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Why Oil Markets May Be Underestimating a Supply Shock · The Financial Exchange Show

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Speaker 1: a donation today. This is the Financial Exchange with Chuck
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Speaker 1: Zada and Mike Armstrong.
1:11
Speaker 2: Chuck, Mike and Chucker with you here, and we kick
1:16
Speaker 2: things off today on a busy day. We got a
1:18
Speaker 2: lot of economic.
1:19
Speaker 3: Data that we're gonna work through.
1:21
Speaker 2: We've got a couple interesting quotes that I want to
1:26
Speaker 2: get to later on in the show on a couple items.
1:31
Speaker 2: But we start things off back in the Straight of
1:34
Speaker 2: Horror Moves, where we've been for the last three months now.
1:39
Speaker 3: And got to tell you, Mike, if.
1:42
Speaker 2: You had told me, like if you were sitting here
1:45
Speaker 2: on February twenty sixth and you said, hey, Chuck, the
1:51
Speaker 2: US and Iron are going to get involved in a
1:53
Speaker 2: shooting war, the Straight of Horror Moves is going to
1:56
Speaker 2: be closed at least three months. What do you think
2:01
Speaker 2: the price of a barrel of oil is going to be?
2:05
Speaker 2: Not ninety bucks, not ninety dollars?
2:08
Speaker 3: Is My answer?
2:10
Speaker 4: Was this one of those Maybe it was just because
2:12
Speaker 4: of where I was and the attention I was paying
2:14
Speaker 4: to it, but this was one of those moments where
2:17
Speaker 4: when it happened.
2:18
Speaker 3: I remember exactly where I was.
2:20
Speaker 4: I was sitting in the lobby of a Marriott Hotel
2:23
Speaker 4: in Worcester for my kid's hockey game, and I was
2:26
Speaker 4: sitting there eating my breakfast, looking at the TV, being like, oh,
2:30
Speaker 4: this is what's happening right now. And there's a few
2:34
Speaker 4: of those moments in my life that like really stand out,
2:36
Speaker 4: but this is, you know, one of those events where
2:38
Speaker 4: I'm sitting here like, oh, got it, went to bed
2:41
Speaker 4: last night and this is what you're waking up to
2:43
Speaker 4: on February twenty eighth.
2:46
Speaker 3: So here, here's the deal is.
2:50
Speaker 2: I don't know exactly where the price of oil is
2:52
Speaker 2: going to be at any particular point in time, but
2:56
Speaker 2: I do know that what we are seeing in in
3:00
Speaker 2: terms of the draw down of US inventories points towards
3:03
Speaker 2: them becoming problematic as we go through the summer to
3:08
Speaker 2: this point, I do get questions from people on a
3:11
Speaker 2: pretty regular basis like, Hey, Chucklake, I hear what you're
3:15
Speaker 2: saying about, you know, the concerns about inventory levels. I
3:18
Speaker 2: see the same thing. But why are oil prices still
3:22
Speaker 2: where they are?
3:23
Speaker 3: Then?
3:24
Speaker 2: And there are a couple factors. The first that has
3:28
Speaker 2: come up in the last week or two. China has
3:30
Speaker 2: cut their crude oil imports by around five million barrels
3:34
Speaker 2: a day, which is a huge import cut. Now there
3:39
Speaker 2: are all kinds of there's all kinds of speculation as
3:42
Speaker 2: to how they're doing this. Some of it the speculation
3:46
Speaker 2: is that they are releasing from their strategic reserves through
3:50
Speaker 2: underground holdings that they have, just like the US does,
3:53
Speaker 2: where hey, they don't necessarily have to report what's going
3:56
Speaker 2: on there. It's not observable by satellite the same way
3:58
Speaker 2: that above ground inventory worries are. And Okay, maybe they are,
4:04
Speaker 2: you know, pushing through these big strategic reserve releases without
4:07
Speaker 2: us knowing.
4:08
Speaker 3: It's possible.
4:09
Speaker 2: Another thing that has been rumored is that they also
4:13
Speaker 2: might have significant reserves that they've built up of refined
4:19
Speaker 2: product and they might be releasing those. The other piece
4:23
Speaker 2: that I've heard is that they may be instructing their
4:25
Speaker 2: refiners to shift the mix of what they are producing dramatically,
4:29
Speaker 2: underproducing things for petrochemicals like plastics and stuff like that,
4:33
Speaker 2: and instead producing more of the refined product they need.
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Speaker 4: It's also possible a portion of their previous imports were
4:42
Speaker 4: going towards reserves, and I would imagine not a lot
4:44
Speaker 4: of those are right now. Sure, they could have been
4:47
Speaker 4: filling reserves at that point in time and they said, okay,
4:49
Speaker 4: that ten percent of it that's going there is getting
4:51
Speaker 4: cut down. So yeah, there's any combination of things that
4:55
Speaker 4: could be affecting that.
4:56
Speaker 2: All kinds of stuff there. The big thing like, no
4:58
Speaker 2: one really knows because it's China and all of their
5:00
Speaker 2: data is a black box, and we don't know how
5:03
Speaker 2: long they can continue to restrict imports to these levels.
5:07
Speaker 2: It could be weeks, it could be months, it could
5:09
Speaker 2: be years. Like I have absolutely no idea, and I'm
5:11
Speaker 2: not going to profess to know because I don't.
5:15
Speaker 4: So China accounts for five million barrels a day of
5:19
Speaker 4: demand offline correct now the US another three was the
5:25
Speaker 4: last I sighted.
