Latest / The Financial Exchange Show / Oil Surges After U.S. Strikes Iran — How Big Is the Economic Risk?

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Oil Surges After U.S. Strikes Iran — How Big Is the Economic Risk? · The Financial Exchange Show

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1:03
Speaker 1: This is the Financial Exchange with Chuck Zada and Mike Armstrong.
1:11
Speaker 2: Chuck, Mike, and Tucker with you here as we kick
1:14
Speaker 2: off the month of March and top story today. Not
1:20
Speaker 2: surprised we're gonna be talking about the conflict in the
1:23
Speaker 2: Middle East and what it potentially means for markets, and
1:28
Speaker 2: so obviously I don't think I don't know how much
1:32
Speaker 2: detail we need to go into about, you know, what
1:34
Speaker 2: exactly is happening.
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Speaker 3: But obviously if you're tuning into the Financial Exchange for
1:37
Speaker 3: your breaking news on the US striking.
1:40
Speaker 4: Iran, you're doing it wrong. You're doing it wrong.
1:42
Speaker 2: Yeah, yeah, yeah, So here here's what we do know overnight,
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Speaker 2: just in terms of new developments that I think are
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Speaker 2: important as as it goes, you know, financially and quick
1:53
Speaker 2: like upfront thing, We're not here to assess whether or not,
1:56
Speaker 2: you know, the the attack is going well or not.
2:00
Speaker 2: We're here to assess the potential economic impacts on sure,
2:03
Speaker 2: So you know, we're not going to be, as Mike said,
2:05
Speaker 2: we're not like breaking news trying to figure out, you know, oh,
2:08
Speaker 2: what does this mean? What does that mean? As far
2:09
Speaker 2: as you know, is this successful or not? But much more, Hey,
2:12
Speaker 2: here's some of the scenarios that we're seeing and as
2:14
Speaker 2: they develop, you know, we can outline potential ramifications from them,
2:18
Speaker 2: so overnight a few big developments that I think are
2:22
Speaker 2: important in determining how this may play out economically, because really,
2:27
Speaker 2: when you think about it, there are three key factors
2:32
Speaker 2: that are going to determine how large the economic impact
2:36
Speaker 2: from this actually is. The first is the duration of it.
2:41
Speaker 2: If this thing is over later today, it's probably not
2:45
Speaker 2: going to have any kind of long standing economic impact
2:48
Speaker 2: on the US economy. Sure, if this is still ongoing
2:53
Speaker 2: a month from now, it very well could. It's still
2:56
Speaker 2: not a guarantee because there are two other factors that matter,
2:59
Speaker 2: but duration is one of the big ones that we're
3:01
Speaker 2: paying attention to. The next one the scope of it.
3:05
Speaker 2: Is this confined to a limited area or does it
3:09
Speaker 2: expand into more of a regional conflict or beyond that.
3:13
Speaker 2: That's obviously something that matters as well.
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Speaker 3: Yeah, and obviously I think you can make an argument
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Speaker 3: it has expanded. There were strikes by Iron on many neighbors,
3:22
Speaker 3: but it has not expanded to anyone joining the Iranians.
3:26
Speaker 3: It has not expanded in that fashion. But I mean,
3:29
Speaker 3: I think important to acknowledge that it has already expanded
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Speaker 3: beyond a conflict of US Israel strike around.
3:35
Speaker 2: So the scope is going to matter how far does
3:38
Speaker 2: it spread? And the third piece there, the third key
3:41
Speaker 2: factor is the magnitude of it. You know, beyond just hey,
3:44
Speaker 2: how far does it spread? What's the magnitude. What's the
3:47
Speaker 2: real impact of that spread. If it's you know, sporadic
3:50
Speaker 2: small things that happen, you can make a case that
3:53
Speaker 2: that's not you know, too big of a deal from
3:55
Speaker 2: an economic standpoint. If this is something where it becomes
3:59
Speaker 2: a law larger you know, more impactful conflict throughout a
4:03
Speaker 2: larger region than obviously matters more so those are the
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Speaker 2: three things that mattered. The duration, the scope, and the magnitude.
4:13
Speaker 2: Those are the big ones. So with that in mind,
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Speaker 2: here's what we've seen overnight in terms of how things
4:22
Speaker 2: are developing along those fronts. The first is conflict is
4:25
Speaker 2: obviously still going on as of this morning. You still
4:30
Speaker 2: have musicians going back and forth. You still have US
4:33
Speaker 2: and Israeli airplanes that are in the air, and so
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Speaker 2: still going on. So not over in you know a day.
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Speaker 2: Other things that we're seeing Iran is continuing to strike
4:46
Speaker 2: beyond military targets in the region, they are continuing to
4:50
Speaker 2: strike civilian and energy infrastructure in the region, and earlier
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Speaker 2: in this on Saturday and even early into Sunday, I
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Speaker 2: think that you could have ignowed the possibility that because
5:02
Speaker 2: of all of the electronic warfare that's conducted during this time.
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Speaker 2: And what I mean by that is, look, the US
5:08
Speaker 2: and Israelis and anyone who's participating in any military conflict anywhere,
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Speaker 2: they try to control the electromagnetic spectrum in order to
5:15
Speaker 2: jam you know, radio signals and radar signals and this
5:18
Speaker 2: and that, and you know, make GPS things, you know,
5:21
Speaker 2: spoofed to look like you're in a place that you're
5:23
Speaker 2: not in. So but you can make a case that
5:26
Speaker 2: in the first day or so, hey, you know, you
5:29
Speaker 2: saw you know, an Iranian drone hitting a building in
5:34
Speaker 2: Bahrain or in Dubai, and you might say, well, maybe
5:36
Speaker 2: it was just you know, jammed and it wasn't intending
5:38
Speaker 2: to go there.
