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7/27/22 Capitalist Times Live Chat
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AvatarRoger Conrad
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Hello everyone and welcome to our live webchat for July. As always, there is no audio. Please type in your questions and Elliott and I will get to them as fast as we can comprehensively and concisely. We will have a complete transcript of the entire Q&A available after the conclusion of this chat, which will be after all the questions in the queue are answered, as well as what we’ve received via email prior to the chat—which this month is considerable.
 
We’re going to start by posting our answers to those questions. Then we’ll begin answering them live. Thanks again for joining us today!
 
 
 
 
Q. Please comment on Hannon Armstrong Sustainable Capital (NYSE: HASI). The reports of short interest have caused shares to tank below dream price. Is this a buying opportunity or danger?
 
I would also appreciate if you could look into adding Necessity Retail (NSDQ: RTL) to REIT Sheet coverage. It was formerly American Finance Trust. I would also appreciate commentary on high yielding REITs overall. Thanks—John C.
 
A. Hi John. Thanks for the suggestion to add Necessity Retail to REIT Sheet coverage. The vast majority of high yielding REITs in my coverage universe are financial REITs, so it’s nice to have another equity REIT in the mix. That said, I’m starting it out as a “hold” with an “aggressive” risk rating in advance of Q2 earnings and the guidance update,
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, which will be August 3. The yield is high because distribution coverage is thin and the REIT operates in a cyclical business, with the US economy likely headed for recession. There’s also a history of dividend cuts during downturns, the latest being with the April 2020 payment.
 
Turning to Hannon Armstrong, it’s pretty common for stocks that have already come down a ways to be targeted by short sellers, particularly if there’s an overall bear market with threat of recession ahead. And if the purpose of Muddy Waters issuing this recommendation was to drive down HASI shares, they've certainly succeeded.
 
In early 2021, Hannon shares were trading at what I considered to be an unsustainable level of valuation, riding what was then very strong upward momentum for renewable energy stocks in general.
Though I still liked the company, I sold HASI from the Conrad’s Utility Investor Aggressive Holdings. I added it back this year, following the big decline that reached a climax in late January. And shortly afterward, management basically doubled its projected earnings and dividend growth guidance, triggering a temporary recovery.
 
That’s now completely unwound as investors have worried about the impact of higher interest rates on Hannon’s ability to grow assets, as well as the potential damage a recession could do to creditworthiness of customers. Those are legitimate concerns and I’m looking forward to seeing Q2 results and hearing how management answers those questions on August 4.
 
On the other hand, as I wrote in the July 12 Alert “NextEra Energy (NYSE: NEE) Still a Buy,” I think for Muddy Waters’ allegations to be true, this company would have to be a total fraud, right down the accounting they submit to regulators. And while we’ve certainly seen deception
of that magnitude before, this is also a widely covered company--with 10 Street analysts tracking it (8 buys, 2 hold). It also recently gained investment grade credit ratings from Moody's in early June.
 
I’m not saying there’s a zero possibility of fraud at Hannon Armstrong. But it’s also true that in a down market people are always more willing to give most definitely self-interested “reports” issued by relatively obscure short sellers more credence than Street opinions—and especially anything a company will say. And not only did Muddy Waters’ “research” read to me like a newsletter promotion from a unit of Agora Inc. But its principal Carson Block has a fairly shady past as well, including US government investigations—apparently one still ongoing.
 
Again, I’m looking forward to seeing how Hannon answers questions about its accounting on August 4-5, and especially how higher interest rates and a likely recession ahead are affecting business. And how they answer could
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well have a major impact on whether or not I continue to recommend this stock. But at this point, the stock is no longer trading at a steep valuation. There’s still every indication the business is healthy, as high electricity and fuel prices keep interest in energy efficiency projects elevated. And while financial REIT accounting is complex, the charges made by short sellers still appear to at best reflect a misunderstanding of its business—at worst a willful mischaracterization.
 
