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‘Exxon right now is really un-investible:’ Market strategist

Yahoo Finance's Alexis Christoforous and Bob Iaccino, Path Trading Partners co-founder & chief market strategist discuss the latest moves in the energy sector.

Video Transcript

ALEXIS CHRISTOFOROUS: Want to stick with oil right now and bring in Bob Iaccino of Path Trading Partners. He is co-founder and chief market strategist there. Bob, good to see you. So we just heard Jared talking about oil prices extending their rally, as we see this-- this broad recovery in the financial markets.

So I guess gains were capped by concerns over the rise we're seeing in coronavirus cases around the world and what that might do to demand. How much of that is at play right now, the fact that there were lockdowns in different parts of the world that could be squeezing oil demand?

BOB IACCINO: Well, good afternoon. It's definitely the entire demand story. I mean, there's no other story, including what's going to happen with jet fuels if the airlines continue to be somewhat grounded or at least unfavorable to travelers. When you look at it from a perspective of the supply side, there was a plan for the supply side. And if they postpone that plan, sort of a tapering away those production cuts and adding the $2 million barrels a day they said they were going to start to add to supply in January, then this rally won't last if they don't actually accept the fact that the supply is outsizing the demand and continues to look like that's what the future of crude oil is going to be.

They definitely need to taper if they want to stabilize prices. Also, there's going to be an eventual drop off of US production, whether it's regulated away in a Biden presidency or whether it is just straight supply that's been eroding as you see the rig counts. The rig counts are down about 80% from where they were at this time last year, which is just a natural occurrence of price. So either way, it looks like the supply is going to outstrip demand for the near future with the pandemic rising.

ALEXIS CHRISTOFOROUS: Bob, when you look at this election, you see two candidates with starkly different approaches to the energy sector. It sort of comes down to-- I'm going to call it renewable versus independence. You got a lot of middle-class jobs that depend on this. You've got Biden saying he wants to invest $2 trillion in clean energy. What does that do to companies like Chevron and Exxon Mobil?

BOB IACCINO: Well, if you take the example of a company like British Petroleum-- which is kind of pivoting away from fossil fuels, and they're very public about it-- companies like Exxon which are really double-down on fossil fuels-- I think President Trump or President Biden, it's a matter of time before that stuff goes away.

You just look at the sort of increase of ESP type investing where you're looking at this going into favor regardless who wins this particular election. So it's really a speed thing. I think Exxon right now is really uninvestable for the medium term. Chevron's a little bit different because they have more of a mainstream profitability built into their shares. But Exxon to me is really in bad shape. And I think it's just short term versus long term.

Fossil fuels are out of favor publicly. So whether they become the law of the or they just get sort of priced away sort of like what's happening to fracking over the last six months, it's going to happen either way.

ALEXIS CHRISTOFOROUS: Yeah, talk to me about fracking a little more because it's been a big issue in this election certainly for the swing state of Pennsylvania. And many pundits are saying that this could all come down to how Pennsylvania winds up voting. When you look at fracking and then as an investor, you look at opportunities in the energy space, where do you see those opportunities post this election?

BOB IACCINO: Well, to me, it's definitely green for the long-- medium to long term. And it could be energy in the short term if there is a surprise in the electoral college vote that it goes for President Trump. I think the issue you have again is that how a medium to long-term investable is fossil fuels. And, again, when you take the example of a company, like British Petroleum, or even take it out to the industry where companies, like Volkswagen, Audi, are trying to get rid of their fossil fuel cars by 2031 completely mostly by 2025, it's absolutely the future.

So I think you look at solar companies in the short term regardless of who wins the election. I think those will be very investable. And any sort of support to those industries is also a good luck.

ALEXIS CHRISTOFOROUS: Do you think that 2021 is going to be energy's year, because certainly 2020 has not been.

BOB IACCINO: I don't think it will be traditional energies either way. I think it could be green energy's here. It could be one of those years where, actually, your average mainstream investor isn't looking at green energy as a sector. They're looking at as energy, which I think is the direction we should be going in anyway. They should sort of be compressed into one sector. And then stock pickers can look at the ones they like. And I think increasingly, that's going to be green.

ALEXIS CHRISTOFOROUS: Bob, I want to just step back and look at the broader market for a moment, because I was reading through your notes. And you say that talk of a contested election is actually overblown. Why do you say that?

BOB IACCINO: So it's my opinion that the Senate matters more than the presidency for stocks. OK, maybe not for public opinion. But for stocks, I think the Senate matters more. I think a good outcome for the equity markets would be the Republicans keep the Senate and Joe Biden wins the presidency.

And the reason I say that is because I'm a believer that there's going to be stimulus either way. I think it's bipartisan. I just think it was too close to the election to get done. There was way too much if we give them stimulus if they win on both sides of it. So I think there's going to be stimulus either way after the election and probably very quickly.

I also don't believe President Trump's going to contest an obvious loss. I really don't. I just think he's a lot of bluster. And then you look at what he says and what he does, and they don't generally match up. And he says both things even this morning in an interview on another network. He was saying he's not going to declare victory unless it's a clear victory. And if it's a clear victory, I believe Joe Biden will accept it with grace. I really do.

So I'm taking chips off the table of a contested election. And then it also isn't historically new. I mean, Al Gore didn't concede until really early December. So we've seen this before. There's just so much vitriol with this particular incumbent that it's going to seem like something we haven't gone through before. And I think stocks are recognizing that.

Again, I think a lot hinges upon Joe Biden conceding with grace. And President Trump if he loses, it's probably going to be a very big loss. And I really think he'll accept that. There's not much to fight about in that situation.

ALEXIS CHRISTOFOROUS: We shall see soon enough. Bob Iaccino of Path Trading Partners. Thanks for being here today.

BOB IACCINO: Good to be here.