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Oil Disruptions Deepen, Supply Chains at Risk, and What Comes Next · The Financial Exchange Show

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Speaker 2: Chuck, Mike and Tucker with you as we kick off
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Speaker 2: a full week here. Unlike the shortened week last week,
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Speaker 2: which we've had equity markets closed on Friday and observance
1:22
Speaker 2: of the Good Friday holiday, we've got a full five
1:25
Speaker 2: day week set for action this week, including some economic
1:30
Speaker 2: data that we just got on ism services. We'll talk
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Speaker 2: about that as we go through the show Today. Tomorrow,
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Speaker 2: employment picture, as well as durable goods orders. On Wednesday,
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Speaker 2: nothing huge of note, but we do get FED meeting minutes,
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Speaker 2: which people like to look at, even though ninety nine
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Speaker 2: point nine percent of the time there's nothing in there
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Speaker 2: that's even remotely interesting. On Thursday, we've got weekly jobless
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Speaker 2: claims and the final estimate for Q four GDP. We're
2:03
Speaker 2: also going to be getting PCE Price Index data for
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Speaker 2: the month of February as we continue to get caught
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Speaker 2: up from the shutdown. I think this month will finally
2:14
Speaker 2: be pretty close to caught up by the end of
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Speaker 2: the month. Just I've seen yes, just in time for
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Speaker 2: another one, so I can't wait for that. And then
2:22
Speaker 2: on Friday, we get CPI data and consumer sentiment data
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Speaker 2: coming out, so some big data releases all of the
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Speaker 2: days this week, and and and and and Earning season
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Speaker 2: is also kicking off as well. This week is pretty quiet.
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Speaker 2: Next week is when the big banks roll out, but
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Speaker 2: we do get Delta reporting on Wednesday, which will be
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Speaker 2: interesting to hear what they have to say just in
2:45
Speaker 2: the context of fuel prices and if they're seeing any
2:47
Speaker 2: changes in demand to this point. But next week is
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Speaker 2: really when we kick things off, with the big banks
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Speaker 2: as well as Netflix, PEPSI Charles Schwab reporting next week,
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Speaker 2: so we're right into Q one earnings in the next
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Speaker 2: week or so, and so quite a bit that is
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Speaker 2: lined up on the calendar as we go through April.
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Speaker 2: And obviously what continues to be the top story driving
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Speaker 2: markets is the conflict in the Middle East, with now
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Speaker 2: an eight pm Tuesday deadline for well, I don't really
3:25
Speaker 2: know for some additional action by the US and Israel potentially,
3:29
Speaker 2: but well, the threat.
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Speaker 3: Is striking energy infrastructure.
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Speaker 2: So yes, the threat is striking energy infrastructure, which is
3:37
Speaker 2: interesting to me because over the last several days there
3:40
Speaker 2: has been, you know, some noticeable strikes on energy infrastructure
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Speaker 2: in Iran, which they've then responded by attacking facilities throughout
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Speaker 2: the region as well. So I'm this is why I'm
3:51
Speaker 2: trying to say, like maybe it would just be like
3:53
Speaker 2: a ramp up of that. But you know, just this
3:57
Speaker 2: morning you had more Israeli attacks on significant Iranian infrastructure
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Speaker 2: to begin with. Over the weekend you had a couple
4:04
Speaker 2: Iran responded by targeting production facilities in Kuwait as well
4:09
Speaker 2: as a desalinization plant in Kuwait. And so the conflict
4:14
Speaker 2: continues at this point. What we have seen. Remember one
4:17
Speaker 2: of the big things that kind of my, my, my,
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Speaker 2: you know, guiding principle in this is I'm not paying
4:23
Speaker 2: attention to what the two sides are saying, because it's
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Speaker 2: clear at this point that publicly both sides are positioning
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Speaker 2: public statements for domestic consumption. Which it's interesting, actually, I
4:37
Speaker 2: take that back. The Iranian side is not positioning their
4:41
Speaker 2: their public statements for domestic consumption because the internet's turned
4:45
Speaker 2: off in Iran right now. They are positioning it for
4:49
Speaker 2: international consumption in terms of hey, we're not you know,
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Speaker 2: accepting a deal until we get X, Y and Z.
4:54
Speaker 2: But it's also clear that there are some conversations happening
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Speaker 2: through intermediaries, you know, over the last few weeks, and
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Speaker 2: maybe those are more productive privately than what's being said publicly.
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Speaker 2: I don't know. But what we have been, you know,
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Speaker 2: focusing on here is, hey, what are the facts on
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Speaker 2: the ground. And number one, we have seen in the
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Speaker 2: last four or five days an uptick in the flow
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Speaker 2: of ships through horm moves. However, that uptick has been
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Speaker 2: from like three ships a day to eight to ten
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Speaker 2: ships a day, and pre war transit numbers were anywhere
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Speaker 2: from between one hundred and twenty to one hundred and
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Speaker 2: forty ships a day. So yes, like things might have
5:34
Speaker 2: you know, hey, like traveling you know through horm moose
5:37
Speaker 2: is improved by you know, two hundred percent in the
5:39
Speaker 2: last you know week. Well that's great, but it's still
5:42
Speaker 2: nowhere near where you need it to be. The other
5:45
Speaker 2: piece that's really important on this Remember it's not just transit.
