Recently I had the opportunity to sit down and talk with my favorite economist , Brian Wesbury with First Trust Portfolios, about oil and the energy sector in general.

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Today I’ve got a real treat for you. I’m going to be bringing you the first part of my two-part interview series with First Trust Portfolio’s chief economist: Brian Wesbury. Let’s get started.

While most guys would be happy to sit next to their favorite athlete and talk about sports, I’m excited to have had the chance to sit down and talk to my favorite economist. Brian has been seen on CNBC, Fox News, Bloomberg TV, and more. 

Being based out of Houston, Texas, most of my clients are oil- and gas-related. That being the case, I wanted to hear Brian’s thoughts on the energy sector, in general.

Brian told me that his first boss in economics always had a saying from the Bible that he would recite: “An ounce of gold will buy a fine suit of clothing.” 

“If you think about that, there’s really an economic theory there,” said Brian. “What it says is that prices ought to be related over time. If this was true 2,000 years ago, it’s true today. And so, the way we look at oil prices—the way we look at all commodity prices—is [that] we relate them,” he continued.

 

 

In other words, if an ounce of gold will get you about 16 barrels of oil, you can determine that oil is worth between $55 to $65 per barrel. After some back and forth in those prices over time, Brian says he believes that this range is approximately where prices are likely to stay.

He also doesn’t believe that fracking will lower the price. “The good news there is that oil companies can make a profit at these kinds of prices,” said Brian.

But what really gets Brian excited about the energy sector is that the United States is currently transitioning from an oil-importing nation to an exporting one. This equates to hundreds of billions of investment.

He also says that MLPs (master limited partnerships) shouldn’t be ignored in this investment space. 

Speaking of MLPs, I wanted to ask Brian what he thinks about major oil companies like Exxon and Chevron. While Brian says this isn’t exactly his area of expertise, he does say that most people believe these companies’ prices to be fairly cheap. Overall, though, Brian believes that oil will be a good investment over the next few years. 

When it comes to market valuations in general, there were many models Brian listed for me. Some models will indicate that the market is fairly valued. But, some models are indicating that the market is overvalued. However, Brian does not believe this to be the case.

Actually, Brian thinks that the stock market is undervalued. One of the key reasons he cited for this was that interest rates have remained low. The lower the rates are, the more earnings are worth in the future. Profits in the market have been improving, therefore, we can expect a lot from our equity.

Talking with Brian was great, and I hope you’ll tune in for the second half of our conversation. That installment will be coming soon. 

If you have any other questions or would like more information, feel free to give me a call or send me an email. I look forward to hearing from you soon.

^{Opinions expressed are those of the speakers and not necessarily those of Raymond James. Brian Wesbury and First Trust Portfolios are not affiliated with Raymond James. Investing involves risk and you may incur a profit or loss regardless of strategy selected. Past performance is not a guarantee of future results. Sector investments are companies engaged in business related to a specific sector. They are subject to fierce competition and their products and services may be subject to rapid obsolescence.  There are additional risks associated with investing in an individual sector, including limited diversification.  Investing in oil involves special risks, including the potential adverse effects of state and federal regulation and may not be suitable for all investors.}

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