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MAY 2022
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PHOTOGRAPHS: SHUTTERSTOCK
ENERGY ISSUES 12 | Is Nuclear Fusion Within Our Grasp?
16 | Gas Price Gouging or Grandstanding?
24 | Energy Trader: Tracy Shuchart
14 | Carbon Capture: The Ultimate Alternative
18 | How Not to Start an Energy Revolution
28 | Apple’s EV Advantage
Physicist L.J. Reinders says the technology seems unlikely to become a viable and scalable green energy alternative.
Scientists should pivot to perfecting carbon capture technology to scrub greenhouse gases from the atmosphere, an author says.
Critics are heaping blame upon the oil companies for painfully high prices at the pump, but an economist maintains that markets set the price.
ESG mandates are preventing petroleum companies from getting the capital for exploration and production.
On America’s energy security, the intermediate-term outlook for oil prices and the energy stocks she owns today.
Apple has changed communications forever. Will its rumored electric vehicle initiative alter transportation, too?
May 2022 | Luckbox
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The Luckbox editors tested low-caffeine alternatives to energy drinks. See p. 33
editor in chief ed mckinley managing editors yesenia duran elizabeth schiele associate editors kendall polidori mike reddy editor at large garrett baldwin technical editor james blakeway contributing editors vonetta logan, tom preston mike rechenthin creative directors katherine bryja, tim hussey contributing photographer garrett roodbergen
trends life, luxury & the pursuit of happiness LIQUID ASSETS
33 Big Sip Energy ROCKHOUND
36 Rock Returns to Rockville 38 Wet Leg: Best New SXSW Artist SENTIMENT
40 Should Individuals Invest on Their Own? FINANCIAL FITNESS
43 Garbage In, Garbage Out DIVERSIONS
44 Route 66: Electric Avenue CALENDAR
45 Comics, Rockville & Roadtrips
editorial director jeff joseph
trades&tactics actionable trading ideas NORMAL DEVIATE
47 Do the Math: Nuclear Meltdowns INSERT
CHEAT SHEET
Dividend Play
FUTURES
49 Crude Over Crypto THE UNLUCKY INVESTOR
50 More Math: Sustainable Trading
comments, tips & story ideas feedback@luckboxmagazine.com TACTICS BASIC
58 Greenbacks & Green Energy CHERRY PICKS
59 6 Ways to Look at Energy Stocks TECHNICIAN
60 Solar Securities TRADER
63 Meet Mike Niemotka
THE PREDICTION TRADE
52 Betting on the Oscars, Grammys & Rain DO DILIGENCE
54 Debatable: Future Reliance on Oil and Gas
FAKE FINANCIAL NEWS
8 It’s Not Easy Going Green
THE LAST PICTURE
64 Retro Reboot
contributor’s guidelines, press releases & editorial inquiries editor@luckboxmagazine.com advertising inquiries advertise@luckboxmagazine.com subscriptions & service support@luckboxmagazine.com media & business inquiries publisher jeff joseph jj@luckboxmagazine.com Luckbox magazine, a tastytrade publication, is published at 19 N. Sangamon, Chicago, IL 60607 Editorial offices: 312.761.4218 ISSN: 2689-5692 Printed at Lane Press in Vermont luckboxmagazine.com
Luckbox magazine
PHOTOGRAPH: GARRETT ROODBERGEN
MACRO VIEW
56 Oil, Ukraine and the Krone On the cover: Illustration by Pau del Toro
@luckboxmag 2019 & 2020 Best New Magazine Folio Award for Custom Content
Luckbox magazine content is for informational and educational purposes only. It is not, nor is it intended to be, trading or investment advice or a recommendation that any security, futures contract, transaction or investment strategy is suitable for any person. Trading securities and futures can involve high risk and the loss of any funds invested. luckbox magazine, a brand of tastytrade, Inc., does not provide investment or financial advice or make investment recommendations through its content, financial programming or otherwise. The information provided in luckbox magazine may not be appropriate for all individuals, and is provided without respect to any individual’s financial sophistication, financial situation, investing time horizon or risk tolerance. luckbox magazine and tastytrade are not in the business of executing securities or futures transactions, nor do they direct client commodity accounts or give commodity trading advice tailored to any particular client’s situation or investment objectives. luckbox magazine and tastytrade are not licensed financial advisers, registered investment advisers, or registered broker-dealers. Options, futures and futures options are not suitable for all investors. Transaction costs (commissions and other fees) are important factors and should be considered when evaluating any securities or futures transaction or trade. For simplicity, the examples and illustrations in these articles may not include transaction costs. Nothing contained in this magazine constitutes a solicitation, recommendation, endorsement, promotion or offer by tastytrade, or any of its subsidiaries, affiliates or assigns. While luckbox magazine and tastytrade believe that the information contained in luckbox magazine is reliable and make efforts to assure its accuracy, the publisher disclaims responsibility for opinions and representation of facts contained herein. Active investing is not easy, so be careful out there!
May 2022 | Luckbox
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ENERGY ISSUES You make a grown man cry You make a grown man cry You make a grown man cry Spread out the oil, the gasoline I walk smooth, ride in a mean, mean machine
—Start Me Up, The Rolling Stones, 1981
N
early half of Americans (47%) are worried about the availability and affordability of energy. That’s more than double the number who felt uneasy about it two years ago when concern reached its lowest level in the history of the Gallup poll. Many apparently blame President Joe Biden for the nation’s energy woes. In fact, polls indicate 38% of Americans don’t support his handling of energy policy. We’ll soon see how the public feels about the president’s latest response to high gasoline prices. He’s releasing a million barrels of petroleum from the Strategic Oil Reserve every day for six months. That sounds like a lot, but it’s not nearly enough to fuel the nation’s 19.7-millionbarrels-a-day consumption. Plus, it seems minuscule compared with the 97 million barrels the world consumes in the average day. Still, the administration had to do something. Inflation’s up, poll numbers are down and motorists are financially stretched. High energy prices place a special burden on the poor. Root causes? Well, most of us understand energy problems aren’t solved easily. But that didn’t stop Luckbox from creating a
special issue with diverse perspectives on the timely topic. Our Fake Financial News columnist kicks things off by taking a long ride in her boss’s Tesla. She finds a lot to like but couldn’t abide the hefty price tag. Readers also meet a physicist from the Netherlands who set out to write a book about the miracle of nuclear fusion as a clean and bountiful source of power. He ended up as a skeptic who’s convinced scientists and politicians are wasting time and money pursuing an impossible dream. Their best efforts can’t possibly bring it to reality in time to become a reliable and scalable source of clean energy. In another article, that same fusion skeptic expresses optimism for carbon capture as a way of isolating and storing CO2 to keep it out of the atmosphere. But he doesn’t claim that scrubbing the air of greenhouse gases will be easy. Humankind has already released far too much carbon into the air, and emissions are continuing unabated. The contrarian attitude of those articles continues with a story by the resident Luckbox economist. He does his best to dispel what he considers the myth of price gouging by oil producers, maintaining instead that supply and demand set prices.
Thinking Inside the Luckbox
Luckbox is dedicated to helping active investors achieve skill-derived, outlier results. 1 Probability is the key to improving outcomes in the markets and in life.
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2 Greater market volatility brings greater opportunity for traders and investors.
3 Options are the best vehicle to manage risk and exploit market volatility.
4 Don’t rely on chance. Know your options because luck smiles upon the prepared.
Our economist holds forth more than once. In another article, he asserts that ecological guilt-tripping and ESG (environmental, social and governance) mandates have dried up funding for fossil fuel exploration and production, thus contributing to higher prices for a barrel of oil and a gallon of gas. The situation makes politicians’ demands for increased supply ring hollow, he contends. Next comes an interview with a widely followed trader who’s also an energy analyst. Here, she recommends specific energy stocks to buy and shares her intermediate-term outlook for the price of oil. Spoiler alert: it’s a big number. The energy report concludes with an update on Apple’s anticipated foray into electric vehicles. Will the company that revolutionized communications do the same for transportation? Time will tell. And time will also tell when the nation and the planet can become carbon neutral. In the words of Chris Wright, CEO of Liberty Energy, “the sun doesn’t always shine and the wind doesn’t always blow.” The transition to net zero won’t happen anytime soon. Ed McKinley Editor in Chief
Jeff Joseph Editorial Director
Two ways to send comments, criticism and suggestions to Luckbox Email feedback@luckboxmagazine.com Visit luckboxmagazine.com/survey A new survey every issue.
Luckbox | May 2022
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OPEN OUTCRY HOW IMPORTANT IS IT FOR AMERICA TO REDUCE ITS DEPENDENCE ON FOREIGN SOURCES OF ENERGY? Pew Research America Trends Panel March 2022
Luckbox Readers Survey March 2022
Should be a top priority
69%
80%
Should be an important but lower priority
24%
15%
Should not be too important
5%
4%
Should not be done
1%
1%
SCAN THIS
There’s more to Luckbox than meets the page.
Overall, I enjoyed the Hype issue and its diverse coverage of the topic across our culture. The ARK (Cathie Wood) investment article was somewhat of a hatchet job because disruptive tech quite often isn’t recognized by the investor market until after the fact. The metaverse article rightly identified the confusion in the current space and Facebook’s premature entry. –Hans Erickson, Grosse Pointe Park, MI Liked the article on mean reversion by Michael Gough. Really enjoyed the poker article on “pot odds” by Tom Preston. –Scott Supak, Cherry Valley, NY I love it. It’s giving Americans [a chance] to speak freely and voice their own opinions on our government policies—good or bad. —Alfred Peter Soucy Jr., Lake Wales, FL
I like that you will take on most any topic and the readers have no clue what may be in the next issue. The surprises keep me on my toes and the artwork is often cool or great. —Kent Lacey, Old Lyme, CT Love the Art & Design issue. My wife is a very successful artist but pricing her art has always been a point of contention between us. After reading this issue, she has raised her prices 25% and it has not slowed sales or interest. —John Welty, Albuquerque, NM Love Luckbox Magazine for its variety of topics, poll results, trading and non-trading articles. Keeps me on my toes to keep up with things coming down the road. —Deanna Jones, Alexandria, VA
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I enjoy the fact that the articles aren’t overly politicized in one direction or another. —George Norwood, Luling, IN Luckbox keeps things in perspective. No spin. Refreshing commentary. —Jay Steele, Bloomington, IN
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4 Your thoughts on this issue? Take the reader survey at luckboxmagazine.com/survey
Enjoy the additional content
4/8/22 3:55 PM
SHORT INTEREST
ENERGY “Apple is rumored to be working on a fully autonomous self-driving vehicle that will not require user intervention, going further than any other car manufacturer to date. It’s a highly ambitious project, and rumors indicate Apple wants to design a car with no steering wheel and no pedals.”
SEE PAGE 28
—MacRumors, March 18, 2022
“If this were just ordinary inflation, we might see prices go up—but prices at the pump have gone up why? Chevron … Exxon, SEE PAGE 16 have doubled their profits. This isn’t about inflation, this is about price gouging for these guys.” ―Sen. Elizabeth Warren, D-Mass., on Joy Reid’s MSNBC show
$10B
SEE PAGE 14
—The amount set aside for carbon capture in the $1.2 trillion Infrastructure Investment and Jobs Act
+34% to +143%
SEE PAGE 24
—Q1 returns on eight stock picks energy trader Tracy Shuchart shared with Luckbox
SEE PAGE 18
“We shouldn’t have politicians and bankers telling us we don’t need oil and gas five years from now.” —John Hess, CEO of Hess Corp., a petroleum company
SEE PAGE 12
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THE HOLY GRAIL OF ENERGY GENERATION MIGHT FINALLY BE WITHIN OUR GRASP —Headline from The Daily Beast, April 6, 2022
Luckbox | May 2022
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166.6 million
SEE PAGE 33
The number of 60-kilogram bags of coffee consumed worldwide in 2020 and 2021 —Statista
SEE PAGE 38
13 MILLION+
The number of U.S. streams for Wet Leg’s first single Chaise Lounge. Wet Leg is The Rockhound’s pick for Best New Artist at SXSW
50%
The European Union’s targeted increase in solar capacity in 2022 alone —24/7 Wall St., March 8, 2022 SEE PAGE 60
39%
of respondents have given serious thought to installing solar panels at home —Matching survey response results from Pew Research’s American Trends Panel and the Luckbox Readers Survey, March 2022
SEE PAGE 60
May 2022 | Luckbox
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FAKE FINANCIAL NEWS
It’s Not Easy Going Green Copious torque and a clear environmental conscience can’t compensate for Tesla’s painfully high price, mediocre interior appointments and that uneasy feeling called range anxiety By Vonetta Logan
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He goes on to explain that it’s hard to gauge the demand for EVs because of ongoing supply chain issues. Elements like lithium, cobalt and nickel—all key components of EV batteries— remain in short supply. Searching the Tesla website shows an inventory of zero Model 3s available for immediate purchase within 200 miles of Chicago, and it indicates a five-month wait for delivery of the base model now listing for $48,490. A single Model S Plaid is available for Chicago delivery, but its list price is $155,990. Wow, I hope I still
have energy to drive my new Tesla after I sell most of my vital organs. All of the cost-saving arguments about EVs compared with ICE (internal combustion engines) seemingly go out the window when buyers have to pony up more than four times the annual median U.S. personal income of $35,997. The 2022 Nissan Leaf, the least-expensive point of entry to the U.S. EV market, lists for $27,400, or around $20,000 after the federal EV tax credit of $7,500. By 2040, EVs will account for 58% of
PHOTOGRAAPHS: REUTERS
“W
hen this sucker hits 88 mph, you’re gonna see some serious shit.” While Emmett “Doc” Brown in the movie Back to the Future was talking about a souped-up DeLorean time machine, his prophetic comment could also apply to electric cars. While this column has afforded me a multitude of opportunities, none has been greater than emailing my boss, Tom Sosnoff, and writing, “Hey, I need your Tesla for a few days, no questions asked.” As gas prices climb higher than views on a viral TikTok video, web searches for electric vehicles reached an all-time high in March, according to Google Trends, a site that analyzes searches. But are electric cars delivering kilowatts of salvation, or are they niche toys for the rich? As geopolitical risk, climate trends and the need to look like a character from Tron coalesce, EVs are caught in the brightest spotlight ever. What are their shining standout qualities, and what are EV proponents trying to keep hidden in the shadows? Even before rising prices at the pump got a Russia-fueled boost, global consumers were already EV curious. Sales of EVs doubled across the world in 2021 compared with 2020. “What we can say with certainty is that EVs mostly are selling as fast as automakers can make them,” Nick Nigro, founder of Atlas Public Policy, a firm that advises businesses on issues, said in a published report. “The signals from the market to the consumer, from high gas prices to volatility in the oil market, are only going to accelerate the interest in [the EV] transition.”
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global passenger vehicle sales, according to Bloomberg New Energy Finance. Personally, I had never driven a purely electric vehicle until I borrowed a 2021 Tesla Model S. Getting acclimated to the Tesla takes a minute, but it’s not overwhelming. The car doesn’t have many buttons. Inputs are handled via the car’s 17-inch touchscreen. A column-mounted lever shifts the car into park, drive, reverse or neutral. Like a grandmaster in a karate film, the Tesla senses when the driver approaches carrying the key FOB and the vehicle automatically pops out the door handles and folds out the side mirrors. There’s no on/off switch, which is a little unnerving when you’re walking away from the car for the first time. Hands down, the single greatest attribute of electric cars is the freakish abundance of torque. Negotiating a highway on-ramp feels like qualifying for Talladega. Punchy power pushes you back into the seat and brings a grin to your face as you smoke a minivan off the line from a red light. Driving is fun again. On my first day with the Tesla, all I did was commute to and from the office and then run some errands around Chicago. It was a “typical” day in the life of an EV owner. My work commute is less than 15 miles roundtrip. EVs are great for stop-and-go traffic, but I got annoyed that every minor adjustment has to be made via the touchscreen. I can find the front defogger button in my car with my eyes closed, but it takes several swipes and taps on the Tesla touchscreen to locate that control. Good luck trying to get the sequence right when you’re driving. Tesla uses 12 ultrasonic sensors to detect nearby cars, trucks and pedestrians, but the driver has to look at the colorized screen behind the wheel to determine if a vehicle is lurking in the blindspot. I much prefer the little orange light that just lights up in my side mirror when there’s a car in the blindspot. To enable Tesla’s full self-driving mode, FSD, you’ll need to pony up an additional $12,000 to get auto parking, automatic lane change capability and “Smart Summon,” which enables the car to leave a parking space on its own and approach the driver. So, you’re now at $60,490 for a base Model 3 that can drive itself. That doesn’t include premium paint colors or aero wheels. On the second day, I decided to go on a mini road trip across three states to see how readily available electric chargers were in
rural Michigan and Indiana. Tesla’s navigation app has a “trip” feature that guides you along a route where Tesla chargers are supposedly available. I made it all the way to New Buffalo, Michigan, which is 65 miles from my home, with about 175 miles left of the car’s 400-mile range. Worth noting: The stated range is not the actual range because it fluctuates according to factors such as how fast you drive and how hard you accelerate. I found a free, 48-amp charger at a distillery, but its rate of replenishment was 36 miles for each hour on the machine, so it would take more than six hours to charge back to full! I let it charge for 45 minutes while I took photos and got back on the road with just under 200 miles of range remaining. Hitting the highway for the trip home definitely used more juice than the backroads I traveled to meander to Michigan. I arrived home with about 90 miles of range still available. I searched Tesla’s navigation app for superchargers and discovered there weren’t any on the South Side of Chicago. I found a supercharger on the fifth floor of a parking garage in the South Loop, and this one charged at 70kW, or about 278 mph of replenishment. Even at that level, it took more than an hour to recharge. For some reason, I believed electric cars could charge in 20 minutes, about the time it takes to stop for gas, use the restroom and get some snacks. But that’s not the case. I didn’t use a single drop of gas in three days, but I made concessions to go that green. The Model S is small, and visibility from inside of the car isn’t great. On the highway, I was concerned that drivers in SUVs and trucks might not see the little car. Unlike most vehi-
Is the Tesla one of the coolest cars I’ve ever driven? Sure. Is it the nicest? Nope. cles, Teslas don’t make noise, which means no one can hear them coming. Also, range anxiety is real. Just because Tesla says there’s a charger a few miles away doesn’t mean that it’s not broken or in use by another motorist. Besides, you may not have quite the range you were expecting. Also worth
noting, electric cars don’t work as well when temperatures drop in winter. Plus, the excitement of instant torque dulls when you realize you spent more than $100,000 for a car with interior finishes that quite frankly aren’t that impressive. In early 2018, engineering consultant Sandy Munro,
who tears apart and reverse-engineers cars to assess quality, issued a brutal appraisal of the Model 3, citing “flaws that we would see on a Kia in the ’90s.” Even Musk agreed. Is the Tesla one of the coolest cars I’ve ever driven? Sure. Is it the nicest? Nope. Tesla reigns as the dominant player in EVs in the United States, but there’s room for competitors to come in and steal the crown. Issues that include cost, availability and feasibility still put EVs out of reach for most American consumers. They’re definitely sexy and flashy with their Super Bowl ads and celebrity adherents, but most people can get by with green alternatives like riding bicycles and taking public transportation. We have to reduce dependency on fossil fuels or else agree to burn this planet to ashes and start over again on Mars. We need more ways to go green, but they shouldn’t cost all the green you have. Vonetta Logan, a writer and comedian, appears daily on the tastytrade network and hosts the Connect the Dots podcast. @vonettalogan
May 2022 | Luckbox
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Luckbox looks at fusion, carbon capture, gasoline prices, ESG capital, energy stocks and the Apple car ILLUSTRATION BY PAU DEL TORO
ENERGY ISSUES
SOLAR
Luckbox | May 2022
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BOTTLING THE SUN Can nuclear fusion save the planet?
