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Why the Entire Economy Depends on AI Right Now · The Financial Exchange Show

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1:05
Speaker 1: Chuck Zada and Mike Armstrong.
1:10
Speaker 2: It's Chuck, Mike, and Tucker here, and I hope you
1:12
Speaker 2: all had a great weekend. We've got honestly, scale from
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Speaker 2: one to ten. This week's like a three in terms
1:20
Speaker 2: of interesting news. It's in Nvidio earnings and not much else,
1:26
Speaker 2: which brings me to our top story of this week,
1:29
Speaker 2: which is, you know, sometimes I think I can tell
1:32
Speaker 2: what kind of a weekend Tucker had by it by
1:34
Speaker 2: like how we builds the stack.
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Speaker 3: I actually had a decent weekend after last frigging week.
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Speaker 4: But yeah, it was nice.
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Speaker 3: It was nice, But no, I thought it was interesting.
1:41
Speaker 4: How was your morning?
1:42
Speaker 3: Good?
1:44
Speaker 5: This is strange.
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Speaker 6: Yeah, I would have guessed, like two flat tires at
1:48
Speaker 6: separate times.
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Speaker 4: The stack came off as a little angry.
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Speaker 2: No, But in any case, maybe I'm just projecting, you know,
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Speaker 2: quite honestly, Uh, top story here, Baron's p Nvidia earnings
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Speaker 2: aren't the most important this week. These are crucial to markets.
2:04
Speaker 2: So I said, oh, okay, like you know, sure, like
2:07
Speaker 2: I know you've got Walmart reporting at home depot Okay, yeah, yeah, yeah, okay,
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Speaker 2: you've got deer reporting. Okay, well basically outlines those and
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Speaker 2: I gotta be honest. Here's the deal right now, the
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Speaker 2: earnings of in Vidia are the most important out of
2:27
Speaker 2: any company to the entire global stock market. Why chuck,
2:33
Speaker 2: Because the only thing that matters to the global stock
2:36
Speaker 2: market is the semiconductor trade. And by the way, you
2:40
Speaker 2: could have said that three years ago, but also now
2:42
Speaker 2: one of the main thing that matters for the US economy.
2:46
Speaker 2: Like again, we talked about how the economy and stock
2:48
Speaker 2: market are the same thing. They're not, but both are
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Speaker 2: being driven now by artificial intelligence and the data. Three
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Speaker 2: years ago it was the stock market, only now it's
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Speaker 2: actual GDP growth, like eighty percent of it coming from
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Speaker 2: not semi conductors, but AI development and build.
3:06
Speaker 4: Out mic well processes. Thank you, Thank you. I appreciate that.
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Speaker 2: So I'm going to quote from this piece just because,
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Speaker 2: like I really just want to work through this slowly,
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Speaker 2: methodically and tear the argument apart one piece by one piece.
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Speaker 4: Quote. It's not that Nvidia isn't important, Okay.
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Speaker 6: Good, I'm glad we acknowledge that, right since they are
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Speaker 6: five and a half trillion dollar company.
3:34
Speaker 4: Glad we got that out of the way.
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Speaker 2: The stock's recent breakout has put the chip company back
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Speaker 2: among the winners of the end of the AI trade,
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Speaker 2: has it ever been amongst the losers of it?
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Speaker 5: Nope? No.
3:44
Speaker 2: But even free spending big tech companies have to reckon
3:47
Speaker 2: with the impact of inflation driving at borrowing costs. Haven't
3:51
Speaker 2: yet maybe someday. Not right now, they they don't. Not,
3:56
Speaker 2: as Mike said, not right now.
3:58
Speaker 4: Now.
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Speaker 2: You do have some questions again when you talk about
4:00
Speaker 2: free cash flow and you might need to borrow more
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Speaker 2: in order to build this stuff out. Okay, I get it,
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Speaker 2: but that's not what we're talking about here. Walmart, Target,
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Speaker 2: and home Depot all report this week. Fact check true, ye, Stay,
4:15
Speaker 2: Low's and TJX. By the way, they might provide the
4:18
Speaker 2: best gauge of how consumers are feeling with the average
4:21
Speaker 2: price of gas sitting about four to fifty barrel. Hint,
4:24
Speaker 2: they're feeling bad. Yeah, we know this because the surveys
4:27
Speaker 2: reflect that consumers are feeling bad.
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Speaker 6: I know you might have been getting here, But those
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Speaker 6: five companies that we just mentioned, Home Depot, Walmart, Low's, Target,
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Speaker 6: TJX all reporting this week big names marketing.
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Speaker 4: Caps like half of Vidia combined a third less.
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Speaker 6: Than a third, and Vidia is three and a quarter
4:44
Speaker 6: times the size of those five combined. So yes, tell
4:49
Speaker 6: you some interesting things about the consumer that in Nvidia can't.
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Speaker 6: But importance is really in question here.
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Speaker 2: So I fundamentally disagree with most sentences in this piece,
5:00
Speaker 2: including the title, and again it's it's just the way
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Speaker 2: it is right now. The other piece of that I'll
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Speaker 2: add is every single time in the last three and
5:12
Speaker 2: a half years that markets have tried to rally without
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Speaker 2: tech leading, the way.
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Speaker 4: They have gotten splattened.
