Energy Sector Bullishness Amid Iran Conflict (with Dani Burger, Matt Miller)

Asks how the Iran war is impacting Smead's energy-heavy portfolio and what needs to happen for the bullish oil thesis to accelerate.

Dani Burger

Cole Smead

The hero is the investors. The world needs oil, and North America is in a much better position as a producer now than during the 1973 oil shock. High prices won't cause demand destruction.

Compares $147 oil in 2008 to $218 in today's dollars, noting fuel consumption efficiency has improved.

Asks if oil would crash back to $70 even with a ceasefire, and how to pick producers given the WTI/Brent spread.

Matt Miller

Cole Smead

Focuses on upstream producers for highest returns on capital. Free cash flow is exploding as prices rise. The market has been slow to adapt, but concern is growing.

Notes that energy, a capital-intensive industry, is now producing higher returns than SaaS businesses. Cites examples like Suncor and APA to show how valuations have shifted with prices.

Cole Smead

The Iran conflict is a long-term structural impediment, unlike Venezuela. Iran is the 'tail that wags the dog' for oil shipments.

Argues the futures curve at $70 two years out is not enough to incentivize new big projects, so producers will 'over earn,' making stock buybacks and mergers attractive.

Asks about the bearish view on banks due to yield curve and private credit concerns.

Dani Burger

Cole Smead

Dismisses the idea that private credit problems will cripple the economy. The average American's wealth is in their house, not stocks, and mortgage underwriting is solid.

Says the real economic buffer is massive government deficit spending (7% of GDP) on Medicare, Social Security, and defense, which no politician will cut.

Cole Smead

The economy will do 'way better than people expect,' but risk assets (equity/beta) held by institutions and rich people will underperform.

Uses the 1970s analogy: only 1974 was a real recession despite multiple shocks earlier in the decade.

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