5:26
Speaker 2: US is putting out another two and a half to
5:28
Speaker 2: three million a day that they weren't previously. Not in
5:30
Speaker 2: terms of production, we're still producing about the same amount.
5:33
Speaker 3: As we were pre war.
5:34
Speaker 2: We're just exporting a whole lot more, and so our
5:37
Speaker 2: reserves are being drawn down between strategic reserves and commercial reserves,
5:42
Speaker 2: somewhere in the ballpark of again two to three million
5:46
Speaker 2: barrels a day, depending on the particular week and exactly
5:49
Speaker 2: how you're measuring. So you look at the data Japan's
5:54
Speaker 2: also putting in, you know, somewhere in the range of
5:55
Speaker 2: one to one and a half million barrels, So like
5:58
Speaker 2: this is kind of bridge the gap that we have
6:01
Speaker 2: from a production standpoint, but the US very much we
6:05
Speaker 2: do know the math on this. We've we've covered it
6:07
Speaker 2: on this show extensively. Commercial stocks start to get into
6:12
Speaker 2: trouble as you get into late July to early August.
6:15
Speaker 2: Strategic petroleum reserve stocks start to get into trouble about
6:19
Speaker 2: a month to a month and a half after that.
6:22
Speaker 2: So there's very much a ticking clock that is out
6:26
Speaker 2: there in terms of you know, the other big thing
6:29
Speaker 2: is to hey, why are price is still so low? Like,
6:32
Speaker 2: why aren't they rising in anticipation of this? Guys, I
6:35
Speaker 2: gotta tell you would you want Let's say that you
6:40
Speaker 2: are an environment mic where there are securities that are
6:45
Speaker 2: moving up seventy percent in the course of a month, okay,
6:52
Speaker 2: and you've got other securities that are basically trading flat
6:56
Speaker 2: for the last two months.
6:58
Speaker 3: Okay.
6:59
Speaker 2: But that is also deceptive because there are huge, you know,
7:03
Speaker 2: volatility swings from day to day, and you also have
7:08
Speaker 2: the single most powerful person on the planet telling you
7:12
Speaker 2: I want the price of that to be lower. Is
7:16
Speaker 2: your risk manager at your you know hedge funder wherever
7:21
Speaker 2: you might be. Is that person going to say, hey,
7:25
Speaker 2: why don't you get longer in the stuff that's moving
7:28
Speaker 2: around a ton but not going anywhere.
7:31
Speaker 3: No, they're not.
7:31
Speaker 2: They're gonna give you a tap on the shoulder and say, hey,
7:34
Speaker 2: you want to trade crude oil right now, you got
7:37
Speaker 2: to do it at a tenth of your normal size.
7:39
Speaker 2: And here are the stops that I'm putting in place,
7:41
Speaker 2: because when you have days like we did on Tuesday,
7:45
Speaker 2: where hey, you come in after the weekend and crude
7:48
Speaker 2: oil is down five six percent, you can't appoint any
7:52
Speaker 2: leverage with that or anything. You're just getting jaw owned
7:55
Speaker 2: by again the President, the Treasury Secretary, of the Energy Secretary,
7:59
Speaker 2: like you can't fight against that.
8:03
Speaker 3: You've also got a history of being burnt there. So yeah,
8:05
Speaker 3: there's a number of different things that go into it.
8:08
Speaker 2: So I'm very much convinced at this point that there
8:12
Speaker 2: is no one of any meaningful size who wants to
8:15
Speaker 2: take a long crude oil position right now because their
8:19
Speaker 2: risk managers probably won't allow it given the volatility profile
8:23
Speaker 2: that's out there. And so it gets us to a
8:27
Speaker 2: point where the only thing that's going to finally cause
8:29
Speaker 2: price to move is when you start to get into
8:33
Speaker 2: the nitty gritty of the literal availability, the actual physical
8:40
Speaker 2: availability of this stuff. What I can tell you, and
8:46
Speaker 2: I don't have the direct quote just because I'm not there,
8:50
Speaker 2: but this is right now. Bernstein has a big conference
8:56
Speaker 2: that's going on in New York City, big investment conference,
9:00
Speaker 2: and they get like CEOs from all kinds of major
9:03
Speaker 2: companies and this and that, and this is a quote
9:05
Speaker 2: from the Exon Mobile representative who's there today, like this
9:10
Speaker 2: is going on right now. So again I don't have
9:13
Speaker 2: the full quote. I just have the paraphrased one. We're
9:17
Speaker 2: approaching unheard of inventory levels, I mean really really low.
9:21
Speaker 2: You can debate whether it's going to hit those levels
9:23
Speaker 2: in two weeks or three weeks, but once you get
9:26
Speaker 2: to that point, you'll probably see price shoot up.
9:30
Speaker 4: That's from somebody who would seemingly have a fairly good
9:33
Speaker 4: at right.
9:33
Speaker 2: Like, you're not hearing this from me. This is like
9:36
Speaker 2: someone at Exon Mobil who is saying this stuff now.