5:48
Speaker 2: It's also what's happening from a production standpoint, And at
5:52
Speaker 2: this point, between the major producers in the Persian Gulf region,
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Speaker 2: what you have right now is around twelve and a
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Speaker 2: half million barrels of oil a day that are not
6:07
Speaker 2: being produced. The biggest countries in this in this range,
6:12
Speaker 2: Saudi Arabian a rock both with about three million barrels
6:15
Speaker 2: a day. A little bit north of that Kuwait with
6:18
Speaker 2: around two to two and a half million barrels a day,
6:21
Speaker 2: the UAE and Qatar with around two million barrels a day,
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Speaker 2: and that gets you up into that you know, twelve
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Speaker 2: and a half range. So remember it's it's one thing
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Speaker 2: to say, hey, like you know, Saudi Arabia has found
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Speaker 2: ways to divert you know, transit, you know, from using
6:35
Speaker 2: the East West pipeline in order to get stuff out
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Speaker 2: the Red Sea. That's great, but the actual shutting capacity
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Speaker 2: is still what it is. And so remember the world
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Speaker 2: was we had a slight surplus in oil before this.
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Speaker 2: You're still on a per day basis in terms of
6:52
Speaker 2: production run it somewhere around eleven million barrels of shortfall.
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Speaker 2: And so it's you know, something that is going to
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Speaker 2: continue to eat into stocks on water, on land now
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Speaker 2: and you're at the point where for countries that do
7:09
Speaker 2: not have meaningful levels of wealth, they're basically you know,
7:13
Speaker 2: running into real problems right now. The ones that are
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Speaker 2: wealthier and able to pay higher prices are now trying
7:20
Speaker 2: to pay higher prices. But even there, you're not gonna
7:22
Speaker 2: have enough oil to go fully around throughout Asia and
7:26
Speaker 2: Europe by the end of this week, and you're gonna
7:28
Speaker 2: have to start seeing the impacts in things like canceled
7:32
Speaker 2: flights at a higher level, canceled shipping, you know, routes
7:36
Speaker 2: and things like that. So this is the stuff that
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Speaker 2: we're going to see, and I know people are, you know,
7:42
Speaker 2: very much hoping that we get some kind of positive
7:44
Speaker 2: news out of these negotiations in the next forty eight
7:47
Speaker 2: hours here.
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Speaker 4: Yeah, a few of the items that I've you know,
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Speaker 4: seen and been tracking, just as we've been talking about
7:52
Speaker 4: real life implications of all this, because as a US
7:56
Speaker 4: based observer, you're not seeing a ton of other than
7:59
Speaker 4: the prices at the pump. So Air Asia X Malaysian
8:02
Speaker 4: Airline has raised prices by thirty one to forty percent,
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Speaker 4: as well as adding a twenty percent fuel surcharge.
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Speaker 3: I was surprised.
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Speaker 4: I figured when I heard an announcement from Malaysian Airline
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Speaker 4: it was going to be about its bankruptcy, not a
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Speaker 4: price increase. I would suspect that within the next few
8:17
Speaker 4: weeks here, depending on the situation, we do start seeing
8:20
Speaker 4: some bankruptcies in the airline space, specifically in Southeast Asia.
8:24
Speaker 4: But we will see the other big piece that we've
8:26
Speaker 4: been talking about, juck, that speaks to you know, wealthy
8:29
Speaker 4: versus poor nation and how they are you know, handling
8:32
Speaker 4: all this stuff. Go take a look at photos from
8:35
Speaker 4: major cities across the Philippines or Malaysia, and you know,
8:39
Speaker 4: traffic has basically ceased to exist there right, usually dominated
8:44
Speaker 4: by massive traffic flows, and there's just none at this
8:47
Speaker 4: point due to fuel rationing. Whereas Australia, on the other hand,
8:50
Speaker 4: much wealthier nation, has responded by cutting their gas tax
8:55
Speaker 4: pretty substantially at the federal level to make.
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Speaker 3: Fuel more affordable.
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Speaker 4: In those are going to have completely different impacts, and
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Speaker 4: you can see how, you know, one nation reacts one
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Speaker 4: way and another without such big reserves acts another way.
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Speaker 4: But yeah, we'll continue to see all this and I
9:10
Speaker 4: think we seem to be still a few weeks away
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Speaker 4: from noticeable disruptions here in the United States. And not
9:19
Speaker 4: to say, you know, depends what your definition is, right.
9:22
Speaker 4: I was talking at the dog park over the weekend
9:24
Speaker 4: with a friend of mine who had to cancel the
9:27
Speaker 4: trip to Israel that's a noticeable disruption. He can't go
9:30
Speaker 4: see such brother and their four kids. But what I'm
9:32
Speaker 4: talking about is supply chain disruptions, shortages, and you know,
9:38
Speaker 4: changes to domestic consumption. Because of these events, which I
9:41
Speaker 4: think largely you can say that we haven't really seen
9:44
Speaker 4: here domestically.
