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Inflation Jumps, Oil Drives Prices Higher, and What the Fed Does Next · The Financial Exchange Show

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Speaker 1: a donation today. This is the Financial Exchange with Chuck
1:06
Speaker 1: Zadath and Mike Armstrong.
1:10
Speaker 2: Chuck Mike K.
1:11
Speaker 3: Tucker here, and we're looking to wrap up the week,
1:16
Speaker 3: and we.
1:17
Speaker 2: Got quite a bit to talk about.
1:19
Speaker 3: Obviously, the latest on what is going on in the
1:22
Speaker 3: Middle East, and we will get to that, but we're
1:25
Speaker 3: going to talk a little bit first about the Consumer
1:29
Speaker 3: Price Index data for March that we received. Came out
1:32
Speaker 3: at eight thirty am this morning, and.
1:35
Speaker 4: What did we see, Michael, pretty much exactly what economists
1:40
Speaker 4: were anticipating, which is that month of a month price
1:43
Speaker 4: increases we're going to be the highest that we had
1:45
Speaker 4: seen in four years. We came at nine tenths of
1:47
Speaker 4: a percent on the all Items index, driven primarily by
1:52
Speaker 4: fuel prices. So taking a look at those different fuel
1:55
Speaker 4: prices that the CPI measures, we had energy commodities up
1:59
Speaker 4: twenty one point three percent, gasoline of twenty one point
2:02
Speaker 4: two fuel oil up three thirty point seven percent month
2:06
Speaker 4: over month, and so that drove prices at the total
2:09
Speaker 4: level up by nearly a percent in a month. Like
2:12
Speaker 4: I said, worst report that we've gotten in four years.
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Speaker 2: There was some good.
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Speaker 4: News too, though, and I think that's what markets are
2:19
Speaker 4: primarily responding to, which is other than that oil price shock,
2:25
Speaker 4: you did not see it really repeated anywhere else. We
2:27
Speaker 4: saw food prices, for example, slightly down month over month,
2:31
Speaker 4: used cars and trucks slightly down, medical care commodities slightly down,
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Speaker 4: And when you measured everything excluding food and energy, it
2:38
Speaker 4: actually came in a little bit better than anticipated, at
2:41
Speaker 4: just a two tenths of a percent increase for.
2:44
Speaker 2: The month, so year over year.
2:45
Speaker 4: What all this means, You know, the headline numbers that
2:48
Speaker 4: you're likely to see are that we saw total prices
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Speaker 4: increasing three point three percent year over year, But when
2:54
Speaker 4: you strip out that food and energy around two six
2:58
Speaker 4: and that is not too far away from where I
3:01
Speaker 4: think people had been anticipating it.
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Speaker 3: Now, this obviously is one month of data, and it
3:08
Speaker 3: was data that was captured. Remember the CPI has not
3:10
Speaker 3: captured data throughout the month or at the end of
3:14
Speaker 3: the month. It's a specific point in the middle that
3:17
Speaker 3: they're looking at. It's generally the second full week of
3:20
Speaker 3: the month that you have, and so what you are
3:24
Speaker 3: likely to see, based on where gas prices were then
3:28
Speaker 3: is additional upward pressure on that headline number for the
3:31
Speaker 3: April report, probably pushing it somewhere into again. I don't
3:36
Speaker 3: know exactly where, but probably a reading between like point
3:39
Speaker 3: six and point eight for April as well, So you're
3:41
Speaker 3: probably gonna have headline inflation getting pretty darn close to
3:44
Speaker 3: four percent year over year for April. The real question
3:48
Speaker 3: is how much of this starts flowing into core excluding
3:52
Speaker 3: you know, food and fuel. And this is the piece
3:55
Speaker 3: that I think the FED really wants to be able
3:58
Speaker 3: to you know, figure out and see simply because when
4:02
Speaker 3: you look at some of these different areas, take you know,
4:05
Speaker 3: vehicles just as an example, new vehicles make up three
4:08
Speaker 3: point eight percent of the CPI calculation, and given what
4:12
Speaker 3: we're seeing in the aluminum markets right now, with a
4:15
Speaker 3: lot of aluminum supply not able to get through horror moves,
4:18
Speaker 3: do we start seeing you know, pressure on vehicle prices
4:20
Speaker 3: because of that? Other things transportation services airline fares make
4:25
Speaker 3: up about one percent of CPI. They moved up in
4:28
Speaker 3: March by let's see what do we have here two
4:31
Speaker 3: point seven percent? Uh those are likely to see additional
4:35
Speaker 3: pressure as well. Uh So, like these are some of
4:38
Speaker 3: the things that you look at and say, Okay, how
4:41
Speaker 3: are they going to influence that core number in ways
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Speaker 3: that you know, weren't readily apparent right away, other places
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Speaker 3: that probably aren't going to see any meaningful impact at
4:53
Speaker 3: least right now unless things, you know, continue in this fashion.
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Speaker 3: From a commodity pricing standpoint, shelter costs not really going
5:00
Speaker 3: to be impacted by the conflict or remember, shelter costs
5:04
Speaker 3: are the biggest component of CPI and core. They make
5:08
Speaker 3: up around thirty five percent of CPI in about almost
5:13
Speaker 3: half of core CPI. So I think that overall, this
5:17
Speaker 3: is why when we look at that core CPI projection
5:19
Speaker 3: for the rest of the year, even if you continue
5:22
Speaker 3: to see significant problems that build in energy markets and
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Speaker 3: supply chains, that core number is not likely, in my opinion,
5:31
Speaker 3: going to even get back close to where you saw
5:35
Speaker 3: it during the run up in twenty twenty one and
5:40
Speaker 3: twenty twenty two. Remember that during that time when we
5:43
Speaker 3: look at you know, kind of the peak, which is
5:46
Speaker 3: you know, March to June of twenty two, that core
5:49
Speaker 3: CPI number got up into the six percent range.