9:40
Speaker 2: And so again I don't know exactly when this starts
9:45
Speaker 2: to matter. But what I do know is since the
9:49
Speaker 2: first week of this conflict, all I've been hearing from people,
9:55
Speaker 2: is you know, all like everything's gonna be back to
9:57
Speaker 2: normal soon, It's gonna be back to normal. It's three
9:59
Speaker 2: months now and we're not. We're at the point now
10:02
Speaker 2: where the cumulative barrel loss, even if you price in
10:05
Speaker 2: a recovery, you know, of production over the next you know,
10:08
Speaker 2: three to four months, you're talking two billion barrels of
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Speaker 2: oil that's not going to be produced out of the
10:13
Speaker 2: Middle East at a minimum. And again, like it's I
10:20
Speaker 2: I think I really struggle with this because I know
10:23
Speaker 2: I sound like the crazy person just yelling into the wind,
10:26
Speaker 2: being like, hey, you got to watch out for this,
10:29
Speaker 2: but you got to watch out for this.
10:30
Speaker 3: Yeah.
10:31
Speaker 4: And I think there's a little bit of misunderstanding from
10:36
Speaker 4: folks because I don't.
10:37
Speaker 2: I'm not saying that the economy is going to crash
10:39
Speaker 2: or anything like. That's not what I'm saying.
10:42
Speaker 4: But I think what I am comfortable saying is that
10:45
Speaker 4: there is a misunderstanding on the average person on mainstream
10:49
Speaker 4: right now that we are feeling the price of this
10:52
Speaker 4: event in at the gas pump and in oil prices.
10:55
Speaker 3: And I think the point you're making.
10:57
Speaker 4: Is we very much might not be there are a
11:01
Speaker 4: bunch of other factors that are keeping prices lower than
11:04
Speaker 4: we might have otherwise expected right now, and the possibility
11:08
Speaker 4: of a further dramatic shoot up in prices is, you know,
11:14
Speaker 4: a very significant likelihood.
11:16
Speaker 3: I also don't know what.
11:17
Speaker 2: Just happened, because okay, so Axios now reporting.
11:21
Speaker 3: Here we go. I'm glad the Bloomberg got on it.
11:24
Speaker 2: Axios reporting US Iran reached deal, but need Trump's final approval.
11:28
Speaker 4: And on that equity market shot up by close pent
11:33
Speaker 4: oil markets as we speak right now. Hold on, I'm
11:38
Speaker 4: still showing oil prices up for the day. That can't
11:40
Speaker 4: be the case anymore.
11:41
Speaker 2: No, it looks like we are hang on, let's see
11:44
Speaker 2: where we are. It looks like we're back down in
11:47
Speaker 2: the eighty nine range, about two where we closed yesterday
11:50
Speaker 2: in that ballpark. So we'll see what we get out
11:54
Speaker 2: of this.
11:55
Speaker 3: Again.
11:56
Speaker 2: I'm hopeful that maybe you get a deal moving because
11:59
Speaker 2: we are very much in a dangerous spot for oil
12:02
Speaker 2: prices the rest of the summer. Every day this goes
12:06
Speaker 2: without one, and so we'll see what this brings over
12:11
Speaker 2: the rest of the day, and as we get towards
12:15
Speaker 2: the weekend, maybe we get some kind of final approval
12:17
Speaker 2: here and.
12:17
Speaker 3: We'll see, so what happens.
12:19
Speaker 5: Yeah, I'm seeing sixty day deal to extend truce, so.
12:26
Speaker 3: I don't know what that means yet.
12:27
Speaker 2: Yeah, we'll have to see, like what we get, and
12:30
Speaker 2: let's take a quick break and we will effort additional
12:33
Speaker 2: information on this as we speak.
12:36
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13:12
Speaker 2: Following up on something that broke just as we were
13:16
Speaker 2: heading to break from Axios here, US Iranian negotiators have
13:21
Speaker 2: reached an agreement on a sixty day memorandum of understanding
13:24
Speaker 2: to extend the ceasefire and launch negotiations on Iran's nuclear program,
13:29
Speaker 2: but President Trump has yet to give it his final
13:31
Speaker 2: approval to you. US officials and a regional source involved
13:34
Speaker 2: in the matter in the mediation efforts tell Axios the
13:39
Speaker 2: signing of the MoU would be the most significant diplomatic
13:42
Speaker 2: breakthrough since the war started, but a final agreement that
13:45
Speaker 2: tackles Trump's nuclear demands would still require further intensive negotiations,
13:50
Speaker 2: So we're gonna have to see the details that end
13:53
Speaker 2: up coming out of this.
13:55
Speaker 3: Again.
13:55
Speaker 2: Markets rallied about a third of a percent on the news.
13:58
Speaker 2: They've subsequently given back half of those gains, So we're
14:03
Speaker 2: gonna have to see what comes to this. Obviously, any
14:05
Speaker 2: kind of framework to get things moving through the straight
14:08
Speaker 2: of horror moves again would be a major plus. Whether
14:12
Speaker 2: this actually does or not, I think is something that's
14:15
Speaker 2: an open question. Remember when the ceasefire was uh, it
14:20
Speaker 2: wasn't signed because like there's no ceasefire document rights, I
14:23
Speaker 2: don't I've never seen one. When the ceasefire was announced,
14:27
Speaker 2: one of the things that was announced during that was, hey,
14:30
Speaker 2: the straight of horror moves will be open, and subsequently
14:34
Speaker 2: it has not been.
14:35
Speaker 4: We're so US centric for you know, here, I want
14:38
Speaker 4: to focus for a moment, Like a big part of
14:42
Speaker 4: the pressure campaign on whatever is left of the Iranian
14:47
Speaker 4: government has been stopping traffic through Iranian ports and prohibiting
14:52
Speaker 4: items from coming or going that that has you know,
14:55
Speaker 4: by all accounts, the initial strikes.
