Wall Street Unplugged
Episode: 916July 6, 2022

Is it time to buy oil stocks? The bulls vs. the bears

oil stocks bull bear

With a new earnings season kicking off next week… the latest inflation data releasing on the 13th… and a Fed meeting later this month, the markets are in waiting mode. Daniel Creech joins me today to break it all down… 

As Daniel explains, the Fed has painted itself into a corner with the U.S. debt load… and we may see an interest rate cut early next year. I share my prediction for when the Fed will stop its rate hikes… and why that’s bullish for the economy. 

The Fed’s efforts to bring down inflation are working… as commodity prices (including oil) are coming down as interest rates rise. Daniel and I debate where prices are headed next. One of us is buying oil stocks right now… while the other expects more pain ahead.

If you’re joining us at TCG World’s Metaverse Expo in Vegas this weekend, make sure you take advantage of the 50% discount for Curzio subscribers. Buy tickets here with promo code VEGAS50.

Inside this episode:
  • The market is in waiting mode [2:55]
  • What to watch for this earnings season [6:45]
  • The Fed is bringing inflation down [15:55]
  • Oil stocks: the bull vs. bear cases [20:24]
  • Get 50% off Metaverse Expo 2022 tickets [38:22]
Transcript

Wall Street Unplugged | 916

Is it time to buy oil stocks? The bulls vs. the bears

Announcer: Wall Street Unplugged looks beyond the regular headlines heard on mainstream financial media to bring you unscripted interviews and breaking commentary direct from Wall Street right to you on main street.

Frank Curzio: What’s going on out there? It’s Wednesday, July 6th. I’m Frank Curzio, host of the Wall Street Unplugged podcast, where I break down the headlines and tell you what’s really moving these markets. So it’s Wednesday, Daniel day. Daniel Creech, senior analyst at Curzio Research. Daniel, what’s going on man? How’s everything?

Daniel Creech: Frank, things are good, man. It’s Wednesday, best day of the week. Glad to be here.

Frank Curzio: Why is it the best day of the week for you?

Daniel Creech: Because it’s Wednesday. It’s the middle of the week. I get to do the podcast. You work all week, but it’s just fun, you’re halfway through there, you get to relax. It’s almost happy hour time, Frank.

Frank Curzio: It’s funny because I had somebody actually mention at the last conference I was at, and they were like, “We make sure when we say Mondays, Mondays are the fun because everybody hates Mondays. So we try to say, ‘Thank God it’s Monday.’ This way, you could work hard or whatever,” and I’m like, “Dude, that…” And he’s saying this in a speech, and it was one of the recent conferences I was at, and he’s a good friend of mine. I’m like, “Man, they’re going to tell you, the employees, that they’re happy on Monday. They’re not freaking happy on Monday. You know they picked all the shit-“

Daniel Creech: Nobody likes Mondays. Kid Rock has a great song on the only good day is basically Saturday. You guys can all look that up. Warning on strong language. Hey, you’re looking well, sir.

Frank Curzio: Oh, thank you.

Daniel Creech: I need a haircut, something terribly, but I’m not going anywhere anytime soon. So, you need to look a little bit better than me.

Frank Curzio: Yes, I am leaving for Vegas tomorrow morning at 5:00 AM. Got a lot of emails. A lot of you got to be there for the Meta Expo, Metaverse Conference, which is hosted by TCG. Going to be a keynote speaker. I’m speaking at, I think, 2:45 on Saturday, which I didn’t even read at my presentation yet or anything because it’s been crazy.

Frank Curzio: But we’re going to have a booth there where we’re going to be recording, interviewing a lot of people and creating a big metaverse theme kind of documentary type thing to explain what it is to everyone and we haven’t seen too many of those out there. But it’s pretty exciting. It’s pretty exciting. We’re doing a lot of work there. So our booth is really going to be about filming and everyone in there, even filming the crowd and ask them what the metaverse is. So if you’re going to be there, let me know.

Frank Curzio: We do have discounted prices on our website, curzioresearch.com, and I’m going to be there Monday. But the conference is Friday, Saturday, and Sunday. Really, really crazy. We’re going to be bringing lots of equipment, lots of stuff, and you get to meet some of the partners of the firm as well, if you’re going to be there. So, I would say about 10, 15 people said that they were coming and they got discount tickets from our site. But if you’re there, definitely come by and say hello, maybe grab a beer and have some fun. It’ll be pretty cool.

Frank Curzio: Yeah, so I had to get a haircut. And today, I have my nice Kansas Jayhawks shirt on, which is cool. Thank you for noticing Daniel, saying I’m such a good looking guy. I appreciate it. Thank you so much, man.

Daniel Creech: All right, markets.

Frank Curzio: We can keep going if you want to give me compliments, man. I’m here, I don’t care. I’ll take them as much as I can. I don’t get them too much. So, keep them coming in.

Frank Curzio: But let’s talk about the markets because it’s, I hate saying it’s kind of slow because people are like, “Oh, let me tune it out, and I want to be excited.” You’re going to get excited because it’s going to be nuts coming forward. The reason why you’re seeing the markets kind of like not really doing too much when taping us early in the day around 10:30.

Frank Curzio: But the US job report is on Friday. It’s going to be a big deal. CPIs going to be a big deal, that’s the following week. It’s on Wednesday. Q2, next Wednesday. Q2 earnings going to start this week. Right Dan? But the heart of it’s going to be two, three weeks from now, four weeks from now.

