Will Trump help or hurt oil stock prices? … analyzing global supply … low valuations and fat dividend yields … Bitcoin is surging … are altcoins next? Are oil stocks a “buy” with Trump headed back to the White House? The kneejerk line of thinking goes, “Trump is friendly to oil… he’ll deregulate… time to buy some top-tier oil plays.” But if Trump follows through on “drill, baby, drill,” then U.S. production stands to flood the global market. And as you remember from Econ 101, all else remaining equal, an increase in supply puts downward pressure on prices. So, while drivers at the pump might cheer, will oil company CEOs? The situation is far more complicated… While U.S. producers might add supply to the global market with deregulations, Trump has vowed to put sanctions on Iranian and Venezuelan oil production. If he follows through, global supply will likely drop by roughly 2.5 to 3 million barrels per day. That’s roughly 3% of global supply. While that might not sound like much, history shows that even a 1%-2% disruption can cause a price spike. For example, in the 2011 Libyan Civil War, oil production dropped by about 1.5 million barrels per day. That was roughly 1.7% of global supply at the time. Oil prices jumped from around $90 to more than $120 within a few months. And in 2018, Trump’s sanctions on Iran led to a reduction of about 1 million barrels per day (about 1% of global supply). That helped drive up prices from around $67 to $86. Bottom line: Prices can be very sensitive to even small disruptions. So, how might “more supply from U.S. production” net out against “less supply from sanctions”? If Trump deregulates U.S. production as promised, it could mean somewhere around another 0.5 to 1.5 million barrels of oil per day over the next four years (about 0.5% - 1.5% of global supply). That would offset some of the sanction-based production declines (if Trump goes full bore), but not all. That would seem to support lower global supply, but China isn’t likely to recognize U.S. sanction on Iran or Venezuela. How would that affect the situation? It depends – is China going to roar with Beijing throwing stimulus dollars around? Or is going to crash into a recession? But wait, just when you were confused enough, there’s more! Trump has promised to end the war between Russia and Ukraine. If he’s successful in brokering a truce, to what extent would that ease restrictions on Russian oil? Removing Russia’s feet from the fire has the potential to add another 500,000 to 1 million barrels per day to the market (call it 1% of the global market). How does all this net out for supply and price? Candidly, it’s unclear. Lots of questions. Few answers. However, in the background, we have many top-tier energy plays offering low valuations and thick dividend yields For a yardstick, let’s start with the S&P 500. As I write, the S&P’s price-to-earnings (PE) ratio is 30.52. For context, the S&P’s average PE ratio is basically half this value at 16.10. Translation – this is an expensive market. Meanwhile, the S&P 500’s dividend yield is 1.23%. This is barely higher than the S&P’s all-time low yield of 1.11% in August 2000. With this as our baseline, here are the PE ratios and dividend yields of a basket of oil companies (not all U.S. based): - Equinor: PE 6.9, dividend yield 5.91%
- Diamondback Energy: PE 10.4; dividend yield 4.57%
- Valero: PE 12.0; dividend yield 3.14%
- Shell: PE 13.6; dividend yield 4.01%
- Exxon: PE 15.0; dividend yield 3.27%
Far more attractive valuations… far more attractive yields. So, does this mean oil is an obvious “buy” today? No, it’s not obvious. Given the many uncertainties we’ve highlighted above, this isn’t a no-brainer trade. Oil could be in the $50s this time next year. And given that the average price needed for U.S. oil companies to profitably drill a well is $64, today’s price in the upper $60s doesn’t provide much breathing room. However, if the question is “are top-tier Big Oil stock prices low enough to reward you if you plan to hold 24+ months?” then, yes, the oil patch is offering some attractive, discounted entry prices with fat dividend yields while you wait for price appreciation. Buying oil today is a gamble, but it’s one that’s likely to pay off for investors with patience. I’ll let you mull this over in the context of the following quote from billionaire Rob Arnott, founder and chairman of the board of Research Affiliates: In investing, what is comfortable is rarely profitable. Switching gears to another corner of the market that Trump plans to deregulate… As I write Monday morning, Gary Gensler is probably updating his resume. If he isn’t, he should be. Gensler is the Chairman of the SEC, but crypto enthusiasts know him as “Enemy #1.” In his tenure heading the SEC, Gensler has sued Coinbase (the largest U.S. crypto exchange), as well as Binance, and Kraken… he’s gone after various crypto tokens such as Ripple (XRP), trying to treat them