5:24
Speaker 2: I had to make up a new word because flattened
5:25
Speaker 2: or splatted wasn't like it's it's uncanny quite honestly, when
5:31
Speaker 2: you look at it and what we've seen if you
5:35
Speaker 2: just look at it, and I'm gonna look specifically at
5:38
Speaker 2: semiconductors over the last three and a half years again,
5:43
Speaker 2: since the beginning of twenty twenty three, the times when
5:47
Speaker 2: something else has tried to take the Baton mid twenty
5:51
Speaker 2: twenty four, remember we had that rotation into Russell, We
5:54
Speaker 2: had that rotation into like other stuff. And then we
5:57
Speaker 2: had Jen mcgeddon where we ever came in on a
6:00
Speaker 2: Monday morning and the Vicks for almost no reason, like
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Speaker 2: the SB had fallen a few percent, and the Vic
6:05
Speaker 2: spiked to sixty and everyone's just like, guys, what the
6:08
Speaker 2: heck happened here?
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Speaker 5: Yeah, everyone suddenly became.
6:11
Speaker 4: The market broke.
6:12
Speaker 2: Everyone became on the Yes, markets broke because the market
6:16
Speaker 2: tried to broaden out and it didn't work. We then
6:19
Speaker 2: fast forward to Q one of twenty twenty five, and yes,
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Speaker 2: I know there were some you know, tariff discussions in
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Speaker 2: this and that, but semiconductors fell again. Semi Conductors were
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Speaker 2: going nowhere for around three or four months leading into
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Speaker 2: any tariff announcements. Mark other stuff was trying to lead
6:37
Speaker 2: s and P five hundred equal wait was taking the reins.
6:40
Speaker 2: And what happened? We went spot again. Semiconductors picked back
6:47
Speaker 2: up like things you know, started going well again.
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Speaker 4: Okay, this is great.
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Speaker 2: November, semiconductor stocks stop going up and lo and behold
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Speaker 2: what happens. Oh, we had some problems in Q one
7:01
Speaker 2: of this year. Again you can say like, oh, well,
7:02
Speaker 2: something else. You know, this was Middle East and this
7:04
Speaker 2: was tariff's I don't care what the proximate cause was. Ultimately,
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Speaker 2: I'm saying that every single time in the last few
7:13
Speaker 2: years that something other than semiconductors has tried to lead
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Speaker 2: this market. It has not worked.
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Speaker 6: I want to take this in a slightly different but
7:23
Speaker 6: it's the same general idea here.
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Speaker 5: So I'm hearing a lot of bemoaning.
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Speaker 6: AI and its concentration, not just in the stock market,
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Speaker 6: but now in GDP growth And.
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Speaker 5: Listening to an interview this morning.
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Speaker 6: Of I forget where the analyst was from, might have
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Speaker 6: been JP Morgan, but speaking to you know, eighty percent
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Speaker 6: of the most recent quarters GDP growth came from AI
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Speaker 6: and that sector, and you know how risky it is.
7:54
Speaker 6: And don't get me wrong, like I have talked at
7:57
Speaker 6: length about you know, the bubble potential here or how
8:00
Speaker 6: it all could come crashing down and the method by
8:03
Speaker 6: which that takes.
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Speaker 4: Mike and I are not exactly AI cheerleaders.
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Speaker 5: No, certainly not.
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Speaker 6: But I also have to say, like, these are the
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Speaker 6: same people who I remember hearing over and over again
8:15
Speaker 6: that you know, the entire economy was being carried by
8:18
Speaker 6: the consumer over the last five years, and how long
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Speaker 6: can this possibly last? And finally we're getting a quarter
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Speaker 6: where the consumer is not the sole party responsible for
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Speaker 6: carrying the economy forward, and everyone acts as though our
8:31
Speaker 6: pets heads are falling off, like oh god, what now
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Speaker 6: the consumer is not driving the economy forward. They're still
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Speaker 6: increasing spending, but not enough to keep the economy going.
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Speaker 6: And now it's being driven by these data centers and
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Speaker 6: this AI model build out, and oh god, how terrible
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Speaker 6: that is. And I don't know, it just seems rather
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Speaker 6: forgetful and disingenuous to me, Like it doesn't seem like
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Speaker 6: a real concern to me. Maybe not a real concern,
8:58
Speaker 6: but I guess if you complained about one thing driving
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Speaker 6: the economy forward and then finally we got to a
9:04
Speaker 6: place where that fell off and the economy still didn't die,
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Speaker 6: it's just kind of funny to me.
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Speaker 2: You know, I've been in this business for this fall
9:15
Speaker 2: will be seventeen years, okay, and where I've gotten to
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Speaker 2: and this kind of permeates like my just general thinking
9:22
Speaker 2: now as well as you know, people always want to
9:27
Speaker 2: find something to worry about. And the fact is like
9:30
Speaker 2: when there's something bad actually happens like great, like you
9:33
Speaker 2: can deal with it. Then the times when it's not,
9:37
Speaker 2: you can just be like, hey, we'll worry about this later.
9:41
Speaker 2: And that's fine to say. It doesn't mean that you
9:44
Speaker 2: pile all of your portfolios into Nvidia. I'm not saying
9:49
Speaker 2: that because that's fundamentally I won't say stupid, because it
9:54
Speaker 2: would have been very smart if you had ten years ago.
9:57
Speaker 2: But like, that's fundamentally dangerous. I will say to do
10:01
Speaker 2: those kinds of things. But there's enough times when things
10:06
Speaker 2: actually go wrong in the economy that you can just hey,
10:10
Speaker 2: we'll deal with that when it comes up.
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Speaker 6: We can be miserable and stressed. Then we don't have
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Speaker 6: to be miserable and stressed all the time.
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Speaker 2: When you're seeing good economic growth from data center construction,
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Speaker 2: the simple thing to say is it's great. It helped
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Speaker 2: the US economy this this quarter. If this were instead
10:28
Speaker 2: of data centers, if we were drilling a record number
10:31
Speaker 2: of oil wells, would we be sitting here being like, man,
10:35
Speaker 2: this is really dangerous to the economy.