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CARBON CAPTURE The case for sequestering CO2
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GOUGING OR GRANDSTANDING? The real reason for high gas prices
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THE CONDITION THE TRANSITION IS IN ESG is starving Big Oil for capital
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THE ENERGY TRADE A pro trader reveals her energy sector portfolio
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APPLE’S EV ADVANTAGE Transforming transportation
4/8/22 1:25 PM
The Wishful Thinking of Nuclear Fusion Energy By L. J. Reinders
“ I would like nuclear fusion to become a practical power source. It would provide an INEXHAUSTIBLE SUPPLY OF ENERGY, without pollution or global warming.”—Stephen Hawking 12
ILLUSTRATION: PAU DEL TORO
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on’t expect scientists to harness the power of nuclear fusion anytime soon. Fusion occurs when atomic nuclei join to create a heavier atom, releasing power that lights up the stars, including the star we call the sun. Researchers have a lot of challenges to meet before they can control that process efficiently on Earth and use the resulting energy to light up homes. But they continue to try. JET laboratory in the United Kingdom announced in February that scientists there doubled their previous record by squeezing together two forms of hydrogen to create a “mini star” yielding “59 megajoules of energy over five seconds or 11 megawatts of power,” according to the BBC. By some estimates, that’s enough energy to power more than 700 homes. The BBC suggests fusion could hold the key to unlimited supplies of low-carbon, low-radiation energy. However, L.J. Reinders, who has identified basic flaws in the International Thermonuclear Experimental Reactor project, suspects that’s highly unlikely in this century.
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ENERGY
Nuclear fusion is the process that powers the stars, including our own sun. As soon as these stellar processes started to be understood (in the early 1920s), people began dreaming about harnessing their power both for the benefit and for the destruction of mankind. The development of the hydrogen bomb made the latter part of this dream come true. We now possess bombs that can destroy the Earth and all that is on it in a matter of hours or less. The other part of the dream, which concerns an inexhaustible clean source of energy that will save mankind from the horrors of climate change and pollution, has not yet become a reality. For the past 70 years, nuclear scientists and engineers have been trying to create this source of energy on Earth. So far in vain. From the early 1950s, promises have been made that its unlimited benefits will be available in at most two decades. There is no possible scenario in which fusion will make a sizable contribution to the energy mix in this century, let alone before or around 2050 as required by the Paris Climate agreement. Fusion will not make any positive contribution to the mitigation of climate change, nor will fusion energy be as clean and limitless as claimed by its proponents. If it ever becomes a reality, at the earliest in the course of the next century, electricity production from nuclear fusion will most likely be so expensive and so complex that it will never become economically viable. The public trust in nuclear fission as a power generation option has suffered a lethal blow and nobody seems to be able to turn the tide. This is unfortunate as many have argued that decarbonization of electricity generation will be a tough job, if not impossible, without nuclear fission plants. Whatever the rather fanatic anti-nuclear lobbyists are saying about nuclear fission power, it remains a fact that in the past (1980s–1990s) several countries, including France, Belgium, Switzerland and Sweden, managed to radically cut their greenhouse gas emissions by installing
There is no other endeavor or project undertaken by mankind on which ENERGY AND MONEY have been spent for close to 100 years without any tangible results, and only a dim prospect of success in another 50 years or so. nuclear power. These countries now enjoy comparatively low carbon dioxide emissions, while the countries that have been installing renewable energy (solar and wind) in the last 20 years have hardly been able to cut their emissions and are still at a much higher level. The bad reputation of fission power also has consequences for nuclear fusion, which likes to present itself as the safe nuclear option. That may well be the case, but it is a hazardous strategy as everything nuclear is viewed with suspicion by the public. Germany is a case in point, where the Green Party also opposes nuclear fusion as an energy option. There is no other endeavor or project undertaken by mankind on which energy and money have been spent for close to a hundred years without any tangible results, and only a dim prospect of success in another fifty years or so. It is the next, and probably the last step in the attempts to harness the ‘inexhaustible’ source of nuclear fusion energy. It is undoubtedly a great scientific project, a jewel of technology, as the proponents like to call it, that has resulted in admirable, albeit not always smooth cooperation and collaboration between the leading nations on Earth, making it into a globe-spanning, transnational technology project. But there is a great chance that it will finally go down into the history books as one of mankind’s greatest follies, born out of sheer arrogance, a
Sun in a Bottle? … Pie in the Sky!: The Wishful Thinking of Nuclear Fusion Energy, L. J. Reinders, 2021 Excerpted with permission from Springer Nature Switzerland AG. These excerpts have been edited for length.
true case, if ever there was one, of misplaced confidence. Not satisfied with the daily bath of energy coming from the Sun, man wants to bring the Sun to Earth and tap its source of energy at home and at will, but it is doubtful that this vision will ever come true. (Reinders weighs in on the International Thermonuclear Experimental Reactor also known as ITER.) ITER is too big. The core of an ITER-based power plant would be at least 60 times more massive than a conventional nuclear fission core. And that is just the core! ITER is too complex. The machine has roughly one million parts. Imagine the cost of doing maintenance and repair on such a machine. ITER is too expensive. More than $58 billion, while any fusion power plant may well cost considerably more. ITER is too late. Delays are slowly running into decades now, and whatever fusion may do in the future, it will not be able to contribute anything to combating climate change. It just comes too late. ITER is not safe and not clean. ITER creates two safety issues: plasma disruptions and quenching, apart from radioactive waste and radioactive fuel. If disruptions accidentally happen, it will be expensive and dangerous. The second problem is quenching, when a superconducting magnet suddenly becomes a normal electromagnet and releases its energy. ITER’s coils contain the same energy as 10 tons of TNT. L. J. Reinders has enjoyed a varied and illustrious career in theoretical high-energy physics, earning a Ph.D. from Utrecht University in 1976 and doing postdoctoral work at research centers in Europe and Japan until 1988. He’s currently at work on a book about carbon capture and storage.
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Better Than Fusion: Carbon N Capture
uclear fusion won’t produce usable power until at least the end of this century, long after unchecked climate change could wreak untold damage, according to L.J. Reinders, a European researcher, attorney and author. So, instead of chasing the pipe dream of fusion, scientists should concentrate on perfecting carbon capture technology that would scrub greenhouse gases from the atmosphere and deposit them deep underground, says Reinders, who’s writing a book on the subject. “We should put much more money into these [capture] technologies,” he maintains. “The concentration of carbon dioxide in the air at the moment is 450 parts per million. It’s almost twice what it was before the Industrial Revolution.” He applauds the United States for setting aside $10 billion for carbon capture research in the bipartisan $1.2 trillion Infrastructure Investment and Jobs Act that President Joe Biden signed into law on Nov. 15. But not everybody’s happy about the That’s when small-scale prospect of capturing the offending gases. Some carbon capture began in submarines. It later moved environmentalists oppose carbon capture because it to space stations. could prolong the use of the fossil fuels they’re trying to banish. Yet, if society strips carbon from the air efficiently and pumps it into old oil and gas fields, there’s no The cost of insulating need to reject coal, oil, gasoline and natural gas, nearly every house in Norway to reduce natural gas Reinders observes.
1930s
$307 billion consumption.
AN EARLY-STAGE TECHNOLOGY
Whatever one thinks of carbon capture, the science behind it hasn’t come of age. Removing a ton of carbon dioxide from the air costs about $500, five times the value of a ton of carbon traded on the European Emissions Trading System. Still, observers expect the cost to come down as the industry matures and its methods become more refined. Switching from today’s chemical
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$100
The value of a ton of carbon, according to the European Emissions Trading System.
34.8
Worldwide annual CO2 emissions for 2020 in billions of metric tons.
PHOTOGRAPH: REUTERS/TODD KOROL/FILE PHOTO
Although far from perfect, modules that sequester CO2 could help limit climate change By Ed McKinley
Shell is capturing carbon dioxide in Fort Saskatchewan, Alberta.
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capture of carbon to a mechanical process would bring major improvement, Reinders says. “To capture the carbon is easy—that goes automatically,” he notes. “But to take the carbon out again, once it has been absorbed in this chemical stuff, that costs a lot of energy.” The problems don’t end with the high cost or the need for energy. “I have a feeling that chemistry will always be too slow,” Reinders laments, “so that it will be very hard to scale.” Just the same, commercialization has already begun. Companies engaged in the pursuit include Climeworks, a Swiss concern that operates facilities in Iceland; Carbon Engineering, a Canadian company with an extraction device in the United States; and Global Thermostats, an American firm. All three of these privately held companies have intriguing backstories. Climeworks is helping Microsoft reduce its carbon emissions to zero by 2030. The companies also intend to cleanse the atmosphere of as much carbon as Microsoft L.J. Reinders has produced in its entire history, a feat they hope to accomplish by 2050. The Microsoft name also surfaces in discussions about Carbon Engineering, which counts former Microsoft CEO Bill Gates among its financial backers. Global Thermostats’ co-founder and CEO, Graciela Chichilnisky, an Argentine-American mathematician, wrote the book Reversing Climate Change: How Carbon Removals Can Resolve Climate Change and Fix the Economy.
UPSIDE AND DOWN
So what could come of the efforts of those three companies, combined with the labors of everyone else engaging in carbon capture? Reinders envisions a day when governments and businesses position carbon-sucking modules alongside the water treatment plants and solar panel arrays that already dot the landscape. But challenges stand in the way of that proliferation of anticarbon installations, chief among them the sheer volume of carbon dioxide fouling the air. Science has yet to discover a good way to reuse carbon removed from the atmosphere. Humankind needs to scrape thousands of gigatons of gases from the sky, far more than industry needs as an additive to concrete or as a bubble-maker for fizzy drinks.
Clearing the Air of What’s Harmful A process called “carbon capture” grabs carbon dioxide at a source like a coal-burning power plant and prevents it from entering the atmosphere. Here’s how it works: Emissions are pumped through a solution that absorbs carbon dioxide but allows other gases, such as nitrogen, to pass through. The solvent containing the CO2 then flows into a boiler so heat can separate the carbon from the solution. The emissions also pass through membranes that act as filters to sort gases according to the size of their molecules. Once the carbon dioxide is separated from the rest of the emissions, it’s stored underground or used in manufacturing.
Engineers could press carbon into service in the creation of biofuels, possibly developing a newly viable source of energy. But the carbon would only find its way right back into the atmosphere through combustion, Reinders notes. On what some would consider a positive note, Norway is pumping natural gas out of a porous aquifer 800 meters beneath the bottom of the North Sea, removing carbon from that natural gas and pumping the carbon back down. Storage or reuse aside, economic factors could eventually help carbon capture push aside other approaches to going green. A project in Norway seems like an especially good candidate for cancellation, according to Reinders. The country plans to spend $307 billion to insulate nearly every house there, thus reducing the carbon produced by burning natural gas by 60 million tons annually. At $100 per ton, that comes to only $6 billion a year, resulting in a staggeringly long payback period. But humanity will find a way to deal with carbon or else face the consequences. Unless most nations deliver on their promises to combat climate change, the planet may become too hot by 2050 to yield enough food, according to a United Nations Intergovernmental Panel on Climate Change report issued last month. Perhaps carbon capture can help, and that’s precisely where Reinders would like scientists to shift their attention. “We must do this to save the world—if the world is indeed in danger,” Reinders says with a laugh that sounds a bit forced.
The concentration of CARBON DIOXIDE in the air has reached 450 parts per million, nearly double its level before the INDUSTRIAL REVOLUTION. May 2022 | Luckbox
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Gas Price Gouging or Grandstanding?
Some politicos blame greed for soaring prices at the pump, but petroleum industry analysts search for a deeper cause By Garrett Baldwin
Senate Majority Leader Charles Schumer demanding an investigation into “illegal profiteering, anti-competitive business practices and price gouging within the oil and gas industry.” They plan to hold public hearings to question industry leaders, an approach that doesn’t make sense to Boston University professor Robert Kaufman of the Institute for Sustainable Energy. “The world price for oil is set on several heavily traded exchanges where there are lots of buyers and sellers and they set the price for crude oil,” Kaufman contends. Oil-dependent industries, like agriculture,
Oil and gas companies earned an AVERAGE MARGIN of 4.92% in 2021. 16
plastics, chemicals, homeopathy and healthcare, compete for every barrel during a war and supply crunch, he notes. Still, laws against taking advantage of scarcity are on the books in 37 states, Guam, Puerto Rico, the U.S. Virgin Islands and the District of Columbia. Most of the statutes concern shortages caused by natural disasters or other emergencies. In most states, watchdogs step in when they see evidence of price gouging. Instead of drafting similar legislation at the federal level, elected officials of every political persuasion prefer to place blame. Democrats plan to question oil company CEOs publicly about prices that are actually set by global markets and international traders. Republicans will continue to blame Biden for a market-driven price his administration can’t control. Meanwhile, the GOP is seizing the opportunity to sign up voters at gas stations.
PHOTOGRAPH: USATNSYNDICATION
A
merican consumers are paying a lot more than usual for gasoline, but economists don’t lay the blame on price gouging. The market is driving up prices because D.C. politicos banned crude oil imports from Russia—the third-largest oil producing nation—in the wake of its invasion of Ukraine. But President Joe Biden and a lot of members of Congress don’t see it that way. “American oil and gas companies should not—should not exploit this moment to hike their prices to raise profits,” Biden declared during a Feb. 24 speech at the White House. Even if they were overcharging, there’s no federal law to stop them. Yet Sen. Elizabeth Warren, D-Mass., and Rep. Alexandra Ocasio-Cortez, D-N.Y., are joining a chorus of lawmakers calling for action. Rep. John Garamendi, D-Calif., and 31 other members of Congress, sent a letter to House Speaker Nancy Pelosi and
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ENERGY
7.9%
How much the consumer price index jumped in February from the year before, the sharpest such increase in four decades.
-152%
The average net margin (loss) of oil and gas exploration companies during Q2 2020.
37
The number of states that have outlawed price gouging on gasoline.
And the independents? They’re just trying to drive to work.
“COME ON, MAN”
Twenty-four of the top oil and gas companies made a record $174 billion in profits in 2021 (these are nominal figures), according to The Guardian. But a deeper look into macroeconomics shows how price volatility and drilling incentives affect an energy company’s bottom line. The average price margin of oil and gas companies was 4.92% in 2021 as the industry rebounded from losses during the COVID-19 outbreak, according to CSIMarket. However, profit margins are volatile because commodities experience sharp price swings. During the surge in prices in Q4 2021, the sector enjoyed net margins of 31.3%. In Q1 2021, the sector experienced net margins of -21%. In Q2 2020, when producers had to pay $32 to have someone take crude away from them from the delivery point in Cushing, Oklahoma, net margins were -152%. The U.S. energy supply chain is complex. Oil companies pump crude from the ground and then push it through a multidimensional system of pipelines, storage facilities and refineries. Once gasoline leaves
the refinery, it’s piped to massive storage containers. Then it’s hauled by trucks (which use increasingly expensive diesel fuel) to gas stations where it’s stored underground in 20,000-gallon drums. It’s quite a journey from the oil field to an SUV. There’s a lag between a change in the cost of crude oil and a change in the price for gasoline at the pump. If oil prices decline, gas stations pay a lower price for refined gasoline once it passes through the supply chain. It just takes time. The gas that station operators purchase from refineries typically was refined weeks or even months earlier.
COMPANIES AREN’T GOUGING
Critics accuse companies like ExxonMobil, Shell and Chevron with gouging at the pump, but about 60% of stations branded with the industry’s big names are actually independently operated, according to the National Association of Convenience Stores, a trade group for the convenience and fuel retailing industry. Those operators buy gasoline from the branded oil company at wholesale and pay marketing royalties. Unbranded operators buy gasoline wholesale and shop for the best price. Although unbranded gas stations tend to have better margins, they can face higher prices when supplies tighten. Most independent operators (57.1%) own just one store and thus face fierce competition in local gasoline markets, especially in high-traffic areas. State regulators step in if they suspect anticompetitive practices or collusion. And customers drive to a nearby competitor if prices are a few cents lower. The biggest surprise about gas stations is that they barely make money selling gasoline. About 80% of gas stations in the U.S. are convenience stores that happen to sell gasoline. IBISWorld, a firm that researches companies, says gas stations make an average net margin on gas and diesel fuel
States have checks and balances to protect customers from PRICE GOUGING.
Fact or False? Persistent high gas prices don’t prove price gouging—and neither do comparisons to 2008 gas prices. Experts said it takes time for gas prices to respond to drops in crude oil costs, and that’s not necessarily indicative of price gouging. The post’s numbers are cherry-picked; the difference in prices isn’t as great as it suggests. The current situation differs from 2008 because increased labor costs, the pandemic, additional taxes and inflation were all already contributing to rising gasoline prices before Russia invaded Ukraine in February. Direct comparisons lack important context, experts said. We rate these posts False. —Politifact
of just 1.4%. Compare that with retailing’s pre-pandemic net profit margin of 5%, as calculated by financialrhythm.com. If a gas station makes a net profit of $0.07 per gallon on 4,000 gallons per day at $5 per gallon, that’s a total daily profit of $280. On the other hand, merchandise sold inside gas stations represents 30% of revenue and 70% of profit. The biggest sellers in gas stations and convenience stores include cigarettes, soda, beer and food service offerings like those spinning hot dogs and the microwave nachos. So, if higher gasoline prices don’t kill you, the menu will.
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Lack of capital is preventing the petroleum industry from satisfying the public’s desire for abundant oil and natural gas By Garrett Baldwin 18
P
resident Joe Biden’s administration and the cable news talking heads blame $115 per barrel of oil and $5 a gallon of gas on a panoply of causes that include the reopening of the economy, the Russian invasion of Ukraine and “price gouging” by suppliers. But anyone working in oil and gas finance knows those reasons are spurious. Prices are rising because the energy sector is hungry for capital investment. The shortage of funds could threaten international financial stability and accelerate a global commodity shock that would make the transition to a clean energy economy even more complex. Already, rising oil and gas prices have fueled unsustainable price increases in industries ranging from fertilizer and food to shipping and
PHOTOGRAPH: ALLE RECHTE VORBEHALTEN
How NOT to Start an Energy Revolution
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trucking. The ripple effect will be felt throughout 2022 and may cause dramatic political shifts worldwide. Investors who exploit those disruptive trends in the flow of capital will benefit as capital dislocation in the energy sector accelerates and produces high returns for certain industry players.