5:52
Speaker 2: That was driven by a huge.
5:54
Speaker 3: Increase in shelter cost If you're not seeing that, it's
5:58
Speaker 3: really hard in my opinion, and even if you have
6:00
Speaker 3: you know, some bad scenarios occurring where horrmus remains you know,
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Speaker 3: largely closed for an extended period. It's tough for me
6:07
Speaker 3: to see core CPI moving, you know, too much north
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Speaker 3: of that four range without the shelter component able to
6:15
Speaker 3: go along with it.
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Speaker 2: Yeah, I'm right there with you.
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Speaker 4: So what should investors know about the combination of this report.
6:21
Speaker 4: We also got the February PCE inflation report just yesterday.
6:27
Speaker 4: I think both of them are leading me to the
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Speaker 4: conclusion that inflation remains somewhere in the high two s
6:32
Speaker 4: low threes when you focus on the items that you
6:35
Speaker 4: know it really matter for the intermediate term outside of
6:39
Speaker 4: oil price shots. So what should investors be focusing on
6:42
Speaker 4: with the combination of these reports.
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Speaker 3: Well, I think ultimately, look, the February p We've already
6:49
Speaker 3: you know, discussed it. It's stale, you know, it's it's
6:52
Speaker 3: all pre war. This even is you know, owing after
6:55
Speaker 3: a couple of weeks of it. So I think ultimately
6:59
Speaker 3: what we see from the next few months show me
7:01
Speaker 3: what we get in April, May and June, and that
7:04
Speaker 3: in conjunction with what we're seeing as far as changes
7:08
Speaker 3: in the flow of traffic through horror moves is what's
7:11
Speaker 3: going to determine the inflation picture over the rest of
7:15
Speaker 3: the year. Yes, I would be shocked if you still
7:20
Speaker 3: have a two handle in front of H quite Hosestly, Look,
7:25
Speaker 3: there's there's basically no way that you have a two
7:27
Speaker 3: handle in front of H as the first digit in
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Speaker 3: the inflation number at the end of the year unless
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Speaker 3: there's a huge recession, right, Like, it's pretty much impossible
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Speaker 3: to get there given the print that we just had.
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Speaker 3: The real question is can you keep core inflation in
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Speaker 3: the threes or do we end up heading into you know,
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Speaker 3: the low to mid fours, right, And that's.
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Speaker 2: Gonna be the question.
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Speaker 3: And if, if, if core inflation stays in the threes,
7:57
Speaker 3: the FED can have a defensible position by saying this
8:00
Speaker 3: was caused by a short term supply shock that's gonna
8:03
Speaker 3: resolve itself and we don't need to do anything. If
8:07
Speaker 3: Core starts printing a four in that first digit, it's
8:10
Speaker 3: gonna be pretty hard for the FED to say, yeah,
8:12
Speaker 3: we're gonna stick with, you know, a FED funds rate
8:14
Speaker 3: under four.
8:15
Speaker 2: Chuck.
8:16
Speaker 4: Mortgage rates topped at nearly six point six percent on
8:19
Speaker 4: April Fool's Day and since then have been you know,
8:21
Speaker 4: marching downward as the ceasefire took hold.
8:25
Speaker 2: L uh. You know, mid this week.
8:27
Speaker 4: We're now sitting at six three eight on that thirty
8:31
Speaker 4: year fixed rate mortgage according to Mortgage News Daily. What
8:34
Speaker 4: do we need to see happen here to get that
8:36
Speaker 4: back to where we were pre war?
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Speaker 2: Is it? Do you think it's even?
8:38
Speaker 4: I mean, anything's possible, but like what has to swing
8:41
Speaker 4: right for everything to get back to pre war mortgage rates?
8:47
Speaker 2: On mortgage rates?
8:51
Speaker 4: I mean, we're not that far away right where at
8:52
Speaker 4: six three eight now? So I can clearly see a
8:55
Speaker 4: path where, you know, should traffic start flowing again and
9:00
Speaker 4: you know, longer term rates slowly come back down a
9:04
Speaker 4: little bit, but there is this you know, hangout risk
9:08
Speaker 4: of higher inflation.
9:09
Speaker 2: Now.
9:11
Speaker 3: I don't know that you get back to remember we
9:13
Speaker 3: got down to five nine nine on two twenty seven, yep,
9:18
Speaker 3: I don't know if you get back there apps in
9:19
Speaker 3: a recession. And the reason why I'll say this is, look,
9:25
Speaker 3: rates are partly getting a bid due to a you know,
9:28
Speaker 3: flock to safety. They've they've lost some you know, lost
9:30
Speaker 3: money due to concerns about inflation. If those inflationary concerns
9:37
Speaker 3: dissipate that flock to safety bid dissipates as well. Right,
9:41
Speaker 3: and now you have a bigger geopolitical risk premium that
9:44
Speaker 3: has to be out there because you now know that
9:46
Speaker 3: this can happen.
