The Dividend Cafe - Energy Investing with or without Iran

Episode Date: April 2, 2026

Today's Post - https://bahnsen.co/3OfQbjF This week’s Dividend Cafe is released Thursday ahead of the Good Friday market holiday and addresses market volatility driven by a supply shock and geopolitical turmoil around Iran, including swings in WTI crude from the 60s to above $109 amid expectations around the President’s speech and fears of Strait of Hormuz disruption. David argues these headline-driven price moves should not be the basis for energy investing; instead, energy is foundational to economic growth—“energy transformed”—with both physical and human (metaphysical) components that create goods, services, profits, and prosperity. Bahnsen contends investors were underweight energy, noting energy’s very low share of S&P 500 capitalization despite its broad, evergreen economic importance and recent sector gains. The energy thesis is positioned as decades-long, extending beyond oil and gas to the wider energy ecosystem and infrastructure, including electricity needs tied to data centers. 00:00 Welcome and holiday timing 00:22 Energy headlines and market volatility 01:21 Energy transformed drives growth 02:20 WTI spike and supply shock 03:47 Why not trade the chart 04:46 Physical and human energy 06:59 Supply plus wise transformation 07:59 Energy ecosystem and data centers 10:10 S&P 500 energy underweight 11:50 War questions miss the point 13:46 How energy companies make money 15:59 Beyond oil and gas thesis 16:56 Easter sign off Links mentioned in this episode: DividendCafe.com TheBahnsenGroup.com

Welcome to the Dividend Cafe, weekly market commentary, focused on dividends in your portfolio and dividends in your understanding of economic life. Well, hello and welcome to this week's Dividend Cafe. You will notice it is not coming on Friday, as tomorrow is Good Friday. It's a market holiday. It goes into a special Easter weekend. And so we are sending it out here today on Thursday, but nevertheless, you can consider this, the weekly Friday Dividendon Cafe. And I want to talk to you today about the subject of energy.

And I want to talk about it because it is very pertinent in what is the largest market story right now, volatility in financial markets caused by significant increases in energy prices, caused by significant geopolitical turmoil in the Iran military operation. But at the same time, this. is an investable story when we talk about energy that I believe starts at the beginning of time, that my thesis and the thesis we have at our company is not a thesis related to a particular geopolitical tailwind. And so I want to make the case today that if you understand energy properly, it is integral to understanding economic growth that fundamentally, I'm going to borrow from my friend

and the brilliant economist Louis Gov, that economic growth is essentially energy transformed. And that has a tremendous ramification. It is connected to the way Louis is meaning it, the physical world. And yet I want to argue that there is a metaphysical component as well out of which value is created, things, goods and services are produced. There is a human component when we ourselves are activated and energized, but that it mirrors the physical components from which actual energy goes about creating economic growth. and fundamental to the energy investment story has to be this understanding. In terms of the here and now, I'm going to put a chart up right now of WTI crude oil prices

just in the last five days. We already know that they spike significantly from the 60s up to the 90s, so let's call that a 50% move higher when the strikes in Iran began. But then now we've seen it, first of all, stubbornly hang in there with the straight-of-h-h-h-h-h-muse closing and then now go into kind of super mode up here this morning above $1,910 as a byproduct of the president's speech last night. It had gone down $7 in expectation of the president's speech yesterday. So there was this belief that he was going to be pursuing an off-ramp.

And so oil prices dropped. and stock markets rallied and bond yields fell, bond markets rallied. Then now you see all of these things reverse as they say, okay, well, maybe the president is talking about going on further, deeper escalation and prolonging, and so then that pushes oil prices higher, and that's the crux of a lot of this financial market volatility. And there's very good short-term reasons for that.