as unregistered securities… and his overall attitude toward crypto has been so adversarial that it’s prompted rebukes from politicians. Enter Trump. This summer, when Trump gave the keynote speech at the Bitcoin Conference in Nashville, he said that if he won the White House in November, he’d fire Gensler on Day One. The comment prompted thunderous applause from attendees. So, what happens now as Trump loads up his U-Haul for the White House? Well, Gensler’s post does not expire until 2026, but odds are, he’ll step down as chairman. As to who could replace him, here’s CNBC with some three possibilities: Dan Gallagher, now serving as Robinhood’s chief legal officer and formerly a Republican SEC commissioner, has been floated as a possible replacement. Another possibility is one of the current Republican SEC commissioners, Hester Peirce, who has opposed most of the new rulemakings and lawsuits that Gensler has initiated… The other Republican commissioner is Mark Uyeda who has been at the SEC a while, and he may be a choice for either acting chair or chairman. Whoever it is will be far better received than Gensler, which means bet on higher crypto prices in 2025. Of course, we don’t have to wait until 2025 for fireworks in the crypto sector… In the wake of Trump’s election, Bitcoin has set a new all-time high, inflows have skyrocketed, and $100,000 seems like a foregone conclusion Last Tuesday, Bitcoin began the day priced at a little over $68,000. But as Trump’s election became likelier, the price skyrocketed. By 11:00 pm that evening, it was up to roughly $74,600, and it’s continued climbing since. As I write Monday at lunch, Bitcoin trades at $84,720 – roughly 25% higher since last Tuesday. Meanwhile, the volume has been extraordinary. As you can see below, BlackRock’s Bitcoin ETF, IBIT, just had its largest inflow in history. 
Source: Charles-Henry Monchau So, where are we going next? Our crypto expert Luke Lango believes we’ll hit triple digits within a few months. From Luke’s recent issue of Crypto Trader: We think that BTC is headed for $100,000 within the next few months and that altcoins are ready to soar. The technicals confirm these bullish fundamental observations, with Bitcoin’s technical analysis particularly promising. Luke isn’t alone in this analysis. The research shop Ned Davis is calling for Bitcoin at $121,000. Here’s MarketWatch: Bitcoin’s rally to an all-time high [last] Wednesday could open the door for the crypto to reach the $100,000 mark by the end of the year, after the presidential election victory for Republican Donald Trump, the candidate perceived as more friendly to crypto, according to analysts… Patrick Tschosik and Matt Bauer, strategists at Ned Davis Research, upgraded bitcoin as a long-only trade with a price target of $121,000, based on technical analysis following Trump’s victory. Keep in mind, we’re only 18% below $100,000. If investor FOMO kicks in as history shows it usually does with crypto, we could hit this milestone before Thanksgiving. Meanwhile, are we about to see altcoins take over leadership from Bitcoin? When crypto investors aren’t feeling bullish, they pile into the safety of the big dogs: Bitcoin, Ethereum, Tether, and Solana. But when “risk on” sentiment settles in, that’s when investors fan out, allocating to smaller altcoins. The sector “leadership” moves from Bitcoin and the larger market-cap-weighted cryptos to the small altcoins. And given how small some of these altcoins are, inflows can result in price fireworks – we’re talking quadruple-digit returns in a matter of just weeks or months. This is what happened back in 2020/2021 when popular altcoins exploded thousands of percent higher. To be clear, this hasn’t been the case here in 2024. Bitcoin has been sucking up all the air in the room. But Luke believes we’re at a sea change moment where altcoins are going to begin stepping into the spotlight. Back to Luke: Now… for the first time in over nine months… the fundamental and technical data is highly supportive of both Bitcoin and altcoins. We think cryptos are ready for an Everything Rally into the end of year. We should also see more investment vehicles across the space, like ETFs for Solana and other altcoins. We will likely also see more brokerage firms and banks offer their clients access to crypto investing. The sum of those dynamics will push more money into the crypto industry, increase demand for crypto assets, and push crypto prices higher… Could this be when things really get started? We think so. We’re cautiously optimistic. If the crypto sector is following past precedent, you’re going to want to have the leading altcoins in your crypto portfolio. After all, if 2020/2021 taught us anything, it’s that few assets can soar higher, or faster, than popular altcoins when animal spirits strike. We’ll keep you updated. Have a good evening, Jeff Remsburg | 
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