Latest / The Financial Exchange Show / Energy Shock: Is This the Breaking Point for the Global Economy?

Transcript

Energy Shock: Is This the Breaking Point for the Global Economy? · The Financial Exchange Show

0:00
Speaker 1: The Financial Exchange is produced by Money Matters Radio and
0:03
Speaker 1: is hosted by employees of the Armstrong Advisory Group, a
0:05
Speaker 1: registered investment advisor. All opinions expressed are solely those of
0:08
Speaker 1: the hosts. Do not reflect the opinions of Armstrong Advisory
0:11
Speaker 1: or anyone else. Investments can lose money. This program does
0:14
Speaker 1: not offer any specific financial or investment advice. Please consult
0:17
Speaker 1: your own financial, tax, and estate planning advisors before making
0:20
Speaker 1: any investment decisions. Armstrong Advisory and the advertisers heard on
0:23
Speaker 1: this program do not endorse each other or their services.
0:26
Speaker 1: Armstrong and Money Matters Radio do not compensate each other
0:28
Speaker 1: for referrals and are not affiliated. This is the Financial
0:34
Speaker 1: Exchange with Chuck Zada and Mike Armstrong, your exclusive look
0:39
Speaker 1: at business and financial news affecting your day, your city,
0:42
Speaker 1: your world. Stay informed and up to date about economic
0:46
Speaker 1: and market trends plus breaking business news every day. The
0:50
Speaker 1: Financial Exchange is a proud partner of the Disabled American
0:53
Speaker 1: Veterans Department of Massachusetts. Help us support our great American
0:57
Speaker 1: heroes by visiting DAV five k DoD Boston and making
1:01
Speaker 1: a donation today. This is the Financial Exchange with Chuck
1:05
Speaker 1: Zada and Mike Armstrow.
1:09
Speaker 2: Chuck, Mike and Tucker with you here. And as we
1:16
Speaker 2: get closer to the end of the week, the U
1:21
Speaker 2: quite honestly, the only topic that really matters at this
1:23
Speaker 2: point is the situation in the Middle East. It is
1:29
Speaker 2: the only thing that is going to be important to
1:32
Speaker 2: the world economy, probably for the next six to eighteen months,
1:39
Speaker 2: depending on you know, how long it takes to get
1:41
Speaker 2: a resolution here. And I don't mean that the conflict
1:43
Speaker 2: will last that long. I mean the economic impacts at
1:46
Speaker 2: a minimum are going to last that long, with some
1:49
Speaker 2: of them stretching longer. And yesterday was a day where
1:54
Speaker 2: we're now starting to get into some of the very.
2:00
Speaker 3: Ugly things from a.
2:05
Speaker 2: From a commodity production perspective, that are likely to change
2:11
Speaker 2: the way the world works if they continue in any fashion.
2:15
Speaker 2: And what I mean by this is look for a
2:20
Speaker 2: certain period of this conflict, you were able to sit
2:24
Speaker 2: back and say, hey, like, it's not great that this
2:27
Speaker 2: is going on in the Middle East, but there's a
2:30
Speaker 2: path to things returning back to normal in pretty short
2:34
Speaker 2: order once things are wrapped up. We've now passed that point,
2:38
Speaker 2: both in terms of the duration of this conflict. Tomorrow
2:41
Speaker 2: will be three weeks on the nose, and also in
2:44
Speaker 2: terms of you know, what's happening and what I mean
2:46
Speaker 2: by what's happening. So yesterday we talked about this a
2:50
Speaker 2: little bit on the show. But in the middle of
2:53
Speaker 2: the Persian Gulf there is a giant gas field. It's
2:57
Speaker 2: called the South pars Field, or at least the portion
3:00
Speaker 2: that is in Iranian waters is called the South pars Field.
3:03
Speaker 2: The portion that is in Katari waters is called the
3:06
Speaker 2: North Dome Field. It's the biggest gas field on the planet.
3:10
Speaker 2: And and some of the estimates out there, and these
3:11
Speaker 2: are not you know, the the estimates of like you
3:14
Speaker 2: know idiots, these are like estimates of like actual energy,
3:17
Speaker 2: like companies that have joledged at it. They like, the
3:20
Speaker 2: estimates are that it may be bigger than every other
3:22
Speaker 2: gas field on the planet combined.
3:25
Speaker 3: Okay, sounds bad, So it's it's it's that big.
3:28
Speaker 2: And basically, this is how Katar has amassed a significant
3:32
Speaker 2: amount of wealth over the last twenty years, is through
3:35
Speaker 2: building up a bunch of LNG export facilities and then
3:42
Speaker 2: basically like starting to export huge amounts of LNG and
3:46
Speaker 2: you know, other things that are produced from that gas field.
3:51
Speaker 2: And yesterday Israeli forces attacked Iranian facilities processing gas out
3:58
Speaker 2: of the South Pars field. They damaged again, we don't
4:01
Speaker 2: know exactly what because you know, we don't exactly get
4:05
Speaker 2: reliable reports from like the region, just for you know,
4:08
Speaker 2: obvious reasons. So take everything that's said with, you know,
4:11
Speaker 2: kind of a grain of salt. But Iran said that
4:13
Speaker 2: they had to take it. It's like a twenty phase
4:16
Speaker 2: plant that they have. Iran said they had to take
4:19
Speaker 2: several phases of their their processing facilities offline. Iran also
4:23
Speaker 2: then indicated, hey, we're going to respond in kind with
4:26
Speaker 2: you know, attacks on targets X, Y and Z, which
4:29
Speaker 2: they did. And one of the facilities that they attacked
4:34
Speaker 2: is what's known as Raslafen Industrial City, which is a
4:38
Speaker 2: Katari city that is right on kind of the northeast
4:43
Speaker 2: coast of Qatar, about fifty miles north of Doha, and
4:48
Speaker 2: it is their main site for production of LNG and
4:52
Speaker 2: gas to liquid products from the North Dome field. And
4:59
Speaker 2: this morning, the Quitar Energy CEO gave a number of
5:02
Speaker 2: interviews and one of them was to Reuter's and I'm
5:05
Speaker 2: going to quote here from what came across my screen.
