Frank is traveling this week, so I (Daniel Creech) am behind the mic to cover the markets and rising energy prices…
Jamie Dimon, CEO of JPMorgan Chase, is warning investors to “brace yourself” for an economic hurricane. I give my thoughts on his prediction.
I also explain why President Biden’s Wall Street Journal op-ed shows how government policies will lead to even higher oil prices… and the European Union’s latest Russian sanctions will only hurt local economies.
Bottom line, if you think you’ve missed the gains in energy stocks, think again…
- Jamie Dimon warns of economic hurricane [1:10]
- High rates and inflation are the new market normal [4:15]
- President Biden’s op-ed missed the mark on energy prices [7:25]
- Why the new EU sanctions on Russian are a bad idea [11:55]
- You haven’t missed the opportunity in oil stocks [14:45]
Wall Street Unplugged | 902
How to trade the crypto bear market
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.
Daniel Creech: How’s it going out there? It’s Thursday, June 2nd, and you’re listening to the Wall Street Unplugged podcast, normally hosted by the one and only Frank Curzio. However, he is out traveling today and tomorrow, as a programming note. You are stuck with me today. Hi, Daniel Creech, senior analyst here at Curzio Research, where I get to talk about things that interest me and convince you, dear listeners, as to what you should give a flying Florida about in today’s markets. Always love filling in for Frank here. Glad to be back, was back on yesterday’s podcast, and again, since I said he’s traveling today and tomorrow, for all you paying subscribers, our most favorite types, I will be doing Frankly Speaking, so send any of your questions or feedback to me, firstname.lastname@example.org. That’s email@example.com. When I’m behind the mic, I love to take the helm here. I’ll give you the world according to Creech in the markets right now, what to expect.
Daniel Creech: Let’s start off with how to prepare yourself, embrace yourself, for the coming hurricane. We have to figure out if it’s a small hurricane with light winds or a damaging hurricane. Yes, I’m having some fun with Jamie Dimon, JPMorgan’s CEO and one of the most respected and best bankers in America. I actually like Jamie Dimon from what little… I don’t know him, but I like how he can change his mind, he can admit he’s one of those elitists who humbles at times to make us small guys feel good. But Jamie Dimon was all over CNBC yesterday, he was talking to investors and he was talking about how, “Hey, there’s a storm cloud coming. We have decent times right now. It’s sunny, it may be a little cloudy, but, boy, headed down the road, we’ve got to brace yourself.” He says, “JPMorgan is bracing ourselves, and we’re going to be very conservative with our balance sheet.” Now, why would he be foreshadowing, warning, pointing out, some would say the obvious, that you should take cover or brace yourself?
Daniel Creech: Well, the CEO said the other large factor worrying him is the Ukraine war and its impact on commodities, including food and fuel. I’m going to dive deep into oil here in a moment, but Frank talked about the food prices and how they’re going to be sustained and continue to go higher on Tuesday’s podcast, be sure and check that out. Dimon says oil could hit $150 to $175 a barrel, that’s up from about $115 right now. I’m going to give you the answer first and explain why you should go ahead and continue listening here, because if you feel like you’ve missed the massive run in oil or energy stocks, I’m going to tell you haven’t. I’m going to share some stats as this podcast unfolds as to try to convince you and make sure you at least have exposure.
Daniel Creech: My goal here is to break down, explain, “Hey, here’s what is catching my eye, here’s why. Here’s why I think you should give a flying Florida,” remember, it’s a family program, “About this and make sure you position yourself in your portfolio so that you benefit and don’t get hindered or hurt by the volatility and a lot of the market pullback, in general.” Because energy has been working, it will see its ups and downs, don’t get me wrong. I’m not saying it’s all going to be straight up from here from current prices across the board. But overall, I do think higher energy prices and higher stock prices related to energy are in the near and distant future for a couple reasons. So, let’s pay attention as to what’s going on. We know about the awful war between Russia invading Ukraine, we’ve talked about that, I may address that some more on Frankly Speaking. But I want to point out to something here, because these kind of things take time to unfold, whether good or bad.
