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AI Bond Boom Tests Investors as Oil Risks Return · The Financial Exchange Show

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Speaker 1: a donation today. This is the Financial Exchange with Chuck
1:03
Speaker 1: Zada and Mike Armstrong.
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Speaker 2: Chuck, Mike and Tucker with you here. We got a
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Speaker 2: fantastic week ahead, so I hope, I hope you all
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Speaker 2: got all that beach and lake and golf and boats
1:19
Speaker 2: out of your system and you're you know, firmly inside
1:22
Speaker 2: with us because again, really busy week and really fun
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Speaker 2: week of data and earning season kicking off. Not much today.
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Speaker 2: Mondays are usually pretty quiet for you know, any earnings
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Speaker 2: or data, but tomorrow ADP gives us their weekly jobs report,
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Speaker 2: which is again just a nice little feature that's been added.
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Speaker 3: I really like having that now.
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Speaker 2: I know that it's not you know, necessarily tied to
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Speaker 2: what we see from the government jobs report, but it's
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Speaker 2: still nice just to see, you know, kind of more
1:51
Speaker 2: weekly jobs data.
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Speaker 3: I think that's great.
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Speaker 2: But also the big one tomorrow is CPI, so we're
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Speaker 2: gonna be getting consumer pricing dex day thirty am. At
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Speaker 2: ten am, Kevin Warsh heads to Capitol Hill for his
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Speaker 2: first testimony in front of the House Financial Services Committee,
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Speaker 2: not really expecting anything too significant, but again it's it's
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Speaker 2: the first time that he's going to be in that
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Speaker 2: environment as FED chair. Interested to hear what kind of
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Speaker 2: approach he takes and what he says Yeah.
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Speaker 4: To be clear, why I think it's interesting anyway, is
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Speaker 4: he very much took the approach with the press. At
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Speaker 4: his last press conference overseeing the first meeting, he took
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Speaker 4: the approach of I'm going to try and say as
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Speaker 4: little as possible, especially when it comes to forward guidance.
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Speaker 4: I don't know if he can get away with that
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Speaker 4: when it comes to lawmakers. But then again, on the
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Speaker 4: other hand, whenever we see the head of the Federal
2:41
Speaker 4: Reserve head to Congress, it's usually a bunch of grand
2:43
Speaker 4: standing with lawmakers trying to get you know, snippets for
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Speaker 4: their campaign videos.
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Speaker 3: So something on the Twitter. Yeah, yeah, it'll it'll be interesting.
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Speaker 2: Wednesday, we've got Producer Price Index that comes out at
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Speaker 2: eight thirty. We've also got Worsh's second day of testimony.
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Speaker 2: He then heads to the Senate to talk to some senators.
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Speaker 2: That's what you do in the Senators, you talk to
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Speaker 2: the senators. Thursday we got retail sales and jobbles claims.
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Speaker 2: Friday we got permits and starts and the woefully inadequate
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Speaker 2: University of Michigan consumer sentiment data that has just taken
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Speaker 2: a huge fall from Gray since they moved to an
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Speaker 2: online survey several years ago and now consistently tells us
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Speaker 2: that this is the worst economy ever.
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Speaker 4: Which we all talk about further in the show as well.
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Speaker 4: And then, as you mentioned, the kickoff of earning season
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Speaker 4: with the big bank, so on Tuesday is the big
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Speaker 4: day for that. We've got JP Morgan the largest by
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Speaker 4: far here. They're more than twice the market cap now
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Speaker 4: of Bank of America. But JP Morgan, Bank of America, Goldman, Sachs, Wells,
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Speaker 4: Fargo City Group all reporting on Tuesday before the bell,
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Speaker 4: and then Morgan Stanley going on Wednesday, among others. You
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Speaker 4: got Black Rocket and a whole bunch of other stuff
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Speaker 4: going on too. None of this will tell us much
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Speaker 4: of anything about the thing that's driving markets forward, that
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Speaker 4: being the AI trade. But nonetheless, you know major banks
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Speaker 4: reporting Jamie Diamond's looming retirement all I think we'll be
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Speaker 4: asked about and looked towards when it comes to these
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Speaker 4: earnings this week. Jamie Diamond's going to retire, Yeah, I mean,
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Speaker 4: I don't think there's a clear date, but he is
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Speaker 4: planning to retire. They have apparently selected two potential successors.