Frank Curzio: And then, you have the FOMC meeting, which is going to be at the end of the month, which is going to be really insane because what the Fed is doing right now, and I’ve covered this over the past three weeks, you’re seeing it working. I don’t care what you think about the Fed Web, it’s about stocks. You can destroy the Fed if that’s what you like to do, and they’re terrible, late to the party, whatever. Let everybody else go there. We want to figure out how to make money off of this. But right now, it’s like a holding period because we’re waiting for this news to come out.

Frank Curzio: The US job market’s probably going to be pretty strong. The CPI, I’ll be surprised if it’s high. I’m expecting it to go consistently lower from here. But we have housing, which is a major component shelter, and you’re still seeing those high. Remember, these are lagging indicators. This is from a month ago compared to now.

Frank Curzio: But you’re seeing, airline prices also went up and some of the things but commodities have absolutely crashed. We’ve seen it in oil, will cover that later. But the FOMC they expected to raise by… I think they’re predicting 50 base point raise instead of 75. A lot of people think that’s what’s the odds of favoring a 50 base point hike. We could see 75 base point hike. They’ll bring it to 2.5% of Fed funds rate.

Frank Curzio: But what happens after that? And they might say they’re going to stay aggressive, and September’s the next meeting. But I’m thinking in September that there’s a good likelihood that they could just stop or slow or say, “Okay, we’re starting to see effects because the effects are really being felt right now,” and you’re seeing it across a lot of industries. I think you’re going to see it when these guys report earnings because they going to issue either conservative guidance or lower their guidance. But that’s my thoughts right now.

Frank Curzio: What about you? How are you playing into this market? Again, it is the whole period, and this month is going to be really crazy in terms of news. You’re going to see a lot of crazy stuff because it looks like we’re going into a recession too.

Daniel Creech: Yeah.

Frank Curzio: Official recession.

Daniel Creech: Of course. The Fed has done a good job. Jerome Powell, chairman, has done a good job of, in my opinion, signaling what he’s going to try to do. So, I haven’t looked at the most recent percentages for the rate hikes and things.

Daniel Creech: If they don’t do 75 at the end of the month, I think it’s the 27th. If they don’t do 75-basis points and then hint at another one… The minute meetings come out today Frank, later this afternoon and they should be very hawkish. And hopefully, they’re hinting at 75-basis point hikes this month and next month, and then they’re going to signal that pause. Now, total coincidence that there’s midterm election, we’ll get to that later in a minute.

Daniel Creech: But to your point, it is working in the sense of, I’m just not sure on how quickly that’s going to turn into. By the rumor, sell the news type deal. So, you point out many times if earnings come out, the majority of results are based on guidance. Hey, this company can report a great earnings per share number and beat. But if they lower for the second half of the year, stock’s probably going to go down. It’ll be wild to look at this.

Daniel Creech: The Fed meeting’s today, the minutes, excuse me. And the Fed meeting coming out later because what if the recent pullback… And you’re exactly right, that food hasn’t gone down, yet but gas prices are drifting lower. Copper is drifting lower. All the metals are drifting lower. But what if that doesn’t show up in the upcoming numbers? And if it doesn’t, that may not matter as much because people might interpret and say, “Well, they’re just not baked in yet.” But based on oil going from 130 to 98, based on copper prices dropping, based on everything else going down, lumber, the reaction still might be a positive. Does that make sense?

Frank Curzio: It will make sense because you have to factor in. We have to factor in Daniel is that a lot of these stocks are getting hit. They’ve got hit already. So now, expectations are low.

Frank Curzio: We’re so used to over the majority of the past 12 years since 2010, where expectations are pretty high. And when they’re high, you have to meet them, you have to beat expectations. That’s why you’ve seen a lot of buybacks at stocks with artificially inflation earnings, there’s ways to manipulate your earnings to go higher, not legally through companies. That’s what happens when you report every quarter which you really don’t need to do. But whatever, it’s good for trading.

Frank Curzio: When I’m looking at earnings right now, I want to see if it’s factored in because right now, earnings expectations have been lowered for Q2, where they’re expected to grow at 5.6%. A lot of that’s going to be from energy. But when you look at Q3, at Q4, what would you think? Would you think the earnings are going to be higher or lower from 5.3% this quarter?

Daniel Creech: I think they should be lower. They’re probably projected to continue higher then.

Frank Curzio: Okay, not just projected continue higher. Q3, they’re expected at 10% and Q4 expect at 11%.

Daniel Creech: This is year-over-year, right?

Frank Curzio: Yes, this is year-over-year growth, which is… When I see that and those numbers, I just think they’re relatively high because of the uncertainty. Just in China, China came out today. When it comes to the uncertainty Daniel, they came out today and said, “Look, we’ll work all the cases. So, you might see further lockdown.” So, there’s a little bit of a scare in China right now. And again, we know with supply chain concerns, and they’re the growth market, growth engine of the world, who knows? We have Biden going over there to tell him, or I don’t know if he’s going there to just lower tariffs. I think he’s meeting with OPEC or whatever. But they’re going to start dialing back on the tariffs and stuff like that. Again, just for the relationships with China, whatever that means.

Frank Curzio: But China has been outperforming on markets. But I know that for the lockdowns… Macau, I saw they close one of their casinos due to COVID outbreak. It makes sense that they might close a lot of those casinos now. So, the uncertainty out there is really tough, where you have these companies.