Daniel Creech: When you have a spill in the river, obviously, that’s a bad, but it’s going to take time to work its way down river and to other areas. That’s what we want to try to think about investors is where is the puck going? How are we positioned for today, and why and what’s changed? So, our new environment here, and the reason Jamie Dimon is warning everybody, is because now you have the Federal Reserve switching gears. Instead of going from an easy money policy, low interest rate environment where growth and borrowing money to grow and not make revenue was rewarded. That’s the mentality, that was the base layer the Fed put, as you would call it, to support higher asset prices across the board. When interest rates are 0, you can justify a lot crazier, higher asset prices. Now, that’s changing in two ways.
Daniel Creech: One, quantitative tightening, where the Fed is going to stop purchasing as many bonds, stop buying bonds and start selling them or letting them roll off their balance sheet, which means they’re taking a massive buyer and a massive provider of liquidity out of the market, which the market, in theory, is going to have to figure out where those rates are. No shock here, but rates are going to be higher, that’s why you’re already seeing them go up. Second, and what they’re doing first with that, is the Fed is actually raising rates for the first time in several years, and we’ve talked about that a lot. So, Jamie Dimon is pointing out, “Hey, the forward picture, the road up ahead is much, much different than the rear view mirror.” I appreciate that, and I totally agree with him. The same mentality of by the dips in the tech sector that we’ve had for several years, call the last decade, where growth is vastly outperformed will continue, it’s just going to shift over to different sectors, like the energy sector.
Daniel Creech: When you see these headlines about the European Union and the United States sanctioning Russia, causing more economic harm over there, they’re disrupting, they’re trying to get cut off their economies from Russian oil. What does that do? Well, Russia’s one of the largest, what, three producers or so, top five, at least in the world. You take away their main product, you take away their funding, you hurt their economy, then they can’t fund their war. The problem with that is they’re going to continue to discount their oil and get money from China and India, they’ve already admitted and are buying lots of oil. I understand what the governments are doing in a perspective, but most of it is just show, because that’s what politics are to gain votes. If we consider what they’re doing, what has happened here in the last couple of days, you can go through the Wall Street Journal or major financial news outlets. You have Biden writing an op-ed, which I’m going to go over, in the Wall Street Journal, “My Plan For Fighting Inflation.” You have Jerome Powell getting called to the White House for a meeting with Biden.
Daniel Creech: Of course, they’re totally independent of one another, the Fed and the White House don’t want to talk. If you believe that, I have some wonderful oceanfront property in Arizona I could sell you, and many friends of mine have them, too, which I’ll be glad to introduce for a small finder’s fee. You have Janet Yellen, Treasury Secretary, former Fed Chair, admitting that she got inflation wrong, but now you should listen to everybody because it’s all going to be okay. How are they planning on to fight inflation? Well, from President Biden’s op-ed from Tuesday, May 31st here, he points out quickly, “I won’t meddle with the Fed, but I will tackle high prices while guiding the economy’s transition to stable and steady growth.” That sounds great, as long as you don’t need any merit behind it. The upsetting thing here is that the obvious answer to lower gas prices, oil prices, is to in increase production. We could easily do that if we had policies in place, but we don’t.
Daniel Creech: I’m not going to rant about politics here, but we simply don’t have an encouraging or a tailwind from our government to incentivize and encourage oil producers to produce more to make us more energy independent. We have in previous administrations, we’ve seen how that works, results are very easy to see. That’s not the case right now. The issue, and why you should be bracing yourself for higher or higher oil prices and higher sustained prices, is because politicians aren’t attacking the issue of supply and demand, they’re just playing the blame game. You can do quick searches on the internet here for, look at Senator, excuse me, Elizabeth Warren talking about taxing oil profits. It wasn’t too long over they dragged some oil executives in front of Capitol Hill to explain, “Why aren’t you lowering gas prices? How does this whole thing work?”