ESG INTERVENES
In January, Saule Omarova, a Cornell University law professor and former Treasury Department advisor, asked the Biden administration to withdraw her nomination as head of the Office of the Comptroller of the Currency. Omarova, who grew up in Kazakhstan and earned a bachelor’s degree in Moscow before coming to the United States for graduate school, had made headlines when her statements from previous years about oil and gas investment became public during the confirmation process. “The way we basically get rid of those carbon financiers is we starve them of their sources of capital,” she had reportedly said. Omarova’s critics argued that she wanted to bankrupt the U.S. oil and gas industry, but anyone paying attention to the sector should know that energy producers were already bereft of capital. The shortfall began a decade ago when the environmental, social and corporate governance (ESG) movement gained momentum in its effort to decarbonize the global economy. As investors shifted funding to climate change mitigation, borrowing costs rose for oil and gas producers. Ten years ago, capital costs ranged between 8% and 10% for energy projects whether they were for oil and gas or for renewables, according to Goldman Sachs analyst Michele Della Vigna. By the end of last year, capital costs for renewable projects ranged from 3% to 5%, while long-cycle oil and gas projects were paying 20%, she said. Renewable power generated more investment than traditional carbon fuel sources for the first time last year, Della Vigna noted.
SOCIALLY CONSCIOUS CAPITALISM
Socially responsible ESG investing began in the 1950s with pension funds and picked up steam in the socially conscious 1960s. When ESG-oriented investors began to shun sectors like tobacco, the sector consolidated dramatically and formed a global oligopoly that increased consumer prices yet still generated significant tax dollars. BlackRock’s Larry Fink has emerged as a significant voice in ESG’s climate change crusade, vowing in 2017
to use the alternative asset manager’s $10 trillion in assets to change how people behave. Last year, Fink wrote a letter to CEOs stating that “we know that climate risk is investment risk. But we also believe the climate transition presents a historic investment opportunity.” Today, BlackRock has sizable investments in clean energy assets and will benefit from a global transition to renewables. Fink has even advocated shifts in the World Bank and International Monetary Fund’s mission to help support clean energy in developing nations. But BlackRock still maintains sizable stakes in global oil-producing giants like Chevron, Shell, ConocoPhillips and ExxonMobil, and it has positions in large pipeline projects and other carbon-based energy systems. Environmental advocates argue that BlackRock isn’t doing enough to mitigate climate change despite Fink’s influence. Activists lament that BlackRock continues to invest in oil and gas projects and demands that the firm stop providing funds to expand oil or gas production. Sierra Group also argues BlackRock
Despite advances in alternative ENERGY production, DEMAND for FOSSIL FUELS hasn’t DECLINED. should jettison all new oil and gas projects. Activists contend that if shame doesn’t cause companies to divest or defund, then bare-knuckled boardroom advocacy and new compliance and scoring metrics will introduce business leaders to their willing replacements. Meanwhile, regulators are pressing for accountability for harmful emissions. The Securities and Exchange Commission has proposed the most rigorous audits since the Sarbanes-Oxley Act of 2002. It would require recording direct and indirect carbon emissions and listing climate risks across supply chains. That would increase compliance costs and might reduce the number of initial public offerings. The rules are great news for auditing firms like KPMG and Deloitte. They’ll make pie charts depicting a public company’s electricity generation sources down
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to the last kilowatt. Higher compliance costs will likely prompt an increase in energy costs. In the near future, the media seems likely to scrutinize corporate emissions more closely and could potentially expose companies to lawsuits and shareholder pressure. The movement to mitigate carbon emissions has brought political and economic change for several of the largest energy producers. Last year, three major events rocked the global oil and gas industry. First, a Dutch court ordered Royal Dutch Shell to cut emissions drastically by 2030. The company must radically change its business model to meet the government standards. Second, 61% of Chevron shareholders demanded that the company reduce “Scope 3” emissions to curb impact on the climate. Those emissions are related to assets Chevron does not own or control, but they indirectly affect the company’s supply chain and can be costly to track. Finally, ExxonMobil lost two director’s seats to Engine No. 1, the ESG-oriented activist exchangetraded fund, even though the fund controls only a small number of shares. It happened because Engine No. 1 had the support of larger institutional investors, including BlackRock, Vanguard and State Street, to press for climate mitigation.
BIGGER DISRUPTION
Some proponents of ESG no longer seem content just to shift capital from oil-intensive projects to sustainable ones. They want to constrain companies that emit carbon. One example is the International Energy Agency (IEA), a Paris-based intergovernmental body that’s seeking to reach net zero carbon by 2050. The IEA wants governments to refuse approval to new oil and gas fields and coal-power stations. It would like to eliminate the sale of fossil fuel boilers by 2025. More than 400 IEA milestones over three decades would require $4 trillion of investment by 2030. The goals include the quadrupling of wind and solar power capacity. But one wonders if that agency’s leaders understand that procuring the raw materials needed for solar and wind systems requires burning large amounts of oil, gas and coal. Do they realize replacing baseload energy capacity is extremely expensive? Has anyone at the agency spoken with a bio-engineer or middle-of-theroad energy economist since 2015? Switching to wind and solar on the scale the IEA advocates would require hundreds—if not thousands—of metric tons of plastics, purified materials, concrete and steel, not to mention drilling
20
into the earth to mine for lithium, nickel and rareearth metals. But despite that massive effort, the U.S. Energy Department predicts that alternative energy systems will barely make a dent over the next three decades in the sector where oil dominates: transportation. Yet, those goals, coupled with the limitations imposed by the Paris Climate Agreement, are increasing costs and exacerbating capital challenges. In 2019, the European Investment Bank—the top lending arm of the European Union—eliminated lending to fossil fuel projects. But the EIB took its capital allocation rules to a new level. In 2022, the EIB stopped funding any “polluting company” that wanted to finance low-carbon plans—for example, an oil company that wanted to expand into solar or wind production. To comply, applicants must also outline their future decarbonization plans. Activists claim the scalps, but banks will decide the fate of oil and gas. In 2019, Goldman Sachs stopped funding crude exploration and thermal coal mines. Instead, Wells Fargo, Bank of America, JPMorgan Chase, Citigroup and the Wall Street crowd promised dramatic changes to their carbonbased lending practices. Blackstone Group, the private equity giant, is
It’s getting more EXPENSIVE to switch to CLEANER FUELS, thanks to BIG swings in the price of LITHIUM, NICKEL and COBALT. withholding support from shale oil and gas exploration and production. Others have followed suit. Still, demand for fossil fuels has recovered from the COVID-19 crisis, returning to more than 100 million barrels per day, while the cost of cleaner fuels is surging because of price swings for lithium, nickel and cobalt. Higher oil and natural gas prices should accelerate the conversion to cleaner sources, but Europe has struggled to produce enough renewable energy. The transition to wind and solar hasn’t met demand since the economic reopening after the worst of the pandemic. The problem began long before Russia invaded Ukraine.
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Drying up oil and gas capital is creating a dislocation in the markets that could drive the global economy into a recession in the next 12 months. But don’t expect U.S. producers to come to the rescue by increasing production to lower oil prices.
restrictions on federal lands, the White House has set timelines that would curb long-term demand and investment. Biden has pushed the nation to become a net-zero carbon emitter by 2050 and demanded that the U.S. reach 100% carbon-free electrical generation by 2035. The target of 50% electric vehicle sales by 2030 would put a sizable dent in gasoline sales. Companies won’t drill new wells or expand upstream capacity with sunsetting principles in place. A 15-year limit on an oil well’s production drastically changes the return on investment when the traditional life cycle can last 30 years or more. Despite significant short-term price incentives to drill, limiting the lifespan of new wells will keep investment near record lows in 2022. Even worse, rising inflation will limit the amount of new production. Up to 20% of all 2022 capital expenditures are necessary to maintain current production, thanks to the rising cost of steel, wages and other inputs, according to Forbes magazine. Even with oil prices at $105 in April, many producers remain committed to maintaining current output. For example, Pioneer Natural Resources’ chief executive Scott Sheffield told Bloomberg in February that his company wouldn’t change its growth plans. Price incentives weren’t expected to increase production by more than single digits at Diamondback Energy, Continental Resources, and Devon Energy. Energy producers have learned their lesson about boosting production in response to short-term price movement. In 2014, energy producers reacted to oil prices above $100 per barrel by expanding production in
DRILL, MAYBE, DRILL?
A capital crunch in oil and gas markets is impending, according to banks, credit agencies and major oil producers. Think of it as a $500 billion hole in the investment capital required to produce the oil needed to meet global demand by 2025, Moody’s Investors Service suggests. “While international crude and U.S. gas have risen more than 50% and 120% [in 2021], respectively, drilling outlays are only forecast to increase by 8% globally,” Moody’s said in a report. The capital crunch caused JPMorgan to project in June 2020 that oil prices could reach $190 per barrel by 2025, signaling that this challenge was on analysts’ minds at the onset of the pandemic. Still, many U.S. producers don’t plan to open the taps even at those prices. It might be news to some, but the future of American energy still rests on the back of U.S. oil and natural gas producers. U.S. demand for oil and gas demand will increase well through 2050, according to the Department of Energy. The IEA Energy Outlook 2022 report foresees “a variety of economic scenarios as population and economic growth outpace energy efficiency gains.” Consumers will continue to rely on petroleum and natural gas because wide-scale adoption of alternative energy systems like wind and solar will take decades, the report says. In fact, transportation is expected to help increase annual gasoline consumption by 34% (4.3 trillion quads to 5.8 trillion) by 2050. Annual natural gas consumption will increase by 10% by mid-century. The challenge lies in procuring capital to fund future production to meet that demand. In March, Energy Secretary Jennifer Granholm urged energy producers to increase their output to help mitigate high gasoline prices. U.S. producers responded with little enthusiasm and pressed for a conversation with the White House about the lack of social and economic incentives. Short-term price incentives to drill were overshadowed by longer-term policy challenges facing the cash-intensive industry. While the Biden Administration isn’t banning oil and gas production in the future, policies suggest hostility to the sector. Besides pipeline cancellations and drilling
U.S. Energy consumption by fuel source (in quadrillion British thermal units)
2021
45
History
Projection
40
Petroleum and other liquids
35
Natural gas
30 25 20
Non-hydro renewables
15 10
Nuclear Coal Hydro Liquid biofuels
5 0 2010
2020
2030
2040
2050
Source: U.S. Energy Information Administration Annual Energy Outlook Note: Biofuels are shown separately and included in petroleum and other liquids.
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the shale patch. The surge in output resulted in much lower oil prices. That, in turn, can reduce stock prices and prompt shareholders to demand better cash flow management. While environmental activists drive up capital costs and hammer away at boards of directors, shareholders will continue to push for stronger returns. The response? Do virtually nothing. Oil producers will continue to reduce balance sheet debt, repurchase shares, boost dividends and consider diversification—especially if they’re subsidized to produce alternative energy. As with the tobacco industry, energy producers facing a capital crunch will consolidate, and smaller players will shed non-producing or stalled projects.
CONTEMPLATING THE FUTURE
Another consideration is seldom discussed: Investment bank boards of directors drive capital decisions, and their members are social creatures. Not many banking executives want the public relations headaches associated with financing oil, gas or coal. Corporate boards don’t want environmental activists gluing their hands to office doors, something that happened at BlackRock in January 2020. Bankers can do without the negative press and the activists who show up on their lawns at midnight. They don’t want lectures at cocktail parties. They want to be liked. They want to fit in. So, bank officials keep quiet and nod when compliance officers or newly created chief resource officers recommend that they don’t fund a project because of ESG concerns. But that only perpetuates the silence about the elephant in the room. Most politicians and large financial institutions must know the transition to renewable energy will require staggering social and economic costs. Not many are willing to step forward and come clean about the cost or the sacrifices. For years, politicians have promised a simple, costeffective transition to alternative energy. It’s not going to happen. “Cheap” means more than $30 trillion in infrastructure and renewable resource investment by 2030 alone, according to The World Energy Outlook 2021 report from the IEA. Common sense dictates that higher costs of capital will drive up energy prices. It was easy to kick the costs down the road. But now Ukraine and Russia—two countries that export wheat, corn, nickel, oil, natural gas, steel and fertilizer—are increasing the cost of everything and sharpening the focus on this expensive transition and the recent European energy crisis.
22
A Traditional Energy Alternative? While Blackstone Group might turn away from fossil fuel exploration and production, a rival appears poised to capitalize on significant dislocations of capital. In December 2021, Crescent Energy Group (CRGY) dropped out of a deal between private equity firm KKR and Contango Oil and Independence Energy 2021. (This is not to be confused with Crescent Point Energy, trading under the ticker CPG). Crescent Energy Group is managed by KKR’s Energy Real Assets team and led by David Rockecharlie, head of KKR Energy Real Assets. He’s the company’s chief executive officer and serves on the board of directors. The company plans to grow by acquiring bargain-priced assets that can scale into cash flow machines. If oil goes the way of tobacco, expect rampant consolidation among managers who recognize the long-term demand and have skin in the game. Management owns 22% of the company and plans to maintain a low-leverage strategy. Earlier this year, the company purchased Verdin Oil Co.’s assets in Utah’s Uinta Basin for $815 million. Analysts valued the assets at nearly twice the purchase price. Anyone who buys this stock will not have a vote on the company’s direction. So, effectively, KKR, the PE firm, will elect the board and control the operations. However, that’s a positive thing because activist shareholders can’t force cash-starving policies into practice. This isn’t a management team aiming to make 7% to 10% per year. There’s a triple-digit upside ahead and potentially far more, depending on market conditions and the value of future deals.
Last fall, as soaring electricity bills set records across Europe, the head of the IEA tried to claim that the shift to renewables wasn’t the problem. That kind of talk only makes matters worse. Was it a coincidence that the runaway prices followed closely upon the continent’s efforts to make a rapid transition to renewables and the capital squeeze on traditional energy? Solar and wind are cost-effective in the early stages of the conversion but rise significantly with the attempt to replace fossil fuels for balancing and baseload electricity, according to Lucas Toh, a board member of the SIPA Energy Association at the Columbia University School of International Public Affairs. Oil and gas are the lifeblood of the global economy, much like oxygen fuels the human body’s circulatory system. Their efficiency, portability and relatively low costs have driven economic growth for decades.
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Reducing carbon emissions requires carbon-based fuels, especially in emerging and frontier markets that are taking intermediate steps in the transition to renewables.
PHOTOGRAPH: REUTERS/LUCAS JACKSON
PEOPLE TALK
Before the Russian invasion of Ukraine, some were beginning to recognize the sobering and costly reality of the transition. Hedge fund manager Bill Ackman noted in November that the Federal Reserve has ignored the inflationary pressures of ESG. “Stakeholder capitalism will drive much needed increases in wages, but also higher energy costs,” he said via Twitter. Sebastien Galy, a senior macro strategist with Nordea Asset Management, told CNN Business that ESG will drive prices higher. “The outlook for inflation is one that should stay elevated for the next 10 years due to ESG cost integration and a tight oil and natural gas supply.” Lack of capital for energy production can create more than just a financial crisis. It’s causing shortages of food, minerals and the fertilizer that’s a byproduct of natural gas. Those shortfalls will impede the switch to alternative systems. The public hasn’t witnessed the full impact of rising natural gas and oil prices just yet. Those price increases will probably raise the price of food in North Africa and the Middle East in the months ahead. The Global Food Price Index reached record levels in February, meaning that food costs are higher now than when they contributed to the unrest that touched off the Arab Spring in 2010. On the energy front, the relatively mild winter of 2021-22 prevented what could have been catastrophically high heating bills in the U.S. and Europe. Yet the fundamentals don’t suggest that prices will be under control in 2022, let alone by 2025. And despite widespread confidence that electric vehicles can capture meaningful market share by 2030, the cost of those vehicles continues to rise as oil and gas remain critical for mining, construction and delivery. Last year, lithium prices increased by more than 500%, while nickel has exploded because of Russia’s war against Ukraine. Large spikes in crude oil prices have preceded recessions dating back to the 1970s. Some analysts say the U.S. stimulus packages of 2020-2022, combined with suspending taxes in the future and passing “gas stimulus” bills will buffer the shock, but that thinking is based on a fundamental ignorance of economics. Stimulus checks and reductions in gasoline taxes can increase demand, which raises prices and makes the need for those measures temporary. Asking
Larry Fink, chief executive officer of BlackRock
citizens to burn less gasoline isn’t politically feasible. Global energy markets face economic stress. A commodity super-cycle appears inevitable, and a reckoning could take a toll on the economy. History suggests demand destruction and a recession. Will a conversation about stability and the real cost of energy sources occur before the economy reaches that point? In the end, it’s fitting that BlackRock’s co-founder and president Rob Kapito offered a perplexing take in discussing rising prices and scarcity at a March conference hosted by the Texas Independent Producers and Royalty Owners Association. Kapito said the U.S. economy faced “scarcity inflation”—a combination of rising prices and shortages of oil, housing and agricultural commodities. “For the first time, this generation is going to go into a store and not be able to get what they want,” he said. “And we have a very entitled generation that has never had to sacrifice.” He suggested that people should put on their seat belts for what lies ahead. For what it’s worth, Kapito earned more than $20 million in compensation last year. At some point, that “entitled generation” will realize what is really driving prices higher. He might want to buy some adhesive removers if the “entitled” start gluing themselves to BlackRock’s doors. It now appears BlackRock’s leaders, similar to many politicians, fail to understand the consequences of their policies. Or worse, they celebrate higher prices in a misdirected effort to change human behavior. Garrett Baldwin is a commodity and trade economist who serves as Luckbox’s editor at large. He actively trades value and momentum stocks and wagers on sports and prediction markets.
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LUCKBOX LEANS IN WITH
Tracy Shuchart
On America’s energy security, the intermediate-term outlook for oil prices and the specific energy stocks that she owns today By Jeff Joseph
Q A
WHAT’S THE FUTURE OF FOSSIL FUELS IN THE U.S.?
&
It’s going to take longer to transition than most people think— fossil fuels will be around for a while. That said, we started shutting down coal power stations in the 2010s. And now, all of those have been transferred to natural gas, which is a perfect transition fuel because it is very clean-burning and we have a lot of it. As far as renewables are concerned, I know everybody really wants to get there quickly. However, we’re just not logistically ready. If we all wanted to drive electric vehicles tomorrow, we would literally crash the grid. We just don’t have the power there to support that. What needs to be done in the United States is to completely tear down the energy grid and start over, but nobody wants to pay for that because that’s literally trillions of dollars and it’s going to be a very slow process. So don’t think you’re getting rid of fossil fuels anytime within the next 20 years.
WHAT DO YOU MEAN BY ‘TEAR DOWN THE ENERGY GRID’?
We have a very aging grid. Europe has the same problem. The U.K. has the same problem. And then we’ve been adding wind and solar—new technology—onto the old technology. It’s akin to having an old website and wanting to upgrade it, but you just put all the new code on top of old code. They expect it to run flawlessly. So what we need to do is start from scratch if we want to be able to handle this transition.
WHAT’S THE FUTURE OF FOSSIL FUELS IN THE U.S.?