9:45
Speaker 2: No. And I think again, where we are going is
9:49
Speaker 2: if you take a look at national gas prices, triple
9:53
Speaker 2: a national average right now is at four eleven and
9:55
Speaker 2: nine tenths. The diesel average is five to sixty one
9:59
Speaker 2: and eight tenths. Diesel unless you get like again, if
10:03
Speaker 2: you get some kind of progress in the next two days,
10:05
Speaker 2: there's there's a potential for a reversal. But otherwise diesel
10:08
Speaker 2: looks pretty poised to be able to take out the
10:10
Speaker 2: all time high of five eighty one and six tenths
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Speaker 2: probably within the next I would say seven to ten
10:17
Speaker 2: days at the latest is kind of where we're going. Remember,
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Speaker 2: for regular gas, the all time highway it was five
10:24
Speaker 2: oh one and six tenths. That was back in June
10:27
Speaker 2: of twenty two, and we're nowhere near that night. I
10:30
Speaker 2: don't think we're heading there right now. But again, if
10:34
Speaker 2: if the status quo is maintained through Hormuz for the
10:38
Speaker 2: next you know, if we're still sitting here at the
10:40
Speaker 2: end of April, yes, you need to be buckling up
10:43
Speaker 2: for five dollars a gallon gas at that point, because
10:47
Speaker 2: the global problem becomes a US problem simply because what
10:51
Speaker 2: you end up with is other countries say, okay, we
10:54
Speaker 2: need to source barrels from anywhere we can get it. Great,
10:57
Speaker 2: We're gonna you know, try to go and buy you know,
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Speaker 2: US produced oil. The natural response then as well, let's
11:03
Speaker 2: you know, institute an export ban, which again we've talked
11:06
Speaker 2: about this before. If the US puts an export ban
11:09
Speaker 2: in place, then so does everyone else. And what happens
11:12
Speaker 2: then is you can't get the heavier cruds that you
11:15
Speaker 2: need in order to produce you know, more diesel and
11:18
Speaker 2: bunker fuel and stuff like that. And that means that
11:20
Speaker 2: you run into a problem where you have diesel and
11:23
Speaker 2: jet fuel shortages and things like that. That spot that,
11:26
Speaker 2: you know, crop up pretty quickly within a few weeks
11:29
Speaker 2: after implementing an export ban. So this is where we
11:33
Speaker 2: stand right now. You know, again, our view remains the
11:38
Speaker 2: same as it's been since day one on this. We
11:40
Speaker 2: don't know the exact status of negotiations. We do know
11:44
Speaker 2: that production has been cut significantly and shipping remains heavily disrupted,
11:48
Speaker 2: and until those change, it's tough to say that you
11:51
Speaker 2: have anything conclusive that you can say positively about where
11:55
Speaker 2: this is going for the economy. Markets are going to
11:57
Speaker 2: try to look through this. They might be right, they
11:59
Speaker 2: might not be. We don't know, and we're going to
12:01
Speaker 2: continue to watch and see how things develop, because that's
12:06
Speaker 2: the responsible thing to do. Let's take a quick break here.
12:09
Speaker 2: When we return, Let's see what do we have, Mike,
12:13
Speaker 2: we talk at electricity prices. Is that what I see?
12:16
Speaker 3: Yeah, let's go to electricity next.
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Speaker 2: Okay, I was wrong. We're not talking electricity prices. My
13:20
Speaker 2: stack was completely backwards, So forget about that. What are
13:24
Speaker 2: we talking about instead, Mike, Let's.
13:27
Speaker 4: Talk about this impact on Americans and just the timeline,
13:30
Speaker 4: because we did allude to it a little bit, but
13:35
Speaker 4: a few pieces about this one. It takes a good
13:39
Speaker 4: thirty five to forty five days to reach.
13:42
Speaker 3: US ports from the from the Straight and fore Moos, so.
13:45
Speaker 4: Anything that was flowing through there is just reaching US
13:49
Speaker 4: ports today. Most impacted by all of this, which we've
13:55
Speaker 4: always talked about California gas prices and why they are
13:58
Speaker 4: so incredibly high. But this piece talks about how California
14:04
Speaker 4: is physically isolated from the nation's fuel supply system, and
14:07
Speaker 4: I don't think I'd ever put that together. So one,
14:10
Speaker 4: just geographically, due to the Rockies, they don't have access
14:14
Speaker 4: to pipelines from other parts of the nation that refine fuel. Two,
14:18
Speaker 4: because of all of their strict environmental rules, they do
14:22
Speaker 4: not have a ton of domestic refining within the state
14:26
Speaker 4: of California and all sorts of restrictions about what types
14:28
Speaker 4: of fuel can be brought in. So pretty much everything
14:31
Speaker 4: that California consumes is brought in by tanker ship, which
14:35
Speaker 4: is why California gas prices, in addition to their massive taxes,
14:40
Speaker 4: are pretty consistently like a buck more. Where are we
14:43
Speaker 4: sitting now in terms of California buck higher than the
14:46
Speaker 4: national average?
14:47
Speaker 2: We're actually buck eighty more.
14:50
Speaker 4: A buck eighty more than the national average. Five ninety
14:53
Speaker 4: two is the California average right now, Kata, we're at
14:56
Speaker 4: what like four to eleven for eleven, yes, and so again.
15:00
Speaker 4: But this piece from the Washington Post goes through how
15:03
Speaker 4: those how those disruptions you know, from stuff moving from
15:07
Speaker 4: from the straight to the United States takes a long time.
15:10
Speaker 4: I don't actually think that that's what the disruption is
15:12
Speaker 4: we are worried about. And so when I'm focused on
15:16
Speaker 4: how are Americans going to feel the disruptions from the
15:18
Speaker 4: war in Iran, it's a a price jolt. But b
15:22
Speaker 4: it is what sort of stuff gets manufactured in the
15:26
Speaker 4: supply chain in Asia that is going to be all
15:29
Speaker 4: sorts of thrown off. And I don't think we honestly know.
