0:05 spk_0

Welcome to Stocks and Translation, Yahoo Finance’s video podcast that cuts through the market mayhem, the noisy numbers, and the hyperbole to give you the information you need to make the right trade for your portfolio. I’m Jared Blicky, your host, and with me is the voice of the people, Sydney Fried, who’s here to ask the people’s questions and keep us from veering too far off into jargon land. And today we’re gonna be doing a deep dive into the energy markets, especially in the light of Trump.Administration’s policies and the legacy of the inflation Reduction Act. Our phrase of the day, commodity futures black gold, yellow gold, natural gas, sugar, coffee, we break down how these financial products are used by producers, end users and speculators. And this episode is brought to you by the number $370 billion. That’s how much the inflation Reduction Act earmarked for clean energy, we dig into the great energy transition.And today we are welcoming Dan Dicker. Few people have had a better seat at the energy market’s roller coaster ride than Dan. For 26 years. He traded crude oil and energy futures right in the NYMEX pits, but Dan didn’t just trade. He actually designed and helped build electricity contracts used in power markets. And as founder of the Energy word, Dan now guides investors through the complex maze of energy investments, and he’s authored.Three books. The latest from 2020 is Turning Oil Green, a market-based path to renewables. So Dan, thank you for joining us here today. Hi, Jared, thanks. Thank you. Uh, just give us your big picture overview. There’s a lot going on in the markets, but, uh, in terms of energy, things have been kind of overshadowed by all the tariff headlines. What’s going on with energy thisyear?

1:38 spk_1

It’s been pretty flat, and, um, lately we’ve had a move from traditional energy, but even more importantly, we’ve had an unexpected move from renewable energy.And that goes counter to what, you know, the, the Trump administration has been really pushing and uh where his um his political and some of his um financial goals kind of lie for this country. Uh, that being said, you know, I’ve been surprised, although, uh, over the short term, I’ve been surprised at how resilient some of the the um the renewable stocks have been.Most of my subscribers, I’ve been telling that the Trump administration meant that most of the money invested in those stocks would be dead money for 3 years. I didn’t tell them to get out. I told them to hold because in many ways I feel like the the sustainable space is obviously it’s an inevitable space uh for energy. And and that’s pretty obvious to anybody who who understands just about anything.But I thought it was dead money. And in fact, you know, I think in some ways, what’s interesting about it is that the market is really realizing the inevitability, Trump or no Trump and has been slowly, uh, you know, glomming on to these renewable stocks, and they’ve been making a pretty solid move over the course of, you know, the last severalmonths.

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All right, we’re gonna get into some of those and send it to some of the energy transition right after the break here.I want to get to our phrase of the day because here in this segment, we’re gonna break down commodity futures and uh this is something we talk about a lot in uh at Yahoo Finance. We use the futures markets, we use the prices to communicate stories. But here’s the definition. Commodity futures are standardized contracts to buy or sell a commodity at a set price on a future date. Producers and users hedge price, price risk while traders, they can speculate on price.Moves. So we have producers, we have the end users, we have the traders, the people in the middle. How does it all fit together with the exchanges? Right.

