Warren Pies: The Era of Cheap Oil is Over

Tom welcomes Warren Pies to the show. Warren is cofounder of 3Fourteen Research. Warren explains how they attempted to map out how bear market rally's typically behave. These rallies have to fail and head below previous lows. In our current case, that would be, 3066 on the S&P 500. They examined forty-nine historic rallies, and six of them we're larger than today. We're in fairly rare territory. Usually, when we see these types of moves, the bear market is almost over. However, the difference this time is we may be facing a recession and the Fed seems likely to raise rates further. This should give investors caution. Bond markets have been signalling for some time that inflation will be transitory. Yield curve inversions are often correlated with a coming recession. The Fed may be on the verge of making a policy mistake. Their model for determining future recessions is worsening. They use a number of factors including various credit spreads, rate of change, equity market returns, and analysis of the yield curve. Most of the yield curves are inverting, and inversions often signal a recession in 16 to 24 months. He discusses their outlook for inflation and why housing is likely to slowly burn higher. Energy and housing components are sixty percent of the CPI. Food inflation is also a factor. The high costs of refined petroleum products like gasoline is affecting consumers, but most have been fairly flush with cash. The playbook we saw with Covid could become a policy tool for managing global energy requirements. Governments may choose to balance shortfalls with energy with similar lockdowns. Russia will have a hard time transitioning from Western to Eastern buyers. This is due to a lack of infrastructure, pipelines, and shipping options. Much of the world is going to face further energy shortages. They have conducted some analysis of peak hydrocarbon usage. They believe demand will continue to grown until at least 2040. We can only electrify and expand the grid so quickly. This transition has been haphazardly organized. Bottom line, the era of cheap oil appears to be over, which will continue to pressure inflation. Warren discusses the key features of their gold model, which helps them determine good entry and exit points. He discusses why they recommend large cap Canadian oil producers. Lastly, Warren outlines where inflation will head over the short, medium, and long term. Stocks and bonds have become more correlated than many investors expect. Bonds may no longer be a safe haven, and the coming years are likely to be more difficult. Time Stamp References:0:00 - Introduction0:55 - Bear Market Rallies4:46 - Rate Hikes Priced In?7:30 - Bond Markets8:56 - Recession Model11:26 - Recession Counterpoints16:20 - Inflation Drivers19:26 - Energy & Consumers22:20 - Energy Supply & Prices27:35 - Oil Reserve Releases29:48 - Energy Backwardation33:58 - China, Oil, & Copper36:20 - Peak Energy Analysis39:10 - ESG & Capital Allocation41:50 - Gold Model45:45 - Energy Market Plays49:14 - Investing in Miners51:36 - Inflation Outlook57:10 - Commodities Bull Market59:20 - Wrap Up Talking Points From This Episode * Examining past bear market rallies for context with today's markets.* Their recession model and why it's increasingly worsening.* Global energy demand and why continued demand growth in petroleum is almost certain.* There inflation models and problems with the bond market as a safe haven. Guest Links:Twitter: https://twitter.