Frank Curzio: And also, if you look at Russia… What we do with Russia is, when we took them off SWIFT payments, that was a huge deal. That was a big deal. It means basically, we can’t do any business with them. I know it’s through the banking system and stuff. But it forced every single company to not do business with Russia anymore, and I think that wasn’t really factored in because you’re looking… Especially through oil, which means we have a lot of business oil, not that we do a ton of business in Russia, but there are a lot of companies. Even Netflix reduced their earnings, not earnings, their subscribers. It would’ve been positive, but it was negative. It was still down tremendously. But the negative number was because of Russia. So, everyone’s eliminated. It was Russia’s operations to take it right down. Exxon took a big write down, Chevron, all these companies.

Frank Curzio: It’s going to be interesting to see how they beat going forward, especially with the uncertainty with energy prices, and we’ll go through that in a minute. But those expectations are really high.

Frank Curzio: And we want to see when they report that guidance as a CEO… When you look at the CEO and you look at the sentiment among CEOs, and I have this because it really surprised me, the CEO confidence index it was eight… So, it’s on a scale from one to a 100. It was 80 at 2021. Very, very high levels. It took almost record high levels close… But it’s at 40 now. And at this level at 40, just to explain to you guys, it only gets this level during recessions where you look at 2020, 2010, 2000. That’s when it was at these levels, a little about 40.

Frank Curzio: So, for CEOs to have that little confidence, I don’t see them coming out and being aggressive, which is a good thing because now’s the time to be conservative. You could be conservative and get away with it because your stock is already down, the anticipation is that they’re not going to be great. So, all you have do is really meet earnings, and you’re going to be okay, and maybe maintain your guidance, and your stock’s probably going to go up. Maybe it goes down a little bit.

Frank Curzio: But I want to see if it’s factored into these stocks because I think this earning season’s going to be a little rough, and you’re going to separate the winners from the losers within industries. It’s not going to be all cloud companies go high, all consumer cyclical companies go high, all the airline… I think you’re going to see massive separation within those industries of companies that are getting it done and companies aren’t. And it’s going to be really cool, it’s going to be a stock pickers market. I’m looking forward to earnings season to see what these guys say.

Daniel Creech: Speaking of CEOs who have a glass half empty outlook. Did you see Meta’s, Mark Zuckerberg, formerly Facebook? He was saying how things are going to be terrible and he was getting out in front of that and saying there was going to be either further layoffs or some people may end up leaving without having to be “fired.” That’s all fine.

Daniel Creech: How to play it? Like I said, I hope the Fed comes out, and they are very hawkish in their meeting minutes today, and then everybody prices in. What’s interesting to me is that there are a couple rate hikes being priced in, rate cuts excuse me, as soon as the first quarter of next year, Frank. So, we could have a rate hike this month, another rate hike, a pause in September, and then a cut.

Daniel Creech: Now what’s interesting, and I forwarded you this, just real quick here, and I know numbers are hard to follow and it’s goofy. The reason I think the Fed is right to try to raise quicker, more fast, by 75 base points even if they came out and surprised by one, it would be a terrible knee-jerk reaction for the stocks. But they got to give room to start cutting.

Daniel Creech: And if you look at up to 2020… And this is why I think they’ve painted themselves into a great corner. Fiscal year, 2020, the height of the coronavirus stimulus mania, the debt on our national debt of 30 some trillion was relatively low. It was only, I say only using my best Austin Powers quotations, 6% of roughly the 6.8 trillion outlays. Now it was about a little under 400 billion in interest payments, debt services.

Daniel Creech: Now why is that? Well, because interest rates were artificially low. If you scroll down, and I don’t know if you have it on your side, but if the Fed keeps hiking and we get to 5%… Why am I picking out five? A 5% average rate would mean that the service on debt is the single biggest annual expenditure for Congress. It would be higher than social security, which is what? 1.2 trillion. Medicaid, Medicare excuse me, 826 billion. In the Department of Defense of 704 billion.

Daniel Creech: In my opinion, and I know deficits don’t matter. That’s a great quote from former vice president, Dick Cheney. Why do I bring this up? Because at some point you’re going to see a lot of headlines about the interest and the debt and people getting worried. That’s going to be good for gold and Bitcoin in my opinion. We need to see that break away.

Daniel Creech: But I just think the Fed needs to be aggressive and start raising so that they can only back off. And I think, and we’ve talked about this in the past, it’s okay to sit on the sidelines or at least be scaling into certain positions right now. We can get into a couple lows in a minute.

Daniel Creech: If the market starts pricing in a rate cut or power hits at anything early next year, coupled with the midterm election, regardless of how that goes, you’re going to see a massive rally in my opinion. So yeah, we’re in waiting mode right now. I think the markets are going to drift lower between now and the end of the year.

Daniel Creech: But again, I think it’s smart to build your watch list and start buying in, and I’ve been wrong up to this point as well. I’ve been buying it here and there across oil and crypto and things like that, and they’re still going down. If you want to stop the conversation right there and say, “Well, you’re wrong. So therefore, I don’t want to listen to you.” That’s fine. But the world’s not ending, and you want to prepare for what’s coming, and this is what’s coming ahead and it’ll be great to hear, see the Fed minutes later, and then see what they actually follow through with.