5:10
Speaker 2: Two out of our fourteen LNG trains. An LNG train,
5:13
Speaker 2: it's not like actually a train, it's just the terminology
5:16
Speaker 2: used for the production line for making LNG out of
5:21
Speaker 2: that gas that comes out of a gas field. Two
5:24
Speaker 2: of our fourteen LNG trains and one out of our
5:27
Speaker 2: two gas to liquid facilities GTL we're damaged in the attacks.
5:31
Speaker 2: We'll be losing twelve point eight million tons per year
5:34
Speaker 2: of LNG for three to five years, around seventeen percent
5:37
Speaker 2: of Katar's export of LNG. We may have to declare
5:40
Speaker 2: force majure on long term contracts for up to five
5:43
Speaker 2: years for LNG supplies to Italy, Belgium, Korea and China.
5:48
Speaker 2: And again take some of this with a grain of salt,
5:50
Speaker 2: but basically like the stuff that we've talked about. Look,
5:53
Speaker 2: if you actually have attacks on LNG facilities, an LNG facility,
5:57
Speaker 2: the going rate for building one is anywhere from eight
6:00
Speaker 2: to fifteen billion dollars and they do take three to
6:02
Speaker 2: five years to build. So if the Iranian ballistic missile
6:05
Speaker 2: attacks did damage one of these in this fashion, this
6:08
Speaker 2: is not hyperbole in any way, shape or form like
6:11
Speaker 2: this is actually what you're looking at with this facility,
6:15
Speaker 2: and to give you a perspective of the scale. If
6:17
Speaker 2: this number is accurate, seventeen percent of Qatar's LNG capacity,
6:21
Speaker 2: That is three percent of the world's LNG capacity that
6:24
Speaker 2: just got taken off line in a single day for
6:26
Speaker 2: the next three to five years.
6:27
Speaker 4: Right, That's what I was gonna say. The scale of
6:29
Speaker 4: this Katar for those familiar, I think they supply about
6:31
Speaker 4: one fifth of the world's liquefied natural gas.
6:34
Speaker 3: Is that yes? About right?
6:35
Speaker 2: Yes, So this is about three percent of the world's
6:38
Speaker 2: LNG supply that just got wiped out for the next
6:41
Speaker 2: three to five years.
6:42
Speaker 3: If this is accurate.
6:43
Speaker 2: And the Qatar Energy CEO again he has, you know,
6:47
Speaker 2: some incentives to like try to put pressure on, you know,
6:49
Speaker 2: everyone to end this.
6:50
Speaker 3: But I don't think he's entirely making this up either.
6:54
Speaker 4: So the I think one of the underappreciated things right
6:57
Speaker 4: now for the everyday American is the effects that energy
7:02
Speaker 4: shortages are already having around the globe and then what
7:05
Speaker 4: they could have. What we've been talking about, Yeah, I know,
7:10
Speaker 4: we get into the weeds on some of the stuff
7:12
Speaker 4: because it is important, but I want to go and
7:14
Speaker 4: talk through like some of the countries that are largely
7:17
Speaker 4: poor Asian countries that are already experiencing shutdowns that are
7:22
Speaker 4: kind of reminding me of COVID. So in Pakistan, which
7:26
Speaker 4: you know, energy short is not the only problem in
7:28
Speaker 4: Pakistan at the moment, but they've implemented a four day
7:31
Speaker 4: work week for all government employees. They've closed schools for
7:34
Speaker 4: two weeks to conserve energy. Bangladesh universities have closed. Their
7:41
Speaker 4: gas rationing is in effect and about three quarters of
7:44
Speaker 4: their LNG imports are currently blocked. In Vietnam, they government
7:49
Speaker 4: has urged citizens to work from home in order to
7:51
Speaker 4: reduce the powerload on the grid. And you know, India
7:55
Speaker 4: hasn't quite gotten to these levels because they do have
7:58
Speaker 4: some strategic reserves much but they do have some, but
8:02
Speaker 4: they've been you know, basically prioritizing electricity generation over other
8:08
Speaker 4: things such as cremations, in order to prioritize power plants.
8:13
Speaker 3: This is with three weeks of.
8:15
Speaker 4: Disruption, right Remember this is not including what just happened yesterday.
8:19
Speaker 2: No, remember the ships that came out of Hormuz three
8:22
Speaker 2: weeks ago. The last ones are getting to Asia right now.
8:27
Speaker 3: So there's been no actual disruption to their supplies.
8:31
Speaker 2: Really yet well, even though you are seeing like Japan
8:35
Speaker 2: is saying that they don't have enough diesel, and this
8:38
Speaker 2: is the problem is it's not the crude side where
8:40
Speaker 2: you're seeing the acute shortages. The shortages are first showing
8:44
Speaker 2: up on the refined product side in terms of diesel,
8:49
Speaker 2: bunker fuel, jet fuel. Like I gotta tell you, if
8:53
Speaker 2: you are planning international travel for the second half of
8:55
Speaker 2: this year, go in with the expectation that you might
8:59
Speaker 2: not be able to get home, and you think you
9:00
Speaker 2: will because international travel if this continues for any extended period,
9:06
Speaker 2: there is not going to be enough jet fuel throughout
9:09
Speaker 2: the entire world to be able to supply it. Again,
9:11
Speaker 2: I'm not talking about domestically like this. This is different.
9:14
Speaker 2: But these are the things we're talking about. Remember, like,
9:17
Speaker 2: think about the context this way. The world used about
9:19
Speaker 2: one hundred million barrels of oil a day, the US
9:21
Speaker 2: uses twenty. The US is going to be able to
9:24
Speaker 2: figure out how to get its twenty million barrels a
9:25
Speaker 2: day no matter what we can afford to, which means
9:30
Speaker 2: the other eighty million barrels of demand. Now you're talking
9:33
Speaker 2: about again even accounting for Saudi Arabia re routing some
9:37
Speaker 2: distribution to its Red Sea facilities, which also were damaged
9:41
Speaker 2: in a taxi yesterday. And remember the Huthies have not
9:44
Speaker 2: yet really done anything. They're still kind of just waiting
9:46
Speaker 2: in the weeds for you know, who knows what. But
9:49
Speaker 2: we'll see what happens to the Red Sea at some point.