10:38
Speaker 6: Oh, I'm sure somebody would that. That's the point is
10:40
Speaker 6: if we're drilling a.
10:41
Speaker 4: Record But.
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Speaker 2: Do you think this is also like, Look, data centers,
10:47
Speaker 2: no one likes them, let's be honest, partly because the
10:49
Speaker 2: people who run these companies.
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Speaker 4: No one really likes a lot of them, and not
10:54
Speaker 4: even a lot of them.
10:54
Speaker 2: The only one I think people generally dislike at this
10:57
Speaker 2: point is Zuck because the rest of them. Quite honestly,
11:00
Speaker 2: you look at the rest of the big tech CEOs.
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Speaker 5: Most people can pick them out.
11:04
Speaker 2: They're pretty faceless at this point, you know, like Tim
11:08
Speaker 2: Cook's done. We can't even remember John's last name. Who's
11:11
Speaker 2: taken over for him? It's turnus.
11:12
Speaker 4: Thank you very much for filling me in on that
11:14
Speaker 4: last week, Mike, sounda Prichai.
11:17
Speaker 2: If you asked one hundred Americans who is that, they'd
11:20
Speaker 2: be like, I have no idea, satniy Nadella, same thing.
11:25
Speaker 2: What other companies do we have that are big? Larry Ellison?
11:28
Speaker 4: How many?
11:28
Speaker 2: How many Americans can pick Larry Ellison out of a crowd?
11:32
Speaker 2: Elon Musk, I think a lot of people could, just
11:34
Speaker 2: because I think his name and image transcends, you know, business.
11:39
Speaker 6: Actually funny question. How many people would know that Jeff
11:42
Speaker 6: Bezos isn't the CEO of.
11:43
Speaker 4: Mr Andy Jase like exactly?
11:46
Speaker 2: And then and then, by the way, you get to Broadcom,
11:48
Speaker 2: which is the seventh biggest company in the S and
11:51
Speaker 2: P five hundred. Mike, I'm gonna be one hundred percent
11:54
Speaker 2: honest here. I don't even know what Broadcom CEO's name is.
11:59
Speaker 2: It's pro probably something, but that's about as far as
12:04
Speaker 2: I actually got her name. His you know, it's it's
12:09
Speaker 2: probably something Jensen Huang. Okay, I bet like six out
12:13
Speaker 2: of ten Americans can tell you who that is.
12:15
Speaker 4: I've shown a picture. Yeah, So it's it's not even
12:20
Speaker 4: that we hate the tech CEOs at this point.
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Speaker 2: I just think that a lot of people are kind
12:24
Speaker 2: of resentful about what tech has done to their life
12:26
Speaker 2: in the last fifteen to twenty years, and so it
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Speaker 2: just is like data centers are easy to hate, you know,
12:33
Speaker 2: like no one actually likes social media.
12:35
Speaker 4: We all go on and we just start scowling. It's like,
12:37
Speaker 4: I gotta dude this. I got a clock in for
12:39
Speaker 4: the day.
12:40
Speaker 6: Actually, my daughter a very nice bicycle on so yesterday
12:44
Speaker 6: I gotta see what the posts are today, Shwin.
12:47
Speaker 5: I have no idea what brand, but she liked the color.
12:49
Speaker 1: It's probably Guardian.
12:50
Speaker 3: I get targeted for that too, for.
12:52
Speaker 1: The kids bikes.
12:53
Speaker 5: No, it wasn't an ad.
12:54
Speaker 4: It was a It was a well well mart, you
12:57
Speaker 4: just don't know it was. Yeah, it wasn't add it
13:00
Speaker 4: wasn't a was not paid for sure. Take a quick break.
13:06
Speaker 2: When we come back, we'll talk about global bond deals
13:10
Speaker 2: in multi year highs and whether you should be scared
13:12
Speaker 2: of those.
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13:47
Speaker 4: All right.
13:48
Speaker 2: So if you if you like me, and you wake
13:53
Speaker 2: up quick pause, Yeah, how many people have you genuinely
13:58
Speaker 2: met in your life that are like Chuck Well when
14:04
Speaker 2: you put it that one, Michael, It's been a struggle
14:07
Speaker 2: for quite a while.
14:09
Speaker 4: I feel like me.
14:10
Speaker 2: You wake up at around two thirty every morning and
14:14
Speaker 2: force of habit, you check what's going on in the
14:16
Speaker 2: overnight session. Maybe you spend a half hour week looking
14:19
Speaker 2: at it, and then you go back to sleep for
14:20
Speaker 2: like two or three hours, just to you know, point in.
14:23
Speaker 4: Case again, see what's going on.
14:26
Speaker 2: But uh so I wake up this morning and I
14:29
Speaker 2: look and I'm like, oh, like, bond yields are continuing
14:32
Speaker 2: to move higher, like this is you know, starting to
14:34
Speaker 2: get a little wild, you know. Blah blah blah, and
14:39
Speaker 2: what we have here is not something that is US centric.
14:43
Speaker 2: I know that everyone likes to look at, you know,
14:44
Speaker 2: the ten year treasury and be like, you know, ascribe
14:47
Speaker 2: broader things to it, like, oh, the US isn't gonna
14:50
Speaker 2: be able to pay its bills, that's why yields are
14:53
Speaker 2: going up. And look, I'm not saying that these things
14:56
Speaker 2: inherently are not true. But what I am saying is,
14:59
Speaker 2: if you you think that the carnage and US treasuries
15:02
Speaker 2: is bad, man, I urge you to go and take
15:05
Speaker 2: a look at what's going on with Japanese ones, because
15:07
Speaker 2: it is a lot worse, okay, in terms of the
15:12
Speaker 2: scale and magnitude that you're seeing there. So you got
15:16
Speaker 2: this global bond sell off that's happening, and I think
15:20
Speaker 2: it's interesting just to untangle some of the things that
15:23
Speaker 2: can be moving it, because again I don't like to
15:25
Speaker 2: ascribe like one thing to this.