There is no future for fossil fuels in the U.S. if we also want a thriving planet. In the short term, an enormous number of deceitful arguments will be used to pretend there is. —Saul Griffith, a thought leader in energy data and clean energy transition, and CEO of the technology generator Otherlab They’ll be with us for a long time, regardless of the consequences of climate change. —Christopher Vecchio, a senior strategist for DailyFX Surprisingly robust despite an erratic debate fueled by fringe critics and misinformed policy advocates. The U.S. economy’s lifeblood remains oil and gas and will remain so for decades. Next year, the U.S. will set records for domestic output. The nation’s supply chains must rely on last-mile trucking fueled by petro-carbons. As recently as 2018, the Department of Energy said that fossil fuels will represent nearly 80% of energy consumption in 2050. I’ll conservatively say 70% by that year. —Garrett Baldwin, an energy, environmental security and trade economist and the editor at large of Luckbox
TRACY SHUCHART began her career in finance at the Chicago Board of Trade as a futures and options broker. She then moved on to manage trade desks on the trading floor in both the agriculture and bond rooms where her firm served both as an executing broker and market strategist for global hedge funds and international banks. She currently is a partner and the Global Energy and Materials Strategist at Intelligence Quarterly, as well an energy and materials portfolio manager for a family office. May 2022 | Luckbox
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You can’t just turn on oil wells—it’s not that easy. There’s typically six to 12 months of lead time, and that’s not even considering the PROBLEMS THAT THE INDUSTRY IS FACING RIGHT NOW. WHAT BEST DESCRIBES YOUR SATISFACTION WITH THE NATION’S ENERGY POLICIES?
WHAT FORMS OF ALTERNATIVE ENERGY SHOULD AMERICA PURSUE? There’s always wind and solar. But with wind and solar, we’re going to need a lot of fossil fuels just to produce those products. I mean, you need a ton of steel, you need a ton of copper, cobalt and magnesium. For solar panels, you need a ton of plastic, a ton of resin and a ton of rare-earth metals. And to mine all of this, we’re going to need a lot of fossil fuels. We need to pursue nuclear power. Unfortunately for most people, Chernobyl and Fukushima come to mind. Granted, we have a lot of older reactors, but we also have a lot of new reactors. We also need to be making batteries more efficient.
Very satisfied ������������������������������ 2.3% Somewhat satisfied ��������������������14.3% Somewhat dissatisfied �������������20.3% Very dissatisfied ������������������������63.0% — SURVEY OF LUCKBOX READERS
THE U.S. RECENTLY RELEASED 180 MILLION BARRELS OF OIL. HOW WILL THAT AFFECT THE MARKET?
It’s actually 160 million barrels. Twenty million of them were already planned for release. That’s about a million barrels a day. Aside from the Strategic Petroleum Reserve release being a horrendous decision and a threat to national energy security, especially during a war and sanctions, this is merely a Band-Aid and a flimsy one at that. It does not solve the overall structural supply deficit in the market in the years to come. In addition, this slows shale growth as it discourages E&Ps from drilling more, which is what actually needs to be done. It also creates potential logistical bottlenecks, as we have never had a release this large, creating congestion on the Gulf Coast further exacerbating the problem. This, in turn, could cause oil companies to actually have to scale back production, creating a doom loop.
SHUCHART’S ENERGY PORTFOLIO
WHAT ABOUT THE ALLEGATION THAT THE E&PS AREN’T DRILLING? THEY’RE SITTING ON 9,000 OIL DRILLING PERMITS.
You can’t just turn on wells—it’s not that easy. There’s typically six to 12 months of lead time, and that’s not even considering the problems the industry is facing right now. They’re facing labor shortages. They’re facing supply chain problems. It’s almost impossible to get steel pipe right now. In addition, it’s not that easy to pull rigs out of the yard and put them to work. If we begin taxing or penalizing permits, E&Ps will just abandon the wells and their leases, which means they won’t be available when they’re actually needed or when we want to turn them on again.
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TICKER
NAME
MARKET CAP ($) Q1 RETURN
SLB
Schlumberger
58,716 M
38%
OXY
Occidental Petroleum Corp.
54,144 M
96%
MPC
Marathon Petroleum Corp.
47,518 M
34%
VLO
Valero Energy Corp.
41,245 M
35%
DVN
Devon Energy Corp.
40,417 M
34%
MRO
Marathon Oil Corp.
18,766 M
53%
GTE
Gran Tierra Energy Inc.
603 M
106%
JRNGF
Journey Energy Inc.
248 M
143%
XLE
Select Sector SPDR Trust Energy
7,297 M
38%
SPY
SPDR S&P 500 ETF Trust Unit
391,218 M
-5%
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ENERGY
DO YOU APPROVE OF THE BIDEN ADMINISTRATION’S ENERGY POLICY?
I think it’s completely disastrous. When Congress is talking about “oil companies making so much money,” they’re demonizing an industry that has been completely beaten up.
WHAT VOICE WOULD YOU REMOVE FROM THE NATION’S ENERGY DISCUSSIONS?
It feels like nobody in the Department of Energy is an energy expert anymore. This is not a Republican or Democrat thing. It doesn’t really matter. You have Republicans and Democrats there, so I’m not making a statement. I think that we need to have better-qualified people in the DOE.
IS THERE EVIDENCE OF PRICE GOUGING?
Several administrations have gone after the oil industry on this. It’s not unique to this particular administration. It’s a global market that sets global prices—oil companies do not set oil prices. It’s a global trading market. So, it’s not the oil companies’ fault.
WHAT IS YOUR PRICE FORECAST FOR OIL?
I think we could easily see $150+ oil over the next year. What we have to watch right now is how many Russian barrels will be taken off the market. With Iran, even if we had a deal tomorrow, it’s still not enough to fill the gap. Then we have the problem of where everybody’s going with the gas stimulus. Every country has announced a gas stimulus, and several states have. The federal government really hasn’t announced a program yet, but what that does is create more demand. If you’re giving everybody gas credits or checks or subsidies, there are a lot of ways you can go about doing it. But all that means is that as price goes higher, you’re not creating demand destruction, you’re creating demand construction.
OTHER THAN YOUR MACRO, INTERMEDIATE-TERM OUTLOOK FOR HIGHER OIL PRICES, WHAT SPECIFIC OPPORTUNITIES DO YOU SEE IN THE ENERGY SECTOR?
I’m not really keen on the majors. That said, I think there’s a lot of opportunity in the small-cap and the mid-tiers in the United States and in Canada right now.
NAME NAMES?
Devon Energy (DVN) has been one of my favorites. I like Gran Tierra Energy (GTE), and I like Journey Energy (JRNGF). I like Occidental Petroleum (OXY). These are long-term trades. And I like Schlumberger (SLB), I like the services if the government lets these guys start producing more. I prefer SLB over Baker Hughes (BKR).
IF YOU COULD REMOVE ONE GROUP OR VOICE FROM THE DISCUSSION OF ENERGY POLICY IN THE UNITED STATES, WHO WOULD IT BE?
The American Gas Association. Coal is uncompetitive. Electric vehicles are inevitable and far superior. The remaining big fight is with gas and fracking. The AGA is an insidious lobbying organization that is wellfunded and uses bad data and worse analysis to justify itself. Koch brothers might be the other answer. —Saul Griffith Anti-nuclear environmentalists. We need nuclear energy as a stepping stone to carbon-free renewables if we’re going to achieve the dual goals of energy security and national security. —Christopher Vecchio John Kerry. The man flies around on a private jet and justifies his massive carbon footprint by insisting that he must travel and speak to win the battle against climate change. People like Kerry live in a bubble and don’t understand how their hypocrisy damages their support. —Garrett Baldwin
WHAT ASPECT OF ENERGY POLICY SHOULD CHANGE?
We need to get seriously realistic. All these green energy goals are nice and fantastic. But nobody has a plan to get there. We’re going to spend all this money, and what did they say? ‘Well, just buy an electric vehicle and you can save $900 a year’? Yeah, but not everybody has $55,000 to buy an electric vehicle. And how is that saving you $900? Which car payment are you on? These are not real solutions.
ANY FINAL THOUGHTS?
Oil and gas are still very investable right now and over the next five to seven years. We came from the lowest of the low. Some of these stocks were $2 and $3. Oh, I like Marathon Oil (MRO), too. And then if you want to look at refiners, which are very interesting, I especially like Marathon Petroleum (MPC) and Valero Energy (VLO) because they’re looking into renewable diesel.
THANK YOU, TRACY.
We could easily see $150+ OIL over the next year. May 2022 | Luckbox
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Apple’s EV Advantage
PHOTOGRAPH: AANBETTA/SHUTTERSTOCK
As the company’s market cap was topping $3 trillion, the highest ever for a U.S. company, details emerged about its electric car By James Stanley
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ENERGY
M
ove over Tesla. Rumors of an Apple (AAPL) electric vehicle project had been swirling for quite a while when late last year, a Bloomberg story laid out some specifics about its planning and development. The report came as Apple’s stock was reaching an all-time high, and that strength lasted through the end of 2021 and into 2022 as it gained another 16%. In fact, when trading opened for the year on Jan. 3, Apple became the most valuable company ever in the eyes of Wall Street. It happened just a day before the S&P 500 began to pull back from its own all-time high and provided clear evidence of just how powerful something new can be for a well-established product lineup. Apple might redefine electric cars in the same way it reinvented smartphones. The company may be working on what the National Highway Traffic Safety Administration (NHTSA) calls “Level 5” autonomy— cars that don’t require human intervention and might not even have a steering wheel or pedals. The seats would face each other because no one would be responsible for watching the road. That would break new ground. At this stage, Tesla is marketing what the NHTSA categorizes as “Level 2,” which means that operators must pay significant attention to the road and have at least one hand touching the steering wheel.
THE BACKSTORY
Like the iPhone or iPad or even the Apple Watch, Apple’s foray into automobiles has been surrounded by rumor long before the company made any formal product announcements. Development supposedly began in 2014 under the code name “Project Titan.” As many as a thousand experts and engineers worked in a secret location near Apple’s campus in Cupertino, California. In the next six years, rumor sometimes had it that Apple had abandoned the project. The company’s penchant for secrecy made it difficult to obtain reliable information. But Apple CEO Tim Cook hinted at what was to come when he announced in 2017 that the company was at work on autonomous systems. “It’s a core technology that we view as very important,” Cook noted. “We sort of see it as
New heights Apple became the most valuable company ever just a day before the S&P 500 began to pull back. Apple crosses $3T Market Cap Nov. 18, 2021
Begins pullback as interest rate worries take over
184.00
Bloomberg publishes report on Apple’s EV
Falls as much as 18%
180.00
Speculates mass production by 2025
176.00
Apple gains +16% into early Jan.
172.00 168.00 164.00 160.00 157.26 156.00 152.00 150.00 148.00 144.00 140.00 136.00
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Source: TradingView
Apple has already changed the way we COMMUNICATE. Now, it may change the way we COMMUTE.
the mother of all AI projects. It’s probably one of the most difficult AI projects to actually work on.” Many took that as a reference to an Apple automobile, and the statement still reverberates.
APPLE’S ADVANTAGE
On Nov. 18, Bloomberg confirmed Apple’s plans for an electric vehicle and described specifics about what Apple is contemplating with an electric car. Apple shelved plans for a vehicle with limited self-driving capability, which would have competed with today’s Tesla-like offerings, the Bloomberg article said. Instead, Apple is concentrating on vehicles that need no human intervention. The November update also indicated Apple has completed the core work for the EV project, which was called “the most advanced component that Apple has developed internally.” That can enable Apple to redefine the EV market and set itself apart from the pack. It could also transform Apple from a consumer electronics company into a transportation company that may revolutionize the way Americans commute.
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POSSIBLE TIMELINES
Elon Musk often laments that it’s expensive to get into the automotive business and the margins aren’t that attractive. Innovation requires investments in research and development that can discourage entry. Even though Apple is sitting on $200 billion in cash, it doesn’t seem prudent to enter such a capital-intensive process. That’s why many expect Apple will form a partnership with an established automaker. The question is which one that might be. Apple was struggling to find a proper fit and may be looking into contract manufacturers, such as Foxconn, which has a relationship with the company as the main producer of iPhones. Foxconn recently rolled out an electric vehicle chassis and a software platform to help manufacturers hit the market more quickly, and this could be a good fit for Apple. Apple is close to signing a contract with LG Magna e-Powertrain, but that option offers less manufacturing capacity and would likely be a much smaller rollout, according to a report in The Korea Times. That would be an attractive option if Apple wanted to test the product and gauge acceptance before tackling the mass market. Recent reports also pointed to a possible partnership with Porsche, which is in its own cycle of change. The company may be looking at an IPO in the coming months or years as it splits off from Volkswagen (VW). So, a part-
Many expect APPLE will form a partnership with an established automaker. The question is WHICH ONE that might be.
Apple weekly price chart 0(182.94)
180.00
0.144(161.71) 160.00 0.236(148.14) 150.00 140.00 0.382(126.62) 120.00 0.5(109.22) 0.618(91.82)
103.10 99.96 80.00
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60.00 57.42
1(35.50)
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2023
nership with Apple could cement that move as VW, Porsche and Apple team up to roll out a new, cutting-edge technology that benefits from the expertise of all three companies. When to expect such a product seems like a much larger question. Bloomberg’s report suggested the company is targeting a 2025 release. But, more recent comments from noted Apple supply chain analyst Ming-Chi Kuo indicated much of the team had been dissolved and would need to be reorganized within the next three to six months in order to begin mass production by 2025. This was taken from a comment in mid-March, which would put the timeframe for reorganization between June and September of 2022 to move toward mass production in 2025.
APPLE’S STOCK
A week before Thanksgiving, Apple’s stock price was back up to $157. The company reached an all-time high at that price a couple of months earlier, but that was followed by a 12% drawdown. When the price approached that level again in November, traders started to tighten up—the way they often do on a second test of a major spot of resistance. But then the report of Apple’s EV hit the wires and gave investors a new reason to get excited. But Apple’s market capitalization poses a problem for the growth of its stock price. To rise 33%, the company would need to add about a trillion dollars in market cap. That seems unrealistic because only a handful of companies are worth more than a trillion dollars in today’s market. However, strong growth rates seem reasonable. Apple is trading at a priceto-earnings ratio of 27, comparable with Google’s 24 or Microsoft’s 32. That places Apple in line with other consumer electronics companies. With a PE ratio for the S&P 500 as a whole of $25.44, Apple is trading in line with the broader blue-chip index, too. But compared with EV manufacturers, Apple begins to look at value play. Tesla is trading at 185x earnings, and other EV competitors, such as Lucid or Rivian, aren’t profitable so they don’t even have a PE ratio, yet both are currently worth over $40 billion in market cap. Hope and potential drive the EV industry, and the fact that Apple trades closer to Microsoft
Source: TradingView
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ENERGY
than Tesla speaks to growth potential for Apple if it succeeds in the EV market. What’s more, it seems that hope for Apple’s EV project has not been priced into the company’s stock, which has continued to trade around the same $157 level that previously set resistance. As markets pulled back in January for fear of a hawkish attitude on the Federal Open Market Committee, Apple’s stock responded, too, dropping by as much as 18%. It appears investors can buy stock in the Apple consumer electronics business at a reasonable valuation. Meanwhile, they gain the long-term growth kicker of Apple’s potential redefinition of the EV car. That can make Apple an attractive candidate for longterm EV exposure without taking on the risk of a highly speculative, unprofitable new entrant, such as Rivian or Lucid.
PHOTOGRAPH: WITHGOD/SHUTTERSTOCK
THE SELF-DRIVING EV
Investors have some time to consider Apple’s prospects, given the company won’t bring big changes to the EV industry before 2025. Meanwhile, Apple remains solid in operations and iterative releases of the iPhones, iPads and MacBooks that keep operating cash flow at high levels. The dividend yield of 0.53% illustrates that profitability. As the Federal Reserve tries to tame inflation, it may continue to hike interest rates. That’s highlighted in the recent sensitivity of tech stocks, Apple included, and could open the door for an attractive buying opportunity possibly later this year. Taking a long-term view of Apple’s chart, the price of around $57.50 jumps out because that was the high in 2018 that helped cauterize support in March of 2020, as COVID-19 was getting priced into U.S. markets. But for that zone to come into play, the market would need to pull back more than 65%. If that happens, the S&P 500 would probably enter the 2,000 area, which seems unrealistic. So, $57.50 could remain a key support level in Apple, but it seems incredibly unlikely that will come into play unless the markets blow up. But if that scenario does occur, that’s a very attractive level for longterm accumulation of Apple’s equity. More reasonable, however, would be a pullback to the $150 level, which had functioned as resistance during the summer of 2021 and showed up again for support in
Investors have some time to consider APPLE’S PROSPECTS, given the company won’t bring big changes to the EV industry BEFORE 2025.
March 2022. For investors skeptical of a larger market correction or pullback later this year on the basis of a hawkish Fed, this could be an attractive support level for entry. This price is confluent with a bullish trend line connecting the lows from late-2020, and if price holds, then the bullish trend remains in working order. Investors can seek deeper support in the area around $130, and there’s another spot around the psychological level of 100. Each of these prices could support longer-term approaches on Apple, looking to institute value-based logic in response to a larger market correction. At current earnings per share of $6.08, prices trading in the $130 area would be a price-to-earnings ratio of 21.3, while the $100 support level would be 16.45, both of which could be attractive valuations for Apple’s current operation and even more so with the added kicker of growth potential from EV product announcements. James Stanley, a senior strategist for DailyFX, helps direct educational articles and web seminars. @jstanleyfx
May 2022 | Luckbox
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BY 1893 INSPIRED
F E W H A S T H E S P I C E . H A N D - M A D E I N S M A L L B ATC H E S, U S I N G A M A S H-B I L L INSPIRED BY WHISKEY ’S PRE-PROHIBITION GOLDEN ERA. F E W COMBINES A HIGH RYE CONTENT & PEPPERY YE A ST TO MAKE A UNIQUELY SPIC Y BOURBON.
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6:16 AM
trends life, luxury & the pursuit of happiness
LIQUID ASSETS
Big Sip Energy Coffee, tea and energy drinks provide vigor and pep, but too much caffeine comes at a cost. Luckbox tested low-caffeine and caffeine-free alternatives. By Mike Reddy
PHOTOGRAPHS: GARRETT ROODBERGEN
W
hen Aristotle said “the energy of the mind is the essence of life,” he likely wasn’t talking about caffeine—regardless of how fitting the proverb looks on a coffee mug. Nevertheless, many would argue that caffeine actually is the essence of life, particularly those dependent on coffee, tea or energy drinks to power through the day. Americans consume over 450 million cups of coffee every day, according to HowStuffWorks. That’s 120 million more cups than there are people in the country. Meanwhile, energy drinks represent 31% of the dollar sales of packaged beverages sold at convenience stores, according to Statista. Experts from the realms of medicine and chemistry, including those at the American Chemical Society, agree: Caffeine is the most popular psychoactive drug in the world. But too much of any good thing can be harmful—sugary energy-boosting stimulants not excepted. One can’t help but wonder: After how many espresso shots should the line be drawn in the grounds? Mayo Clinic staff suggest that up to 400 milligrams of caffeine a day should be safe for most adults. For context, an 8-ounce cup of coffee contains anywhere from 70 milligrams to 140 milligrams of caffeine. By comparison, a 12-ounce Red Bull contains about 114 milligrams of caffeine. Habitual Starbucks espresso drinkers may be surprised to learn that each shot adds about 75 milligrams of caffeine to a drink. By the sixth shot, they’ve already exceeded the daily recommended caffeine dose, and too much caffeine can result in headaches, sleeplessness, irritability, a fast heartbeat and muscle tremors, to name just a few adverse side effects. The editors at Luckbox are no strangers to caffeinated drinks—or drinking too many of them on occasion. So, we sought out and tested a variety of low-caffeine and caffeine-free alternatives that boast energy-boosting properties without the unwanted side effects and sugar. These were our favorites.