 
Q. Roger, what do you think the chances are of the South Jersey Industries (NYSE: SJI) merger going forward? The preferred has gotten slammed because many think this private company may just stop paying or it could be delisted. I had that happen with KTBA by the US Securities and Exchange Commission not allowing it to be bought by us mere mortals. Yet the same bond trades over par. If the deal doesn't go through there could be big upside
on the preferred. Regards—Jeff B.
 
A. Hi Jeff. I have not heard anything to date that would lead me to believe that privately held Infrastructure Investments Fund will not close its proposed acquisition of this company by the end of 2022. Approval from the New Jersey Board of Public Utilities is still the main hurdle. And the main sticking point if there is one appears to be that IIF is a private capital fund, rather than another utility like New Jersey Resources (NYSE: NJR). But the fact that the stock is still trading pretty close to the $36 per share all-cash offer price is a pretty good sign investors still expect success.
 
Management should provide some sort of update in early August, when the company reports its FYQ3 results and updates guidance. I’ve recommended selling South Jersey shares pretty much since the deal was first announced, mainly because upside from the current price to the takeover offer does not compensate for potential downside to the low-20s if it fails. That’s still my view, though
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I do believe the underlying business is solid and dividend likely to grow the next few years.
 
As for the company’s debt and preferred stock, I haven’t seen anything from IIF regarding their plans for publicly traded securities post-merger. Since this deal is being financed with cash/debt rather than equity, it would seem they would keep these securities trading—with the exception of the 8.75% of 4/1/2024, which is convertible and would be retired. That also seems to be the expectation of S&P, which has had South Jersey on credit watch negative since the acquisition was announced.
 
I don’t think you can ever entirely rule out the SEC taking action to “protect us,” whether we want to be or not. But my guess would be the 5.625% preferred would continue to trade and get paid. I would add, however, that the 8.75% would drop along with the common stock on deal failure
And there’s also the matter of the interest rate environment affecting prices. Look for more on preferred stocks/bonds in an upcoming issue of CUI.
 
 
Q. As a longtime subscriber, I have admired the layout and design of Conrad’s Utility Investor, not to mention the outstanding commentary contained therein. Anything you can do to upgrade the design of The REIT Sheet (and perhaps the inclusion of a featured REIT of the Month) would go a long way to enhance an already highly valued publication. Thanks for your consideration.—John R.
 
A. Thank you John. Yes, I think having a REIT of the Month highlighted is a good idea for the REIT Sheet. I have been featuring individual companies I think are particularly good values. But spotlighting a conservative and
an aggressive REIT each month for purchase is a good way to go. Thanks again for the suggestion.
 
 
 
Q. I believe you have buy recommendations on oil Canadian oil producers Crescent Point Energy Corp (NYSE: CPG) and Vermilion Energy (NYSE: VET), as well as pipelines Magellan Midstream (NYSE: MMP) and MPLX LP (NYSE: MPLX). I would appreciate any updates on these four positions. The two oil producers, CPG and VET, seem super cheap if oil prices stay anywhere close to current price levels.
 
Also, what is so unique about Plains GP Holdings (NYSE: PAGP) that you have stuck with it for all these years despite such poor performance?
Isn’t there oversupply of pipeline in the Permian area that is putting pressure on the price that can be charged to producers? PAGP doesn’t seem like the one of the top places to invest capital right now. Thank you for doing these chats.—Rick P.
 
A. Hi Rick. Plains All American Pipeline (NYSE: PAA)—which essentially contributes all the income of Plains GP Holdings—will report Q2 numbers and update guidance on August 3. Based on the company’s guidance boost following Q1 results in May as well as robust commodity prices since, we expect to see another quarter of strong free cash flow for Plains, which management is likely to continue devoting primarily to cutting debt.
 