9:53
Speaker 2: Even with the Saudis rerouting supplies that way, and even
9:56
Speaker 2: with the spr releases that you're going to be seeing,
10:00
Speaker 2: you're still running about a ten million barrel a day deficit,
10:03
Speaker 2: which you do the math, and that is about twelve
10:05
Speaker 2: and a half percent of the rest of the world's
10:07
Speaker 2: oil supply that is just missing. It's just not there.
10:11
Speaker 2: And remember this is just oil nat gas. You're talking
10:14
Speaker 2: about twenty percent of the world's LNG supply that is
10:18
Speaker 2: just gone. Fertilizer, you're talking about thirty percent of your
10:22
Speaker 2: rea supplies. Aluminum anyone buy a car, anyone by beer, anyone,
10:28
Speaker 2: by just about anything that's manufactured these days, ten percent
10:33
Speaker 2: of the world's aluminum comes through the straight up four moves.
10:35
Speaker 2: You might be like, why is that the case, The
10:37
Speaker 2: reason why, the reason why you build like aluminum smelters
10:41
Speaker 2: and stuff in the Middle East. It's really cheap to
10:44
Speaker 2: get the electricity to power them, and so it's actually
10:47
Speaker 2: cheaper to ship the stuff from other places to the
10:50
Speaker 2: Middle East and then out to where you need it
10:52
Speaker 2: than to smelt it in the US or in Europe
10:55
Speaker 2: or wherever it might be. So the follow on effects
11:00
Speaker 2: and when you when you go down the logical path
11:02
Speaker 2: of where this goes, you're talking about shortages throughout Southeast
11:06
Speaker 2: Asia four energy to the point where again like I
11:10
Speaker 2: think Southeast Asian airlines you could absolutely see bankruptcies this year.
11:16
Speaker 2: I think shipping companies might not be able to have
11:20
Speaker 2: enough bunker fuel to make all of the shipping runs
11:22
Speaker 2: they want to, which the interesting question then is what
11:25
Speaker 2: gets on the ships?
11:26
Speaker 3: Well, I mean, you know, like every every part of
11:29
Speaker 3: the supply chain.
11:30
Speaker 4: If you don't have the power to run your manufacturing facility,
11:32
Speaker 4: then you're not terribly worried about what gets onto the.
11:34
Speaker 2: Ship, correct, I mean, like you want to talk semiconductors,
11:38
Speaker 2: helium supply. The Middle East is a huge supplier of helium,
11:42
Speaker 2: and you need helium. I don't I don't know why,
11:44
Speaker 2: Like this is even like I don't know why you
11:47
Speaker 2: need helium to make semiconductors. All I know is that
11:49
Speaker 2: you do. And you can't just be like, well, throw
11:52
Speaker 2: a little hydrogen in there and see how it goes. No,
11:54
Speaker 2: I think they would have tried that before, you know,
11:57
Speaker 2: resorting to helium. So I don't know, like if there's
12:00
Speaker 2: like a balloon that you blow up or something like that,
12:02
Speaker 2: I it's probably not.
12:03
Speaker 3: Everybody just likes talking in really funny voices, Daran, Right.
12:06
Speaker 2: Whenever you're in the semiconductor fab you need to sound
12:08
Speaker 2: like a chipmunk, obviously. But like, these are things that
12:12
Speaker 2: the longer this goes on, the bigger the disruptions are
12:14
Speaker 2: going to be. And you're not I know this sounds
12:17
Speaker 2: like you know, yogi berra, but you're not gonna.
12:19
Speaker 3: Feel it until you feel it.
12:21
Speaker 2: But you can't print helium, like the Federal Reserve can't
12:25
Speaker 2: print aluminum. You know, the Treasury can't go and you know,
12:31
Speaker 2: start a program to issue more LNG. And so this
12:37
Speaker 2: is something where every day this goes on, the problem
12:40
Speaker 2: is going to build in the backs until finally something
12:43
Speaker 2: breaks in an associated industry. And I'll give you an
12:45
Speaker 2: example that we heard yesterday Dow Chemical, big US chemical company.
12:51
Speaker 2: The CEO came out yesterday and said, we only have
12:54
Speaker 2: fifty percent of the polyethylene supply that we need. You
13:00
Speaker 2: got what, Yeah, only fifty percent of the polyethylene supply
13:04
Speaker 2: that we need right now we can't source it. Otherwise,
13:06
Speaker 2: It's not prices are going up, it's we can only
13:08
Speaker 2: source half of it. This is is going to, you know,
13:14
Speaker 2: make its way through different industries in the coming weeks,
13:17
Speaker 2: and we'll see how the you know what the specific
13:21
Speaker 2: impacts are, because I I can't get there in terms
13:24
Speaker 2: of you know exactly how it's going to play out.
13:26
Speaker 2: But when the CEOs of major companies are saying, hey,
13:29
Speaker 2: we only have access to fifty percent of the supply
13:32
Speaker 2: of a key input we need, it perks up my
13:34
Speaker 2: ears a bit. Let's take a quick break. When we return,
13:40
Speaker 2: let's see da da da da da. Okay, Well we'll
13:43
Speaker 2: bite on this one the Wall Street Journal. Will high
13:46
Speaker 2: oil prices cause a recession in the US. We'll discuss
13:49
Speaker 2: after this.
13:49
Speaker 1: The Financial Exchange streams every day live on YouTube. Subscribe
13:53
Speaker 1: to our page and follow the markets all morning loans
13:56
Speaker 1: only here on the Financial Exchange Radio Network. Daily financial
14:01
Speaker 1: content in your feed when you want it. Follow the
14:03
Speaker 1: Financial exchange on Instagram. Face is the financial exchange?
14:17
Speaker 3: All right? We got a piece of the Wall Street Journal.
14:21
Speaker 2: It's titled economists don't see a recession unless oil hits
14:24
Speaker 2: one hundred and thirty eight dollars a barrel and stays
14:27
Speaker 2: there for weeks.
