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

The Oklahoma mogul spoke to Forbes on how he protects his investments in anticipation of the ‘near certainty’ of a recession.

With the S&P 500 entering a bear market last week, many US billionaires are convinced a recession is on the way. George Kaiser, one of the richest people in Oklahoma with an estimated net worth of $9.5 billion, is one of them.

Kaiser, 79, told Forbes that a “recession seems almost certain” and that he expects the economy to spiral into a downward spiral in the first two quarters of 2023, with a prolonged dip in the stock market. The timing of the market’s low — the point at which the stock market bottoms out and starts rising again — is still a long way off, according to Kaiser. “Historical analogies would suggest a 35% overall decline from the peak, but that history is largely irrelevant because so many of the factors are unique,” he said.

Kaiser, who has appeared on the Forbes list of the 400 richest Americans for more than two decades, is no stranger to boom-and-bust cycles. His fortune is concentrated in oil and gas, with other interests 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 both public as private companies through its private equity company Argonaut. When oil prices collapsed in 2020, Kaiser’s oil business suffered and his estimated net worth fell to a 15-year low of $4.9 billion. A year later, his fortune had risen to $10 billion, thanks to a rebound in oil prices and private equity investments that took advantage of the booming market of 2021.

With stock prices falling and oil prices rising further — the price of the U.S. oil benchmark WTI is up more than a third since the beginning of the year — Kaiser is managing its investments to weather a potential recession and come out on top. come .

“A recession seems almost certain, but it doesn’t change the strategies of our operating companies much as they are all marching to a different drummer,” he said. “Each investment firm has its own unique adjustment.”

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 liquefied natural gas (LNG) shipping company Excelerate Energy. , which went public. in April. Rising oil prices have given impetus to independent oil companies like Kaiser’s: “We remain aggressive with drilling and production because this is a peak time,” he said.

Since the Federal Reserve has raised interest rates to cool rising inflation, the Bank of Oklahoma’s energy lending has benefited. In its first quarter report, the bank disclosed that 15% of its total lending was made up of energy loans — a total of $3.2 billion, including $2.4 billion to oil and gas producers, and a 6% increase since the end of the year. beginning of the year. When interest rates rise, banks tend to make more money from the spread between the interest paid to customers and the interest earned from investing. “Energy lending – where our competitors are trying their best – offers opportunities, and the widening spreads of interest rate hikes are improving profitability,” Kaiser said.

Even when the stock market was still hot, growing fears of a recession meant that Kaiser expected a downturn and invested accordingly. “Our primary new response to this [economic] The environment has been S&P short hedges (premature) for quite some time, which we are slowly breaking apart in hopes that we can pick the time reasonably accurately to jump long at the point of market capitation,” he explained. What that means: He has bet that the S&P 500 index will fall. The S&P 500 index has fallen 20% so far this year.

It is still uncertain how deep or prolonged a recession would be, with Kaiser citing several factors, including supply chain problems, the war in Ukraine and rising inflation. And while average U.S. wages have risen since 2021, those gains risk being swallowed up by higher prices for goods and services. Kaiser also expects it will be difficult to attract people to industries that require more workers, such as hospitality, restaurants, nursing, education and trucking. “We are blessed to live in interesting times,” he said.

When asked when he thinks the stock market might recover, Kaiser — whose fortunes have been roughly stable since January, outperforming dozens of other billionaires and most other investors — took a chance that the market would bottom out around March or April next year. can reach. “Personal income will boost it once we get all government subsidies back to recurring rates here and around the world,” he said.

Still, Kaiser thinks guessing the exact timing of the market’s recovery is a fool’s errand: “As with pornography, you know it when you see it.”

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