Do superimposed rectangles indicate Leonardo da Vinci laid out the Mona Lisa according to the golden ratio?
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trends MARKET SHARE OF THE LEADING ENERGY DRINK BRANDS IN THE UNITED STATES IN 2021
23.3% Monster Energy: 23.2% VPX Bang: 8.6% Red Bull Sugar Free: 6.3% Red Bull The Summer Edition: 4.3% Red Bull:
–Statista
M U D \W T R
Caffeine is the most popular psychoactive drug in the world. MATCHABAR CEREMONIAL G R A D E MATCHA POWDER Family-farmed in Kagoshima, Japan, MatchaBar’s ceremonial grade matcha powder is the real deal. It boasts 10 times the antioxidants of traditional loose leaf green tea, and dare we say, we can taste it. Half a teaspoon of the powder is all it takes to make a smooth and balanced matcha drink with just 40 milligrams of caffeine. And because matcha releases caffeine slowly, the effects are gentle and long-lasting. $30 (30 servings) at matchabar.com
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85%
Don’t let the name fool you—if all mud tasted like this, we’d recommend buying a shovel. Made up of powdered mushrooms—including lion’s mane, reishi, cordyceps and chaga—as well as chai, cacao, cinnamon and turmeric, MUD\WTR offers a clean and natural energy kick with just one-seventh the caffeine of a cup of coffee. The texture gets gritty as the concoction settles, but the rich chai and cacao flavors make up for it.
OF THE U.S. POPULATION CONSUMES AT LEAST ONE CAFFEINATED BEVERAGE PER DAY –National Library of Medicine
$50 (30 servings) at mudwtr.com
NATIONAL ANNUAL COFFEE CONSUMPTION PER CAPITA
Finland: Norway: Iceland: Denmark: Netherlands: United States:
26.5 lbs 21.8 lbs 19.8 lbs 19.2 lbs 18.5 lbs 9.3 lbs
–WorldAtlas
9%
OF LUCKBOX READERS DRINK ENERGY DRINKS
4/8/22 9:58 AM
FI REBELLY TEA: NO ORDI NARY JOE As far as loose leaf teas go, Firebelly’s No Ordinary Joe is a standout. Made up of roasted mate, dark cocoa, roasted chicory, licorice and dandelion root, No Ordinary Joe lives up to its name by offering a complex flavor profile that’s a step up from most coffee-based beverages. Antioxidant-rich and bolstered by the roasted mate’s subtle energy boost, this is a tea that coffee and tea drinkers alike can—and will— fall in love with. $20 (25-30 servings) at firebellytea.com
CRASTAN ORZO PUPO
G U AYA K I Y E R B A M AT E
Coffee-lovers rejoice: Of all the products tested, Crastan Orzo Pupo comes the closest to offering a coffee-like look, smell and flavor— without the bite. It’s an instant barley beverage introduced in Italy in 1968 that’s naturally caffeine-free and made up of finely ground Italian barley. It’s a full-bodied, bold coffee alternative that you can shamelessly drink before bed, but you’ll want to drink it at other times, too.
Native to—and popular in—South America, yerba mate is a type of herbal drink rich in vitamins, minerals and amino acids. Its flavor is reminiscent of loose leaf green tea, but mate is much less bitter and offers a fresh, earthy taste. One of Guayaki’s organic mate bags offers 40 milligrams of caffeine, and you’ll likely find yourself drinking more than one. It’s the stuff of South American legend, and we totally understand why. $20 (75 bags) at guayaki.com
$15 (20 servings) at amazon.com
PHOTOGRAPHS: GARRETT ROODBERGEN
ON AVERAGE, HOW MANY CUPS OF COFFEE DO YOU DRINK A DAY?
19.3% 20.8% 29.7% DON’T DRINK COFFEE
16.7% 3 CUPS
–Luckbox Readers Survey
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1 CUP
9.2% 4 CUPS
2 CUPS
4.3% 5+ CUPS
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trends
ROCKHOUND
Rock Returns To Rockville
By Kendall Polidori
DIRTY HONEY BRINGS THE ROLL BACK INTO ROCK ‘N’ ROLL
J
ohn Notto, guitarist of L.A.-based band Dirty Honey, says it’s all about the influences. That’s why the band is striving to bring the artists who inspired the roll in rock ‘n’ roll back to the forefront. “All of our heroes from the ‘70s and ‘80s were influenced by either Black blues musicians or musicians who were influenced by Black blues musicians,” Notto says. Rock ‘n’ roll became rock in the ‘90s with pop melodies and metal guitar riffs and tones, he maintains. To Notto’s point, rock bands from the 2000s have built their sounds off of influences like Blink-182, whereas Jimmy Page was listening to Chuck Berry. To bring back true rock ‘n’ roll, Dirty Honey highlights the swing and blues tones that have been lacking in most rock songs for two decades. Frontman Marc LaBelle has a voice insanely reminiscent of AC/DC’s Brian Johnson. He says that to bring back the band’s musical influences in an authentic way, Dirty Honey’s members embrace the grittiness of rock ‘n’ roll and a live-band sound that doesn’t fall into the black hole of digital music production. He names bands like
The Beatles, Stones and Zeppelin were awesome—but rock lives on. Why not break out of the classic rock cocoon and give new rock a chance? Rockhound is here to help. Think of it as a bridge from 1967 to today and beyond. 36
Dirty Honey
Guns N’ Roses, Aerosmith, AC/DC, The Rolling Stones and Led Zeppelin as rockers who have unapologetically bathed in abrasiveness. Rock, he says, isn’t supposed to be polished. The band formed in 2017 and quickly became embedded in the rock scene, touring with bands like The Who, Guns N’ Roses, The Black Crowes and Mammoth WVH—all without having signed with a record label. When the band’s first single, When I’m Gone, reached Billboard’s Mainstream Rock chart, it became obvious that signing with a label wouldn’t be worth it. Notto says musicians should examine their situations. For rock bands, signing to a label isn’t necessary today, especially when the band has a team backing them up and is touring with big names and playing festivals that include Louder Than Life, Heavy More Dirty Montreal and a May 21 set at Welcome Honey to Rockville. When I’m Gone “It’s exposure to not only a huge group of people but also to who is headlining that night,” says LaBelle. “That’s a pretty good cross section of rock ‘n’ roll right there.” Although confident in their direction with rock, LaBelle says the band’s journey didn’t start that way. With musical interests spanning early rock ‘n’ roll, blues, funk and jazz, Notto notes the band’s scope is often too wide. Despite that, Dirty Honey’s self-titled debut album meets those in the middle with a gritty live-band feel and crisp post-production. It’s likely untouched digitally as they sound just as crisp live. It features the swing and grooves of ’60s and ’70s classic rock ‘n’ roll but has a more cohesive sound and an ability to appeal to the masses. This is the band that will draw fans back to the rock scene. Start with Dirty Honey’s song When I’m Gone, and you’ll hear a demanding intro guitar riff reminiscent of AC/DC’s Back in Black. Pay attention to the tone the guitar carries. It’s heavy and lays the groundwork for the rest of the song, as LaBelle’s vocals ring in a range of melodies and raspy-rock anthems.
DIRTY HONEY, PHOTO CREDIT: DANIEL PRAKOPCYK
For the past two years, almost everyone in the music industry has been wondering if and when live shows would return to normal. Now, they’re back, including music festivals like Danny Wimmer Presents’ Welcome to Rockville. Beyond headliners like KISS, Guns N’ Roses and Jane’s Addiction, the May 19-22 festival at Daytona International Speedway features the best emerging names in rock today. Leading up to Rockville, The Rockhound sat down with three of the scheduled acts, all of which were ready to rock the stage.
Luckbox | May 2022
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Wolfgang Van Halen’s Solo Career is Not A ‘Carbon Copy of Van Halen’ Luckbox sat down with Wolfgang to discuss his debut album, co-headline tour and relationship with his late father, Eddie Van Halen What’s it been like creating a solo career and releasing your first album, Mammoth WVH? It’s been a wild transition for me because I’m doing so many things for the first time. I started out playing drums and guitar, and then played bass with my dad in Van Halen. It was around 2015 when I started taking my own songwriting seriously. It was always a
Music was something that kind of just happened for me. It was never something my dad specifically led me to do. I started playing drums when I was 10, then picked up guitar a few years later. It was just always a thing. I guess just being around music made me predisposed to be interested in the creation and writing process of what music was. And then, by the time I was 15, I was already touring with Van Halen. My dad and I shared a love for AC/DC, Led Zeppelin and Peter Gabriel. There was always that portion of my listening to music that I shared with my dad.
STRUTTING INTO A NEW ERA
I
f you Google The Struts, it’s likely you’ll find a story that describes frontman Luke Spiller as a musical child of Freddie Mercury and Mick Jagger. And it’s true, to some extent. Spiller has a glam rock style that makes him easily recognizable from miles away, with a comfortably exuberant stage presence and a hefty vocal range similar to
MAMMOTH WVH, PHOTO CREDIT: BRYAN BEASLEY; THE STRUTS, PHOTO CREDIT: ANNA LEE
What was it like to tour with Van Halen at 15 years old? I wasn’t really even thinking about any of that. We had been rehearsing so much that I knew I could play evWolfgang Van Halen erything. And I just wanted to be there for my dad dream of mine to pull a Dave Grohl and because he was newly sober. He had record it all on my own. Once I got to problems for the majority of my life, so the shows, it’s been fun to be the frontI was there to support him and make man and pour my focus into that ratheverything go as smoothly as possible. er than trying to worry about writing How has the Young Guns tour been every single instrument. for you, and what can fans expect Was it difficult to transition into after that? a frontman role? It’s been incredible. When it comes to It weirdly, slowly came naturally. But at headline shows, there’s nothing like it the same time, it’s completely against because people are there and ready how I am socially. I’m a very shy perto see you. The crowds are normally son. So to be at the front of something some of the most excited and crazy and to be the guy who’s talking that crowds that you could play for, so it’s everybody’s looking at is not matching been a joy. And I’m hoping to get in the up with my personality type. But you studio by the end of this year to get to just kind of throw caution to the wind work on the second album. and go for it, and it’s been going pretty well. I’ve been enjoying it. Wolfgang is scheduled to tour throughout May in the United States, including What was it like growing up with a stop at Welcome to Rockville. your father, and how did he influence your taste in music?
The Struts
Mercury. As far as hair and face structure goes, he’s got a Rolling Stones look all the way. “I’m actually undergoing a bit of a rebrand,” Spiller says. “It’s been great being compared to such heavy hitters, and I’ve always taken it as a compliment. I think it’s time that I step and get back to being or appearing more like myself.” Not that Spiller hasn’t been himself, but he’s ready to change up the black-haired look he’s had since 2012. For years, The Struts have been bringing rock fans back to the late ‘70s with guitar anthems and theatrical live performances—Spiller typically strutting on stage, his jacket tassels flowing as he waves his microphone around. And that persona will still be there, just
May 2022 | Luckbox
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Start with The Struts’ song All Dressed Up (With Nowhere To Go), and you might hear a powerful guitar riff throughout that’s similar to Hot Blooded by Foreigner. Pay attention to how much energy Spiller puts into singing his vocals, with an emotional and smooth rasp.
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“Best New SXSW Artist” –The Rockhound South By Southwest returned in March after two years without an in-person conference. The event featured a handful of notable acts—the most memorable being indie-rock sensation Wet Leg.
Wet Leg
P
ost-punk minimalism mixed with puckish lyrical innuendo: It’s Wet Leg. The breakout British indie-rock duo grew out of the 10+ year friendship of Rhian Teasdale and Hester Chambers and was born at the top of a Ferris wheel on the Isle of Wight. With a mutual love for The Ronettes, Jane Birken, Ty Segall and Björk, the two started a band for the fun of it. In 2019, they signed to Domino Recording Co., and in 2021, they became an overnight sensation when their debut single Chaise Lounge went viral, racking up millions of streams. Before releasing their first album, the duo sold out shows across the United
WET LEG, PHOTO CREDIT: HOLLIE FERNANDO
in a way that will remind people of The Struts, not Queen. Going on nearly 10 years and three albums, the band just recently switched over to Big Machine Records from Interscope, and Spiller says it is setting them up for an exciting new chapter—one that includes new music on the horizon. In 2020, the band put out Stranger Days, a 10-song album written and recorded in just 10 days. Like every other band, The Struts halted their strenuous five-year streak of touring and recording when the pandemic struck. They used the downtime to their advantage, though, by staying and recording in the same space. They went in thinking they would come out of it with an EP, three or four songs. But on the first day alone, they wrote three songs, and the energy to keep writing and recording intensified. Every morning, Spiller would wake up early and listen to what they recorded the night before and write lyrics to it. Then they’d all get together in the studio to shoot more ideas around and record. It went like that every day, and Spiller recorded vocals on the last three days. “It was this rhythm that we really didn’t break out of, which is why I think it was productive,” Spiller says. The album also features renowned artists such as Albert Hammond Jr., Tom Morello, Joe Elliot, Phil Collen and Robbie Williams. With new music in the works, Spiller says the next album is going to be a “hard-hitter.” As far as influences go, Spiller wasn’t brought up with “dad rock,” as he says, and it wasn’t until his early teens that he discovered older music that blew his mind. He quickly formed obsessions with the likes of Queen, AC/DC, The White Stripes and The Darkness. He says he’s had a love affair with the past ever since, noting that while he researches it, he doesn’t listen to much modern music—which is likely why he can be found wearing headphones at a music festival after playing a set. It’s no wonder the band has opened for greats such as The Who, Guns N’ Roses, The Rolling Stones, Mötley Crüe and Foo Fighters. And though they’ve made a name in the More U.S., it wasn’t until Strange The Struts Days when the band finally got All Dressed Up (With radio play in the U.K. Nowhere To Go) With a new chapter ahead for The Struts and a number of live shows coming up, including an appearance at Welcome to Rockville and a U.K. headline tour, the band is just going to get better, sonically moving in the right direction, as Spiller would say.
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States with only four singles available to stream. Their leased tunes for fans, smoothly transitioning from song to unapologetic high energy and strong guitar-driven sound song. All of their songs are driven by intricate guitar riffs, yet made them an instant must-see group. Teasdale and Chameach embodies its own feel. Wet Leg doesn’t just recreate the bers both have intriguing voices that bounce off one another band’s first hit single over and over. rhythmically. With strong variation in vocals and a full-band rock feel, Wet Leg’s self-titled album, which was set for release the only thing Wet Leg is missing is a stronger in-your-face More Wet Leg April 8, is grounded in confidence and witty amusement. stage presence—more bouncing around the stage, visuals Angelica Playing music for personal enjoyment, the band creates airy and getting the crowd involved. But it’s clear that this will songs that float around freely. They sound as though Debbie develop with time. At one point during the performance, Harry of Blondie collaborated with The Slits to take modern musicians stopped to scream at the top of their lungs in the pop-punk to a new level. middle of a song, indicating they’re getting closer to establishing a stronSince the release of Chaise Lounge, fans have been buzzing about Wet ger stage presence. Leg, packing the venues of the band’s U.S. tour stops. At South by SouthAll things considered, Wet Leg was one of the biggest acts appearing at west, or SXSW, it was no different. The duo, along with the touring band, SXSW, and they’re on their way to becoming the next big thing. played four sets during the conference, including a recorded show for SXSW’s Channel 3. Start with their song Angelica and you’ll hear how the duo shares the stage The stage was a tad bigger than what the band was used to, with a much with vocals and how they mold their smooth melodies to speedy guitar riffs. larger audience than the typical small club, 300-person limit. The band members are new to the game, and with a larger audience in front of them, Pay attention to how Teasdale’s and Chamber’s guitars bounce off of their body language wasn’t as loose as it has been for smaller sets. But that each other, with a fuzzy touch that brings to mind classic rock guitarists didn’t take much away from the effect of their performance. They have of the ’70s. a comfortable relationship with their instruments and know their chords down to the wire. Kendall Polidori is Luckbox’s resident rock critic. Follow her reviews on Instagram With only five singles released from their debut album, they teased unre@rockhound_luckbox and Twitter @rockhoundlb.
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trends
SENTIMENT
SHOULD INDIVIDUALS INVEST ON THEIR OWN? I N T E L L I G E N C E S Q U A R E D U.S. invites some of the world’s brightest thinkers to debate issues. The organization was founded in New York in 2006 to promote intellectual diversity by fostering respect for differing opinions. The following excerpts come from an April episode of the Agree to Disagree series where The Wall Street Journal columnist Spencer Jakab and tastytrade co-founder and co-CEO Tom Sosnoff discuss the role of retail traders in the financial markets.
SPENCER JAKAB: People should be in the market. It’s important to be invested in the stock market, but it’s far more profitable to do it in a hands-off way. The evidence is extremely strong. TOM SOSNOFF: I am 1,000% in disagreement with Spencer. Retail investors have an incredible opportunity now on a very level playing field. People who don’t take finances into their own hands and do it themselves are putting themselves at a great disadvantage long term with their wealth-building prospects. JAKAB: But the evidence is extremely strong that the more active people are in choosing securities, the worse they do. Many academic studies have all pointed in that direction. It’s inversely correlated with your returns. So I think people should be in the market, of course. If you want to build a nest egg, you have to multiply your money. You can’t just This transcript has been edited for length and clarity.
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add it up. And the stock market is the easiest, simplest place to do it. But the smarter you are, the more handicapped you are when it comes to the stock market. You think you know something and you hear something on TV, and then you go in, and more times than not—of course, there are exceptions—you do worse than you would have if you had just been completely passive about buying a bunch of index funds or had a roboadvisor do it for you. SOSNOFF: I fundamentally disagree with that entire argument. It is so outdated. Most of those studies are from the ‘90s, before there was any kind of technology like there is today. There were large commissions, and there were extremely wide markets. I had been a market maker for 20 years and then I built two of the most widely used
39 MILLION
AVERAGE NUMBER OF OPTIONS CONTRACTS TRADED DAILY IN 2021
A
35%
INCREASE OVER 2020
–CNBC
trading platforms in the world: Thinkorswim and tastyworks. So this is something I’ve done basically every day of my life for the last 40 years. And what I’ve seen is that the argument Spencer’s making is very much the old-school conflicted argument from money managers, RIAs and all the people who don’t actually trade and don’t want to trade. Just think about this: When do we ever go through life and say, ‘Hey, you know what, I think the best approach to something is being passive about it?’ Our argument is, and our research also shows—and this is research that we’ve done on our own customers and on the hundreds of billions of dollars that have come through our platforms over the last 20 years—the people who have the best results are the people who are most active, who trade the most, who participate in the most underlyings and who make the most decisions.
