Oil Is Rising. Why Bet Against It Now?

Oil prices are soaring, and everyone is watching. But why are some investors betting against the trend?

In this episode of Wealth Transparency, I sit down with Bill Lane of Ethos Financial Group, Michelle Connell of Portia Capital Management, and Andrew Tang of Turner Financial Group to examine how oil, inflation, and interest rates interplay, and what that could mean as conditions evolve.

As the discussion unfolds, a different perspective emerges—one that questions the current energy trajectory and considers what might happen if oil prices decline from here.

If you watched yesterday’s teaser, here’s the full discussion on the leveraged energy trade and its potential market impact.

Watch the full episode to understand their reasoning, gain clarity on possible market moves, and decide where you stand. If it makes you reconsider your views on energy or portfolios, share it with someone who would benefit. Follow along for more discussions like this and stay connected for ongoing market insights.

Chapwood Investments, LLC, is a partner of Ethos Financial Group, LLC, a Securities and Exchange Commission registered investment advisor. No mention, opinion, or omission of a particular security, index, derivative, or other instrument in this webcast or video constitutes an opinion on suitability of any security. The information and data in this video were obtained from sources deemed reliable. Their accuracy and completeness are not guaranteed. At any given time, principals at Chapwood Investments, LLC may or may not have a financial interest in any or all of the securities or instruments discussed in this webcast or video. The guests appearing on videos do not receive compensation or provide endorsements or testimonials. Past performance is not indicative of any future results.

All investing involves risk, including the possible loss of principal. Past performance is no guarantee of future results. 
No mention, opinion, or omission of a particular security, index, derivative, or other instrument in this webcast or video constitutes an opinion on suitability of any security. The information and data in this video were obtained from sources deemed reliable. Their accuracy and completeness are not guaranteed. The guests appearing on videos do not receive compensation or provide endorsements or testimonials. 
Securities are offered through Innovation Partners, LLC (member FINRA/SIPC). Ed Butowsky is a Registered Representative with Innovation Partners LLC. Ed Butowsky is licensed to business in: CA, FL, LA, TN, TX. 
Innovation Partners LLC and Chapwood Investments are not affiliated.

Transcript

SPEAKER_03 0:25

Hello, I am Ed Butowski. Welcome to our podcast, Wealth Transparency. Each week, what we do is we take headlines and story ideas and talk about how they impact your portfolio and what you should be concerned about and what you might not be concerned about. But because they're in the news, you might start to worry about them. We have today Bill Lane from Ethos Financial Group, Michelle Connell from Porsche Asset Management, and Andrew Tang from Turner Investment Management. I appreciate all three of you being here today.

SPEAKER_02 0:59

Great to be with you, Ed. So thanks for having me.

SPEAKER_03 1:02

Bill, let's start off with the Fed holding rates where they're at. Um, and Jerome Powell said that the war in Iran had something to do with that. Can you explain to everybody exactly why you believe the Fed held rates steady?

SPEAKER_01 1:19

Sure. So the interest rate tool is the Fed's main weapon against inflation. If inflation is modest, the Fed has room to cut rates and support the labor market. And what we're seeing from the Iranian conflict is we already saw a four-tenths beat in producer price index numbers this week, which really didn't even account for the fact that oil's gone from$3 to$380 a gallon on the national average. So there's more inflation to come. And the more inflation is prevalent, even if only for a short period in response to this military activity, less the ability the Fed has to cut rates. Cutting rates essentially is inflationary, and they risk sparking hyperinflation if they are cutting rates when inflation is already accelerating.

SPEAKER_03 2:09

So that's a great explanation. Michelle, what do you believe the impact of higher rates is going to be? Because it's inevitable that no matter how much they cut on the short-term rates, the discount rate and the Fed funds rate, that we see the tenure of Treasury continue to go higher.