15:32
Speaker 4: I was listening to a interview with Dan Ives. Is
15:36
Speaker 4: he web Bush Securities? Yes, and he was, you know,
15:40
Speaker 4: reporting from Asia or doing an interview from somewhere in
15:43
Speaker 4: Southeast Asia. He's all, you know, he does all sorts
15:46
Speaker 4: of tech analysis and very outspoken, you know, traditional bull
15:50
Speaker 4: on tech and really trying to study that supply chain
15:54
Speaker 4: for Okay, you know, we're trying to import all of
15:56
Speaker 4: these processors and components for the AI build out, and
16:00
Speaker 4: how could those things be disrupted by all this? And
16:03
Speaker 4: I don't feel as though we've gotten any sort of
16:06
Speaker 4: usable answer on that front because it is so uncertain
16:09
Speaker 4: in terms of when manufacturing plants are going to need
16:11
Speaker 4: to shut down or ration fuel or even be able
16:15
Speaker 4: to transport things across the sea.
16:16
Speaker 2: Yeah, it's Look, you don't know who's going to be
16:19
Speaker 2: able to pay more to get that marginal amount of fuel.
16:23
Speaker 2: That's the question is you know, Look, ultimately, if you
16:28
Speaker 2: want to talk like real potential worst case stuff for
16:32
Speaker 2: the US economy. If semiconductor factories in Taiwan cannot get
16:38
Speaker 2: the raw inputs they need and have to shut down,
16:42
Speaker 2: that's a big deal. If teddy Bear factories in Thailand
16:48
Speaker 2: can't get the raw inputs they need, it's kind of
16:51
Speaker 2: a bad Christmas. But like, it doesn't affect the US
16:54
Speaker 2: economy that much, it affects the Thai economy quite a bit.
16:57
Speaker 2: I'm not saying it doesn't. But it all depends on
17:01
Speaker 2: who can pay more for those inputs. Now, my gut
17:06
Speaker 2: tells me, and again my gut is worth next to
17:10
Speaker 2: nothing on this right, but I'm still gonna say it
17:14
Speaker 2: because we we've got a show. My gut tells me
17:19
Speaker 2: that because of what you see both in terms of
17:21
Speaker 2: the margins and dollar volume and everything else, that your
17:24
Speaker 2: semiconductor fabs are gonna be able to pay for that
17:26
Speaker 2: marginal supply of inputs that they need more than the
17:30
Speaker 2: teddy Bear factory. But one would think yeah, but it
17:35
Speaker 2: also might be, Hey, what if you get to a
17:37
Speaker 2: point where there's not enough for either like that? This
17:41
Speaker 2: is this is possible again, We're we're talking ten percent
17:45
Speaker 2: of world oil supply is not being produced now. North
17:48
Speaker 2: of that, like eleven to twelve percent is not being produced, right,
17:52
Speaker 2: that's a big number. You know. It's you can't just
17:56
Speaker 2: be like, well, make do with less. Well, no, like
17:59
Speaker 2: you can't just make do with less. Something has to
18:04
Speaker 2: change and that change is something not being produced because
18:08
Speaker 2: you can't just invent another ten percent global efficiency overnight.
18:15
Speaker 2: Doesn't work like that.
18:16
Speaker 3: Agreed.
18:17
Speaker 4: You want to talk about Jamie Diamond because is this
18:19
Speaker 4: guy about to go run for office?
18:22
Speaker 3: Like I know, not me too.
18:24
Speaker 4: I just everything that he's talking about, and he, you know,
18:28
Speaker 4: over the weekend, was talking about how, you know, the
18:31
Speaker 4: United States needs to refocus and how JP Morgan's going
18:34
Speaker 4: to you know, provide capital for these sorts of things.
18:38
Speaker 4: He's warning of higher inflation and interest rates in some ways,
18:41
Speaker 4: you know, maybe it's just I don't know, trying to
18:44
Speaker 4: fill the void of Warren Buffett in terms of these comments.
18:48
Speaker 3: But the more and more I see it, I just
18:51
Speaker 3: keep thinking like.
18:51
Speaker 4: These are not really the words of a major bank CEO,
18:55
Speaker 4: or at least it's not what I need to hear
18:57
Speaker 4: from a major bank ceo. Instead, it sounds like the
19:00
Speaker 4: guy who's trying to build publican census that hey, I'm
19:03
Speaker 4: the right guy to provide leadership.
19:05
Speaker 3: I don't know.
19:06
Speaker 2: Well, the good news is that Diamond turned seventy in
19:09
Speaker 2: March and so he's finally eligible to run for president, right,
19:12
Speaker 2: So like that's that's good news. The Right Age demo,
19:15
Speaker 2: you know, like it's it'd be like just just great,
19:18
Speaker 2: Like let's let's keep doing that. But I think ultimately, look,
19:22
Speaker 2: I think Diamond, for the last decade or so has
19:26
Speaker 2: tried to occupy a different sphere than other bank CEOs.
19:32
Speaker 2: I don't know that he's necessarily done anything to really
19:34
Speaker 2: move the needle, but I think he's trying to in
19:36
Speaker 2: some way. Let's take a quick break. Wall Street Watches next.
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20:01
Speaker 5: Markets in positive territory to begin the week, as Walsree
20:04
Speaker 5: reacts to President Trump's latest thread against Iran.
20:07
Speaker 2: If the straight up four.
