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Why $6 Gas May Only Be the Beginning · The Financial Exchange Show

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Speaker 1: donation today. This is the Financial Exchange with Chuck Zada,
1:06
Speaker 1: and Mike Armstrong.
1:10
Speaker 2: It's Chuck and Mike with you here. Bend's along, well,
1:14
Speaker 2: Ben's not along for the ride. Ben's driving the ship.
1:18
Speaker 2: Ben's making sure that you can actually hear us, which
1:22
Speaker 2: may or may not be important to your daily life.
1:24
Speaker 2: But in any case, we're here, and another week is
1:27
Speaker 2: passed with the Straight offor moves not reopening in any
1:31
Speaker 2: meaningful capacity. We continue to see a handful of ships
1:34
Speaker 2: getting through on any particular day, but the lack of
1:38
Speaker 2: flow through the straight means that you have a lack
1:40
Speaker 2: of production from shut in wells to the tune of
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Speaker 2: twelve to thirteen million barrels a day throughout the Middle East,
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Speaker 2: and that ultimately means that we continue to be steaming
1:52
Speaker 2: headlong into what's basically a brick wall in the middle
1:58
Speaker 2: of the summer. Where this is going to make itself
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Speaker 2: very apparent, not through you know, the current gas prices
2:04
Speaker 2: that we're seeing, but by much higher prices throughout the
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Speaker 2: United States and rest of the developed world, and through
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Speaker 2: absolute shortages throughout much of the developing world. And you know,
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Speaker 2: not a not an oil thing today. But I don't
2:21
Speaker 2: know if either of you happened to catch Indian Prime
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Speaker 2: Minister in the render Mody what he happened to say
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Speaker 2: this morning. He called on farmers in India to plant
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Speaker 2: with fifty percent less fertilizer. Now that's not really something
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Speaker 2: that you just say, like like, you don't just you know,
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Speaker 2: walk up to your bread basket and say, guys, have
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Speaker 2: I got a challenge for you? Do your job with
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Speaker 2: fifty percent less than what you previously had. And ultimately
2:52
Speaker 2: what this is going to mean, Mody phrased it in
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Speaker 2: terms of, well, you know, you know, inorganic fertilizers there,
3:00
Speaker 2: you know, not great for the environment, and we need
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Speaker 2: to you know, become more sustainable. Blah blah blah. The
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Speaker 2: subtext is we don't have fertilized we're not going to
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Speaker 2: be able to get you the fertilizer you need for
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Speaker 2: future planting seasons. And the reason this is important is
3:14
Speaker 2: this is one of the products that comes through the
3:17
Speaker 2: straight of Horn Moves and India I would characterize as
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Speaker 2: kind of a middle of the road country when it
3:25
Speaker 2: comes to overall levels of wealth and income on a
3:30
Speaker 2: per capita basis. If you look at the numbers here,
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Speaker 2: you know again it's it's not one where you're sitting
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Speaker 2: there saying, hey, it's it's not wealthy by any means.
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Speaker 2: You're not talking about you know, most of Europe and
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Speaker 2: even you know, most of you know, kind of North America,
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Speaker 2: South America, you're talking it's again. The countries that are
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Speaker 2: surrounding it are countries like Jordan, like the Philippines, Jamaica, Guatemala,
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Speaker 2: South Africa like you know, again kind of middle of
4:02
Speaker 2: the road. There's you know, ballpark two hundred countries in
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Speaker 2: the world. India's right around one hundred in terms of
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Speaker 2: most rankings for GDP and per capita income. And so ultimately,
4:14
Speaker 2: what this is telling you is that the pain, as
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Speaker 2: we've been saying for the last two months, is going
4:19
Speaker 2: to be felt first through these types of countries that
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Speaker 2: simply can't afford to pay the higher prices. In the
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Speaker 2: United States, you don't walk into home depot and see,
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Speaker 2: you know, no Scott's fertilizer. There Again, I'm trying to
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Speaker 2: make this relatable to the average person. The average you know,
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Speaker 2: farmer doesn't walk into home depot to buy, you know,
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Speaker 2: a bag of fertilizer.
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Speaker 3: I thought, that's what I got it.
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Speaker 2: They get three of them delivered, and that's that's all
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Speaker 2: they need obviously. But look, you're not going to see
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Speaker 2: shortages in the United States. It's just the price is
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Speaker 2: going to go up, which could mean bankrupt farmers and
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Speaker 2: other problems. Absolutely in places like India, it's going to
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Speaker 2: mean we can't pay those higher prices and we're going
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Speaker 2: to have to do without, whatever that means.
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Speaker 4: So Morgan Stanley this morning morning called it a race
5:04
Speaker 4: against time when it comes to the Straight of hormones.
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Speaker 4: I think we've described that and why it is that
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Speaker 4: race against time on poly market, you have a if
5:13
Speaker 4: there's one nice thing about these markets that are creating
5:16
Speaker 4: all sorts of gambling addictions. I do find the odds
5:19
Speaker 4: of certain events as just yes or no gambling out
5:22
Speaker 4: there to be interesting to me. And clearly there's some
5:25
Speaker 4: informative no informative, but interesting.
5:27
Speaker 2: Yes.
5:28
Speaker 4: So there's a bet on there will the Straight of
5:30
Speaker 4: Horror moves traffic return to normal by end of May.
5:33
Speaker 4: By normal, what they described that as is if the
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Speaker 4: IMF Portwatch publishes a seven day moving average of transit
5:40
Speaker 4: calls for the Straight equal to or above sixty by
5:44
Speaker 4: May thirty. First, they're pricing it a fourteen percent chance. Yeah,
5:48
Speaker 4: that's that's a hard no. Yeah, it's a hard no.