Frank Curzio: I think when people run into debt, it’s a fantastic story. Debt is only a concern when you see companies and people not being able to pay it off. When people can’t pay, that’s when it’s a concern. You’re not seeing that alone with banks. The banks are strong than they’ve ever been. They’re buying back stock and they’re raising their dividend because they’re forced to keep a lot of cash on a balance sheet, not lend it outright due to the new laws.

Frank Curzio: But when you have to look at both sides, you see both size of balance sheet or whatever it is, you look at the balance sheet when you’re looking at income. So, we look at both sides, those interest rate payments. You’re not going to see 5% of Fed funds rate. It’s pricing in right now at about 3%, maybe 3.2% on the Fed funds rate, and we could be there very, very quickly. We could be there by September. I don’t know if we’re going to be there by September.

Frank Curzio: But if you’re looking at debt servicing costs, interest payments, and Canaccord has a great report out with great charts on this, showing that interest payments are around $550 billion. That’s where they’re going based on the current interest rate. But nobody talks about this, is the revenue that the government is bringing is $3.2 trillion.

Frank Curzio: So that interest payment, yes, you have to be concerned if we go much, much, much, much higher. But these levels, which seems like we’re topping out… With the 10-year at 2.8, went to 3.3 and not going higher. That surprises me. It’s unsurprising that the Fed’s pretty close to being done after this next rate hike at the end of the month and that’s why it’s going to be interestingly for the Fed because they don’t want to sound dovish because it made him look really, really bad, like a bunch of idiots, by being dovish and always painting that picture like, “Oh, we might only do this.” And this is what? A couple months ago.

Frank Curzio: This is a couple months ago when the Fed started raising. They were like, “Oh, 25-basis point hike.” They were trying to be kind of like, “Eh, it’s not going to be that bad,” and finally, the Fed said, “Okay, inflation’s out of control. We need to do something about it.”

Frank Curzio: And for people to believe that we are not going to hit a recession is naive because the Fed doesn’t care about a recession. The Fed cares about bringing down inflation. That’s our biggest threat. The quicker that comes down, the better shape will be. Again, we can always lower rates. But when they’re at zero and you’re seeing a low and you’re seeing inflation out of control, that’s when you get back into a corner, you can’t do shit about it, there’s nothing you could do. So, they’re actually forcing a recession. They’re doing that. They’re taking money out of the system.

Frank Curzio: And to show you how much this is really working, guys, we could cite different things. Again, I brought up so many different things that are going on, that we’ll be seeing lower prices finally hit compared to everything just through the roof and it was a 100% inflation. Now you’re seeing about 60% of the indicators showing inflation, where a lot of us start to pull back, especially commodities.

Frank Curzio: So, when you look at real liquidity, real liquidity is measured. And I don’t want to get confused again, but it’s important. It’s like real interest rates. That’s what you care about, real liquidity, which is M2, the M2 money supply growth plus equity bond, mutual funds, ETFs, but they also minus industrial production growth. So, it gives you a more pure like this is widely covered. When you looking at real liquidity, it’s trading at levels not seen ever, and this is dating back to 1960s.

Frank Curzio: One is, this is almost 100% of the time associated with a recession because you’re taking tons of liquidity. But the amount of liquidates that’s come out of the system is insane. In this chart, you’ll see it’s insane when you’re looking at real liquidity. So, in short what this means, liquidity’s drying up, meaning the Fed is doing its job. That’s what they got to do, take money out of the system.

Frank Curzio: But to see how fast this has happened and liquidity has dropped, and this is something that the Fed’s looking at, it means inflation’s going to come down much, much, faster and likely much more than most are predicting.

Frank Curzio: And it’s hard to see that because inflation was going higher and higher, and everyone’s like, “Holy shit, I’m paying hard prices.” But you’re seeing it, you’re seeing it. You’re going to see it within restaurants. You’re going to see it in earnings. That the pricing power that these companies have, you’re not going to see it too much because people are starting to dial back and they have to dial back with all…

Frank Curzio: I know energy prices have come down, but when I’m looking and throw all this in there, I could see the Fed going 75-basis points and say, “Look, depending on what’s going on, you’re not going to see the total 100 hawkish terminology.” They going say, “Okay, 75 base points, and we’re going to continue to raise. And it could be 50 or 75 base points.” September is going to be our last rate hike. They’re not going to go past that because they don’t need to. You’re going to see that.

Frank Curzio: I know it’s hard to see because you’re looking at lagging data. That’s a data that we’re fed all the time. Data that’s from last month, the previous month. So, the data that’s coming out when it comes to unemployment, when it comes to CPI, that’s from, and remember this is coming out next week, that is from June, and we’re into July already.

Frank Curzio: So, when you’re looking at all the data and you’re looking at what’s going on right now, especially with the massive drop of commodity prices, you’re seeing prices being low, and I’m interested to see Prime Day with Amazon prices coming down. But the M to that real liquidity is coming down tremendously, and one last thing I’ll say is, you said gold.

Frank Curzio: I’m not too crazy about gold because gold doesn’t pay interest. So, when you see the negative real interest rates, which we have, which combines inflation with rates, we’re still negative. But as inflation comes down and you’re looking at interest rates higher, that’s going to come more in line to the point where do you park your money? That’s what people write stories about, where do you want to park your money? Do you want to park it in goal? Because goal has been steadily declining over the past six months, just steadily coming down so, so, so, so, so slow. Now, you’re going to see real interest rates positive, which is a huge, huge negative at least historically for gold, and it’s going to be interesting to see what happens. Even with gold and Bitcoin, and we know what’s going on with Bitcoin, and a lot of that bubbles burst, and another company just put a file for bankruptcy.

