The Energy Question Episode #58: Josh Young, CEO Of Bison Interests

 

David Blackmon [00:00:04] Hey, Welcome to The Energy Question David Blackmon. I’m your host, David Blackmon and my special guest today is return guest Josh Young the Founder and CEO of Bison Interests, a really smart guy, one of the must-reads my morning every morning as soon as I get onto Twitter or I guess we’re calling it X now, some people are I can’t really get used to that, but I’m trying.

David Blackmon [00:00:28] But if you’re on Twitter, you’re not reading Josh Young’s feed you’re really missing out just in terms of you always have as great perspectives and information to share related to what’s happening in the Oil and Gas and Energy Space. And Josh, thank you for doing our show again really appreciate it.

Josh Young [00:00:47] Yeah, thanks for having me, and thanks for the kind words.

David Blackmon [00:00:50] And you just celebrated a wedding anniversary, right?

Josh Young [00:00:53] Yeah, that’s right. It’s you know, I feel like there’s so much sort of negativity sort of in the news and on social media and so many sort of bizarre takes. It just felt appropriate to share sort of a nice positive life moment that’s, you know, values affirming and just sort of a nice, nice thing to share. It doesn’t all have to be doom and gloom, it doesn’t all have to be sort of, hey, buy this stock and short this and, you know, the companies crashing and whatever other nonsense that you see on Social Media so, yeah, thank you.

David Blackmon [00:01:27]  Well, that’s wonderful, that’s wonderful. I’m about to celebrate my 42nd anniversary here this month, and I’m really excited about that myself. Before we go into the Q&A just remind folks what you do at Bison Interests, what your business objectives are, and how you run the place.

Josh Young [00:01:46] Yeah. And none of this is an offer or anything like that. Securities are highly regulated. And, you know, the goal of this is just to have an enjoyable, hopefully, educational conversation.

Josh Young [00:01:57] So at Bison, we invest in publicly traded Oil and Gas companies. We’ve been in business for about eight years and we manage money. We have to manage money for endowments. We currently manage money for family offices and high-net-worth individuals.

Josh Young [00:02:12] And we deploy money in a value strategy, sort of like a young Warren Buffett, where we try to find things that are really mispriced relative to their transaction value.

Josh Young [00:02:23] And in the over eight years that we’ve been running Bison, we’ve done quite well. We’re up over 100% over that eight-year period versus small-cap oil and gas stocks being down about 70% in that.

David Blackmon [00:02:36] Okay.

Josh Young [00:02:36] So we’ve earned significant outperformance doing that again, this isn’t a solicitation, just sort of an explanation of the background.

Josh Young [00:02:43] And I think it’s really important for some of the other stuff we’re going to talk about. There are many people that prognosticate on commodities, on markets, on stocks. And I think one of the best things that anyone can do is to go and find the track record of those folks, both on their predictions as well as in whatever sort of their main business is because I’ve found that success is sort of the best predictor.

Josh Young [00:03:06] And that’s one of the things we do is try to find management teams that are highly successful with assets that are successful and sort of bet on that continued success. And so I think it’s really important in the context of policy analysis, economic analysis, financial analysis, and my assessment to find people that have good track records and that’s, I think, a good reason to share sort of what we’ve accomplished for Bison.

David Blackmon [00:03:27] Well, you mentioned Warren Buffett, so let’s go there first. I was going to save that for later. But you know, since you brought it up, he recently talked about his interest in it. You know, he’s long had pretty significant positions in Oxy and Chevron, some other oil and gas companies, and big shale producers in the United States.

David Blackmon [00:03:46] And he’s talking about his desire to increase those positions now at going forward. And I wonder, you know, When you read that kind of story about Warren Buffett what is your reaction that what are the factors, do you think, at play there for his desire to get even bigger into the energy space?

Josh Young [00:04:05] Yes. So I was at the Berkshire Hathaway annual meeting, not this year, but last year when they disclosed a significant addition to their Occidental Petroleum position, as well as, I think, a significant addition to the Chevron position.