5:51
Speaker 4: You can't get there. But interesting to me, as of
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Speaker 4: April seventeenth, just three weeks ago, it was a seventy
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Speaker 4: four percent chance based on the optimism of a deal
6:01
Speaker 4: getting done.
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Speaker 3: And so I think that's clearly deteriorated.
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Speaker 4: And as we've gotten closer to that end of May point,
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Speaker 4: it's very today seemingly unlikely that you get to that
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Speaker 4: again average normalcy by end of May. Could you get
6:14
Speaker 4: a day there if there's a deal, then yeah, you
6:16
Speaker 4: could get a day there. But we are now I think,
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Speaker 4: very much pricing in energy shortages and lack of traffic
6:24
Speaker 4: through end of May and into June. At this point,
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Speaker 4: there's seemingly very little likelihood among the trading public and
6:32
Speaker 4: experts that traffic flows normally by end of May.
6:35
Speaker 2: Well, and look, here's the timeline of the last week
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Speaker 2: and what's happened. On Tuesday, we got the reports that
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Speaker 2: you know, the US and Iran were close to a
6:43
Speaker 2: one page memorandum of understanding to you know, be able
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Speaker 2: to move forward with a thirty day negotiating period over
6:51
Speaker 2: the weekend. It leaked kind of throughout the day yesterday
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Speaker 2: that Iran basically said, now, this ain't it, and here's
6:59
Speaker 2: our you know, here's the list of you know, demands
7:01
Speaker 2: that we have. There's again this is all leaked, so
7:05
Speaker 2: like none of it is concrete. I don't think we
7:08
Speaker 2: have a specific list, but the gist of it is, Look,
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Speaker 2: Iran does not want to negotiate the situation of Hormuz
7:18
Speaker 2: or the situation of nuclear issues before they get a cessation,
7:23
Speaker 2: a permanent cessation to hostilities. And the reason why, again
7:27
Speaker 2: I'm not saying this is right or wrong, is Look,
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Speaker 2: they view those things as their leverage. They're not going
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Speaker 2: to give them up in order to negotiate the United States.
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Speaker 2: President Trump yesterday, in no uncertain term, said this ain't
7:39
Speaker 2: it either. Like getting the proposal back from Iran, He's like,
7:42
Speaker 2: this isn't gonna work either. So you're in the same
7:44
Speaker 2: situation we've been in for the last month or so,
7:47
Speaker 2: which is on a daily basis, there's not really much
7:51
Speaker 2: going through Hormos. There are scattered, sporadic flare ups of
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Speaker 2: the conflict that might happen once or twice a week
8:00
Speaker 2: and generally are put to bed in fairly short order.
8:05
Speaker 2: But every day that you go by is another twelve
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Speaker 2: million barrels of oil that is not produced from that region,
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Speaker 2: in addition to all the other stuff that's not being
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Speaker 2: produced there. And we're now seeing the draws happening on
8:18
Speaker 2: a worldwide basis and in terms of United States reserves.
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Speaker 2: That point two again, there was a piece published in
8:26
Speaker 2: I think it was Bloomberg over the week that, by
8:28
Speaker 2: the way, thank you Bloomberg for you know, listening to
8:31
Speaker 2: our show over the last few weeks. We appreciate it
8:33
Speaker 2: because it basically said what we've been saying, which is, guys,
8:37
Speaker 2: if you pop this out and just do the simple math,
8:39
Speaker 2: which is subtraction, you learn it in I want to say,
8:43
Speaker 2: first grade.
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Speaker 3: Yeah, between first and second first.
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Speaker 2: Second grade is when you learn subtraction. So the math
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Speaker 2: is not hard. It's very basic math. There's no calculus,
8:53
Speaker 2: there's no algebra. It's basic math, and the math points
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Speaker 2: to look, you're gonna reach minimal operational levels sometime in
9:01
Speaker 2: the back half of the summer throughout different parts of
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Speaker 2: the world. That's the math. There's no way around it.
9:09
Speaker 2: At this point. The only thing you can do is
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Speaker 2: mitigate how long that problem lasts and whether you want
9:16
Speaker 2: to have it last a week or two, or whether
9:19
Speaker 2: it's going to last longer.
9:21
Speaker 3: Yeah, because so part of this math that Bloomberg laid out.
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Speaker 4: I think it was Bloomberg in one of the pieces
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Speaker 4: I read this morning was that the US is exporting
9:28
Speaker 4: some three million barrels a day and China has stopped
9:31
Speaker 4: importing some five or six million barrels a day.
9:34
Speaker 2: But yeah, because the barrels aren't on the water, so
9:36
Speaker 2: they're working through their strategy, so they can't there are
9:39
Speaker 2: no barrels for them to import, right.
9:41
Speaker 4: And so the point being that there's this eight to
9:43
Speaker 4: nine million barrels a day that you know is not well,
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Speaker 4: maybe it's not being.
9:50
Speaker 2: They're saying it's balancing demand, but it's it's not really
9:53
Speaker 2: balancing demand. It's just drawing on supplies from somewhere else
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Speaker 2: while you can. And so should those supplies dry up,
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Speaker 2: which they will, by the way, in anywhere from like
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Speaker 2: twelve to eighteen weeks, depending on how fast they draw,
10:07
Speaker 2: then the question is how artificially lower that are those
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Speaker 2: factors keeping oil prices now in the midst of this,
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Speaker 2: By the way, that I was mentioning that bet on polymarket,
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Speaker 2: where you know resolution by end of May was being
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Speaker 2: priced in at a fourteen percent chance resolution by end
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Speaker 2: of June. Thirty nine percent odds on that bet right now.