Frank Curzio: But for me, that’s a situation. With the Fed coming in, that meeting at the end of this month is something you need to look at. Because I think they’re going to say, “Okay, we’re still going to be aggressive into September, but September’s going to be the last rate hike.” And that could be 50, 75, or maybe even 25-basis points. Depends how quick we see this deterioration because liquidity is flying out of this market much, much faster than anyone believes and that’s what happens.

Frank Curzio: That’s what happens when you raise rates, that’s what happens when you take money out of this. That people cannot… They’re not going to spend their disposable income. Discretionary income goes down tremendously and you got to figure out what are they going to spend on it? Spending on services. You’re seeing services do good. But a lot of those discretionary items and things like that and all the bullshit they used to buy and just the speculative names, you see it, you see how the risk is coming out of the market. But that’s how I feel right now in everything. I know I was a lot there. So, sorry.

Daniel Creech: No, that’s good. Turning real quick on oil, would you be a buyer of oil now as it’s been drifting lower?

Frank Curzio: No.

Daniel Creech: No.

Frank Curzio: No, and I was-

Daniel Creech: That’s an easy debate. Why would? Let’s talk about it.

Frank Curzio: Okay, I know. And we to need talk about oil because you’re looking at oil stocks that are getting plummeted, and you could say, “Well, Frank, they’re up tremendously.” Devon was five bucks, and I don’t even know. You have a chart there with Devon or no?

Daniel Creech: I don’t. Not up in front me, no. I can get one though.

Frank Curzio: Let me bring this up before I start talking about… So, Devon has gone up tremendously, but you have to see how much these things are down, and they’re down a ton. And recently, like the last two weeks, I don’t know if you saw the decline in commodities in general, like Freeport has gotten killed, Alcoa as well, was really, really just surging higher. Now, it’s coming down. But a lot of these names, even coal companies, and coal, surprise, because everybody’s using coal like crazy now. I mean, it’s there, you’ve seen demand surge, and it makes sense.

Frank Curzio: But a lot of these things are coming down probably because energy’s coming down, and maybe people will switch more natural gas now, prices coming down. But let’s see. So, we look at Devon here, and it’s at 50 bucks. It was at 80, it was at 80, and it was at 80-

Daniel Creech: Not too long ago.

Frank Curzio: You’re looking at less than a month ago. So when, you see these massive declines… I mean, it was 20%, then it’s 30% of these stocks, but you’re looking at oil pushing down below a 100. And to be fair with you guys, when it hit 103, 105 in the way up and I said, “You know what? Everyone’s so bullish on this. It’s gone up so fast. I think it might be a good time to take profits.”

Frank Curzio: And stocks went up, a lot like Devon, went up a lot higher. A lot of these energy names went up higher, and oil went to 130, and now it’s coming down below a 100. A 100 dollars is huge, even 130. But here’s the thing: When we talked about oil, and I’ll let you go over this, look at the forecasts. I mean, as an investor, how do you play this shit? I mean, go ahead. I’ll let you go. Go.

Daniel Creech: Well, I think I don’t have it up in front of me, but you’re talking about the city came out with a bear case if we go into recession. Oil could trade down to the mid-60s, 65ish a barrel. What bank was calling for…

Frank Curzio: JP Morgan said that global oil prices could reach whatever stratospheric, and I won’t get into price yet, if US and European penalties prompt Russia to inflict retaliated crude retaliatory crude output cuts, which they could because they’re making money selling their oil to Russia. I mean, Russia is selling to China, which is one of the biggest partners and even to other areas in India-

Daniel Creech: India and China are big buyers of oil.

Frank Curzio: So right now, and you’re looking at the ruble freaking surging, it just goes to show you when you control the energy, you control something that everybody needs. You’re in the driver’s seat, you’re in the driver’s seat. As much as we wanted to take away from them, Russia could absolutely destroy Europe if it wants, still 40% of their energy needs.

Frank Curzio: But to get to the price right here, JP Morgan sees $380 oil. Not 200, not 250. 380 in a worst case Russian cut scenario. And then, you look at city going to 65. So as an investor, you look at this shit and you go, “What?”

Frank Curzio: How do you play this? Because if it goes to 360, it’s got to be horrible for the economy, I would think. If you go back and look, when oil prices usually rise outside of going from a 100 to 130, which is almost unprecedented, I really don’t see that. It’s record highs. But when you see 60 to 70 to 80, a lot of people associate that, where people may stop spending because the fuel price is so high, and that never really happens because it’s usually associated with a strong economy. That’s why.

Frank Curzio: I don’t know how to play this. As an individual invested, someone that so-called whatever expert news for a long time, I mean, are we going to go to 380? Which would destroy the economy. But yet, if we go to 65, it also signals that we’re in a massive recession, which is also bad for the economy.

Frank Curzio: So, what’s the positive scenario? Obviously, you don’t want to go to 380, but even if it goes to 150. But to see discrepancy this much in a commodity like oil is really insane, and I explained this a couple of two weeks ago.

Frank Curzio: I got this report showing just massive leverage on both sides here, and now that you’re seeing it push below, now it’s $95 a barrel. Ooh, at 130, that’s significant. You’re seeing it at the pump. I know you drove by a gas station, “Holy shit, man, look how much gas prices came down?” I said it, a lot of people are saying. It was 4.98 here at it’s-

Daniel Creech: I’m not there yet, I said it.