5:39
Speaker 4: Ye.
5:39
Speaker 2: At this point, given the breadth of where Iranian drones
5:44
Speaker 2: and or ballistic missiles have hit, I think it's pretty
5:47
Speaker 2: clear that Iran is indeed targeting civilian and energy infrastructure
5:52
Speaker 2: throughout the region, most likely deliberately. Sure, and what this
5:57
Speaker 2: means is think about this from the perspect to people
6:00
Speaker 2: say like, well, that's dumb, like why would you do that?
6:02
Speaker 2: And the answer is, well, when you've been told that
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Speaker 2: you are going to be exterminated as a regime, do
6:09
Speaker 2: you say okay, it fine, Like we're gonna make things
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Speaker 2: as painful as possible for everyone in the region in
6:14
Speaker 2: order to try to put an end to it before
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Speaker 2: it gets to that point. So think about it from
6:18
Speaker 2: the perspective then of if you are a Bahrain or
6:21
Speaker 2: if you or if you do bai or Oman or
6:26
Speaker 2: any of these cities or states or countries like any
6:28
Speaker 2: of these you know locations. The very premise by which
6:32
Speaker 2: you've built up your vast wealth in the last couple
6:35
Speaker 2: of years and your influence in the last couple of
6:37
Speaker 2: decades rather is twofold number one. Hey, you obviously supply
6:40
Speaker 2: a bunch of energy, you know, to the world, but
6:43
Speaker 2: beyond that, you've attracted capital because you've convinced capital, hey
6:46
Speaker 2: it's safe to be here, and this is you know,
6:48
Speaker 2: a great place to be.
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Speaker 3: Yeah, I mean, as far as convincing tech companies to
6:53
Speaker 3: invest their extraort to live there, it's been a h
6:57
Speaker 3: it's been an argument of this is a safe region.
6:59
Speaker 3: I mean, in what portion of the world's flights travel
7:02
Speaker 3: through There a whole bunch of fundamental things that are
7:06
Speaker 3: necessary to the economy beyond just the flow of oil.
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Speaker 2: And so if you're iron, the logical responses, okay, fine,
7:13
Speaker 2: like we're gonna target all of your energy infrastructure that's
7:16
Speaker 2: had you get to this point and hey, yeah, well
7:19
Speaker 2: lobb something at a you know, civilian airport or at
7:22
Speaker 2: a city and this and that, because that's going to
7:25
Speaker 2: get you behind the scenes going to the US saying guys,
7:28
Speaker 2: we got to stop this week. We can't have this
7:30
Speaker 2: going on. Sure, I'm not saying this is like right
7:32
Speaker 2: or good, but I'm saying it's actually a perfectly logical response.
7:36
Speaker 2: If you are threatened with your extermination, is no like,
7:39
Speaker 2: try to make things really uncomfortable for the opposing faction
7:44
Speaker 2: before that happens.
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Speaker 3: And obviously a lot has been written and discussed about
7:48
Speaker 3: already as to whether or not that's been a successful
7:51
Speaker 3: strategy or more of a compelling strategy to further decapitate
7:55
Speaker 3: the regime from those neighbors A little bit debate there.
7:59
Speaker 2: So this is where we are, is that Iran is
8:01
Speaker 2: clearly striking civilian and energy infrastructure in the region. This morning,
8:06
Speaker 2: Katar Energy, who produces about twenty percent of the world's
8:10
Speaker 2: liquefied natural gas, they have halted production of LNG following
8:14
Speaker 2: attacks on their facilities. Twenty percent of the world's LNG
8:18
Speaker 2: disrupted is a big deal. Now, this is not twenty
8:20
Speaker 2: percent of the overall natural gas supply in the world.
8:25
Speaker 2: If you look at what Qatar produces, it's about five
8:28
Speaker 2: percent of the world's supply overall. But hey, if you're
8:32
Speaker 2: having a couple percentage points of total supply disrupted, that's
8:35
Speaker 2: a big deal. As we saw back in twenty twenty
8:37
Speaker 2: two with what was going on with Russia and Ukraine
8:41
Speaker 2: other things that we're seeing multiple reports this morning that
8:45
Speaker 2: the US flagged tanker Standard Imperative was hit by two
8:49
Speaker 2: projectiles while in port. We don't have details on what
8:53
Speaker 2: those warrio it. We don't know if they were drones,
8:54
Speaker 2: ballistic missiles, or anything else. But this is the first
8:58
Speaker 2: instance of a US flagged vehicle, a US flagged ship
9:03
Speaker 2: that may have been hit by Iranian projectiles.
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Speaker 3: Safe to say, I would think that any ship transitting
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Speaker 3: anywhere near Iran is going to have a tough time
9:13
Speaker 3: finding insurance.
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Speaker 2: And this is the big thing is basically immediately at
9:17
Speaker 2: the outset of this, all of the major maritime insurance
9:20
Speaker 2: carriers canceled the policies that were in place four ships
9:23
Speaker 2: that were in the region, and said, we're going to
9:26
Speaker 2: have to put a hold on this before we even
9:28
Speaker 2: are willing to assess, you know, what a new policy
9:31
Speaker 2: would cost, because we don't really know what the situation is.