20:07
Speaker 5: Moves isn't open by Tuesday, US and regional mediators are
20:11
Speaker 5: pushing for potential forty five day ceasefire. Traders will turn
20:16
Speaker 5: to President Trump's scheduled press conference at one o'clock this
20:19
Speaker 5: afternoon for more potential developments. Right now, Dow is up
20:23
Speaker 5: about a third of a percent, SMP five hundred, up
20:26
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20:29
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20:32
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20:39
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20:42
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20:46
Speaker 5: Bioscience is announced that agreement to acquire Seleno Therapeutics, which
20:49
Speaker 5: develops treatments of rare diseases, and a deal valued at
20:53
Speaker 5: about two point nine billion dollars. Seleno stock is surging
20:57
Speaker 5: thirty two percent higher. Meanwhile, Goldman Sachs upgraded streaming giant
21:01
Speaker 5: Netflix two buy from neutral, saying it says Netflix it
21:04
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21:07
Speaker 5: acquisition and development. Netflix up by nearly one percent. Sticking
21:12
Speaker 5: with the media sector, where The Wall Street Journal reported
21:14
Speaker 5: that paramount sky Sky Dance secured signed equity commitments of
21:19
Speaker 5: close to twenty four billion dollars from three sovereign well
21:22
Speaker 5: funds led by Saudi Arabia to help back its takeover
21:26
Speaker 5: of Warner Brothers. Discovery, paramount chairs rising by three percent,
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Speaker 5: and shares a meatpacker JBS climbing over one percent after
21:34
Speaker 5: its workers in Colorado agreed to end a three week strike.
21:39
Speaker 5: I'm Tucker Silva, and that is Wall Street.
21:41
Speaker 2: Watch Michael's talk a little bit about the Friday jobs
21:46
Speaker 2: report that we receive. We've now had the whole weekend
21:49
Speaker 2: to digest it, and we've got a piece from Klaudia
21:54
Speaker 2: Sam in Bloomberg Opinion. Klaudia, of course, is the creator
21:59
Speaker 2: of the the some rule that basically predicted, not predicted,
22:04
Speaker 2: but it was effectively a rule that for every recession
22:09
Speaker 2: in the twentieth century indicated concurrently when the US was
22:14
Speaker 2: slipping into recession. Thus far, the only false alarm that
22:18
Speaker 2: we've had was in was it twenty twenty four?
22:24
Speaker 3: No, it was.
22:25
Speaker 4: I believe it was summer of last year. Was when
22:28
Speaker 4: these No, it wasn't last year. I think it was
22:32
Speaker 4: twenty twenty four. It was not last year. Okay, So
22:37
Speaker 4: the only false alarm that we've had.
22:38
Speaker 2: I believe. Hang on now, I'm gonna pull it up
22:42
Speaker 2: just to make sure that I'm right. Give me just
22:43
Speaker 2: a moment, real time, So rule recession indicator. Here we go. Yes,
22:49
Speaker 2: it was August of twenty twenty four was the only
22:52
Speaker 2: false positive that we have had in history. And so
22:57
Speaker 2: ultimately what caught you know, lays out in this piece
23:02
Speaker 2: is that there still are concerns about the labor market
23:06
Speaker 2: that are out there, and just because you've had one
23:10
Speaker 2: good jobs report doesn't mean that those concerns are alleviated.
23:15
Speaker 4: Yeah, So taking a look at the first three months here, like,
23:18
Speaker 4: it hasn't been consistently good, but we've averaged sixty some
23:22
Speaker 4: odd thousand jobs created over the last three months. February
23:25
Speaker 4: was bad, January was better than expected, March was better
23:28
Speaker 4: than expected. We had one hundred and seventy eight thousand
23:30
Speaker 4: jobs created in the Friday report, with the unemployment rate
23:33
Speaker 4: declining to four point three percent. That's higher than the
23:37
Speaker 4: average creation for all of twenty twenty five. It's higher
23:40
Speaker 4: than the previous three months, and so I'm left, Look,
23:45
Speaker 4: there's always risks to the labor market. I think they
23:47
Speaker 4: are especially important right now, but I am left over
23:52
Speaker 4: the last three months kind of concluding that either we
23:55
Speaker 4: have some seasonal stuff going on here or we are
23:58
Speaker 4: seeing an improvement at least compared to the fourth quarter
24:00
Speaker 4: of last year.
24:02
Speaker 2: Let's not look at the last three months, Okay, let's
24:05
Speaker 2: look at the last six sure, bigger time frame, less
24:08
Speaker 2: room for like one month to skew things.
24:10
Speaker 3: Last six months is what ten thousand a.
24:11
Speaker 2: Month fifteen, which is again basically with what we have
24:18
Speaker 2: right now in terms of what we think labor force
24:22
Speaker 2: growth is, which is negligible yep. Fifteen is in the
24:26
Speaker 2: ballpark where you basically break even on the unemployment rate,
24:30
Speaker 2: meaning the unemployment rate probably doesn't go up and probably
24:33
Speaker 2: doesn't go down if you're adding fifteen thousand jobs a month.
