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Energy & Income Advisor Live Chat May 2020
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AvatarRoger Conrad
3:19
On the other hand, if you look at the prices of OXY’s debt maturing in 2021, they’re only at slight discounts to par value, which indicates investors are assigning a high probability it will be paid off or rolled over. The company’s longer-term debt is more discounted. But the September 2036 bonds sell at a yield to maturity of 9.9 percent—elevated but certainly well below what we’d see if bankruptcy were a real risk, let alone if “viability” were truly in question.
 
Occidental does operate in a volatile sector that’s trying to make a bottom after a long decline—which really began in mid-2014 when oil broke under $100 a barrel for the last time. And it’s possible its situation will worsen further this year, which is why we consider it more speculative at this time. But at this point, our view is the company will find its way through.
Michael L
3:21
Elliott, I know, from participating in your other services, that you think there is a strong likelihood that the major indexes retest, or break below, the March low. Do you feel this will take the best MLPs down as well, or do you feel they may not go much lower? I have plenty of dry power I've been holding for the retest, but with the improved outlook for WTI I'm wondering if I should begin to put it to work now?  Thanks for all the quality work over many years!
AvatarElliott Gue
3:21
Thanks for the kind words. Historically, bear markets proceed in 3 key phases. The seocnd of those is the panic phase, which is generally followed by a powerful bear market rally and then a re-test or break to new lows. I think March marked the panic phase of this bear market. One interesting feature over the years  is that most stocks fall alongside the broader market during the panic phase but correlations drop in the final phases of the bear. What that means is that some sectors will make new lows and the S&P might re-test/make new lows, but I think some sectors may have already seen their lows. I suspect, given the extreme situation in energy markets in March-May, quality oil stocks and MLPs may see some choppiness but have probably already seen their lows for this cycle. I think some select value stocks--maybe the financials for example, which have under performed dramatically-- are in the same boat.
AvatarElliott Gue
3:21
Given the valuation extremes we're seeing, I do think we'll eventually see a breathtaking rotation into value and out of expensive growth.
3:26
Have received quite a few questions re: broader market, US debt, value/growth and different sectors in today's chat. Some of you may have already seen it, but I recently did put together a two-part video presentation for EIA's sister publication Deep Dive Investing covering some of these points and more. Part II of this presentation is available here if you're interested and I include a ton of charts in it: https://deepdiveinvesting.com/watch-this-video-start-trial[/color]
3:27
Let me try that again: Tap Here for the video.
AvatarRoger Conrad
3:38
Q. Hi Guys. I have two questions. It looks like China may be considering taking some aggressive action towards Taiwan and/or Hong Kong. If this happens, what effect do you think it would have on oil prices and some of the oil majors, like CVX and XOM, etc?

It also looks like another significant stimulus package will become a reality soon. If/when it does, do you think it will be a catalyst to propel Gold significantly higher, and, do you expect it to lead to Inflation or Deflation? Thanks so much for your Newsletters and the alerts and the in depth explanations behind your decisions.—Fred W.
A. The key regards the China/Hong Kong/Taiwan situation isn’t so much what the Chinese government does but how the US reacts. At this point, the trend is Republicans and Democrats are competing to see who is toughest on China. And at this point, that appears to be the president’s re-election strategy as well.

The problem with trying to anticipate what happens when economics becomes a political issue is that so many of the consequences of politicians’ actions are of the unintended kind.

A well-managed, well-capitalized and determined company, for example, will always find ways around tariff walls and other protectionist measures. But if I had to guess, I’d say whatever actions are taken vis a vis China at this time will wind up hurting a lot more businesses and consumers than they help—since that’s been pretty much what happens every time.
Elliott has answered several questions regarding the general economy during this chat in considerable detail. I really don’t have anything to add to that.

I will say that we are bullish on gold—Elliott has written extensively on the subject in EIA’s sister advisory Deep Dive Investing. He’s also made several recommendations that have done well so far but we believe have considerable upside to come.

This month’s soon-to-be published issue of DDI is focused on metals and mining stocks, which we believe would be major beneficiaries of any stimulus focused on infrastructure development. Anyone interested in checking it out should give Sherry a call at 877-302-0749 anytime 9-5 ET, Monday through Friday.
Lee
3:42
Just some feedback, Elliott. That Video was really Excellent in every way! Provoked me to add NEM and LQD
AvatarElliott Gue
3:42
Thank you, glad you enjoyed it. NEM is really a solid company with a lot of operational leverage to higher gold prices -- Even if gold just stays where it is you're going to see annual free cash flow jump from $1.4 bn in 2019 to around $2.5 billion this year. And I do think that the Fed's backstop on investment grade bonds make them a buy on dips (via LQD).
Mack
6:28
Sorry guys.  Just now able to get on here.  Wondering if you have changed your thinking on DKL after the great move up in price?  Seems like some "smart $$$" is getting into the units.
AvatarRoger Conrad
6:28
Hi Mack. Bottom line is we're still wary of Delek Logistics. As you note, Carl Icahn has taken a stake in the parent company Delek US. And management is very bullish on the drop down announced earlier this month, which it expects to lift distribution coverage to 1.4 to 1.5 times (from 1.15X in Q1)--and enable them to meet their annual dividend growth target of 5%.

For that to happen the "minimum revenue contribution" from the parent has to be sacrosanct, and Partners must be able to continue to access the debt market on reasonable terms. That may indeed happen. But the Delek family is also a small company facing larger competitors in the refining and logistics business--one of which is Valero. Both DK and DKL are well managed. But in this kind of market where the leaders are also cheap, we prefer to focus elsewhere.
AvatarRoger Conrad
6:29
Well that appears to be it for this month. Once again, thanks to everyone who participated and for those of you reading this transcript who weren't able to. We'll look forward to speaking with you next month.
6:31
As always, if you believe your question was not fully addressed--or if there's another topic we can help you with, please drop us a line at service@capitalisttimes.com.
See you this summer!
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