15:27
Speaker 4: Bond yields are.
15:28
Speaker 2: A function of two things, expected growth and expected inflation.
15:34
Speaker 2: If you have growth expectations that are coming down, it's
15:38
Speaker 2: generally hard for bond yields to move up even if
15:40
Speaker 2: inflation is going to be higher, just because ultimately it's
15:44
Speaker 2: a question of trade offs. Hey, what else can I
15:47
Speaker 2: get that's gonna pay me a better rate of return? Well,
15:50
Speaker 2: if growth is coming down, not much, and so bonds
15:53
Speaker 2: have a hard time moving higher. When bonds are moving higher,
15:57
Speaker 2: it's generally a sign that growth expectations are moving up,
16:02
Speaker 2: and occasionally inflation expectations may be moving with them. Now,
16:06
Speaker 2: the nice thing is that we do have the ability
16:08
Speaker 2: to decompose this into its various components. What is actually
16:13
Speaker 2: related to inflation and what is related to growth? And
16:18
Speaker 2: we can do this because we can compare the yield
16:20
Speaker 2: and movement on regular ten year treasuries and five year
16:24
Speaker 2: treasuries with treasuries index for inflation and say, hey, like,
16:27
Speaker 2: what gives what's actually moving this so called tips tips
16:30
Speaker 2: and the break evens on them? What does inflation need
16:33
Speaker 2: to be over period X in order for the tips
16:36
Speaker 2: to perform better than the standard treasury? And so what
16:41
Speaker 2: we have had over the course of this year is
16:44
Speaker 2: when we look at five year tips break evens, they
16:46
Speaker 2: move from around two and a quarter percent to two
16:48
Speaker 2: point six percent, so up around point four percent. Okay,
16:52
Speaker 2: that's all well and good chuck. What does that actually mean? Well,
16:56
Speaker 2: if you take a look at the ten year treasury.
16:58
Speaker 2: It opened the year at around four point one point
17:01
Speaker 2: eight percent and right now is at four point five
17:04
Speaker 2: nine to three, so up around point four percent, same
17:06
Speaker 2: as the break even. What's telling you is that growth
17:08
Speaker 2: expectations haven't really changed for the next five years. It's
17:11
Speaker 2: been inflation expectations that have been rerating in this case.
17:15
Speaker 2: But the important piece is that growth expectations aren't worsening.
17:18
Speaker 2: And I think that's a big thing here too, because
17:21
Speaker 2: what the bond market is signaling, and I'm not saying
17:23
Speaker 2: it's right or wrong, the bond market is signaling an
17:27
Speaker 2: inflationary boom period. And boom I don't mean like, hey,
17:31
Speaker 2: everything's like in a just like surge ahead, but I
17:33
Speaker 2: mean like an inflationary growth period. And that is something
17:38
Speaker 2: that I think you do have to look at in
17:40
Speaker 2: the context of, Hey, central banks, especially you talk about
17:43
Speaker 2: the FED. The FED was, you know, having rate cuts
17:45
Speaker 2: priced in this year gone. There are very few rules
17:50
Speaker 2: when it comes to monetary policy. Uh, but I believe
17:55
Speaker 2: I think it's an old Flemish one. It's again translation
18:00
Speaker 2: is a little iffy, but it's an inflationary boom. Does
18:04
Speaker 2: not a good rate cut make is the translation from
18:08
Speaker 2: the original Flemish. And I think this is the big
18:12
Speaker 2: thing is Look, if you have inflation moving up and
18:14
Speaker 2: growth staying stable, cutting rates into that is the way
18:18
Speaker 2: that you blow things up.
18:20
Speaker 5: Yep.
18:20
Speaker 2: And by blow things up, I mean that's how you
18:22
Speaker 2: get higher inflation expectations anchored and you encourage more growth
18:26
Speaker 2: which again you already can't fill given the fact that
18:29
Speaker 2: inflation is rising. And so instead of actually trying to
18:32
Speaker 2: get instead of actually getting more real growth out of it,
18:35
Speaker 2: you end up just getting more inflation.
18:36
Speaker 5: Yeah. To bring this down to Main Street for a moment.
18:41
Speaker 6: The average thirty year fixed rate mortgage, according to Mortgage
18:45
Speaker 6: News Daily, now hits six point six five percent on
18:48
Speaker 6: Friday of last week, and that is the highest it's
18:52
Speaker 6: been since the breakout of war, since really last time
18:56
Speaker 6: we got there was summer of last year.
18:58
Speaker 5: So, you know, heading to Main Street here for a moment.
19:02
Speaker 6: The spring home season, you know, for the sellers that
19:06
Speaker 6: were out there really unlikely at this time. There's just
19:09
Speaker 6: not enough time for mortgage rates to come back down
19:11
Speaker 6: to see that Surgeon home sales April home sales indicated
19:15
Speaker 6: as much with them basically flatlined year over year and
19:19
Speaker 6: you know the idea of being able to refinance that
19:21
Speaker 6: thirty year down to something more attractive below six percent mark,
19:24
Speaker 6: for instance, really tough to see at this point in time.
19:27
Speaker 2: Quick break, We got Wall Street Watch next.