14:30
Speaker 3: So here's the line in the sand there, chuck it is.
14:35
Speaker 2: I mean, look, I give them credit for at least
14:38
Speaker 2: saying yes, like here's and again, like to be fair,
14:41
Speaker 2: I'll quote here. Uh, economists put the probability of recession
14:44
Speaker 2: in the next twelve months at thirty two percent, up
14:46
Speaker 2: modestly from twenty seven percent in January. The actual percentages
14:50
Speaker 2: we've discussed before is meaningless. Like basically, economists will always
14:54
Speaker 2: stick a thirty percent number on something if they don't
14:56
Speaker 2: think it'll happen but want to like appear like they
15:00
Speaker 2: know what is going on. Thirty percent is my generic
15:04
Speaker 2: I don't really know number as to how high crud
15:07
Speaker 2: would need to go to tip the economy into recession.
15:09
Speaker 2: To tip the recession probability above fifty percent, economists gave
15:13
Speaker 2: a range of responses from ninety a barrel to two hundred,
15:16
Speaker 2: with an average of one hundred and thirty eight.
15:18
Speaker 3: So nobody actually said one hundred and thirty eight.
15:20
Speaker 2: No ask how long oil asked how long oil prices
15:23
Speaker 2: would need to be at an elevated level. They said
15:24
Speaker 2: from four weeks to fifty five weeks, with an average
15:26
Speaker 2: duration of fourteen weeks. Guys, like, if you're seeing a
15:30
Speaker 2: distribution of like smart economists ranging from a month to
15:35
Speaker 2: a year and prices from that, they don't know anything
15:38
Speaker 2: on this topic. I'm not saying that they're like dumb,
15:41
Speaker 2: they're not. It's just no one has any idea what
15:45
Speaker 2: the right answer actually is.
15:47
Speaker 3: Yeah, that's fair. Here's what I will tell you.
15:51
Speaker 2: All of these analyzes that I see are are missing
15:53
Speaker 2: the boat, and they're missing the boat because they're only
15:56
Speaker 2: looking at an oil price. Shock Like, they're not looking
15:59
Speaker 2: at the other pieces that are out there, like the
16:02
Speaker 2: Dow Chemical CEO saying, hey, we only have fifty percent
16:06
Speaker 2: of the polyethylene that we need. Like that, That is
16:10
Speaker 2: not a question that is asked in this you know survey.
16:13
Speaker 3: It's it's hey, what price of oil.
16:14
Speaker 2: Would you need in order to see, you know, a
16:16
Speaker 2: recession become greater than a fifty percent probability. Now, I'm
16:20
Speaker 2: not saying that a recession will or will not happen.
16:23
Speaker 2: I have absolutely no idea. What I can tell you
16:28
Speaker 2: is that the supply disruptions that are building right now,
16:33
Speaker 2: I gotta tell you, I'm seeing February twenty twenty flashbacks
16:36
Speaker 2: in my head.
16:37
Speaker 4: Mike, Yeah, that's kind of where I'm landing as well.
16:41
Speaker 4: So look, I think the paths where they war in
16:43
Speaker 4: Iran specifically triggers a recession are fairly easy to imagine.
16:50
Speaker 4: You have price spikes that lead to consumers pulling back
16:54
Speaker 4: in the US without a corresponding increase in employment from
16:57
Speaker 4: the energy sector, and okay, you could, you could get
17:01
Speaker 4: a recession from there.
17:03
Speaker 3: I'm much more interested in how do we avoid that? Right?
17:07
Speaker 4: It's it's I guess the answer is things wrapping up
17:11
Speaker 4: in some tidy fashion short sooner than anybody would anticipate.
17:16
Speaker 2: And this is where we get to my point that
17:18
Speaker 2: I've been making for the last week or two, which is,
17:21
Speaker 2: you read the tea leaves. Just as we were reading
17:23
Speaker 2: the tea leaves, going into this saying, look, you don't
17:25
Speaker 2: typically move two carrier groups into the region just to
17:29
Speaker 2: hang out. It's expensive, it hurts morale, it's a ton
17:33
Speaker 2: of logistics like you don't, like we were talking about
17:37
Speaker 2: this before this happened. Sure, so, like you read some
17:41
Speaker 2: of the other tea leaves on this and again things
17:45
Speaker 2: that catch my eye. Okay, you've got this marine expeditionary
17:48
Speaker 2: unit coming from Asia. It's gonna take a few weeks
17:51
Speaker 2: to get there.
17:52
Speaker 4: You generally don't pull marines from harassing China around Taiwan
17:59
Speaker 4: because because you think that the thing's unseerious, right, You're
18:03
Speaker 4: not just gonna send them halfway around the world just
18:05
Speaker 4: to hang out like it's it's it just it doesn't
18:09
Speaker 4: fit again, it's expensive, it's tough on morale, it's it's
18:13
Speaker 4: a lot of logistics, it's it's it's a big move
18:16
Speaker 4: other things.
18:17
Speaker 2: Uh, did you happen to catch the request for appropriations
18:23
Speaker 2: for the Iran conflict that came out either last night
18:26
Speaker 2: or this morning?
18:26
Speaker 3: I forget what it was. Two hundred billion might not
18:28
Speaker 3: quite be enough.
18:29
Speaker 2: Two hundred billion dollars to put a you know, to
18:32
Speaker 2: put this in perspective. The estimates are that the first uh,
18:36
Speaker 2: you know, week or ten days of the war cost
18:38
Speaker 2: somewhere in the range of like eleven to fifteen billion dollars.
18:41
Speaker 2: So extrapolating that out and doing the math again, even
18:45
Speaker 2: if you say, hey, like maybe that's light and it's
18:47
Speaker 2: gonna be you know, twenty billion dollars a week, that's
18:50
Speaker 2: another ten weeks that you're talking about, like you don't
18:53
Speaker 2: make that. And again maybe it's hey, we're just making
18:56
Speaker 2: this budget request so that you know, really we only
18:58
Speaker 2: want one hundred, but we're gonna ask for two hundred.
