Editors’ note: This is a transcript version of the episode of Alpha Trader that we published earlier this week. We hope you enjoy.
Aaron Task: Welcome to Alpha Trader. Our guest today is Bob Iaccino. He is Co-Founder of the PureXposure Growth Series. It’s on YouTube. You can find it there. And he’s co-Portfolio Manager at The Stock Think Tank. Bob. Welcome back to Alpha Trader.
Bob Iaccino: Thanks for having me again, guys.
AT: Welcome, Bob. Thanks for being back. We’re coming — we’re talking to you Friday, early afternoon at the end of, I will — it’s fair to say, volatile week, a lot of intraday volatility. S&P rallying, as we’re talking now, but still on track for its fourth straight weekly decline, down about 2% for the week, with a couple hours left here in trading on Friday. So let’s talk technicals first, because it seemed like the 100 day moving average, which is right around 3,200 was the level from which the S&P bounced a couple times this week. Was that, do you think the driving factor in terms of the turnaround? We’ve seen both intraday a couple times, and then, here again on Friday?
BI: Yeah, it’s interesting looking at the week, guys, because the week is — it’s definitely going to end up a down week. As you mentioned, we haven’t quite closed yet on Friday, as we’re speaking to each other now. But it — at least the way it looks right now, it looks like we’re going to have a positive close versus the weeks open. So what I mean by that is that, we opened up, we gapped lower on the open on Monday, we’re going to close above that gap lower. It’s not going to close above the prior Friday’s close.
So it’s going to be a down week. But it’s going to be an up-week from the Monday open to the Friday close, at least where we sit now. So when you talk about the 100-day moving average, it’s the one of the three populars, which would call the 50 to 100 or the 200, that I don’t pay that much attention to. And the reason is based on our research, it’s the weakest of those three. I certainly think it bears noting though, as you did that, that’s where we held up because self-fulfilling prophecies are good pieces of technical news. They’re good [technical difficulty]. If they’re going to fulfill themselves, you should probably pay attention.
The 100-day moving average, in my experience, and I’m in my third decade of this, I think this is my 27th year now, is the one that people use as a bit of a crutch. When you go back and back test it, it definitely holds up. But it breaks down more often than the 200 does. And it provides fewer reliable signals than the 50 does.
AT: Interesting. So the fact that we’re above the open on Monday, tells you what about sort of the next 3% to 5% move for the S&P 500 from here.
BI: Well, one of the fun things about technical analysis, which is just a big word way of saying price action, right, is that they mean very obvious things. When you study price action, you come to find out that it’s almost the obvious. What that means to me is that we’re — the market feels a little bit better than it did on Monday. And that’s a pretty obvious thing to say, when you say that it looks like, at least that we do close above that. And it’s a little bit of strength that people can draw from. It’s not a lot. It could be the start of the close of the gap, from that gap lower from last Friday’s close. It could be the start of that.
But all it means that we didn’t accelerate lower. So during the week, at some point, there was some little pieces of good news. It could be Jerome Powell, or the three days in a row where he said we’re doing everything we can, a little bit of good news that we got from Speaker Pelosi and Treasury Secretary, Mnuchin saying that they’re ready to negotiate on fiscal, there’s some little bit of news within the market that said, okay, we’re low but we don’t need to go any lower yet. I suspect that we’re likely to see lower over the next couple of weeks, but it just may not be triggered today.
AT: Got it. And that expectation that we might be lower next week, there’s so many — you just mentioned a couple, and the fiscal stimulus package being looking like it’s dead in the water now. We’re going to have hearings and probably a fight over a new Supreme Court justice and of course the election is looming right in the horizon and futures volatility is up in anticipation of that. The VIX is down 1% today but it’s still the higher end of the range it’s been in, or — and of course COVID cases are still are starting to creep up, certainly in Western Europe and they’ve never really gone down here in the States. It’s never any one thing but what are you looking at to determine, whether you’re in more of a risk on or risk off type mode.
BI: Well, this is one of those times where I’m much happier to be a strategist than say, an economist or an analyst, because all my job really is, is to try and figure out what’s going to happen and not necessarily make sense of why it’s going to happen. If I take that off — that hat off for a second, it’s embarrassing, how messed up the political situation is, and how much it can affect the markets. I mean, just the back and forth, if you didn’t think that politicians were two-faced before, you do now. And that’s either party either side, I don’t care.