24:37
Speaker 2: This is based on the fact that the labor markets
24:39
Speaker 2: supply has likely shrunk because of a combination of demographics,
24:44
Speaker 2: our population getting older and more boomers retiring than Gen
24:46
Speaker 2: Z is replacing them, and changes in immigration, where you
24:51
Speaker 2: have probably somewhere around net zero to slightly net negative
24:56
Speaker 2: immigration over the last twelve to fifteen months to changes
25:00
Speaker 2: in immigration policy, and so ultimately where you get to
25:05
Speaker 2: is if you look back six months ago, the unemployment
25:08
Speaker 2: rate was four point four I'm sorry, four point three
25:10
Speaker 2: percent in August. It's four point three percent now. And
25:14
Speaker 2: that's consistent with what I just described a labor market
25:18
Speaker 2: that has limited supply and not much room to grow.
25:22
Speaker 2: It's certainly not a good labor market for people that
25:26
Speaker 2: want to be hired right now. It's also one that
25:29
Speaker 2: has not seen any increased levels of firing despite all
25:32
Speaker 2: of the you know, noise about all like the Challenger
25:36
Speaker 2: job cuts this month, and it's just that's not showing
25:40
Speaker 2: up in any of the data. Job openings have slowed
25:45
Speaker 2: their pace of decline in the last six months as well.
25:49
Speaker 2: They're not really growing. August of twenty five, we had
25:52
Speaker 2: six point nine million job openings. Right now six point
25:55
Speaker 2: nine million job openings. Okay, like there's it's just a
26:00
Speaker 2: very stagnant labor market.
26:01
Speaker 3: Yeah, there's very little churn.
26:03
Speaker 4: It is not a labor market that is conducive to
26:05
Speaker 4: big increases in wages.
26:08
Speaker 2: It is.
26:09
Speaker 4: It's it's one that would be one or two bad
26:13
Speaker 4: news stories away from, you know, a real problematic labor market, because,
26:19
Speaker 4: as we've seen quite a bit recently, when those limited
26:23
Speaker 4: companies do go and cut headcount. Executives are being rewarded
26:27
Speaker 4: for it in the stock price. There's this underlying cover
26:33
Speaker 4: that they are getting in terms of AI washing the
26:36
Speaker 4: job cuts too. So I think there's a lot of
26:38
Speaker 4: incentive stacking up to cut headcount, and I think executives
26:43
Speaker 4: are I think they're not doing so right now because
26:45
Speaker 4: one they don't need to, and two they probably can't
26:50
Speaker 4: actually get all the productivity out of AI that they
26:52
Speaker 4: would want, and so it just just doesn't justify it.
26:55
Speaker 4: But you know, you get a big pullback and share
26:58
Speaker 4: price or other outside catalyst, and I think the you
27:02
Speaker 4: know plenty executives would would grasp at that pretty quickly
27:06
Speaker 4: to cut headcount or at least close job openings.
27:08
Speaker 2: Yeah. I think the big question that I have about
27:15
Speaker 2: this job's report again with how strong like it was
27:18
Speaker 2: on the headlines and everything like don't get me wrong,
27:20
Speaker 2: like this is not a bad report. The key data
27:24
Speaker 2: point that I like to look at is what's called
27:26
Speaker 2: aggregate weekly payrolls and specifically the year over year change,
27:30
Speaker 2: how much of payrolls grown and how much more are
27:32
Speaker 2: those people on payrolls getting paid than a year ago.
27:36
Speaker 2: That ultimately is I think a good proxy for driving
27:39
Speaker 2: consumer spending. And here's what we see is that year
27:43
Speaker 2: over year that declined to three point nine percent, and
27:47
Speaker 2: historically you start getting down into like the threes instead
27:51
Speaker 2: of in the four to five percent range, and it
27:53
Speaker 2: becomes concerning. We've bounced off this level a few times
27:56
Speaker 2: in the last year or two, but you want to
27:58
Speaker 2: stay north of four percent for aggregate payroll growth, the
28:01
Speaker 2: reason being, Okay, a couple percent is gonna get eaten
28:04
Speaker 2: up through inflation and then you've got a couple percentage
28:07
Speaker 2: points left over to drive real growth. So when you
28:10
Speaker 2: start getting you know, down into the threes, especially at
28:13
Speaker 2: a time when inflation is rising in the short term
28:16
Speaker 2: because of the Middle East situation, that gets a little
28:19
Speaker 2: dangerous in terms of where Q two GDP potentially goes
28:23
Speaker 2: and what it means here. Does it mean you're you know,
28:26
Speaker 2: definitively heading into like a problem. No, Like, again, we've
28:29
Speaker 2: bounced along this level a few times, so let's watch
28:32
Speaker 2: it and see what happens. And I think that that's
28:33
Speaker 2: a reasonable take, but it is something that I do
28:37
Speaker 2: think that you have to pay attention to. The other
28:39
Speaker 2: piece that I'll note on this is again one data
28:44
Speaker 2: point is is just one data point. I know that
28:47
Speaker 2: Yogi Barra famously said that, but hear me out for
28:50
Speaker 2: a second. You want to look for multiple data points
28:52
Speaker 2: and see, you know, in the same neighborhood, and see
28:56
Speaker 2: if they're telling you the same story. And when we
28:59
Speaker 2: look at some of the other data points surrounding payroll growth,
29:05
Speaker 2: what we get is something that is pretty similar, which
29:09
Speaker 2: is Hey, one of the concerns that we had heading
29:12
Speaker 2: into your end was what was going on with payroll
29:16
Speaker 2: tax withholding, because it's one thing to look at, like
29:19
Speaker 2: the actual you know, it's one thing to look at
29:22
Speaker 2: the jobs report, which is a survey the payroll tax
29:25
Speaker 2: data is telling you how much money companies are paying
29:29
Speaker 2: into Social Security based on their payrolls on a monthly basis.