SPEAKER_00 2:25

It's not only that, Ed, mortgage rates have ratcheted back up in the last week as well. And when we had a temporary lowering of the mortgage rates, I think we had an additional 5 million homes that were sold. It impacts consumers down the line in terms of their borrowing rates and also corporation rates. But as Bill said, inflation was already ratcheting up before Iran happened. We're seeing that in the PPI numbers. Transportation costs were higher, service costs remain higher. And so that's hard for the Fed to come in and say, okay, these other pieces of the pie are going up besides gasoline. Let's take down rates. It's just, it doesn't make sense. And that's against their edict to keep inflation low and jobs stable.

SPEAKER_03 3:18

So Andrew, Trump has continued to talk about what a great job, where a lot of people around him have talked about what a great job he's done economically. Would you agree with that premise?

SPEAKER_02 3:29

Well, that is that is definitely up for interpretation because it depends on how you look at it. From a grandish scheme of things, I believe the country is moving into the right direction in terms of deregulations, right? In terms of trying to promote growth, have foreign funds from countries and corporations to invest into the US. But at the same time, he's receiving a lot of criticism for not paying attention to domestic issues like affordability and focus too much on foreign policies. But we have to take everything, you know, with a grain of salt and remind ourselves that just when we can't take any more of Trump, you'll be surprised of nice things that will happen.

SPEAKER_03 4:11

So the inflation, I oftentimes have said that you know economic conditions are not a direct result of the policies of the president. Uh that a lot of it is dictated by macro events and that the Fed reacts to those macro events. So, Bill, we recently had this report that the United States Postal Service wants to raise a stamp to 95 cents. Like to me, I mean, I remember when there were 15 cents.

SPEAKER_01 4:42

Yeah.

SPEAKER_03 4:42

And that wasn't that long ago, it seems.

SPEAKER_01 4:44

Well, and then I think it's it's probably a long time coming. That the Postal Service has been operating as an insolvent enterprise for some time. And I haven't looked at the analysis, but I don't know that going to 95 cents to mail a letter necessarily solves it. It might stem the bleeding somewhat. And at the surface, we can look at that and say that's the same thing as our trash company saying we need a fuel search of and adds$10 a quarter to your bill. Uh, once it gets added, it never gets rolled back. But I I would probably say I don't have a lot of faith in the fact that that's going to all of a sudden make the Postal Service a, you know, a solvent enterprise going forward. But it is indicative of transportation costs, like Michelle was saying, and and just overall inflation and price levels.

SPEAKER_03 5:28

Yeah, I've always been a proponent that the CPI is an irrelevant statistic that has been manipulated since uh the early 90s under the Boskin Commission, which was put up to figure out exactly how to reduce the cost of the CPI because it was raising, it was rising at such a rapid rate. So today the CPI isn't a relevant statistic in my mind.

SPEAKER_01 5:53

Only if you don't have to buy food or energy.

SPEAKER_03 5:55

Yeah, exactly. Yeah. But when you look at investing and you turn to a customer and you tell them that they need to make X percent to stay even, I'm sure you don't use the CPI as a statistic.

SPEAKER_01 6:09

No, we'll use uh HEPI, the higher education price index, which has annualized at more like 7% for someone saving for college. And then we'll use a significant spread or a risk-adjusted spread over and above CPI to really figure out what purchasing power needs to be if you're investing against long-term liabilities.

SPEAKER_03 6:30

Yeah, for years I've had my Chapwood index where I take 130 different items and every two times a year I adjust exactly what the price increases, and then it comes out to be about 10% per year. So if you're not making 10% on your money that you're falling behind, and then you have to pay taxes on top of that. So when you really dig into this, Michelle, you really have yourself a difficult time adding value as a financial advisor to a client's portfolio, especially living off of fixed income.