10:26
Speaker 2: So believe I'm quoting this stuff, but you know what,
10:30
Speaker 2: I will believe we're going to be quoting things like
10:32
Speaker 2: this on these sites, probably more frequently now as they
10:36
Speaker 2: get more and more attention. And again, not necessarily informative.
10:40
Speaker 2: I think a thirty nine percent odds of something happening
10:42
Speaker 2: is not a whole lot better than a coin flip,
10:45
Speaker 2: but it is interesting to look at that, and you know,
10:49
Speaker 2: you can read optimism or pessimism about a certain situation
10:52
Speaker 2: based on it. So this is the lay of the
10:54
Speaker 2: land as we enter into this week, and we do
10:56
Speaker 2: have a busy week this week for economic data. This
10:59
Speaker 2: morning on ten AM we got existing home sales data.
11:02
Speaker 2: Nothing interesting there, just you know, treading water around four
11:05
Speaker 2: million units per year, which is where we've been for
11:07
Speaker 2: the last several years. Tomorrow we've got ADP's weekly jobs report.
11:11
Speaker 2: We've got CPI for April as well, we'll talk a
11:14
Speaker 2: little bit about that, and then Wednesday we've got Producer
11:18
Speaker 2: Price Index as well as the weekly EIA Crude oil
11:22
Speaker 2: and refined product inventory data that we get, which is
11:25
Speaker 2: now front and center for anyone who's paying attention. And
11:28
Speaker 2: on Thursday we've got retail sales and jobless claimed. So
11:31
Speaker 2: nice little week here as far as economic data. No
11:35
Speaker 2: major earnings of a huge note this week. You do
11:39
Speaker 2: get a couple of you know, smaller ones that are
11:41
Speaker 2: out there, but we're kind of on hold for earnings
11:44
Speaker 2: until next week. We're through most of the big ones.
11:47
Speaker 2: The only things next week that I think will be interesting.
11:49
Speaker 2: You got Home Depot next Tuesday on May nineteenth. Just
11:52
Speaker 2: tell me a little bit about what's going on construction wise.
11:54
Speaker 2: It's always good to get information there in video is
11:58
Speaker 2: going to be reporting on Wednesday, May twenty is so
12:00
Speaker 2: again a week from Wednesday. You've got lows then as well,
12:03
Speaker 2: and Thursday. One that I'm particularly interested in a little
12:08
Speaker 2: tiny company out of Bentonville, Arkansas, by the name of Walmart.
12:12
Speaker 2: They happen to report earnings next Thursday, and I'm really
12:15
Speaker 2: interested to hear what they are saying about the economy
12:18
Speaker 2: because Walmart is obviously the low cost supplier to many Americans,
12:22
Speaker 2: and they are the biggest grocery store in the country,
12:25
Speaker 2: and so I want to hear what they're saying about
12:27
Speaker 2: how the last few weeks have impacted things more than
12:31
Speaker 2: you know. Hey, what are you seeing from Q one earnings?
12:33
Speaker 2: Could care less? Actually I couldn't care less. I could,
12:38
Speaker 2: but not much. I'm really more interested in terms of Walmart.
12:41
Speaker 2: What are you seeing now? Not what did you see
12:43
Speaker 2: in January? Quick break here when we return, let's talk
12:48
Speaker 2: a little bit about President Trump's trip to China. He
12:51
Speaker 2: is heading there this week. What are expectations, what are
12:54
Speaker 2: key items to discuss? We'll discuss that next.
12:59
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13:36
Speaker 2: All right, let's talk a little bit about President Trump's
13:40
Speaker 2: trip to China this week.
13:43
Speaker 3: Long awaited.
13:44
Speaker 2: Yeah, this trip was originally scheduled for mid April, given
13:46
Speaker 2: the conflict of the Middle East, the fact that was
13:49
Speaker 2: hot at that point. Uh, it was pushed back to
13:53
Speaker 2: an unscheduled date or an unspecified date, and now has
13:57
Speaker 2: officially been confirmed by the Chinese government that the President
14:00
Speaker 2: will be visiting China from May thirteenth to fifteenth. So
14:04
Speaker 2: this Wednesday to Friday piece in the Wall Street Journal,
14:07
Speaker 2: the headline sorry. In Bloomberg, the headline is Trump aims
14:10
Speaker 2: to press g over China's approach to war in Iran.
14:14
Speaker 2: And I'm not sure that press is going to be
14:18
Speaker 2: the word I would use to describe just because I
14:22
Speaker 2: want you to be President Trump, Mike, and I'm going
14:25
Speaker 2: to be g okays ask me to stop supplying Iran.
14:29
Speaker 3: With stuff, stop buying Iranian oil.
14:33
Speaker 2: No, now I want you to ask me again, please,
14:38
Speaker 2: what can you do for me? And like that's the
14:40
Speaker 2: whole crux of it is. It's an if if President
14:43
Speaker 2: Trump is going to ask g for any help on Iran,
14:47
Speaker 2: the first answer is going to be no, and the
14:49
Speaker 2: second one is going to be Okay, Now here's what
14:52
Speaker 2: I want you to do for me, And like that
14:55
Speaker 2: that's not how you want to go into a negotiation.
