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Airlines Raise Prices as Fuel Costs Surge and Shortages Spread · The Financial Exchange Show

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Speaker 2: It is Chuck Paul and Talker with you here today
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Speaker 2: and busy shows, so we're gonna dive right into it.
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Speaker 2: Will kick things off talking about where the rubber is
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Speaker 2: meeting the road when it comes to energy shortages that
1:28
Speaker 2: are starting to pop up an additional costs for companies.
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Speaker 2: And actually, we're not gonna start where the rubber meets
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Speaker 2: the road, Paul. We're gonna start where the rubber meets
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Speaker 2: the runway. Nice, yeah, it is nice. Well, actually it's not.
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Speaker 2: Because here's the deal. Airlines are paying more for fuel
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Speaker 2: right now, and they have started to pass this on
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Speaker 2: to customers in the form of higher costs, either through
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Speaker 2: additional baggage fees or higher ticket charges. But they're not
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Speaker 2: all the way there yet. And basically what we got
2:03
Speaker 2: from Americans earnings report yesterday is look number one earnings
2:08
Speaker 2: for airlines. It doesn't take a rocket scientist to figure
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Speaker 2: out that they are going to go down in the
2:13
Speaker 2: short term because most airlines don't really hedge their fuel
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Speaker 2: supply in terms of the price as much as they
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Speaker 2: used to. So yes, when jet fuel prices, you know,
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Speaker 2: go up fifty to one hundred percent, that has a
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Speaker 2: pretty big impact because jet fuel is, you know, as
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Speaker 2: you would expect, one of the major input costs for
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Speaker 2: an airline. So Americans earnings not good for the quarter,
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Speaker 2: They're probably not going to be very good for the
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Speaker 2: next two to three quarters. Like that's just how it's
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Speaker 2: going to be, even if the straight of horror moves
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Speaker 2: is resolved shortly. But the implication that American gave is
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Speaker 2: look the way that they're going to deal with this
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Speaker 2: over the next six to nine months, combination of cutting
2:52
Speaker 2: flights and raising fares further. They've estimated, I think it
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Speaker 2: was in the most current quarter that about four eight
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Speaker 2: percent of the jet fuel price hike they're able to
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Speaker 2: pass on to customers. They're expecting to get that up
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Speaker 2: to around one hundred percent by the end of this year,
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Speaker 2: as you would expect. And so what are you gonna see.
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Speaker 2: Routes that aren't profitable, They are gonna be fewer planes
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Speaker 2: flying them, or they're gonna stop flying them entirely. Roots
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Speaker 2: that are profitable, they're going to raise prices on those.
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Speaker 2: That's kind of where things are going in the short term.
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Speaker 2: And this is not something that is exclusive to American.
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Speaker 3: Everyone is doing this. If you're talking about airlines right now.
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Speaker 4: Yeah, you're seeing several of them revising guidance, are just
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Speaker 4: pulling guidance entirely for the year. Americans specifically had four
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Speaker 4: billion dollars additional in fuel costs over this recent quarter
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Speaker 4: that they just reported. Just like everything else in oil
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Speaker 4: and gas, jet fuel price per gallon has gone up
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Speaker 4: from two point fifty as of like February twenty seventh
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Speaker 4: to about four to twenty five a gallon as of
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Speaker 4: about a day or two ago. So their input costs,
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Speaker 4: like you mentioned, have skyrocketed. They are going to be
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Speaker 4: in a tough period of time, and so as a
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Speaker 4: result of that, they're going to have to make changes
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Speaker 4: to their business model with those different areas that you
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Speaker 4: mentioned of cuts or increasing fares. But they have stated
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Speaker 4: and part of this could be the fact that they're
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Speaker 4: only passing on forty percent of the increased costs. But
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Speaker 4: the demand has still been there for now. We'll see
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Speaker 4: what it looks like in a couple quarters of people
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Speaker 4: buying fares.
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Speaker 2: Yeah, and it's gonna be interesting to see how these
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Speaker 2: guys figure out. Okay, where is the coverage going to
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Speaker 2: come from? One of the things that we've seen the
4:31
Speaker 2: last five six years, there's been a huge propensity for
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Speaker 2: individuals to pay up for premium seating. Yes, is it
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Speaker 2: something where American and Delta and United all, you know,
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Speaker 2: the airlines that have that, because remember Southwest does not
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Speaker 2: have first class cabins. Jet Blue has first class cabins
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Speaker 2: on some flights, but.
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Speaker 3: Not on nearly all of them.
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Speaker 2: And so the question that I think I would ask
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Speaker 2: that that it'll be interesting and we'll be able to
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Speaker 2: see it is Okay, let's say that you have a
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Speaker 2: flight from Boston or from New York to LA You've
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Speaker 2: typically got you know, twenty five first class seats on
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Speaker 2: that plane, or twenty first class seats on that plane
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Speaker 2: one hundred and fifty you know of us get in
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Speaker 2: the cattle section behind. Okay, are you gonna take the
5:21
Speaker 2: prices on those up in the same manner so that
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Speaker 2: your economy class tickets go from four hundred dollars to
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Speaker 2: six hundred and your first class go from fifteen hundred
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Speaker 2: to twenty two hundred or do you say and again
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Speaker 2: like they'll they'll know this, like they'll test out the
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Speaker 2: price and figure it out. Or is it, hey, you
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Speaker 2: know what, we've got more room to move on first class,
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Speaker 2: and so we're only gonna move up the economy class
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Speaker 2: tickets from four hundred to five hundred, and that additional
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Speaker 2: fifteen thousand revenue that we're missing out on, We're gonna
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Speaker 2: instead change those first class tickets and move them from
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Speaker 2: fifteen hundred to three thousand, because that's where consumers are
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Speaker 2: more willing to pay up for.