The company’s pipelines in the Permian Basin should be a source of strength, given record production there. Management has also issued guidance for 600 mpbd per year growth “the next several years” to
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“over 7 mmbbls/day. And the joint venture with Oryx Energy there increases opportunities for both expansion and cost reduction in the region.
 
What we likely won’t see for Plains is a broad-based volumes recovery outside the Permian Basin. At this point, that’s likely what will ultimately be needed to propel shares back toward their high for the previous cycle, which was over $60 a share. But in our view, this cycle has a long ways to run—and of all our holdings, this one has the most upside to that eventual volumes recovery. We also expect the 8% plus dividend to grow consistently back to its high of the previous cycle—which was 61.5 cents a quarter.
 
Magellan and MPLX are not so leveraged to a volumes recovery, which is basically why they’ve performed better to date in this upcycle than Plains. We expect Q2 results to look a lot like Q1, with modest asset expansion and a robust commodity price environment driving higher cash flow, though
management will likely remain conservative on dividend policy. Magellan reports on July 28, and MPLX August 2.
 
Crescent reported numbers this morning and Vermilion will on August 11. Both benefitted from higher commodity prices in Q2—CPG raising dividends for October for the fourth consecutive quarter. VET is likely to next month as well. Our view is these stocks as producers could decline in a recession, depending on how much energy prices are affected. But they survived the downcycle of the previous decade and are likely headed a lot higher the next few years. We’ll continue to cover them in the Canada and Australia table on the Energy and Income Advisor website. Magellan,
MPLX and Plains are in the MLPs and Midstream table—as well as the Model Portfolio and High Yield Energy List.
 
 
 
Q. What are your feelings about investing in exploration and production companies in Canada, versus the United States? I keep thinking that since Canada is a country more dependent on commodities than the United States, perhaps their currency would do better than the American dollar in an inflationary environment? Which Canadian or Australian E&P company could benefit the most by the increase in global natural gas prices? Would you also comment on each of their government's attitude toward the profits made by their E&P companies? Do you see either country increasing their taxes on them, etc.? Thanks—Jack A.
 
A. Hi Jack. I think it’s fair to say that Canada has been consistently more supportive of oil and gas upstream, midstream and downstream companies
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than the US has in recent years. That includes consistent support for major new pipeline projects like the ongoing Trans Mountain expansion and now exports from the country’s Pacific Coast. Australia on the other hand has just elected a Labor Party government, which at a minimum is going to accelerate the country’s phase out of coal-fired electricity. The new administration to date has not staked out a similar position on the company’s oil and gas business, including LNG exports that are still booming. And now merged with the former oil and gas operations of BHP Group (NYSE: BHP), Woodside Energy (NYSE: WDS) has a great deal of earnings upside, which management shares with investors as dividends.
 
In an earlier question, I addressed Crescent Point Energy and Vermilion Energy. Both are solid companies, as are the Canadian E&Ps we featured in the April 20 issue of Energy and Income Advisor feature article “Riding Canada’s Comeback. As with US E&Ps, prices will be negatively impacted
impacted in the near term by downward pressure on oil and gas prices—such as we’d see in a recession. But long-term, there’s a lot of opportunity for investors who pay attention to recommended entry points.
 
 
Q. Hi, Sherry. It was good talking with you yesterday! I have a question to be potentially discussed at the upcoming Chat on July 27. Please add it to the Agenda. “Do either of you have an opinion on the investment potential for NuScale Power (NYSE: SMR)? It appears that politicians are finally waking up to the value of nuclear powered electricity generation to meet our growing midterm needs even as some governments/utilities continue to decommission productive traditional facilities. SMR is approaching this
need on a different basis than large-scale, ultra-expensive and slow-to-build traditional generators. Is it really too early to make a small investment here? Thanks for your thoughts, and for your excellent recommendations over the years."—Lou E.
 
