Well, this is it. Finally, after more than five years, since the disastrous OPEC meeting of Thanksgiving 2014, the oil markets are returning to balance.
Make no mistake, 2020 is going to be the year of oil. Black gold. Texas tea. Jed Clampett knew it on the Beverly Hillbillies and you should know it now.
I mentioned Exxon Mobil (XOM) as my Top Pick for 2020 in Friday's special Real Money column, and I am even more bullish than when I composed that article.
So, oil stocks should be owned now, and that will lead to an incipient cobra-like spasm of buying by portfolio managers. To say that the average fund manager is underweight hydrocarbon producers would be the understatement of the century.
To be fair, the Energy Select Sector SPDR Fund XLE did post a gain of nearly 12% in 2019. Compared with the 30% gain from the Nasdaq, however, that is just more proof that hydrocarbon stocks are fundamentally under-owned.
The world needs oil. With the shale-drilling revolution in the U.S. this country is no longer a net importer of crude, but the major countries outside the Middle East are. Germany needs oil. India needs oil. Most acutely, though, China needs oil, and is by far the world's largest importer of crude.
For political reasons, the amount of oil China imports from Iran is not publicized, but the Middle Kingdom is a major consumer of Iranian oil exports, and likely the number-one buyer.
So, this is it. My old friendly competitor from my days as an auto analyst, Nick Colas from DataTrek, pointed out this summer that no modern U.S. recession has occurred without an oil shock. We are about to have one. An oil shock and a recession.
So, with Zero Hedge pointing out Thursday that the S&P 500's price/sales and EV/EBITDA ratios were both at levels not seen since the tech bubble of 2000, it is finally time for a correction.
The performance of the stock market in 2019 was historic. President Trump and his loyal FOMC Chair Jerome Powell reflated an economy that was not deflated.
All those Fed-created dollars will now, via high commodity prices, head to shale producers -- I own Denbury Resources (DNR) , Evolution Petroleum (EPM) and Chesapeake Energy (CHK) -- and to the Middle East, as well.
So, that's the unintended consequence of killing General Soleimani, surely one of the world's leading terrorists. The majestic performance of the Trump economy and the Trump stock market was just reversed by an action approved by none other than President Trump himself.
It happened. Deal with it. And make sure you are adding energy names to your portfolio and lightening up on everything else.