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Speaker 4: It, right, And what we've seen is those, yeah, exactly,
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Speaker 4: those higher income consumers have been less resistant to anything
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Speaker 4: on the price change side of things, or willing to
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Speaker 4: pay the higher prices, whereas that sort of more economy
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Speaker 4: section it's been they've been hesitant, it feels like, to
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Speaker 4: make significant increases on the pricing side there.
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Speaker 2: So I think it'll be interesting to see, you know,
6:23
Speaker 2: where they make those pushes. But the other piece of
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Speaker 2: this that you do have to be aware of, and
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Speaker 2: again this is it's starting in Europe now, but this
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Speaker 2: is going to come for everywhere is Europe is on
6:37
Speaker 2: the verge of a jet fuel shortage. Now, jet fuel
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Speaker 2: shortage does not mean that no airplanes fly. Europe typically
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Speaker 2: imports around thirty percent of its jet fuel from the
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Speaker 2: Persian Gulf. But so do you know, Asia imports a
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Speaker 2: ton of it as well. So basically everyone's like scrambling
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Speaker 2: for jet fuel right now. And so where you are
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Speaker 2: absolutely heading is towards a world where in the short term,
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Speaker 2: and I'll define that as the next you know, nine
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Speaker 2: to twelve months, if the straight of Hormu's closure persists,
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Speaker 2: you are going to see widespread flight cancelations throughout the
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Speaker 2: rest of the world, and even you know, you're gonna
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Speaker 2: see sporadic ones in the US as well, simply because
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Speaker 2: jet fuel supplies. If if European airline says, hey, we're
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Speaker 2: gonna pay more for that than you know someone in
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Speaker 2: the US, Okay, it's gonna get shipped over there.
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Speaker 3: Yeah, that's just how it's going to go.
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Speaker 2: And so ultimately, if you have flights planned anytime in
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Speaker 2: the next six to twelve months, this is a non
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Speaker 2: zero chance that your flight is going to be canceled. Sure,
7:38
Speaker 2: like you have to prepare for that as a potential eventuality.
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Speaker 2: Things that I think are worthy of consideration that you know,
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Speaker 2: typically I say like, okay, not worth it. And again
7:52
Speaker 2: you're gonna have to like read all the fine print
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Speaker 2: on any of this stuff, figure out what's available to
7:57
Speaker 2: you as far as any kind of trip insurance decent
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Speaker 2: chance you might not be able to get where you're
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Speaker 2: going for part or all of your trip, not just
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Speaker 2: if you're flying to Europe, but also if you're flying domestically. Again,
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Speaker 2: like these things are possible. Air Canada is an example.
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Speaker 3: Again.
8:12
Speaker 2: I know this isn't domestic, but this is the kind
8:14
Speaker 2: of stuff that you'll see. They just cancel a bunch
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Speaker 2: of short haul flights that are.
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Speaker 3: Not profitable from them.
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Speaker 2: I think it was flights from Toronto to the New
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Speaker 2: York airports. And it's not because people don't want to fly,
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Speaker 2: and they're just like, no, we can't charge enough on
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Speaker 2: this for this to make economic sense. We're not gonna
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Speaker 2: fly these flights. Right again, you might see similar short
8:34
Speaker 2: haul decisions made in the US.
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Speaker 3: Maybe you see.
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Speaker 2: Flights from Boston to d C go from you know,
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Speaker 2: I don't know. I think there's probably like sixty or
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Speaker 2: seventy of those day between all the major airlines down
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Speaker 2: to thirty or forty same thing Boston and New York.
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Speaker 2: They don't really make a whole lot of money on
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Speaker 2: those routes. It's just okay, you know, supports the rest
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Speaker 2: of the network and everything, So don't be surprised if
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Speaker 2: you see this stuff popping up, because airlines are getting
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Speaker 2: into survival mode for the next several quarters and they're
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Speaker 2: going to try to figure out how to make this
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Speaker 2: all work.
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Speaker 4: Yeah, in particular you mentioned it Europe, it seems really dire,
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Speaker 4: the IEA stating that they only have about six week
9:15
Speaker 4: left of supply in Europe and sort of familiarizing yourself
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Speaker 4: with the jet fuel market. Like you we mentioned before,
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Speaker 4: about one third of their imported jet fuel comes from
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Speaker 4: a lot of it. Seventy five percent of that one
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Speaker 4: third comes from the Persian Gulf, and the US has
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Speaker 4: been stepping up and sending basically twice as much in
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Speaker 4: terms of jet fuel barrels a day from here to Europe,
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Speaker 4: but ultimately that's not enough to cover the shortage. And
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Speaker 4: the export market in general for jet fuel isn't that robust.
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Speaker 4: And when the biggest player is effectively closed for business,
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Speaker 4: there is impacts and we're going to see them, and
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Speaker 4: we already are. We've talked about on the show yesterday,
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Speaker 4: Luftansa canceling twenty thousand flights, other European carriers taking the
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Speaker 4: same steps, and it's only going to continue to get
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Speaker 4: more dramatic.
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Speaker 3: The lung of this persist.
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Speaker 2: Like you mentioned, now the other place that you know
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Speaker 2: people will you know, naturally go on this is okay, Like,
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Speaker 2: why don't we restrict the exports of jet fuel so
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Speaker 2: that we don't see similar things.
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Speaker 3: Which is what China is doing. Yeah, and here's why
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Speaker 3: is if the US does that.
10:17
Speaker 2: Remember the US, in terms of the oil that we produce,
10:21
Speaker 2: we produce an awful lot of oil, but it's not
10:23
Speaker 2: the kind of oil that you need to make heavier
10:25
Speaker 2: fuels and the quantities that you need, right, I think
10:28
Speaker 2: things like diesel and bunker fuel and things like that.