AT: Right. Yeah, the idea that both parties are going to say, hey, we’re okay with more people being laid off ahead of election is insane, politically, just from a pure political point of view, right? Again this [ph] fabulous package to help you, right.
BI: Right, just the fact that they can’t come together and say, okay, let’s get small businesses and individuals off the mat, and then go from there. The fact that the two parties can’t come together and say that, because they’re so worried about one party claiming victory over the other, if that were to happen, is it’s really — I mean, it’s really gross, I can’t think of a better word than that.
AT: That’s a good word, that is a good word for it now.
BI: It’s just gross. I mean, people are really struggling out there. And that’s just hard to take. But again, being a strategist my only job is to react to what you just said, which is it’s likely dead in the water. So when you take a look at what the market, let’s say what the market needs to go higher, let’s just use that as the baseline case, the market needs more money going into things that it probably shouldn’t. In other words, fiscal stimulus is not a good thing, if you’re looking at economics, right? It’s just not a good thing. It’s the government spending money, they don’t really have.
But interest rates are low. So if we’re going to borrow more to spend that money, I guess it’s a good time to do a bad thing. And people need it. So if you were to want the market to go higher, I’m referencing the equity markets in general, you would want more dollars out there. And that takes us to the Dollar Index. The dollar index is looking strong. I’m actually long the Dollar Index as SPG now. We’ve been long the Dollar Index for about a week and a half now. And I don’t want it to make money. For in my heart, I don’t want it to make money. Of course, I want it to make money. We put the position on. But we have a target of 96.5 on that thing. And we’re only at 94.67. And anyone who follows the Dollar Index knows that’s still a pretty size.
AT: It’s a big move. Yeah, that’s a big one.
BI: And that’s our target to exit the long positions, about 96.5. So I don’t like that this position is working, because what’s happened since the pandemic took hold, is that when the dollar is weak, everything else works. And I’m referencing long positions. And the dollar has been not great now. It’s certainly not reversing the entire move down. At least we don’t think so, the entire move down that started say March 19 or so. But it certainly looks like it might go up to its 200 day average. And we’ll already be out by then, because its 200 is somewhere around 97 or so. But it could certainly challenge that. And that would be bad for most of the other asset classes.
Stephen Alpher: Speaking of the dollar, it’s incredible how markets make opinions for months while the dollar was headed down for the past few months, on this show and everywhere, even Ray Dalio, a lot of musing about the dollar losing its reserve currency status. And all it took was the slightest downdraft in the market, the slightest bit of fear in equity markets, and what do you know, everybody’s buying dollars again, the tweet of the day, Aaron we’ve had on this podcast, I won’t be able to pronounce his name, Sri Thiruvadanthai.
BI: Yeah, got you.
SA: A five word tweet with an emoji, dollar regaining reserve currency status, with a bunch of rolling on the floor laughing emojis after it. So I’m interested to hear you’re bullish on the dollar. Is it just because of your short term bearishness on the stock market, or does it go beyond that?
BI: No, honestly, it’s two things. Number one, so just a quick background, the way we do things in the Stock Think Tank, as well as one of my other companies, Path Trading Partners, is I put forth a fundamental opinion on something. And then our technical team either vetoes it or endorses it. And if the technical team vetoes it, we just don’t do it. And that consists of Mike Arnold and his team. He actually put forth the technical opinion on the dollar. And I tried to back it up with my fundamental thesis and they seemed to match up. And that’s why we put on the long.
When I looked at St. Louis Fed, their Fred website, which I’m very fond of, and I looked at the Fed’s balance sheet, it was shrinking. It wasn’t expanding. Now it did have a huge jump from some $4 trillion to over $7 trillion during the height of the fall of the equity markets with the pandemic effect. But then it started shrinking. It went down below $7 trillion, and that comes from assets rolling off in it and their duration ending and then expiring, so to speak, and then not replacing it at the same rate that the things were rolled, that the assets were rolling off. And I thought, well, that certainly isn’t a bunch of dollars in play.