9:47
Speaker 2: And so I just don't know that in the rest
9:49
Speaker 2: of this year you.
9:50
Speaker 3: Get back to a five handle for that first digit
9:53
Speaker 3: of mortgage rates, right, I like, I yes, I think
9:56
Speaker 3: there's a path where you can come down further, maybe
9:58
Speaker 3: get to like six one two. It's kind of hard
10:03
Speaker 3: for me now to see us getting back to a
10:04
Speaker 3: five nine, nine or below before the end of the year.
10:08
Speaker 2: But I could be I could be wrong. I mean again,
10:11
Speaker 2: I'm not right about everything. So I just see first,
10:15
Speaker 2: i'me ever heard you say that you long time check.
10:19
Speaker 3: Look, I didn't say I was wrong about most things,
10:22
Speaker 3: but you know, take it for what it is. So
10:24
Speaker 3: I think, ultimately I bet rates hang out in that's
10:28
Speaker 3: six one to six four range, you know, for you know,
10:31
Speaker 3: the rest of the year if you have a positive
10:33
Speaker 3: resolution here. If you don't, all bets are off because
10:38
Speaker 3: if more moves remains closed, the two possibilities are either
10:42
Speaker 3: meaningfully higher inflation it's gonna you know, force things to move,
10:46
Speaker 3: but it's also hey, could that higher inflation in hiking
10:49
Speaker 3: of rates end up causing recession? It could, and maybe
10:51
Speaker 3: that's how you end up getting there, which is why
10:53
Speaker 3: you you need things to go well.
10:55
Speaker 2: At these negotiations.
10:57
Speaker 3: There's there's not really a successful path for the world
11:00
Speaker 3: economy afour Moves does not reopen.
11:04
Speaker 2: With you. I don't make the rules. That's just kind
11:06
Speaker 2: of how it is.
11:07
Speaker 3: Let's take a quick break here, and when we return, uh,
11:11
Speaker 3: let's talk about consumer spending and what we're seeing there.
11:15
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11:50
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11:52
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Speaker 5: three three nine three nine nine four three three three
11:58
Speaker 5: as three three nine three nope three three nine three
12:04
Speaker 5: nine nine four triple three. Or if you're shy and
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12:21
Speaker 2: Tucker, what's that number again?
12:25
Speaker 5: Three three nine three nine nine four three three three?
12:32
Speaker 3: So it's double three fine single three double nine four
12:39
Speaker 3: triple three.
12:40
Speaker 2: That's correct, You got it?
12:41
Speaker 5: Yeah, that's it.
12:42
Speaker 2: It's wicked easy. We gotta make it into a jingle
12:45
Speaker 2: or something. No. I like pronouncing it differently every single time.
12:49
Speaker 5: That's three three nine three nine nine four triple three.
12:52
Speaker 2: Yeah. I like that one. We could do it in
12:55
Speaker 2: different languages.
12:56
Speaker 4: Oh yeah, work on my Portuguese on the show, be fantastic,
13:01
Speaker 4: speaking of Portuguese. Consumer spending not related, not related piece
13:07
Speaker 4: of the New York Times. Consumer spending engine of the
13:09
Speaker 4: US economy is understrain.
13:12
Speaker 2: It basically is that. So here's the thing it.
13:20
Speaker 4: Maybe give me New York Times if you're gonna print
13:24
Speaker 4: a headline like this and then go on to write one, two, three, four,
13:29
Speaker 4: five six pages about it. Can you give me one
13:33
Speaker 4: shred of evidence instead of interviewing a bunch of people
13:35
Speaker 4: who are under financial strain. I'll I'll get a single shred.
13:39
Speaker 3: Let me give you some evidence. Okay, okay, I'll give
13:41
Speaker 3: you some evidence. If you look at the pre pandemic period, yep,
13:46
Speaker 3: real retail sales and again, I know retail is only
13:49
Speaker 3: one piece. We'll talk about services in a little bit.
13:51
Speaker 3: But real retail sales, meaning retail sales growth after inflation,
13:56
Speaker 3: generally ran somewhere between one and three percent.
14:00
Speaker 2: Okay, okay.
14:01
Speaker 3: If we look at where we are right now, we're
14:04
Speaker 3: a one and a quarter percent since through the February number.
14:08
Speaker 3: But remember we just had a really hot inflation print
14:10
Speaker 3: for March that isn't included here, and in December, real
14:14
Speaker 3: retail sales for the previous twelve months were down point
14:17
Speaker 3: two percent. So you could make a case that real
14:20
Speaker 3: retail sales, like retail sales adjusted for inflation, were negative
14:23
Speaker 3: over the course of twenty twenty five, which is not
14:25
Speaker 3: indicative of a very strong consumer.
14:29
Speaker 2: Sure, I'll use that to start.
14:31
Speaker 4: I'll give it a counter to it, consumer debt service
14:34
Speaker 4: payments as a percentage of disposable income according to the
14:39
Speaker 4: Board of Governors of the Federal Reserve in the fourth
14:42
Speaker 4: quarter of twenty twenty five. That's a ratio consumer debt
14:45
Speaker 4: service as percentage of income five point four percent, highest
14:50
Speaker 4: that's been really since the post pandemic period, outside of
14:54
Speaker 4: briefly in twenty twenty three. In the twenty ten decade,
14:58
Speaker 4: we never got low five to three. So, like, you know,
15:04
Speaker 4: we're not we don't. We're not seemingly in a much
15:08
Speaker 4: worse total consumer debt problem than we were anytime during
15:12
Speaker 4: the twenty tens decade. And uh, you know, we're better
15:16
Speaker 4: off than we were in the late twenty tens when
15:18
Speaker 4: comparing those ratios.