10:31
Speaker 2: So the issue that you run into is if you say,
10:34
Speaker 2: even like on a narrow basis, great, we're not going
10:37
Speaker 2: to export jet fuel because we need to keep it here.
10:41
Speaker 2: Then you end up with other countries that produce the
10:43
Speaker 2: oil that you need or refine the stuff that you
10:46
Speaker 2: need into what you need it to be. They say, great,
10:49
Speaker 2: we're not going to send you the bunker fuel that
10:51
Speaker 2: you need or the diesel that you need. Okay, Like
10:55
Speaker 2: this becomes a problem where you know, you're kind of
10:58
Speaker 2: robbing Peter to pay Paul. It doesn't end up working
11:00
Speaker 2: out there. And this is why export bands don't make
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Speaker 2: a ton of sense, because they can have a short term,
11:06
Speaker 2: you know, positive impact where great like the cost of
11:08
Speaker 2: jet fuel in the US is gonna go down, okay,
11:12
Speaker 2: and then the cost of diesel skyrockets because you're not
11:14
Speaker 2: bringing enough heavy oil to produce it that feeds the
11:17
Speaker 2: refineries along the Gulf coast.
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Speaker 3: So this is, you know, kind of the dance that
11:21
Speaker 3: you're looking at web.
11:22
Speaker 2: We we as you yes, yes, yes, very much. Indeed,
11:26
Speaker 2: let's take a quick break here. When we come back,
11:30
Speaker 2: do we want to talk any anything about diesel or
11:33
Speaker 2: do we just kind of go through it enough, feel
11:35
Speaker 2: like we hit it? Okay, so we're good on these
11:38
Speaker 2: up a lot. Let's talk about Tesla. They reported earnings
11:41
Speaker 2: after the bell. We'll discuss them and their robots after this.
11:46
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12:25
Speaker 2: Tesla reported earnings yesterday after the bell, and not really
12:31
Speaker 2: much excitement around the actual earnings, Like they basically they
12:35
Speaker 2: beat on earnings, they missed very modestly on revenue, Like
12:39
Speaker 2: it was pretty unremarkable. I mean, there's nothing again, it's
12:45
Speaker 2: the company's okay, it's not great, it's not awful. Obviously
12:51
Speaker 2: it's still worth like one point five trillion dollars. But look,
12:55
Speaker 2: you've got a case where revenue for the company has
12:57
Speaker 2: basically been flat since the start of twenty twenty three. Right,
13:01
Speaker 2: they did ninety four billion in revenue through mid twenty three.
13:05
Speaker 2: They're a ninety four billion in revenue for the last
13:07
Speaker 2: twelve months. Now, earnings you have seen. One of the
13:12
Speaker 2: things that I think has been good to see as
13:15
Speaker 2: far as just you know, from again kind of a
13:16
Speaker 2: net income perspective, is that, you know, things are showing
13:21
Speaker 2: some signs maybe of stabilizing after declining for the last
13:25
Speaker 2: couple of years. So I think that's you know, potentially
13:28
Speaker 2: positive that things aren't deteriorating further. They still have you know,
13:33
Speaker 2: forty billion dollars in cash sitting on the books right now,
13:35
Speaker 2: so they don't really have a liquidity problem. Free cash
13:38
Speaker 2: flow is okay. It's fine. Like again, if if you
13:43
Speaker 2: want to make a case that the company shouldn't be
13:45
Speaker 2: valued how it is based on the underlying performance, it's fine.
13:48
Speaker 3: Market tells you otherwise.
13:49
Speaker 2: But it's also not something where you look at the
13:51
Speaker 2: company and say like it's imminently going to go under
13:54
Speaker 2: belly up or anything like that. They're they're really just
13:58
Speaker 2: another automaker with mid single digit margins at this point,
14:01
Speaker 2: which is fine. They can be that, but.
14:04
Speaker 3: They get priced. They get priced like something else. They
14:06
Speaker 3: get the premium.
14:07
Speaker 2: Look, they get the Elon premium, which is which is
14:10
Speaker 2: a thing, and like that's that's totally fine. Eventually, there's
14:14
Speaker 2: gonna be you know, something where, okay, Elon, you know,
14:17
Speaker 2: just like all of us gets old or retires or
14:21
Speaker 2: you know, something happens and now they're gonna have to
14:23
Speaker 2: stand on their own and that's you know, a whole
14:24
Speaker 2: different question. But they absolutely get an Elon premium, and
14:28
Speaker 2: at age fifty four, there's nothing to say that Elon
14:30
Speaker 2: can't keep running the company for another ten or fifteen years.
14:33
Speaker 2: At this point, we just saw Tim Cook step down
14:35
Speaker 2: at sixty five, so that'd be eleven years from now,
14:37
Speaker 2: and that's plenty of time for Elon to get the
14:40
Speaker 2: robots working, which is the next big thing that they're
14:42
Speaker 2: trying to work on at Tesla.
14:44
Speaker 4: Yeah, that's the You have to be a believer that
14:46
Speaker 4: that is really going to be transformational, because otherwise if
14:49
Speaker 4: you just looked at it as just an auto business
14:52
Speaker 4: and and like you said, they've no one's ever really
14:54
Speaker 4: done that.
14:54
Speaker 3: I get it.