JAKAB: Tom, I have not seen data like that at all, so I would be very interested in seeing it disaggregated. The classic study done on More Debate it, you’re correct, was Listen to the full done in the 1990s, conversation but it did not include commissions. So, yeah, commissions were higher then, but it subtracted the effect of commissions. And it separated people into five groups: most to least active. And it was crystal clear that the more active customers did worse. But there was a more recent study, when commissions were pretty low, of 200,000 retail investors in 2012. During that study, the average return for retail people who didn’t trade options was 5.1% that year. The average return for people—it was a small minority—who did trade options was 1.1% that year. An index fund went up 16% that year. SOSNOFF: I’m not even going to argue the results of the latest study. What I’m going to suggest to you is that people who participate in the markets—whether they are young Robinhood traders, millennials, boomers or whatever they are—every single time that they participate in the markets and they make decisions, as long as they have an emotional and a monetary outcome, what they’re doing is fundamentally changing what we call economic bias. And there’s a very well published study by the University of Chicago talking about how the number of times you do something specifically in the financial markets changes your economic status over your lifetime dramatically. It changes the way you think, it changes your outcomes, it changes your whole portfolio mentality. For people who come to tastyworks, these people are holding portfolios where they are doing significantly better than they would have done in a passive environment because they’ve learned how to take risk, they’ve learned how to make fast decisions and they put themselves in a very different spot than most passive investors. And that’s our argument.
People who don’t take finances into their own hands are putting themselves at a great long-term disadvantage with their wealthbuilding prospects. – TOM SOSNOFF
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Your Retirement, Your Call You Can Trade Stocks, Options, and Futures in your IRA
VISIT TASTYWORKS.COM/IRA tastyworks, Inc. is a registered broker-dealer and member of FINRA, NFA and SIPC.
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FINANCIAL FITNESS
Garbage In Garbage Out Good nutrition provides your body with the fuel to boost energy and promote efficiency By Jim Schultz
PHOTOGRAAPH: IMAGE CREDIT TK REUTERS
T
he computer era adage of “garbage in, garbage out” also holds true for the human body. Every single day, it needs adequate fuel to function. That means constantly balancing the supply of nutrients with the demand of daily activities. In terms of energy availability and energy output, total calories are king, but the type of calories might be the queen. Don’t expect to achieve a chiseled physique by chowing down on Pop-Tarts, and don’t expect strong health markers after constantly shoveling in apple streusel. No one can outrun a caloric surplus, but nearly anyone can shift the odds of the race in their favor with some smart choices. But what exactly is a smart choice? First, it’s important to recognize that no food is inherently bad, and no food is inherently good. The body doesn’t know it was just fed broccoli instead of mac and cheese. But it does know when it receives a certain quantity of macronutrients and micronutrients, and it breaks them down and partitions them as such. Still, people who are serious about physical fitness know they can sneak away to an all-you-can-eat buffet only so many times before it catches up with them. They tend to eat some version of “clean” about 80% to 90% of the time.
While defining what makes up clean eating gets a bit slippery, any diet that advertises itself as such will undoubtedly share two characteristics: high protein and high fiber. A diet that emphasizes protein-rich meals and fibrous carbohydrates ranks high in the nutritional power rankings. In other words, consistently filling up with high protein and high fiber when the body is craving to be charged up isn’t much different from consistently filling up with premium fuel at the pump. Fueling the system with high-quality inputs produces high-quality outputs. Now, the question is how much protein and how much fiber are best? Well, that depends on factors that a broad brush can’t possibly capture. They include specific goals, training age, metabolic capacity and digestion.
But here’s a great starting point: Shoot for a minimum of 20 to 30 grams of protein and 2 to 4 grams of fiber per meal. For three meals a day without too much food math, that’s about 60 to 90 grams of protein and about 6 to 12 grams of fiber per day. That’s not the end of a nutritional strategy but rather the beginning. Think of those numbers as a catalyst, not a conclusion. Tweak them, adjust them. They’re meant to be customized. Follow something even remotely resembling that and here’s what is going to happen: • Most people feel two to 10 times better within the first few hours. • They will begin to notice improved performance in the gym within the first couple of weeks. • They will notice a little more muscle and a little less “non-muscle” within the first couple of months. • Within the first year, most people will have a completely different view of nutrition and what it means to be healthy and fit.
EFFICIENT SOURCES OF PROTEIN >3
ounces skinless chicken
breast (27 g) >3
ounces 93%-lean ground
beef (22 g) >3
ounces salmon (19 g)
> 1 cup lentils, cooked (18 g) > 1/2 cup cottage cheese (12 g) –Source: U.S. Department of Agriculture
EFFICIENT SOURCES OF FIBER >1
cup split peas,
boiled (16 g) >1
cup lentils/black beans,
boiled (15 g) >1
ounce chia seeds (10 g)
>1
cup green peas,
boiled (9 g) >1
cup raspberries (8 g)
–Source: Mayo Clinic
Jim Shultz, Ph.D., a derivatives trader, fitness expert, owner of livefcubed.com and the daily host of From Theory to Practice on the tastytrade network, was named the North American Natural Bodybuilding Federation’s 2017 Novice Bodybuilding Champion. @jschultzf3
May 2022 | Luckbox
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DIVERSIONS
Electric Avenue Route 66 played a major role in U.S. automotive history, but can drivers still trace its path in their electric vehicles?
Chicago
By Mike Reddy
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Los Angeles
Albuquerque
“66 IS THE MOTHER ROAD, THE ROAD OF FLIGHT.” The Depression-era novel, The Grapes of Wrath, tells the story of the Joad family, which flees Oklahoma for California during the Dust Bowl. The family travels west alongside thousands of fellow migrants on Route 66.
A lifelong road-tripper, May started his blog to educate EV owners, small businesses and travelers about taking road trips in electric vehicles, a topic he’s knowledgeable about considering he purchased his first EV back in 2017. Today, he finds himself on the trail that the old Route 66 covered at least once a month, and he’s picked up a few tips and tricks from his journeys.
Oklahoma City
One major takeaway for prospective EV owners: It takes some time to adjust. “People ask all the time, ‘How far can the car go on a charge?’ or ‘How long does it take to charge up to full when you’re on a road trip?’ I don’t charge to full on a road trip,” May said. “That’s something that’s ingrained in your head when you get gas, that you fill up, and that’s just not something you do in an EV when you’re on a trip.” Instead, EV drivers need just enough power to get to the next charger—something that’s easy to coordinate thanks to apps like PlugShare. It helps users find charging stations, provides a forum for EV-related reviews and fosters connections among plug-in vehicle owners, according to the PlugShare website. Luckbox put PlugShare to the test and mapped out a trip along Route 66 that includes EV charger stops fewer than 330 miles apart—the EPA estimated range of Tesla’s most-produced model, the Model Y.
$5 BILLION OVER FIVE YEARS Money set aside for a national EV charging network in President Joe Biden’s bipartisan infrastructure law
PHOTOGRAPH: SHUTTERSTOCK
A
mericans have been getting their kicks on Route 66 for nearly 100 years. When it was established in 1926, Ford’s Model T was just 18 years old, Gene Austin’s Bye Bye, Blackbird was the most popular song in the country, and both The Great Depression and the Dust Bowl were years away. Needless to say, things were different then, especially the U.S. highway system. It wasn’t until 1938 that Route 66—the roughly 2,400-mile stretch connecting Chicago to Los Angeles—was completely paved. Until then, parts were loose gravel. The route was known as “The Main Street of America,” and it was saturated with history, becoming the subject of songs, a TV series, novels and films. But time trudges on, and the highway was decommissioned in 1985. Motorists can still follow the old road’s approximate path by taking several of today’s interstate highways. But is it possible to trace the entire historic route in an electric vehicle without ending up stranded? “Yeah, it is,” said Mike May, who runs the Electric Route 66 blog. “If you’re the kind of person who plans your stops with GasBuddy— where you’re going to get gas the cheapest—then going to an EV is not much of a change.”
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CALENDAR
MAY 4 Star Wars Day 5 Cinco de Mayo 7 Free Comic Book Day 13 Release of The Black Keys’ new album, Dropout Boogie 16-19 CLEANPOWER Conference & Exhibition San Antonio 19-22 Welcome to Rockville Music Festival Daytona Beach, FL 23-25 Energy Efficiency Finance Forum White Plains, NY 27 National Road Trip Day 28 Sueños Festival Chicago 29 The Indianapolis 500 30 Memorial Day
Print heroes North American sales of comic books and graphic novels rose 6% in 2020 to reach an all-time high of $1.28 billion. But success hasn’t stopped 2,000 independent comic book stores from embracing the annual Free Comic Book Day as a way to bring in customers by giving away comic books. This year, readers can expect the chance to snag The Amazing Spider-Man: Venom; Stranger Things: Resident Alien, and Sonic the Hedgehog—to name just a few. And comics can increase wildly in value. Last year, for example, the comic Amazing Fantasy #15, featuring the first comic appearance of Spider-Man, set the record for the most expensive comic ever sold when it brought $3.6 million at the Heritage Auction’s Signature Comics & Comic Art auction. So, what comics stand to gain in value? According to Variety, the best comics or graphic novels of 2021 include Cyclopedia Exotica, Monsters, The Good Asian, the set of Rorschach and Strange Adventures, and Far Sector. Rock in Daytona Welcome to Rockville returns this year for a four-day weekend of hard rock and heavy metal at the Daytona International Speedway. Headliners include KISS, Korn, Guns N’ Roses and Jane’s Addiction. But up-andcomers like The Struts, The Pretty Reckless and Dirty Honey are The Rockhound’s must-sees.
Do superimposed rectangles indicate Leonardo da Vinci laid out the Mona Lisa according to the golden ratio?
PHOTOGRAAPHY: REUTERS
Crank up the volume The first American cross-country automobile road trip took place in 1903, but the activity wasn’t honored with a special day until 2019. That’s when an organization called National Day Calendar declared that Americans should turn their thoughts to road-tripping on the Friday before Memorial Day—one of 1,500 annual days of observance. So, if you’re hopping into a car and need some tunes to play, look no further than The Rockhound’s Road Trip Playlist. These songs can civilize a long drive: I’ve Been Everywhere / Johnny Cash Radar Love / Golden Earring Come On Eileen / Dexys Midnight Runners Ace of Spades / Motörhead Jump / Van Halen Crazy Train / Ozzy Osbourne Sweet Child O’ Mine / Guns N’ Roses Rock You Like A Hurricane / Scorpions I Want To Know What Love Is / Foreigner Summer of ‘69 / Bryan Adams
You can find the full playlist on Spotify @ The Rockhound.
May 2022 | Luckbox
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tastyworks.com/get200 LOVE WHERE YOU TRADE * Starts 3/1/22 and ends 8/31/22. Offer only valid for new tastyworks customers or existing tastyworks customers who have never funded a tastyworks account
prior to 08/31/22. Must be legal residents of the 50 United States (or D.C.), 18 years+. Must have a $2,000 min. funded account for 3+ mos. to qualify. Qualified customers receive a minimum $200 in stock. Stocks randomly selected by tastyworks, and stock value may fluctuate up or down due to market volatility. Offer not valid for non-US residents, IRA or Trust accounts. For additional eligibility requirements and all details, see the Official Terms and Conditions at www.info.tastyworks.com/get200.
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trades&tactics actionable trading ideas
THE NORMAL DEVIATE
Having a Meltdown Over Nuclear Energy? Fortunately, there’s a formula for that. Let Poisson help you decide. By Tom Preston umans function like pattern-recognition machines, and that’s generally a helpful trait. For example, they learn early on that cheeseburgers are delicious and don’t kill them, so they save time by zeroing in on cheeseburgers when they’re hungry. There’s
A Chernobyl liquidator poses at a memorial on the 35th anniversary of the Chernobyl nuclear accident. Liquidators were workers called upon to deal with consequences of the 1986 nuclear disaster.
PHOTOGRAPH: CELESTINO ARCE/NURPHOTO
H
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Before you write off nuclear power as too dangerous, weigh the risks in terms of probability. a high probability that the cheeseburger will taste a certain way and fill them up, and most of the time—if not all—that’s true. But sometimes the pattern-recognition part of the brain gets hijacked when it perceives a pattern based on a very small number of occurrences, especially when what occurs is dramatic. Like a nuclear meltdown. Readers of a certain age might remember Three Mile Island back in 1979. Chernobyl in 1986. Tokaimura in 1999. Fukushima in 2011. Each received a lot of media attention, and people envisioned mushroom clouds over their local nuclear power plants. Scary stuff. That slowed or even stopped nuclear power plant construction, at least in the United States. But nuclear power is re-entering the national discussion as citizens worry about energy security, the environment, and the cost of heating homes and fueling cars. Yes, it creates nuclear waste. And there’s the possibility of a meltdown, where the plant’s coolant fails and the radioactive fuel rods get so hot they break through the protective layers encasing them and spew radioactivity into the atmosphere. Not quite mushroom clouds, but bad. In return for the bad stuff of nuclear reactors, consumers get efficient, reliable power that frees them from the vagaries of sun, wind, water levels, coal and natural gas. Whether that’s a good trade or not depends on the probability of that bad stuff happening. And there’s a way to calculate it. The Poisson distribution (named after a 19th century French math genius, not a fish) is used to calculate the probability of events occurring in a specific amount of time. Its variety of business applications includes
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estimating numbers of bankruptcies per month, numbers of website visitors per hour, numbers of restaurant visitors per day, numbers of emergency calls received at any given minute—the list goes on. The data is discrete, like the number of customers who will walk into a bank in the next hour. Or nuclear meltdowns. Just as there’s no way 10.5 customers can walk through the doors in the next hour, there isn’t such a thing as 1.5 meltdowns. The Poisson distribution calculates the probability only of whole numbers. The Poisson distribution assumes the events are independent of each other. That is, one event happening does not affect the probability that a subsequent event will occur. It also assumes that the rate of the number of events over time is constant. Here’s the basic formula: P(x) = (lx * e-l)/x!
The distribution was introduced by French mathematician and physicist Baron Siméon Denis Poisson in the early 19th century to quantify the number of wrongful convictions in France. In 1860, the distribution was used to estimate the number of stars found in a unit of space and then again in 1898 to estimate the number of soldiers in the Prussian army killed accidentally by horse kicks.
The Poisson distribution requires only two inputs: “l,” the expected or average number of occurrences (which can be a fractional number), and “x” the number of occurrences for which the probability is calculated. For example, if the average number of bank customers in an hour is determined to be 8.3 (that’s “l”), the Poisson distribution can tell you the probability that there might be 10 (that’s “x”). Plug 8.3 and 10 into that formula and the probability of getting 10 bank customers in the next hour is 10.6%. With a bit more work, or using Microsoft Excel’s POISSON cumulative probability function, there’s a 32% probability that there will be 10 or more bank customers in the next hour. Here’s how it can be used to estimate the probability of a nuclear meltdown. There are about 440 nuclear reactors worldwide. Given the relatively small number of meltdowns or catastrophic events, people look at the rate per “reactor year,” which is
36%
The probability of one or more nuclear meltdowns in 10 years, assuming one meltdown per 10,000 reactor years
simply the number of years a reactor operates before there’s a meltdown. Estimates might range from one failure in 3,000 years to one in 10,000 years. The probability of a catastrophe in one year is very low, so probabilities are often given in terms of 10 years. Using a rate of one meltdown per 3,000 reactor years for 440 reactors, the formula would be 1/3,000 x 440 x 10 years = 1.47. The probability of one or more meltdowns in 10 years is about 77%. Now, using a rate of one meltdown per 10,000 reactor years, the formula would be 1/10,000 x 440 x 10 years = 0.44. The probability of one or more meltdowns in 10 years is about 36%. This is where some of the controversies over nuclear power come in. Change the number of meltdowns in reactor years, and the probability can change dramatically. But without a probability, any assessment of the risk is just guessing. Scientists who do battle over the safety of nuclear power may use somewhat more complex models, but the Poisson distribution is at the heart. Before you write off nuclear power as too dangerous, keep your pattern recognition in check. Weigh the risks in terms of probability, and see if they’re outweighed by the benefits. Tom Preston, Luckbox contributing editor, is the purveyor of all things probabilitybased and the poster boy for a standard normal deviate. @fittypercent
Luckbox | May 2022
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cheat sheet
NO.
trades& tactics
22
Maximum Dividends The guru of wealth building uses a simple strategy any investor can mimic By Eddie Rajcevic raders can make the most of their portfolios by taking a cue from investment guru Warren Buffett. Double the shares One of his favorite tactics is buying Using a DRIP for 10 years increased the number stocks that pay dividends. of shares an investor owned by more than 50%. Investors can keep the cash they receive as dividends or use it to buy more stock in the 2012 2014 2016 company. They can do the latter automatically DRIP shares 58.0 61.2 65.1 through a dividend reinvestment plan (DRIP). DRIPs offer two benefits: Non-DRIP shares 58.0 58.0 58.0 First, DRIPs use dollar-cost averaging to reduce risk by spreading the stock purchase over time instead of buying equities at a point when the price may be relatively high. Patience brings cash That outperforms the market Using a DRIP instead of collecting dividends in cash more often than not. increased the size of this investor’s portfolio by 15%. Second, DRIPs offer compounding returns. When a dividend is automatically DRIP Portfolio DRIP vs. Non-DRIP Non-DRIP Portfolio reinvested into shares, the company pays the next dividend on a larger sum. Over 10 or 20 years, DRIPs can drastically increase return on investment. Consider the way that would play out with Exxon Mobil (XOM). The stock now has a dividend yield of 4.25%, and that figure has fluctuated between 2% and 8% in the past decade. The company currently pays $0.88 per share quarterly. To see the true power of a DRIP, let’s compare two portfolios, both of which started with $5,000 of Exxon Mobil stock on Jan. 1, 2012.
T
2018
2020
2022
70.0
76.3
88.7
58.0
58.0
58.0
Eddie Rajcevic, a member of the tastytrade research team, serves as co-host of the network’s Crypto Corner and Crypto Concepts programs. @erajcevic11
May 2022 | Luckbox
2205_TACTICS&TRADES_CHEATSHEET.indd 2
4/4/22 1:27 PM
tools
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Premarket analysis direct to your inbox! Daily analysis before the opening bell. tastytrade co-founder Tom Sosnoff kicks off every week followed by chief quantitative strategist Tom Preston. Five emails per week.