If the extra $600 a week in the unemployment, the excess unemployment or extra unemployment comes off, and that’s not replaced, where are these extra dollars coming from? In other words from its current baseline level. So again, I don’t think the dollar is going back to where it was pre the $7 trillion fed balance sheet. But it certainly needs to go up. If the fed doesn’t start growing that balance sheet again — for the record over the last three weeks or so they have, but certainly not at the clip that the market wants. The dollar reserve currency status, reserve currency status has one major requirement. And that’s a stable government.
Now we can laugh right now about it, because it certainly doesn’t feel like we have a stable government through Congress all the way to the Supreme Court at this point. But it’s still the most stable, which is another embarrassment. So when you look at it, at the end of the day, when people are fearful for the return of capital, they still want it in dollars. And I agree with that tweet, except maybe the shock and awe of the rolling on the floor emojis, because where are you going to go? You can go to Bitcoin yet. I mean, I kind of do. I’m an accumulator of Bitcoin at this stage. But reserve currency, like where do you have to have a currency that works to buy everything, still has to be the US dollar.
AT: Right. And just to be clear, the tweet that Steven and Bob are referring to, by Sri Thiruvadanthai, who’s Director of Research at the Jerome Levy Forecasting Center, and I apologize if I mispronounced his name, he’s at T as in the drink S-R-I, and many guests here before. So yes, absolutely. I think that’s what’s happening to the dollar there. It is still the ultimate. It’s a reserve currency, and it’s the ultimate flight to safety. So COVID cases are coming up, election uncertainty in the U.S. is rising, but people still believe in the dollar. So not surprisingly, given what the dollar has done last couple weeks, gold is down. It’s down about 5% this week. Do you have a position on gold, positive or negative? Are you giving your long dollar, are you shorted or out of it right now.
BI: We’re out of gold right now. We spent quite a bit of time long gold. We got long gold on June 1. And we actually — I could call it up. But I feel like it was two or three weeks ago that we got out of the gold position. It was prior to this recent fall. And that again, is not a not a compliment. We didn’t predict the fall. We actually thought maybe we’d gotten out too soon. And it’s still — it’s now slightly below where we got out if I remember correctly. Again, I could call it up if I — if we wanted to. But from the perspective of gold right now, we’re completely out of it. And I don’t actually like that. It’s another thing where I’d like to be long gold. But our technical team again says that it’s not really in a pattern where there’s going to be follow through to the upside.
Now in the past the inverse relationship, the historical inverse relationship of the dollar and gold has been what you swung to all, else equal, right? And I’d say that it’s not all else equal right now, but it’s just — I find it very strange that if equities are selling off, gold isn’t going higher and treasuries are not going lower in yield. None of that’s happening right now. But the last time we saw something like this back in, let’s say February, where yields were going lower, commodities were rallying — meaning gold and silver, but the stock market was rallying at the same time. And the two against one narrative ended up working, whether you blame the pandemic or not it’s obviously the pandemic that caused it.
But I remember saying that the stock market either has to go down or gold has to go down and yields have to rise and the stock market end up going down. Right now with yields stagnant, and gold falling, it tells me that the stock market’s likely to rally back.
AT: Our guest is Bob Iaccino. He is Co-Founder of the Pure Exposure Growth Series and the Co-Portfolio Manager at Stock Think Tank. We’ll be right back with more Alpha Trader.
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SA: Welcome back to Alpha Trader with Bob Iaccino. Bob, I wanted to go back to something you said a few minutes ago. One of the reasons you became bullish on the dollar was you looked at the St. Louis Fed — Fred data and saw that the fed’s balance sheet was actually shrinking for a good period of time, which is super interesting considering everybody says the fed is pumping like crazy. And normally the fed would need to continue to greatly expand its balance sheet just to keep the fed funds rate at zero. The fact that they could — the balance sheet could shrink and the Fed Funds rate did not go shooting higher tells me we’re still kind of in a massive, a sizable deflationary environment. Does that make sense?
BI: Yeah, I would agree with that. I think it — from that perspective, people forget that Jerome Paul used to actually be involved in the markets, right? He spent a lot of time in private equity. And I think he has a different aspect than an academic would, or just a pure economist. And what I mean by that is, there were times in the 90s, I remember where the Bank of Japan was actively trying to prop up the yen. And they would buy trillions and trillions and trillions of yen, only to have it fall in their face after they were done buying. And they were fighting a trend.