Josh Young [00:04:18] And this was very different from what commentators and followers of Berkshire thought would happen and had sort of guessed would happen coming into that. And so and actually around that, I spoke at a conference or on a panel at a sort of a meeting just outside of the Berkshire meeting with a lot of the Berkshire attendees and they gave out $250 WTI oil hats.

Josh Young [00:04:47] And so I wore my $20 WTI oil hat to this Berkshire Hathaway annual meeting, which was sort of a like almost like a cultish gathering of tens of thousands of people who are really trying to learn from Buffett. But also in many cases, a lot of people, almost sort of quasi-worship him. Right? They sort of allude to like the Oracle of Omaha.

Josh Young [00:05:06] So here you have Warren Buffett buying huge stakes in oil stocks that was sort of the biggest change in his portfolio. And people didn’t even understand that I got no recognition for this 250 WTI people don’t know what WTI was. They don’t understand that this was this sort of astronomical. You know, it wasn’t I didn’t design that. I sort of I do think oil prices do eventually get to their all-time high.

Josh Young [00:05:29] So the reason that matters is when you get back to sort of what’s happening, people still don’t understand what Buffet’s doing. And most of Buffett’s followers don’t want to bet on commodities. They’ll tell you repeatedly, we don’t like cyclical, we don’t like commodity backs, we don’t buy producers, you know, all these endowment managers and family offices that’s not us. They’ll worship Buffett and invest in Berkshire and put, you know, invest according to Swensen and ignore what they actually do.

Josh Young [00:05:56] So what is Buffett doing when Buffett has created generational wealth in his oil and gas investments, right? Like not just as an overall general asset value investor he’s made enormous, enormous returns in his oil and gas investments.

Josh Young [00:06:09] What he said, generally speaking, Buffett has multiple layers of a sort of what he says versus what he actually needs. What he said was these stocks are very cheap and I’m buying them and the market’s giving me a gift.

Josh Young [00:06:20] What he also said in that meeting, along with what Charlie Munger said, is that we are running out of oil and we were running out of cheap oil and that makes sense to sort of go buy cheap stocks where the management teams are doing smart things like returning capital and investing in high return projects.

Josh Young [00:06:36] And he sort of connected the dots between his purchases of Oxy in particular. He’s actually subsequently cut some of his Chevron position but continues to increase his Oxy position.

Josh Young [00:06:47] And so you’re my takeaway from that is I think there are great opportunities in oil and gas. I think that some of the best investors alive today are deploying capital into oil and gas.

Josh Young [00:06:57] When I look at what Buffett says also about small-cap stocks and how if you were running $100 million today or $50 million a day, he would be buying smaller cap stocks that have a much higher expected return relative to what he expects Berkshire to do. Just given the size of the money he’s deploying.

Josh Young [00:07:14] My interpretation of that is, look, you can go buy Oxy for, let’s say six times 20, 24 expected EBITDA or, you know, 12 or 15 times that expected cash flow for 2020, free cash flow for 2024 or you can go buy small-cap stocks like we are at two times EBITDA and let’s say three or four times free cash flow. And Young Buffett, I believe, would do that, and in the fifties and sixties, he did that. So, you know, there’s a history, I think in form.

Josh Young [00:07:43] So I know it’s sort of a little bit of a tangent and sort of a more complete answer around that question. But I think it really I think it bears watching closely when someone like Buffett gets heavy into a sector that most people don’t associate them with and don’t understand what they’re doing beyond sort of a superficial level.

David Blackmon [00:08:04] Well, that’s always interesting, man. I mean he’s been so successful with his strategies. It’s just always fascinating to me that he continues to hold these big positions in domestic oil companies. And I think it’s a good sign for the health of the industry.

David Blackmon [00:08:20] I wonder what your assessment of the health of the Domestic Industry is, it seems and I’ve written about this recently. It seems that they’re pretty much in a sweet spot, particularly the shale people in a situation where they’re not they don’t have heavy pressure to really go drill a bunch of new wells or leased any more than they need to maintain production. And they’re really generating a lot of free cash flow and good returns to investors, paying dividends, buying back stocks.