And there's a perfectly clear explanation as to why a supply shock would push the price higher of a globally priced commodity like oil that is integral to so much of the world economic activity. However, when you see in the chart this big move up, big move down, big move up, that is not and cannot be and should not be the basis for investing in energy. And when I refer to the concept, to what Louie's line about economic activity is energy transformed, what we're essentially saying, and there's a lot of history in this, okay, you can think about how oil and gas transformed transportation, fertilizers with agriculture, electricity with computers in the whole digital age, heat, pushing steel manufacturing,

This is a technological story that is all rooted and centered around energy being transformed and facilitating the production of goods and services that enhance our quality of life. And this has gone on since the beginning of time. We've just gotten a lot better at it. And yet, it is more than just a restructuring of atoms, which is obviously, I don't want to discount the element of physics because there is a physics story in all of this that for some of you who are more scientifically inclined, it is actually in the physical sciences. This is fascinating stuff.

But for myself in the great moral philosophy of economics and how this goes into financial markets, I believe that this energy transformation story is integral in understanding capital markets too, because we do not create value from capital markets. Capital markets are a tool that are very important in allocating. resources, but the harnessing and transforming of energy is essentially what mankind is doing, and labor and capital and technology, all integrate into this process. But when I refer to being metaphysical, I'm talking about the way I think a human being was created, that they cannot produce things and create economic growth and create profits and create all the things

we think of as wealth and prosperity in passivity, that a person laying on the couch is not active, and a human being that gets energized, that gets catalyzed, that gets incentivized, goes out and does things. And this kind of should go without saying, except for I think there's tremendous existential relevance to it. This is the same idea of energy transformed, creating value, but applied to the human person. And so the combination of the metaphysical truth of how humans go do things through activity and how the material world improves for us

and creates goods and services from which profits can be extracted from which investors can make returns, that that is all coming down to this energy component in both a physical and metaphysical context. I'm covering what I think is a book length of subject. that's how important I think it is in just a few minutes, but I hope I've at least given the cliff notes

in a way that it makes sense to you. So then once we establish that energy matters in creating value in society, that you have two things going on at once. First of all, richer societies are going to have an abundance of energy. So there's the supply side. You need energy to go do the things that create, abundance, create, prosperity,

create opportunity, create goods and services, but then you need a wise extraction of that energy, utilization, and ultimately that transformation. So there's a skill that goes into that. So both are necessary, neither are sufficient. Brilliant ways of thinking about this without some energy is inadequate. A lot of access to energy without this ability to, to wisely transform it is inadequate. The two put together make for a rich society and they make for investable opportunities. And so people can talk about oil and gas

as if it's a thing that fuels our car. Some people can talk about it as if it's a thing that's bad for the environment. Others can talk about it as a thing that's really good for society. But understanding the big picture, it's more than oil and gas, it's an entire energy infrastructure,

an entire energy ecosystem that fundamentally serves at the heart of driving economic growth. And when we formulate an economic theory of the case, it starts with this idea. Ultimately, the price of oil matters to the economy as an input into a lot of things for consumers and for producers. Cost matters for obvious reasons, but the ability to extract a wider margin for those that are selling oil worldwide that is happening right now as a byproduct of the supply shock. When people root their case to Data Center as an example, I happen to think that is a secular

tailwind right now. And even though people don't talk about it as an oil and gas story, I don't have any idea how people think this electricity and this power is going to be produced apart from natural gas and crude oil playing a role in that because so much of the gas we get is in the byproduct of fracking for crude oil. And if people believe that we're going to get the power we need for the data-centered demand, then they have to believe it's coming from oil and gas. And so all of these things are cyclically relevant, but it is rooted to a foundational story of energy being this very, very primary, important element of our society, our economy. The belief, that we now have a high technology economy or a high consumer economy, which is the great Keynesian

story of the 20th century, or that there are either defensive things that are better at certain points of time or more cyclical things, better points of time. But energy ends up getting left off to the side, I think is a big mistake. I normally put the chart of the week at the end, But I'm going to cheat right now and have the chart of the week go up because it speaks to the point I want to make. What this chart shows is the percentage of energy in the total capitalization of the S&P 500. And you can see how extremely low it is. And yet, look, I understand that in the last few months, you're talking about the two largest oil and gas companies in America are up 25 and 30%. A lot of the refiner companies are up 40 percent or 30 to 40.