15:20
Speaker 3: I think where I tend to land on the consumer
15:23
Speaker 3: spending side of things is it's not really a huge
15:27
Speaker 3: growth engine for the US economy right now. It's not
15:31
Speaker 3: really a huge problem either. It's just kind of okay,
15:36
Speaker 3: and ultimately the stuff that's driving the US economy on
15:40
Speaker 3: the margins again, like take a look at the the
15:45
Speaker 3: GDP report that we uh the final report for Q four,
15:48
Speaker 3: which again I know is outdated by a couple months.
15:52
Speaker 3: You know, at this point now and I know that
15:54
Speaker 3: we're eagerly awaiting that Q one report that we're we're
15:58
Speaker 3: going to get. But when you look at the data
16:02
Speaker 3: from that that Q four report and what is driving
16:09
Speaker 3: the growth effectively, it's not this huge, you know, consumer
16:13
Speaker 3: spending surge that you're seeing. It's it's certainly by the way,
16:17
Speaker 3: when we talk about consumer spending, look part of this
16:21
Speaker 3: in terms of what people spend money on. Biggest things
16:23
Speaker 3: are cars and houses. Homes we know have been you know,
16:27
Speaker 3: kind of dodgy like housing's not really accreative to anything.
16:30
Speaker 3: And in terms of what we're seeing on auto spending,
16:35
Speaker 3: it's it's been again just kind of you.
16:38
Speaker 2: Know, treading water as well.
16:40
Speaker 3: It's it's just not something where you're seeing anything huge there.
16:43
Speaker 3: So I think ultimately the consumer is uncomfortable and doesn't
16:50
Speaker 3: like what they're seeing from a pricing perspective. Sure, is
16:54
Speaker 3: it translating at this point into a huge drag on
16:57
Speaker 3: the economy. No, it's just kind of treading water. It's
17:02
Speaker 3: not really a creative or subtracting in the aggregate.
17:06
Speaker 2: I think yeah, it's very math. I think that's fair.
17:10
Speaker 4: I just stories like this, I mean one I've read
17:13
Speaker 4: this exact story like a dozen times in the last
17:16
Speaker 4: three years, and it hasn't caused a problem. And so
17:19
Speaker 4: I just treat these with a degree of skepticism because
17:24
Speaker 4: I'm not trying to minimize these financial strain that households
17:27
Speaker 4: are under, a whole bunch of student loan payments that
17:31
Speaker 4: had to restart, Like, all of those are real effects.
17:34
Speaker 4: And I do recognize inflation has been damaging to the
17:36
Speaker 4: average household of the last few years, but not when
17:42
Speaker 4: compared in the aggregate to where we were as a
17:44
Speaker 4: society prior to COVID, I don't see much evidence that
17:48
Speaker 4: it's a lot worse off.
17:50
Speaker 3: Yeah, so I think that again, it's again pay attention
17:58
Speaker 3: to what people are doing, not what they're saying. What
18:00
Speaker 3: people are doing is pretty much continuing to spend in
18:03
Speaker 3: a pretty consistent fashion that's not growing overly quickly. It's
18:09
Speaker 3: just kind of muddling along. And that's that's fine, Like
18:13
Speaker 3: you can't always be, you know, seeing you know, crazy gains,
18:17
Speaker 3: but it's just kind of a muddling right now that
18:21
Speaker 3: you are seeing. I mean again, personal consumption expenditures for
18:25
Speaker 3: Q four came in at one point nine percent growth.
18:28
Speaker 2: It's fine. It's not like it's not awful.
18:30
Speaker 3: But it's not you know, knocking the cover off the
18:32
Speaker 3: ball either, right, so you know, it kind of just
18:36
Speaker 3: is what it is, and that's okay. Like not everything
18:40
Speaker 3: has to be the best or the worst. We can
18:42
Speaker 3: just muddle through sometimes. Speaking of muddling through, Kevin Walsh
18:47
Speaker 3: nominated to be the Fed chair. His nomination is is early.
18:51
Speaker 3: Hearing for the Senate Banking Committee is not going to
18:54
Speaker 3: be held next week as originally planned.
18:57
Speaker 4: How come because he didn't file paperwork with the seems untrue.
19:03
Speaker 4: This guy's known that he is being a contender for
19:06
Speaker 4: the role of Federal Reserve chair for how long now?
19:10
Speaker 4: And six months since he was named as the pick,
19:13
Speaker 4: And you didn't submit your financial disclosures?
19:15
Speaker 2: Oh you guys are serious about that?
19:17
Speaker 1: Oh?
19:19
Speaker 2: What is happening here? I don't know, Like, I genuinely
19:23
Speaker 2: have no idea.
19:24
Speaker 4: If this is true that he failed to submit his
19:27
Speaker 4: financial disclosures after all of the foreknology he had about
19:30
Speaker 4: the role, then that's truly embarrassing.
19:33
Speaker 2: Take a quick break here. When we return, We've got
19:36
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Speaker 1: Right here on the Financial Extra Change Radio numbers.