19:00
Speaker 3: Okay, that's still another five weeks. That still gets us
19:03
Speaker 3: into May.
19:05
Speaker 2: So again, like, the best case scenario is that this
19:08
Speaker 2: all wraps up and things get back to normal as
19:11
Speaker 2: quickly as possible from an economic perspective. But you kind
19:15
Speaker 2: of look at, you know, all these different pieces out
19:17
Speaker 2: there and they're not really indicative of something that's gonna
19:20
Speaker 2: just wrap up overnight and be you know done by
19:22
Speaker 2: the end of this week.
19:25
Speaker 3: We'll have to see.
19:25
Speaker 2: I don't know, but this is again you kind of
19:28
Speaker 2: piece together, you know, what's being said and done. Quick
19:31
Speaker 2: break here when we come back, We've got Wall Street
19:34
Speaker 2: Watch after this.
19:40
Speaker 3: Like us on.
19:40
Speaker 1: Facebook and follow us on Twitter at TFE show. Breaking
19:44
Speaker 1: business news is always first right here on the Financial
19:48
Speaker 1: Exchange Radio Network. Till now Full Wall Street watch tracking
19:54
Speaker 1: the stocks, the data, and the headlines driving markets so
19:57
Speaker 1: far today right here on the Financial Exchange Radio network.
20:01
Speaker 5: Markets are addic to yesterday's losses has increase uncertainty swirls
20:05
Speaker 5: around energy markets and the conflict in Iran. Right now,
20:09
Speaker 5: the Dow is down over eight tenths of a percent,
20:11
Speaker 5: or three hundred and eighty seven points, SMP five hundred
20:15
Speaker 5: down over half a percent, NASDAK down nearly seven tenths
20:19
Speaker 5: of one percent to one hundred and fifty points lower.
20:21
Speaker 5: Russell two thousand also off about a half a percent.
20:25
Speaker 5: Tend You're Treasure reeled up one basis point at four
20:27
Speaker 5: point two six nine percent. Crude oil up over one
20:31
Speaker 5: and a half percent, trading just below ninety eight dollars
20:35
Speaker 5: a barrel. Shares of Micron Technology falling almost three percent,
20:39
Speaker 5: despite the chip maker posting solid quarter quarterly results where
20:43
Speaker 5: it's sales nearly tripled as demand for its products outpaces supply. Meanwhile,
20:48
Speaker 5: Uber announced this morning and plans to invest up to
20:51
Speaker 5: one point two five billion dollars in ev maker Ribbean,
20:55
Speaker 5: where fifty thousand robotaxis in several countries will be deployed
20:59
Speaker 5: through through twenty thirty one, Uber shares are down by
21:03
Speaker 5: one percent, while ribbingstock is climbing nearly four percent. Elsewhere,
21:07
Speaker 5: Ali Baba shar is pulling back six percent as the
21:10
Speaker 5: Chinese companies increase food delivery competition. Weighed on earnings five
21:14
Speaker 5: below shares jumping eight percent after the discount retailer posted
21:19
Speaker 5: higher quarterly profit and sales as shoppers favored its low
21:22
Speaker 5: priced offerings during the holiday period.
21:25
Speaker 3: And FedEx will.
21:27
Speaker 5: Report earnings after today's closing bill on Tucker Silva. And
21:32
Speaker 5: that is Wall Street Watch.
21:35
Speaker 2: Mike, what do we got here from the Financial Times
21:38
Speaker 2: US exploring tying naval escorts and straight of horror moves
21:41
Speaker 2: to government insurance?
21:42
Speaker 3: Well, I mentioned was.
21:44
Speaker 4: A week or two ago that the US government was
21:47
Speaker 4: trying to strike a deal with Chubb, a private insurance company,
21:51
Speaker 4: to insurer ships navigating.
21:54
Speaker 3: Through the Strait.
21:55
Speaker 4: The idea here would be, as a condition of receiving
22:00
Speaker 4: US military support, they would have to buy the insurance
22:03
Speaker 4: from Chub via the American government. It's unclear to me
22:08
Speaker 4: exactly what role taxpayers have in kind of backstopping Chubs
22:14
Speaker 4: insuring of these vessels, because clearly I don't think any
22:18
Speaker 4: private insurers, you know, would be comfortable with the risk
22:21
Speaker 4: here without a government backstop, But that would be the
22:23
Speaker 4: idea is Hey, if we eventually get to the point
22:26
Speaker 4: where US military vessels are navigating the straight and assisting
22:33
Speaker 4: vessels going through, then they would be required to buy
22:36
Speaker 4: the insurance from this US government program.
22:39
Speaker 3: Which again, you.
22:42
Speaker 4: Know, if we got a lot of ifs in here,
22:43
Speaker 4: if the ships don't go down, then there's a lot
22:45
Speaker 4: of money to be made for the US insure. But
22:48
Speaker 4: obviously if at a strike sneaks through, then you're kind
22:52
Speaker 4: of doubling down on it here.
22:54
Speaker 2: Yeah, I mean, look, I can see the thought from
22:57
Speaker 2: the US's perspective, and that, my might is one of
23:00
Speaker 2: the conditions for this insurance being available is probably a
23:06
Speaker 2: reflagging of the ship to be a US flagged ships
23:11
Speaker 2: That's my guess. And look, I can understand like the
23:14
Speaker 2: logic behind it and everything. It's just there's like four
23:18
Speaker 2: million moving pieces right now, and to this point it's
23:24
Speaker 2: unclear you know, exactly how it look If you look
23:31
Speaker 2: at the geography of the Straight of Horror moves and
23:33
Speaker 2: I don't know how many people listening have actually, you know,
23:35
Speaker 2: looked at this, it's basically like a hairpin turn that
23:42
Speaker 2: goes and starts off the Persian Gulf where it's narrowest point,
23:45
Speaker 2: it's about twenty miles wide. And the fact is that
23:48
Speaker 2: like when you're at the middle of that point, you're
23:51
Speaker 2: basically ten to fifteen miles from a shoreline that is
23:54
Speaker 2: surrounding you by one hundred and eighty degrees, of which
23:56
Speaker 2: all of it is Iran. And if I had to guess, remember,
24:02
Speaker 2: like again, like the Iranian regime is is pretty darn evil.