A. Hi Lou. There’s quite a bit of interest in small scale nuclear as a way to generate dispatchable, baseload CO2-free electricity. Constellation Energy (NYSE: CEG) and Duke Energy (NYSE: DUK) are reportedly the likely first movers here. And the Biden Administration has been supportive, just as it has been with financial support to keep existing nuclear plants running. 
 
My view is getting Southern Company’s (NYSE SO) Vogtle units from construction and testing to operation is critical for any new nuclear development in this country. Obviously the AP-1000 is a large-scale design
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. But getting it running without significant new delays and costs is in my view critical for the nuclear industry’s reputation in the US. I do expect more progress in that regard when the company announces Q2 results and updates guidance on July 28.
 
As an investment, SMR is I believe for the patient only, especially after the boost this month following the Paragon Energy Solutions agreement. And Q2 earnings next month are unlikely to feature any real breakthroughs. But this does appear to be a promising new technology and NuScale is the leader at this point.
 
 
Q. What are Roger's thoughts on Verizon (NYSE: VZ) and AT&T (NYSE: T). I can't believe the drop! Thanks!—JH
 
A. I pretty much laid out my views on both companies in the July 22 Income Insights “Sliding Guidance: How Much Trouble for Big Telecom.” I do
think Q2 results and guidance updates show that the combination of the highest inflation in 40 years and what appears to be an impending recession is having and will continue to have an impact on earnings for both. And I don’t think we can rule out a third quarter of sliding guidance—when they release numbers again in October.
 
On the other hand, dividends for both companies are still very well protected. Balance sheets are still quite strong, with free cash flow set to continue reducing debt. And they remain major players in what’s still an essential industry, which I continue to believe is on the verge of a growth explosion from 5G adoption and expansion—first for business concerns as the means to a productivity revolution and lower costs, and later for consumers as current belt tightening pressures eventually abate. Finally, priced at less than 8 times expected next 12 months earnings, both Verizon and AT&T are reflecting investor expectations of a recession and deep bear
market already. I believe both stocks offer considerable upside from current levels including dividends.
 
 
Q. Roger. What's the scoop on BCE Inc (NYSE: BCE)? Same story as AT&T (NYSE: T and Verizon (NYSE: VZ)?—Joe N.
 
A. Hi Joe. It would seem that expectation is now reflected in share prices of BCE as well as Canada’s other major telecoms including Telus (NYSE: TU) and Rogers Communications (NYSE: RCI). The silver lining is they now have an opportunity for an upside surprise in Q2 results and guidance, which BCE will announce on August 4, with Rogers and Telus this week. And as
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with AT&T, Verizon and other US companies, they are very much on the verge of realizing strong growth from deploying 5G networks—though businesses are likely to be the first adopters due to cost efficiencies potential. Consumers in contrast are likely to be less eager buyers, as 5G is a new service to pay for without the obvious cost savings benefits.
 
 
Q. Your article says that Kinder Morgan Inc (NYSE: KMI) had $16 billion of stock buybacks year to date, that doesn’t sound right, can you confirm? Thanks—Eric F. 
 
A. Thank you for pointing out my error Eric. Kinder actually purchased 16.1 million shares year to date—still an impressive number but not $16 billion,
which would be almost half of current market capitalization. I will try to be more careful in the future, though I do not think that undermines the bullish case I highlighted in the July 21 Income Insights “What Kinder Morgan’s Q2 Says about US Midstream.”
 
 
Q. Can you comment on the Seeking Alpha article AT&T's Q2: The Dying Dividend Stock Continues Its Decline?—Joe W.
 
A. AT&T stock has certainly been in decline. But I don’t think you can characterize companies as in decline if their underlying business is consistently growing—AT&T served less than 14.3 mil connected wireline device customers at the end of 2012. At the end of 2021, that number was slightly less than 95.2 million. Wireless revenue generating units rose from about 107 mil to 202 mil over that time frame. Note that none of these
figures include Time Warner—which was purchased and divested over that time frame. This company is expanding in its own business, which I would argue is more essential than ever.
 