20:01
Speaker 5: Markets are mixed as Wall Street reacts to the first
20:03
Speaker 5: inflation reading since the conflict in Iran started with a
20:07
Speaker 5: March consumer price index revealed consumer prices climbed three point
20:11
Speaker 5: three percent year over year last month, in line with expectations,
20:15
Speaker 5: this does mark the highest level of inflation in two years.
20:19
Speaker 5: Right now, the Dow is down about two tenths of
20:21
Speaker 5: a percent, SMP five hundred, up two tenths of a percent,
20:25
Speaker 5: NASDAC up over two thirds of a percent, or one
20:28
Speaker 5: hundred and fifty five points, RUS to two thousand, mostly flat,
20:31
Speaker 5: dipping into negative territory. Ten year Treasure reeled flat at
20:35
Speaker 5: four point three zero one percent, and oil mostly flat today,
20:40
Speaker 5: trading right around ninety seven dollars a barrel. Taiwan Semiconductor
20:44
Speaker 5: posted another record quarter of revenue this morning, driven by
20:48
Speaker 5: strong demand for ai chips. The world's largest chip maker
20:51
Speaker 5: reported a forty five point two percent year on year
20:55
Speaker 5: rise in revenue. That stock is up by three percent. Meanwhile,
20:58
Speaker 5: Core we've announced a your agreement with Anthropic to power
21:02
Speaker 5: its clawed AI models. The deal comes one day after
21:07
Speaker 5: it announced a twenty one billion dollar expansion of its
21:10
Speaker 5: agreement with Meta Core. We've rallying by eight percent.
21:14
Speaker 2: Elsewhere.
21:14
Speaker 5: Shares an optical and photonic producer Lumentum or up two
21:18
Speaker 5: percent after the company's CEO told Bloomberg that its products
21:21
Speaker 5: are booked through twenty twenty seven amid the AI build out,
21:25
Speaker 5: and shares in service now down seven percent after the
21:28
Speaker 5: software company was downgraded by UBS from buy to neutral.
21:33
Speaker 2: I'm Tucker Silva, and that is Wall Street Watch, Mike.
21:37
Speaker 3: We got a piece in the Wall Street Journal. It's
21:39
Speaker 3: titled when gas prices rise, They're hard to bring down.
21:42
Speaker 3: Here's why, and what's outlined in here. We'll talk about
21:47
Speaker 3: what we'll talk about the actual.
21:49
Speaker 2: Structure of the oil market right now.
21:52
Speaker 3: So if you go and take a look, if you're
21:55
Speaker 3: on CNBC or Bloomberg or anywhere else, and you you know,
21:58
Speaker 3: go and look at commodity prices and you see, you know,
22:02
Speaker 3: West Text Intermediate and Brent crude, and you see, oh gee,
22:05
Speaker 3: those prices are down today. That should mean that, you know,
22:08
Speaker 3: gas prices are down as well. It's not necessarily the case.
22:11
Speaker 3: And here's why. If you were to click on any
22:14
Speaker 3: of these. I'm just floating on the CNBC homepage right
22:17
Speaker 3: now and I click on it, I coick on the
22:19
Speaker 3: the Brent crude button, and what you see when you
22:23
Speaker 3: do that is it says ice Brent Crude June twenty six.
22:28
Speaker 3: And what that means is that this is a Brent
22:30
Speaker 3: crude futures contract for Brent crude to be delivered in
22:33
Speaker 3: June of twenty twenty six, about two months from now.
22:36
Speaker 3: What it is not is how much you have to
22:39
Speaker 3: pay to get a barrel of Brent today or to
22:43
Speaker 3: get a barrel of brent ford delivery at a time before.
22:46
Speaker 3: Then you have the spot market, which trades today, and
22:49
Speaker 3: then what's called the dated Brent market. Dated simply means
22:51
Speaker 3: that there's already a specific date of delivery, typically in
22:54
Speaker 3: the next two to four weeks. And so what you
22:57
Speaker 3: end up with here is a case where if you're
23:00
Speaker 3: trying to buy dated Brent right now, you're actually having
23:03
Speaker 3: to pay around one hundred and thirty dollars a barrel
23:05
Speaker 3: as of the close yesterday, not the ninety five. So
23:09
Speaker 3: just because futures markets are moving in one way, doesn't
23:12
Speaker 3: mean that the spot or dated market is moving the
23:15
Speaker 3: same way. And so that's why you can see these
23:18
Speaker 3: divergences between what's happening in futures markets and what's happening
23:23
Speaker 3: in the actual physical oil market. Because it's one thing
23:27
Speaker 3: to say, hey, I want to place a bid to
23:30
Speaker 3: buy oil for delivery in two months on that June contract.
23:33
Speaker 3: It's another to say I need a barrel today in
23:36
Speaker 3: order to refine it into gas, and for that there's
23:39
Speaker 3: a very different price.
23:41
Speaker 4: So let's assume I was staring out the window for
23:44
Speaker 4: the last thirty seconds, when's gas price is coming down.
23:48
Speaker 3: When horrm Mouz reopens, it's ultimately here's here's the big thing.
23:53
Speaker 3: You may see a little bit of short term relief
23:55
Speaker 3: in the next week or so, simply because even you
23:58
Speaker 3: know on dated products and spot prices, you've seen a
24:01
Speaker 3: little bit of relief there in some cases. So the
24:04
Speaker 3: TRIPAA national average right now still sits at about four
24:07
Speaker 3: fifteen a gallon.
24:09
Speaker 2: You could make a case that you get down.