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2205_TACTICS&TRADES_CHEATSHEET.indd 3
4/4/22 1:27 PM
trades& tactics
FUTURES
A SAV V Y F U T U R ES T RADER’S TAK E O N T HE M AR K ETS
Crude Over Crypto
Cryptocurrency may seem less attractive these days as the invasion of Ukraine increases the volatility of crude oil By Pete Mulmat s war rages in Ukraine, crude oil is impersonating a cryptocurrency. The price for West Texas Intermediate contracts (WTI) jumped nearly 7% in one day—the commodity’s biggest rise since record keeping began. The relationship between bitcoin and traditional assets, such as gold and crude oil, is part of the debate over whether the dominant cryptocurrency is a currency or a commodity. In traditional financial markets, times of extreme volatility and uncertainty usually drive investors toward “safe-haven” assets with lower risk and lower returns. Examples of such assets include gold and low-yield bonds, such as U.S. Treasuries. Gold is accepted as a global store of value, and U.S. Treasuries are backed by the government and should never go bust. But over the past month, the definition of a safe-haven asset has been brought into question. So where does bitcoin come into this? Normally, a safe-haven asset is uncorrelated with the stock market, which people believed was the case with bitcoin. Yet, recently its price fell in sync with equities, which calls this assumption into question. That spawned debate over whether the cryptocurrency—or digital assets in general—can be classified as safe when its price is unpredictable. After all, bitcoin has posted a weekly loss of 10%. Between early January and February, the implied volatility of West Texas Intermediate rose from 38% to more than 100%, whereas bitcoin’s implied volatility fell from over 90% to under 40%. The graph shows the correlation between bitcoin and crude oil. When the line moves above zero, a positive
A
Smoother sailing The relationship between bitcoin and crude oil should become less erratic as investors learn more about how much risk the cryptocurrency poses. 1.00
Bitcoin and crude oil 3-month rolling correlation 0.75
0.50
0.25
0.00 -0.25
-0.50 -0.75
May 2019
Sep 2019
Jan 2020
May 2020
Sep 2020
correlation exists between the two assets, and when it moves below, the correlation is negative. Although the line appears to fluctuate greatly, the scale on the right indicates that the correlation between the two assets is not significant enough to make any real conclusions about the relationship between the two assets. Note, however, that as bitcoin matures, this graph should become less choppy as investors learn where the cryptocurrency sits on the spectrum of safe to unsafe. It’s too early to judge how bitcoin may be positioned in the future. On the one hand, it could remain a purely speculative asset that increases in volatility as whales accumulate coins and cyclically buy from or sell them to novice traders. On the other hand, it could become an easy-to-hold asset compared with commodities like crude oil, which would appeal to investors in countries with high inflation or political instability. With regard to trading opportunity, bitcoin may sit on the sidelines in this period of lower volatility. More opportunity might be found in
Jan 2021
May 2021
Sep 2021
Jan 2022
-1.00 May 2022
crude oil’s large intraday swings, as the Ukraine war continues. Bitcoin’s historical volatility fell below crude oil’s in March as oil started moving faster than the cryptocurrency. Bitcoin traders may want to consider crude oil. Attractive factors include product variety, leverage and two-sided tradable markets. Unlike bitcoin, crude oil futures and futures options enable traders to place leveraged trades in either direction. For example, traders can buy or sell a micro crude oil future (/MCL) for just $1,800. The contract controls 100 barrels of oil, $10,000 with crude at $100 per barrel. That’s an amazing opportunity to harness leverage if traders keep their risk management in check. Cryptocurrencies brought many new traders to the dance floor, but learning to use capital-efficient, liquid products in currently compelling assets may keep their party going. Pete Mulmat, tastytrade chief futures strategist, hosts Splash Into Futures on the tastytrade network. @traderpetem
May 2022 | Luckbox
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4/8/22 10:10 AM
trades& tactics
THE UNLUCKY INVESTOR
A M AT H EM AT IC IAN’S GU IDE TO SUSTAINAB LE T RADING —NO LUCK REQUI RED
A Clean Break From Energy Stocks Renewables account for an increasing share of energy production, but liquidity limits their tradability By Julia Spina
Maintaining the lead ossil fuels have dominated the global energy sector for a century and a half and have defined how investors trade energy stocks for decades. But these days they’re getting some competition—renewable sources now account for 29% of global energy production. That’s why clean energy stocks and exchange-traded funds (ETFs) are poised to disrupt how traders invest in energy as economies around the world renovate energy infrastructure. The two largest American energy companies, Exxon Mobil (XOM) and Chevron (CVX), comprise 0.91% and 0.83% of the S&P 500, respectively. Those two companies combined make up roughly 42% of the holdings for XLE (Energy Select Sector SPDR ETF), the largest energy exchange-traded fund by market capitalization. Leading energy ETFs, such as XLE and XOP (SPDR S&P Oil & Gas Exploration & Production ETF), have been concentrated in oil and gas historically. However, a number of clean energy ETFs, such as ICLN (iShares Global Clean Energy ETF) and TAN (Invesco Solar ETF), experienced explosive growth in recent years. Despite a strong bull run since 2021, XLE and XOP showed relatively stagnant long-term performance, only growing by 18% and
F
50
Clean energy exchange-traded funds, like TAN and ICLN, outperformed fossil fuel energy ETFs over the past few years.
The stock price of one clean energy exchange-traded fund has grown 118% in the last three years.
9%, respectively, since 2019. Comparatively, as shown in Maintaining the lead, TAN grew by 229% in the past three years. ICLN has grown by 118% over the same period and now matches XOP in market capitalization. The notable growth of those clean energy products presents an interesting opportunity for investors; however, liquidity is currently limiting tradability of renewable products. An equity is generally considered liquid if it fulfills the
Luckbox | May 2022
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Falling behind A solar energy exchange-traded fund hasn’t kept pace with a more general clean energy ETF.
following criteria: • A high daily volume, meaning many shares—often more than a million—are traded daily. • A tight bid-ask spread, meaning a small difference between the maximum a buyer is willing to pay and the minimum a seller is willing to accept, often less than 0.1% of the asset price. Options liquidity differs from equity liquidity because a liquid equity may not have an equally liquid options market. An underlying with a liquid options market should have contracts with tight bid-ask spreads, high daily volumes, and a diverse selection of durations and strikes. More specifically, an underlying with a liquid options market ideally exhibits: • A high open interest or volume across strikes of at least a few hundred per strike. • A tight bid-ask spread greater than 1% of the contract price. • Contracts with several strike prices and expiration dates.
2205_TRADES_unlucky investor.indd 51
Popular clean energy ETFs, such as ICLN and TAN, have become significantly more liquid since 2020, and investors can use them to gain energy exposure while diversifying against oil- and gas-specific factors that tend to influence the rest of the energy sector. ICLN, in particular, is the most liquid and also has a fairly liquid options market. Generally speaking, clean energy ETFs still carry some degree of illiquidity risk for investors, particularly options traders, but trends suggest that this risk is diminishing as renewables grow in the energy sector. Julia Spina, a member of the tastytrade research team and author of The Unlucky Investor’s Guide to Options Trading, holds degrees in engineering physics and applied mathematics and a master’s in physics. @financephoton
4/8/22 1:35 PM
trades& tactics
THE PREDICTION TRADE
Making Book: From Musings to Markets It’s been less than a year since the launch of the Kalshi events exchange, a platform that provides speculators and active traders the opportunity to bet on outcomes in business, politics, cultural events, the economy and the weather. To understand what powers the site’s prediction markets, Luckbox asked Kalshi markets team member William Arnesen for an inside look. By Mike Reddy clear resolution source from a reliable source. We want to be able to target what people care about exactly, instead of some indirect measure or anything that involves a judgment I was pleasantly surprised by how much call. Data that comes out promptly and transsuccess the COVID-19 variant of high conse- parently from a well-respected source is the quence market got. People also got really into gold standard here. Compliance: the ambassador to China’s confirmation, so that was Priority No. 1 is making a nice surprise for me. sure that this contract I thought the position fits with regulatory best From Mar 22–Jun 6 practices. For example, might be a bit too obscure for retail folks, but they markets cannot be read>$125 Yes 35¢ No 68¢ followed it super closely ily susceptible to manipand it was a great success. ulation. They can’t be pure gambling. This is >$150 Yes 15¢ No 87¢ What goes into creating about doing right by our new prediction markets? members, so a market <$90 Yes 66¢ No 38¢ needs to meet all three A lot! At the idea generation stage, we’re just criteria before we proceed casting a wide net. We with it. <$75 Yes 36¢ No 65¢ consider member suggestions first and foremost, Once we’ve decided to —Price data as of 4.3.22, kalshi.com but we supplement it with go through with it, then it’s just about writing a lot of our own research. We’re looking for three main factors: precise terms and conditions, stress-testing Member interest : it—for example, ‘How could this go wrong?’ Is this something that people care a lot and ‘How can we account for that in our about? Are people going to actually trade on terms?’ Then we send it out for self-certificathis? While being ripped from the headlines tion and list it on the site. is helpful here, a market can be successful if there’s a small community that’s really passion- What markets are off limits to Kalshi because ate about it and needs to hedge their risk. of regulation? Market structure: Famously, the Onion Futures Act prohibits Is this a workable market? We really need a listing contracts on the price of onions—it’s a he wide variety of markets on the Kalshi exchange may surprise first-time visitors. Have some of the markets attracted more interest than you expected?
T
Price of oil
52
RECENT MARKETS ON KALSHI > Oscars
Best Picture winner
> Inflation
rates
> Grammy > Price
Song of the Year
of oil
> U.S.
GDP
> Gas
prices
> Taylor > Moon
Swift’s streams
landing before 2025
> Student
loan payment pause
> Hottest
year on record
> Biden
approval rating
> Congressional
stock trading ban
> Rain
in Chicago
> NYC
subway riders
fascinating story for anyone with an interest in wasting time in a Wikipedia rabbit hole. Dodd-Frank also prohibits listing contracts on movie box office futures. CFTC Regulation 40.11 also restricts contracts relating to war, assassination, terrorism, gaming and other illegal activity. What markets have you decided not to list?
Besides the obvious—we don’t list contracts on issues so obscure no one would trade them— we don’t want to list anything that could be in poor taste or contrary to the public interest.
Luckbox | May 2022
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So, even if the CFTC wasn’t banning assassination markets we would never list those. We also don’t want to list anything that involves too much of a judgment call in the determination or has too much of a risk of resulting in some weird resolution that members might take issue with. How do you determine whether a market will generate sufficient interest on both sides of its outcome? Is there a minimum threshold?
We don’t have a specific minimum threshold. If we think something is strongly in the public interest, it’s OK that it might not have incredible volume right off the bat. At some level, we have to make informed guesses. Consider a market on a major hot-button issue (e.g., net neutrality). It might have a 90% chance of just never coming up in the year. But in the 10% case that it does, it’ll be a huge deal and it’s important that we already have a market up on it in advance. Do you take market suggestions? If so, what’s the best way for traders to send them to you?
We do! And we discuss every single one at our meetings. We take suggestions at kalshi.com/ suggest-market. But we also take suggestions from the unaffiliated Discord and emails from members. We’ll read any of those!
The best market idea is one that you yourself would trade on. What makes a good market suggestion versus one that’s not so good?
The best market idea is a market that you yourself would trade on. You don’t need to have a fully fleshed out idea—it’s our job to fill in all the details. Even if you think it might be a bad idea, just send it anyway! What do new prediction market traders need to know about Kalshi’s markets?
I think traders might underrate the importance of being regulated. Unregulated markets have
a real ceiling in their appeal: There’s a limit to the amount of interest prediction markets can draw when they’re using play money, using crypto or can be shut down at any time. If we want prediction markets to be as ubiquitous as the stock market in the public imagination, it needs to be done in a way that assures the public that their money is secure and that we’re in cooperation with prevailing laws, not flouting them. I think a lot of people in the space view regulation as a burden, when in reality the rules that we have to follow—no markets readily susceptible to manipulation, nothing contrary to the public interest, proper safeguards on member funds, etc.— are all practices that businesses should be following anyway. So instead of seeing it as More a constraint, people Predictions should view regulaNew episodes! tion as a ticket to widespread adoption.
⊲
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trades& tactics
DO DILIGENCE
QU I E T FOU N DAT I O N HELPS P ROACT IV E INV ESTO RS U NDERSTAND T HEI R PORTFOLI OS
Petroleum Perseveres While debate continues on the transition from fossil fuels to green energy, the nation will rely on oil and gas for the foreseeable future By James Blakeway n April 20, 2020, the seemingly unthinkable happened: Crude oil prices fell below zero. More accurately, the May 2020 WTI crude oil futures went negative, touching a low price of -$40.32 per barrel. This freakish anomaly for crude oil came after a combination of steady declines and sharp drops as the world came to grips with the COVID-19 pandemic. Americans were disappointed to learn they weren’t being paid to fill up their gas guzzlers, but crude oil prices slowly turned around. Starting 2020 at $61, crude oil managed to recover somewhat by the end of the year, closing December at $48, a decline of 21% for the futures. Despite the substantial recovery in crude oil prices, the impact on oil and gas stocks in 2020 made the energy sector the worst performer of that year (see Fully recovered). Exxon Mobil (XOM), the largest energy company in the S&P 500, ended 2020 down 36%, at one point seeing a loss of 55%. Longer-term investors in the energy sector licked their wounds and saw a much-needed rally in 2021. XLE, the SPDR S&P 500 energy sector ETF, gained 53% in 2021, making it the best performing sector in the index that year. The same is true, thus far, for 2022 as energy is once again the top sector in the S&P 500. In fact, energy is the only sector with a positive return. That’s because of the fallout from Vladimir Putin’s invasion of Ukraine. Most stocks are down in 2022 on fears related to the war, the global supply crunch and the Federal Reserve’s plans to raise interest rates throughout the year. The invasion of Ukraine spiked oil prices at the beginning of March after a consistent climb in January and February. That pushed stocks like ExxonMobil even higher. Exxon reached an all-time high of $91.51 on March 8. While debate continues on the transition from fossil fuels to green energy, the nation appears likely to rely on oil and gas for the fore-
O
54
Fully recovered After losing a third of its value in 2020, the energy sector of the S&P 500 saw strong gains for 2021 and thus far in 2022. S&P Sector
2020
2021
2022
Energy (XLE)
-33%
53%
33%
Financials (XLF)
-2%
35%
0%
Utilities (XLU)
1%
18%
-1%
Healthcare (XLV)
13%
26%
-3%
Industrials (XLI)
11%
21%
-3%
Consumer Staples (XLP)
10%
17%
-4%
Materials (XLB)
21%
27%
-5%
Real Estate (XLRE)
-2%
46%
-9%
Technology (XLK)
44%
35%
-11%
Consumer Discretionary (XLY)
30%
28%
-11%
Communications Services (XLC)
27%
16%
-12%
S&P 500 (SPY)
18%
29%
-6% Data as of 3/18/2022
seeable future. In the meantime, stocks in the petroleum industry generated some healthy returns over the past year and a half. Many of those stocks are now at their highs, alongside the price of oil, and investors might hesitate to
Longer-term investors in the energy sector saw a much-needed rally in 2021. buy in at these lofty prices. However, if oil prices retreat to $60 or $70 per barrel, investors may anticipate another rally in oil. But what if investors don’t want to invest in just one stock (not knowing which to pick) and definitely don’t want to buy an oil future?
As usual, there’s an exchange-traded fund (ETF) for that. As mentioned earlier, specific sector ETFs are available, such as the S&P 500 Energy Sector ETF that holds all the energy stocks in the S&P Index. As shown in the graphic (see Plenty of choices), ExxonMobil is the largest holding in the Energy Sector ETF. Investors seeking alternatives to the SPDR energy sector fund may prefer the SPDR S&P Oil and Gas Exploration and Production ETF (XOP). That fund may attract investors because of the lower weighting of its top components—no single stock makes up more than 3% of the portfolio. However, it does have a lower dividend yield and higher expense ratio than the broad energy sector fund. A third option, the VanEck Oil Services ETF (OIH), holds a slightly different mix of stocks in its top components compared with the other
Luckbox | May 2022
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Plenty of choices The wide variety of exchange-traded energy funds means there’s one that fits nearly any stock portfolio. Symbol
USO
OIH
XLE
XOP
Name
United States Oil Fund
VanEck Oil Services ETF
SPDR Energy Sector ETF
SPDR S&P Oil & Gas Exploration & Production ETF
Dividend Yield
0.0%
0.73%
3.31%
1.32%
Expense Ratio
0.83%
0.35%
0.10%
0.35%
Portfolio Type
Futures
Stocks
Stocks
Stocks
WTI Crude Oil - May 22 (20%)
Schlumberger (SLB, 19%)
Exxon Mobil (XOM, 24%)
Callon Petroleum (CPE, 3%)
WTI Crude Oil - Jun 22 (20%)
Haliburton (HAL, 13%)
Chevron (CVX, 20%)
SM Energy (SM, 3%)
WTI Crude Oil - Jul 22 (15%)
Baker Hughes (BKR, 7%)
ConocoPhillips (COP, 5%)
Occidental Petroleum (OXY, 3%)
WTI Crude Oil - Aug 22 (15%)
Transocean (RIG, 5%)
EOG Resources (EOG, 5%)
Diamondback Energy (FANG, 3%)
WTI Crude Oil - Sep 22 (10%)
ChampionX (CHX, 5%)
Schlumberger (SLB, 4%)
Continental Resources (CLR, 3%)
Top 5 Holdings (symbol, weight in fund)
Data as of 3/18/2022
two. Note that the three funds have a large amount of crossover with their holdings. Additionally, all three funds exhibit current correlations with one another above 0.75, meaning they often move in the same direction. A fourth ETF worth mentioning is the United States Oil Fund (USO). This fund differs from the others in that its portfolio is built from futures contracts, not shares of stocks. The managers of this oil fund buy futures contracts for a variety of months, as indicated in the table. That gives investors a more direct avenue for oil exposure, but it comes with a stern caveat. The U.S. Oil Fund is prone to an issue known as “drag,” whereby the price can seemingly decay over time. It occurs when the fund managers must roll their futures positions forward before they expire. They sell the expiring futures and buy futures that expire later. Because the laterdated futures are cheaper than front-month futures, this phenomenon isn’t happening now. However, it will return if the oil market shifts. Depending on investors’ goals, an energy ETF will probably fit into their portfolios, assuming they want the exposure. Energy will continue to exhibit volatility throughout 2022. Investors should stay vigilant. Before jumping into any energy asset, they should always do their due diligence.
State of recovery The three stock-based exchange-traded energy funds have bounced back from the pandemic, but the futures-based oil fund (USO) still lags behind. SPY XOP XLE OIH USO
40% 20% 0% -20% -40%
-60% -80% Jan 2020
Apr 2020
Jul 2020
Oct 2020
Jan 2021
Apr 2021
Jul 2021
Oct 2021
Jan 2022
Apr 2022
James Blakeway, Luckbox technical editor, serves as CEO of Quiet Foundation, a data science-driven subsidiary of tastytrade that provides fee-free investment analysis and trade ideas for self-directed investors. @james.blakeway
May 2022 | Luckbox
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trades& tactics
MACRO VIEW
F R E E- F LOAT I N G M ACRO INS IG HTS FRO M G LO BAL CU R R ENCY T RADERS
Oil, Ukraine and the Krone Europe’s energy shortfall will boost Norway’s currency By Ilya Spivak he Norwegian krone tends to rise against the euro when crude oil prices are on the upswing. Indeed, the 12-month rolling correlation between Europe’s benchmark Brent crude oil contract and the euro/Norwegian krone currency pair (EUR/NOK) exchange rate has spent most of the 14 years since the 2008 financial crisis in strongly negative territory. That makes sense. Norway is a prodigious exporter, with an account surplus averaging more than 6% of gross domestic product over the past four decades. Much of this commercial success hinges on selling crude oil, natural gas and refined petroleum to the Eurozone. Germany, the Netherlands and France add up to over a third of cross-border sales. A modest but historically persistent trade deficit in Norway’s favor already implies a steady outflow of euros from the currency bloc to the energy exporter. This is understandably exacerbated when the cost of crude oil rises on global markets. A higher price per barrel feeds capital flows out of euros and into krones. So, it’s not surprising to see the krone trading near three-year highs against the euro as Russia’s invasion of Ukraine stokes fears about global energy supply disruption and sends prices sharply higher. Biting Western sanctions have hobbled shipments from the world’s No. 2 crude oil exporter, squeezing an already tight post-pandemic market. Dramatic backwardation in Brent crude oil futures speaks to traders’ mindsets. (Backwardation occurs when the price of an underlying asset is higher than the prices trad-
T
56
Opposite directions
The exchange rate between the euro and Norwegian krone shows a strong negative correlation with Brent crude oil because higher petroleum prices coincide with stronger demand for the Norwegian krone. 0.70%
EUR/NOK spot rate Brent crude oil future
0.60% 0.50%
11.50 11.00
0.40% BBK2022
0.30%
10.50
0.20% 0.10%
140.00 130.00 120.00 115.62 110.00
10.00 100.00
0.00%
EURNOK 9.6425 90.00 9.50
-0.10% -0.20%
80.00
-0.30%
9.00
-0.40% -0.50%
8.50
-0.60% -0.70% -0.74% -0.80%
8.00
-0.90%
7.50
60.00 50.00 40.00
12-month rolling correlation
-1.00%
2008
70.00
2010
2012
2014
2016
2018
2020
2022
30.00
2024
Source: TradingView
When the cost of crude oil rises on global markets, a higher price per barrel feeds capital flows out of euros and into krones.