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Speaker 4: The previous thought of successor actually departed JP Morgan, I
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Speaker 4: think a few years ago, and so I think that's
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Speaker 4: significant in so far as Jamie Diamond has been the
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Speaker 4: spokesperson for pretty much the entire financial services industry, like
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Speaker 4: it or not, for the last decade or so. And
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Speaker 4: whoever you choose will be a bank CEO that has
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Speaker 4: not lived through a lived through the Great Financial Crisis
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Speaker 4: to be that spokesperson.
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Speaker 2: So it'll be interesting do you put the over where
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Speaker 2: do you set the over under four? Number of retirements
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Speaker 2: for Jamie Diamond? Is he going to be more Warren
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Speaker 2: Buffett where it's just you know, one and done. Is
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Speaker 2: it going to be Howard shoul where every few years
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Speaker 2: they pull him out of retirement and you know, bring
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Speaker 2: him back. Is it gonna be Bob Eiger where hey,
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Speaker 2: we bring him back once and hopefully that's it.
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Speaker 3: Gotta be honest, I don't know. I really hope it's
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Speaker 3: a one and done.
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Speaker 4: I think that's what everybody hopes if you are an
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Speaker 4: investor in a company, that the outgoing CEO does not
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Speaker 4: have to return, because if they do, means that stuff's
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Speaker 4: kind of hit the fan.
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Speaker 2: I think given Diamond's historic, you know historical, you know,
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Speaker 2: track record of being a good risk manager. I think
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Speaker 2: it's one and done. Yeah, I think it's one and
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Speaker 2: done because I don't think he's going to leave until
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Speaker 2: he has all the ducks all lined up. So that's
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Speaker 2: what we've got on tap this week. Today we kick
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Speaker 2: things off with, unfortunately, some more talk about the Strait
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Speaker 2: of Horror moves, which continues to just.
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Speaker 3: Be part of the worst cease.
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Speaker 2: Fire in human history. I gotta be honest here, there's
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Speaker 2: not been much ceasing of the firing. And so this
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Speaker 2: continued over the weekend and into this morning with both
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Speaker 2: the United States and Iran trading blows, the United States
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Speaker 2: striking a number of facilities throughout coastal Iran, apparently looking
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Speaker 2: to further degrade Iran's ability to project power into the
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Speaker 2: Strait and force boats to turn around. Ships rather boats
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Speaker 2: are you know, much smaller. These are These are ships
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Speaker 2: that are moving there, and Iran responding by targeting US
6:27
Speaker 2: and US aligned facilities in Jordan, Bahrain, Kuwait, Uh. And
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Speaker 2: I think that's the full list at the moment that
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Speaker 2: we've seen in other news, like relatedly, Saudi Arabia also
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Speaker 2: now has you know, thrown a couple of things towards Yemen.
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Speaker 3: Just to you know, make matters more complicated.
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Speaker 2: The Saudis and Yumeni's have had a ceasefire in place
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Speaker 2: for the last year or so that largely has actually
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Speaker 2: held as hoothy. Rebels that had been causing all kinds
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Speaker 2: of problems in the Red Sea had been causing fewer problems.
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Speaker 2: So we'll see if this Saudi foray into the conflict
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Speaker 2: with Yemen, you know, raises some problems in terms of
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Speaker 2: Red Sea transits, which had been a major way that
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Speaker 2: that oil supplies had been able to stay online through
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Speaker 2: some additional pumping into ports that are on the Red
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Speaker 2: Sea as opposed to going out the straight of Horror moves.