24:11
Speaker 3: Around that four dollars a gallon range based on the
24:13
Speaker 3: pricing that we've seen. That's that's possible and plausible. Beyond
24:18
Speaker 3: that if you want to see anything more, you need
24:20
Speaker 3: hormones to reopen, because otherwise the rest of that future's
24:24
Speaker 3: curve is just gonna have to adjust up, and the
24:26
Speaker 3: spot market is only going to tighten further. Just as
24:28
Speaker 3: an example, the let me see who it was? Just
24:32
Speaker 3: I want to make sure that I get this right
24:34
Speaker 3: because I don't often talk about the European aviation industry,
24:39
Speaker 3: but today we're good talk today. This is according to
24:43
Speaker 3: reporting from Reuters. The European who the heck isn't actually
24:50
Speaker 3: here we go the Airport's Council International Europe ACI, as
24:54
Speaker 3: they're known in the biz. They basically are Europe's airport
24:58
Speaker 3: industry you know watched group. They pretty much said, look,
25:02
Speaker 3: if we do not get the straight of horror moves open,
25:06
Speaker 3: there are likely to be jet fuel shortages in Europe
25:09
Speaker 3: within the next three weeks, which, by the way, is
25:11
Speaker 3: something that we've been talking about for the last you know,
25:14
Speaker 3: month and a half. We said, hey, like Sinko de
25:16
Speaker 3: Maaya was like the deadline. They're basically telling you the
25:20
Speaker 3: same thing. Look, we're gonna run out of fuel to
25:23
Speaker 3: be able to make all the flights needed at European airports.
25:26
Speaker 2: Before the end of the.
25:27
Speaker 4: Month, although if I'm being honest, I did not think
25:29
Speaker 4: I would hear it from Europe first, right, Like, maybe
25:32
Speaker 4: I'm just not paying attention to the announcements from Singapore,
25:35
Speaker 4: the Philippines, and Pakistan, But you know, I would have
25:39
Speaker 4: anticipated those poorer nations to face jet fuel shortages and
25:43
Speaker 4: other fuel shortages a lot faster.
25:45
Speaker 2: And perhaps they already are and we're just not paying attention.
25:47
Speaker 3: They're already like you've already seen flight cuts in a
25:49
Speaker 3: lot of those places.
25:51
Speaker 2: Yep.
25:51
Speaker 3: So this is like what we're actually going to see
25:55
Speaker 3: throughout the rest of the world is, Hey, if you
25:58
Speaker 3: don't get hormones reopen, it's not gonna be okay. Here's
26:00
Speaker 3: how much you need to pay for this barrel. The
26:02
Speaker 3: barrel doesn't exist. You get twelve failed to barrels today
26:07
Speaker 3: that are not there. You will not be able to
26:10
Speaker 3: cover that through other means.
26:13
Speaker 4: So what is the state of things in the Strait
26:15
Speaker 4: I mean, for an update, we still do not have
26:17
Speaker 4: traffic flowing in any meaningful way.
26:19
Speaker 3: No, you're still off about ninety percent as far as
26:22
Speaker 3: normal traffic.
26:23
Speaker 4: There have been reports of fewer strikes in the region
26:26
Speaker 4: from neighboring neighboring countries, so that the ceasefire itself, in
26:31
Speaker 4: spite of some big claims from Iran, seems to be
26:34
Speaker 4: generally holding on here. But in terms of that traffic flow,
26:38
Speaker 4: which is what will matter for the shortages and eventually
26:42
Speaker 4: those prices coming back down, we are not seeing it
26:45
Speaker 4: to this point.
26:46
Speaker 3: Yeah, I think the hope is that this weekend's meeting
26:49
Speaker 3: in Islamabad is something that can kind of prove to
26:52
Speaker 3: be a catalyst for starting to normalize flow throughout the region.
26:58
Speaker 3: Even there, Remember you don't have oil productions start up
27:02
Speaker 3: as soon as you know ships start moving through Hormus.
27:05
Speaker 2: It takes first of all about a week.
27:07
Speaker 3: For ships to go from Hormuz to where they would
27:10
Speaker 3: typically pick up oil from either Iraq or Saudi Arabia
27:13
Speaker 3: Kuwait as well, Like those are all at the other
27:15
Speaker 3: end of the Persian Gulf. So you've got that transit
27:18
Speaker 3: that needs to happen. Then you need to load those
27:20
Speaker 3: ships up with the oil that's currently filling storage tanks
27:23
Speaker 3: and then you can start pumping again.
27:26
Speaker 4: So plus you got to find like two million in
27:28
Speaker 4: crypto to bribe the Iranian administration if they if they continue.
27:31
Speaker 2: With this, Well we'll see.
27:33
Speaker 3: I mean again, I know that they're talking about wanting
27:35
Speaker 3: to do that. Of course, here's the thing that you
27:37
Speaker 3: have to remember, and this is like, this is no,
27:39
Speaker 3: this is a really cool conversation to have. There are
27:42
Speaker 3: plenty of what's known as kind of these dark fleet
27:44
Speaker 3: ships that have been running Iranian and Russian oil for
27:49
Speaker 3: the last you know, five six years in some cases,
27:51
Speaker 3: decades in other cases. And these are ships that you know,
27:56
Speaker 3: are operated by companies that don't really care about the
28:00
Speaker 3: law in these places. And like you, you get companies
28:02
Speaker 3: that are willing to do that because obviously they can
28:05
Speaker 3: make money doing so. The other worldwide shipping fleets that
28:09
Speaker 3: you know need to be in compliance with different maritime
28:12
Speaker 3: regulations and also with US Treasury sanctions and things like that,
28:17
Speaker 3: they don't go near that stuff. And so, like you,
28:20
Speaker 3: your shippers that you need to be able to be
28:23
Speaker 3: on the good list of you know, US Treasury UH
28:27
Speaker 3: sanction lists in order to you know, travel to the
28:30
Speaker 3: US and and you know.