9:35
Speaker 2: So right now there is no traffic moving through the
9:37
Speaker 2: Strait of Hormus. It's not that Iran has you know,
9:41
Speaker 2: effectively you know, blockaded it. It's more the insurance companies
9:45
Speaker 2: aren't willing to cover them. And given that Iran has
9:48
Speaker 2: hit at least one ship in the region, likely several
9:51
Speaker 2: others based on initial reports, you have no ships that
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Speaker 2: are willing to transit the Strait of Hormus, which on
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Speaker 2: a daily basis typically care around twenty percent of the
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Speaker 2: world's oil. So, once again, if you look at this
10:04
Speaker 2: in the context of, hey, if this stops in the
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Speaker 2: next couple days, it's probably not a huge deal for
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Speaker 2: you know, worldwide markets. You know, once you get through
10:15
Speaker 2: this period, if we're talking about this with you know,
10:19
Speaker 2: ships not able to transit horm moves over the next
10:21
Speaker 2: you know, several weeks, it starts to become problematic in
10:24
Speaker 2: terms of where does most of the world get its
10:27
Speaker 2: oil from. Then it's a little bit different here in
10:30
Speaker 2: the United States because in the United States we are
10:33
Speaker 2: the biggest producer of oil in the world. And while
10:37
Speaker 2: it's not an ideal situation, you certainly have flexibility that
10:41
Speaker 2: many countries don't when it comes to being able to
10:45
Speaker 2: reduce exports of oil and use that oil domestically. Potentially,
10:49
Speaker 2: you'd have to do some work on the refining side
10:51
Speaker 2: of things, because the way the US refineries are set up,
10:54
Speaker 2: it's not necessarily to refine the type of oil that
10:56
Speaker 2: we produce in the United States, so you have to
10:59
Speaker 2: do some work on that front. But this is just
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Speaker 2: kind of the lay of the land and setting the
11:04
Speaker 2: stage on all of this. So I think in terms
11:07
Speaker 2: of the assessment that I have at this point, it's, hey,
11:12
Speaker 2: it's still very early. We don't know exactly how things
11:15
Speaker 2: are going to develop, but the potential exists for significant
11:19
Speaker 2: disruptions to energy markets that could last, you know, an
11:22
Speaker 2: extended period of time. But there's also the possibility that
11:25
Speaker 2: this is not an extended conflict, and as such, you
11:29
Speaker 2: might see things, you know, develop more positively in the
11:32
Speaker 2: coming days. And we're just gonna have to see how
11:34
Speaker 2: things play out.
11:35
Speaker 4: So let's take a break.
11:36
Speaker 3: When we come back, maybe just talk about three areas
11:40
Speaker 3: of the market that I think a lot has been
11:42
Speaker 3: written about so far this morning, stocks, bonds, energy markets.
11:46
Speaker 4: Yes, when we return.
11:48
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13:04
Speaker 2: Micha. Let's talk a little bit about, you know, the
13:07
Speaker 2: impact of the attack on Iran in the context of
13:15
Speaker 2: major markets, so equities, bonds, sure, and energy.
13:20
Speaker 4: Yeah.
13:20
Speaker 3: So first thing, I think timing is interesting here, right,
13:23
Speaker 3: we all went to bed on the East coast and
13:25
Speaker 3: woke up to this on Saturday morning, or at least
13:27
Speaker 3: that was my experience. It has given investors a good
13:32
Speaker 3: forty eight hours forty eight hours Sunday, Yeah, good forty
13:36
Speaker 3: eight hours to think about and react to everything while
13:41
Speaker 3: markets were closed, and that is I think important to
13:45
Speaker 3: mention because while we saw some volatility and overnight markets
13:48
Speaker 3: and futures opened, I think last night down about one
13:51
Speaker 3: plus percent, relatively calm this morning, and I think in
13:57
Speaker 3: large part due to the fact that this has.
13:58
Speaker 4: Been ongoing now for forty eight hours.
14:00
Speaker 2: By the way, I need to point out again, maybe
14:03
Speaker 2: it's a coincidence, maybe it's not. This is standard operating
14:08
Speaker 2: procedure from Trump administration. Now Maduro captured on Saturday last year,
14:17
Speaker 2: strikes on Iranian nuclear facilities on it was either a
14:20
Speaker 2: Friday night or a Saturday morning, I can't remember. You know, offhand,
14:26
Speaker 2: there's a big part of me that thinks that this
14:27
Speaker 2: is somewhat buy in design, that it happens on weekends
14:30
Speaker 2: to give financial markets time to absorb. I know that
14:34
Speaker 2: there are obviously, you know, other pressing you know, desires
14:38
Speaker 2: as far as, hey, we need to execute this, you know,
14:40
Speaker 2: to the with the best you know, possibility of success
14:43
Speaker 2: for the mission. But again, it feels to me like
14:48
Speaker 2: more than a coincidence that this is all of these
14:49
Speaker 2: have happened on weekends.
14:51
Speaker 4: I agree.
14:52
Speaker 5: Uh.
14:52
Speaker 2: And by the way, there's also been you know, a
14:54
Speaker 2: number of different you know, announcements that have happened on
14:56
Speaker 2: weekends for the same reason. I think. So, here's the
15:00
Speaker 2: thing about these three markets. The first is, if twenty
15:04
Speaker 2: twenty two convinced me of anything, it's don't pay attention
15:07
Speaker 2: to what equity markets do immediately after a conflict breaks out.
15:13
Speaker 2: The day that Russia invaded Ukraine, the S and P
15:17
Speaker 2: five hundred had closed the day before at let's see,
15:21
Speaker 2: let me pull it up here. It was at around
15:23
Speaker 2: forty two hundred. It then fell during the morning down
15:26
Speaker 2: to around forty one to fourteen, so a two percent fall,
15:29
Speaker 2: before reversing higher before the close and finishing at forty
15:32
Speaker 2: three tenths. It was a four percent intra day reversal
15:35
Speaker 2: to the top side. Ultimately, the S and P five
15:38
Speaker 2: hundred crossed that mark on two other occasions that year,
15:41
Speaker 2: but still ended up closing about ten percent below that
15:44
Speaker 2: by the end of the year.