SPEAKER_00 7:04

That's very true. I'm just going to go back and make a side comment on the U.S. Postal Service. They've lost between 40 and 50% of their volume since 2006. So that's part of the issue there. And you're starting to see some countries like Denmark who will only deliver packages because they won't deliver envelopes anymore. It's just too expensive. So that that's part of the issue. But going back to individual costs, when you have somebody who's nearing retirement, you obviously have to factor in healthcare costs, which become more and more a factor, especially in your last 10 years of life. So I have clients go back and examine how much are they spending now if they're retired, and how much do they think their healthcare is going to go up? And it's going to be a wide dispersion there. And that's going to have to be our bogey in terms of what are we aiming for realistically, and not just saying, well, I'm I'm meeting a benchmark of 60, 40, you're doing okay, when in fact the client isn't. They're underwater versus their cost of living. And as you said, add taxes on top of that.

SPEAKER_03 8:14

Yeah, you start looking at their real rate of return, which is 10%, let's say, then you subtract out what your cost of living increases, subtract out taxes, subtract out expenses, and you have to wonder if people's portfolios are actually getting better, if they're actually making any money after all of that. You know, I often wonder how many people's lives are better having had a relationship with a financial advisor. And I don't believe many of them are. Financial advisor is not using the real cost of living increase for each person. Andrew, you you have at your firm a number of financial advisors. How much work do they do in trying to beat the real cost of living increase versus the CPI?

SPEAKER_02 8:58

Well, they take it from a planning approach to see, you know, what their budget is and what we have working with, what their required bogey is, whether it's income or whether it's a fixed dollar amount. And most of that we work in reverse and reverse engineer to come up with a plan to help meet their needs. But in terms of reaching our goal, we always use a more conservative number. But it's true, you know, deaf and taxes and inflation, you know, these are the real constant that we always have to work around and work with. And so we still believe investing in the markets, even though it has market risk, is is worthy of, you know, of uh of doing. In addition to obviously with the guarantee and insurance products, then you can combine and come up with a plan that really works for the client. But outside of that, investing in the stock market is an aggregate example of investing in into the businesses in America or in the world for that matter. So I think it is still uh uh a very lucrative way to help meet the client's goal by using the market to our favor.

SPEAKER_03 10:05

So so, Bill, another inflationary problem are tariffs. And they're recently starting to squeeze U.S. manufacturers. An AP review found import levies, meaning uh tariffs, have raised input costs, contributed to factory job losses, and litigation over refunds, and left investment plans uncertain amid shifting trade policy. That's right out of the AP. What are your thoughts about tariffs and and have you seen tariffs play a negative role in any pricing yet?

SPEAKER_01 10:39

For the most part, we've seen actual expenditures pull forward to try to get ahead of tariffs. But now we're we're no longer in that part of the game where we can potentially do that, although the implementation has still been rocky and uneven. I think what you're going to see are those manufacturers that have pricing power and the ability to pass through the costs of tariffs to the end customer. Those are certainly that's going to be inflationary. Uh, the overall cost of goods is gonna push through. Uh, in certain cases, commodity manufacturers may not 100% have pricing power, especially if it's something that could be sourced domestically, you're gonna see supply chain shift. And some of those items are going to be less subject to the inflationary pressures of tariffs, which after all is kind of the design that the tariffs are seeking. So, net net, yes, it will be inflationary in terms of cost of living, the acquisition of anything that requires an overseas input. Whether or not companies have to cut workers because of the pressure of tariffs, which would actually be deflationary, depends on their ability to pass through with any type of pricing power to the end customer. I think we're going to see all of those scenarios. So it's not a clear-cut case of exactly what the overall inflation impact is going to be, but probably slightly higher.

SPEAKER_03 11:59

So, Michelle, you and I both live in the state of Texas, and I've yet to be able to isolate how a tariff has increased a price on anything. Have you?

