Free Oil


Headlines from news sources across the financial industry rushed to proclaim “Oil Trading at Negative Prices” yesterday as the May contract for WTI (West Texas Intermediate) Crude Oil traded in negative territory.  How can oil, a commodity with versatile uses, trade at negative prices?  Would a company really pay to have its product taken away?  It’s complicated.

The oil market is large and only one small part of it went negative.  Oil commodities consist of the spot market (current market prices) and the futures market (prices for a future date).  Yesterday’s negative price was only in the futures market.  There are two main types of oil:  WTI and Brent Crude.  Only WTI went negative.  Finally, futures extend far into the future.  Only the May 2020 contract went negative.  Let’s take a closer look at why.

A futures contract is a legally binding contract between a buyer and a seller to transact at an agreed upon price on a set date.  A buyer who still owns a contract at the expiration date (which was yesterday for the May contract) is contractually obligated to buy the oil at the agreed price and take delivery of it.  A buyer who does not do so is in default of the contract; the seller of the oil can sue.

In the futures market, most traders unwind their positions (sell if previously bought and buy if previously sold) prior to expiration because most participants don’t have the ability to take physical possession of large numbers of barrels of oil. Usually though, there are some oil companies who can take delivery and will buy if the price gets too low.  That did not happen yesterday.  With few people flying or driving, oil reserves are full.  Nobody had the capacity to take the physical oil, so traders were forced to close out their positions at any price, even a negative price to avoid defaulting.  It’s kind of like having an estate sale when moving.  It would be better to get $100 for your dining room table, but if no buyer comes along, it still needs to go, and you might end up paying someone $50 to take it away.

How did this happen?  In a properly functioning market, oil prices should not be negative because oil has use not only as a fuel but also as a key ingredient for countless products.  There are two main types of crude prices: WTI and Brent Crude.  Brent represents more of a worldwide price of crude since it is produced near a seaport and can be easily distributed globally.  WTI is a landlocked crude, produced in the middle of America, and can only be delivered to Cushing, Oklahoma.  Buyers of WTI must take possession of it in Cushing and then either store it or have a way to immediately ship it.  This is where the breakdown occurred.

Financial markets are constantly rebalancing themselves and engaging in price discovery.  When prices get too high, people sell, and the increased selling brings the price back to equilibrium.  The same process happens in reverse when prices fall deeply below the economic value; buyers step in and bring the price back to its proper value.  But when WTI prices fell yesterday, buyers did not step in.  It seems like it would have been a perfect opportunity to make a significant amount of money by buying at negative prices and selling the next month at positive prices.  However, to restate the key points, futures contracts are legally binding and delivery must be taken in Cushing, Oklahoma.  If there is no available storage in the area, and no transport system in place, then nobody can buy.  If nobody is buying, the sellers become desperate even to such a degree that they are willing to pay others to take the contract off their hands.  That is what we saw yesterday in the May WTI Crude futures.

The other type of oil, Brent Crude, is still trading in the $20 range, and even WTI Crude futures for June is still $15 per barrel.  The price for future WTI one year out is in the $30 range (see chart below).  So, the negative price was an aberration in the current contract that expired with too many sellers and not enough storage capacity for the buyers.  We joked about buying some oil yesterday and storing it at our vacant White Pine offices.  Unfortunately, we couldn’t figure out how to transport the 1,000 barrels one futures contract represents up to our offices, and we’re not sure all the barrels would fit.


Last month, Russia and Saudi Arabia indicated there would be no slowdown in oil production, thus exacerbating the excess supply caused by the coronavirus pandemic halting the great majority of air travel, automobile use, cruise trips, and other economic activities that typically use oil.  As always happens with a large supply and a dearth of demand, prices dropped.  It is unlikely the world-wide Brent Crude price will go negative as there are still some places in the world to store the excess supply.  However, if demand doesn’t pick up soon, it is possible we will see a repeat of this issue when the June futures contract expires.


While the impact to the overall equity market is minimal, this event does provide some insight into the health of the global economy.  Oil prices and the economy often go hand in hand as oil is one of the main fuels used to generate energy.  The low prices indicate the severe lack of demand both in the US and the world.  This unusual phenomenon is a symptom of the severe disruptions we are all feeling in our daily lives.  The futures curve may indicate how long the market thinks this lack of demand will last and when the economy can begin to return to normal; the graph indicates the price of oil returns to a more typical $30 price by the end of the year.  We will continue to monitor this situation and how it affects our positions.  Meanwhile, we’ll work on reconfiguring our desks to accommodate 1,000 barrels of oil.

October 2016 Newsletter


One of the most frequently asked questions we get is: “How did Russ choose White Pine Investment Company for the name of the firm?”