 
Q. Hi Roger. Thanks for all you do! I already own some Plains All America Pipeline (NYSE: PAA) and am inclined to add to it on weakness. I prefer to buy A and B rated stocks. In the Conrad’s Utility Investor Utility Report Card, you have PAA rated B in the header but rated C in the details. Do you consider it B or C? Are you currently bullish on it or about to cut it's rating to HOLD? Regards, Kerry T.
 
A. Sorry about the confusion Kerry. As a general matter, we obviously publish a lot of numbers in our advisories, so it unfortunately comes with the territory that a bad one slips in every now and then. In this case, I would still consider Plains as drawing a “C” Quality Grade, mainly because its business
is a good bit more cyclical than most other companies rated in the Utility Report Card Quality Grade system. As I noted in a previous pre-chat question, Plains is highly leveraged to volumes—and these continue to lag levels that have been typical of previous energy price cycles. We still see the dividend as well protected by free cash flow. But management still has work to do cutting debt and the next big lift in shares is likely to occur only after volumes do increase.
 
 
Q. Thanks so much for doing these chats!! Shell Plc (NYSE: SHEL) is currently right under the Buy price. Good dividend. Can I get your take? Thank you!—Pam M.
 
A. The super majors’ stocks are going to move with energy prices. So if there is a recession that brings down oil and gas, stocks like Shell Plc will
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dip further. But even if oil prices, for example, drop in half, a company like Shell will still generate free cash flow after all CAPEX, debt service and dividends. And we continue to believe we’re early in the game for this energy price cycle, as investment is still lagging behind underlying demand—and a recession would arguably worsen that. Bottom line is we believe investors who buy these stocks now are going to have to be patient. But the big, safe dividends companies like Shell offer make the wait worthwhile.
 
Also, some of our EIA readers may be interested to know that Shell is buying in the rest of Shell Midstream Partners (NYSE: SHLX). It’s basically a take under at a price of $15.85 per share in cash. But it’s the best investors
are likely to see, as Shell has basically halted new investment in the MLP and the dividend hasn’t changed since the cut in August 2021.
 
 
Q. Dear Folks, Does the sliding guidance of Verizon (NYSE: VZ) tell us anything about the future of TDS (NYSE: TDS)? In your recent analysis of Verizon, you suggest that only the strong will survive in the telecom jungle. Are you still sticking with TDS? Many thanks.—Jeffrey H
 
A. Not necessarily but I am really interested in TDS’ Q2 numbers and guidance, which are now expected in early August. If you recall from my analysis of the company’s Q1, their financial guidance was wholly unchanged from what they set at the beginning of the year. That’s already a contrast with AT&T and Verizon. I think that was in part because they just
set more realistic targets. But they’re almost certainly feeling the impact of inflation on costs, and as they roll out 5G and fiber-to-the-home infrastructure. So it’s entirely possible they will have something less savory to report for Q2, despite the rural and small town focus that has historically limited competitive pressure on earnings.
 
At this point, I do believe TDS as well as Shenandoah Telecom (NSDQ: SHEN) are small communications companies that should continue to thrive, again because of their rural focus and conservative financial policies. And I believe the end game for both is a takeover by a larger entity. But the point of analyzing results is to identify trends that can move against you. So I’m
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I’m going to sit with both for now and wait to draw conclusions after we have information.
 
 
Q. I want to add to my holdings of Simon Property Group (NYSE: SPG), Black Stone Minerals (NYSE: BSM) and Crestwood Equity Partners (NYSE: CEQP). The question is would it be better to wait until later this year for lower entry prices assuming we will have a recession? Your opinion please? Thank you—John P.
 
A. I think all three of these stocks are priced for at least a relatively mild recession already and are also in pretty good shape as underlying businesses. I do believe a recession would likely take down energy prices, which would directly affect Black Stone’s dividend in a negative way—as its cash flow and dividends flow from royalties that fluctuate with oil and gas prices to a
large extent. But the stock does yield over 11%, so that’s priced in at least to some extent.
 