14:57
Speaker 3: On Iran did not do all that much economic damage.
14:59
Speaker 4: Where where as now after basically closing all of their
15:02
Speaker 4: ports for a few months, it is starting to add up.
15:05
Speaker 4: And so the question is can you have any success
15:08
Speaker 4: in a nuclear negotiation or anything else if you are
15:13
Speaker 4: allowing traffic to flow, Because I kind of doubt the
15:16
Speaker 4: US is going to be successful in allowing some ships
15:21
Speaker 4: to go but stopping Iranian ones without again the strait
15:25
Speaker 4: being closed.
15:26
Speaker 3: So there's questions remain.
15:27
Speaker 2: There's also a pretty big caveat in the reporting here
15:33
Speaker 2: quote US officials claimed Iranians came back and said they
15:35
Speaker 2: had necessary approvals and were prepared to sign, but Iran
15:38
Speaker 2: has not separately confirmed that. Sure, So again we'll see
15:43
Speaker 2: where this goes. Maybe there's some progress here, maybe there is,
15:46
Speaker 2: I don't know. I'm hopeful that there is, And anything
15:50
Speaker 2: that can get traffic moving through the Strait of Horn
15:52
Speaker 2: moves would be a positive for the world economy. Again,
15:57
Speaker 2: the devil's gonna be in the details on any of this,
16:00
Speaker 2: and we'll see what we get.
16:02
Speaker 4: It is an interestingly small move in both oil and
16:06
Speaker 4: equity markets.
16:08
Speaker 3: Well, here's the thing. When when you've been you know, saying.
16:11
Speaker 2: For the last I mean the first rumors were on
16:14
Speaker 2: I think it was like the eighth or ninth of
16:19
Speaker 2: May that we were hours away from a deal. If
16:23
Speaker 2: you have gone to that well a few times, like
16:27
Speaker 2: how much more rally can you get at.
16:28
Speaker 3: A certain point. Let's see.
16:31
Speaker 2: Let's talk about some of the data that we got today.
16:35
Speaker 2: Starting with the big one PCE inflation data. Personal consumption
16:38
Speaker 2: expenditure came in a touch better than anticipated. On the
16:44
Speaker 2: core PCE price index, which is the one that really
16:46
Speaker 2: matters to the Fed, came in at point two percent
16:49
Speaker 2: versus expectations of point three. The unrounded number, though was
16:55
Speaker 2: a point two four, and so we're basically within a
16:58
Speaker 2: whisker of this coming in at point three, which is
17:00
Speaker 2: why if you look at the annualized numbers, they both
17:04
Speaker 2: came in as anticipated. Headline inflation at three point eight
17:07
Speaker 2: percent court three point three the big thing that I
17:12
Speaker 2: think you continue to get here, remember point twenty four percent.
17:14
Speaker 2: You're talking three point three percent year over year inflation.
17:17
Speaker 2: If you annualize that, it's pretty hard for the FED,
17:21
Speaker 2: in my opinion, to be cutting with inflation running there again,
17:27
Speaker 2: inflation core inflation's at three to three, and this report
17:30
Speaker 2: averages to three three so it's telling you, hey, this
17:34
Speaker 2: report neither improved nor worsened the inflation situation. Uh, it's
17:39
Speaker 2: just continuing to move in that range. And the headline number, obviously,
17:44
Speaker 2: you know, approaching four and probably will top four next
17:47
Speaker 2: month following.
17:48
Speaker 3: The release of the MAD data.
17:51
Speaker 2: None of that really points to Kevin Worrish being able
17:54
Speaker 2: to persuade everyone to cut at one of the next
17:57
Speaker 2: couple meetings.
17:58
Speaker 4: Yeah, this is the second and five reading we've gotten
18:01
Speaker 4: for the month of April. The first one was the
18:02
Speaker 4: consumer Price Index, this being the preferred measure of inflation
18:06
Speaker 4: for the Federal Reserve. When we do take a look
18:08
Speaker 4: out though, because again what we're talking about here is
18:12
Speaker 4: how much this matters to the new incoming FED share
18:14
Speaker 4: and the Board of the Federal Reserve as they determine
18:17
Speaker 4: what to do with interest rates. Most assumptions for the
18:20
Speaker 4: moment are that they don't move on those rates. But
18:23
Speaker 4: when I do look out to the December meeting, the
18:25
Speaker 4: last meeting of twenty twenty six, which is on December ninth. Yeah, markets,
18:30
Speaker 4: according to CME Group, which you know, has these futures
18:33
Speaker 4: out there, markets are pricing in about a fifty to
18:37
Speaker 4: fifty chance that rates are higher than where they are now,
18:40
Speaker 4: So you know that's not an insignificant likelihood there. I
18:44
Speaker 4: think plenty of people would say, you know, Fed, stay
18:46
Speaker 4: out of any action here with an oil price bike
18:50
Speaker 4: because you don't know what's going to happen. But clearly
18:55
Speaker 4: plenty of people are looking at this and saying, well,
18:57
Speaker 4: you know, based on the commentary from the governors, rates
19:00
Speaker 4: could be higher by your end.
19:02
Speaker 3: Big thing here, the FED never goes one and done
19:08
Speaker 3: any of the direction.