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Speaker 2: So I think ultimately where I land on this right
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Speaker 2: now is because of the volume of ships that have
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Speaker 2: been able to escape from the Persian Gulf over the
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Speaker 2: last three to four weeks. I don't think there's anything
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Speaker 2: imminent in terms of, you know, major problems for a
7:46
Speaker 2: crude oil shortage really before the end of August. I
7:50
Speaker 2: think that the deck is pretty clear by that for
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Speaker 2: that time period. The next four to six weeks, I
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Speaker 2: think the problem is going to be if this continues
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Speaker 2: to escalate and you see things returned to you know,
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Speaker 2: transit levels of Hey, three ships got through, which is,
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Speaker 2: you know, kind of what we saw yesterday. Now, if
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Speaker 2: that becomes the new norm with not really much getting
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Speaker 2: through as opposed to the increase that we had seen
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Speaker 2: in the latter half of June and first part of July,
8:17
Speaker 2: then you start to have questions where if that persists
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Speaker 2: through August, things start to get gnarly heading into September again.
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Speaker 4: Yeah, I guess I just wonder what the world looks
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Speaker 4: like in an environment where oil prices don't spike because
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Speaker 4: there's a presumption that either party is going to eventually
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Speaker 4: allow ships to navigate, but there is no ceasefire. It
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Speaker 4: is just perpetually more violent in that strait, and you
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Speaker 4: have enough ships going through to prevent an oil price spike,
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Speaker 4: but not enough, but also enough ships to prevent anybody
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Speaker 4: from feeling enough pain to actually negotiate anything, because I
8:56
Speaker 4: don't doubt those two things can coexist.
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Speaker 3: Yeah, probably not for long.
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Speaker 2: Might be for maybe a couple of weeks that you
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Speaker 2: can be in that situation, but eventually you got to
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Speaker 2: get the oil to where it needs to go. Yeah,
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Speaker 2: So I'm not particularly worried about you know what's going
9:12
Speaker 2: on today.
9:12
Speaker 3: And part of this.
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Speaker 2: Part of this is look when what just before I
9:17
Speaker 2: can't remember if it was just before, just after the
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Speaker 2: ceasefire was signed, the Memorandum of understanding in mid mid June,
9:25
Speaker 2: the President came out and said, in no uncertain terms, look,
9:29
Speaker 2: we were four weeks away from basically running out of
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Speaker 2: cushion for oil. That's part of the reason why we
9:35
Speaker 2: made this deal. Like he said it out loud, this
9:38
Speaker 2: is the exact thing that we were talking about. Like
9:40
Speaker 2: he said it, I have to believe that if push
9:44
Speaker 2: comes to shove like again, they're looking at these numbers too.
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Speaker 2: Given that the United States basically said, look, we had
9:52
Speaker 2: to sign this deal in June because otherwise there was
9:54
Speaker 2: going to be an oil problem in July, I can't
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Speaker 2: imagine that we're going to get to a point where
9:59
Speaker 2: they let that become an issue. The counter to that
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Speaker 2: is Iran clearly views the member of under memorandum of
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Speaker 2: Understanding differently than the United States does when it comes
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Speaker 2: to hey, what does a free flow of traffic through
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Speaker 2: the strait of hormones mean? And it might be that
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Speaker 2: you have irreconcilable differences in terms of how each side
10:25
Speaker 2: views that, uh, and maybe that becomes a bigger problem
10:29
Speaker 2: heading into the fall. So it really does. I'm very
10:33
Speaker 2: much in Hey, what's going on right now isn't good mode.
10:39
Speaker 2: But as long as it gets resolved in the in
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Speaker 2: you know, in the coming weeks, it's not going to
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Speaker 2: cause broader problems now. The place that you are seeing
10:49
Speaker 2: broader problems is on the refined product side right now.
10:54
Speaker 2: And this of course has to do with a different
10:56
Speaker 2: conflict that continues to go on, which is Russia and Ukraine.