14:58
Speaker 2: So I'm actually not really convinced that there's going to
15:01
Speaker 2: be much of an ask on the Iran situation. To
15:04
Speaker 2: be honest, what is.
15:05
Speaker 4: The I ask is for something in the future, because
15:07
Speaker 4: it's not as though is there material support.
15:09
Speaker 3: Going to Iran in this moment.
15:11
Speaker 2: Let's be honest.
15:11
Speaker 4: There probably is, probably, but there's no real exchange. It's
15:15
Speaker 4: not like China's getting a whole bunch of Iranian oil out.
15:18
Speaker 2: So I think ultimately, I don't think either side really
15:21
Speaker 2: wants to address the Iran issue during this meeting.
15:24
Speaker 3: Yeah.
15:24
Speaker 2: I think for the US it's, Hey, I don't want
15:27
Speaker 2: to ask for something new because then I'm gonna have
15:30
Speaker 2: to give up something new. For China, it's well, I
15:33
Speaker 2: don't really like that I can't get the Iranian oil
15:35
Speaker 2: that I need. But yeah, I'm not really going to
15:40
Speaker 2: change my posture with regards to Iran. That's an internal
15:43
Speaker 2: issue for US to debate with the Iranians and not
15:46
Speaker 2: with a third party.
15:47
Speaker 4: I have not heard or seen anyone speak very optimistically
15:52
Speaker 4: about anything coming out of these meetings. There are other
15:56
Speaker 4: subjects to discuss, such as rare earths, there's art intelligence
16:00
Speaker 4: conversations that both parties want to happen, talks about Taiwan
16:05
Speaker 4: and semiconductors, and many other subjects. But I'm trying to
16:10
Speaker 4: even envision what a best case scenario looks like out
16:13
Speaker 4: of all of this, and.
16:14
Speaker 3: I don't I don't even see. Here's my guess, for instance,
16:18
Speaker 3: purchases of agricultural products. No, I don't know here.
16:21
Speaker 2: Here's my guess is when you look at the list
16:27
Speaker 2: of CEOs that are going with President Trump to China.
16:32
Speaker 3: This week, that's always informative.
16:34
Speaker 2: Again, it kind of tells you, you know, what what
16:36
Speaker 2: is I think expected here? And ultimately the invites were
16:41
Speaker 2: for in video Jensen Wang. So there's gonna be something
16:45
Speaker 2: AI related to discuss, maybe the sale of chips Apple, Okay,
16:50
Speaker 2: like obviously Apple's you know, big producer there, Like you
16:52
Speaker 2: know Sure always exon mobile. Sure energy is going to
16:57
Speaker 2: be a discussion Boeing, Like those are the four headliners
17:01
Speaker 2: that came out. Buy some airplanes, buy some airplanes, buy
17:05
Speaker 2: some chips, let's figure out, you know, what to do
17:08
Speaker 2: on energy, and we'll go from there. Like that to
17:11
Speaker 2: me is kind of where things are going this week.
17:13
Speaker 2: I think the hope before all of this was that
17:17
Speaker 2: this could have been some kind of larger summit leading
17:20
Speaker 2: towards a broader deal. I just don't think that you
17:23
Speaker 2: can get there with the world looking like it does
17:26
Speaker 2: right now.
17:27
Speaker 4: No, like anything that you anything that you would want
17:30
Speaker 4: to do on there would be paused merely for the
17:33
Speaker 4: fact that none of no party knows what's going to
17:36
Speaker 4: happen with energy prices, and you're just not going to
17:39
Speaker 4: be willing to say, oh, yeah, we'll have a commitment
17:42
Speaker 4: to do something different with Iran in the future when
17:46
Speaker 4: you very well may need their oil desperately in order
17:48
Speaker 4: to refill your strategic petroleum reserve over in China. So
17:51
Speaker 4: I just don't. Yeah, I have a tough time envisioning
17:54
Speaker 4: anything there. There will be other national security conversations and
17:58
Speaker 4: all likely, of course they likely some of them won't
18:01
Speaker 4: make it to the public eye. You know, we're talking
18:04
Speaker 4: a lot about this Mythos model that was released to
18:10
Speaker 4: large institutions to test out how damaging it could be
18:13
Speaker 4: to their critical infrastructure. So I'm sure there will be
18:16
Speaker 4: conversations like that behind closed doors that we might not
18:19
Speaker 4: hear about.
18:20
Speaker 3: Yeah, but any.
18:21
Speaker 4: Promise of a framework for a new deal seems just
18:26
Speaker 4: incredibly unlikely at this point.
18:27
Speaker 2: So in any case, we'll see what comes out of
18:30
Speaker 2: the back half of this week. I do think that
18:35
Speaker 2: it's something at least worth watching. Because again, anytime the
18:40
Speaker 2: president travels somewhere, remember now its presidents of any country.
18:44
Speaker 2: They don't travel somewhere just to go hang out with
18:48
Speaker 2: other leaders. The reason you make a bilateral visit, like
18:52
Speaker 2: a state visit to another country is because the lower level,
18:58
Speaker 2: you know, conversations have already yielded certain you know, things
19:02
Speaker 2: that just need to be finalized at the leadership level.
19:05
Speaker 2: And so it's okay, what are we going to see
19:07
Speaker 2: finalized there? There will be something that comes out of it. Sure,
19:11
Speaker 2: it's just a question of how meaningful it's going to be.
19:13
Speaker 2: And given the context of everything else going on, it's
19:16
Speaker 2: probably not going to be you know, something earth shattering
19:19
Speaker 2: that we see come out of this weekend.