19:09
Speaker 2: Yeah, you know, like you look at the cutting cycles
19:11
Speaker 2: that we've seen the last two years. It's been three
19:14
Speaker 2: sets of cuts. There was a larger one in twenty
19:16
Speaker 2: four We started with that fifty basis point cut and
19:18
Speaker 2: then got some twenty five bit ones after. But the
19:22
Speaker 2: FED doesn't like to just do one and then be like, oh, no,
19:24
Speaker 2: we were wrong. If you've got one coming, you've probably
19:27
Speaker 2: got more and that would need to get priced in
19:30
Speaker 2: quick break here more economic data and Wall Street Watch
19:32
Speaker 2: are next.
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20:01
Speaker 5: Well breaking news this hour after Axios reported that the
20:04
Speaker 5: US and Iran have reached an agreement on a sixty
20:07
Speaker 5: day deal to extend the ceasefire and launch negotiations on
20:10
Speaker 5: Iran's nuclear program, but President Trump has yet to give
20:14
Speaker 5: his final approval. Once again that according to Axios, right now,
20:19
Speaker 5: markets are mixed. The Dow is down about a tenth
20:21
Speaker 5: of percent, SMP five hundred is up two tenths of
20:25
Speaker 5: a percent, NASDAC also up about two tenths of a percent,
20:28
Speaker 5: RUSS two thousands down just over a tenth of a percent.
20:32
Speaker 5: Tenure Treasure Reel is down one basis point at four
20:35
Speaker 5: point four to six percent, and oil is up about
20:39
Speaker 5: half a percent, rating right around eighty nine dollars a barrel.
20:42
Speaker 2: Some merger news.
20:43
Speaker 5: In the casino space this morning, after Caesar's Entertainment agreed
20:47
Speaker 5: to be bought by Fertida Entertainment in a five point
20:50
Speaker 5: seven billion dollars all cash deal. Newel cloud data platform
20:55
Speaker 5: provider Snowflake it's seeing it's stock surge thirty five per
21:00
Speaker 5: after it raised its full year outlook and agreed to
21:03
Speaker 5: a six billion dollar deal with Amazon to access its
21:07
Speaker 5: chips elsewhere. Salesforce logged higher profit in sales in the
21:10
Speaker 5: first quarter, however, it's revenue I look.
21:13
Speaker 3: For the current quarter.
21:14
Speaker 5: Slightly disappointed, the stock is still up by one percent.
21:18
Speaker 5: Dollar Tree jumping seventeen percent after the discount retailer b
21:23
Speaker 5: quarterly expectations and impressed with its full year guidance. Best
21:26
Speaker 5: Buy rallying fourteen percent after it be first quarter estimates
21:30
Speaker 5: where comparable sales are up two percent year over year,
21:34
Speaker 5: and after today's close, we'll see quarterly earnings from Costco
21:38
Speaker 5: and Dell Technologies. I'm Tucker Silvan. That is Wall Street Watch.
21:44
Speaker 2: Let's go through some of the other economic data that
21:46
Speaker 2: we received this morning. Probably the least important one in
21:50
Speaker 2: my opinion, updated Q one GDP. Remember we get three
21:55
Speaker 2: different readings on this, and the big thing that we
22:00
Speaker 2: have here is that the updated one for GDP growth
22:05
Speaker 2: in Q one came in at a reading of one
22:08
Speaker 2: point six percent. That was down from the initial reading
22:11
Speaker 2: of two percent. I'm not really sure this is relevant
22:14
Speaker 2: given that the world is very different now from what
22:16
Speaker 2: it was for most of Q one, and in particular
22:21
Speaker 2: in the last you know, eight weeks or so. We've
22:23
Speaker 2: also seen some continued green shoots in the labor market
22:25
Speaker 2: that seem to be improving. So I'm not really concerned
22:29
Speaker 2: about updated Q one data coming in, you know, worse
22:32
Speaker 2: than originally reported. I think you can kind of put
22:35
Speaker 2: that to the side and say, Okay, this isn't something
22:38
Speaker 2: that really matters a ton today. Okay, other things that
22:41
Speaker 2: we received we were talking about just talking about the
22:44
Speaker 2: labor market there, initial jobbless claims came into two hundred
22:47
Speaker 2: and fifteen thousand, still a very very low number. Continuing
22:51
Speaker 2: claims at one point seven eighty six million, still running
22:54
Speaker 2: about five percent below last years and about one percent
22:57
Speaker 2: below twenty twenty four levels. I got to tell you,
23:00
Speaker 2: we're continuing to see more and more signs that the
23:03
Speaker 2: labor market may be loosening up and starting to see
23:07
Speaker 2: a little bit more activity there. It still isn't showing
23:11
Speaker 2: up as far as you know, a meaningfully increased hiring
23:14
Speaker 2: rate or anything like that, but it does seem like
23:17
Speaker 2: there is something that's happened in the labor market in
23:19
Speaker 2: the last really since the beginning of the year that
23:24
Speaker 2: is putting it on slightly better footing than we were
23:27
Speaker 2: coming in, whereas most of the second half of last
23:30
Speaker 2: year was a steady worsening in the labor market. So
23:34
Speaker 2: I think that we're in a better spot now labor
23:36
Speaker 2: wise than six months ago.
23:38
Speaker 3: Yeah.
23:39
Speaker 4: Going into the year, everybody feared layoffs and higher unemployment.
23:42
Speaker 4: Instead what we've gotten is very low levels of layoffs
23:46
Speaker 4: and actually an uptick in the pace of hiring.
23:49
Speaker 3: So we'll see.