15:46
Speaker 3: Arguably for reasons not directly related to the Russian invasion
15:49
Speaker 3: of Ukraine.
15:49
Speaker 2: But the trust invasion of Ukraine exacerbated the inflation problem though,
15:53
Speaker 2: And so I think number one is, hey, I don't
15:57
Speaker 2: think that you can get a reliable read on what
16:00
Speaker 2: equity markets are going to do based on what they do,
16:05
Speaker 2: you know, the day that hostilities start. I think that's
16:09
Speaker 2: just kind of where I tend to land there. On
16:14
Speaker 2: the other hand, I look at the bond market and
16:19
Speaker 2: I see, listen, in any conflict, you have two different
16:24
Speaker 2: possibilities that can take hold in bond markets. The first is, hey,
16:29
Speaker 2: is there anything that's an inflationary impulse here that could
16:32
Speaker 2: potentially push up costs? The answer is obviously yes here.
16:37
Speaker 2: The second is, hey, is there any kind of short
16:41
Speaker 2: term weakness that this potentially creates in the economy through
16:44
Speaker 2: a lack of demand as people get nervous about spending
16:47
Speaker 2: money on whatever? It could be travel. Obviously that could have,
16:51
Speaker 2: you know, some concerns. It could be, hey, do I
16:53
Speaker 2: feel comfortable buying a house? You know, given some of
16:55
Speaker 2: this uncertainty. And today at least bonds are saying, yeah,
17:00
Speaker 2: we're more nervous about the inflationary aspect because the ten
17:03
Speaker 2: year Treasury is up seven and a half basis points
17:04
Speaker 2: to four point h three percent.
17:06
Speaker 3: Right, So anybody calling for that safe haven move stocks
17:10
Speaker 3: down bonds up, that's not what we're getting today, and
17:13
Speaker 3: I'm not sure it logically should be what we get today.
17:15
Speaker 2: What we are getting in third market that I want
17:17
Speaker 2: to talk about. Actually, sorry, there's there's four that we
17:19
Speaker 2: have to cover. The thirdest currencies because we are getting
17:21
Speaker 2: the safe haven bidden. The dollar Dollar Index is up
17:24
Speaker 2: almost one percent to day to ninety eight point five,
17:27
Speaker 2: and it makes perfect sense. Look, there are two reasons
17:30
Speaker 2: why the dollar index typically gets bid up. Number one
17:33
Speaker 2: is people are really nervous. Number two is people are
17:36
Speaker 2: really excited, and it creates what's called the dollar smile.
17:40
Speaker 2: Think about the shape of a smile. It's high on
17:43
Speaker 2: the sides when people are either nervous or excited. So
17:47
Speaker 2: kind of the if you're you know, graphing this, the
17:50
Speaker 2: far you know, left side might be, Hey, people are
17:52
Speaker 2: really nervous, the dollar gets bid up in that case,
17:55
Speaker 2: far right side is hey, dollar gets bid up when
17:58
Speaker 2: people are really excited because there's a ton of flowing
18:00
Speaker 2: into the US because of that excitement. The place where
18:04
Speaker 2: you typically see dollar weakness is in the middle, when
18:07
Speaker 2: people aren't either excited or scared. And so obviously in
18:10
Speaker 2: a day when people are scared, you'd expect to see
18:12
Speaker 2: the dollar bid and you are seeing that. So I'm
18:17
Speaker 2: trying to think of the best way to phrase this
18:19
Speaker 2: just to make my point. Here's how I'm gonna phrase
18:23
Speaker 2: it to all you dollar haters out there. If the
18:27
Speaker 2: dollar were really no longer a safe haven, it wouldn't
18:31
Speaker 2: be getting bid today. Like that's just the deal, you know,
18:34
Speaker 2: all the people, Oh, it's the end of the US dollar,
18:37
Speaker 2: like dollar hegemony is over. Like, yeah, no, that's that's
18:42
Speaker 2: not the case. The dollar is getting bid up about
18:44
Speaker 2: one percent today, which is exactly what you would expect
18:47
Speaker 2: to see here. Finally, energy markets, Uh, this is the
18:52
Speaker 2: ten trillion dollar question, and again it's gonna be answered
18:55
Speaker 2: by two factors. The duration of this, the scope of it.
18:59
Speaker 2: The magnitude doesn't really matter because the scope is going
19:01
Speaker 2: to determine the magnitude Energy markets. IRAN doesn't have to
19:04
Speaker 2: do very much to disrupt energy markets other than make
19:07
Speaker 2: it uninsurable for them to operate. And that doesn't mean
19:12
Speaker 2: they have to sink anything that goes through hormones. It
19:14
Speaker 2: just means that the threat has to be real, and
19:16
Speaker 2: right now insurers are saying, yep, feels pretty real. So
19:20
Speaker 2: energy markets are moving up today. Do they stay there?
19:24
Speaker 2: That's going to depend on the duration of this, which
19:26
Speaker 2: we just don't know yet. Quick Break, We've got Wall
19:29
Speaker 2: Street Watch next.
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Speaker 1: Street Watch, a complete look at what's moving markets so
19:55
Speaker 1: far today right here on the Financial Exchange Radio network.