3:28 spk_1

Now, you’ve got to remember that, um, in the, uh, the olden days before there were futures markets, uh, there were particularly in oil, there was sort of a consortium of 7 or 8 big, um, producers of oil and they decided what prices were going to be. There was nothing.To stop them from charging a lot or or a local cart you exactly like a cartel, but there was an American cartel. It’s called the Seven Sisters. This is going way back. Um, commodity futures and in oil, particularly because it’s, it’s what I know the best, put a lid on some of these things because it involved sort of everybody being able to have a seat at the table and how what we call price discovery happens. So basically in price discovery, it’s very simple. It works like, uh, like a bazaar, for example.Like, uh, you know, a Turkish bazaar. So you go to a place and people are selling all sorts of baskets, and one guy says, well, I’ll pay this much for that basket, and he says, I’ll sell it for this much. So you have that sort of gap. And over the course of time, more buyers and more sellers come in and they compete with each other, and sooner or later they find this sort of, uh, quilibrium price and that’s what we call price discovery. And there’s no limitation on who can get involved in this market. You don’t have to be a producer of.Baskets and you don’t have to be a needer of baskets to go into the bazaar and bid or sell baskets. That’s the sort of the beauty and the horror part about futures markets. So it becomes, uh, very much a financial market as opposed to a physical market. Oil has both a physical market where real barrels are traded and it has a future market where basically no real barrels are traded, it’s all just paper. That’s all it really is. And speculators get involved.players get involved, people who do have storage, people who make, uh, bring oil out of the ground, people who actually burn oil when it comes out of the ground. And then there’s a huge number of people who have no interest in oil as a physical commodity whatsoever. And that is at some, you know, between 8 and 10 times more than the number of people who have a physical stake in the oil markets. So it’s really a very financial market and therefore it has tended to beUh, it’s tended to move in price, uh, in different ways than the physical market has. I mean, that’s, that’s that’s how speculative markets work. Anytime you’ve seen anything that’s been speculative, you know that it’s, it has the opportunity to go in places where the physical markets probably never wouldgo.

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You’re already answering some of my questions, but let’s go deeper. So the physical versus the financial contract oil futures, there’s not actually like an oil bucket somewhere with my name on it, right?So how are you investing physically versus in a futures contract?

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Well, you know, a physical market is very simple. There are places where oil is stored, places where oil are delivered, and people who want to use it as a physical market will go to these places where it’s delivered, much like you will go to the supermarket to buy a box of cornflakes, and you’ll pay the market price for that box of cornflakes, and you’ll take it with you out of the store. That’s a physical market.

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How do I dothat though, if I wantedto.

6:31 spk_1

If you were a physical player in oil, simply that way. I mean, you do have a tanker, you can drive up to the pier, you make a deal with the people who are sellingoil

6:39 spk_0

bazaars. It’s,

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it’s, it’s 100% exactly how you would, you would, you would imagine it. And then you pay the storage man for his holding it for you. You pay the tanker guy for pulling that out of there and then you pull it into your next place. It’s a physical market. It’s relatively small compared to theEntirety of what is we call the oil market and the type of oil market that you all talk about, you will never talk about a physical market. You only talk about the financial market. And at some point, those two have to meet, but they can go in widely divergent directions before they meet because future markets obviously go out for months and months and months and they can diverge crazy. They do have to meet at some point at the end point of those kinds.Contracts, but for a very long time, they can be nowhere near where the physical prices are. That’s the fun part.

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Well, I wanna ask you, I wanna ask you about the fun part here because over early pandemic, I remember something, I’ve seen a lot of crazy things in markets going back to the late 90s, but this blew my mind because in April of 2020, WTI crude oil went to negative $40 and I saw it on my screen. I, I had a little trading matrix up and it went to negative territory, and then it proceeded to go all the way down to $-40.Is that some kind of risk that you’re talking about with the overfinancialization of these things, um, you know, people can buy ETS for oil, and I guess it’s kind of a two-edged question here. Is it a bad thing that we’ve put so much of this into our financial markets? Now,

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now you’re going back to my first book. That’s, that’s many, many, many years ago. But let’s, I don’t think we want to go there because nobody wants to read a book that old. But in any event.Um, that particular event was an interesting one because it was very, a very short time before the oil that was in paper form that we talked about in the futures market had to be turned into real oil barrels in a physical form. So that

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convergence of time you were just talking about, that was very close, right.

