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Pull quote. Pull quote. Pull quote. Pull quote. Pull quote. Pull quote. Pull quote. Pull quote. WHAT THE ‘WORST ENERGY BUST EVER’ LOOKS AND FEELS LIKE “Is this the worst energy bust you have ever seen?” I asked Cactus. “I’ve been through seven oil busts, Steve,” he said. “1986 was the worst – until now.” Cactus explained that three events have come together to create a disaster for the oil market... 1. The money dried up... Wall Street gave up on shale and left. 2. The Saudis (and Russians) flooded the market with oil. We have all three of these traits in place in the energy sector right now. The story starts in West Texas, where the bust of recent years is worse than you could possibly imagine... I often say the biggest gains come when you can find an investment that’s 1) cheap, 2) hated, and 3) in the start of an uptrend. During our current Melt Up – where everything from tech stocks to house prices is soaring – it’s hard to find all three of these elements. So many assets have soared that it’s hard to find something that’s genuinely cheap and hated. 3. COVID-19 led to economic shutdowns, causing gasoline consumption to fall 50%. All three of these individual oil stories are destructive on their own. Their end result has been the worst devastation of all time in the energy sector.
Keep in mind, in my world, you hear “the worst ever” or “the best ever” thrown around a lot. But in this case, it’s 100% true... From their peak in 2014 to their bottom in early 2020, energy stocks – as measured by the main energy-stock exchange-traded fund – fell by more than 70%. This basket includes the household names in energy, like ExxonMobil and Chevron. I looked at the history of energy stocks going back to 1973. There’s never been a fall this big – ever. By late October of last year, my friend Jason Goepfert of SentimenTrader.com ran a headline that read: “Drawdown in energy stocks is the worst of any sector, ever.” Jason prides himself on never delivering the hype – just the analysis. So I couldn’t believe he wrote that headline. And he backed it up with data: The current drawdown in energy is now about 60% more than the S&P’s, by far the worst of any sector in history. It exceeds the relative losses in tech after the internet bubble burst and devastation in financials following the Great Financial Crisis. Wow. In short, investors have given up on energy – and they’ve deserted it more than any other sector in the near-100-year history of the S&P Indexes. (Read that sentence again, if you would!) Even today, Wall Street is still completely out of energy stocks. According to the latest Bank of America Global Fund Manager Survey, energy is by far the most “underweight” sector in
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January 2021
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