David Blackmon [00:08:50] And I think they’re kind of most of the bigger companies, the corporations are happy to try to stay in this space for as long as they can. That’s how it seems to me. I wonder what your perspective on that is.

Josh Young [00:09:01] Yeah, I think I think it needs to be said that the Regulatory framework in the US is getting radically worse for business, not just for oil and gas. And I just don’t think it’s talked about I guess it’s considered politically incorrect.

Josh Young [00:09:16] It used to be politically incorrect when the last president did this did it because of his racial and ethnic background. Now it’s just politically incorrect because, you know, I guess all the media is left-wing and just doesn’t allow one to say this. But the Regulatory Environment is extremely onerous and getting way worse really fast and that’s very scary.

Josh Young [00:09:37] And I think in the history of business and the history of economies, that usually is the lead up to really sort of scary bad stuff from a market perspective and from an economic perspective.

Josh Young [00:09:49] So it’s worth saying that because what you’re seeing right now is rigs dropping rapidly, but at the same time the companies are actually doing pretty well. And when you have is this weird I sort of was joking about this on Twitter where you have OPEC plus where you have Biden essentially, you know, sort of stumbling into this because it does not look intentional short of forcing oil producers to produce less by making it so difficult to Drill, so difficult to get Permits and just and people will argue about this whenever.

Josh Young [00:10:19] But it’s just obvious when you look at any sort of specifics the joke is that about the Obama Administration that the only people who thought that they were pro-business were people who didn’t run businesses like you were employees you might have thought they were fine, but if you owned a business or ran a business or were responsible for business, you knew it was terrible.

Josh Young [00:10:36] They tripled the amount of Regulation during the Obama years, and they’re doing it right now at a faster pace. Partly, I think they see the polls in that Biden is lagging substantially, and also his age and the viability of his Vice President for as a presidential candidate.

David Blackmon [00:10:52] Yeah.

Josh Young [00:10:52] But if it were me, it needs to be said, right, because this is something that’s just not covered. I think people don’t understand there’s no collusion between the oil companies. It’s not like they’re trying to keep their supplies down they all want to there’s this sort of burning desire to lose money by drilling uneconomic wells. These guys, all of it doesn’t ignore what they’re saying they love it they want to do it and they can’t.

David Blackmon [00:11:13] Right.

Josh Young [00:11:14] And they really can’t and it’s not they’ll just point you to other stuff they’ll claim them whatever. They really are having trouble getting Permits they’re really having trouble maintaining their workforce they’re having all kinds of issues and it’s getting the trajectory of the regulatory onus is getting really, really bad.

Josh Young [00:11:31] And you can also see it where when you look at the Gulf of Mexico, offshore incremental activity versus offshore activity, offshore Brazil, West Africa, various other places around the world, you can see the impact of the regulatory burden where you’re not seeing the same sort of uplift in activity in the Gulf of Mexico.

Josh Young [00:11:49] And I think if you just take a second to think about that versus onshore, it’s the same sort of problems, maybe lesser when it’s not on federal leases, but it seems sort of issue.

Josh Young [00:12:00] And so I think when people think about gasoline prices are going up at the pump, partly it’s because of higher taxes, but it’s partly also because of this regulatory burden. It’s not that oil companies don’t want to adequately supply the market. From my perspective as an investor, they have this burning desire to lose money to oversupply the market always. And so.

David Blackmon [00:12:19] Always. Yes,.

Josh Young [00:12:20] You know, just ignore what they say. Look at what they do. They just the same people are running these companies and they’ve just done the same nonsense over and over again, and the government’s preventing them from doing it and that’s why we have higher oil prices and struggling lower supply.

Josh Young [00:12:35] And so you to the extent, you know, the question is, hey, what are these big companies doing? That’s what they’re doing they’re really struggling to try to oversupply the market and they’re having geologic issues and they’re having regulatory issues and so they’re sort of in this limbo in this thesis where they’re actually earning more profits than it seems like they would like to.

Josh Young [00:12:53] And you can also tell from the composition of their boards and so on. I mean, governance is abysmal across public companies, particularly oil and gas. You have all these sorts of people that don’t belong on the boards who are there for sort of politically correct reasons or whatever, who are not dedicated to earning profits or delivering returns to shareholders.