19:20
Speaker 4: And let's not minimize it, right, I mean US and
19:22
Speaker 4: China are the only two countries that matter in the
19:24
Speaker 4: AI trade.
19:24
Speaker 2: So yeah, quick break here, We've got Wall Street Watch
19:28
Speaker 2: coming up next.
19:40
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Speaker 1: driving markets so far today. Right here on the financial exchange,
19:59
Speaker 1: radio netw work well.
20:02
Speaker 5: Not a tremendous amount of activity out there as markets
20:05
Speaker 5: continue to react to Trump's latest denial of Iran's latest
20:10
Speaker 5: peace proposal. Right now, the Dow Jones is up twenty
20:14
Speaker 5: nine points or point zero six percent, the S and
20:18
Speaker 5: P five hundreds up four points or point zero five percent,
20:21
Speaker 5: and Nasdagman Mihele is negative, down two tenths of a percent.
20:26
Speaker 5: Biotechnology company Maderna is jumping nearly seven percent after a
20:29
Speaker 5: US citizen tested positive for the hantavirus. Another American had
20:33
Speaker 5: symptoms for the virus, but it yet to test positive.
20:36
Speaker 5: Maderna last week announced that it was in an early
20:38
Speaker 5: stage development of a vaccine for hantavirus. Intel shares have
20:43
Speaker 5: dropped slightly down down half a percent, as the chip
20:46
Speaker 5: maker looks to continue its rally following its first quarter
20:49
Speaker 5: earnings report in April. Intel is now up almost one
20:52
Speaker 5: hundred percent from its trading levels before its earning earning
20:56
Speaker 5: report after the bell on April twenty third, Constellation Energy
21:00
Speaker 5: is down eight tenths of a percent after it reported
21:02
Speaker 5: better than expected revenue of eleven point one two billion
21:05
Speaker 5: dollars in its first quarter financial report. Analysts polled expected
21:09
Speaker 5: revenue of eight point four to six billion dollars from
21:12
Speaker 5: the clean energy company. And finally, Lumentum is rising over
21:17
Speaker 5: ten percent on news it will join the Nasdaq one
21:20
Speaker 5: hundred index. The company will replace co Star on May eighteenth.
21:25
Speaker 5: I am Ben Kitchen and that was Wall Street Watch.
21:28
Speaker 2: Ben mentioned the hantavirus during Wall Street Watch. We had
21:34
Speaker 2: a couple of pieces that he popped in the stack.
21:37
Speaker 3: Here.
21:38
Speaker 2: Gotta tell you two things. Number One, in general, I'm
21:41
Speaker 2: anti hantavirus, don't like it.
21:43
Speaker 3: Any good platform to run on.
21:44
Speaker 2: Any virus that comes from rats is one that I
21:47
Speaker 2: can get, you know, behind being against.
21:50
Speaker 5: What if it came from pizza rat?
21:52
Speaker 2: I don't even know what that is.
21:54
Speaker 5: You don't remember pizza rat? What's all that video of
21:57
Speaker 5: the giant rat pulling up a huge slice of pizza
22:00
Speaker 5: the New York subway.
22:00
Speaker 3: This was a couple years ago.
22:01
Speaker 2: Oh okay, Yeah, I didn't know that there was like
22:03
Speaker 2: specifically called pizza rout. Like I thought you were talking
22:06
Speaker 2: maybe like Splinter from Ninja Turtles or something.
22:08
Speaker 3: I thought we were talking about Chuck E Cheese for
22:09
Speaker 3: a moment there.
22:11
Speaker 2: Then I started thinking we just crossed the anniversary of
22:15
Speaker 2: the guy at the Red Sox game that threw the
22:16
Speaker 2: pizza at the guy trying to catch the foul ball,
22:19
Speaker 2: so that one was always top of mine too. But hantavirus,
22:23
Speaker 2: I gotta say, I am I'm not buying that this
22:25
Speaker 2: is going to be a thing. I know that ever
22:28
Speaker 2: since COVID, anytime that anyone gets anything that's kind of weird.
22:32
Speaker 2: You remember the monkey Pocks situation that was going on
22:35
Speaker 2: for a bit. Yeah, look, I don't know anything about virology,
22:41
Speaker 2: but I do know something about math, and given what
22:45
Speaker 2: I see in terms of the math on hantavirus and
22:48
Speaker 2: how it spreads, how quickly it spreads, and what conditions
22:51
Speaker 2: it needs to spread in, I'm not buying this as
22:55
Speaker 2: something that is a pandemic threat, even if it may
22:59
Speaker 2: cause some localized health issues in parts of the world.
23:04
Speaker 2: It apparently is very much you know, quite deadly in humans,
23:08
Speaker 2: but also doesn't spread particularly fast, and that means that
23:12
Speaker 2: typically when it pops up, it causes a lot of
23:15
Speaker 2: problems locally, but has a lot of trouble spreading beyond
23:18
Speaker 2: those local situations.
23:20
Speaker 3: Yeah, two things.
23:21
Speaker 4: One of them I mentioned to Ben, which just explains
23:24
Speaker 4: my state of mind right now. When I heard of
23:26
Speaker 4: you know, people getting quarantined in Nebraska, my first thought was,
23:31
Speaker 4: you know, I could really go for a two week
23:33
Speaker 4: quarantine in Nebraska. Not that I want hantavirus, but it
23:36
Speaker 4: says some relaxed time. Second piece of this, I suspect
23:43
Speaker 4: that my fear of cruise ships is similar to my
23:47
Speaker 4: fear of being struck by lightning in terms of its
23:51
Speaker 4: unlikeliness to happen.