24:08
Speaker 2: But they're also not complete idiots. I mean, like trust me,
24:12
Speaker 2: Like they do some dune stumb stuff like still like
24:15
Speaker 2: meeting out in like the open where they can just
24:17
Speaker 2: be attacked, but they're not complete idiots. And I'm sure
24:20
Speaker 2: that they have all kinds of stuff hidden in the
24:22
Speaker 2: mountains there just pointing right at the strait of horror
24:25
Speaker 2: moves that like, some of it we probably know about
24:27
Speaker 2: and have targeted, because I've seen the videos of you know,
24:30
Speaker 2: targeted cave entrances and things like that, and some of
24:33
Speaker 2: it is stuff that we might not know about just
24:35
Speaker 2: because it might have been hidden, you know, decades ago,
24:37
Speaker 2: and it's just you know, sitting there waiting. But my
24:40
Speaker 2: point is, like you're in a very vulnerable position with
24:43
Speaker 2: very little time to react. And so basically everyone that
24:46
Speaker 2: I have read who knows anything about navigating through there
24:51
Speaker 2: is like, it's a worst case scenario for trying to
24:55
Speaker 2: defend ships trying to navigate it.
24:58
Speaker 4: Yeah, like, I think it makes sense to talk about
25:02
Speaker 4: this structure and for the government to be doing the
25:04
Speaker 4: background working for CHUB or whatever ensure to be doing
25:08
Speaker 4: the background work. But it's certainly putting the cart before
25:11
Speaker 4: the horse here. They like get interesting how you would
25:14
Speaker 4: need to ensure the vessels, But until the military deems
25:19
Speaker 4: it navigable, it's kind of irrelevant at the moment.
25:22
Speaker 2: Yes, let's change gears and talk a little bit about
25:26
Speaker 2: the FED. Only during something like this could we go
25:29
Speaker 2: forty minutes into a show the day after a FED
25:32
Speaker 2: meeting at dot plot and not mention the FED. But
25:35
Speaker 2: the FED did have a meeting yesterday, and takeaways very simply,
25:40
Speaker 2: And I always listened to j. Powell's press conference just
25:43
Speaker 2: because you get a ton from oh did my notes
25:48
Speaker 2: not save Oh no they did.
25:50
Speaker 3: Okay, that was almost a disaster. Yeah, got renching for
25:55
Speaker 3: Chuck there.
25:56
Speaker 2: That would I mean again, I've got like two pages
25:58
Speaker 2: of notes on the Powell press conference, which tells you
26:01
Speaker 2: just how always save your work.
26:03
Speaker 4: Chuck Tucker, that's the sound that that little paper clip
26:08
Speaker 4: makes when he comes out in Microsoft paper Clip.
26:12
Speaker 3: How have we not gotten an updated clippy with all
26:14
Speaker 3: of this? Ai stuffy question. I mean, everything's about nineties
26:18
Speaker 3: nostalgia right now. How have they not brought back Clippy?
26:21
Speaker 5: Why does the paper clip have eyebrows?
26:24
Speaker 3: Why doesn't it have a beard? Is my question?
26:28
Speaker 1: Sorry?
26:28
Speaker 2: Back to In any case, here's what we got from
26:32
Speaker 2: Powell that that I thought was notable.
26:34
Speaker 3: The first is as expected.
26:35
Speaker 2: He said, we have no idea how to We have
26:39
Speaker 2: no idea what to do on this, And actually he
26:41
Speaker 2: had some great quotes about the like basically what to
26:43
Speaker 2: do here? Let me I want to pull these up
26:47
Speaker 2: just because I think they're.
26:48
Speaker 3: Really really good. Quote.
26:50
Speaker 2: If you were ever going to skip a summary of
26:52
Speaker 2: economic projections, this would be a good one. Another quote,
27:00
Speaker 2: it's not senior writ it's it's just like they have
27:01
Speaker 2: no idea how to price this right now?
27:03
Speaker 4: I agree, but I just don't see him saying that
27:05
Speaker 4: the first year into his term.
27:07
Speaker 2: Another quote, you gotta write something down, and this is
27:11
Speaker 2: what people wrote down.
27:12
Speaker 3: Yeah.
27:13
Speaker 2: So like he's basically saying, guys, don't take the step
27:17
Speaker 2: for what like we put down because none of us
27:19
Speaker 2: have any clue right now.
27:20
Speaker 3: Yeah.
27:20
Speaker 4: So they did vote eleven to one to keep things
27:23
Speaker 4: right where they are, which is interesting because that means
27:28
Speaker 4: Waller didn't vote for a rate cut as he has
27:30
Speaker 4: been for the last several meetings.
27:32
Speaker 3: Yes, which is again notable.
27:35
Speaker 2: Other things that I think are were interesting and this
27:38
Speaker 2: was absolutely a hawkish press.
27:41
Speaker 3: Conference from J Powell.
27:43
Speaker 2: And I think the thing that caught me was number one,
27:47
Speaker 2: he mentioned, look, we still don't have inflation expectations to
27:50
Speaker 2: where we want them, and so I think that that's
27:53
Speaker 2: something where he's like, I don't want inflation expectations getting
27:56
Speaker 2: anchored higher because then people, instead of rejecting higher prices,
27:59
Speaker 2: they pay them because they're afraid of prices going up
28:02
Speaker 2: more later on.
28:02
Speaker 3: Yep. The second piece.
28:05
Speaker 2: Is that basically he was like, look, we were starting
28:09
Speaker 2: to see some progress on the core good side of
28:12
Speaker 2: things that was influenced by tariffs, to suggest that maybe
28:14
Speaker 2: it was a one off thing. Because of this, it's
28:17
Speaker 2: now a question as to what exactly happens with core
28:20
Speaker 2: goods prices, and so we might not be able to
28:23
Speaker 2: get the data in for us to say yep, that's
28:26
Speaker 2: done and we can move on and put that to bed.