Josh Young [00:13:12] So, again, and it’s weird because I invest in this space, right? But I try really hard to focus on teams and on boards and so on, where they’re very likely to actually do the right thing or where they’re just buyout targets.

Josh Young [00:13:23] And so, you know, they can have their ten-person board with their diversity initiatives or whatever nonsense unrelated to the oil and gas industry and still potentially do really well if there is a large discount to recent transactions, and if transaction values are rising in their areas.

David Blackmon [00:13:37] Yeah. And to your point about the Regulatory Environment becoming impossible, I did an interview recently. I can’t say who it was, but a CEO of one of the big contractors to the industry, not an Oil and Gas Company.

David Blackmon [00:13:52] And I asked, you know, is this administration what it’s doing, kind of harming your ability to have confidence in the predictability of the U.S. legal and regulatory system, which has been such an asset for our country in terms of attracting capital to invest in our economy? Right.

David Blackmon [00:14:11] And he said, well, it would be really charitable to say it’s doing damage the damage is already done, and we have no confidence in terms of being able to plan our business. You know, four, four years into the future we have no confidence in the stability of the U.S. legal and regulatory system anymore. And that’s not just something, as you say, it relates to oil and gas. That’s something that’s impacting really every industry in this country.

David Blackmon [00:14:38] Nobody knows what the law is going to be or how it’s going to be interpreted or applied by this administration. And when you can’t know that, it becomes really hard to make these multi-billion dollar investments over 7 to 10 years, which you have to do quite often in the energy space. So it’s a really big problem. I mean, I think you’re absolutely right about that.

Josh Young [00:15:01] Yeah. And it goes it goes downhill It’s not just the federal government that’s doing it as the federal government sort of misbehaves and oversteps its boundaries local governments do, too.

Josh Young [00:15:11] You know, with talking about Twitter, they rebranded it as X and then they put a lit up sign at the top of their building in San Francisco, in the city of San Francisco, freaked out.

Josh Young [00:15:21] And the joke was and they’re assigning all kinds of penalties and fees. The joke was all they needed to do is make the sign out of heroin, and needles and the city would not they would just ignore it.

Josh Young [00:15:32] And so the lawlessness and sort of the perverse, you know, selective prosecution, selective enforcement is really problematic. It’s it’s tough. And it’s one of those things people think, oh, that’s terrible to say about drug users, that when they’re violent criminals, they should go to jail because they have this thing wrong or that thing.

Josh Young [00:15:51] The problem is when you don’t enforce laws and when you selectively enforce them, you end up in a situation where it’s very hard to deploy capital or to hire or to various other things. And then, you know, the cost to borrow skyrockets even for the federal government, which I know you had mentioned you were interested in chatting about as far.

David Blackmon [00:16:11] Sure. Yeah. And let’s start. But one last question the point about that is San Francisco is a city that doesn’t even police people defecating on the streets, but it’s worried about the sign Elon Musk put up strictly for political reasons and we all know that’s true anyway.

David Blackmon [00:16:27] Let’s go to the Strategic Petroleum Reserve and the mismanagement of it by this administration, the Energy Department yesterday, the day before we’re recording this, announced that it was canceling a contract to purchase 6 million barrels of oil after, you know, it drew down the SPR to dangerously low levels, lower than any time in 40 years last year.

David Blackmon [00:16:50] So now they’re making at least. Giving, giving nods to maybe starting to refill it. And they had a contract for 6 million barrels. They canceled it yesterday at the same time, or just after API announced a big drawdown and U.S. stocks. And then today, of course, EIA announced an even bigger drawdown, 17 million barrels for the previous week.

David Blackmon [00:17:17] I wonder if you think there’s a cause and effect relationship between those events that the big drawdowns and stocks convinced DOE that maybe this isn’t the time to be buying oil and putting it in in the SPR.

Josh Young [00:17:32] Yeah, I think I think the way the SPR has been managed recently has been astonishingly sort of scary and bad. The goal of a strategic resource or reserve is to use it strategically, not for your personal reelection as a politician, but to use it for the benefit of the strategic position of the country.