A lot of the liquefied natural gas exporters are up 40. The midstream companies that are piping, using pipelines to transport oil and gas from upstream to downstream are up about 25%. But not all of that was a byproduct of the Iran wore. A lot of these stories happened before. But if you take out all of this sort of temporary bull run in various elements and energy story and you look at this chart of energy being such a low percentage of the overall economy, you see the investable opportunity. Look, the portion of profits that are contributed to the economy is ultimately where that allocation or weighting is likely going to end up. And that's where you get

sectors. They get overweighted, where they are just very much out of whack with what their contribution or profits are. But it happens on the underside as well. But I'm more making a broad economic point here, that energy is a far more important part and evergreen part of our economy than those weightings that indicated. And I believe that with or without an Iran war. One of the most common questions I'm getting right now is what is the right portfolio play if the war ends? What is the right portfolio play if it doesn't end? And I just want to say, I don't think that's the right question. My own view is not this tribal political view that is looking to give blame to the president or looking to say everything has gone perfect,

or looking to just find a squishy middle that doesn't have any conviction one way or the other. I actually think there's really substantive reasons to think that this has largely been a very successful operation. I also think there's perfectly legitimate constitutional reasons, ones I happen to hold to believe that we are supposed to have gotten congressional approval. I also believe it's fair to say that not all elements of the Strait of Hormuz closing, were fully understood or thought through, and that that doesn't undermine the other things I said about the relative success of the operation.

And there are political reasons to think it could be a good thing to end it sooner than later and bad things to end it sooner than later, but those things are not part of my energy investment thesis. They're going to create cyclicality and volatility in the market. They're going to, because of how they either exacerbate uncertainty or alleviate uncertainty, they're going to play in the trading rhythms of the market in the days, weeks, sometimes just hours, sometimes maybe it will prove to be months to come.

But I believe you're talking about an energy investment thesis that is decades to go and therefore not remotely connected to whether or not the Iran War is days or weeks or months away. What I do know is it will end, and I do know that energy transformed will drive economic growth when it doesn't, when the war is no more. And I also know that what we are buying when we buy energy companies is not just the price of oil. That you are dealing with a very complex thing that requires shrewd operators, because they are having to navigate the supply curve and the demand. curve. And it does not move quickly and it involves geopolitical complexity. It also involves political and activist opposition at a lot of times. But you're managing the cost of extracting the oil and gas versus the price that they can fetch for that extraction. And there are a number

of moving parts all the while trying to defend market share margins. There are a lot of factors in the business model of a good oil and gas company besides the price of oil. But even that alone is only dealing with the upstream side that there is right now a broader ecosystem of exporting liquefied natural gas to a world that needs it. And that didn't start when Cutter's LNG capacity got bombed a couple weeks ago. There is a supply shock of LNG to Europe and Asia, and there has been a boon of opportunity for U.S. exporters of LNG, but that again is a cyclical tailwind, but doesn't speak to what I think is the macro story of overall energy. I cannot say enough that people were underweight

energy coming in. Those that right now want to play it as a trade may find that they get whipsod, but that the secular story, it goes back to the beginning of time, the investable opportunity is you can decide it's connected to the Strait of Hormuz over a four-week timeline. I would suggest it's connected to energy transformed being the cause behind the effect of economic. growth. I am extremely excited to talk more about the overall energy investment story. I really want to do a dividend cafe at some point just about the electrical grid itself. There's more even in today's dividend cafe. I used oil and gas as an example and it's a headline story around Iran, but there's plenty more in the energy sector than just oil and gas. We talk about coal, we talk about nuclear,

we talk about renewables. There's all sorts of things that can be seen. said, but I wanted to give you this base understanding of how we think about it. Energy transformed, creates economic growth. There's a physical component that's investable. There's a metaphysical component that I want people to understand. And ultimately, the energy sector as an investment thesis has to be thought of more than just the current headlines as we continue through this military operation in Iran. I will leave it there in the Dividing Cafe. I do hope you have a wonderful Easter weekend, and I look forward to being with you again in the Dividend Cafe

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