, while the global economy will keep up with the growth. I expect a further increase in the broad market, according to this scenario.
Scenario 2 is inflationary, coupled with a weaker world economy. For central bankers, this is like Scylla and Charybdis [a phrase from Greek mythology that modern-day investors would refer to as being between a rock and a hard place]. Lowering the rates means cranking the economy engine at the expense of higher inflation. Hiking the rates means suppressing inflation at the cost of a depressed economy. If that timeline becomes a reality, I anticipate a choppy sideways move in the broad markets or moderate correction.
Scenario 3 involves a “credit event” leading to market turmoil. The spark could be a regional banking crisis. The issue with HTM (held-to-maturity) bonds is unresolved. The lower rates, for now, suppress the risk. But they do not cancel it.
Another event that could trigger a market meltdown is a GSIB (globally systematically important banks) failure. Five of those banks are Chinese. The country has many chronic issues that are unresolvable in the short term. The only option for the CCP is to kick the can down the road.
Compounding works not only in our favor. The issues and errors love nonlinear growth, too. So, something is cooking below the surface of the Chinese banking system. If Scenario 3 plays out, the markets will tank. How deep it is depends on the CCP's response.
I attribute a higher probability to the first two scenarios. The likelihood of Chinese GSIB failure is gradually rising. Yet they are not that high enough to start panicking.
Of course, the unknowns in my thesis will always exceed the knowns, so all three scenarios could be completely wrong.
What’s your top investment idea for the New Year and what’s your “investment case” for it?
I will share not just one, but two of my favorite themes for 2025: Colombia and Small/Handy LPG carriers.
Colombia is today where Argentina was in the 2020-2022 period (without the rampant inflation): an abandoned country ruled by a leftist government. Look at the multiples of Colombian energy and banking stocks. They are crazy cheap.
The missing ingredient is the spark that will provoke investors to rethink their view of Colombia. The proverbial catalyst is long-anticipated political change. The next presidential elections are in 2026, so 2025 is the year to select the best ideas and gradually build positions.
Small and Handysize carries have a low-single-digit order book, while the percentage of ships older than 15 years is in the high teens. Smaller LPG carriers are a significant part of the LPG value chain. Due to their versatility and size, they are used for regional trade.
Another aspect is their technical specifications. Small LPG carriers (with a capacity below 8,000 cbm, occasionally up to 15,000 cbm) are fully pressurized. They transport products at ambient temperatures in cylindrical or spherical steel pressure vessels designed to withstand up to 20 bar pressure. Most often, they transport propane and butane.
As the name suggests, Handy vessels are the most-versatile LPG carriers. Because they are not fully pressurized, Handys can transport anything from propane and butane to vinyl monomer and ammonia.
Due to growing geopolitical disorder, smaller vessels (not only LPG carriers) will thrive in the coming years. The higher the global entropy, the higher the regionalization, and the higher the demand for smaller vessels.
In summary, smaller LPG vessels are bet on trading regionalization due to rising global disorder.
Anything else you want to add?
I guess I am already annoying for the audience, but I must remind you one more time that execution beats stock picking.
Period.
Ignoring risk management and assuming that proper stock selection is the only prerequisite for gaining Alpha is a doomed attitude. It does not matter if you invest in crypto miners, U.S. bonds, Colombian stocks, or index funds. Execution always comes first.
Become a merciless risk manager.
I once heard a quote that sums it up: Buy like an investor but sell like a speculator. Be rigorous in your research and decisive in your execution.
💡Key Takeaways
Outlook for 2025:
Scenario 1: Inflationary boom with market growth.
Scenario 2: Inflation with a weaker economy leading to sideways or moderate market corrections.
Scenario 3: Credit event causing market turmoil, potentially triggered by issues in Chinese banks.
Top Investment Ideas for 2025:
Colombia: Seen as undervalued with potential for political change.
Small/Handy LPG Carriers: Expected to thrive due to their versatility and the growing need for regional trade amidst global disorder.
Become a merciless risk manager.
And be rigorous in research and decisive in execution.
🔵High-Conviction Stocks
YPF Sociedad Anónima (YPF
IRSA Inversiones y Representaciones Sociedad Anónima (IRS)
Golar LNG LTD (GLNG)
Navios Maritime Partners LP (NMM)
A great post from two of our favourite authors here on Substack!
Thanks, Bill, for the opportunity to work together!