Josh Young [00:17:54] And so here we are in this situation where there’s elevated geopolitical risk to oil supplies from Russia and other sources where we’re doing these weird deals with Iran and Venezuela, who are our enemies and in some cases violence against our citizens and against our military and strategic interests we’re funding them.

Josh Young [00:18:14] And, you know, it’s just so strange to do that and dump our Strategic Petroleum Reserve as we did and not fill it when prices fell, subsequent to dumping it, and then to again, raise this regulatory onus, lower the boot of government on these producers, it’s really it’s this it’s sort of like if you looked at how do you damage the US strategic position most.

Josh Young [00:18:40] This is one of those things where it would be hard to come up with a path that would actually you’d be able to execute that would be more destructive to US energy security than this path.

Josh Young [00:18:52] And there’s many people have trouble saying that they talk around it or they deny it, their political affiliations or whatever look, I would hate this if Trump did it. I hate that Obama did it. I hate that, you know, with his Regulations, I hate that Biden’s doing it with dumping these reserves it’s just wrong.

Josh Young [00:19:09] And it’s not about whether I make more money or less frankly, I’m making more money from all this, from this mismanagement. And oil prices are likely to go way higher because of this. I’d rather not. I’d rather make money from stock selection and just sort of normal course of business.

Josh Young [00:19:23] But there is a reality here, which is just horrible, horrible mismanagement. Oil prices did fall after the reserve was released last year. And so there was this idea that, hey, Biden was this great oil trader we didn’t rebuild it so he’s not and I don’t know that he’ll ever really refill it and there may have been damage from withdrawing as much as they did.

Josh Young [00:19:45] So it’s really I think it just requires attention and it deserves words and steers time and resources dedicated to this because it’s so bad. And there are many people who risk their lives and some people who lost their lives to defend the US, to defend what we stand for. And it’s really just so shocking and awful to see it, just that that sacrifice wasted and given away essentially for minor political gain between two political parties is.

David Blackmon [00:20:18] Just really minor and really, really the wrong reasons to even be talking about the SPR is ah as you say, it’s there for strategic purposes and for dollar. Oil prices are not a national emergency.

David Blackmon [00:20:32] And the time to refill it, of course, would have been earlier this year when oil prices were low. And you could if you had an opportunity to buy low. Now, you know, over the last month and the month of July, oil prices jumped up by 15%. WTI, as we’re recording, this is over $81 again, it was as low as 67 recently.

David Blackmon [00:20:51] And, you know, the administration had a real opportunity to buy low and now prices are back higher. And it seems as if to me anyway and in my way of looking at things, it seemed like the July price increase was mainly related to the latest round of cuts by mainly Saudi Arabia and Russia, but also some other OPEC countries during that month.

David Blackmon [00:21:18] I wonder what your view is and where you see do you think the market has actually given these indicators we’ve had this week? Is the market undersupplied right now?

Josh Young [00:21:30] So the weeklies are totally unreliable, both from API and unclear exactly what the problem is. Specifically, there’s been sort of different problems and at some point you just say, hey, this is not it’s fun to watch. Totally. I’ve been joking on Twitter about bearish draws and bullish builds and these weekly. Is it just nonsense, the market? It’s just not. It doesn’t mean what you think it means.

David Blackmon [00:21:56] By the way, my favorite part of that is everybody thinks you’re 100% serious When you do that and respond with these crazy responses you get. It’s totally hilarious.

Josh Young [00:22:05] Anyway, go ahead. But again, the point is, I mean, like, it’s sort of funny, but also sort of sad, right? The point of government collected and reported data is for people to have accurate information, to be able to make business decisions based on in order to promote stability, which promotes employment.

Josh Young [00:22:22] Here we have the Fed trying to kill employment, we have regulators increasing instability, and then data providers that are providing unreliable data and so the big news was not this weekly.