20:00
Speaker 5: Cuts are seeing a modest sell off at the moment
20:02
Speaker 5: as Wall Street assesses the conflict in the Middle East
20:04
Speaker 5: after the US and Israel attacked Iron over the weekend,
20:08
Speaker 5: sending oil prices higher. Right now, the Dow is down
20:11
Speaker 5: over four tenths of one percent or two hundred and
20:14
Speaker 5: fifteen points lower, SMP five hundred down just over half
20:17
Speaker 5: a percent or thirty six points lower, NASDAC down about
20:21
Speaker 5: four tenths of a percent or ninety seven points lower,
20:24
Speaker 5: Russell two thousand, mostly flat, edging higher. Ten year Treasurreel
20:28
Speaker 5: jumping seven basis points at four point zero four percent,
20:32
Speaker 5: and Crewde oil jumping about seven percent higher, trading at
20:36
Speaker 5: seventy one dollars and fifty nine cents. Several major oil producers,
20:40
Speaker 5: including Exon Mobile, Chevron, and Conico Phillips, are seeing slight
20:44
Speaker 5: gains in reaction to the increase in oil prices. Defense
20:47
Speaker 5: stocks including Lockheed Martin and Northrop Grumman are also seeing
20:50
Speaker 5: gains of about three percent. Travel sector also taking ahead
20:55
Speaker 5: due to higher oil prices in disrupted global travel, Delta,
20:58
Speaker 5: American Airlines and are all shedding about two to three percent,
21:02
Speaker 5: while Expedia and Booking holdings are down about one to
21:06
Speaker 5: three percent. Cruise operators including Norwegian and Carnival also taking
21:10
Speaker 5: a hit of anywhere between seven and ten percent outside
21:13
Speaker 5: of the Middle East. In Video announced this morning it
21:16
Speaker 5: is investing a combined four billion dollars in Lamentum and Coherent,
21:20
Speaker 5: to companies developed phototonics technologies. Separately, the Wall Street Journal
21:24
Speaker 5: reported that in Vidia plans to unveil a new processor,
21:28
Speaker 5: especially tailored to help open AI and other customers build faster,
21:32
Speaker 5: more efficient tools and video stock is up nearly two
21:35
Speaker 5: percent in shares in Berkshire Hathway down over four percent
21:39
Speaker 5: after the conglomerate reported a two and a half percent
21:41
Speaker 5: drop in quarterly profit and a thirty percent decline in
21:44
Speaker 5: operating earnings. New CEO Greg Abel also outlined his vision
21:48
Speaker 5: in his first letter to shareholders, embracing Warren Buffett's strategy.
21:53
Speaker 5: I'm Tucker Silvan.
21:54
Speaker 2: That is Wall Street Watch, Mike. So we've covered a
21:57
Speaker 2: lot of ground with the Iran situation. Of obviously will
22:00
Speaker 2: continue to uh, you know, update any economic information that
22:05
Speaker 2: develops out of it. But I want to transition out
22:09
Speaker 2: to talk about well the stuff that we were talking
22:12
Speaker 2: about last week, which also.
22:14
Speaker 4: Was sending markets into some turmolil.
22:17
Speaker 2: There's just there's a lot of moving pieces right now,
22:24
Speaker 2: and one of the biggest ones is the question of, hey,
22:28
Speaker 2: is artificial intelligence going to result in large amounts of
22:34
Speaker 2: job loss? And I say large amounts because here's the thing.
22:37
Speaker 2: Basically every major technology that has ever been created has
22:42
Speaker 2: resulted in job loss. Sure, I heard about light I
22:48
Speaker 2: use this example all the time when when when the
22:50
Speaker 2: printing press was invented, the stone tablet makers were pissed.
22:55
Speaker 2: They they did not enjoy that. They were like, oh, man,
22:59
Speaker 2: like we're out of a job. Even more recently, look
23:03
Speaker 2: talk about you know what the railroad did, and you know,
23:06
Speaker 2: talk about you know what airplanes did, the automobile, I
23:09
Speaker 2: mean the internet. All of these killed off certain jobs
23:14
Speaker 2: and had new jobs that went along with them. And
23:16
Speaker 2: there too.
23:16
Speaker 4: In some cases too. It was not like peacefully.
23:19
Speaker 3: I jokingly mentioned the Luddites, right if you've heard that
23:24
Speaker 3: was violent. They revolted, They destroyed machinery as in a
23:28
Speaker 3: revolt of this new technology that was going to replace
23:30
Speaker 3: a whole bunch of jobs. So I'm not we're not
23:34
Speaker 3: paving over any of that stuff and saying you know
23:37
Speaker 3: that that is universally good. There are lots of people
23:40
Speaker 3: who are badly affected by technological change in the short term.
23:43
Speaker 2: Especially what matters to the broader economy is there are
23:50
Speaker 2: two things that matter. The first is the pace of
23:53
Speaker 2: it and the depth of it. And here's what I
23:56
Speaker 2: mean by this, and this will combined both. If you
23:59
Speaker 2: were to see two million jobs replaced by artificial intelligence
24:03
Speaker 2: over the next ten years, doesn't matter to the broad economy.
24:07
Speaker 2: Still might suck for those people that lose their jobs.
24:10
Speaker 2: I'm not saying it won't, but the broad economy, Okay,
24:14
Speaker 2: a couple hundred thousand jobs a year being replaced by
24:16
Speaker 2: automation not a factor.
24:18
Speaker 4: Yep.
24:20
Speaker 2: If we have five million jobs replaced by automation in
24:24
Speaker 2: the next eighteen months, oh.
24:27
Speaker 4: Or two million, like either one of those is problematic.