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The problem is thatAll those players that I talked about who don’t have any connection to the physical markets, they also don’t have any connections to the things you need to translate this stuff into a physical market. So if you were a buyer of oil at minus $20 a barrel, which is ridiculous, of course, because they’re actually paying you to take the oil at that point.And the market goes to minus $40 you can’t say to yourself, oh, I’m just gonna sit here until it goes back, because what you have to do at that point is you have to find a place to take delivery of that oil in a physical way. And what are they, what are you gonna do? Use your bathtub? So there were a lot of players at that point who were what we call stuck, you know, long in a market that they really didn’t have the physical capability to take the physical asset in and had no choice but to.Sell it back out into the market. And a loss, even though the prices were negative, they went more negative. Exactly. Very weird. It’s not all that unusual. It’s happened to natural gas several times in the in the basin in in Texas, uh, several times when you just couldn’t find a way to get the natural gas out. There were no, there was no pipeline space to get it out. So these things kind of do happen. So that’s obviously a danger of when you’re dealing with a nonPhysical market that ultimately converges into one that becomes real. How

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should investors overall, maybe the average person, not someone who’s trading daily, think about investing in commodities, maybe specifically oil. Does oil belong in everyone’sportfolio?

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Yeah, oil definitely does not belong in anyone’s portfolio. I did it for, uh, I traded on the floor for 21 years and I still trade, uh, oil futures today. But I am a, uh, you know, I am a trained professional. Do not try this at home. These are the kinds of markets where if youI do want to have an investment in oil and obviously I shepherd other investors who want to be engaged in the energy markets, so there is an oil part of that. You find stocks that have, you know, a, a, a relatively good, um, you know, compliance with the oil price, uh, oil companies. I tend to put people into infrastructure. It’s a lot easier for them to understand and, and, um, and leverage, uh, on in on the basis of an oil price.So there are ways to, uh, invest in oil prices without actually getting involved in the futures. I think the futures for the most part are too risky for the average investor, and I don’t suggest them to my subscribers,

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especially with leverage. All right, hold that thought. We’re gonna be talking about a lot more investing not only in traditional oil, but the green space after the break. Uh, but coming up, we are gonna be talking about that green energy transition. We also have a runway showdown that takes to the skies and to the pits. That is the orchestral pits.This episode is brought to you by the number $370 billion. That is the Clean Energy war chest inside the inflation Reduction Act. Grants, loans, tax credits are already flowing to grids, EVs, buildings, and carbon cutting tech. It’s all about the great energy transition, which you’ve written a book about, Dan, and, uh, the IRA as it’s called, has been quite controversial, so I’d love to get your take on how you think it’s playing out so far.

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Well, to be frank, Trump has done everything he can to block the payments from the IRA and that has put, uh, has put its sidelined and put on hold a number of projects on, on renewables and sustainables, which is why, you know, I said at the start of, you know, this program with you that I told many of most of my subscribers that, you know, their investments in renewable energy were probably dead for the next few years, um, because it’s, it’s in the courts and they’re trying to work out ways to move those payments forward, butSeriously, without, um, government subsidies, these things do not move forward. They never do. For example, a nuclear plant is an $8 to $10 billion dollar investment. Now, nobody, and it’s also a 5 to 8 year, you know, build out.Nobody has that kind of capital to invest in a in a new nuclear plant. Now, we could use uh a dozen new nuclear plants in this country tomorrow. I mean, we would find ways to use them.

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AI I’msure it would be used.

12:53 spk_1

There’s lots of ways where that energy would be worthwhile and add to the grid and help a lot of people, and they’d make money, every one of them. But, you know, since the Trump administration has come in and sort of taken a step.Back from these new sustainable renewable technologies including nuclear and and and solar and so forth. A lot of these projects have been put on hold for now. And those stocks, for the most part have been kind of dead. Like I said, but until recent months where for some reason they came alive again. So, you know, we’re all kind of in a waiting zone on how this is going to play itself out. Again, I don’t think that withholding payments on infrastructure.or you know, build outs on on new solar farms or nuclear plants is going to stop the transition, but it is going to slow it down significantly. In fact, what’s happening is this country is falling behind in that race towards those sustainable um energy sources. We’re falling behind not only to China but also to Europe and and in many ways South Southeast Asia and Australia. So uh for me it’s difficult.To guide investors into some of these spaces because, you know, I’m not exactly sure when these these stocks there’s a lot of events, yeah, and and when these stocks are going to turn around because they have to turn around and they’re going to be very good at some point, but you just don’t know when. And those are, those are not really the kinds of opportunities that I’m the best at. It’s when it’s all a timing game and not really, uh, you know, a macro kind of energy, uh, prediction that I can make