10:59
Speaker 2: And Ukraine for the ast couple months has just been
11:01
Speaker 2: launching these nightly drone raids of you know, several hundred
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Speaker 2: drones into Russia, specifically targeting oil refineries. The estimates that
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Speaker 2: I've seen right now are that somewhere between thirty and
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Speaker 2: forty percent of Russia's refining capacity or offline. This is why,
11:17
Speaker 2: in addition to you know, the reason upticking crude prices,
11:20
Speaker 2: this is why the tripa national average four gas prices
11:24
Speaker 2: is up from about three seventy a gallon to almost
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Speaker 2: three ninety a gallon. It's the combination of these things,
11:31
Speaker 2: all else being equal, If the trajectory continues over the
11:33
Speaker 2: rest of this week, we're probably going to see that
11:35
Speaker 2: gas price average back above four dollars a gallon nationally.
11:39
Speaker 2: In the next seven to ten days, we'll see how
11:41
Speaker 2: things go again, very much not sounding like the red alert,
11:45
Speaker 2: and hey, this is a major problem now, but this
11:48
Speaker 2: is something that's worth monitoring because if it continues in
11:51
Speaker 2: this fashion over the next six weeks, then you've got
11:53
Speaker 2: some things to worry about heading into the fall. We'll
11:56
Speaker 2: see what happens. I don't really know at the Moment's.
11:59
Speaker 3: Take a quick break.
12:00
Speaker 2: When we return, let's talk a little bit about Kevin
12:03
Speaker 2: Warsh heading to Capitol Hill and what he may or
12:07
Speaker 2: may not say when he gets there.
12:10
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12:45
Speaker 3: All right.
12:46
Speaker 2: So we started the show off talking about iron. We
12:49
Speaker 2: were going to talk about Kevin Warsh, but during the
12:52
Speaker 2: break we got a post on true social from President Trump.
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Speaker 2: And here it is quote. The Horror Moves Straight is
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Speaker 2: open and will remain open with or without Iran. We
13:02
Speaker 2: are reinstating the Iranian blockade, so named because it is
13:06
Speaker 2: only stopping Iran ships or customers from entering or leaving.
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Speaker 2: All other countries will have fair and open use of
13:12
Speaker 2: the strait. The USA will from this point forward be
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Speaker 2: known as the guardian of the Horn Movez Straight, but
13:17
Speaker 2: as such, as a matter of fairness, will be reimbursed
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Speaker 2: at the rate of twenty percent on all cargo shipped
13:22
Speaker 2: for any and all costs necessary to do the job
13:25
Speaker 2: of providing safety and security to this very volatile section
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Speaker 2: of the world. The process and formation will begin immediately.
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Speaker 2: Thank you for your attention to this matter. So couple
13:35
Speaker 2: things here. So this is basically, in no uncertain term
13:39
Speaker 2: saying that if you are shipping a billion dollars worth
13:42
Speaker 2: of goods through the Strait of Horror Moves, that you
13:44
Speaker 2: are going to pay the United States two hundred million
13:46
Speaker 2: dollars for doing so. Okay, I'm not really sure this
13:51
Speaker 2: is actually going to happen. It feels kind of April
13:55
Speaker 2: of twenty twenty five to me and that this might
13:58
Speaker 2: be the initial you know thing that's floated out there,
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Speaker 2: But I kind of have to imagine that you're not
14:04
Speaker 2: going to have everyone just happy to pay twenty percent,
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Speaker 2: you know, fees to the United States to go through
14:11
Speaker 2: the straight of hoorm moves.
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Speaker 3: Right, you do anybody?
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Speaker 4: This is this a reaction to a run taking tolls
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Speaker 4: of ships going through?
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Speaker 2: It's yeah, well, I think the blockade. There's two separate
14:22
Speaker 2: pieces here. The blockade is very much a reaction to
14:26
Speaker 2: just the increased hostilities over the past week or so.
14:29
Speaker 3: Yes, I'm talking about the twenty percent cut.
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Speaker 2: I don't know, I'll be entirely honest, I don't know
14:37
Speaker 2: how that's actually going to happen, given that many of
14:40
Speaker 2: these goods are never going to enter US jurisdiction, agreed,
14:43
Speaker 2: And you're not going to have like US customs and
14:46
Speaker 2: border patrols sitting on the docks in Rotterdam or Singapore
14:51
Speaker 2: taking down like, okay, now what was in this boat?