19:40
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Speaker 1: TFE show. Breaking business news is always first right here
19:47
Speaker 1: on the Financial Exchange Radio Network. Time out full Wall
19:52
Speaker 1: Street Watch treking the stocks, theodato and the headlines driving
19:56
Speaker 1: markets so far today right here on the Financial Exchange Radio.
20:00
Speaker 3: Markets are mixed to begin the week as investors ready
20:02
Speaker 3: for Nvidia earnings as well as retail earnings from the
20:05
Speaker 3: Home Depot, Walmart and several others. Oil prices continued to
20:10
Speaker 3: garner attention, as well as tensions between the US and
20:12
Speaker 3: Iran remain elevated. Right now, the Dow is up about
20:17
Speaker 3: two tenths of one percent or one hundred and five points,
20:20
Speaker 3: SMP five hundred down about two tenths of a percent,
20:23
Speaker 3: NASDAC down about six tenths of a percent. Russell two
20:26
Speaker 3: thousand is edging higher about a tenth of a percent.
20:29
Speaker 4: Ten.
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Speaker 3: Your treasure reel is flat at four point six zero percent,
20:33
Speaker 3: and oil is mostly flat, trading right around one hundred
20:38
Speaker 3: and five dollars A barrel breaking news from the energy
20:41
Speaker 3: sector this morning after next Era Energy agreed to buy
20:44
Speaker 3: Dominion Energy and a deal valued at about sixty seven
20:47
Speaker 3: billion dollars which would create a utility giant pending regulatory approval.
20:53
Speaker 3: Next Error stock is down by five percent, while Dominion
20:55
Speaker 3: shares are up by ten percent. Meanwhile, shares in United
20:58
Speaker 3: Health down by two two percent, falling news over the
21:01
Speaker 3: weekend that Berkshire Hathway sold the steak in the health
21:04
Speaker 3: insurer in greg Abeles first quarter.
21:06
Speaker 5: As CEO.
21:07
Speaker 3: Berkshire Hathway also exited positions in Amazon, Domino's, MasterCard, Visa,
21:12
Speaker 3: and others, while adding a sizable steak in Delta and
21:15
Speaker 3: a smaller steak in Macy's. Both of those stocks. Delta
21:18
Speaker 3: and Macy's are up by three percent. Elsewhere, regeneral On
21:21
Speaker 3: shares sinking ten percent after the biotech company said that
21:24
Speaker 3: elite stage clinical trial for a melanoma treatment failed to
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Speaker 3: meet goals, and Ryan Airstock climbing six percent after the
21:32
Speaker 3: European airline warned the war in the Middle East is
21:35
Speaker 3: driving up fuel costs and weighing on fares as customers
21:38
Speaker 3: delay trips. I'm Tucker Silva and that is Wall Street
21:42
Speaker 3: Watch in the Wall Street Journal.
21:44
Speaker 2: The world can't get enough US energy, keeping prices high
21:48
Speaker 2: for Americans.
21:51
Speaker 6: I don't think it's just the US energy thing. They're
21:53
Speaker 6: pretty agnostic. They just want oil. We happen to have
21:57
Speaker 6: quite a bit of it.
21:58
Speaker 2: They will buy it from anywhere because right now, pretty
22:02
Speaker 2: much everyone is scrambling to figure out, Hey, where are
22:06
Speaker 2: we going to get the supplies we need for July, August, September, October,
22:12
Speaker 2: like the back half of the year.
22:13
Speaker 6: Basics'll risk sanctions, they'll they'll buy it wherever they can
22:16
Speaker 6: get it.
22:17
Speaker 2: So the obvious question that comes up anytime you see
22:21
Speaker 2: this is, hey, like, should we be exporting our oil
22:27
Speaker 2: given you know the questions that we have about where
22:32
Speaker 2: energy supplies are going over the summer.
22:35
Speaker 4: And the answer is yes, And here here's why.
22:37
Speaker 2: Again, the mechanics are kind of counterintuitive, but you have
22:40
Speaker 2: to think about how this works in terms of different
22:43
Speaker 2: types of oil the US largely produces. When we talk
22:46
Speaker 2: about crude oil, we produce mainly lighter, sweeter crudes, not
22:52
Speaker 2: as dense and not as high in sulfur content. Those
22:56
Speaker 2: are great for making really light fuels think gasoline to
23:01
Speaker 2: a certain extent, jet fuel as well, not as good
23:04
Speaker 2: for making heavier things like deezer and bunker fuel and
23:06
Speaker 2: stuff like that. So let's envision a world, and there's
23:11
Speaker 2: two ways that you can approach US.
23:12
Speaker 5: Three.
23:12
Speaker 2: Actually, you could say, hey, I don't want the US
23:15
Speaker 2: to export crude, I don't want the US to export
23:18
Speaker 2: refined product, or I don't want the US to export both.
23:22
Speaker 4: Those are your three options that you have. Sure, if
23:24
Speaker 4: the US says.
23:25
Speaker 2: Hey, we're not going to export crude, we produce more
23:29
Speaker 2: light sweet crude than we need domestically, we don't produce
23:33
Speaker 2: enough of the heavier stuff that we don't.
23:36
Speaker 4: So what you have is all.
23:37
Speaker 2: The producers domestically that are producing the light sweet crude
23:41
Speaker 2: as their storage fills up. Because we're not gonna just
23:43
Speaker 2: refine the stuff for the sake of refining it. You
23:45
Speaker 2: got to put it somewhere. They're gonna say, great, we've
23:48
Speaker 2: got to back up some.
23:49
Speaker 5: Well.