23:53
Speaker 2: Yeah. So I think overall, again, if you're just looking
23:57
Speaker 2: at the US economy broadly right now, I think the
24:01
Speaker 2: takeaways that I have, it's really hard for me to
24:04
Speaker 2: see recession happening in the United States at any point
24:08
Speaker 2: in the near future. You know, this is not a
24:12
Speaker 2: recessionary economy when you see the types of numbers that
24:16
Speaker 2: we're seeing from AI cap X, from hiring, you know,
24:20
Speaker 2: things like that housing is basically treading water. It's it's
24:24
Speaker 2: not contributing to the economy in a meaningful way, it's
24:27
Speaker 2: not subtracting from it in a meaningful way. I think
24:31
Speaker 2: that this is an economy that clearly had you know,
24:34
Speaker 2: slowed down. We see this with the GDP numbers. If
24:38
Speaker 2: you look at you know, the quarter by quarter ones,
24:43
Speaker 2: it certainly is something that you know, points to hey,
24:48
Speaker 2: a slowdown having happened. Where remember Q four the final
24:51
Speaker 2: number that we got was point five percent Q one.
24:54
Speaker 2: We're now at one point six so you're talking about
24:56
Speaker 2: you know, one percent GDP growth for that six month period.
24:59
Speaker 2: That's a you know, we're real slowing that you've seen there.
25:02
Speaker 2: But I also don't think that's relevant to what we
25:06
Speaker 2: are seeing in the last couple months, which is, hey,
25:09
Speaker 2: some acceleration happening in key areas. That to me at
25:13
Speaker 2: least indicates that a recession is not something we're experiencing now,
25:19
Speaker 2: nor do I think it's something that you need to
25:21
Speaker 2: worry about over the next you know, three to four months. Yeah, frankly,
25:25
Speaker 2: this is an AI economy right now. I know, not
25:27
Speaker 2: only all us. You don't have to like that, but
25:31
Speaker 2: this is an AI economy right now. And we see that.
25:36
Speaker 4: Through well one lens of GDP, where a lot more
25:39
Speaker 4: of it is being comprised from that AI build out.
25:43
Speaker 4: And I don't know if I said one or A there,
25:46
Speaker 4: but B slash two you are seeing it through the
25:52
Speaker 4: lens of those same companies participating in the AI trade
25:56
Speaker 4: being willing to pay just about anything they have to to.
25:59
Speaker 3: Get it owing.
26:00
Speaker 4: And so while normally, yeah, an oil price shock would
26:02
Speaker 4: rather concern me, I don't know how much.
26:06
Speaker 3: Alphabet really cares about it.
26:08
Speaker 4: And they care, but sure they don't want to pay
26:10
Speaker 4: higher prices for everything that they are going to use,
26:13
Speaker 4: but ultimately they're going to determine it's worth the price
26:15
Speaker 4: in the short term.
26:17
Speaker 2: Uh, do we want to talk a little bit about
26:19
Speaker 2: the FED. I don't really need to do any FED
26:22
Speaker 2: talk right now. I'm fine with that. Let's talk about
26:25
Speaker 2: what we saw yesterday after the bell. Snowflake, who is
26:29
Speaker 2: a what did they actually do? Like? How would you
26:32
Speaker 2: describe their business? They're a software company.
26:35
Speaker 3: But a winy millennial I don't know.
26:38
Speaker 2: It is an interesting name.
26:39
Speaker 3: For a company.
26:40
Speaker 5: It's like, but it's a cloud based data platform company.
26:44
Speaker 3: Obviously, I.
26:47
Speaker 2: Stuff, are they iPod?
26:51
Speaker 3: No?
26:51
Speaker 2: Why the snowflake iPod back in twenty twenty, Yes, six
26:55
Speaker 2: years ago. Now, Mike, we're dinosaurs. We're dinosaurs. So they
27:00
Speaker 2: reported earnings after the bell yesterday, and as part of that,
27:03
Speaker 2: on their earnings call, they indicated they're going to be
27:06
Speaker 2: paying Amazon six billion dollars over the next five years
27:11
Speaker 2: for access to Amazon's Graviton chips inside their data centers,
27:17
Speaker 2: and again it's something that continues to indicate this demand
27:23
Speaker 2: for cloud based computing, most likely in this case related
27:27
Speaker 2: to AI AI applications.
27:31
Speaker 4: It's also I think why it makes you know if
27:34
Speaker 4: they had bought these chips from Nvidia. I don't think
27:36
Speaker 4: this is really a story that makes the news. The
27:39
Speaker 4: fact that they're buying Amazons, which I mean, when did
27:42
Speaker 4: Amazon start even designing and producing AI related chips.
27:46
Speaker 3: It's not very long ago.
27:48
Speaker 4: And so that's the piece that I think that makes
27:51
Speaker 4: this newsworthy is not oh, Snowflake is buying six billion
27:55
Speaker 4: dollars worth of chips. That is that the answer there?
27:58
Speaker 4: Or six billion dollars worth of chips. It's who they're
28:00
Speaker 4: getting them from. And the fact that Amazon won this
28:03
Speaker 4: deal over who are the other games in town?
28:06
Speaker 3: Google and Nvidia pretty much?