29:33
Speaker 2: And so this is one where at the end of
29:37
Speaker 2: the year we are seeing a significant deceleration heading into
29:42
Speaker 2: year end, and we were like, oh, is there a
29:43
Speaker 2: problem here. The first three months of this year have
29:47
Speaker 2: not really shown a continuation. And this meshes with what
29:51
Speaker 2: we've seen from weekly unemployment claims, it meshes with what
29:54
Speaker 2: we have seen from the Job's report, it meshes with
29:57
Speaker 2: what we've seen from job openings, and so I think
30:00
Speaker 2: my view by and large is, yes, there was a
30:04
Speaker 2: deceleration in the labor market happening in the second half
30:06
Speaker 2: of last year. For the first three months of this year,
30:10
Speaker 2: it's abated. It doesn't mean that the job market has
30:12
Speaker 2: gotten better. It's just not worsening anymore. Sure, And I
30:16
Speaker 2: think that's fair in terms of, hey, it's it's not
30:19
Speaker 2: the end of the world. It's not great, but it's fine,
30:22
Speaker 2: and fine is okay most of the time here? Yeah, yeah, yeah,
30:29
Speaker 2: you know, like we don't have to be jumping up
30:31
Speaker 2: and down saying this is the best of the worst
30:32
Speaker 2: all the time. Sometimes you can just be like, yep,
30:35
Speaker 2: we're mouddeling through when we're gonna do the best we can.
30:37
Speaker 3: Mm hmm yeah. Kind of bigger threats elsewhere.
30:40
Speaker 2: It's kind of where the labor market is right now.
30:42
Speaker 2: As you said, that can turn on a dime if
30:44
Speaker 2: things get gnarly elsewhere. But for now, labor markets showing
30:48
Speaker 2: some stability the last few months, which is welcome after
30:51
Speaker 2: some concerns in the second half of last year. Let's
30:54
Speaker 2: take a quick break here. When we return.
30:57
Speaker 3: Now, I want to talk about electricity.
30:59
Speaker 4: You do do, Yeah, let's talk Electricity in Massachusetts, Okay
31:02
Speaker 4: and elsewhere next.
31:04
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31:26
Speaker 6: Network, piece of the Boston Globe.
31:38
Speaker 2: Here in Massachusetts has the highest electricity bills in the
31:41
Speaker 2: continental the United States, with some ratepayers pay noticeably less.
31:44
Speaker 2: Who are those people, Michael?
31:46
Speaker 3: Anybody with a municipal light plant?
31:47
Speaker 4: It appears what Yeah, So if your town runs its
31:52
Speaker 4: own electricity like many of them. West Boylston has its
31:56
Speaker 4: own municipal light department, does they buy the electric city
32:00
Speaker 4: directly from some local power plants? They're only responsible for
32:03
Speaker 4: the infrastructure in that town. Wellesley is another one that
32:07
Speaker 4: has noticeably lower rates. I think they charge fifteen cents
32:10
Speaker 4: of kilowatt hour and we're up near twenty plus.
32:13
Speaker 3: Cents at ever source the okay, so one.
32:18
Speaker 4: There's the bigger problem here of Massachusetts having the highest
32:22
Speaker 4: electricity costs in the country, and I want to focus
32:24
Speaker 4: on why that is. But then I do want to
32:27
Speaker 4: talk about why these municipal light plants are so much cheaper,
32:31
Speaker 4: because some of the reasons make sense to me. You know,
32:34
Speaker 4: for instance, if you are running a non for profit
32:38
Speaker 4: compared to buying your electricity from a for profit entity,
32:40
Speaker 4: there's some percentage of profit that doesn't need to be
32:43
Speaker 4: made at the local level, so that parts doable for me.
32:46
Speaker 4: But they make this argument that municipal utilities are a
32:50
Speaker 4: fraction the size of their for profit counterparts, and so
32:53
Speaker 4: it's just easier and less expensive to maintain the heavy
32:56
Speaker 4: infrastructure over a smaller territory, to which I say, are
33:00
Speaker 4: you telling me that utility companies are the only entity
33:05
Speaker 4: in the world that has the economies of scale reverse?
33:11
Speaker 4: No worse than that reverse economies of scale. The smaller
33:14
Speaker 4: you are, the cheaper it is for you to maintain
33:15
Speaker 4: that because I find that hard to believe.
33:17
Speaker 2: If that's the case, I should just put a power
33:19
Speaker 2: plant in my house.
33:20
Speaker 4: Correct, Yeah, I think you might be able to say that, Hey,
33:23
Speaker 4: if you run a municipal light plant in Wellesley, you
33:26
Speaker 4: probably have far fewer customers that need subsidized electricity. You
33:30
Speaker 4: probably have far fewer customers that refuse to pay their
33:33
Speaker 4: bill or fail to pay their bill, and maybe you
33:36
Speaker 4: get lucky for a longer period of time without damaged
33:38
Speaker 4: infrastructure from a major storm. But I'm not quite willing
33:43
Speaker 4: to believe that because you're smaller it makes you better
33:47
Speaker 4: at delivering electricity?
33:50
Speaker 3: Is that am I? Am I focusing on the wrong
33:53
Speaker 3: thing here? Because that just made no sense to me.
33:55
Speaker 4: That argument, like how on earth would Wellesley Municipal Light
33:59
Speaker 4: or West Oroylston Municipal Electricity Company have better cost structures
34:05
Speaker 4: than ever source?