23:53
Speaker 2: No, it's way more likely to get stick on a
23:55
Speaker 2: cruise ship than struck by lightning.
23:56
Speaker 4: Agreed, I would be very interested in the probability of
24:01
Speaker 4: getting I'm not talking about getting hauntavirus and dying. I'm
24:04
Speaker 4: talking about just coming back from a cruise ship unwell
24:07
Speaker 4: or in a worst case scenario like this one. How
24:09
Speaker 4: long were these passengers stuck on there? Like fifty days
24:11
Speaker 4: on these cruise ships stuck in the Canary Islands. Just
24:16
Speaker 4: I don't think that I fully understand the appeal of
24:19
Speaker 4: a cruise ship. Never been on a cruise so I
24:23
Speaker 4: guess I am not a very good not a very
24:27
Speaker 4: good reference for all of this. But the appeal of
24:29
Speaker 4: it is just never really gotten to me.
24:33
Speaker 2: Look, it's like anything else. Some people love them. Some people,
24:37
Speaker 2: you know whatever, And again it's it's some people's thing,
24:41
Speaker 2: and that's totally fine. The estimates that I've seen from
24:45
Speaker 2: the CDC, just because I pulled this up. Generally, when
24:49
Speaker 2: you look at long term trends like five to ten years,
24:56
Speaker 2: zero point one point eight percent of cruise passengers report
25:00
Speaker 2: the most common thing that happens on a cruise ship
25:02
Speaker 2: is gi stuff. Sure like, that's that's what it generally is.
25:06
Speaker 2: It's about a quarter percent of passengers typically report it.
25:10
Speaker 2: So no, it's not tiny, and ultimately it's something where
25:19
Speaker 2: it's probably not a huge threat overall. But if you're
25:23
Speaker 2: on a ship when it happens, you're probably not getting
25:26
Speaker 2: out without some symptoms. Is kind of how it, like
25:29
Speaker 2: I feel about the whole thing. But in that respect, look,
25:34
Speaker 2: a cruise ship is not really that different from preschool.
25:37
Speaker 4: Yeah that's fair. If I'm really that worried about, you know, problems,
25:40
Speaker 4: I should just not have children.
25:43
Speaker 2: If you don't want to get sick. Like again, kids
25:47
Speaker 2: are like that. They're the transmitters for like everything. I say.
25:50
Speaker 2: This is like the proud parent of like two great kids.
25:53
Speaker 2: But my goodness, what they bring back into the house
25:56
Speaker 2: like we never had any of this stuff before them.
25:59
Speaker 2: Let's talk about this next piece here, what happens to
26:02
Speaker 2: air travel when twenty percent of the world's exported jet
26:05
Speaker 2: fuel vanishes gets more expensive, it will it goes down
26:10
Speaker 2: like you here's the thing. There's a limited amount of
26:13
Speaker 2: crude oil in the world with which to produce refined product,
26:18
Speaker 2: and you do have some ability to shift at the
26:21
Speaker 2: margin between what you are producing. So as an example,
26:26
Speaker 2: if you are normally a refinery that produces like thirty
26:29
Speaker 2: percent gasoline, twenty percent jet fuel and fifty percent diesel
26:35
Speaker 2: and bunker fuel and stuff, I'm just again spitballing, you
26:39
Speaker 2: might be able to say, hey, if jet fuels in demand,
26:43
Speaker 2: I can cut runs on gasoline by a couple percent,
26:46
Speaker 2: cut runs on you know, diesel by a couple percent,
26:50
Speaker 2: and figure out how to move things around so I
26:52
Speaker 2: can go from twenty percent jet fuel to twenty five.
26:56
Speaker 2: The problem is then you are, you know, not able
26:58
Speaker 2: to produce as much of those other fuels. And this
27:00
Speaker 2: is the problem that we find ourselves in today, which
27:02
Speaker 2: is you're robbing Peter to pay Paul. It's a zero
27:05
Speaker 2: some game. There are only so many barrels to go around.
27:09
Speaker 2: And so if you are trying to produce more jet
27:11
Speaker 2: fuel because that's getting you higher prices, it means that
27:14
Speaker 2: you are producing less of the other stuff and running
27:16
Speaker 2: into problems there at some point along the way.
27:20
Speaker 4: Arian Goren, I think I'm pronouncing her name right. It's
27:22
Speaker 4: the CEO of Expedia, and she gave an interview to
27:25
Speaker 4: the Wall Street Journal just this morning. And actually, sorry,
27:28
Speaker 4: I haven't update. That just came across YEP. This is
27:32
Speaker 4: from Reuter's. Apparently in video, CEO Jensen.
27:34
Speaker 2: Huang was not invited in not going to Beijing during
27:38
Speaker 2: the trip.
27:39
Speaker 3: Was that like a change?
27:41
Speaker 2: So remember we were part of the last segment that
27:43
Speaker 2: he was going that was like displidly diseminated last week.
27:47
Speaker 2: I don't know if he just was never invited or
27:50
Speaker 2: if this is their way of trying to rescind that invitation.
27:53
Speaker 3: What if he goes anyway, he won't. He won't.