Crestwood just reported Q2 numbers that included a 1.7 times dividend coverage ratio and 3.7 times debt to EBITDA ratio. The company is also generating free cash flow after all CAPEX, debt service and dividends—in part driven by synergies from the Oasis Midstream merger. And it actually raised 2022 financial guidance following Q2 results, despite what’s still a relatively tepid volumes environment.
 
Simon reports its Q2 on August 1. But there are strong indications that occupancy and rent growth will come in better than expected. And with the stock down more than -35% year to date and yielding almost 7% despite two increase this year, there’s already a lot of pessimism baked in.
 
Bottom line is all three of these stocks could fall further in a recession—which is one reason that investors should consider buying them incrementally, for example in thirds over a period of a few months, rather than all at once.
But these are all three strong companies—and Crestwood and Simon are likely to raise dividends in the next six months even if there is a recession.
AvatarElliott Gue
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Q: Hi Elliott – First, thank you for your weekly analysis and monthly webinars, which are always both grounding and educational, and on my ‘first read’ list. Over the last year or so, I’ve seen occasional discussion of the notion that the economic and market cycles are likely to be faster/shorter in the future. Leaving aside the artificial weirdness of the covid shock and response, what do you think about this, especially in relation to your suggestion that we could see stop/go, ‘70s-style behavior for the coming decade? (Due to, or on top of, Fed policy errors and various world macro factors….) Or maybe more importantly, how much does it matter.
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A: Thanks for the questions and your kind words about my weekly analysis and updates.
I think it’s important to recognize just how unusual the last 40 years have been for the US economy. What I mean is that since November 1982, there have only been four official recessions as defined by the National Bureau of Economic Research’s Business Cycle Dating Committee. That’s an average of 1 recession every decade and that includes the very unusual (historically short) 2020 cycle.
In contrast, over the period from 1945 to 1980 (35 years) the US endured 9 recessions (one every 4 years) and in the first 50 years of the 20th century the country saw 13 cycles (also just less than 4 years between cycles on average).
Go back to 1854, where the NBER dataset starts, and you have 11 cycles in 46 years to 1900, so pretty similar cycle timing.
My point is that for most periods of US financial history, economic cycles have been shorter than in the most recent period from 1982 to 2022.
Why is that?
As with most economic issues, there are a lot of reasons and contributing factors. For instance, the Fed’s campaign against inflation back in the early 1980s finally quelled elevated inflation expectations and gave the central bank credibility to manage the economic cycles more carefully. And there was also clearly a “peace dividend” following the collapse of the Soviet Union and the Berlin Wall in roughly 1989 to 1991.
The US is also a highly innovative country and the development of technology enhanced productivity and growth.  Free trade lowered costs and helped to keep inflation under control. I’d argue that a general embrace of free market capitalism in many countries helped considerably…as I said, there are a lot of reasons.
So, based on historic norms and mean reversion alone, I do think it’s likely we’ll see shorter cycles going forward than we have seen on average over the past 40 years.
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I also think that the set-up for the market and economy right now bears some resemblance to the late 1960’s/early 1970s and, to a lesser extent, the late 1990s, early 2000s. Of course, the 1970’s stop-go environment and the period from 1999 to 2009 were both decades characterized by shorter, faster economic and market cycles.
Simply put, in the late ‘60s and early 70’s the government – under Presidents Johnson and Nixon – pursued (basically) a policy of coordinated fiscal and monetary stimulus. The government spent freely, and the Federal Reserve kept interest rates (too) low. The issue was further complicated by a surge in commodity prices (particularly oil) in the early 1970s.
The result was inflationary. Asset prices – particularly growth stocks – experienced a bubble in the late 60s and of course there was real economic inflation in the form of rising prices for goods and services.