Frank Curzio: I mean you can get it for 4.40 now.

Daniel Creech: Yeah, I thought this morning.

Frank Curzio: So it was significant, where it was like a $15, $20 difference when I filled up my tank. I mean, it was different. So, I don’t know if I’d be buying oil, but why’re you bullish on oil here?

Daniel Creech: When you were saying, “Hey, you could take profits, everybody’s bullish on oil. That makes you a little nervous.” It’s significantly pulled back. So, no doubt you were right there. And I also agree, I think those price target, and they’re not necessarily price targets, they’re worst case scenarios and all that kind of stuff. I would ignore the drastics, the fringe side. It would crush it on both sides if it goes to 65 or 380.

Daniel Creech: Longer term, I think there’s been a fundamental shift in oil because of how the oil companies are managing their money and their capital expenditures now. And it’s painful right now. I’m down on Devon as I’ve been scaling into it. However, looking from here forward, even if oil goes to 65 or 70, I don’t see it staying there for a couple of reasons.

Daniel Creech: One, you have no incentives as oil companies to drill more and be energy independent. You have a lot of incentives for them to do variable dividends like Devons doing, like other oil and gas, VNOM has done that. And total disclosure, I put VNOM in the Dollar Stock Club and the timing couldn’t have been worse. So, nobody gives a crap about ExxonMobil when they’re doing well. What have you done for me lately? So, full disclosure on that one.

Frank Curzio: Exxon been in there for a while though. You got to give some credit.

Daniel Creech: Yeah, exactly, and it’s been longer. So hey, if you held VNOM for a while, who knows what’ll happen? But when you look at the global scale, our president Biden’s about to go over to the Middle East to ask about increasing pre-production. We’ve talked about this in the past, oilprice.com is a great website to look around for this. We can talk about it more in the future.

Daniel Creech: When you don’t have a lot of reinvestment to find new oil, the transition to get off of oil is not going to happen near as quickly as what politicians would like you to believe. And from everything that I read, and we’ll get into this later today, I don’t believe that there’s enough spare capacity out there to meet all the demand, and spare capacity just means whatever we’re pumping now, and the Middle East is pumping now. If they chose to what could they increase that quickly? And there’s rumors out there that they could do a couple to four million barrels extra, and all that is just around politics, and I think that’s a lot of unknown.

Daniel Creech: So because of those, I’m more bullish on the price of oil for long-term and I would be scaling into this. It doesn’t mean go all in, but I don’t think that you’re going to have a significant drop in oil prices now from current levels that are going to be sustained. And one of my favorite hypocrites that I love to poke fun at Frank is still buying oil, who am I talking about?

Frank Curzio: Buffett.

Daniel Creech: Buffett has been buying OXY. OXY is the Occidental Petroleum OXY. O-X-Y is the ticker symbol. Hand over fist, and I’m just on finviz.com, which is a free website, and if you scroll down to the bottom, they show recent insider trading and such. So June 22nd, 23rd, 29th, 30th, and July 1st, they are buying thousands and thousands, if not millions of shares of OXY, and they’re also buying back their own stock, Berkshire Hathaway, which is always great to see, and I would follow Warren there.

Daniel Creech: I think you can scale into Devon. I think you can buy not any oil company. But the big dogs, I think you can buy here as long as your timeframe is longer than a couple of months. I think you can stock these away for a year, maybe we can timestamp this, if you haven’t fired me by then, Frank, and we’ll figure it out.

Daniel Creech: But yeah, I think there’s too many political headwinds. I think management in oil companies are going to focus on rewarding shareholders and their balance sheets versus just drilling because of political interference. And I think that longer term, oil and gas is a great place to compound money for at least a few years.

Frank Curzio: Yeah, I disagree a little bit with you when it comes to oil. The amount of oil that we have to really pump and pump through this market… We have an incredible amount of oil. I mean, if you’re looking at specifically, if you look at the Permian, this is where I’ve done a lot of research on, and then I was able to go there.

Daniel Creech: And sorry to interrupt. Real quick, I was talking about the Middle East on the spare capacity. Yeah, I know we could but-

Frank Curzio: We could but… And not only that, you’re looking at what an oil company supposed to do? So, if you look at oil companies we’re like, “Well, why don’t you put more CapEx into spending?” Well, when you have a president a year, 18 months, before he got elected saying, “If I get elected, no more fossil fuels. We’re done. Keystone Pipeline, done. We’re getting off. That’s it. We’re going to arrest these executives.”

Frank Curzio: So, regardless of how strong the rhetoric is, and obviously no one’s going to get arrested, as a business owner, if I believe that person’s going to get elected president, why am I going to spend so much when it’s going to be a complete waste of money? I’m not going to spend my CapEx. I’m not going to be as aggressive because this guy wants to get rid of everything that we do. So, that’s what’s going on right now. Now he’s trying to pump it up.

Frank Curzio: Let me tell you something, when it comes to oil companies for Shale areas in the Eagle Ford, where large basins is probably around $50, 45 to $50, that used to be $70. They loaded cost tremendously due to improving technologies.

Frank Curzio: If you look at the Permian, yes, there’s something that could produce at 28, 29. It’s around, I would say $40. You’re going to be profitable in most places in the Permian. But with the Permian, there’s only…

Frank Curzio: When you look at the Eagle Ford Daniel, there’s only 300 foot of pay. That’s the shell area. So, you drill inside of that, then horizontally, boom, your frack boom, vertical, whatever, and that’s where you get the oil from.