Daniel Creech: They’re not incentivized to drill and increase production, they’re incentivized… Even BlackRock, like I’ve talked about in the past, one of the largest asset managers who has decided to throw its weight around what they deem politically correct and better for everybody, put ExxonMobil board members in place specifically to be more of a green and get out of the oil business, essentially, from a macro perspective. To do less drilling, to be more environmental-friendly, at all cost, knowing, do not kid yourself, that would vastly drive up the price of oil and Exxon would benefit from it. I know that because, allow me to pat myself on the back slightly, I have had losers, as well, but I recommended ExxonMobil about a year ago because of that, because of those environmentally-friendly, and I’m using air quotes here for those of you following along, environmentally-friendly board members. What has the price of oil done since? Gone up. Now, there’s been other factors of course, but Exxon has definitely benefited that. It dropped a quick 10 to 15% after I recommended it in June of last year.
Daniel Creech: Now, it’s up roughly 60%, not even including dividends, knocking on probably $100 a share, I haven’t looked at it most recently. But when the government policies are attacking oil companies for the price of oil, and blaming Putin, they’re showing you their hand. They’re showing you that, “Hey, this is the blame game. Here’s the cards we’re going to blame, whether it be recession or lack of GDP or higher interest rates, it’s all because of higher energy prices, and the Fed has to get this under control.” That’s just not going to fight the problem, which is why you as the individual ought to understand oil prices are not going down anytime soon. In the op-ed, President Biden highlights that he released one of the largest strategic releases from global oil reserves in history, that’s including the US, and he got partners around the world to do that. He announced that he was going to release about a million barrels a day across the board each day at the end of March. So, oil hit its recent high, about $123 a barrel, it’s only 115 now, 6, 7%, gas prices continue to go higher.
Daniel Creech: But again, they’ve shown you the cards, it’s not about fixing the prices, it’s about who they’re going to blame and how they can do that politically. That macro level is higher energy prices. So, to get back on track here when things take time, that’s President Biden, that’s what’s here in the US, and oil companies are now incentivized to store up their balance sheets and pay massive dividends and buy back shares to reward shareholders through this new sustained higher energy prices. So, you should take note, look at your Exxons, your Chevrons, your Devon Energys. Viper Energy, VNOM is the symbol, we’ve talked about that in the past. Turning across the pond here, the European Union takes a big chance on oil ban. This is also from the Wall Street Journal, Wednesday, June 1st. One of the interesting things they did was not only are they banning oil shipments, but they’re going to ban the insurance or ensuring of Russian oil cargo.
Daniel Creech: That’s a topic for a different discussion, but that interests me A, because I love insurance and the inner workings behind it and B, because a lot of the insurance on those oil cargos doesn’t necessarily have to go to European Union for those Lloyd’s of London and different types of insurers within the European Union to write those contracts. Let me see here. I’m switching back and forth energy headwinds rattle Europe, this is from Tuesday, May 31st. I just want to point out some highlights, because everybody wants to talk about getting off oil for the necessity and the human rights thing and to protest the war, which I agree with, that’s fine. What they’re not telling you is the reality that it’s not going to help the individual who they claim it will. In Germany, Europe’s biggest buyer of Russian gas, wildlife protection groups routinely challenge wind farms, stretching their approval time for more than five years. In Italy, Europe’s second biggest Russian gas producer, authorities reject 90% of all wind energy projects. This is before the war broke out and before it got politically correct to get off and just blame Russia for everything.
Daniel Creech: Skipping ahead, listen to this, almost 600 renewable energy products are currently being reviewed by the Ministry, which didn’t respond for comment. Now, this is the Ministry of Culture overseas I’m talking here. I’m cherry picking out of this article, my big point here, the takeaway, is that when you see the headlines saying, “We’re getting off Russian oil, and we’re going to replace it with cleaner or greener energy,” outside of natural gas and nuclear, which isn’t as easy just to turn on and switch over everything to supply and keep their standards of living at normal. That’s why you’re seeing price hikes all over across commodities. Think of how bad that’s hurting the individual, but all that be damned, everybody is playing the blame game from governments over here in the US to governments overseas. This is an easy foreshadowing of seeing, “Hey, not only can they blame higher prices now, but they can blame the recession, and everything is going to get lumped into this.” So, that’s what you need to be aware of on the form of energy front.