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with the energy transition, what is the most ideal outcome?Like what does it look like long term? Is it all renewables in 50 years? Like what does it actually look like?

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Yeah, no, the, the, the portfolio of energy has been fairly steady for 150 years. And what happens is that every new technology does not.Replace the old technology. It just builds on top because the energy demand worldwide continues to build. And what happens is that these, these primary energy sources, for example, if you go back far enough, wood or coal,Remain as part of the entire energy portfolio, they decrease to a certain degree in terms of how much of the portfolio, the total global portfolio they, they take, but they don’t disappear. None of them ever disappears. Woods is still around as like a, a 2% part of the global.Energy portfolio, you wouldn’t believe it, but it’s true. It’s coal, you know, will certainly last for another, you know, 100 years as part of the energy portfolio. Oil, certainly as far as the eye can see. But again, we’re adding on to and trying to remove some of the preeminence of some of these.So there was an age, the golden age of coal and there was a golden age of oil. And now we’re hoping we’re moving into a golden age of, of natural gas, and then a golden age of renewables and, and then a golden age of, of nuclear and a golden age of hydrogen. Who knows what the, the next thing will be. But there will be a next thing and it’s all.always additive. It’s never kind of does not subtractive. You don’t add another, um, you know, piece of the energy puzzle and then sort of the other one just disappears and goes away. That’s not the way it works. Well,

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it makes sense. Uh, I want to know what you like right now in the energy space. Um, what are you looking at? What are the investment opportunities that you think are good right now?

16:14 spk_1

Yeah, again, these are, you know, the pummeled in many ways, the when, when interest rates went up over the, you know, during the pandemic and post pandemic.When they were trying to, you know, staunch inflation, um, yeah, uh, most of the renewable stocks, solar particular, got hammered because they were dependent for buildouts on low interest rates. And when the interest rates went up, they got destroyed. And I, you know, in a lot of ways, none of these have come back to to the place that they should be.Provided that the IRA was still operating, which it’s not.So to me, that is the opportunity. Again, the timing is impossible for me to see. For example, first solar is now again $180 stock. It was, you know, down as far and it was it was up closer to $300 and now it’s, it was down, down to 100 and whatever, $110 or whatever. And now it’s back towards $180 even.There it seems to me like stocks like this, which I can use because it’s a big, big kind of uh market cap on that stock like that has not even gotten close to reaching its potential. No matter what kind of deal gets cut with China on solar panels, no matter what kind of incentives are, are ultimately, uh, figured out in the federal government, um, when Trump leaves or, you know, if he gives in on the IRA and starts to let money flow again.I think again, these things are inevitable. It’s the timing that’shard.

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All right, well, guess what? We got a great transition now because it is time for a runway showdown featuring two versions of our guest today. On the left catwalk is airplane pilot Dan in his bonanza flight cockpit with autopilot humming, eyes sweeping the gauges as he plots a 500 mile cruise in this aircraft.That first aimed toward the skies in the 1940s. That is the archetype for our long term horizon investor corset risk check tweaks measured in hours, and on the right catwalk is symphony conductor Dan in tuxedo tails, baton flashing, cuing strings, brass and percussion, each and every second. That is our short term trader or speculator reading crude oil’s key changes and.Real time, ready to shift tempo on a beat. Both versions of Dan keep the energy market airborne, but the question is which style carries which markets in 2025? In other words, which markets are more suited to long-term investment and which are are are better suited for short-term investment or speculation right now,