28:09
Speaker 2: Well, remember, yeah, you talk about like who else is
28:12
Speaker 2: in this space? You've also got Cerebros who ipo'ed recently,
28:14
Speaker 2: but they're very tiny, kind of a fraction of the
28:17
Speaker 2: size AMD's playing in this space now. So again, depending
28:22
Speaker 2: on the specific AI uses, there are different types of
28:25
Speaker 2: chips that may be better. What we're talking about here
28:28
Speaker 2: are what are known as central processing units CPUs that
28:31
Speaker 2: are you know, typically CPU. You think about what powers
28:35
Speaker 2: your computer historically you know the AMD Pentium chips and
28:38
Speaker 2: now the I mean sorry, the Intel Pentium chips, Intel
28:42
Speaker 2: Core chips, things like that. That's a fundamentally different type
28:47
Speaker 2: of chip from the GPUs. The graphics processing units that
28:51
Speaker 2: originally found their home as exactly that they helped make
28:55
Speaker 2: three D images for gaming and stuff like that in
28:58
Speaker 2: your computer.
28:59
Speaker 3: But that kind of.
29:00
Speaker 2: Processing power was also very useful for AI training for inference.
29:06
Speaker 2: There's some thought and inference being AI training is, hey,
29:09
Speaker 2: we're gonna load you know, one point five trillion different
29:12
Speaker 2: parameters into this model and teach it what to do
29:15
Speaker 2: with them inferences. Once that model is in, how does
29:19
Speaker 2: it go about then answering your questions based on the
29:23
Speaker 2: parameters it's been trained on. And there's some thought in
29:26
Speaker 2: some you know, models that might work better with CPUs
29:30
Speaker 2: being used for inference than GPUs.
29:33
Speaker 4: One funny thing about all you know we differentiate, Oh
29:36
Speaker 4: it's you know, going to businesses, going to Amazon or
29:38
Speaker 4: in video or alphabet. Ultimately, I hope everyone knows who
29:42
Speaker 4: actually makes all this stuff. It's pretty much all just TSMC. Yeah,
29:48
Speaker 4: it's just to be clear, Like you know, I know,
29:49
Speaker 4: everybody's talking about how we're going to manufacture this stuff domestically,
29:52
Speaker 4: and Intel's gonna do it someday. And look at all
29:55
Speaker 4: these new plants that are going up. It's TSMC and
29:58
Speaker 4: Taiwan ninety plus percent of this type of stuff.
30:01
Speaker 2: Even though Intel has been getting some interest in their
30:04
Speaker 2: US foundry business, which they basically were like, no, we
30:07
Speaker 2: don't want to be in this anymore. And now that
30:09
Speaker 2: there's not enough supply for semiconductors, they've got companies being like, hey,
30:14
Speaker 2: can we take a look at your foundry business and
30:16
Speaker 2: maybe send you some stuff to build for us? So
30:19
Speaker 2: we'll see what happens quick break here. When we return,
30:23
Speaker 2: let's talk a little bit a little bit more about semiconductors,
30:27
Speaker 2: and then we'll talk some World Cup snaffoos after this.
30:31
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30:58
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31:03
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31:38
Speaker 2: Salesforce reported their earnings after the bell yesterday and they
31:47
Speaker 2: they were fine. I mean, there's nothing like there was
31:50
Speaker 2: like a huge red flag with the current quarter.
31:53
Speaker 4: Slightly missed the guidance, but nothing dramatic.
31:56
Speaker 2: Yeah, you know, the guidance came in a little bit
31:58
Speaker 2: weaker than anti dissipated And basically what they're saying is, look,
32:07
Speaker 2: we are starting to see adoption of our agent Force platform,
32:10
Speaker 2: which is their AI based agents that exist within Salesforce system.
32:16
Speaker 4: For what per I mean for the layperson out here
32:19
Speaker 4: who maybe doesn't use Salesforce, what is in a Salesforce
32:23
Speaker 4: agent capable of doing for me?
32:25
Speaker 2: So before you even get there. So Salesforce is a
32:28
Speaker 2: customer relationship management platform. So basically all of the information
32:34
Speaker 2: about your customers or prospects are going to be in there.
32:37
Speaker 2: And you can have an agent just as an example,
32:41
Speaker 2: that says, hey, I want to that when you know,
32:45
Speaker 2: you click on a button and it generates you a
32:48
Speaker 2: summary of what's going on with you know, a customer
32:52
Speaker 2: that you know, whatever data that you want from the
32:53
Speaker 2: platform in terms of, hey, here are the products that
32:57
Speaker 2: they own. Here is you know, your recent conversations and
33:02
Speaker 2: the tone of them and so on and so forth.
33:05
Speaker 2: You could have an agent that does that. You could
33:08
Speaker 2: have an agent that sends emails on an automated basis
33:11
Speaker 2: out of it based on you know that. You could
33:13
Speaker 2: have an agent that builds reports on a regular basis,
33:17
Speaker 2: you know, like's there's all kinds of different stuff that
33:19
Speaker 2: the market do campaign, Yeah, these types of things, correct,
33:23
Speaker 2: So they do they did say that Agent Force is
33:25
Speaker 2: now on track to contribute one point two billion dollars
33:27
Speaker 2: of annual revenue. That's up from eight hundred million in February,
33:31
Speaker 2: so it's accelerated at about a fifty percent pace. It
33:35
Speaker 2: is something where you look at their overall revenue projections.
33:40
Speaker 2: Though revenue they expect to be eleven point three billion
33:43
Speaker 2: in their fiscal second quarter. Analysts we're expecting eleven point
33:47
Speaker 2: four billion, So even with that increased agent Force revenue,
33:52
Speaker 2: they're not growing as quickly as analysts wanted to see.