SPEAKER_00 12:09

No, but isn't Texas a nation unto itself or likes to believe that they are? Um I'm going to agree with what what Bill said. I mean, where a company or a manufacturer can pass on uh tariff costs, they will because they have the pricing power. And that's what you're seeing. The majority that have that pricing power, it's about 98%, are in fact passing that on. Where it becomes more of an issue is if you're importing goods from countries that are having, you know, are exposed to those tariffs, that's going to be hard for you. Are you relying on maybe even like a semiconductor that's coming from another part of the world? You're going to be paying that, and that's going to impact your company and your profitability. And ultimately, it will affect some workers because if you have to cut costs somewhere and you can't pass it on, the worker's going to feel it. Uh-huh.

SPEAKER_03 13:05

It's sort of like a fantasy land that Trump has drawn up. And I'm I'm a conservative, but I don't agree with everything that comes out of Trump's mouth. And when he says that tariffs are going to be good for the economy, that kind of brings me to the next subject, Andrew, which is Disneyland or Disney stock. There's a new chairman uh or new CEO in there now, and he's looking to unify Hulu and ESPN and so on. And to me, that's what Disney has become. It's gone away from the overpriced parks to more of an online media company with ABC as well.

SPEAKER_02 13:43

Yeah, this is uh it's really about the the battle of the giants in the streaming arena. And obviously the 800-pound gorilla is Netflix. Netflix still remains to be the core streaming service in major households, meaning when household needs to hunker down and need to cut spending, I think first thing they will cut is Hulu Paramount and other streaming services like HBO Max and et cetera. But they will keep Netflix. And so what they're trying to do here is that within this landscape, they're consolidating because you have to gain market share in order to retain clients here. And uh and it's actually uh quite uh uh uh uh you know recession proof because you know, Netflix streaming services like alcohol in the past, it'll always be relevant and they always will have profits, you know, in good times, bad times. And uh so I think that's the strategy that they're trying to do. I think having ESPN in there is brilliant. They already have that piece. Ahulu is just gonna add to that to get the regular TV shows in there as well. So they're broadening their offering to the customers so that they can increase and maintain their market share. It's really to improve, or it's gonna be, you know, they're gonna lose. So they have to cannibalize themselves and reinvent to go against Netflix.

SPEAKER_03 15:01

Yeah, my house, we get every streaming service. We don't want there to be anything we can't watch. So we even have Brit Box, yeah, which some great shows on it, by the way.

SPEAKER_02 15:12

So that will cost you anywhere from two to three hundred dollars a month, right? Is that correct?

SPEAKER_03 15:16

Probably.

SPEAKER_02 15:17

You don't even know.

SPEAKER_03 15:18

I don't know. My wife takes care of those bills.

SPEAKER_02 15:21

It's tough, yeah.

SPEAKER_03 15:22

But that's a whole nother story. So so let's let's finally go back to the elephant in the room, and that is the war and oil prices. What has to happen, and this is going to be opened up to all three of you, to get oil prices lower. Now we know the Strait of Hermuz, but what has to happen in the Strait of Hermuz to allow passage to go through?

SPEAKER_02 15:45

Well, I mean, immediately is that we have to ensure the safety of the cargo ships and the tankers to go through. Right now, we are already seeing light traffic over the Straits of Hamous, even though they say it's closed, but those are mostly cargo ships, not oil tankers. And then surprise, surprise, you know, the UAE Abu Dhabi, they have a pipeline that is actually in operation since 2013 so that they can reroute their oil instead of exporting from the straits, they can reroute to Oman, you know, from that particular area. So looking at this, I still see this as a short-term temporary disruption, not a long-term one. Why? Because Iran is pretty alone in here, okay? We have the allies and we have the neighboring countries all objecting to what Iran is doing. So, I mean, Iran is not exactly suicidal. So, I mean, obviously the war or the or the or the fire will slow down significantly when the ammunition runs dry. But overall, I have a quite an optimistic view on the straits reopening because of the pressure from the neighboring countries.