And I think — and again, I don’t want to put it on, as if Jerome Powell is the one that they call like — he’s the don of the Fed or something. But it — I think that this particular fed knows that if the trend is going their way, just kind of hold off, just kind of save those bullets. And if the trends going against you, maybe wait until the heat of the trend dies down a little bit. So again if you’re looking at the balance sheet, the balance sheet reached its peak at about June 10. It was about $7.1 trillion, I don’t remember $7.16 trillion, somewhere in there. And then by early July, it had fallen below $7 trillion going to about $6.9 trillion. And right now we’re back above $7 trillion as of September 23. I’m actually looking at that data right now.
And I think it might have a lot to do with why yields have been so stable. Fed has sort of a skewed yield curve control as a strategy. But they may actually be doing it behind the scenes by just balancing when they’re going to buy assets. So right now you could call it a stable balance sheet, as opposed to shrinking. But given what’s going on, we’re officially in a recession, according to the National Bureau of Economic Research, who’s the people who say when we’re in recessions or not.
I hate when things lose their definition of recessions, when things have lost its definition at some point. I don’t know why. But anyway, we’re officially in a recession. We have an economy and workforce that needs stimulus. And we’re not getting it. And it seems to me that the Fed thinks, okay, this is not the right time, since yields aren’t really moving, and things aren’t really in freefall. We can kind of hold off and keep our powder dry, until we absolutely need to do it, or until things are going our way, when we can really push it. That’s just my theory on it.
AT: Those are things that suggest, and I think Steve was hinting at this that the stock market can do well, even if the Fed’s balance sheet is flat or coming down a little bit as it had since its peak earlier this summer, to your point because they had a great August.
BI: Yeah, I really think we’ve proven it. I mean if you look at the Fed’s balance sheet, basically shrinking through June and July, and then you just pull up an S&P chart, look at what happened from June to July. I mean, basically at a 7%, 8%, 9% rally from that spot. So I think we’ve seen it very, very short term. So I’m certainly curve fitting, but you know, we’ve seen it/
AT: Right. And obviously, the caveat being it’s a lot higher than it was at the beginning of the year, for sure. But I could I could spin this into a very bullish point of view that the stock market has shown, it can go up if the Fed’s balance sheet is flat, let’s say. And if it goes down, we know the Fed stands ready to do more, which should buoy equity prices. And the meme that’s going around, Fred fed Ted bread, seems to be the driving force for a lot of traders right now. Do you share that mindset that, the feds at our back, they’ve got us? So you’re going to buy dips, basically, and keep writing this thing?
BI: Yes. And I also think that when you look at, for example, the volatility curve, I’m sure you guys have spoken about the volatility curve being strong and even higher out toward October, November, December, with some of the issues that we’re likely to see with the election. I think past that point, you’re going to get fiscal stimulus, regardless of who is in the White House, regardless of who has the Senate, regardless of who has the House. There’s no political scenario, and again, I’m not a political strategist, but there’s no political scenario that I can see, where there’s no fiscal stimulus going forward, period, unless there is an absolute available and 100% safe and 100% effective vaccine by then, which I don’t see that happening either.
So the next step is we get through the election, and there’s some form of stimulus after it. Once we’re — once all the smoke has cleared, and then a vaccine sometime in 2021.
SA: I found it interesting that you are — I’m happy that you brought volatility. We spoke with Jon Najarian last week, and he said he had a bit of a contrarian take and that he’s looking forward to selling volatility before.
BI: Spoken like an options guy.
SA: A lot of people are — I mean there’s a lot of crazy talk going on about transfer of power and or it could be weeks before the Presidential election is settled. And he’s not buying any of it. He said that, yes, there might be some house races that are going to be up in the air for many weeks. But come Monday or Wednesday morning, after the election, we’re going to know who our next President is going to be. And he’s going to be so involved at that point.