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Dan? Well,I mean, I speculation.is, is almost too easy because everybody is aware, you know, it’s, you’re either in Solana and Cardano, you know, those are the, I consider those like commodities. Those trade now like the commodities in my old times used to trade. That’s like natural gas in, you know, in 2010. The new widow makers, the new widow makers, great. I mean, you know, and I don’t, I don’t, I don’t understand.Any of the meme stock stuff because I can’t talk about that. But, you know, in terms of speculating, I think that, you know, there’s no doubt about it. Crypto is the place to be. I, I’m not, I’m not that much of a, you know, a Luddite that I can’t see that coming. Now, in terms of long-term investing, uh, in the energy space, again, I, I think that we laid out those, those two areas, you know, you, you make a long-term.to, uh, invest money and continue to invest money in some of these solar and and nuclear stocks because they’re the long-term, uh, opportunity. And then you also put in the bond portfolio, some of the old fashioned Chevrons and Exxons and so forth, which will yield you, you know, this 4.5, 5% interest rate and a quality return.And for as far as the eyes can see, so those I guess are the two ways that I would, I would play the markets right now.

19:54 spk_2

Ihinted at this earlier, but what do you, how much do you think I’ll use just energy as an example. Energy should be in your portfolio, even if it’s not futures. ETFs like what, what chunk of

20:04 spk_1

the

20:04 spk_2

pie?

20:05 spk_1

I was very, you know, I was very bullish on energy for many, many years, obviously, and not just because I was, you know, this was my specialty. I am far less bullish on energy now. I don’t think it should be more.than 10 or 15% of your stocks held in your portfolio at this point. There was a time when I thought, and there was a time when, you know, energy as part of the, you know, the Dow Jones Industrial index was close to 50% of, of what the what the market gap was for 80s

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we had a concentration problem in, in uh energy.

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No question about it. Now it’s far less. So, you know, obviously, even from that point of view, you should have far less in, in even, you know, traditional and renewable energy together.My best view is, you know, 10 to 15% of your total portfolio right

20:51 spk_2

now. I’m curious how you’ve built your career in in commodities. I don’t know how do you, did you always know you that’s what you wanted to study? No, I don’t think it’s a dream when you when you were 5

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years old when you were a

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kid you were 5 years old. I wanna look at oils. No,

21:08 spk_1

no, I, I arrived there, you know, in many ways. I was actually, I was actually slated to go to medical school andAnd I had a, you know, in at one of the medical schools and I said to my father, I’m not going to school for another 4 years.And he said, well, your friend is down in the, you know, Wall Street doing something silly with oil or gas or something. Why don’t you go check in with him? I swear that’s the way it kind of happened. There’s a friend of mine in college. He was on the, he was down at the, on the floor and he started begun to trade. He brought me down and I, I stood there and I clerked for a while and I was taken in by the flashing numbers and and spinning lights and it was, you kind of math oriented, so that kind ofAgreed with me and it was, you know, it was exciting and, and that was it. Uh, that’s where I was. That’s where I started. Yeah, I really was.

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And we will end right there and I think I learned a lot today, uh, specifically that the traditional oil market not going anywhere, anywhere, not a surprise, but there’s so much built on top of it, um, and all we are doing are adding to is adding to our energy future in different ways and also taking your comments about the inflation reduction Act.With a grain of salt here in terms of energy and green energy investments, I think that’s very important as well. And then just getting back to the fundamentals of what is a futures contract, really appreciated your insights here, Dan. So make sure you check out all our other episodes of this video podcast on the Yahoo Finance site and mobile app. We are also on all your favorite podcast platforms. Be sure to like, leave a comment, and subscribe wherever you get your podcasts. We will see you next time on Stocks in translation.