34:07
Speaker 3: Doesn't make sense.
34:09
Speaker 2: It's also I suspect I suspect that when you look
34:16
Speaker 2: at a lot of these a lot of these local municipalities,
34:19
Speaker 2: they set these things up recently. The big thing, they
34:23
Speaker 2: probably just don't have a lot of the legacy costs
34:25
Speaker 2: that are out there right now, sure, which they eventually will.
34:29
Speaker 2: Like think about if if you're a municipal employee, usually
34:32
Speaker 2: you get a pension, correct, yep. But if your you know,
34:36
Speaker 2: municipality just started these systems and you know, the last
34:40
Speaker 2: you know, ten fifteen years or whatever, it might be, well, okay,
34:43
Speaker 2: like you don't have the same long term liabilities that
34:47
Speaker 2: ever source does or that National grid does. So I
34:51
Speaker 2: don't know, I don't know what's going on here, but
34:54
Speaker 2: as you said, it's not something where like there's a
34:57
Speaker 2: reason why every town generally doesn't have it own power plants,
35:01
Speaker 2: and it's because it's generally been found to be less
35:04
Speaker 2: efficient to do it that way.
35:05
Speaker 4: But bigger picture here, Massachusetts has the highest electricity costs
35:10
Speaker 4: in the nation. Yes, no, no, no, Hawaii, yes, okay,
35:15
Speaker 4: so continental US then fair enough. What is the excuse there?
35:21
Speaker 4: I mean, I know, pipelines, so we refuse to let
35:23
Speaker 4: gas into the New England region. Beyond that, is it
35:28
Speaker 4: just that Massachusetts is an incredibly expensive place to live
35:31
Speaker 4: no matter what, and so compensating the employees that work
35:33
Speaker 4: on the lines and everything else is just going to
35:35
Speaker 4: add up. Is there any way around this other than
35:40
Speaker 4: seemingly the only way around the high electricity costs is
35:43
Speaker 4: allowing the pipelines into the New England region, which we
35:46
Speaker 4: have just for generations been unwilling to do.
35:49
Speaker 2: Yes, we would rather ship it through a very dangerous
35:52
Speaker 2: ship that has to come into Boston Harbor escorted by helicopters.
35:56
Speaker 2: Because that sounds yeah, just lovely. That's the biggest thing
36:01
Speaker 2: it's you can talk all you want about, you know,
36:04
Speaker 2: cost of living in this and that ultimately what it
36:07
Speaker 2: boils down to is we don't allow the fuel to
36:11
Speaker 2: get into the region in the cheapest way possible.
36:16
Speaker 4: I still, you know, for all the New Englanders listening
36:19
Speaker 4: right now, and just how normalized it is to have
36:22
Speaker 4: the oil tank in your basement that a truck comes
36:24
Speaker 4: to fill up every once in a while.
36:27
Speaker 3: Explaining that to.
36:28
Speaker 4: Family from other parts of the country is so very
36:32
Speaker 4: entertaining for me. And if you haven't had the experience,
36:35
Speaker 4: you really should just sit down with somebody from like
36:38
Speaker 4: Texas or Arizona and explain to them that you have
36:41
Speaker 4: a giant oil tank in your basement with a nice,
36:44
Speaker 4: friendly man who comes with his truck and fills it
36:48
Speaker 4: up by pumping it into it like it's a big
36:50
Speaker 4: gas tank, you know, every few months. It is such
36:53
Speaker 4: a foreign concept to people outside of well outside of
36:58
Speaker 4: those who have owned a home and even innother parts
37:01
Speaker 4: of the country. This was common fifty sixty years ago,
37:03
Speaker 4: but for the last thirty it's a complete foreign concept.
37:06
Speaker 4: So go find like a thirty five year old homeowner
37:09
Speaker 4: in Phoenix, Arizona, explain this to them, and it's pretty
37:13
Speaker 4: tough to even fathom for them.
37:15
Speaker 2: Yeah, it's and again, look, it's not because electric heat
37:20
Speaker 2: is inefficient. It's just because electricity is so expensive in
37:23
Speaker 2: the region, and it has been for so long that
37:26
Speaker 2: there's like the cost benefits just didn't make sense. And
37:31
Speaker 2: that's unfortunately how it continues to be right now. If
37:34
Speaker 2: you look at the situation at hand, it's just New England.
37:38
Speaker 2: It's not just a Massachusetts think it's off New England.
37:40
Speaker 2: You know, Rhode Island is one cent cheaper, Main is
37:43
Speaker 2: half a half a cent cheaper. Connecticut's a few cents cheaper.
37:48
Speaker 2: But the New England region, when you look at it
37:50
Speaker 2: in a regional breakdown, New England pays around twenty nine
37:53
Speaker 2: cents per kill a white hour. Mid Atlantic is twenty three. East,
37:57
Speaker 2: North Central is seventeen, or Central this is midwest, but
38:01
Speaker 2: this South Eia classifies as twelve. South Atlantic's fifteen East
38:05
Speaker 2: South Central fourteen, West South Central fourteen, Mountain fourteen, Pacific
38:10
Speaker 2: twenty three. Even in California it's cheaper wild. So yeah,
38:14
Speaker 2: it's guys like, do better. We gotta do better on this.
38:18
Speaker 2: Let's take a quick break and then we're gonna do
38:20
Speaker 2: better an hour two soon.