Oil and banking billionaire George Kaiser says market bottom is still a long way off

The Oklahoma mogul spoke to Forbes on how he protects his investments before the “virtual certainty” of a recession.

With the S&P 500 entering a bear market last week, many American billionaires are convinced that a recession is in sight. George Kaiser, one of the richest people in Oklahoma with an estimated fortune of $9.5 billion, is one of them.

Kaiser, 79, said Forbes that a “recession seems a virtual certainty” and that he expects the economy to tip into a slowdown in the first two quarters of 2023, with a prolonged decline in the stock market. According to Kaiser, the moment when the market bottoms out — the moment when the stock market hits a bottom and starts rising again — is still a long way off. “Historical analogies would suggest a total decline of 35% from the peak, but that story is largely irrelevant because many factors are unique,” he said.

Kaiser, who appeared on the Forbes list of the 400 richest Americans for over two decades, is no stranger to boom and bust cycles. His fortune is concentrated in oil and gas, with other holdings including a 55.8% stake in the publicly traded Bank of Oklahoma (BOKF), a 20% stake in the NBA’s Oklahoma City Thunder and several investments in public and private companies through his private company. Argonaut investment company. When oil prices crashed in 2020, Kaiser’s oil business suffered and his estimated net worth fell to a fifteen-year low of $4.9 billion. A year later, his fortune had rebounded to $10 billion, thanks to a rebound in oil prices and private equity investments that took advantage of the 2021 market boom.

Now that stock prices are falling and oil prices continue to rise – the price of US oil benchmark WTI has jumped more than a third since the start of this year – Kaiser is managing its investments to weather a possible recession and emerge victorious.

“The recession seems a virtual certainty, but it doesn’t change the strategies of our operating companies much since each is marching to a different drummer,” he said. “Each investment firm has its own unique adaptation.”

Kaiser’s oil and gas assets include Tulsa-based Kaiser-Francis Oil Company and Oklahoma City-based drilling contractor Cactus Drilling, both privately owned, as well as a 77.5% stake in the transmission of Liquid Natural Gas (LNG) Excelerate Energy, which has gone public. in April. Rising oil prices have given independent oil companies like Kaiser a boost: “We are staying aggressive with drilling and production because it’s a peak time,” he said.

As the Federal Reserve raised interest rates to curb rising inflation, this gave the Bank of Oklahoma’s energy lending business an edge. In its first quarter report, the bank revealed that 15% of its total loans were energy loans, or $3.2 billion in total, including $2.4 billion to oil and gas producers. gas, and an increase of 6% since the beginning of the year. When interest rates rise, banks tend to make more money on the spread between interest paid to customers and interest earned on investments. “Energy loans — which our competitors are shooting in their horns — provide an opportunity, and growing spreads from interest rate hikes are improving profitability,” Kaiser said.

Even when the stock market was still hot, growing fears of recession meant Kaiser expected a downturn and was investing accordingly. “Our main new reaction to this [economic] the environment has been S&P short hedges for a (premature) time, which we are slowly breaking down with the hope that we can time it precisely enough to step in long when the market capitulates,” he said. Explain. What it means: He bets that the S&P 500 index will fall. Since the start of the year, the S&P 500 index has fallen by 20%.

It remains unclear how deep or long a recession would be, with Kaiser citing several factors including supply chain issues, the war in Ukraine and soaring inflation. And although average wages in the United States have increased since 2021, these gains risk being swallowed up by rising prices for goods and services. Kaiser also expects it to be difficult to attract people to industries that need more workers, such as hotels, restaurants, nursing, teaching and trucking. “We are lucky to live in interesting times,” he said.

Asked when he thought the stock market might rebound, Kaiser — whose fortunes have been roughly flat since January, a better performance than dozens of other billionaires and most other investors — dared to assume that the market may bottom around March or April next year. “Personal income will be the driving force behind this, once we bring all government grants back to recurring rates here and around the world,” he said.

Still, Kaiser thinks guessing the exact timing of the market rebound is a mistake: “Like pornography, you know it when you see it.”

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