23:50
Speaker 2: So after an initial period where you end up with
23:53
Speaker 2: lower domestic crude prices and lower product prices, you start
23:57
Speaker 2: to see those prices spiking and you produce less rude now,
24:00
Speaker 2: which means okay, you've got problems.
24:03
Speaker 4: Let's say you.
24:03
Speaker 2: Decide, okay, great, we're nervous about exporting refined product, so
24:10
Speaker 2: we're not gonna do that because we need to keep
24:12
Speaker 2: it domestically, because we need the diesel, we need the
24:14
Speaker 2: jet fuel, and we need the gas. Okay, everyone else
24:19
Speaker 2: now needs your light sweet crude because they can't produce
24:22
Speaker 2: that refined product in the amount that they need. They
24:25
Speaker 2: need any crude they can get. You're just gonna empty
24:27
Speaker 2: your crew tanks faster. Now you've got creude prices through
24:30
Speaker 2: the roof, and that's gonna push refined product through the roof.
24:32
Speaker 6: I would think that most people I know this comes
24:36
Speaker 6: out periodically, like well, let's just stop exporting the stuff.
24:38
Speaker 5: It will bring prices down, and it.
24:39
Speaker 2: Will in the short term, like don't get me wrong,
24:41
Speaker 2: you'll have like depending on exactly it goes, probably like
24:44
Speaker 2: a three to six week period where those prices do
24:46
Speaker 2: come down.
24:47
Speaker 6: If the last six years have taught anything, in my mind,
24:52
Speaker 6: it's just how interconnected today's world is. And yes, we've
24:57
Speaker 6: talked at length about how much more energy and pendant
25:00
Speaker 6: the United States is food independence. We have a lot
25:03
Speaker 6: of advantages on the global system, but if every country
25:07
Speaker 6: just starts taking the approach of uh oh, shortage coming,
25:10
Speaker 6: we're not exporting anything, then there's plenty of things that
25:13
Speaker 6: we need that we can't get. We don't have to
25:15
Speaker 6: think that long ago, right, How long ago was it
25:17
Speaker 6: that China said we are no longer sending you any
25:19
Speaker 6: rare earth or magnets, right, Like, I mean, that was
25:23
Speaker 6: pretty damning for the US economy had it continued, and
25:26
Speaker 6: it didn't because of how damning it would have been,
25:28
Speaker 6: and the President went and negotiated a deal and made
25:31
Speaker 6: sure that it continued to happen. But the last six
25:34
Speaker 6: years have just proven over and over again that there
25:38
Speaker 6: is not enough duplication in terms of our supply chains
25:42
Speaker 6: yea to be able to have a continent that operates
25:46
Speaker 6: on its own, you know, even less so a country
25:49
Speaker 6: that operates on its own without any exports or imports.
25:52
Speaker 2: So again, where this is going, because we do get
25:57
Speaker 2: the data every week from the Energy Information Administration is
26:01
Speaker 2: assuming Horror Moonves remains closed. And again, even if it
26:04
Speaker 2: opens at this point, like what's gonna happen over the
26:06
Speaker 2: next two to three months is irreversible just because of
26:09
Speaker 2: the transit times required. You're gonna get down to minimum
26:12
Speaker 2: operational inventory levels. In the United States, You're probably not
26:16
Speaker 2: gonna see shortages because we can pay for oil and
26:19
Speaker 2: refined product at a higher price than most other countries
26:22
Speaker 2: because of our wealth. California will probably see some sporadic
26:27
Speaker 2: shortages because they're kind of disconnected from the rest of
26:31
Speaker 2: the US energy system and they import a lot of
26:33
Speaker 2: stuff from Asia or the Middle East as a result
26:36
Speaker 2: of that. So California's gonna have some issues. But for
26:40
Speaker 2: the rest of US, it's higher prices. And by the way,
26:43
Speaker 2: this is not just happening in the US. This is
26:44
Speaker 2: gonna happen everywhere. It's just that we'll be able to say, hey,
26:49
Speaker 2: this sucks, but I can pay six dollars a gallon
26:51
Speaker 2: for gas, where someone trying to fill up in Thailand
26:55
Speaker 2: can't afford to do that.
26:56
Speaker 5: Yeah.
26:56
Speaker 6: The simplest math that I saw, quote it was the
27:00
Speaker 6: US is currently exporting through reserves primarily three to three
27:07
Speaker 6: and a half million barrels per day in excess of
27:11
Speaker 6: you know.
27:12
Speaker 4: What was out there before pre war levels.
27:14
Speaker 6: Yeah, and China is consuming five to five and a
27:18
Speaker 6: half million less than they were consuming prior to pre
27:21
Speaker 6: war levels, and those.
27:23
Speaker 4: That for the grain of salt.
27:24
Speaker 2: Yes, sure, like no one knows the Chinese data, and
27:26
Speaker 2: they might just be burning through reserves as well.
27:29
Speaker 4: You just don't know.
27:30
Speaker 6: Sorry, I didn't say consuming, I meant importing. Yes, we
27:32
Speaker 6: have a pretty good idea of what they're importing. We
27:34
Speaker 6: don't know what they're burning. Yes, So you know, between
27:37
Speaker 6: those two, you got this ten million barrel a day
27:40
Speaker 6: stop gap that's kind of been in place.
27:43
Speaker 5: The US one looks.
27:44
Speaker 6: Like it's got a pretty short rope, the Chinese one
27:48
Speaker 6: we don't really know. But the net result of that
27:51
Speaker 6: again isn't domestic shortages. It's higher prices and shortages elsewhere.
27:55
Speaker 2: Yeah, and in both of these, like again, the Chinese one,
28:00
Speaker 2: based on what we know about their storage, probably as
28:04
Speaker 2: a shelf life of like somewhere into.