14:54
Speaker 4: There's the Elon premium there, but the sales of the
14:57
Speaker 4: vehicle of vehicles have declined. They far from where they
15:01
Speaker 4: were in their peak years in twenty three and twenty four,
15:05
Speaker 4: and this year it doesn't look like there's going to
15:07
Speaker 4: be a tremendous amount of growth there either. They did
15:10
Speaker 4: say that they're going to spend more money this year
15:12
Speaker 4: too as they pivot into this push for robotics and AI,
15:16
Speaker 4: and then they continue to mention they their robotaxi program,
15:20
Speaker 4: which just to be clear, is really far behind where
15:23
Speaker 4: WEAIMO is. They've done allegedly about one point seven million
15:28
Speaker 4: miles of paid rise through the robotaxi. Again, not all
15:31
Speaker 4: those are autonomous. They had initially people in vehicles supervising
15:35
Speaker 4: they've backed off a little bit, but there's also been
15:38
Speaker 4: accusations that they lean pretty heavy on some remote driving
15:42
Speaker 4: with their Robotaxi vehicles. So bottom line, a long way
15:46
Speaker 4: to go there where Weimo's done two hundred million of
15:48
Speaker 4: pay rides, so like they're not the market leader in
15:51
Speaker 4: that capacity. I think we can all easily agree on
15:54
Speaker 4: that there's a lot to be worked out there. It
15:56
Speaker 4: comes down to the humanoid robot push, I guess, and
15:59
Speaker 4: I'm not really sure what their AI sort of market
16:04
Speaker 4: will be or what they're going to do with it,
16:06
Speaker 4: but that's what's being mentioned as the potential turnarounds for
16:09
Speaker 4: the company, because if you look at it just as
16:11
Speaker 4: an EV, it's a challenging space that they're competing in now.
16:15
Speaker 2: Yeah, So I think ultimately I'm someone I am a
16:19
Speaker 2: big believer in that the market as a whole is
16:22
Speaker 2: very much underpricing the impact that robotics is going to
16:25
Speaker 2: have on the world over the next three to five years.
16:27
Speaker 2: I think there's all kinds of cool stuff that's being
16:29
Speaker 2: done there, and everyone's focusing on like what large language
16:33
Speaker 2: models can do for desk jobs, and I think people
16:36
Speaker 2: are missing what's going on in robotics development, both in
16:39
Speaker 2: terms of cost and usefulness, I think is the best
16:45
Speaker 2: way that I would frame it, And so I do
16:49
Speaker 2: think it's going to be a fascinating area to watch develop.
16:52
Speaker 2: I just have like I don't know who's good or
16:55
Speaker 2: bad in that segment, Like who builds the best robots?
17:00
Speaker 2: Freaking know, Like I've never seen a single one of
17:03
Speaker 2: these actually do anything in person, and they're all very expensive,
17:07
Speaker 2: and quite honestly, at least from a personal perspective, I
17:10
Speaker 2: do find them creepy as much as I think there's
17:12
Speaker 2: big advances being made and we're gonna see more of
17:14
Speaker 2: these used. So like I don't know who builds the
17:17
Speaker 2: best robots.
17:19
Speaker 3: But who who cares?
17:21
Speaker 2: They're gonna compete in that landscape, and like most things hardware,
17:26
Speaker 2: let's be honest, it's probably gonna end up as a
17:29
Speaker 2: relatively low margin business consolidated amongst three or four big
17:33
Speaker 2: companies that have the economies of scale to compete. And
17:38
Speaker 2: that's what it's going to be. Like, robotics is not
17:42
Speaker 2: going to be the one area of hardware where you're like, ooh,
17:45
Speaker 2: I'm gonna pay a premium so I can have Like, no,
17:48
Speaker 2: there's a reason why we talk about Apple as being
17:50
Speaker 2: outstanding in the hardware field is that no one else
17:52
Speaker 2: makes money selling hardware.
17:54
Speaker 3: It's tough, tough business. You know.
17:56
Speaker 2: If you want to convince me that when robots become
17:59
Speaker 2: main stream, that Apple could have the one that people
18:02
Speaker 2: pay a premium, for sure, I'd buy that because people
18:06
Speaker 2: pay more. I I'm the dumm who pays more for
18:09
Speaker 2: his iPhone than buying a Samsung. That's better me too, Okay,
18:13
Speaker 2: and I'm fine with that. But ultimately, no one else
18:16
Speaker 2: makes money selling computer hardware. Why are robots gonna be
18:19
Speaker 2: any different? It's because no one really makes much money
18:23
Speaker 2: selling cars. No, they go, great, let's get into the
18:27
Speaker 2: car business.
18:28
Speaker 3: What are we gonna dor?
18:29
Speaker 2: Okay, we're gonna sell one hundred and eighty five billion
18:32
Speaker 2: dollars in cars. We're gonna make two billion on it.
18:35
Speaker 2: Oh you don't think that's good, Well that's what GM
18:37
Speaker 2: did last year. Hey, we're Ford. We're gonna sell one
18:40
Speaker 2: hundred and eighty seven billion dollars worth of cars. What
18:42
Speaker 2: are you gonna make on the dude's but we're gonna
18:45
Speaker 2: lose eight billion? Oh oh, well that's that's not great. Hey,
18:51
Speaker 2: what about you guys, Toyota, You guys sell the most
18:55
Speaker 2: cars out.
18:56
Speaker 3: Of anyone worldwide.
18:57
Speaker 2: Right, Yeah, we sold three hundred and thirty seven billion
19:00
Speaker 2: dollars in cars last year. What'd you make on it?
19:04
Speaker 3: Twenty five billion? Wow?
19:05
Speaker 2: That's great, But it's still an eight percent margin. Like
19:08
Speaker 2: margins in the auto business, they suck for everyone. They're
19:11
Speaker 2: just not good like you basically expect to make like
19:13
Speaker 2: three to five percent, and there's.
19:17
Speaker 3: A whole lot of costs that go into it.
19:19
Speaker 2: It's a commoditized business, that's what it is. Let's take
19:24
Speaker 2: a quick break. When we come back, we've got Wall
19:26
Speaker 2: Street Watch and we're talking private credit after that.