Frank Curzio: When you’re looking at the Permian, it has so many different layers that you can go deeper and deeper and deeper. So, the cost is going to increase as you go 8,000 to 10,000 to 12,000 to 15,000. Now you’ve got these different areas like Wolfcamp A B, C, D, all the way down. You have the lowest Spraberry. Upper Spraberry is in the Midland part, then you have the Delaware part. But the thing is a lot of this area’s been drilled so they know exactly where the oil is. So, it’s almost a 100% success rate when they frack because they see the oil, they know what it is because it’s been drilling there for many, many, many, many, many decades on the century.

Frank Curzio: So, the higher oil price, the more deeper we could drill, and the more oil we could pull. We just have to get the okay, and we still don’t have the okay, and even all the oil executives came out and said that.

Frank Curzio: And listen, the federal lands or whatever we want to argue, the bottom line is this: We do have a ton of oil that we could be producing. You see how powerful we cut off every single freaking thing for Russia. We cut off the SWIFT payments, we provided these massive sanctions, which we do all the time when they took over Georgia, we took over Crimea. They knew exactly what was going to happen. Again, we were so predictable.

Frank Curzio: But yet, look where Russia is, still at war, still strong, ruble’s very strong, they’re able to sell that oil. We could become much, much, much, much more powerful than any time we’ve ever been in our country who just produce oil.

Frank Curzio: Forget about this climate initiatives, it’s bullshit. If you want to do it, just take 20% of the profits and put it towards that. Maybe one day when my kids’, kids’, kids’, kids’ get older, maybe we’ll have more wind, whatever. But again, you have this agenda of people that don’t understand the market. But that’s what controls… That’s what provides safety, that provides the most powerful place in the world and we’re giving that away to Russia, we’re giving that away to China right now.

Frank Curzio: But when it comes to these oil prices, we have tons of oil here. We just have to get whoever, a different regime, different president, whatever to say, “Okay, hey, let’s go crazy. Let’s drill,” and we see the effects of this.

Frank Curzio: Now with that said, where should oil be? I don’t know. I know that there’s a lot of leverage in the oil industry and I know there’s peeps. So many people that are very, very, very, very long. I’ve never seen more hedge funds go out of business than commodity related hedge funds to oil in my life. It’s always one of them blows up, and they’re done because they’re so highly leveraged, and it’s such a volatile commodity, and it’s so difficult to predict, that right now this $95 barrel is probably because people are just so long in getting wrecked that they’re covering right now.

Frank Curzio: So, could we go down to 92? Could we down to the 80? Yeah. But do I think it should be over a 100? We should probably be around a 100, 105, I think on average, and then let’s see what the economy does.

Frank Curzio: But if you are playing oil individually, be careful. Would I go in and start buying these oil stocks? Not yet, because I do see oil going lower because as it goes lower, these longs are going, “Holy shit, I got to get out of my positions. I’m getting wrecked. I was long, I thought I was going to 250. JP Morgan said 380. It’s guaranteed 125. Everyone has 125 plus.” All the investment firms you know they’re long and they leverage the hell on themselves in future markets or whatever.

Frank Curzio: But when it comes to oil, just be careful. If you like Devon, buy. It pays nice dividends, it’s cheap. If you believe oil is going to be at 100, 105, you should be buying it and holding it long-term, especially now it’s down 30% or whatever. The Exxons are the Chevrons.

Frank Curzio: But just know that oil’s probably going to go lower because of oil leverage in the marketplace, and we’re seeing that in the market, not to keep going on here. But when you see like this liquidity crunch, when you see money deleveraging coming out of the system, people are selling their great names, their great holdings to cover their margin calls and all the shit and pay all their taxes and everything else. And that’s why you seeing where even good names are coming down.

Frank Curzio: Oil has a lot of good names that are dirt cheap, they should be trading a lot higher. I still think that they go lower from here a little bit because, man, there’s just so many people out of long and it needs to adjust here. That’s how I feel.

Frank Curzio: But could be wrong on it? You were dead right. And just to be fair, I was really, really wrong. I didn’t participate in the oil move on the way up. I had a lot of people on here that I interviewed that said you got to go into oil and we had a lot in a Dollar Stock Club and things that. So those picks and ETFs, but just missing it on the way up. But kind of like 95, 100, 105. I still think it could go little lower here and just be careful if you on oil especially if you’re looking at trading.

Daniel Creech: Absolutely. Well, let’s hope you’re not completely right because I’m scaling in. So, we’ll revisit this.

Frank Curzio: But you hold stocks for a while, and again, you’re getting a 30% discount compared to where they were, and at 130, it’s a game-changer. But getting back to Shale very, very quickly here, you… Because I don’t want to run too late. At $70, oil companies will produce as much as they could possibly produce. Not deep water, maybe a little bit higher than that. You see break even at 70, most breakeven is 85. They make a lot of money. They make a fortune right now where it is now. But when you go below 70, that’s when you see them cut back on CapEx, the places that they’re allowed to drill on, that the president allows them to drill on.

Frank Curzio: But right now, they’re going to be printing money handle over fist. They’re going to be buying back stock. They’re going to be raising their dividends. These guys are leaner than they’ve ever been because a lot of them almost went bankrupt with that. What was it? 2014 to whenever, 1920 through COVID, was so freaking bad that industry. That a lot of these companies restructured their debt, have much stronger balance sheets and again are leaner than ever.