33:57
Speaker 4: The question for a company like Salesforce, whose stock is
34:01
Speaker 4: down nearly thirty percent this year, yeah, it seems to be. Look,
34:07
Speaker 4: look they've got a massive customer base. Armstrong is a
34:11
Speaker 4: I'm string advisor group is a paying customer. Salesforce like
34:14
Speaker 4: full disclosure here, they are a massive company with a
34:16
Speaker 4: lot of customers. They are going to be cutting edge
34:19
Speaker 4: on design of things. The question in my mind is
34:23
Speaker 4: not can they retain their existing customers and improve services
34:26
Speaker 4: and upcharge them for use of AI. I think they
34:29
Speaker 4: almost definitely can.
34:30
Speaker 3: Sure.
34:31
Speaker 4: The question in my mind is if I'm a brand
34:33
Speaker 4: new business starting out, can Salesforce attract me or six
34:39
Speaker 4: months from now, Am I going to be facing the
34:44
Speaker 4: competition from three other upstart platforms that are aiming to
34:49
Speaker 4: do everything that Salesforce does plus three other things specific
34:53
Speaker 4: to my industry, only at a fraction of the cost. Yeah,
34:56
Speaker 4: Because I can tell you from getting you know, marketing
35:00
Speaker 4: emails about this sort of thing all the time. There
35:03
Speaker 4: are plenty of upstarts that I wouldn't trust my data
35:05
Speaker 4: with that are more than willing to build that for
35:07
Speaker 4: me at a fraction of the cost. And the question
35:09
Speaker 4: is can Salesforce compete in that environment.
35:12
Speaker 2: With that marginal new buyer?
35:14
Speaker 3: Yes?
35:15
Speaker 2: Yeah, that's look, no one wants to go through like
35:18
Speaker 2: a database migration sucks.
35:21
Speaker 3: Yeah, no one likes going through that.
35:23
Speaker 2: But if you're a new company that's just starting out
35:25
Speaker 2: and you're saying, hey, who am I going to choose,
35:28
Speaker 2: that's a different proposition, right, And if is that something
35:32
Speaker 2: we're not just for Salesforce, but all these other companies
35:35
Speaker 2: that exist in this software as a service industry, That's
35:39
Speaker 2: where the questions are coming from. It It's not that
35:41
Speaker 2: these companies are going to lose all of their existing customers.
35:45
Speaker 2: It's much more Hey, they've been attracting new customers as
35:48
Speaker 2: a rate of x is it now a rate of
35:52
Speaker 2: X minus ten percent, X minus twenty percent x minus
35:55
Speaker 2: thirty percent for that new growth because there are new
35:59
Speaker 2: alternatives that might be cheaper and more AI native, you know,
36:02
Speaker 2: like these kinds of questions that are out there.
36:04
Speaker 4: And Salesforce is an example, but they know they're an
36:07
Speaker 4: easy example to pick on here, but it applies to
36:11
Speaker 4: HR systems and tax accounting systems and every software that
36:15
Speaker 4: a business might use. There are dozens of different companies
36:20
Speaker 4: in this space, all of which have been under pressure
36:22
Speaker 4: this year.
36:23
Speaker 2: Under the same thought, I want to cover this World
36:25
Speaker 2: Cup story. So the World Cup kicks off in less
36:29
Speaker 2: than two weeks, just wild We're almost there. And here
36:34
Speaker 2: here's the thing. Boston is one of the host cities
36:37
Speaker 2: for the World Cup. It's actually Foxboro, Massachusetts. They're not
36:40
Speaker 2: holding anything at you know, Fenway Park just because it
36:43
Speaker 2: doesn't really fit the whole you know, soccer field at
36:46
Speaker 2: a world couple level in there. But you've got, you know,
36:50
Speaker 2: all these extra trains and buses that are going to
36:52
Speaker 2: be running from Boston out to Foxborough in order to
36:55
Speaker 2: try to manage the traffic. And the MBTA apparently just
37:02
Speaker 2: decided that with again, they've been in consultations with the
37:07
Speaker 2: City of Boston and you know, other state officials. But
37:11
Speaker 2: the NBTA basically said, hey, we're going to close off
37:16
Speaker 2: parts of Summer Street in order to manage what we
37:20
Speaker 2: anticipate being like twenty thousand fans per match trying to
37:23
Speaker 2: ride trains from South Station to Foxborough.
37:27
Speaker 4: And it sounds like they just kind of exercise some
37:29
Speaker 4: sort of weird eminent domain that they.
37:31
Speaker 3: Have, right.
37:32
Speaker 2: I don't know why the MBTA has or if they
37:36
Speaker 2: actually do have the power to cordon off a city
37:40
Speaker 2: street without permission from the city.
37:43
Speaker 3: I kind of hope they do.
37:45
Speaker 2: Wouldn't you just love if there's like some weird bylaw
37:48
Speaker 2: in there somewhere where it's like, hey, by the way,
37:50
Speaker 2: the MBTA actually has like, you know, eminent domain power
37:54
Speaker 2: over the city of Boston. You're like, who wrote this, Well,
37:58
Speaker 2: Paul Revere did back in the day, you know, like
38:01
Speaker 2: back when you know, like the horse trains were running.
38:03
Speaker 3: A long story short, we seem very prepared for this.
38:05
Speaker 2: Yeah, So they're arguing about whether or not they can
38:08
Speaker 2: close off part of Summer Street to hold twenty thousand
38:10
Speaker 2: people waiting in line for trains.
38:13
Speaker 3: Can't wait to be there.
38:14
Speaker 2: Sounds great. Let's take a quick break and when we
38:18
Speaker 2: come back, we got hour two coming up.