27:57
Speaker 4: So the interview from Marion Goren was just interesting in
28:01
Speaker 4: the context of the seeming optimism among Americans that this
28:06
Speaker 4: just resolves itself, and not in a way that the
28:10
Speaker 4: Iran crisis and energy prices. Her comment was that everyone
28:15
Speaker 4: in the space her space of you know, she runs
28:18
Speaker 4: Expedia Group, and speaking to other airline executives, we're still
28:23
Speaker 4: seeing really healthy demand for summer travel plans. Just report
28:26
Speaker 4: first quarter earnings, strongest first quarter that we've had in years,
28:31
Speaker 4: and basically saying like, hey, we're kind of preparing for
28:34
Speaker 4: this pullback and demand, but still, at least from Americans,
28:38
Speaker 4: that demand is not abating. In front of these higher
28:42
Speaker 4: flight prices, gas prices, etc. People are booking hotels, they
28:46
Speaker 4: are booking flights, and they are just assuming that things
28:49
Speaker 4: get better before they get worse. Which, again i'm summarizing
28:54
Speaker 4: her comments. She didn't say that specifically, but that was
28:57
Speaker 4: the takeaway from the interview was, you know, a little
29:00
Speaker 4: bit of surprise on her part, but nonetheless optimism based
29:03
Speaker 4: on what consumers are doing. I just do wonder it
29:07
Speaker 4: does feel as though there's another airline to go bankrupt
29:11
Speaker 4: before this all gets done with. To me, I'm not
29:13
Speaker 4: saying a domestic one necessarily, but it just seems impossible
29:17
Speaker 4: for me to view all this without an Asian airline
29:20
Speaker 4: going bankrupt throughout all this.
29:22
Speaker 2: I mean, I can tell you today, like you look
29:24
Speaker 2: at airline stocks broadly, Delta's down two percent Americans down three,
29:28
Speaker 2: United's down to Southwest is down two, Frontiers down four,
29:32
Speaker 2: Air Canada is down two, Allegiance down three, Alaska Airs
29:35
Speaker 2: down four, sky West is down two. Yeah, this isn't
29:42
Speaker 2: getting into all the overseas guys. But yeah, I mean, look,
29:46
Speaker 2: you're going to get to a point where this becomes
29:50
Speaker 2: problematic because prices have to go up so much that
29:53
Speaker 2: people do stop paying them. Yeah, we're not there yet
29:56
Speaker 2: on anything. By that way, Like you look at impied
29:59
Speaker 2: demand for gasoline four fifty gas. What I can tell
30:04
Speaker 2: you every time I stop at the pump. Now there's
30:06
Speaker 2: someone who wants to talk about gas prices to me,
30:09
Speaker 2: and it's like, guys, I'm just not interested. I'm paying
30:11
Speaker 2: the same thing you are, Like I just I could care,
30:15
Speaker 2: like whatever, Like just fill up your tank. I don't
30:17
Speaker 2: need to commiserate, you know, but we're still paying it. Like,
30:23
Speaker 2: despite all of the grumbling, the actual implied demand numbers
30:27
Speaker 2: are not changing in any meaningful way.
30:30
Speaker 3: No real demand destruction occurring in the US.
30:32
Speaker 2: So people are, you know, not feeling good about it,
30:36
Speaker 2: but they're not changing their habits yet. At some point
30:40
Speaker 2: we probably get there. A lot of the analysis that
30:42
Speaker 2: I've seen is five fifty to six dollars a gallon.
30:44
Speaker 2: Is where that happens. I hope we don't get there,
30:47
Speaker 2: But the only path I can see to not getting
30:49
Speaker 2: there this summer is if there's a resolution in the
30:51
Speaker 2: next couple weeks. And that's where we are. Let's take
30:56
Speaker 2: a quick break. I do want to talk more about
30:58
Speaker 2: gas prices when we come back, pecifically national gas tax
31:02
Speaker 2: and California. What's going on there with gas prices? They're
31:06
Speaker 2: always the highest in the country. How much worse can
31:08
Speaker 2: it get? There?
31:09
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31:49
Speaker 2: Yesterday, on Meet the Press, American Energy Secretary Chris Wright
31:54
Speaker 2: had the following response when asked about suspending the federal
31:58
Speaker 2: gas tax temporarily. Quote all measures that can be taken
32:01
Speaker 2: to lower the price of gas at the pump and
32:03
Speaker 2: lower the prices for Americans. The administration is in supportive.
32:06
Speaker 2: So federal gas tax is about was eighteen point four cents,
32:10
Speaker 2: I believe it is, and it's been that way since
32:12
Speaker 2: nineteen ninety three, so for thirty three years at this point,
32:17
Speaker 2: and produces between thirty and about thirty five to forty
32:20
Speaker 2: billion dollars a year in revenue, and that revenue does
32:23
Speaker 2: go to the Highway Trust Fund, but in our research
32:26
Speaker 2: on this, the Highway Trust Fund has expense as far
32:28
Speaker 2: in excess of that, so it doesn't fully fund it anyways.
32:31
Speaker 4: Yeah, that, I mean the same story as the SOB
32:34
Speaker 4: Security Trust Fund and the Medicare Trust Fund, just worse.
32:37
Speaker 4: The Highway Trust Fund has been in a chronic state
32:41
Speaker 4: of insolvency, relying on about two hundred and seventy five
32:44
Speaker 4: billion dollars in tax payer funded bailouts since eight.
32:48
Speaker 2: So there's that.
32:49
Speaker 1: So not great.