24:31
Speaker 2: Two million even even there, Like you can say, look,
24:33
Speaker 2: remember that in a normal month, there are two million
24:36
Speaker 2: separations from jobs, and those people, most of them tend
24:40
Speaker 2: to find work, you know, within the next three to
24:42
Speaker 2: six months if you look at the unemployment data out there.
24:45
Speaker 2: But like if you start you know, really accelerating and saying, hey,
24:49
Speaker 2: you know, an extra three percent of the workforce is
24:51
Speaker 2: going to get laid off in the next eighteen months
24:53
Speaker 2: because of this. Gee, that's that's a big chunk that
24:55
Speaker 2: needs to then find jobs. And remember there's only about
24:58
Speaker 2: six and a half million jobs out stie from what
25:00
Speaker 2: we can tell. And so if you have another five
25:02
Speaker 2: million coming into you know, unemployment at a time where there's
25:06
Speaker 2: only six million jobs outstanding. Gee, Like the math starts
25:09
Speaker 2: to get problematic in a hurry.
25:11
Speaker 3: And by the way, this does lead into that Satrini
25:14
Speaker 3: research piece that we covered while you were out chuck.
25:17
Speaker 3: But for those that missed it, it was this piece
25:19
Speaker 3: written from the perspective of somebody in twenty twenty eight
25:22
Speaker 3: looking back at the last couple of years, and it talked.
25:25
Speaker 2: About I love that that got picked up by everyone.
25:27
Speaker 3: By the way, I know it looked at ten percent unemployment,
25:30
Speaker 3: market sell off and all of these different things, and
25:32
Speaker 3: the one it was I don't think. I'm not sure
25:37
Speaker 3: how fundamentally serious of a piece it was meant to
25:39
Speaker 3: be intended.
25:40
Speaker 2: Two.
25:41
Speaker 3: The author of the piece has since given interviews and said, look,
25:45
Speaker 3: we wrote this from the perspective of what would happen
25:48
Speaker 3: if the exponential growth in the pace of AI development
25:52
Speaker 3: were to continue for the next two years, because it
25:54
Speaker 3: has been pretty exponential and it's not our base case,
25:57
Speaker 3: but what if it were to happen, and this is
25:59
Speaker 3: how we saw things trying out, And so it gets
26:01
Speaker 3: to that pace of change type thing where, yeah, if
26:05
Speaker 3: this technology were to continue to expand and not plateau
26:09
Speaker 3: in terms of development of the course the next two years,
26:11
Speaker 3: that's possible. By the author's own admission, they think that's
26:15
Speaker 3: a maybe ten percent likelihood scenario.
26:18
Speaker 2: Now, this was then exacerbated later in the week I
26:20
Speaker 2: think was either Wednesday or Thursday, when Block, the company
26:23
Speaker 2: formerly known as Square, which is still not helpful and
26:28
Speaker 2: had to do that, had to do that, decided they
26:31
Speaker 2: were going to lay off about forty percent of their workforce,
26:34
Speaker 2: close to four thousand people. And the question that's out
26:38
Speaker 2: there is because if you look at Block and how
26:42
Speaker 2: they ramped up their hiring, the number of employees basically
26:46
Speaker 2: quadrupled in like a four to five year period. And
26:50
Speaker 2: so the question is it, Look, when you look at Block,
26:55
Speaker 2: one of two things is happening. Either a they over
26:59
Speaker 2: hired and are now trying to you know, get their
27:02
Speaker 2: employee size their headcount correct or be they actually just think, hey,
27:08
Speaker 2: our headcount was correct, but now we can do more
27:10
Speaker 2: with AI and we're going to do this now. Quite honestly,
27:15
Speaker 2: it's probably some of both, and it's really hard to untangle,
27:18
Speaker 2: you know, the exact ones. Here's one thing that I
27:21
Speaker 2: do know, after you know, the last five years, Jack Dorsey,
27:25
Speaker 2: who runs Block used to run Twitter, probably not a
27:30
Speaker 2: great manager of headcount. And what I mean by that
27:34
Speaker 2: is when Elon Musk took over Twitter, remember he got
27:36
Speaker 2: rid of like half the people that worked there, and
27:38
Speaker 2: people are like, oh, I guess Twitter gonna like just
27:40
Speaker 2: stop working. Well no, it still works, Like four years later,
27:43
Speaker 2: it's still as you know, operational. It's really possible that
27:47
Speaker 2: Jack Dorsey just dramatically loves to overhire and bring on
27:51
Speaker 2: a ton of people, and this is them being like, hey,
27:54
Speaker 2: we got to just get this under control now.
27:56
Speaker 3: The other piece that I'll mentioned a lot was theorized
27:59
Speaker 3: at the time too, like, well, maybe the company's just
28:01
Speaker 3: in rough financial shape, but it doesn't again, you know,
28:05
Speaker 3: we'll see quarter to quarter, but you know, their most
28:07
Speaker 3: recent year was their best on record. They had operating
28:10
Speaker 3: income of three point two billion dollars, Like, you know, financially,
28:13
Speaker 3: they seem to have been improving over the last few years,
28:15
Speaker 3: so I don't I also want to paint a picture
28:17
Speaker 3: of well, this company was going down the tubes and
28:20
Speaker 3: they needed to fire anyway, and they just got to
28:22
Speaker 3: blame it on AI. I don't think I can make
28:24
Speaker 3: that compelling case.
