Eric Nuttall, of Nine Point Energy Partners, is a specialist in the midcap E&P space. Here he talks about why he thinks the recent bull market has several more years to go. A manager of a specialist fund like this is going to be bullish all the time. But, if you want to hear the bull case, they are often the best ones to go to.
Click here for a discussion by Eric Nuttall
For me, the most important thing is not whether oil prices go up or down, but that these companies will make plenty of money even if oil prices go down. Here’s how it looks:
As for the “will we have a recession” question, one of the most reliable indicators has been from the recession-calling specialists at the Economic Cycle Research Institute.
The red dots show where this indicator was during the onset of past recessions (as they were later declared in hindsight). At -7.14% on this indicator today, the chances that we are already in a recession are high.
For now, we have been in what looks like a bear-market rally, which often happens when people get too uniformly bearish. When all the shorts have covered out of sheer pain, it will be time to head down again. I’m guessing that point will be reached in later August or early September.
The options market has told a similar tale.
The big leaders in the 1990s bull market included Microsoft, WalMart, Cisco, Qualcomm and Intel. All of these became stable, productive industries, but their growth leveled off, valuations declined and their stocks went nowhere for a decade or two. That looks like it might happen again to recent FAANG leaders including Facebook, Apple, Amazon, Netflix and Google.
Coming out of the 2002 recession and bear market, the big winners were materials stocks such as coal producers, emerging markets, and old-economy value stocks like REITs. It might not play out that way again, but it would be best not to assume that last years’ winners will be leaders going forward.