BI: Yeah, Jon, Jon’s a friend and Jon’s job — his entire, very successful career has been built on unusual activity. And I think that’s exactly what he’s calling this. And it’s exactly what it is. I mean, just by the pure definition of unusual activity. I look at it, more like it’s not a time to buy options, than it’s a time to sell options. That’s something that Jon is good at. That’s not something that we would be doing. But it is something that we would notice. Because again, when you look at, if every stock is going to act like Tesla, it’s a little worrisome. And there’s an implication of implied volatility being higher that every stocks can act that way. And it’s not the case. The volatility being hard just tells you that the prices can expand very quickly. If you run a strategy, like we do in the Stock Think Tank where you have — where risk is your first, second and third consideration, it’s not that important. It’s likely to mean that our position sizes will be smaller headed into the election than they would normally be.
AT: So can you talk a little bit more about how you’re positioned at Stock Think Tank right now, either in securities, or do you only trade futures and ETFs?
BI: No, no, we trade everything in terms of like our actions, our public portfolio, but the portfolio that our clients see is all stocks. But we as individuals trade quite a bit of futures. We trade a lot of oil, for example. But we’re basically — I don’t want to say we’re not in anything you’ve heard of. Everything that we’re in, we’re not in Facebook, we’re not in Netflix, we’re not in Google, we’re not in Apple. We’re in things like cheesecake factory, for example, Dollar General, we have. We have Intel, where I told you we’re long the dollar, we’re long that through an ETF and I’m also short Euro futures personally.
So in the Stock Think Tank, we’re long dollar ETF, which is the UUP. We’re in Activision, for example. Those are the kinds of things that — they’re companies that are not likely to be affected by who’s President and how bad it’s doing. Cheesecake Factory is a good example. When you look at Cheesecake Factory’s business, and you say, okay, they’re an anchor restaurant in a lot of malls, right. Well, some negative right? Well, maybe not. They have pricing power in terms of rent reduction. They also have huge, huge spaces, which means they can they can socially distance when necessary. And they also already had a very large takeout business.
So they’re kind of in a position of strength for a recovery. And they’re in a position of sustainability for an explosion of cases. So that’s part of the sort of fundamental view behind that. So very, very big name, very big chain. Dollar General, for example, well, Dollar General is a recession play. I mean, they’ve always done well, in general, and they do well during recessions. So that’s sort of a recession play, which we’re in a recession. The dollar we already talked about. We’re in PayPal, that might be the nature…
AT: That’s your hot stock.
BI: Yeah, that’s our momentum play, right? Yeah. Well, all kidding aside, it’s somewhat of a value portfolio with a little bit of risk put in in things like PayPal and Activision and the dollar, simply because PayPal, I think, is the bridge to the future of finance. It’s — to me, it’s sort of the anti-XLF stock to a certain degree, because PayPal is a very trusted name in a space that people need to transition over to in the near future. So that’s part of what I like about PayPal. So that’s sort of what we…
AT: And Dan Schulman has proven to be a really shrewd operator and a really smart guy.
BI: Absolutely. They got into Bitcoin early. And again — I’m not pushing Bitcoin on this, nor to anyone. I never really talk much about it. But they’re very progressive in what they do in terms of going into technologies. And are also very, very trusted. There were several academic studies done that said that people are much more likely to spend online if PayPal’s involved, right, which shows you the trust factor in the company. I think that’s…
AT: And I think there’s a lot of I’ll age myself, the kids out there, who use Venmo don’t even realize that PayPal owns it.
BI: Exactly, exactly. I mean, that’s one of the things that Dan does really well is getting into things to try and get people comfortable with electronic payments. And Venmo is one of those companies where it became a verb. I like companies that become verbs.
BI: you Google something or Uber there or, I can Venmo you this. When a company comes becomes a verb, it’s going to be the first thing that the kids today teach the older people. You teach me how to Venmo, or you teach me how to Uber. Becoming a verb I think is a massive thing.
AT: So you said you don’t like to talk about Bitcoin but I am going to ask you something. You said you’re long Bitcoin. It peaked mid-August about 12,300. It’s now trading a little over 10,000? Are you long it as a hedge against the dollar, which you’re also long right now, because you think it’s the future of finance, or crypto or the Blockchain, excuse me itself is going to really fundamentally revolutionize everything, what is your big picture view on Bitcoin?
BI: I think at least in the short term, Bitcoin is the winner of a space that’s not going away. And that’s really the whole thesis. And I don’t want to overplay it, not one of these people, that’s I’ve converted 30% of my cash into bitcoin. It’s not like that. It’s a few hundred dollars here and there, a few thousand dollars here and there. When it dives, which it does often as matter of fact, you know, the price that I buy it at, continues to climb. I like that.