28:30
Speaker 2: Those were the notable things that I had here. Other
28:33
Speaker 2: quotes just that I thought were interesting. Let's see, Yeah,
28:39
Speaker 2: we just don't know the impacts of the Middle East
28:40
Speaker 2: conflict right now. Talking about the jobs situation, we have
28:45
Speaker 2: a very low break even rate for jobs right now,
28:48
Speaker 2: and the US economy is doing very well otherwise. And
28:50
Speaker 2: what he means by that is the number of jobs
28:53
Speaker 2: created each month in order to maintain the level of
28:57
Speaker 2: unemployment that we have is really low because the workforce,
29:01
Speaker 2: as Powell describes it, is either growing very slowly, not growing,
29:05
Speaker 2: or may even be shrinking. And so Powell basically saying, look,
29:10
Speaker 2: stop looking at the number of jobs created each month,
29:14
Speaker 2: because that's not relevant to our calculus. You need to
29:17
Speaker 2: be looking at the unemployment rate, because if the labor
29:19
Speaker 2: force is shrinking, then a declining number of jobs doesn't
29:24
Speaker 2: mean what it used to, which was interesting to me
29:27
Speaker 2: for him to come out and say it that way. Yeah,
29:30
Speaker 2: other things that he said, just on some of the
29:32
Speaker 2: political questions surrounding the FED. He said, if my successor
29:38
Speaker 2: is not confirmed by the end of my term, I
29:41
Speaker 2: would stay on as a chair pro tempore. That's what
29:44
Speaker 2: the law calls for. And he also said I have
29:47
Speaker 2: no intention of leaving the board until the investigation into the.
29:51
Speaker 3: FED and me is truly over.
29:53
Speaker 2: So Powell basically saying, in not so many words, I
29:59
Speaker 2: really was reminded of Wolf of Wall Street, when you
30:01
Speaker 2: know Leo's being you know, investigated in everything, and he
30:04
Speaker 2: goes up in front of.
30:05
Speaker 3: The company is like, I'm not leaving.
30:07
Speaker 2: Like it was very That was kind of the vibe
30:10
Speaker 2: that I got from Powell yesterday.
30:12
Speaker 4: Yeah, you know, in plain English, he is promising to
30:16
Speaker 4: not leave the board, serve on the Board of Governors,
30:19
Speaker 4: not as chairperson if the investigation is still ongoing, and
30:23
Speaker 4: even if it is concluded, he's not promising to leave
30:26
Speaker 4: the board. So he's leaving his options open here. I
30:31
Speaker 4: suspect that if the investigation is concluded then he goes away.
30:35
Speaker 4: But yeah, he's kind of leaving that as a a
30:41
Speaker 4: pretty clear threat to the next FED chair's ability to
30:46
Speaker 4: lead and drive things forward here, So we will see
30:49
Speaker 4: and remember.
30:50
Speaker 2: The reason on this is because even though Powell's tenure
30:52
Speaker 2: as FED chair ends in a couple months. His tenure
30:56
Speaker 2: as a member of the Board of Governors is not
30:58
Speaker 2: tied to that, and go for is an additional one.
31:01
Speaker 3: Year or two years. I can remember two years. So
31:04
Speaker 3: we'll see.
31:05
Speaker 2: I suspect again, as Mike said, I if things resolve,
31:08
Speaker 2: he'll want to move on.
31:11
Speaker 3: But we'll have to see how things go on this.
31:13
Speaker 2: Let's take a quick break here, and when we return,
31:19
Speaker 2: let's see. Oh yeah, this isn't a clickbait title at all.
31:22
Speaker 2: I predicted the two thousand and eight financial crisis. What
31:25
Speaker 2: is coming may be worse. With a title like that,
31:29
Speaker 2: you gotta read it and see if there's any meat
31:31
Speaker 2: on that bone. And so we're gonna pick at it
31:34
Speaker 2: right after this.
31:36
Speaker 1: Markets move fast. Follow The Financial Exchange live on x
31:40
Speaker 1: so you never miss a story. This is the Financial
31:43
Speaker 1: Exchange radio network from markets to money, to business and
31:48
Speaker 1: financial news. Watch The Financial Exchange every day on YouTube.
31:53
Speaker 1: Hit that subscribe button and keep up to date on
31:55
Speaker 1: the market news you need to know. This is the
31:58
Speaker 1: Financial Exchange.
32:00
Speaker 5: The Financial Exchange is a proud partner of the Disabled
32:03
Speaker 5: American Veterans Department of Massachusetts. The DAV five K raised
32:08
Speaker 5: over one hundred and fifty thousand dollars last year, but
32:11
Speaker 5: we still need your help. You can support our great
32:14
Speaker 5: American heroes by visiting dav five k dot Boston and
32:18
Speaker 5: making a donation today. Your participation helps provide vital services
32:23
Speaker 5: like free transportation to medical appointments and safe housing for
32:28
Speaker 5: single veterans and their families. Donate today at DAV fivek
32:32
Speaker 5: dot Boston. That's dav five k dot Boston.
32:38
Speaker 2: Piece of the New York Times Opinion section. I predicted
32:43
Speaker 2: the two thousand and eight financial crisis. What is coming
32:46
Speaker 2: may be worse, So fear God. I read through this
32:52
Speaker 2: piece and here's the deal. It's a bunch of like hypotheticals,
32:57
Speaker 2: where like, yes, if this worst thing happen happens, then
33:00
Speaker 2: this worst thing happens, then this worst thing happens.
33:03
Speaker 3: Yes, all of that will be worse.
33:05
Speaker 2: So like, as an example, if private credit it ends
33:08
Speaker 2: up being something at the scale near the financial crisis,
33:12
Speaker 2: and then if the AI boom busts the same way
33:16
Speaker 2: that the tech bubble did, and if China invades or
33:20
Speaker 2: blockades Taiwan, and if the Iran conflict last the rest
33:25
Speaker 2: of the year, yes, like if all of that happened,
33:28
Speaker 2: it would be worse than the financial crisis.