28:08
Speaker 4: Q four, but we don't know exactly where.
28:10
Speaker 6: I think it is estimated at nine months, but somewhere
28:13
Speaker 6: in the Q four range, but we don't exactly know.
28:15
Speaker 6: I would be willing to bet that the Chinese would
28:18
Speaker 6: be better at curbing demand than we would, but I mean,
28:23
Speaker 6: you know, they're a dictatorship, so you can more easily
28:26
Speaker 6: curb that demand. But you know, I don't know exactly
28:29
Speaker 6: how long that's going to last.
28:31
Speaker 2: Let's see other things just to talk about on the
28:34
Speaker 2: energy side, is electric bills rise, some states focus on
28:37
Speaker 2: growing utility profits.
28:38
Speaker 5: This is every single time.
28:44
Speaker 2: Well, some of the data cited in here, like is
28:46
Speaker 2: just honestly very quite bad.
28:49
Speaker 4: So I want to read this.
28:52
Speaker 2: One part of this, and I just found it to
28:55
Speaker 2: be kind of wild.
28:59
Speaker 4: Here if you take a look at quote here.
29:05
Speaker 2: In March, the Energy and Policy Institute issued a report
29:09
Speaker 2: that said the profits of one hundred and ten four
29:11
Speaker 2: profit utilities rose from just under thirty nine billion in
29:14
Speaker 2: twenty twenty one to over fifty two billion in twenty
29:19
Speaker 2: twenty four. Okay, so you do the math out, You're like,
29:23
Speaker 2: that's a thirty three percent increase in the profit.
29:28
Speaker 4: Great.
29:29
Speaker 2: I then went and I said, hey, let me see
29:33
Speaker 2: what inflation was during that time period, just because I'm curious.
29:38
Speaker 2: And sure enough, at the start of twenty twenty one,
29:40
Speaker 2: the CPI sided a level of two hundred and sixty two,
29:43
Speaker 2: and at the start of twenty twenty four it was
29:45
Speaker 2: at the level of three hundred and nine. So once
29:49
Speaker 2: again I pulled out, you know, handed in to calcul
29:51
Speaker 2: and said, okay, three or nine divided by two sixty
29:53
Speaker 2: two carry this, carry to that and eighteen percent inflation
29:57
Speaker 2: during that time. So happy the profit more than half? Yeah, okay,
30:02
Speaker 2: more than half. The profit growth is just do it
30:04
Speaker 2: inflation and we don't look at you know. This is
30:06
Speaker 2: like when people are like, well I bought a house
30:08
Speaker 2: for one hundred dollars back in eighteen oh six. Well, yeah, sure,
30:11
Speaker 2: you made three dollars a year, so like, it's not
30:13
Speaker 2: really comparable. So I think there are a few things
30:17
Speaker 2: to take from this. The first is price of bread
30:20
Speaker 2: was a chicken.
30:20
Speaker 4: Yeah, I actually so.
30:25
Speaker 2: One of my buddies his was his dad or grandfather
30:30
Speaker 2: worked in the grocery business when it first like when
30:32
Speaker 2: supermarkets first became a thing in the nineteen tens and twenties.
30:35
Speaker 5: Yeah.
30:35
Speaker 6: By the way, that's a joke by Gary Gollman. I
30:37
Speaker 6: need to credit him for a mode. I did steal it,
30:39
Speaker 6: not come up with it.
30:40
Speaker 4: No, but we're gonna have to. Can we edit out
30:43
Speaker 4: the laugh though?
30:44
Speaker 5: Yeah?
30:45
Speaker 4: Effect I feel that was unearned.
30:47
Speaker 6: Well, every time somebody laughs at my jokes, I realized
30:49
Speaker 6: that I have to credit somebody.
30:52
Speaker 4: Just have a disclaimer. Just none of the show is
30:54
Speaker 4: our own material.
30:56
Speaker 2: We're all just ripping someone else off somehow, like, yeah,
30:59
Speaker 2: this is a Seinfeld bit, this is Carlin you know
31:02
Speaker 2: here you go. Uh so, yes, energy, like utility prices
31:07
Speaker 2: have gone up. A lot of that's just because the
31:08
Speaker 2: price of everything is gone up. Some of it is
31:12
Speaker 2: you know, probably you know, data center related or fuel
31:14
Speaker 2: you know, type related.
31:15
Speaker 4: But I don't know. Here's the thing.
31:19
Speaker 2: We we we've ended up with a really crappy utility
31:23
Speaker 2: system in the United States, specifically because we have not
31:26
Speaker 2: allowed prices to move organically, and so we don't spend
31:30
Speaker 2: the money on the system that we need to. I
31:33
Speaker 2: don't think the answer to this is going to be, hey,
31:36
Speaker 2: we're gonna try to cap your profits you know more,
31:40
Speaker 2: because like it's and I'm.
31:41
Speaker 6: Not what incentive do you have to reinvest in your
31:44
Speaker 6: infrastructure in that case.
31:45
Speaker 2: This is the whole problem with how we handle utilities
31:48
Speaker 2: in the US. Is I understand you have to have
31:51
Speaker 2: them regulated because you can't have them go out of
31:53
Speaker 2: business because if utilities go out of business.
31:55
Speaker 4: People die.
31:56
Speaker 2: Yeah, that's like literally why we have them regular But
32:00
Speaker 2: we're also not doing a very good job of it
32:02
Speaker 2: because you look at basically any state regulator of utility rates,
32:06
Speaker 2: and they always have political pressure to keep the rates
32:08
Speaker 2: as low as possible, which.
32:11
Speaker 5: Then in turns to lack of investment.