There was a time where I did an interview with TD Ameritrade where I told them, if it gets down to 3,000, I’ll buy some more. And right around March, middle of March or so, during the height of the sell-off, it got down there, not quite to 3,000, but 3,800, I think. And I did buy some more there. And then I said, well, okay, now buy some of it gets down to about 6,000. And it did that. So I bought a little bit more there, and then at 8,000. And now it’s about 8,000 or so at 500. But if it gets down there, I’ll buy a little bit more. And it’s not it’s no great shakes.
I promise you it’s not like a huge pile of Bitcoin in the floor of my closet. It’s not like that. Just something that I don’t want to miss out on technologies. I’m from the trading floor, originally, the Chicago pits, I left there very early. And it wasn’t because I’m smart. It was just because I didn’t want to rely on technology, meaning the pits the yelling and screaming, that I knew was going to go away at some point. So I wanted to reinvent myself before I had to reinvent myself. I feel the same way about cryptocurrencies. And it’s also the reason that I own PayPal is because I want to make sure that I’m involved in things in a small way that force me to study them and see if they’re going to be right or not. And that’s kind of what the thesis for me for Bitcoin is, it’s the winner of a space, I don’t believe it’s going away.
Can that change? Sure. And if it changes, I assure you that everything I have in Bitcoin is going to go to zero very quickly. Because these things are moving at a pace that my generation can’t even recognize. But that’s why I keep it small. It’s just something I want to be involved.
SA: Now we’ve talked about the future a bit with PayPal, and Bitcoin. I want to go a little old school on — as an old CME tech guy, there’s perhaps been no bigger winner during the recovery from the pandemic lows than those who were long lumber futures, and it kind of coincided with a massive rise in homebuilding. We just — I think new home starts just printed over a million for August.
BI: That’s great.
SA: First time since 2006,
BI: 1.01 I think it was.
SA: We know in 2006 was like. But lumber prices have, I don’t know if crashed, crashed is probably the wrong word, let’s say they’ve tumbled quite a bit in the past few weeks. They’ve gone from over close to 900 to 600 or so. Is that telling us something? Or is that just volatility in a super pumped up market?
BI: So two things on that, nothing will make a stock or a commodity or a future fall quicker than long liquidation. People selling out longs that either have made a profit or look like they’re going to lose some of the profit, most active investors and traders and there’s a decent amount of them in things like lumber, money left on the table bothers them more than losses. So when you see something rise as quickly as lumber did, and then it starts to fall, it’s almost like panic profit taking. And I think that’s part of what happened in lumber.
But I do believe that the shift to work from home is very real. I am now 100% from home and pre-pandemic I wasn’t. I did about 30%, 40% of my work still at the exchange, and some of that was having meetings. Some of that was doing TV spots, whether it be Bloomberg or CNN or CNBC or whatever were all still done at the exchange. As far as I know, all of that’s gone for good.
So I’m one of the people that’s leaving the big city. Myself and my wife are leaving October 9 to go somewhere quiet or where we can be in a larger place. I live about six minute bike ride from the Chicago Board of Trade right now. I won’t in a month. So I think that lumber futures are going to base at a much higher level. And home builders are going to be strong for quite some time once that initial blast is gone. And then as the economy gets stronger, if work from home stays with a stronger economy, then there’ll be a spike again.
SA: Wow. And I just have to say I was at Home Depot the other day, I think a two by four was like $6.50 or something.
SA: Inflation is somewhere
SA: Yeah, I’m looking at it. I’m looking at a chart. So lumber, let’s call it was it $500. And then it went over $900. And now it’s back to five and change. So it’s almost on a round trip in that big spike, but you’re thinking, maybe this is the — I won’t call it a floor, but where it can base from? So thinly traded market, I’m assuming
BI: I appreciate you’re not trying to pin me down. But I do think it’s pretty much the floor. I’m not telling anyone to buy it. I don’t own it. I don’t trade lumber futures much. As a matter of fact, I can’t tell you the last time I did. But it’s because of that low liquidity. So it’s not the most active market in terms of volume. But yeah, I do think that. And again, the reason for me is people, other than if kids could get back to school, work from home will become very popular, it’s already popular of course. But I don’t have kids, and I really like it.