19:40
Speaker 1: Like us on Facebook and follow us on Twitter at
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Speaker 1: TFE show. Breaking business news is always first right here
19:48
Speaker 1: on the Financial Exchange Radio Network. Time now full Wall
19:53
Speaker 1: Street Watch trecking the stocks, the data, and the headlines
19:56
Speaker 1: driving markets so far today right here on the Financial
20:00
Speaker 1: Exchange Radio Network.
20:01
Speaker 5: After notching fresh record highs yesterday, markets today are pulling
20:05
Speaker 5: back slightly as corporate earning season continues to chug along.
20:09
Speaker 5: Wall Street's also navigating ongoing uncertainty around US peace talks
20:13
Speaker 5: with Iran. Right now, the Dow is down about a
20:16
Speaker 5: tenth of a percent. SMP five hundred also down about
20:20
Speaker 5: a tenth of percent or five points lower. Nasdaq down
20:23
Speaker 5: over third of a percent or eighty six points lower.
20:26
Speaker 5: RUSS two thousand is down nearly two tenths of percent.
20:29
Speaker 5: Ten year Treasure realed flat at four point two nine
20:33
Speaker 5: to four percent. In Oil up about half a percent,
20:36
Speaker 5: trading at ninety three dollars a barrel. American Airlines is
20:39
Speaker 5: the latest carrier to reduce its twenty twenty six earnings forecast,
20:43
Speaker 5: citing a surge in fuel costs adding to its expenses
20:47
Speaker 5: this year. However, the stock is up by four percent.
20:50
Speaker 5: Southwest Airlines also said its full year profit guidance was
20:54
Speaker 5: at risks as a result of higher fuel costs. Shares
20:58
Speaker 5: are down by one percent. Meanwhile, Test the stock is
21:01
Speaker 5: off over four percent after the ev maker beat first
21:04
Speaker 5: quarter earnings expectations. However, the company said it plans twenty
21:08
Speaker 5: five billion dollars on capital expenditures this year as it
21:12
Speaker 5: pursues its AI ambitions. Elsewhere, IBM reported rising revenue and
21:17
Speaker 5: a higher profit in the previous quarter.
21:19
Speaker 3: However, the tech firm.
21:20
Speaker 5: Disappointed Wall Street by keeping its revenue guidance unchanged sending
21:24
Speaker 5: shares down by nine percent. Honeywell down by one percent
21:29
Speaker 5: after posting mixed first quarter results in an underwhelming second
21:32
Speaker 5: quarter guidance, and after today's closing bill, Intel will report
21:37
Speaker 5: their first quarter results. Procter and Gamble will report tomorrow morning.
21:42
Speaker 5: I'm Tucker Silva and that is Wall Street Watch.
21:46
Speaker 3: Go ahead. That means it's my turn.
21:48
Speaker 2: Yep. Sorry, I was trying to fix the mouse on
21:51
Speaker 2: the computer, pesky mice. It, yeah, just wasn't going well.
21:56
Speaker 2: We'll see how it goes from here. US officials try
21:59
Speaker 2: to get a grip on risks bubbling inside private credit. Paul,
22:05
Speaker 2: how does a risk bubble? Is it similar to soup
22:10
Speaker 2: or is it more of like a uh, yeah, you know,
22:13
Speaker 2: soup bubbling if it's on a boil.
22:17
Speaker 5: Yeah, but if you're dining on soup, it's not boil,
22:20
Speaker 5: it's not bubbling.
22:21
Speaker 2: You don't eat the boiling soup. No, okay, okay for
22:26
Speaker 2: the tubes, Okay, I gotta be honest. Can can we
22:29
Speaker 2: have a brief digression on this? Absolutely? I don't understand.
22:33
Speaker 3: Hot drinks.
22:36
Speaker 2: Anytime I try. Now, Look, I'm not a coffee guy. Okay,
22:40
Speaker 2: so like, but that that's a separate thing.
22:42
Speaker 1: Very separate.
22:43
Speaker 3: Well, it's a snowy day, the biggest beverage in the
22:45
Speaker 3: hot apartment. Okay, but my.
22:47
Speaker 2: Kids are three and six, and so on a snowy
22:49
Speaker 2: hot day, on a snowy cold day, it's hey, let's
22:52
Speaker 2: come inside.
22:53
Speaker 3: Hot chocolate.
22:54
Speaker 2: And and so I'm like, okay, So now it's in
22:59
Speaker 2: my cup, but if it's hot enough that I want
23:03
Speaker 2: to drink it, it burns my mouth, and once it
23:05
Speaker 2: gets below that temperature, it just tastes like crap because
23:09
Speaker 2: now I'm just drinking warm chocolate. And as much as
23:11
Speaker 2: I love chocolate, I just don't enjoy that in a drink.
23:15
Speaker 2: So like, how do you guys actually drink hot drinks?
23:19
Speaker 1: This?
23:20
Speaker 4: I'm with you on this, not as not as dramatic
23:23
Speaker 4: as you are in terms of being out on them entirely,
23:26
Speaker 4: but I feel like there's a very tight window of
23:29
Speaker 4: what is in appropriate temperature that you can drink it
23:31
Speaker 4: and not burn your tongue and not just let it
23:34
Speaker 4: go room tempt cold, and just at that point you're
23:36
Speaker 4: probably better off with an iced coffee. I'll use that
23:38
Speaker 4: example because I definitely consume a ton of that in
23:41
Speaker 4: that department. But because of bad experiences that I've had,
23:45
Speaker 4: like many others, of burning my tongue on hot coco
23:49
Speaker 4: or on hot coffee. Yeah, I almost just I side
23:52
Speaker 4: with you as much as I get it here in
23:53
Speaker 4: the office. I let it sit on the thing for
23:56
Speaker 4: a while. Yeah, Tucker really doesn't love it.
23:58
Speaker 3: What the hell is he doing?