32:13
Speaker 2: Where you don't have innovation, you don't have quality, and
32:16
Speaker 2: so like this is why everyone hates their local utility.
32:18
Speaker 6: Then in turn, half of California burns down. So like,
32:21
Speaker 6: you know, these things are connected.
32:24
Speaker 2: Yes, it's a butterfly flaps its wings in Antarctica and
32:29
Speaker 2: La catches on fire.
32:31
Speaker 4: Let's take a quick break.
32:32
Speaker 2: When we return, let's talk a little bit about the TSAH.
32:36
Speaker 2: They are going to try screening people off site. Will
32:41
Speaker 2: tell you what that means, and well, we'll tell you
32:44
Speaker 2: what that means after this.
32:46
Speaker 1: Remember you can watch the show live every day on
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33:22
Speaker 2: Peace in the Wall Street Journal TSA experiments with off
33:25
Speaker 2: site screening to relieve airport congestion, and this is specific
33:28
Speaker 2: to Boston Logan International Airports. And basically what they're going
33:33
Speaker 2: to be doing is there is there's a bus station
33:37
Speaker 2: in Framingham, Massachusetts that has been there for years that
33:41
Speaker 2: you can park and then take the bus into Logan Express.
33:45
Speaker 2: They're putting a TSA screening checkpoint there so that you
33:48
Speaker 2: can get screened before you go to the airport and
33:50
Speaker 2: relieve some of the congestion at the airports. And they're
33:53
Speaker 2: basically saying, look, the big problem that you have it
33:55
Speaker 2: Logan is it's just too many people with too many
33:57
Speaker 2: cars clogging everything up, which really tells you the problem
34:01
Speaker 2: isn't the TSA checkpoint. The problem is the fact that
34:04
Speaker 2: Logan is not actually connected to any mass transit. Yeah,
34:08
Speaker 2: like there is a Logan Airport MBTA stop, you have
34:13
Speaker 2: to take a bus from there to Logan Airport. Then, yeah,
34:16
Speaker 2: so this is a problem of hey, there's no mass
34:19
Speaker 2: transit that actually connects to the airport. So we're trying
34:22
Speaker 2: to kind of like Jerry Riggs, some kind of system
34:25
Speaker 2: to make it work. But this is not a problem
34:28
Speaker 2: that is everywhere because other airports have better mass transit
34:31
Speaker 2: connections that yeah, sen.
34:33
Speaker 5: Plenty of them, I mean the major hubs LA New York.
34:36
Speaker 6: All of these share similar issues in terms of accessibility
34:40
Speaker 6: and time to airport, plus the cost side of going
34:44
Speaker 6: to Logan Airport between tolls and parking. I think Logan
34:47
Speaker 6: Airport parking even an economy now is pushing thirty bucks
34:51
Speaker 6: a day. So yeah, this is a pretty economical solution
34:55
Speaker 6: if you live west of Boston, and.
34:57
Speaker 5: If you don't, you're stuck with the same old solution.
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36:14
Speaker 2: Mike, I want to take a second just to read
36:17
Speaker 2: something from cloud Flair. They are cloud Flair is best
36:22
Speaker 2: I can describe them to the average person.
36:24
Speaker 4: They provide backbone.
36:25
Speaker 2: Services to websites to help them operate properly and securely.
36:31
Speaker 2: And they recently gained access to the Mythos preview model
36:37
Speaker 2: from No, it was cloud.
36:40
Speaker 6: Fair Flair Flair fair Flair them.
36:45
Speaker 4: So how did you have that?
36:47
Speaker 2: I have no idea when Tucker found that, But in
36:50
Speaker 2: any case, they put out a piece that explains like
36:53
Speaker 2: what they found, and they said, yeah, like we found
36:55
Speaker 2: all kinds of bugs. But I want to put a
36:57
Speaker 2: couple of things into content here that they thought were interesting. Quote,
37:02
Speaker 2: telling them model find vulnerabilities in this repository makes it wander.
37:06
Speaker 2: Telling it something specific makes it do something much closer
37:08
Speaker 2: to what a researcher would actually do. Okay, other things
37:12
Speaker 2: asking is this code buggy? And can an attacker actually
37:15
Speaker 2: reached this bug from outside the system? Or two different questions. So, yes,
37:19
Speaker 2: you can find bugs, but you might not be able
37:21
Speaker 2: to actually exploit them, and so you can deprioritize those
37:24
Speaker 2: in favor of covering like the bigger ones faster. So
37:30
Speaker 2: the way that they're approaching this is, yes, we've been
37:32
Speaker 2: able to find a lot more like they're acknowledging that,
37:36
Speaker 2: But we then have to build a system because we
37:38
Speaker 2: can only fix so much so quickly. We need to
37:40
Speaker 2: figure out what actually needs to be fixed and how
37:44
Speaker 2: do we triage that because previously we would just be, oh,
37:47
Speaker 2: we only found so many bugs, let's fix all of these,
37:49
Speaker 2: whereas now it's yeah, we found an order of magnitude
37:52
Speaker 2: more and we can only fix you know, twenty percent
37:55
Speaker 2: of them. How do we prioritize what we do there?
37:58
Speaker 2: So that's kind of interesting.
37:59
Speaker 6: If I'm anthropic, I'm I'm not willing to wait forever
38:01
Speaker 6: on this for what? To release this to the public
38:04
Speaker 6: and get paid subscribers because god knows some other AI
38:07
Speaker 6: company is racing to do the same thing. I would
38:10
Speaker 6: say they need at least a little time they do,
38:13
Speaker 6: but I'm not like in their shoes. Yeah, quick break here,
38:17
Speaker 6: we got hour two coming up.