28:31
Speaker 2: Ship cargo back and forth.
28:33
Speaker 3: They're not the ones that are gonna be dipping their
28:35
Speaker 3: toe in saying okay, like yeah, we want to start
28:37
Speaker 3: paying this because they're nervous about, you know, losing the
28:42
Speaker 3: ability to transit cargo elsewhere. The ones that are in
28:45
Speaker 3: the dark fleet, that have already been doing this, they're
28:49
Speaker 3: gonna be sitting there saying, hey, we've been shipping your
28:50
Speaker 3: stuff for the last couple of years. Now you want
28:52
Speaker 3: to you want us to pay you? Fine, good, good luck,
28:55
Speaker 3: go find someone else. So it's really can Iron try
28:59
Speaker 3: to beverage this into sanctions relief and then be able
29:04
Speaker 3: to you know, have above board the ability to pay
29:08
Speaker 3: this because otherwise the other stuff, it's all like all
29:12
Speaker 3: that other oil and everything is already flowing you know,
29:14
Speaker 3: in you know, in flaunting these sanctions to begin with.
29:19
Speaker 3: And so those those ships are not going to just
29:21
Speaker 3: be like, yeah, like we'll pay you now for the
29:23
Speaker 3: privilege of doing this.
29:24
Speaker 2: No, go find someone else if you don't want.
29:26
Speaker 3: Us to, right, But it is again, it's it's interesting
29:29
Speaker 3: to like think through the mechanics of all this as
29:32
Speaker 3: you try to make sense of it. So, long story short,
29:35
Speaker 3: there's probably some relief on oil prices coming next week.
29:39
Speaker 3: It's not back down to the twos. It's probably ten
29:42
Speaker 3: to twenty cents lower than it is today. To get
29:45
Speaker 3: beyond that, you need to have Hormon's reopen. That's the
29:50
Speaker 3: roubm s. Take a quick break here. When we come back,
29:54
Speaker 3: let's see electricity bills. Do we want to Yeah, I
29:58
Speaker 3: want to talk. I want to talk electricity when we
30:00
Speaker 3: come back from on the Financial Exchange.
30:02
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30:38
Speaker 3: All right, we got a piece in the Boston Globe
30:42
Speaker 3: here Trump promised to cut electric costs in half, but
30:46
Speaker 3: bills in parts of the US now top mortgages.
30:50
Speaker 2: Which parts are those?
30:51
Speaker 4: Mike, I don't know why that's the relevant comparison, but
30:57
Speaker 4: I suppose that if you had a mortgage from the
31:01
Speaker 4: pre COVID interest rate days, and you know, are in
31:04
Speaker 4: a two point eight percent mortgage in a pretty low balance,
31:07
Speaker 4: then you might in fact pay more for electricity than
31:10
Speaker 4: your mortgage. I think anybody listening know is aware that
31:14
Speaker 4: electricity costs nationwide have increased quite a bit. The actual
31:18
Speaker 4: measure prior to this morning's inflation report is four point
31:21
Speaker 4: eight percent in February compared to the year before, and
31:25
Speaker 4: net gas price is more like.
31:26
Speaker 2: Eleven before the war broke out.
31:28
Speaker 4: So these prices are up, and I think they're up
31:32
Speaker 4: for a few obvious reasons. One, there is more competing
31:36
Speaker 4: demand for this. But remember too that a lot of
31:40
Speaker 4: this that's being driven is in part just due to
31:44
Speaker 4: really old infrastructure that we continue to need to improve.
31:49
Speaker 4: What is the transmission cost I think the national average
31:52
Speaker 4: for you know, of that bill, how much of it
31:55
Speaker 4: is coming from transmission costs is something like two thirds
31:57
Speaker 4: of the total. And so that remains a big problem.
32:02
Speaker 4: And you know, other than subsidizing, which we know some
32:06
Speaker 4: states are going to go down that path, I don't
32:09
Speaker 4: see a lot of easy ways to fix that problem
32:12
Speaker 4: in the short term.
32:13
Speaker 3: No, it's we we've neglected the infrastructure for decades and
32:19
Speaker 3: now we are paying for that effectively. And it's it's
32:23
Speaker 3: just something where you just you don't have an easy
32:28
Speaker 3: fix because look, I get it. You go to just
32:32
Speaker 3: about any state with the way that regulated utilities work,
32:35
Speaker 3: and the members the politicians that are you know, focused
32:39
Speaker 3: on this, they don't want to raise electricity prices because
32:43
Speaker 3: that means that their constituents pay more. But in turn,
32:47
Speaker 3: then you don't modernize any of this, and then eventually
32:49
Speaker 3: you end up with higher costs anyways. Plus you still
32:51
Speaker 3: have to do the modernization, and so there's there's no way.
32:54
Speaker 2: Out on this.