24:00
Speaker 4: Why can't you just move it? Why does people get
24:03
Speaker 4: It's not like it's Clayton my claim there. You just
24:05
Speaker 4: slide it right there and I'll come and pick up.
24:06
Speaker 5: But nobody wants to touch your beverage, like in the kitchen,
24:12
Speaker 5: like five minutes. You just bring it back to your
24:14
Speaker 5: desk and leave it there. I'm glad Paul brought this up.
24:16
Speaker 5: Oh great, here Chuck, he comes in. I've noticed this, Paul.
24:20
Speaker 5: You come in, you do the curing thing. Yep, And
24:23
Speaker 5: no one's poisoned you.
24:25
Speaker 3: That's the other thing.
24:26
Speaker 5: You're very trusting. I carry my drink with me at
24:29
Speaker 5: all times. I'm very worried about I thought we were
24:31
Speaker 5: a family in here. It'll do the cure, it'll do
24:34
Speaker 5: the cure brew thing. But then Paul just sits it,
24:37
Speaker 5: leaves it sitting there for like ten plus minutes on it,
24:41
Speaker 5: next to it, literally on it. So nobody else can
24:44
Speaker 5: use the cure because Paul is claim that territory. They
24:47
Speaker 5: can move, they can move it just but nobody wants
24:49
Speaker 5: to touch or drink dude. Why because it's not polite.
24:53
Speaker 5: Like if somebody moved my beverage or my lunch, like
24:56
Speaker 5: I would be.
24:57
Speaker 2: Like I'd be like, oh, someone poison Yeah, you drink
25:01
Speaker 2: it first, throw that coffee out.
25:03
Speaker 5: He clearly sneezed in my coffee. Right, I don't have
25:06
Speaker 5: those fears. I really, I've been trusting.
25:09
Speaker 2: Guy, very worried about poisonings.
25:11
Speaker 3: Quote me on that. So, uh yeah, I can't do
25:15
Speaker 3: hot drinks.
25:15
Speaker 5: I just yeah, I'm very much in the camp of
25:18
Speaker 5: like hot coffee in the morning, reheat coffee at for
25:22
Speaker 5: thirty seconds to make sure it's like piping hot. Same
25:25
Speaker 5: thing with my dinner.
25:26
Speaker 3: But how do you like drink it so that you
25:28
Speaker 3: can taste it? Then? Like, how does it work? This
25:30
Speaker 3: just goes down? Man, Get never worried about getting burned.
25:34
Speaker 5: No, no, I know when it's too hot. That's the
25:37
Speaker 5: tongue test, you know, Like, oh I.
25:40
Speaker 3: Can't do that, you have to proceed with caution. Yeah,
25:42
Speaker 3: I uh, it's.
25:44
Speaker 5: Gonna be piping hot for me.
25:45
Speaker 2: Yeah, I've got a very sensitive tongue. I can't uh
25:48
Speaker 2: can't do that.
25:50
Speaker 5: Anyone's seven three, six, thirteen eighty five. Do you take
25:53
Speaker 5: your coffee hot in the morning. I'm gonna get my
25:54
Speaker 5: own carrig in my office. Screw you should know, Yeah,
25:58
Speaker 5: screwing everybody's the morning up.
26:00
Speaker 2: Credit bubbling like hot coffee or not.
26:05
Speaker 4: Just as bad as as my cure practices. Private credit Now,
26:09
Speaker 4: the SEC is investigating private credit. Honestly, there is not
26:13
Speaker 4: any development here other than they're investigating it. They could
26:16
Speaker 4: investigate it and they could come back with no fines
26:19
Speaker 4: or no issues with the space in general. But what
26:21
Speaker 4: has been going on is it's swelled to be a
26:25
Speaker 4: three trillion dollar industry and there has been a just
26:29
Speaker 4: significant amount of redemption requests over the course of the
26:32
Speaker 4: first quarter of this year and trickling into probably the
26:35
Speaker 4: second quarter as well, where investors have sought to pull
26:38
Speaker 4: about twenty billion dollars from these private credit funds. They're
26:43
Speaker 4: known for being opaque. They're private credit. You don't really
26:46
Speaker 4: have a lot of information in terms of what underlying
26:49
Speaker 4: loans look like and when you have retail investors pulled
26:53
Speaker 4: into that space. Oftentimes, when there is concern like there
26:58
Speaker 4: is and a lot of scrutiny on an industry, they
27:00
Speaker 4: tend to run to the door the quickest and ask
27:03
Speaker 4: for their money back. But private credit has redemption limits
27:07
Speaker 4: in place where you can only take five percent out
27:09
Speaker 4: of a given fund on a quarterly basis, and so
27:12
Speaker 4: that creates the issue that we're dealing with right now.
27:15
Speaker 4: Many of the other investors in private credit are much
27:18
Speaker 4: more long term and perpetual nature, think pensions, endowments, and
27:22
Speaker 4: other institutions. But the retail exposure, and this is the
27:25
Speaker 4: concern with having private alternatives within a four to one
27:29
Speaker 4: K plan, is that typically retail investors are the first
27:33
Speaker 4: ones to bail when they're air signs of trouble, and
27:38
Speaker 4: that is being sort of played out here within private
27:41
Speaker 4: credit in terms of all the drawdowns that we've seen.
27:44
Speaker 2: Take a quick break here. When we come back, we'll
27:47
Speaker 2: talk about some of the stuff being talked about as
27:50
Speaker 2: it relates to Spirit Airlines and their future, and then
27:55
Speaker 2: we're also going to talk about CALCI trying to say, hey,
28:00
Speaker 2: you Congress critters, get off our platform.
28:03
Speaker 3: All that.