Josh Young [00:22:34] This weekly is irrelevant, just like every week is irrelevant the big news was the restatement of meh demand up. I think they restated 900,000 barrels a day for oil demand. They restated the oil supply down by a little under 100,000 barrels a day they restated NGL supplies and the natural gas liquids supply up by 40,000, but still a huge restatement that was very bullish.

Josh Young [00:22:58] And weirdly, these weeklies get way more attention, even though they’re sort of I mean, just throw a dart, and might I mean, it’s a little better than that, but not a lot and they’re really confusing.

Josh Young [00:23:10] You know I regret I think a couple of years ago I was sharing these and talking about them. I didn’t think they were that meaningful then they’re really not meaningful now the data quality’s maybe even worse now than they were than it was then.

Josh Young [00:23:21] But again, this sort of thing, it sort of it leads to instability, which leads to less capital investment, which leads to less supply, which leads to higher prices. So when you think about all this stuff, yeah, oak opaque is cutting because they were worried about weak demand and there was weaker demand in China and Europe than people expected.

Josh Young [00:23:40] But demand in the U.S. has actually been strong and global demand has been pretty good. I actually don’t think OPEC needed a cut. We already were in a deficit situation for the second half of this year on a consensus basis that’s not sort of a unique vice and thing. The Consensus was a 2 million barrel a day deficit before this million barrel a day.

David Blackmon [00:24:00] And it almost seemed like they were panicking when they did that to me. But, you know, I’m no.

Josh Young [00:24:05] Yeah I don’t know, I think they just wanted to make it very, very clear that there was going to be an undersupply in the second half of this year. And they were very clear. And the weird thing was people reacted, like you said, where they thought, oh, they’re panicking, therefore it’s bearish. And the reality is they just thought the narrative was wrong they probably saw this is that we’re seeing what everyone else was saying.

Josh Young [00:24:24] I mean, when the EIA and the IEA both forecast a 2 million barrel a day deficit, these guys always understate demand and overstate supply are almost always the last few years. It’s like 95% of the time in a phenomenon. Yeah, not 100%, but almost always.

Josh Young [00:24:42] And so, I mean, why would you cut supply into that? And everyone misinterpreted that. Like the world is ending and the world was not ending. They just were annoyed about this nonsense and they wanted to just make it so obvious that the world was going to be undersupplied that would be clear to everyone.

Josh Young [00:25:01] And the weird thing was it was sort of it was nonproductive think people just took it the wrong way. Now it’s helpful that there are giant draws, but then it’s also unhelpful because now there’s more spare capacity, at least in the short term. And so in theory they could turn back on oil, which is actually bearish and so there’s there’s some complexity in it.

Josh Young [00:25:19] And the big thing there that’s really interesting is they’ve been starting to hire these rigs from places where they don’t belong in the Persian Gulf. Right. If you’re pulling a jack-up rig from the North Sea and you’re sending it to the Persian Gulf, there is something and we’re starting to hear reports.

Josh Young [00:25:33] So one of the nice things we’ve put out this analysis of Opec+ is spare capacity a couple of years ago. And one of the nice things about having done that is we get some inbounds from engineers and service providers and others in various places to help us understand what’s actually happening.

Josh Young [00:25:47] And we’re starting to hear some very concerning things about watering out and other issues in Saudi Arabia and Kuwait and so we’re here. I mean, these are things they will not say, but these are consistent with spending lots of money on rigs at the rigs that don’t even sit for the like why do you need a high spec harsh climate rig in the Persian Gulf where there are almost no waves and it’s certainly not freezing?

Josh Young [00:26:18] And when you look at just the number of rigs that are being used and the activity, it’s not people who have this idea that it’s like the Beverly Hillbillies. You shoot the ground and oil spreads out and the cost curve in Saudi Arabia, it looks like, and Kuwait and maybe some other spots actually is way higher.

Josh Young [00:26:33] So the other day of a non-economic reason potentially is cutting back on supply, which is to sort of reconstruct, to give their fields a little bit of a breather, to pump more water down, maybe some surfactants to sort of figure stuff out a little bit.

Josh Young [00:26:48] So they actually may not 100% be economic and again, we’re hearing that from multiple different sources that sort of form a mosaic that indicates that there may be real supply problems, at least the short term, solving it through just throwing a lot of money and drilling a lot of wells.