But I hear from my friends and my family who do have kids that their kids are driving them crazy. But there’s no doubt about it, that companies are going to reduce their real estate portfolios. The amount of office space they need to lease is going to shrink dramatically. I did see — his name escapes me now but one of the C suite people at BlackRock said that he can’t figure out how to get culture right, company culture in a work from home environment.
So I could see things like retreats, or even two days in the office three days out with a rotating staff. But I dare say this isn’t going to be the last pandemic. Maybe the next one’s 100 years from now, I don’t know. But I don’t think this is going to be the last one. And I think a lot of people can — whether they be concerned for their health, or they just don’t want to take a shower anymore. I don’t care what it is, are getting comfortable. And companies are finding that the productivity can actually be very high. I think it’s a permanent switch.
AT: I think — I don’t know about the showering part. But I think people will be thrilled not to have to commute, as I’ve done for years living in North Jersey, like the commute added at least three hours a day to my day, and that was a good commute. So and I think then, to your point I think a lot of people are thinking I don’t need to be this close to a major urban center. If you have kids, it is very hard having them home and working from home if they’re doing school from home.
BI: Well simply no gain for me because I mentioned that I was a six minute bike ride. I actually rode my bike. Right now I’m not riding my bike and pack it on the weight. But otherwise…
AT: Yes, the pandemic carbs — pandemic is getting noticed that way.
BI: Like COVID-19 pounds.
AT: Yes, before we move on, and we appreciate your time here today. You mentioned the home builder. Do you — are you long any home builders right now?
BI: No, no, I’m not. It’s not an area I understand, to be honest. Seems to be just people are buying homes, the home builders go up. But there’s intricacies in certain stocks that I don’t really understand. And that’s it. I just kind of stay away from those now, if we if our technical team saw a price pattern that they liked that, that would work. But the seasonalities, and which home builder builds better homes and the styling aspects of it is just not something I understand.
AT: So Bob, before we wrap and I don’t know if you if you still trade energy futures anymore, but unlike lumber, oil has been — WTI at least has been noticeably flat after Of course crashing below zero but then it rallied back to around the $40 level, a pretty straight shot and it’s been hovering around that level for several months now. And I don’t recall who was one of our recent guests said if you just get some positive news in the economy, you could see a big jump in oil. The fact that it’s holding up here is a bullish sign. Do you have any position in oil and or any thoughts on the next move for crude from here?
BI: So we got a long oil, September 8. Not at the lows, we actually got long while it was falling. And we’re back to positive in that position now. And I would agree with that other guests, when you look at crude oil, specifically the — here’s the fun thing about crude oil. When you ask if I still trade energy, we still trade quite a bit of it. It’s one of my favorite things to trade. And I like things. I like simple supply and demand markets. Those are my favorite to look at. Because then all you have to do is make a conclusion as to whether you think there’s going to be some exogenous shock, you can see. There’s always the risk of an exogenous shock. You can’t see, like a virus, but you just say, okay, is there going to be supply or demand shock in the near future, is going to be a hurricane? Is there going to be war in the Middle East?
Otherwise, is the supply demand balanced or not? And currently, the crude oil supply and demand is pretty balanced. And which is why I agree with whichever guests you have that said that, because the faster route is a change in supply. But that’s generally telegraphed. And the surprise would be an increase in demand. But I don’t think it’s going to be much of an increase in demand. And I say that based on some of the things we talked about earlier, the lack of people going back to work, for example. There’s going to be a percentage of the population that’s afraid of this virus for years to come, and may not want to get on an aeroplane, may not want to take a drive, may not want to drive to work, may not want to carpool at all.
So I don’t really understand how big of a spike in demand that can be. Having said that, I think we’re going to see a move back up to $44, $45, probably before this — this podcast has gotten stale. I don’t think we’ll see $70 oil again. I don’t. Let me make that $80, just so I can give myself a little bit of room, yeah,
We’re going to run low on U.S. supply. But I think demand destruction is very real from people wanting to kind of stay cooped up, after this, six or seven months of being cooped up, they’ve gotten used to it, to destruction of vacations, to electric cars. We’ve got Volvo who is going to go all electric, Volkswagens going to go all electric, the success that Tesla has had at least from PR perspective. I think demand destruction is very, very real. And over time, that’s going to erode the value of crude oil in the general market. And then when you combine that with the idea that OPEC is going to have quite a bit of control, over price as the U.S. continues to decline in production.