28:04
Speaker 1: Right after this the Financial Exchange streams live on x
28:08
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28:11
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29:10
Speaker 2: Wall Street Journal exclusive inside the White House deliberations over
29:14
Speaker 2: rescuing Spirit Airlines and basically what it is talking about
29:18
Speaker 2: here is Spirit, as you know, we know, has had
29:23
Speaker 2: all kinds of financial problems since not being allowed to
29:25
Speaker 2: merge with Jet Blue and or Frontier several years ago. Basically,
29:30
Speaker 2: they're just not big enough to compete with the other
29:33
Speaker 2: players in the space. Jet Blue may be following them
29:35
Speaker 2: in this direction within you know, the next couple of
29:37
Speaker 2: years as well. It's just they're just not big enough
29:40
Speaker 2: to compete with companies that were allowed to merge in
29:42
Speaker 2: the previous decade. And so the question is, okay, like
29:46
Speaker 2: what do you.
29:48
Speaker 3: Do with this?
29:49
Speaker 2: And the Wall Street Journal reporting is that it basically
29:53
Speaker 2: is you've got two White House insiders that are trying
29:59
Speaker 2: to to figure this out. Common Secretary Howard Lutnick saying, hey,
30:03
Speaker 2: we can, you know, come up with the deal where
30:06
Speaker 2: we can basically say, look, we'll lend you up to
30:09
Speaker 2: five hundred million dollars and in return, we are going
30:12
Speaker 2: to get warrants to potentially own a large portion of
30:15
Speaker 2: the company. On the other side, you have Transportation Secretary
30:19
Speaker 2: Sean Duffy saying, hey, this doesn't really make a ton
30:23
Speaker 2: of sense, Like, yeah, might save some jobs in the
30:25
Speaker 2: short term, but now you're gonna get stuck owning an
30:28
Speaker 2: airline as the US government, Like why do you want
30:31
Speaker 2: to do that? And what does that do to the
30:33
Speaker 2: competitive balance of airlines in the country then, and so ultimately, look,
30:40
Speaker 2: here's the deal.
30:42
Speaker 3: Airlines do get.
30:43
Speaker 2: Bailed out on a pretty regular basis, right, not that
30:46
Speaker 2: regular basis. I don't want to make it seem like
30:48
Speaker 2: it's every day thing. But back in twenty twenty during
30:51
Speaker 2: the pandemic, they received tens of billions of dollars yep,
30:53
Speaker 2: and like we remember it. We talked about it and
30:55
Speaker 2: we were like, okay, like I understand, like the why
30:58
Speaker 2: I you can't have air track as a whole breakdown,
31:02
Speaker 2: but is this the best way to do it? And
31:04
Speaker 2: we went through those conversations. So we sit here today
31:08
Speaker 2: and Okay, you've got a company that is failing. Why
31:13
Speaker 2: does Spirit air Like It's not like the entire aviation
31:17
Speaker 2: sector is being bailed out, it's Hey, Spirit can't exist
31:20
Speaker 2: in a world where these larger airlines are able to
31:24
Speaker 2: dominate the space.
31:28
Speaker 3: What's the deal?
31:28
Speaker 2: Like, why do we need Spirit Airlines to still be here?
31:34
Speaker 3: That's what I'm trying to determine.
31:36
Speaker 4: First of all, I'm on the Duffy side of why
31:40
Speaker 4: why would you bother just trying to take an equity
31:43
Speaker 4: stake in an airline company as a government, it's from
31:46
Speaker 4: a long term perspective.
31:47
Speaker 3: It's just an awful track record of owning these companies.
31:50
Speaker 4: Yeah, you can make money in the short term, I
31:52
Speaker 4: get it, and Southwest there's been some exceptions that, but
31:55
Speaker 4: broadly speaking, it's a really hard business. We were just
31:57
Speaker 4: talking about really hard businesses before. It's all margin, high
32:00
Speaker 4: fixed costs, and it's sensitive to shocks like the one
32:03
Speaker 4: we're having right now, And so I don't know if
32:06
Speaker 4: that's the approach. The only argument I could make the
32:08
Speaker 4: jobs piece less on that side that you want to
32:12
Speaker 4: keep continued competition in the markets, and Spirit provides that
32:16
Speaker 4: low offering.
32:17
Speaker 3: But they don't travelers.
32:18
Speaker 4: But now they can't compete, So what is five hundred
32:22
Speaker 4: dollars floating them five hundred million bucks really do? Then
32:24
Speaker 4: probably just delay the inevitable. It's not like this is
32:28
Speaker 4: going to enact some turnaround plan for them entirely. So
32:32
Speaker 4: ultimately you're probably just better letting the free market dictate
32:36
Speaker 4: the terms and letting them go to bankruptcy because the
32:38
Speaker 4: US government shouldn't pick up buying them or lending them
32:41
Speaker 4: when no other competitor wants to buy them.
32:43
Speaker 2: Well, Tom Cotton makes a good point on this. This
32:46
Speaker 2: is a quote from him in the piece. If Spirits
32:49
Speaker 2: creditors or other potential investors don't think they can run
32:51
Speaker 2: it profitably coming out of its second bankruptcy in two years,
32:54
Speaker 2: because again, this was not originally supposed to be a liquidation,
32:57
Speaker 2: This was supposed to be a reorg, and they're basically
32:59
Speaker 2: the point now where like the creditors are like, no,
33:01
Speaker 2: this isn't gonna work, Cotton says, then I doubt that
33:04
Speaker 2: the US government can make it work either, not the
33:06
Speaker 2: best use of taxpayer dollars. Like again, it makes sense
33:10
Speaker 2: if if you want to allow the market to do
33:14
Speaker 2: its thing, then companies that don't run businesses that are
33:18
Speaker 2: profitable don't really have a place continuing to exist. And
33:24
Speaker 2: it's again it's not like Spirit feels some niche. It's
33:27
Speaker 2: not like they make like the guidance systems for you know,
33:31
Speaker 2: military grade technology. They take people really cheaply from Boston
33:35
Speaker 2: to Atlantic City. I know that's a slight exaggeration, but
33:40
Speaker 2: that's only because they go like from you know, Boston
33:42
Speaker 2: to Myrtle Beach.