Josh Young [00:27:06] But it’s still it’s worth noting because when people that is like you’re saying that is that indicates panic or indicate whatever. Sometimes it doesn’t actually mean what you think it means. And so I think there are multiple drivers for their decision to cut.

David Blackmon [00:27:21] Well, we’ll have to keep an eye on that I knew Matt Simmons and this watering out you’re talking about was exactly what he was predicting, although he predicted it much sooner in his book Twilight in the Desert that was published in, what, 2004 I think three.

Josh Young [00:27:38] You know, I have it on my shelf back here.

David Blackmon [00:27:40] So, yeah, he’s one of these people, all guys. He was wrong, you know, in real time but maybe he was just ahead of his time. Anyway.

Josh Young [00:27:47] If you think about that sort of phenomenon, that that’s not something it’s sort of one of those things where you can predict an earthquake in Southern California, where I’m from, and you’re going to be right it’s just a question of time.

Josh Young [00:27:59] So it’s one of those things where he was making a geologic, essentially an engineering prediction. He was totally off. I mean, he did some re-engineering, right? He was often the impact of the re-engineering and the improvements and so on. But he wasn’t wrong that there is a limited amount of oil down there.

David Blackmon [00:28:14] Oh, sure. Yeah.

Josh Young [00:28:15] Over time that gets depleted and the requirements of the technology improvements rise more maybe than they can actually deliver over time. And again, that’s evidenced by the activities that Saudis are engaged in. If there was all this oil in the water, why on earth would they be spending hundreds of thousands of dollars a day per offshore rig to go drill offshore like, well, what’s the if you have all this oil, what anymore?

David Blackmon [00:28:39] Good question.

Josh Young [00:28:40] This seems very simple, but also sort of obvious that that would be the case. And then it’s just a question of degree and deliverability and then when you see something like a non-negotiated additional temporary cut.

Josh Young [00:28:53] I think you really have to look closely because I think there’s a decent chance that that’s actually not economically motivated, that’s engineering motivated, geology motivated. And, you know, again, like the market is more than balanced we’re seeing draws and weekly dry would read too much into but that restatement for May when you project it forward and look at job numbers and GDP numbers for the US and so on I mean that it looks pretty positive for a demand perspective.

Josh Young [00:29:19] One other thing, freight activity we predicted this and observed this in May, that freight activity in the US was bottoming and we’re now starting to see some of the freight specialists on it. We discovered it is bottoming green shoots. It’s like you can see the chart had sort of come down and was flatlining and was starting to bump around that’s what you look for, for sort of bottom, a potential recovery.

Josh Young [00:29:42] And things have gotten so bad for freight that we finally we figured, hey, this is sort of about as bad as it’s going to get. We’re starting to see green shoots. So additional truck activity, additional retail activity and that’s very positive from the oil demand perspective because diesel has been a global weak spot.

Josh Young [00:29:59] And as we see increased trucking activity, they’re trucking something right. They’re trucking goods in some cases from China. Right. So that’s increased manufacturing that’s going to be increased diesel consumption and other consumption in China it sort of fixes a lot of this problem that people have been observing, and it’s going to mean probably much higher actual demand numbers for June and for July than people were projecting potentially way higher demand.

Josh Young [00:30:23] Again, absent some sort of big event and we may be in a big event right now, it’s unclear, but Treasuries are down 4% in the last two days. The long bond, which is the opposite of what most macro forecasters were predicting, I didn’t predict this, but a couple of my close friends were on it. They were like, Hey, this is going to happen this is a high probability of happening.

Josh Young [00:30:44] And I think there is a risk that we have some sort of big event where we miss some of this forecast demand. But at least for right now, things look really good from the demand side and insufficient from the supply side.

David Blackmon [00:30:58] Well, I got one last question. We’re up against time but Fitch downgraded US. Yeah, the U.S. credit rating the day before we’re recording this, What do you think the impacts of that could be on us?