Frank Curzio: So again, I don’t want to go back and forth here. I just think if you’re going to buy oil, make sure that you have a long-term outlook. If you look at a trade, there’s people that have been doing for 30 years that get it wrong, that go out of business, and it’s easy to go out of business when using someone else’s money and leverage the holiday because you’re right. You’re going to make a fortune if you’re wrong. Big deal, you’d be able to start another fund probably in six months from now and raise billions of dollars. So, that’s the way the system works. But it’s just interesting.

Frank Curzio: And I will say this, if you don’t know how to gauge it, you could steal $5 million from a bank or get $5 million however you can and just invest it in Bridgewater. Ray Dalio, which his flagship fund is up 30% this year, which isn’t surprising if you’ll have to front run the market. So, you front run the market only. It’s not like Ray Dalio comes out. I love Ray Dalio, big fan of his.

Frank Curzio: But it sounds like they come out with this, “Oh, this recession. You got to be careful.” No, there’s no… It’s just, hey, this is easy. We’re seeing what happens before it happens, and we’re getting in and we’re getting out. We’re shorting, and we’re doing all this stuff, and we know which funds are blowing up. And again, you have all the top mathematicians at this place because they make 120,000 out of college and they’re like, “All right, we’ll pay three million if you come here.”

Frank Curzio: So, you have all the top mathematicians, brilliant people there, and they found a way to do it where, “Hey, we don’t even really have to talk about the market. We’re just going to provide great returns fee,” and that’s why it’s the biggest fund in the world. So, if you could steal $5 million, that’s the entry fee to get in. It might be even more than that now.

Daniel Creech: I was going to say, that seems a little cheap for that one.

Frank Curzio: It might be cheap, but see what happens. So, if you don’t know how to gauge the market, just go with those guys.

Daniel Creech: I’m used to the outside looking in. I’m comfortable here.

Frank Curzio: I hear you. I hear you. Okay, what stocks are you buying, really quick, when it comes to oil?

Daniel Creech: I like Devon. I wouldn’t mind following Buffett into Occidental, and I would play Buffett. I would buy Berkshire through a conglomerate of things, but I like the railroad that they own amongst other things to play, oil as well.

Frank Curzio: No, it makes sense, makes sense.

Daniel Creech: Exxon, I don’t think… All the big ones, I think they have their hands in everything, so Exxon or Chevron. I don’t know that you’re going to outperform other things depending on what you’re going to compare it to. But I just don’t think that you’re going to be upset if you can hold it for the longer term.

Frank Curzio: Yeah, and I think you’re going to see separation in that industry too when it comes to oil. Well, all the stocks want it tremendously.

Daniel Creech: So, we don’t need to get into it now, but there’s also some neat trust that have my… I’m doing some research on some… There’s some Permian Trust out there that are basically just holding companies. You got to watch out what accounts you hold those in. Those aren’t best for retirement accounts because they’re tax friendly and all that. But this is the time, in my opinion, where you want to start looking at that when prices are down and when you know prices could go lower. I just think there’s enough political headwinds there to keep them back up.

Frank Curzio: Nah, it makes a lot of sense. All right, we covered a lot today, guys. Listen, just be careful with the markets. Going to see a lot of crazy headlines, a lot of news coming out in the next two, three weeks. Like I said, I’m buying stocks here, I’m picking away because I have an 18-month outlook and longer. So, I’m pretty positive. But we’ll be here for you. Email us anything at frank@curzioresearch.com. Daniel, your email?

Daniel Creech: daniel@curzioresearch.com.

Frank Curzio: I never say it. I just make him say it the whole time. All right, guys, so if you’re going to the Meta Expo in Vegas Friday, Saturday, Sunday, make sure to buy the tickets on our site, Curzio Research. We don’t get paid or anything. They just give us a discount because we’re a keynote speaker.

Frank Curzio: But again, it’s from Friday to Sunday, July 10th. Come visit our booth. You’ll probably see like a studio and me interviewing people. But I definitely want to see… A lot of people already said they’re going to stop by, and subscribers, and encouraging members, and stuff, so it’s really exciting. I’m going to be speaking on Saturday at 2:45.

Frank Curzio: But again, come by, say hello, and it should be really, really cool, and a lot of fun, and different from most of the conferences that you used to attending. Just get ready, it’s going to be a little bit crazy there. But you’ll learn a lot about the metaverse, and it should be really, really cool and entertaining. So guys, that’s it for me. Again, if questions comes, feel free to email me and Daniel, and I’ll see you guys tomorrow with a fantastic, fantastic interview. I’ll see you. Bye.

Announcer: Wall Street Unplugged is produced by Curzio Research, one of the most respected financial media companies in the industry. The information presented on Wall Street Unplugged is the opinion of its host and guests. You should not base your investment decision solely on this broadcast. Remember, it’s your money and your responsibility.

Frank Curzio
Frank Curzio, founder and CEO of Curzio Research, is one of America’s most respected stock experts. His research is regularly featured on media outlets like CNBC’s Kudlow Report, The Call, CNN Radio, ABC News, and Fox Business News. His Wall Street Unplugged podcast—ranked the No. 1 “most listened-to” financial podcast on iTunes—has been downloaded over 11 million times.

Editor’s note:

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