Well, months before he started the company in 1997, he wanted a name that would represent good business values while being memorable for clients. That’s when his thoughts turned to the beautiful landscapes that had always fascinated him: from the rolling hills of the Southeast Michigan golf courses where he caddied during his youth to the gorgeous campus of Michigan State University that he walked every day as a student. Having completed the master gardener program through MSU, he realized that trees are the backbone of almost every landscape. So he decided to include a reference to one in the company name. But not just any tree. It would have to be a fast and steady grower. A tree that could withstand storms and disease. A tree with inherent stability to represent perseverance through the challenges of life. Finally, he reasoned that the name should reflect the beauty of the state in which most of his clients live (or have lived)–Michigan. So it was that he chose the beautiful Eastern white pine (pinus strobus) for the name, White Pine Investment Company.

This is just one of the many interesting facts you can learn about White Pine at our new website:  We felt that a refresh of the site was in order. We think you’ll find that it does a better job of capturing who we are and what we do. We realize it is quite possible you didn’t even know we had a website. In any event, now you can tell your friends, so they can learn everything they need to know about us. Perhaps you’ll learn something new as well.

One of the features of the new site that particularly excites us is our new client “login” section. We expect to have it completed and fully functional by the end of November. We will use the login section to post quarterly letters, your financial plans, and other financial material. You will also be able to upload documents there that you would like us to utilize when we work on your plan. Cybersecurity is very important to us. Sending an e-mail with sensitive information such as your financial data is not as secure as using the new login section of our website. Soon you will be able to create your own password enabling you easy access at any time to all financial documents stored there, and they will be protected by a 2048-bit SSL certificate with strong encryption and authentication. Again, watch for the new login feature coming in late November.

Finally, you’ll notice that we tweaked our logo, too.  We wanted to maintain the style that our clients have come to know over the past twenty years, while freshening it up for the 21st Century.  The tree has a more contemporary feel, and we added some color to the trunk. Also, notice that the new font has a more rustic character to go along with the graphic of a White Pine tree.

We invite you to take a look at the new website and give us your feedback. It gives us more flexibility to make edits and to add new material.  In fact, this quarter’s newsletter, providing a somewhat unique perspective on the presidential election, can be found on the news tab at the site.  Also, there are several forms in the “contact us” section that allow you, your family, and friends to communicate with us.  We even added some case studies to highlight ways we might be able to further assist you. If you think we should add anything else, please let us know.  We are always looking for ways to better serve you and all of our clients.



Anthony J. DiGiovanni, CFA

Chief Investment Officer

July 2016 Newsletter

In mid-summer of 1989, the NIKKEI 225 index was on a rapid ascent to its ultimate peak of 38,915.87 in December of that year. This was the climax of a 10-year period during which the value of the Japanese stock market increased six-fold.  News publications were filled with stories praising the work ethic and genius of this prosperous, exporting nation.  Japan was clearly the darling of the investment world and a country which was perceived as having unlimited potential.


During that period I was serving as branch manager of the Dean Witter office in Dearborn. One of my roles was to schedule representatives from various mutual funds to promote their offerings to our salesforce.  Each of the reps had a different style and a different angle to motivate their audience, but during this particular season they all had one exhortation in common: “Buy our Japan fund!”  One of the reps even came to our office dressed in a Kimono and treated the office to ice cream since sushi was hard to find at the time.  The most tempting incentive to buy his fund was an oversized sales commission which blinded the salesforce to its obvious risks. Most of you know the outcome of investing in Japan during the subsequent period.  Twenty-seven years later, investors who bought near its peak have yet to recoup even 50% of their original investment.

The point here is to highlight the core values which led to the formation of White Pine.  One of the glaring realities of the aforementioned story was the inherent conflict between large sales commissions and doing what was in the best interest of clients.  White Pine, on the other hand, is a Registered Investment Advisor (RIA) whose compensation is based on assets managed, not on a sales commission for a particular product.  Our management fees are reported quarterly and are the only source of revenue for our firm.  The typical broker/dealer structure allows most firms to charge an advisory fee, sales commissions, trailing fees, third party wrap fees, as well as sharing arrangements with other advisors. In such cases it is often difficult to calculate what a client is being charged and for what services.  Our management fee, however, is clearly reported to you every quarter.

Recently, the Department of Labor introduced the idea that all investment advisors, including brokers, be regulated as fiduciaries.  The simple definition of a fiduciary is a professional who puts a client’s interests ahead of their own.  This seems like common sense to us.  White Pine has been operating under these rules since our inception.  An example of this principle is that our personal equity portfolios hold the same security positions held by our clients, and we are charged the same fee structure that our clients are charged.  To illustrate this point in another way, our trading policy states that when a trade for our clients is only partially filled, all client orders have priority over employee orders.

The ultimate value that we strive to live by is our belief that each day is a God-given gift which should be used to serve others and to please Him.  Our desire is to help clients develop detailed financial plans which will meet their current and future goals.  We also do everything we can to help each person weather the inevitable storms that come with investing, which allows them to ultimately reach their financial goals. Developing the plan and keeping it current is important. .  Navigating the storm, and sticking to the plan is the real challenge.  Once we have experienced and overcome a difficult market together, we then have a mutual relationship that is likely to last for decades.