I mean in July, U.S. was still the largest producer. So but that supply of U.S. crude oil is going to fall off a cliff because of the nature of shale drilling, where most of the oil comes out in the very beginning. And rig counts are down about 73% in the U.S. now. So the U.S. supply is going to fall off a cliff. You combine that with a little bit of a boost in demand. And I think your other guest is going to be right. And that’s why we’re long it. But we’re not going to hold it very long. We’re not going to hold it much past $48 to $52. I think that’s going to be sort of the trigger point for it to settle in again. It will go sideways for long stretches of time. And then it goes into a protracted trend that usually lasts about three to six months. I’m waiting to see that next trend. And I think it’s probably up.
SA: I’m looking at a story on our site this morning, BP tumbled to 25 year low.
BI: I mean, even British Petroleum said recently that they think peak demand is here for crude oil, and I find that a little bit fatalistic. But I think it’s probably pretty close. It’s not a matter — I mean, if once we learn that we’re not going to run out of oil, this is not a climate mandate, or any, this is just people are switching over. I mean, there’s climate change activists, there’s climate change deniers, and then there’s most of the rest of us where we believe it’s happening. And we’re not really sure what the cause of it is. But cleaner air is better, right? I mean, just in general, cleaner air is better. So who argues with that?
SA: Yeah, and the BP management is interesting is as they manage an oil company, but don’t appear to be particularly interested in producing oil anymore.
BI: Like what 500 mile batteries is the sort of the Holy Grail, and autonomous driving is the Holy Grail. And you put those two things together. Anyone that’s working on autonomous driving is also working on doing that driving with electric cars. So there’s going to be a point in the future where you don’t need to own a car, anywhere. That’s long ways down the road. But companies like Uber, if they can get to autonomous driving, and then they have an electric vehicle fleet, I mean, who needs oil?
AT: Yeah. Right. And so last question, I promise, I would think that there’s an opportunity here for some energy stocks, which have been real dogs, which maybe is even I guess, it’s an insult to dogs. I love dogs. So what you know, BP it’s got a 12% dividend yield. I mean, do you have any positions in energy stocks and or do you think there’s an opportunity there or are you just happy to trade the futures?
BI: So two things? No, we don’t have any energy stocks, although we have in the past. The Stock Think Tank portfolio is more medium term. So we do take in some dividends here and there but they’re not really figured into our thesis of why we own something but for people who want to own something that’s likely to be stable. My favorite of those is Valero. Honestly, I think Valero is the most solid company to own. And in terms of the energy companies and their performance, Valero — VLO, the ticker for anyone who doesn’t know, Valero is the one that mimics crude oil, the closest of the larger energy names.
Having said that, I’ve seen periods of time where crude oil was up 70% and Valero was up 40$ and Chevron was up 30% and Exxon was down 9%. So if you have a thesis on crude oil, I’ll give you something that’s 100% correlated to crude oil, crude oil. So if you have if you have a thesis on crude oil, and you want to take advantage of it in the best place, you want to be in the Crude Oil Futures. Even USO is only about 49% crude oil contracts. And it’s a mix of other things and doesn’t really mimic crude oil as closely as you would like. Even the ETFs don’t really work.
So if your thesis is on the energy companies, that’s fine. There’s nothing wrong with that, there’s nothing wrong with getting that dividend and hoping that the stock recovers or predicting that stock’s going to recover, I shouldn’t say hope but from a perspective of you have opinion on crude oil, and you want to express that opinion in the market, you need to be in crude oil.
AT: All right, well, Bob, I really appreciate your time today. We covered a lot of ground and it’s been great having you on today.
BI: Well, I appreciate it now. In the words of Captain America I can do this all day so don’t worry about it.
SA: Thanks Bob. Our guest has been Bob Iaccino, Co-Founder of the Pure Exposure Growth Series, which you can find on YouTube and Co-Portfolio Manager at Stock Think Tank. You’ve been listening to Alpha Trader.
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