SPEAKER_01 16:50

And I think, yeah, there was an interesting development today where Secretary Bessant said, look, for Iranian oil that's leaving the Persian Gulf, we will remove tariffs on it because there's been a wide spread between Brent Crude and Iranian oil, Iranian oil being 20% cheaper on the markets because of that sanction that exists to purchase it. And what we're saying in that is, hey, you know, we really need to get this supply out, and we're willing to make economic concessions to do so. So I think we're trying all the different avenues we can to open it up even more on the diplomatic side than on the straight destruction of all of Iran's resources in the area. So I think that puts us closer to a resolution as opposed to further.

SPEAKER_03 17:36

Um Michelle, what are your thoughts on what we need to do? I think Bill and Andrew make some very good points. I did not know that about the pipeline, Andrew.

SPEAKER_02 17:44

Yeah. It's been around since operating commission since 2013. Yeah, it's it's there, it's working.

SPEAKER_00 17:50

I agree that I've never have I thought that this is a long-term situation. It can't be because of what Andrew said, that Iran is by themselves, basically. And I'm sure that's a difficult place to be as a country, especially for the citizens. But at the same time, there was a um webinar that Michael Simblis put on a few days ago, and it was interesting saying that this is the worst disruption we've ever seen since World War II. So we need we need to keep that in mind. He went through all the wars back to I think the 60s. And so it's important that we get this area up and running, especially for Asia, which is the most impacted. We're fortunate here, the United States, Canada, South America. We have our own oil, but it's important that everything gets back on track. And that's why hearing what Bill said regarding to what Bessant said with those sanctions, that's good to hear. Because that means we're probably closer to a solution than not.

SPEAKER_03 18:55

Well, now as we conclude, I always want to open it up to what stocks we would buy. Then the one stock I would buy right now is ERY, which is a two-time bear on energy. I believe that if oil prices drop, they're gonna go from$98 back down to 65. And this is two times that they're using leverage, and that's the one I really like right now.

SPEAKER_02 19:21

Yeah, it hit a low of$11 today. I think$1102. I talked about this. I discussed this, I discussed this idea with others, and those there are even conservatives, and then they're like, oh yeah, this is great. So yeah, thanks for bringing that uh to the audience attention. I think uh that's definitely something. It's a reversion to the mean trade, basically, and incentives work, you know, in terms of bringing things to normalcy. And we have to we have to take a look at this. The disruption in oil right now, it's not a supplies issue, it's a transportation issue. And I went back to do a study to compare the damages from storms, hurricanes to the oil market versus now. And I see that historically speaking, the damages from storms and hurricanes is actually more than what we're going through right now. So that brings me great relief that I strongly believe that there's going to be a reversion to the mean trade to oil. So kudos to you.

SPEAKER_03 20:15

Great. Bill, Michelle, do you have any stock ideas?

SPEAKER_00 20:18

I don't have have specifically stock ideas, but I have asset class and uh sector ideas. If people don't have exposure to emerging markets, especially Asia, some of those areas have really been beaten down because of the lack of energy to those areas. And there's some good ETFs that look interesting. Also, gold miners are off about 25% here. So I think those may look compelling as well.

SPEAKER_01 20:48

Yeah, those are definite areas. We're looking at India for the same reason. I mean, that fits that that emerging market Asia scenario. We've also been probably underweight non-dollar assets. And the other thing that will happen when oil comes down is we will go back to the regime of dollar weakness. So anything that takes advantage of dollar weakness, whether it's the EFA, the VWO, the INDA, just as broad ETFs, as well as the precious metals, will all participate. Not the same extent as a leverage short on oil, but they will certainly be a boost to portfolios upon resolution of some of this crisis.

SPEAKER_03 21:27

Well, this has been a wonderful discussion. I appreciate all three of you being on. Uh, we have Michelle Connell with Porsche Asset Management, Bill Lane with Ethos Financial Group, and Andrew Tang with Turner Investment Management. So thank you to all of you. I appreciate it.

SPEAKER_01 21:44

Thanks, Ed. Thank you, Ed.

SPEAKER_00 21:46

Thanks for having me.

SPEAKER_03 21:47

Thank you.

unknown 22:12

Well, I'm not going to be able to