On My Succession.

One of the most frequently asked questions I hear is the following: “When are you going to retire?”  Since I am currently past the common retirement age when Social Security begins, it is a relevant inquiry.  However, a more important question to ask would be this: “How are you preparing White Pine for the future upon your succession?” Regarding the second one, the initial steps have already been taken.

Tony’s hire was critical to the portfolio management and financial plans that most of you have in place.  I can say with great confidence that Tony’s skills go well beyond investment expertise, and that you are in good hands with him at the helm.  And Michael Carmona, who joined us in the past year, has been a breath of fresh air. Not only is Michael polite and energetic, but he has a great appetite for learning and an eagerness to do whatever he can to help others.  His current track in completing the CFP (Certified Financial Planner) courses will enhance his ability to help many of you in future years.  As you know, our office manager, Debbie, is a talent whose capabilities go beyond what words can convey.  She executes daily administrative functions and interacts effectively with Schwab and with other professionals.  She is polite, efficient and loyal, and she cares a great deal about each one of you.  She is a vital part of our company, and finding her replacement one day will not be an easy task. In addition to our current staff, we expect to add others to our team.  The requirements we seek in the candidates we consider for hire are simple but in rare supply: love people, care about others, be excited about learning and act like an owner rather than an employee.

Oh, yes, back to the original question about the timing of my retirement. The simple answer is… not any time soon!  I love my job and the people I work with.  The plan is to continue as long as I am physically and mentally able…and as long as the job is fun.  A fact which might give credence to my expectations is that both of my parents worked well into their 80s before retiring.  However, the reality is clear to me that life can present unforeseen challenges that might not allow me to work forever. The bottom line is that I will stay on at White Pine for as long as I reasonably can, but expect to have the talent in place to serve you well when the time comes for me to hang it up.



J. Russell King


April 2016 Newsletter

Also published on April 26th, 2016 by Tony DiGiovanni via LinkedIn.


Buffet’s Calming Perspective

If you opened your first quarter end-account statements and compared your market values to the 2015 end-of-year values, you may have concluded that we finally witnessed a calm quarter in the markets. Actually, it was anything but, other than the fact that the market did end up about where it started the year.  The 12% drop to start 2016 and subsequent sharp rebound demonstrates that investing in the stock market is not for the faint of heart.

We sense that the sentiment toward the market is still largely negative. After all, memories of falling markets and the anxiety they cause tend to stick in the minds of investors whereas the elation and relief felt after sharp rises in market values is often a fleeting memory.  In economics, this defines the attitude of most “risk averse” investors.  Since we’re back to break-even, the tendency is to feel as though it is now time to “get out” and thank the market for the opportunity.  While this may feel right, it is hardly a rational view.  The long-term expected rate of return for investing in stocks has not changed from the beginning of the year, nor have the risks facing the markets materially changed.

For some perspective, we look to the father of modern day investing, Warren Buffet.  Around this time of year, his company, Berkshire Hathaway, releases its annual report which includes his letter to investors.  It is always a must read for anyone in the investment industry, and this year was no different.  In it, he highlighted why we feel the way we do right now: “It’s an election year, and candidates can’t stop speaking about our country’s problems (which, of course, only they can solve).”

He then went on to explain that even in today’s low-growth environment, our country continues to prosper.  He provides an interesting perspective on our present-day society.  Our middle class today lives a better life than John D. Rockefeller Sr. who was, at the time, the wealthiest man in the world.  “His unparalleled fortune couldn’t buy what we now take for granted, whether the field is – to name a few – transportation, entertainment, communication or medical services,” according to Buffet.

While this perspective, as wise as it is, makes sense, it probably doesn’t settle the churning stomachs many of us experienced throughout most of last quarter.  Still, he further explains, “For 240 years it’s been a terrible mistake to bet against America, and now is no time to start.  America’s golden goose of commerce and innovation will continue to lay more and larger eggs.  America’s social security promise will be honored and perhaps made more generous.  And, yes, America’s kids will live far better than their parents did.”  This may not be a prediction of expected returns in the market for the next three to nine months, but it does help explain why long-term expectations haven’t changed much from the end of last year.

We’re LinkedIn

White Pine Investment Company now has an expanded presence on social media.  If you are a LinkedIn user, you can follow us.  Also, Russ, Michael, Debbie and I are all on LinkedIn as well.  If you connect with one or all of us, or follow our company page, we’ll provide links to articles of interest from time to time or post our own thoughts as well.  If you’re just getting started with this social media site, please give me a call and I’d be happy to walk you through the process of finding us and connecting.




Anthony J. DiGiovanni, CFA

Chief Investment Officer