33:31
Speaker 4: But yeah, that's a lot of if I'm the quote
33:36
Speaker 4: that I remember hearing from I remember his name, my professor,
33:40
Speaker 4: doctor Alan Frishman, in spring of two thousand and nine,
33:44
Speaker 4: is the same thing that the author of this said
33:47
Speaker 4: to you know, his coworkers back at that same time period,
33:51
Speaker 4: was remember what's happening. You'll never see anything like this again.
33:56
Speaker 4: I remember hearing that directly from my economics professor in
34:00
Speaker 4: school at the exact same time, or very near to
34:02
Speaker 4: that time, and I still believe it today. I do
34:05
Speaker 4: not believe we will ever see the set of circumstances
34:09
Speaker 4: that we saw back in two thousand and eight again
34:11
Speaker 4: during our lifetimes. I find it incredibly unlikely, and frankly,
34:17
Speaker 4: you know what he's talking about would be a completely
34:19
Speaker 4: different set of circumstances and everything else.
34:23
Speaker 3: This is clickbait.
34:24
Speaker 4: Yes, if all of those things went wrong, Frankly, of
34:29
Speaker 4: all of them, the one that would have me the
34:31
Speaker 4: most concerned would be the Taiwan scenario, because then all
34:34
Speaker 4: of the technology in all of our hands would become
34:37
Speaker 4: rendered useless within like two years. So that's the one
34:41
Speaker 4: that really would spook me personally. But yeah, you'd have
34:44
Speaker 4: to have all of those dominoes falling in order to
34:46
Speaker 4: get there. This is uh, it's it's Is it just clickbait?
34:52
Speaker 4: Is that where we're landing here? There's no say that
34:56
Speaker 4: there aren't real questions now, But again, three quarters of
35:01
Speaker 4: the questions existed prior to the war in Iran. Yes,
35:04
Speaker 4: so we're writing this one now like, yeah, I'm just
35:08
Speaker 4: beware this sort of thing. There's no meat on it,
35:11
Speaker 4: there's no you know, mathematics to it all.
35:14
Speaker 3: I think.
35:16
Speaker 4: The question of why has so much coverage around this
35:19
Speaker 4: been so doom and gloom? I mean, there's obvious reasons
35:23
Speaker 4: for it to be doom and gloom, But I think
35:24
Speaker 4: part of it, especially when you're listening to financial shows,
35:27
Speaker 4: as to why, you know, people sound concerned, in my view,
35:31
Speaker 4: would be that equity markets still, even with where we
35:35
Speaker 4: are now, equity markets are I think now four and
35:39
Speaker 4: a half percent off of their not even not even
35:42
Speaker 4: four and a half percent off of the highs that
35:44
Speaker 4: they reached on Friday February twenty one.
35:46
Speaker 3: I know, we're actually we're six percent off on the
35:48
Speaker 3: S and P now, are we? Yep?
35:49
Speaker 2: Unless I did the math wrong, So you do the
35:51
Speaker 2: math again divided by seven two. Yep, we're five point
35:55
Speaker 2: three percent. No, we're six percent off the peak.
35:58
Speaker 4: Okay, so off the sorry the peak or the pre
36:02
Speaker 4: Iran invasion price the peak?
36:04
Speaker 2: Okay, six percent offer on invasion price. Let me do
36:07
Speaker 2: that now while you talk.
36:10
Speaker 4: The of his conclusion that I think a lot of
36:13
Speaker 4: people are coming to is okay with with equity prices
36:16
Speaker 4: still so rich, with so many investors banking on this
36:21
Speaker 4: ending perfectly, and you know, the ability to buy the dip,
36:25
Speaker 4: which is very much the narrative in equity markets, the
36:28
Speaker 4: natural question that comes to mind is, well, how could
36:30
Speaker 4: that work out incorrectly?
36:32
Speaker 3: Right?
36:32
Speaker 4: Because the the way that markets react if this wraps
36:37
Speaker 4: up and uh we're left with some degree of ceasefire
36:42
Speaker 4: instability in the Middle East is pretty clear to me,
36:44
Speaker 4: and equity markets don't really move a whole lot based
36:47
Speaker 4: on that.
36:49
Speaker 3: When you have equity markets only moving, like.
36:54
Speaker 4: I said, I don't know, if you ran the numbers,
36:56
Speaker 4: chuck something like four percent since the invasion of Iran
36:59
Speaker 4: five point three, I think a lot of people find
37:02
Speaker 4: that there's just more potential downside there. Then it looks
37:06
Speaker 4: like a whole lot of upside that's that's at least
37:09
Speaker 4: where I land when I'm talking about all this is because, yeah,
37:12
Speaker 4: if equity markets were down fifteen percent like they were
37:15
Speaker 4: in April of twenty twenty five, I think we'd be
37:19
Speaker 4: talking about this very differently of Okay, well you know
37:23
Speaker 4: this is how it rebounds.
37:25
Speaker 3: Yeah, I would agree.
37:28
Speaker 2: And here's the thing, Like parts of the market have
37:30
Speaker 2: gotten cheaper just through like time and you know, some
37:33
Speaker 2: some corrections in video. Just as an example, is trading
37:37
Speaker 2: at twenty one times forward earnings right now. That is
37:40
Speaker 2: the lowest pe ratio it has traded at since last April,
37:44
Speaker 2: So it gets it's gotten a lot cheaper in you know,
37:47
Speaker 2: in that in that in the last you know, six
37:50
Speaker 2: months or so, it was trading you know, forty x
37:52
Speaker 2: forward earnings for you know, a lot of the second
37:54
Speaker 2: half of the year. It's gotten a lot cheaper combination
37:57
Speaker 2: of you know, how you're projecting forward earnings and uh,
38:00
Speaker 2: you know, combined with it's pulled back a bit. So
38:04
Speaker 2: I don't know, like you you look at this, and
38:07
Speaker 2: the one thing that markets are not pricing in right
38:08
Speaker 2: now is any decline in earnings as a result of
38:11
Speaker 2: anything going on.
38:12
Speaker 3: That would be the obvious catalyst.
38:14
Speaker 2: If you start to see something like that coming, that's
38:17
Speaker 2: a shift that is not being priced in and would
38:19
Speaker 2: be a different one. So we'll see quick break here,
38:22
Speaker 2: but uh hour two's coming up in a bit