32:55
Speaker 3: It's also coupled with the fact that we again in
32:59
Speaker 3: parts of the country New England in particularly, we don't
33:02
Speaker 3: allow for again the transmission of the fuel through the
33:06
Speaker 3: most efficient way possible, not gas pipelines, and so instead
33:09
Speaker 3: that you know, raises costramatically as well. It's another way
33:12
Speaker 3: that we just have not kept up with the infrastructure
33:15
Speaker 3: side of things. So it's it, there is no easy
33:19
Speaker 3: fix on this. The only way out is through which
33:22
Speaker 3: means paying more in the short term. But there's a
33:24
Speaker 3: lot of families that can't pay more. I mean, you
33:26
Speaker 3: talk about some of the bills that you're seeing, and
33:28
Speaker 3: they are you know, in the winter, in the high
33:31
Speaker 3: hundreds of dollars to heat homes and we're not talking
33:33
Speaker 3: about giant homes in a lot of cases, and it's
33:37
Speaker 3: really challenging for a lot of people to make those payments,
33:40
Speaker 3: and there's just no way, there's no way out.
33:43
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34:53
Speaker 4: Chuck, a few other points I want to make on
34:55
Speaker 4: electricity costs, if we just don't mind standing here first, Yeah,
34:57
Speaker 4: in here for a moment. So one, I think it's
35:00
Speaker 4: worth pointing out that in terms of global electricity rates
35:05
Speaker 4: among developed nations were amongst the cheapest. There are plenty
35:08
Speaker 4: of emerging economies like China where you know, due to
35:12
Speaker 4: how they structure their energy infrastructure, Russia as well, that
35:15
Speaker 4: energy prices are lower, but among developed countries we tend
35:18
Speaker 4: to have some of the lowest electricity costs. Two would
35:21
Speaker 4: be an interesting argument I heard on how the AI
35:25
Speaker 4: boom is going to eventually lower electricity prices, which I
35:30
Speaker 4: think it's I've brought this up from the beginning because
35:33
Speaker 4: oftentimes in big, you know, big booms for new technology,
35:37
Speaker 4: you'll have an over development of things. Some of those
35:39
Speaker 4: companies will go bust and they'll leave some really valuable
35:42
Speaker 4: infrastructure behind. And I could see that happening here with
35:45
Speaker 4: generation power generation But the other piece that you know,
35:50
Speaker 4: I hadn't really thought through the mechanics of this until
35:52
Speaker 4: somebody else brought it up, was let's say, you, you know,
35:56
Speaker 4: right in Massachusetts, build a massive data center that requires
35:59
Speaker 4: a whole lot more electricity, and so you have to
36:02
Speaker 4: ramp up power plants and probably raise total utility prices
36:06
Speaker 4: in order to build that out. But once you've done so,
36:09
Speaker 4: you now have, you know, a new rate payer gobbling
36:14
Speaker 4: up a bunch of electricity without a really complex transmission line. Right,
36:20
Speaker 4: So if we think about that factor that, hey, two
36:22
Speaker 4: thirds of the cost goes to transmission, and all we're
36:25
Speaker 4: doing is now dividing a whole lot more electricity over
36:29
Speaker 4: pretty much the same transmission lines, you would expect that
36:33
Speaker 4: cost to just come down over time for the average
36:36
Speaker 4: rate pair. Does that make sense in terms of the
36:39
Speaker 4: mechanics practice, Like in practice, you actually have to price
36:44
Speaker 4: it correctly and you actually have to do it. If
36:48
Speaker 4: you just say, hey, we're going to allow this rate
36:50
Speaker 4: payer to lock in their cost because they're a massive
36:52
Speaker 4: rate payer and uh and we want their business, then
36:56
Speaker 4: it suddenly doesn't work. But if they're actually paying the
36:58
Speaker 4: same rate as everybody else with a much less complex
37:02
Speaker 4: transmission than in theory. It brings down prices for everybody
37:06
Speaker 4: else to But in the meantime, I think all of
37:12
Speaker 4: these AI data centers and buildouts are going to need
37:15
Speaker 4: to start offering incentives to to rate payers in order
37:19
Speaker 4: to get these data centers built, because we're already seeing
37:22
Speaker 4: the backlash from states municipalities that don't want this stuff
37:25
Speaker 4: in their backyard.
37:26
Speaker 2: It's part because it's you know, loud, but it's mostly.
37:30
Speaker 4: Because they're really concerned about it what it does to
37:32
Speaker 4: their grid and to their water supply over the next
37:34
Speaker 4: two decades.
37:36
Speaker 3: If data centers want to become more popular, they should
37:41
Speaker 3: negotiate higher tax rates with their municipalities that then ease
37:46
Speaker 3: the tax burden on local taxpayers. Yeah, if they're really
37:52
Speaker 3: this transformative, they'll have the money to do it.
37:54
Speaker 2: Yeah. If they're not, then they won't.
37:57
Speaker 3: But like, that's the path if you want to become
37:59
Speaker 3: more popular, Like in a town that you're trying to
38:01
Speaker 3: build a data center, Cool, we'll pay double the normal
38:06
Speaker 3: property tax rate.
38:07
Speaker 2: Yeah.
38:08
Speaker 3: Oh, I bet a lot of people will be pretty
38:09
Speaker 3: happy to hear that, and it'll ease a lot of
38:11
Speaker 3: those concerns.
38:13
Speaker 2: If you do that.
38:14
Speaker 3: I don't know those companies will do it, but that's
38:16
Speaker 3: how you do it if you want to quick break here.
38:19
Speaker 2: Hour two coming up in just a bit.