32:49
Speaker 2: Here's the deal. You can get rid of the federal
32:51
Speaker 2: gas tax. Ultimately, it's not really going to dramatically change
32:54
Speaker 2: the trajectory of the US budget. It's still gonna make
32:58
Speaker 2: the deficit worse. Obviously, but hey, we've been doing that
33:02
Speaker 2: for twenty six years now, so like okay, like what's
33:05
Speaker 2: another you know, forty billion amongst friends. My point is more, Hey,
33:09
Speaker 2: when you cut the gas tax, what you are doing
33:12
Speaker 2: is you are moving the price of gas down, which
33:15
Speaker 2: reduces the demand destruction, which speeds up the pace at
33:18
Speaker 2: which you are heading to the eventual brick wall that
33:21
Speaker 2: is ahead of us. So again, it's one of those
33:24
Speaker 2: things where it's like, hey, this might feel good for
33:26
Speaker 2: like eight weeks, and then it will stop feeling good
33:30
Speaker 2: because you will run out of gas sooner then you
33:33
Speaker 2: will otherwise, now say run out again. I'm not saying
33:35
Speaker 2: the US will run out. What I am saying is
33:38
Speaker 2: you'll run out of the gas that can be sold
33:40
Speaker 2: at the price you're buying at, and prices will have
33:43
Speaker 2: to move way up anyways, regardless of whether or not
33:45
Speaker 2: the gas tax is there.
33:46
Speaker 4: I few states tested this out in twenty twenty two.
33:48
Speaker 4: I remember Connecticut cut their gas taxes.
33:50
Speaker 2: There are a bunch that have suspended it now.
33:52
Speaker 4: California has the highest one as we know, it's seventy
33:54
Speaker 4: one cents a gallon. Illinois's up there, Pennsylvania's up there.
33:58
Speaker 4: Washington State is up there in terms the highest you know,
34:01
Speaker 4: all of New England is around that high twenties low
34:04
Speaker 4: thirties range on their gas tax. But nonetheless you can
34:09
Speaker 4: see why you would want to do it. But to
34:12
Speaker 4: your point, one, at further bankrupts an already insolvent government
34:17
Speaker 4: agency that does need to do a lot of infrastructure
34:20
Speaker 4: work over the course the next couple decades. And two,
34:24
Speaker 4: if you lower prices, you are maintaining you know, demand
34:28
Speaker 4: at those lower prices and therefore making the ultimate problem
34:32
Speaker 4: worse because nobody's going to stop driving because of it.
34:34
Speaker 2: It's one where if you have a you know, finite
34:38
Speaker 2: end to the current problem, okay, it can work as
34:40
Speaker 2: a bridge. But if you don't, then it's just going
34:43
Speaker 2: to speed up the problem becoming you know bigger.
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35:50
Speaker 2: Pierce in the Wall Street Journal thinks six dollar gas
35:52
Speaker 2: is bad. It's about to get even worse in California,
35:54
Speaker 2: And yes, California basically does, aside from you know, a
35:58
Speaker 2: few unique situations always have the highest gas price in
36:01
Speaker 2: the country. Right now, it's six fifteen and eight tenths
36:03
Speaker 2: of ascent, so things are already you know bad. There
36:09
Speaker 2: the big thing with California because of where refineries are
36:13
Speaker 2: in the United States relative to where California is in
36:16
Speaker 2: the United States, they tend to import a decent amount
36:21
Speaker 2: of refined product from Asian markets. And as you know,
36:27
Speaker 2: Asia is pretty much ground zero for lacking enough crude oil,
36:31
Speaker 2: which means eventually they will lack enough refined product. You've
36:35
Speaker 2: already seen the imports from South Korea drop from about
36:40
Speaker 2: one hundred thousand barrels a day down to thirty five
36:43
Speaker 2: thousand barrels a day over the last month. And so
36:47
Speaker 2: this is something that's going to become more and more
36:49
Speaker 2: problematic for California and the West Coast. And there's again,
36:54
Speaker 2: nothing that you can really do about this.
36:56
Speaker 4: By the way, I don't want to make this seem
36:58
Speaker 4: like an complete accident, right, Like, yes, there's some geographic
37:01
Speaker 4: features that make California difficult to get energy to, but
37:06
Speaker 4: you know, they mainly policy decisions. Right They've chased away
37:10
Speaker 4: every refinery in the state. They used to be the
37:13
Speaker 4: headquarters of Chevron, known one of the big oil companies
37:19
Speaker 4: that relocated to Texas after years of just doing battle
37:22
Speaker 4: with the state of California and the legislators there. And
37:24
Speaker 4: so while there are some mountainous regions that do make
37:28
Speaker 4: it difficult to get pipelines into California, the bigger problem
37:32
Speaker 4: is that they have the highest tax in the country
37:36
Speaker 4: on gasoline, and their policies have largely chased refineries out
37:41
Speaker 4: of the state and made it so that they need
37:43
Speaker 4: to import pretty much everything they have, and then when
37:47
Speaker 4: you get hit with a crisis like this, it doesn't
37:48
Speaker 4: work terribly well.
37:49
Speaker 2: Yeah, so you still do have a handful of refineries
37:54
Speaker 2: that operate there, but there's been like three or four
37:56
Speaker 2: that have closed in the last twenty five years. And
37:58
Speaker 2: this is not just for anything. This is around the country, Like,
38:01
Speaker 2: we've had way more refinery closures than openings during that time.
38:04
Speaker 2: In fact, I don't think we've opened a new one
38:06
Speaker 2: in the US since nineteen seventy three, maybe seventy seven,
38:10
Speaker 2: somewhere in that range. U So, yeah, this is a problem.
38:16
Speaker 2: Let's take a quick break. We got hour two coming
38:18
Speaker 2: up in just a little bit.