28:25
Speaker 2: No, So I think ultimately we're gonna have to see
28:32
Speaker 2: what actually unfolds over the next few months. Not in
28:38
Speaker 2: terms of even like think about Block the day they
28:41
Speaker 2: announced this. The day after, I think they saw what
28:42
Speaker 2: like a twenty four percent bump in their share price
28:44
Speaker 2: somewhere in that ballpark. I use the phrase corporate lemmings
28:48
Speaker 2: a lot, because CEOs are like lemmings. They see a
28:50
Speaker 2: share price go up because a company did something, and
28:52
Speaker 2: they say, oh, we gotta do that now. If Block
28:57
Speaker 2: in the next two months gives all those gains and
29:00
Speaker 2: then some you might see corporate CEOs being like, oh,
29:03
Speaker 2: maybe that's not the lever to pull. But I always
29:07
Speaker 2: get nervous when companies start laying off large numbers of
29:11
Speaker 2: people in the stock response positively because I know other
29:16
Speaker 2: companies just sitting there saying, yeah, let's do this. Like,
29:20
Speaker 2: that's what CEOs do. I know every CEO wants to
29:22
Speaker 2: be like, no, I'm the visionary, I'm the Steve. You're
29:26
Speaker 2: not Steve Jobs. Steve jobs with Steve Jobs. Most are
29:30
Speaker 2: corporate lemmings. And specifically, remember CEOs are appointed by boards
29:35
Speaker 2: of directors. Most boards say, hey, something good's happening over there.
29:41
Speaker 2: Do this, or we're gonna find a new CEO.
29:43
Speaker 4: Can you help me square the square? The thinking of
29:47
Speaker 4: like me to block it.
29:49
Speaker 3: What we saw with block what we saw with the
29:51
Speaker 3: reaction is to train and research all of the different
29:53
Speaker 3: reports over the last four weeks. When it comes to software, logistics,
29:56
Speaker 3: financial services and the market reaction we got from in
29:59
Speaker 3: video earnings released or should we take a break and
30:02
Speaker 3: then talk about that next?
30:03
Speaker 2: It's pretty media. I think we should take a break,
30:05
Speaker 2: quick break.
30:06
Speaker 4: Let's talk about it in video's earnings.
30:08
Speaker 1: Next when business news breaks, we're talking about it on
30:12
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30:16
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30:21
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30:24
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30:30
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30:42
Speaker 2: All Right, so last week, one of the major things
30:46
Speaker 2: that we saw was in Video reporting earnings, and so
30:52
Speaker 2: obviously when when in video comes out, it's a it's
30:55
Speaker 2: a huge deal for them to report. They beat on
30:59
Speaker 2: revenue by about three billion dollars about five percent. Uh
31:03
Speaker 2: they beat on earnings by eleven cents a share about
31:07
Speaker 2: seven percent. Their guidance was really strong as well. This
31:12
Speaker 2: was on Wednesday. Uh So the stock closed on Wednesday
31:16
Speaker 2: at about one hundred and ninety five bucks a share
31:21
Speaker 2: and promptly fell. It's about one eighty five the next
31:26
Speaker 2: days down five percent, and then down another you know,
31:28
Speaker 2: three four percent on Friday to one seventy seven.
31:30
Speaker 3: So my question about all of this is how do
31:32
Speaker 3: I square good earnings, good forecast, positive news from Nvidia
31:37
Speaker 3: with the paired concerns that everybody has about how it's
31:42
Speaker 3: going to be so successful that it's going to cause
31:46
Speaker 3: a bunch of people to be unemployed in industries to
31:48
Speaker 3: be disrupted. I continue to have a tough time with
31:51
Speaker 3: putting those two theories together.
31:53
Speaker 2: A couple things. The first is in Vidia still remains
31:55
Speaker 2: range bound. The stock has pretty much been between one
31:58
Speaker 2: hundred and seventy and two hundred bucks sh share since
32:01
Speaker 2: last August. So we're now eight months and the stock
32:05
Speaker 2: hasn't moved. I mean it's at one eighty one right now.
32:07
Speaker 2: It was at one eighty three on July thirty first,
32:10
Speaker 2: Ye stock has not moved in six months, yep. So
32:14
Speaker 2: I think ultimately it's something where What plagued in Vidia
32:19
Speaker 2: in that earnings release was one of the things they
32:22
Speaker 2: said was, hey, we've we've received, you know, indications that
32:27
Speaker 2: our twenty twenty seven revenue outlook is starting to firm up.
32:31
Speaker 2: But they couldn't give any specifics. And this is the
32:34
Speaker 2: whole question. It's not did people buy your products this quarter?
32:39
Speaker 2: It's not a people going to buy him next quarter.
32:41
Speaker 2: We know that they are the problem for Nvidia is
32:46
Speaker 2: no one is one hundred percent sure that these big Hyperscalers,
32:49
Speaker 2: the Microsofts, the open Ais, the Googles, the Amazons of
32:52
Speaker 2: the world. No one sure that they're gonna be able
32:55
Speaker 2: to maintain or accelerate their level of CAPEX through next
32:59
Speaker 2: year right now, and in video couldn't answer that.
33:03
Speaker 3: They also won't be at the front of driving it.
33:07
Speaker 3: They will be the recipient of that drive, but not
33:09
Speaker 3: the cause of it.
33:11
Speaker 2: And so the reason why the stock hasn't broken down
33:13
Speaker 2: further is because you can't like just be you can't
33:17
Speaker 2: just with one hundred percent certainly be like, yeah, that
33:19
Speaker 2: Kapex isn't gonna show up, right, because it could, and
33:22
Speaker 2: if it did, then you'd look dumb. But on the
33:25
Speaker 2: other hand, there's no indication yep, it's definitely going to
33:29
Speaker 2: be there. Remember the increases that we've seen in Capex
33:31
Speaker 2: for this year. There's a lot of theorizing out there
33:35
Speaker 2: that that's mostly because memory costs have gone exponential, and
33:40
Speaker 2: when you're building these these chips and these servers for
33:43
Speaker 2: AI purposes, there's a ton of memory that goes into them,
33:46
Speaker 2: and so it could just be increased memory cost as
33:48
Speaker 2: a huge chunk of it, and not more in Vidia
33:50
Speaker 2: chips being bought. Actually, so this is why for the
33:54
Speaker 2: last eight months now, in Video has just been treading water.