Luckbox | May 2022
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trades& tactics
ing in the market for futures.) The spread between the front-month contract and the one to follow has surged, implying that markets are willing to pay an increasingly high premium to get oil deliveries as soon as possible versus even just a few weeks later. However and whenever a durable ceasefire is agreed upon, a full return to market conditions prevailing before the shooting started looks unlikely. Germany and other key Eurozone economies have loudly pledged to diversify away from Russian energy, straining regional supply/demand dynamics and seemingly pulling EUR/NOK lower longer term. Nevertheless, the eventual end of military engagement will almost certainly bring some level of relief. This implies that a near-term easing of scarcity concerns may see oil prices pulling back as backwardation eases, before structural forces reassert their dominance and lock in an overall tighter market than the pre-invasion status quo. For EUR/NOK, this suggests a shorter-term corrective rise triggered as the guns fall silent may offer an opening to enter short, looking to participate in the longer-term decline. Tellingly, positive divergence on relative strength studies suggests downside momentum is ebbing even as the larger trend points lower after last year’s breakdown. Potential resistance that might cap any corrective gains begins at 9.9824—a 12-month inflection level—followed by key swing tops at 10.2305, 10.4019 and 10.7035. On the downside, extending lower beyond the October 2021 low at 9.6624 sees subsequent support levels at 9.3867, 9.1587 and 8.7894. Ilya Spivak is head strategist for AsiaPacific markets at DailyFX, the research and analysis arm of retail trading platform IG. @ilyaspivak
Higher prices
Given the strong demand for oil, markets are pricing it much higher in the front month relative to the back month futures.
BB1!-BB2!
Brent crude oil futures spread (1st-2nd month)
12.80 4.00 3.70 12.60 3.50 12.40 3.00 12.20 2.50 12.00 11.80 11.60 11.40 11.20 11.00 10.80 10.60 10.40 10.20 10.00
Aug
2020
Apr
Jul
Oct
2021
1.50 1.00 0.50 0.00 -0.50 -1.00 -1.50 -2.00 -2.50
9.80 -3.00
EUR/NOK spot rate
May
2.00
EURNOK 9.64 -3.50
Apr
Jul
Oct
2022
Apr
Jul
Source: TradingView
Support and resistance
Traders should keep these key support and resistance levels in mind when analyzing the exchange rate for the euro and Norwegian krone.
13.00 12.50 12.00 11.50 11.00 10.70 10.40 10.23 9.98 9.66 9.39 9.16 8.79 8.50 8.00 7.50 7.00 80.0 Positive RSI divergence 2013
2014
2015
2016
2017
2018
2019
2020
2021
2022
2023
Source: TradingView
May 2022 | Luckbox
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trades& tactics
TACTICS: BASIC
Greenbacks & Green Energy Here’s how to size up equities in the new, sustainable energy companies By Eddie Rajcevic enewables still account for a mere 12.6% of U.S. energy consumption even after decades of harvesting power from the sun, wind, rivers, hot springs and tides, according to the U.S. Energy Information Administration. But that could change. Businesses are developing alternatives to fossil fuels, the primary source of American energy. It’s a shift that could mean opportunity for investors. Sustainable energy stocks not only afford an opportunity to diversify a portfolio but also offer the chance to own a piece of the future. Yet, entering the fray requires careful consideration of a number of factors. Metrics ranging from market capitalization to dividend yield can help investors understand the industry and select stocks that align best with their goals. When comparing large versus small companies in a young indus-
R
Green Plains (GPRE), two By the numbers of the smaller companies in When considering stock in alternative energy companies, the alternative energy indus- make sure to scrutinize the metrics. try, may offer greater growth opportunities. But beware of the associated risks. Smaller Company Symbol Market cap P/E ratio (BILLION) companies have fewer resources, meaning that negaNextEra NEE $162.00 45.3 tive events can have greater Energy impact on their stock prices. Plug Power PLUG $15.00 -28.9 Smaller companies also First Solar FSLR $8.00 17.6 have greater volatility, meaning they display more frequent Sunnova NOVA $3.00 -18.9 Energy price swings than larger companies. Some investors can stomGreen Plains GPRE $2.00 -23.4 ach that risk, but others might prefer a safer investment in stocks with larger market capitaliza- not be a bad thing. It can indicate the tion. The price of stock in NextEra market is pricing in greater growth Energy, for example, didn’t show much that’s expected in future years. volatility in the past year. A negative P/E ratio shows the Also consider the price/earnings company has not reported profits, (P/E) ratio. That metric helps deter- something common for new compamine whether a stock is overvalued or nies. If a negative P/E persists for undervalued. Compare the P/E ratios years, then it becomes a concern. The last factor to consider—one that’s important for newer investors or those with smaller accounts— is the current price of the stock. A lower market capitalization does not of companies in the same industry necessarily mean a lower stock price, because each industry has a different and vice versa. range of ratios. Of these five alternative energy If the P/E ratio is much higher stocks, NextEra Energy and First than comparable companies, inves- Solar cost the most per share. Yet a tors may end up paying more for lower price doesn’t necessarily mean every dollar of earnings. Value a better value. investors search for companies with Market capitalization is the value lower than average P/E ratios with the market places on the company. the hope that earnings will increase Price may be important in choosing and thus cause the stock price to rise. a stock, but it shouldn’t be the only Sometimes, a high P/E ratio may factor.
Historical volatility (30 DAYS)
32% 95% 67% 118% 76%
Price may be important in choosing a stock, but it shouldn’t be the only factor. try like alternative energy, investors should remember that they’re dealing with a different scale than with established energy firms with large market capitalization. The larger sustainable energy companies, such as NextEra Energy (NEE), Plug Power (PLUG) and First Solar (FSLR), are publicly traded and focus on wind, hydrogen and solar powers, respectively. Sunnova Energy (NOVA) and
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trades& tactics
CHERRY PICKS
R I PE & J U I CY T RADE IDEAS
6 Looks at Energy Stocks By Michael Rechenthin
rude oil prices of more than $100 a barrel are boosting stock prices in the petroleum sector, but the effect on the S&P 500 is limited because the commodity accounts for fewer than 5% of the companies in the index. Many portfolios are heavily invested in the S&P 500, so a lot of traders have very little exposure to the energy sector. Where should traders start if they want to gain more exposure to energies? Here’s the lay of the land.
C
Five biggest names in energy
ExxonMobil (XOM), the biggest name on the list, collected $279 billion in revenue in 2020 from manufacturing petrochemicals, plastics and many other products. Name
Market capitalization (in billions of dollars)
XOM
ExxonMobil
361
CVX
Chevron
324
COP
Conoco Phillips
136
EOG
EOG Resources
71
PXD
Pioneer Natural Resources
61
Five best-performing energy stocks
Devon Energy (DVN), an oil and gas producer, also focuses on sustainable operations. Name
12-month price change
DVN
Devon Energy
175%
MRO
Marathon Oil
135%
APA
APA
121%
OXY
Occidental Petroleum
111%
COP
Conoco Phillips
95%
Five worst-performing energy stocks
With the exception of Phillips 66 (PSX), every energy sector stock in the S&P 500 was up at press time. OKE
Five most volatile energy stocks
Occidental Petroleum (OXY) has earned the love of options traders for years. It operates in the United States, the Middle East and North Africa. Name
Current volatilities
OXY
Occidental Petroleum
2x as volatile as the S&P 500
DVN
Devon Energy
2x as volatile as the S&P 500
CTRA
Coterra Energy
2x as volatile as the S&P 500
APA
APA
2x as volatile as the S&P 500
SLB
Schlumberger
1.5x more volatile than the as the S&P 500
Five most stable energy stocks Stability is rarely synonymous with the energy sector. Three of these stocks had the same volatility as the S&P 500, and two had less. Name
90-day volatility
MPC
Marathon Petroleum
Same volatility as the S&P 500
CVX
Chevron
Same volatility as the S&P 500
OKE
Oneok
Same volatility as the S&P 500
KMI
Kinder Morgan Class P
¾ the volatility of the S&P 500
WMB
Williams Cos
¾ the volatility of the S&P 500
Five most correlated to the price of crude The five most-correlated stocks in the group also tend to have the highest capitalization. By comparison, the S&P 500 (SPY) is -0.25, meaning it tends to go down when crude is up and vice-versa. Name
Correlation with oil
ExxonMobil
0.62
Name
12-month price change
XOM
Oneok
41%
CVX
Chevron
0.60
Marathon Oil
0.58
WMB
Williams Cos
38%
MRO
VLO
Valero Energy
33%
OXY
0.55
KMI
Kinder Morgan Class P
14%
Occidental Petroleum
VLO
Valero Energy
0.53
PSX
Phillips 66
-1%
Subscribe to Cherry Picks, a free quantitative newsletter for current and armchair quants, which is short for quantitative analysts. Every week the publication provides trade ideas for stock, options and futures traders. It also provides the latest insight into earnings, trade opportunities and market moves.
2205_TRADES_cherrypicks.indd 59
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trades& tactics
THE TECHNICIAN
A V E T E RA N T RA D ER TAC K LES T EC HNICALS
Sunshine Securities The golden age has yet to arrive for stocks in solar power companies By Tim Knight nly 0.014% of the solar energy reaching Earth is converted into usable power. That leaves plenty of room for improvement, and companies are rushing to meet the challenge. Let’s examine the securities of five of those firms from a charting perspective. Ranking charts requires subjective judgment, but we’re presenting them in what we consider descending order from the strongest to the weakest. The charts aren’t accompanied by commentary on company history, products or prospects. Instead, we’re observing how the stocks rose or fell in the past—and what that suggests about the future.
O
Daqo New Energy (DQ) This company has been in a general uptrend for virtually its entire existence as a publicly traded entity, with the exception of its first couple of years. It formed an exceptionally clean cup-with-handle pattern from 2014 through 2019, and its breakout from this pattern produced a remarkable 500% increase in a short time. The sheer magnitude of the bullish setup made the ascent sharp, powerful and almost uninterrupted. Over the past year, however, the stock lost most of its gains. Should it continue to erode, it might create an appealing new buy point if the stock finds stability at the trendline. That’s the same line that acted as resistance for so many years and is now serving as support. This stock’s chart is by far the healthiest of the group, in spite of its severe recent drop. JinkoSolar (JKS) Like Daqo, the JinkoSolar chart had a strong breakout from a long-term resistance line. However, a couple of things make this breakout less impressive. First, the trendline was descending, indicating a stock that was slowly losing strength instead of gaining it. Second, it had only a
60
Daqo New Energy (DQ) Daqo gave up most of its 2020 and early 2021 gains over the last year. 130 120 110 100 90 80 70 60 50 40 30 20
10
2012
2013
2014
2015
2016
2017
2018
2019
2020
2021
slopecharts.com
JinkoSolar (JKS) JinkoSolar appears to be staying above its support line but has fallen more than 40% from its high. 90 85 80 75 70 65 60 55 50 45 40 35 30 25 20
15
10
5
2010
2011
2012
2013
2014
2015
2016
2017
2018
2019
2020
2021
slopecharts.com
Luckbox | May 2022
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short-lived breakout. Despite instability, the stock at least held above the trendline, affirming its role change from resistance to support. It has been consolidating for many months in a relatively tight range, and the single trendline on this chart can be considered a very important test of the long-term viability of JinkoSolar as a long position. Canadian Solar (CSIQ) This stock has a striking history, trading within a wild range for more than a decade and a half. The price of the stock wasn’t any different in 2022 than it was in the year 2008, even though it had been through its own private series of bull and bear markets for years. In spite of this dynamism, it did sport a rather clean symmetric triangle pattern from 2015 through 2020, which provided the opportunity for a hearty bullish breakout. The stock tripled in a few months. But like JinkoSolar, it lost virtually the entire value of the breakout afterward. As with JinkoSolar, its disposition toward its supposed support line is important. If it stays above this line, this stock could pull up and away from that triangle once again in the long term. Enphase (ENPH) Here’s an interesting situation. This stock would probably be at the top of the list were it not for a recent failed bullish breakout. From 2015 through 2018, Enphase created a clean base pattern (tinted in green on the chart on the right) and then launched into a multiyear gargantuan percentage gain in price. It stalled out for about a year but appeared to be forming another leg up in what had already been a spectacular run-up. The stock did break out to lifetime highs from this smaller pattern. But within weeks, it not only fell back beneath the breakout level but also slipped below the pattern altogether and started a serious descent of more than 50%. Although this stock may be consistent in the long term, it’s clear that the bullish run it had from 2017 through 2021 has been short-circuited, and its failed bullish breakout surprised and disappointed the stock’s newer buyers. Sunpower (SPWR) Sunpower rounds out the list. It landed at the bottom for two reasons. First, it’s been a losing stock for its entire price history. Although 20052006 was good for the stock, it has spent ⊲
Canadian Solar (CSIQ) Canadian Solar broke out of its symmetric triangle pattern in 2020 but has since fallen. 65 60 55 50 45 40 35
30
25
20
15
Mar 2015
Sep 2015
Feb 2016
Aug 2016
Feb 2017
Aug 2017
Feb 2018
Aug 2018
Feb 2019
Aug 2019
Feb 2020
Aug 2020 Feb 2021 Jul 2021 Jan 2022
slopecharts.com
0.014%
The amount of available solar energy captured for power
Enphase (ENPH) Enphase saw a bullish breakout last year before slipping back below the breakout level. 280 260 240 220 200 180 160 140 120 100 80 60 40
20
2012
2013
2014
2015
2016
2017
2018
2019
2020
2021
2022
slopecharts.com
May 2022 | Luckbox
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nearly two decades meandering around a large price range, always well below its 2007 level. It had three thrusts higher, each followed by a severe price drop. Long-term holders of this stock are nothing but disappointed, and recent price action suggests yet another move into the single digits. Should it reach the kinds of lows witnessed in 2011 and 2019, it might be worth considering a purchase.
Solar power technology is improving, the sun isn’t going anywhere and oil prices are skyrocketing. Sunpower (SPWR) Sunpower made highs back in 2007 but never returned to those levels. 130 120 110 100 90 80
A long, cold lonely winter It seems inevitable that the solar industry will become a bigger part of life. The technology is improving, the sun isn’t going anywhere and oil prices are skyrocketing. But from an investment perspective, this isn’t a golden opportunity to leap into these securities. Still, the long-term history of these stocks provides insight into what would constitute an appealing purchase price at levels with better risk/reward ratios than traders are seeing elsewhere these days. Tim Knight has been using technical analysis to trade the markets for 30 years. He’s the host of Trading Charts with Tim Knight on the tastytrade network and offers free access to his charting platform at slopecharts.com. @slopeofhope
2205_TRADES_technician.indd 62
70 60 50 40 30
20
10
2005
2007
2009
2011
2013
2015
2017
2019
2021
slopecharts.com
4/8/22 1:44 PM
trades& tactics TRADER
2 Home/Office location
4
Round Lake, Illinois Age
54
1
Years trading
20
How did you start trading?
My father introduced me to investing around the age of 13, but it was more the typical buy-and-hold for stocks. About eight years ago, I stumbled onto tastytrade as I was researching options trading, and I was hooked.
3
Favorite trading strategy for what you trade most?
I am open to most options strategies. The underlying and my bias dictate what I will use. I do like to eliminate risk to one side, so jade lizards are a favorite. I also love the leverage I can get from using options to simulate long or short stock. A personal favorite is the broken wing butterfly, especially when you get the opportunity to turn it into a free butterfly and lock in a profit. Average number of trades per day?
Two to three
What percentage of your outcomes do you attribute to luck?
There is always a small percentage of luck in trading, especially if you’re taking a directional shot in an underlying. But the beauty of options is that you can create a position that gives you a higher probability than the typical 50/50 flip of a coin. And you also have the possibility of managing a position if you’re wrong on the direction in the short term. Favorite trading moment?
I made a New Year’s resolution for 2022 to learn how to trade futures, and in particular, how to scalp intraday. Over the last couple of months, as it finally started to click and I
MEET
MIKE NIEMOTKA could repeatedly have “#scoopyscoopy” moments of consistent daily profits, it was a great feeling. It gave me an income stream to complement a core portfolio that I can trade around for long-term growth. Worst trading moment?
I was assigned 100 shares of Tesla, which I could not afford to hold. So, seeing a huge, negative buying power on the screen one morning was a little scary. I closed out 75 of the shares and held on to 25 and have been trading a variety of strategies around it for the last six months. With the combination of cost basis reduction from those trades and Tesla having some recovery, I am now at the point where I’m slightly profitable. I will continue to trade around the shares to reduce cost basis further.
There is always a small percentage of luck in trading, especially if you’re taking a directional shot in an underlying.
PICTURED ABOVE:
1. The tastytrade network 2. The album cover giveaway from the inaugural “He Said She Said” tastytrade tour that I attended in Chicago. It’s like having Tom, Bat, Liz, Jenny and Jim in the room for good luck. 3. The tastyworks platform 4. Monitor with Twitter and email to communicate with all the traders and friends I have made along the way
May 2022 | Luckbox
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THE LAST PICTURE
What’s with the nation’s ongoing fascination with the past? Americans tend to treat just about anything retro as an iconic piece of history worth remembering, exploring and embracing. They’re not content just learning the backstory—they want to become part of it. And the June issue of Luckbox can help. Expect a thorough examination of the retro revival as the magazine celebrates the resurgence of classic cocktails, video
64
games and venerable consumer brands. We’ll bring you retro-tinged updates that include time-tested investment strategies, the new incarnation of the classic VW campervan, reinvigorated road trip rest stops and Grammy winners who are releasing their latest albums on cassettes and vinyl. And be prepared for a look at the latest crop of bicycles, the transportation option that doesn’t require gas or a charging station. Think of retro as recycling—but more fun. Get on the bus.
PHOTOGRAPH: REUTERS
Retro Reboot
Luckbox | May 2022
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