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Through the 70s, the Fed never really had the fortitude to stomp on inflation. They’d hike rates for sure but would stop too early when growth slowed and unemployment rose, resulting in resurgent inflationary pressures. It also took time for rising oil prices to bring about a surge in investment in new supply and to temper demand growth – oil prices didn’t start coming down until the early 1980s.
I think we’re repeating those mistakes – not exactly the same mistakes, but a 21st century proxy.
Following the 2007-09 Great Recession and Financial Crisis, the US experienced slow economic growth and a halting recovery. That’s actually normal following a credit bubble such as we saw between roughly 2000 and 2006. We’ve seen a similar pattern following credit bubbles in many countries around the world.
The Fed responded by constantly manipulating interest rates to goose up growth and (let’s be honest) support asset/stock prices at the first sign of trouble.
You remember the list of policies QE1, QE2 and QE Infinity as well as “Operation Twist,” enhanced forward guidance and average inflation targeting.
This seemed OK because inflation was low. After all, if inflation is far below target, why not cut rates aggressively and goose up economic growth that’s also sub-par?
The problem is that there was “inflation” for years before 2021 it was just in the form of asset inflation rather than inflation in the prices of goods and services. So, we had a bubble in growth stocks again, junk assets like crypto and meme stocks, some called it the “Bubble in Everything.” The stock market was totally addicted to easy money.
Of course, this all reached a crescendo amid the coordinated fiscal and monetary policy boom of 2020-21, which finally unleashed inflation for all to see.
Now, we have the hangover. Inflation is at generational highs, energy prices are high and, short-term corrections aside, likely to remain elevated due to persistent supply shortages following years of underinvestment.
The Fed is raising rates just as it did in 1973-74 and I believe the economy will enter recession by late this year or early next year just as it did back then (a real recession as defined by NBER, not a “technical” recession). Ultimately a recession will bring down inflation just as it did back then.
However, as the downturn deepens and unemployment rises, do you think the Jerome Powell Fed will be any more willing to persist with restrictive policy and truly crush inflation than the Arthur Burns Fed 50 years ago?
I don’t.
And I think that means you’re likely to see periods of economic growth and elevated inflation in coming years interspersed with recessions and serious economic slowdowns – a period, in short, just like the 70’s.
This all matters a great deal in my view. The economic stability, “predictability” and Fed credibility that’s persisted for much of the past 40 years made it easier for businesses to plan for the future. Just consider Wal-Mart’s recent release – they’re a well-managed retailer with unparalleled insight into economic trends and they’re still having trouble managing their employment needs, inventories and rapid shifts in demand.  
The general result of increased economic unpredictability and short/fast business cycles is that overall stock market valuations need to be lower – just as in the 70’s.
Sorry that’s a long answer but a lot of moving pieces to consider.
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Q: Hi Guys. Despite world events and the policies of our current administration being so unpredictable, what do you foresee for the price of WTI at the end of this year and into next year? Do you see the price of oil stocks again reaching the highs they were able to achieve in early June of this year, and if so, when do you see the prices again rising to that level? I guess as many energy investors, I'm sorry I didn't take more money off the table in early June. Interestingly enough, last year the price of oil stocks peaked in June as well.)
A: As we outlined in the recent July 20th issue of Energy & Income Advisor, we believe the latest retrenchment in crude oil prices is purely a function of demand concerns and fear of a looming economic downturn.
The indicators we follow suggest a US recession is likely by late 2022 or early 2023. Further, Europe is in even worse shape economically than the US while China is suffering from their draconian COVID zero strategy.
Bottom line is that’s likely to quell global energy demand growth and should continue to act as a headwind for oil prices near term.
However, what’s crucial is that the supply side is, and will remain, a tailwind for energy stocks likely for years to come. There’s a shortage of oil for a number of reasons, but the most important remains years of underinvestment in exploration and production of new sources of crude oil.
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