33:58
Speaker 2: It goes up a couple percent, it comes down a
34:00
Speaker 2: couple percent, it goes up a few percent, it comes
34:03
Speaker 2: down a few percent, and the earnings report, in my opinion,
34:07
Speaker 2: was just kind of the latest iteration of that.
34:10
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35:03
Speaker 1: The proceeding was paid for and the views expressed are
35:05
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35:11
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35:14
Speaker 2: Well I talk about buying cars, and specifically piece in
35:17
Speaker 2: the Wall Street Journal the obscure feed costing you more
35:21
Speaker 2: to buy a car. What they're talking about here are
35:23
Speaker 2: what are known as destination charges, which are supposed to
35:26
Speaker 2: be hey, here's how much it costs to get the
35:28
Speaker 2: car shipped to you, but in reality they're basically a
35:31
Speaker 2: flat fee no matter where you buy the car, anywhere
35:33
Speaker 2: in the country, and you can't get the dealer to
35:35
Speaker 2: waive the destination charge if you go to pick it up,
35:37
Speaker 2: because oh, you're already at the dealer and they've already
35:39
Speaker 2: taken delivery of it. So the reason why these are
35:43
Speaker 2: so bothersome to me is they're kind of like resort
35:46
Speaker 2: fees at a hotel sure where you're like, oh, hey,
35:50
Speaker 2: it's one hundred and sixty dollars a night to stay here. Great,
35:53
Speaker 2: and then you go to the checkout screen it's like, no,
35:56
Speaker 2: here's the thirty five dollars resort fee. Well, what does
35:58
Speaker 2: that get you? It gets you a complimentary bottle of
36:01
Speaker 2: water every day and use of new towels. And you're like, well, guys, like,
36:05
Speaker 2: what are we really doing here, Like what are we
36:07
Speaker 2: actually paying? And the problem is that dealers in the
36:10
Speaker 2: last couple of years have been increasing destination fees as
36:13
Speaker 2: a way to try to make it look like the
36:15
Speaker 2: price of the car isn't going up, but just tacking
36:18
Speaker 2: something on the same way that hotels have done with
36:20
Speaker 2: resort fees.
36:21
Speaker 3: Now, I will say, at least this is required to
36:24
Speaker 3: be on the windowsticker. I did checking it is federally
36:27
Speaker 3: required to be on the window sticker, so when you're
36:29
Speaker 3: buying that new car, it's there. But obviously when you
36:31
Speaker 3: are advertising during the Super Bowl, no, you do.
36:34
Speaker 4: Not need to have the delivery fee in the MSRP.
36:37
Speaker 2: So I gotta be honest. This is one of those cases,
36:40
Speaker 2: like unlike airlines, where you're like, oh, yes, I'd like
36:44
Speaker 2: to see this, you know, unbundled, because maybe I'm just
36:46
Speaker 2: using carryons, which, by the way, we can talk about
36:49
Speaker 2: whether or not you should actually have to pay for
36:50
Speaker 2: carryons or checked bags, but that's a separate story. Sure,
36:53
Speaker 2: the answer is you should have to pay for your
36:54
Speaker 2: carry on, but not for checked bags. We can get
36:58
Speaker 2: to that later. In any case, you can't unbundle this.
37:02
Speaker 2: You can't be like, no, I'm not gonna take like
37:05
Speaker 2: the destination charge. What what's the deal You're gonna do
37:07
Speaker 2: ship it back to the factory so you can pick
37:10
Speaker 2: it up there. No, Like, it's just not possible. Can
37:15
Speaker 2: we talk about the airline thing? Quickly, sure, chuck. Why
37:18
Speaker 2: should it be free to because every checked bag makes
37:21
Speaker 2: it longer to get on and off the airplane, and
37:23
Speaker 2: so it takes a whole bunch of time. If airlines
37:25
Speaker 2: really cared about I'm sorry, carry on, If airlines really
37:29
Speaker 2: cared about efficiency and actually wanted to maximize it, they
37:32
Speaker 2: would charge you for checked bags and let you stow
37:34
Speaker 2: your put your bags in the baggage section for free.
37:38
Speaker 4: What's the math behind that, though?
37:39
Speaker 3: Can't can't a flight sell that under the aircraft space
37:44
Speaker 3: for other goods? And so the more baggage they have,
37:46
Speaker 3: the less they can sell to other transportation.
37:49
Speaker 2: Probably, But this is why they don't actually charge efficiency.
37:52
Speaker 2: You know, if you really want to be efficient as possible,
37:55
Speaker 2: don't let people carry on bags.
37:56
Speaker 3: I'll tell you. We take a lot of time to
37:58
Speaker 3: get my three daughters there, little rolly suitcase.
38:01
Speaker 2: Oh yeah, it takes we dip shamming them through the
38:04
Speaker 2: I know it'll fit. It got into the thing outside
38:07
Speaker 2: the gate. So yeah. But if you really cared about
38:10
Speaker 2: efficiency and getting people on and off the plane quickly, yeah,
38:12
Speaker 2: you charge the heck out of bags that you carry on.
38:16
Speaker 4: Way to go, Spirit quick
38:17
Speaker 2: Break when we come back, we've got more financial exchange.