33:43
Speaker 3: Like I've done the yeah, yeah, I trust me.
33:47
Speaker 2: Like it's great when you're twenty three years old, you
33:49
Speaker 2: need like a forty dollars flight, Like it's totally fine,
33:54
Speaker 2: but ultimately it's not good business because that person gets
33:57
Speaker 2: back on the plane and doesn't have any money left
34:00
Speaker 2: after being in Atlantic City and so they're not going
34:01
Speaker 2: to pay for another flight. So look, ultimately, I'm a
34:07
Speaker 2: big believer in you want as much competition as possible.
34:10
Speaker 2: But part of competition is that sometimes you lose. Like
34:14
Speaker 2: that's just how it is, and it sucks, it's it's
34:18
Speaker 2: not fun, it's it's awful that you're going to have
34:21
Speaker 2: people losing jobs as a result of the company going.
34:24
Speaker 3: Out of business.
34:25
Speaker 2: But if there's no risk of a company going out
34:28
Speaker 2: of business, then what are we actually doing here? You know,
34:34
Speaker 2: if it's just gonna be hey, federal government can pick
34:37
Speaker 2: winners and losers, it's close up shop call today, and
34:41
Speaker 2: that's gonna be it, because then it's not really about
34:45
Speaker 2: how good your product is or how good your business is.
34:49
Speaker 2: Then it's about nothing more than who do you know?
34:53
Speaker 2: And that kind of doesn't really work for competition, Like
34:58
Speaker 2: that's not competition. Not sorry, let's see Calci uh speaking
35:04
Speaker 2: of competition. Great story here, So Calci said that it
35:09
Speaker 2: suspended and fined three candidates for Congress from Minnesota, Texas,
35:13
Speaker 2: and Virginia for political insider trading activity on their own campaigns.
35:20
Speaker 3: They had definite inside information.
35:22
Speaker 2: There, so this is wild. So again, you've got three
35:26
Speaker 2: people that they're not in Congress right now, but they
35:29
Speaker 2: announced either recently or you know, a little while ago,
35:32
Speaker 2: that they were running for Congress. And basically what happened
35:38
Speaker 2: is they they traded based on their own candidacy and
35:42
Speaker 2: whether or not it would happen, which again, like not
35:46
Speaker 2: really surprising that in a really like not closely regulated market,
35:51
Speaker 2: this kind of stuff will pop up. So again, like
35:55
Speaker 2: you had this guy from Virginia, Mark Moran, who basically
35:59
Speaker 2: traded his candidacy that he would run twice that he
36:03
Speaker 2: would run. And obviously, like you can't really do that,
36:09
Speaker 2: Like that's you can't make a market for whether or
36:12
Speaker 2: not you're gonna run for Congress, bet on it and
36:15
Speaker 2: then make money on it like that. That doesn't really
36:19
Speaker 2: seem like it should be allowed. And I'm glad that
36:21
Speaker 2: cal she is, you know, doing something about this now.
36:25
Speaker 2: The candidate also, yeah, we gotta get there. What his
36:29
Speaker 2: retort is to all this, He's basically like, look, I
36:32
Speaker 2: was trying to prove a point. It's like I traded
36:35
Speaker 2: one hundred dollars on myself knowing this would happen, the
36:38
Speaker 2: attention would highlight how this company is destroying young men.
36:42
Speaker 3: So you're welcome. Okay.
36:44
Speaker 4: That's a quote from his Twitter account. By the way, yes,
36:47
Speaker 4: that's not that's not just us interpreting. That's actually what
36:50
Speaker 4: he released in a statement here. And this is invoked
36:53
Speaker 4: George Costanza of like, should I have not done that?
36:56
Speaker 3: Should I have not bet on myself? Was that wrong?
36:59
Speaker 4: Was I not supposed to bet on myself when I
37:01
Speaker 4: knew I was going to be running for office?
37:04
Speaker 3: Just absolutely wild.
37:07
Speaker 4: And the fact that he wants to play it off
37:08
Speaker 4: that this is some bigger statement about how it's destroying
37:12
Speaker 4: young men the predictions market, and then I trade one
37:15
Speaker 4: hundred bucks on myself.
37:16
Speaker 1: Oh my goodness. Just crazy.
37:18
Speaker 2: So like I don't know, like I'm getting pretty close
37:21
Speaker 2: again to the fact that just like I am with
37:23
Speaker 2: the sports gambling. Look, you want to operate a prediction market, fine,
37:29
Speaker 2: you can't do it on.
37:30
Speaker 3: Your phone your big thing.
37:33
Speaker 2: You gotta have a Calci center in every city that
37:36
Speaker 2: you got to go into. Because again, like there's no
37:40
Speaker 2: barriers to scammy miss.
37:42
Speaker 5: Stuff like on Calcie's front. Yeah, for sure, it's just again.
37:48
Speaker 5: I'm sure there's other stuff. Did you see the one
37:50
Speaker 5: about the guy who was betting on the temperature in
37:54
Speaker 5: at like the airport in France. You just sent it
37:57
Speaker 5: to me, and he put a freaking heater next to
38:00
Speaker 5: the one thermometer that was measuring it so he would win.
38:04
Speaker 2: He like three round trips on the thing like this
38:07
Speaker 2: is also stupid. He's doing it to his coffee too,
38:11
Speaker 2: my goodness. So uh yeah, I'm kind of done with
38:15
Speaker 2: the prediction markets thing. Quick break here, Hour two coming
38:18
Speaker 2: up in just a bit