Daniel Creech: A couple more minutes here just on energy and why. I want to share some fun stats, and take all this with a grain of salt here. This is from… Let’s see, where am I at here? I’ll see if I can share some links, but I had Siblis Research, if you just search for different sector weightings in the S&P 500, Chris MacIntosh, who we need to get back on the podcast is, has been wonderful about looking at the… I think Kuppy, as well, two great guests we’ve had on Wall Street Unplugged. We’re talking about, or have pointed out, on Twitter and different broad areas how the investment dollars of the waiting of the S&P 500 is still very low to energy, in terms of, excuse me, to other asset classes. So, for instance, on this, I’m looking… In December of 2020, energy made up about 2.28% of the US stock market large cap sector weightings that increased to a mere 2.67. So, from 2.28 to 2.67 at the end of 2021. Let’s say that went up from December of last year to six months later, here we are, another couple percent.
Daniel Creech: That still means that energy represents only 5% of large caps on the S&P 500 sector weighting. Compare this to information technology being almost 30%, communications 10%, consumer discretionary over 12%, financials 10%, healthcare 13%. Energy is still a drop in the bucket, and what that means that there is still a lot more money that can come into this space, meaning oil prices will stay substantially higher. The new normal is higher prices. If those spike to, say, 150 to 175, like Jamie Dimon predicts or warns about, that money will come flooding in even more, a lot of volatility will be here. But because of drillers like Devon and the other companies that have these split or adjustable dividend plans now, where they’re going to give you a fixed dividend and then based on cash flows in the previous quarter and earnings, they can increase that, that is going to attract a massive amount of capital as you continue to see high growth and stocks get sold off.
Daniel Creech: That’s what, hopefully, I’ve drilled into your head on this podcast, that if you don’t have exposure to energy and commodities, I’m going to make a quick comment about commodities right now, but you need to. You can scale in, you can buy overtime, buy a third of a position or a half a position or whatever you normally would, wait a little bit, and then look to add to that, whether the price is up or down, as long as the thesis doesn’t change. As I’ve pointed out, you would really need government policies to change in order to drive the price of oil and gas lower, and that’s just something that’s not going to happen right now, in my opinion. We’ll look forward to unpacking that and things as the weeks and months go on, but understand, you need to be prepared for this stringing out of volatility and lower asset prices and growth for the next several months, even into this year.
Daniel Creech: Because the Fed’s going to meet here a couple more times towards the end of the year, the big thinking is they’re going to pause the rate hikes in September, ironically, right before the midterm elections, don’t need to go there either. You’ve already had voters and non-voters, Fed board members, come out and talk about how that’s not a reversion back to the old days of easy money policies or a pause, they say. They’re still, supposedly, serious about fighting inflation, which means higher rates, which means you’re going to see this money allocate towards energy and commodities. On commodities, real quick, do not be fearful of having some exposure to gold. I know Frank and I disagree with that on the real interest rates and when. He’s been right so far, gold has been flat. Copper and metals and mining, like Teck Resources, is trading near 52-week highs, pay attention to that one. Do your own research on this, these are just some ones I’m throwing out there for you because I want you to have exposure to these with tailwinds, offshore oil companies, as well.
Daniel Creech: But metals and mining tech, look at Freeport-McMoRan, and even your boring gold producers like Newmont Mining, they just have a lot of tailwinds at their back with either sustained gold prices, you just don’t need goal prices to fall out of bed. With all the nervousness and all the money printing and all the chaos and inflation going on, don’t feel like you’ve missed the boat on oil and don’t give up on just regular commodities. Some of those, like the metals of mining, like Teck, Freeport-McMoRan, have had nice pullbacks from recent highs, and I would definitely look to be a buyer of those. Again, scale in, know this is a long-term game, this isn’t a sprint. Don’t get caught up on the day-to-day headlines, stick to us here at Curzio Research, definitely tune into Wall Street Unplugged, like, share, subscribe. I can’t thank you all enough, in advance, for your feedback and just the opportunity to do this, I absolutely love it. When I was on vacation, this was by far the thing I missed most, other than my family, is sitting behind the mic and doing the podcast. So, questions, comments, feedback, firstname.lastname@example.org.
Daniel Creech: I’ll see all the paying subscribers tomorrow for Frankly Speaking, and Frank will be back to everybody on Tuesday. Have a great weekend.
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 decisions solely on this broadcast. Remember, it’s your money and your responsibility.