Josh Young [00:31:09] Yeah. So? So Fitch downgraded in my assessment because Price moved so. Okay. All these follow the price drives narrative. So the price for these 30-year bonds and for TLT, the sort of ETF, which by the way I own some put options on in a small sort of hedge position it’s important that I disclose that and I’m not recommending that.

Josh Young [00:31:29] So If the price fell for bonds and then the ratings are falling, which is what you see for stocks, stock prices go up. Analysts raise their target prices, stock prices fall, and analysts lower their target prices and lower recommendations. Same thing for bonds the price is falling why is the price falling?

Josh Young [00:31:44] Because we’re in a giant deficit and we’re sort of mismanaging the economy and the Federal Reserve is sort of messing up that we’re in this sort of just weird position where bonds, many people were piling into bonds because they were told to by their financial advisors they were told to buy X, Y, Z forecaster that they’re paying all this money to buy this nonsense subscription services that are sort of just ripping them off or whatever.

Josh Young [00:32:07] No one knows the future, right? But you can sort of understand positioning. And the positioning was very, very far towards too many people owning 30-year bonds out of concern of a financial crisis or a concern of the economic slowdown, as that hasn’t happened so far, as well as there’s more issuance by the Treasury to fund this giant deficit for these programs that burn money and create very little value. As that happens, there is an increasing risk of bond prices collapsing and yields skyrocketing.

Josh Young [00:32:38] And again, I don’t know that that will necessarily happen I just have some insurance essentially, in case we see a really big move in these long bonds. But the thing that you can easily observe is positioning and every one of these things, they were very, very heavily owned and many people were recommending and owning the short and the short-term bonds as well.

Josh Young [00:32:58] You know, the money market ownership and stuff has skyrocketed as well. And when everyone owns one thing and no one owns the opposite, and it seems crazy to even talk about the opposite, you know, that’s a term generally, in my experience, when the opposite gets really interesting and compelling.

Josh Young [00:33:13] So that’s Fitch is just following the price movement the price sort of told you what Fitch and others would do. And it’s not nothing. It’s a really big deal. And again, it sort of ties back and this is sort of, I guess, the last comment for this and I appreciate the time.

Josh Young [00:33:29] when you have bad policies, they lead to bad outcomes. And the worse the policies are and the worse the regulations are, the more risk of an extra bad outcome. And seeing Treasury bonds sell off like this, it’s a signal that we may be in for a particularly bad outcome from these failed policies.

Josh Young [00:33:50] Maybe it’s way higher oil prices, maybe it’s just bond prices crashing and bringing down the stock market and sort of triggering some other sort of crisis. Maybe it’s something else and maybe it’s nothing and hopefully, it’s nothing that Jim, people have.

Josh Young [00:34:02] So, you know, I’m not a doom profiteer either, but this is a large move in the 30-year rate over a very short amount of time. And, you know, TLT broke under 100. It’s down to as it was recording, I think 96 or so in two days, which is an enormous move for securities that are essentially expected to have almost no volatility and they’re supposed to be risk-free.

Josh Young [00:34:25] So that’s a really big deal these are government bonds, 30-year bonds. They’re supposed to be pretty safe. And if there’s a downturn, they’re supposed to provide you protection by trading up quite a bit. And that’s not happening right now and it’s worth focusing on.

Josh Young [00:34:40] And there is this left tail risk from the price movement and again, the Fitch thing, it’s just letting you know, if you weren’t following the price that this is happening and potentially, hopefully, nothing more on this, but there is the potential for more to come and it’s scary and I think it’s worth watching.

David Blackmon [00:34:59] Well, now you know, folks, why you need to follow Josh on Twitter and everywhere else. He is this kind of insight is not something you can get from just anyone. Josh, thank you so much for being my guest again let’s do it again here in a few months and see where we are closer to the end of the year.

Josh Young [00:35:15] Great. Thanks a lot, David. I appreciate it.

David Blackmon [00:35:17] All right. And thanks to the Sandstone Group for Hosting our Podcast and to the U.S. Oil and Gas Association for being our sponsor and to our extraordinary producer, Eric Parel. I’m David Blackman and that is all for now.

 

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