14:54
Speaker 3: Now?
14:54
Speaker 2: What Like that's just not going to be realistic. So
14:59
Speaker 2: we'll see what the bigger news is. The blockade. The
15:03
Speaker 2: other piece, I'm just not sure is realistic and possible
15:08
Speaker 2: even And so let's just put that to the side
15:12
Speaker 2: for now. I will say Iran's response to the reinstatement
15:18
Speaker 2: of the blockade gonna be interesting to see exactly what
15:21
Speaker 2: they do. I think both sides have been fairly measured
15:27
Speaker 2: in terms of what they have done and targeted to
15:30
Speaker 2: this point. And I wonder if Iran views this as
15:33
Speaker 2: a bigger escalation than what's happened to this point. And
15:37
Speaker 2: we'll just we'll see. I don't know exactly how this
15:40
Speaker 2: is going to proceed here, but this obviously isn't like great.
15:45
Speaker 2: It's not what you want to see. It hasn't even
15:47
Speaker 2: been a month since the memorandum was signed, right.
15:50
Speaker 3: I guess a few things.
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Speaker 4: One, oil prices were already up about three percent this morning.
15:54
Speaker 4: They haven't moved since this newest.
15:58
Speaker 3: Up. Another one I'm seeing up three and a half.
16:00
Speaker 4: Our CNBC numbers are on a log yep Okay, so
16:03
Speaker 4: moving up now. The I guess other piece about this
16:08
Speaker 4: is just longer term. We've talked about the straight of
16:11
Speaker 4: horror moves becoming a more dangerous and costly place to
16:17
Speaker 4: ship your goods, and this further solidifies that. I think,
16:20
Speaker 4: you know, the investments that surrounding nations are making in
16:23
Speaker 4: pipelines and other things to circumvent the strait.
16:27
Speaker 3: Obviously, this just furthers those goals.
16:32
Speaker 2: The other piece is, and this is the problem, is
16:37
Speaker 2: if this you know, goes you know forward for the
16:39
Speaker 2: next couple of weeks. Here, if you were coming out
16:43
Speaker 2: of this spring and you said, okay, like, yes, the
16:45
Speaker 2: straight of hoe moves close. It's not what it used
16:48
Speaker 2: to be, but it's back open now and everything's fine, Great,
16:52
Speaker 2: I'll send my ships back in.
16:54
Speaker 3: Now.
16:55
Speaker 2: If you have this you know kind of happening again
16:57
Speaker 2: and again, it really raises the question for companies, Hey,
17:01
Speaker 2: at what point am I comfortable sending ships back into
17:03
Speaker 2: horror movies? Because I don't want to see them get
17:05
Speaker 2: stuck there right and just be you know, sitting there again.
17:08
Speaker 2: So the calculus change is there. The other thing, just
17:12
Speaker 2: for businesses operating in the region, the whole premise that
17:15
Speaker 2: has lured a ton of capital and business there over
17:18
Speaker 2: the last you know, twenty five years or so, has
17:20
Speaker 2: been hey, this is a safe, you know, easy place
17:24
Speaker 2: to operate. Well, those questions are being raised, like, let's
17:29
Speaker 2: be honest, if if you had a family and you
17:33
Speaker 2: were you know, your company's saying, hey, guess what you
17:37
Speaker 2: got to move to Bahrain. Well, a year ago, you
17:40
Speaker 2: would have said, I don't really you know, I'm not
17:43
Speaker 2: really sure that that's for me, and they would have said, here,
17:46
Speaker 2: we'll just pay you more. Right today, Hey, we want
17:49
Speaker 2: to move you to Bahrain. I'm just not sure I
17:52
Speaker 2: want to worry about ballistic missiles and drones. I'm like,
17:56
Speaker 2: I'm just not sure that I do. Man Power potentially
18:00
Speaker 2: becomes a problem there, yeap. And beyond that, like, if
18:04
Speaker 2: you're talking about, you know, data center investment, you want
18:07
Speaker 2: to spend you know, forty billion dollars building a data
18:10
Speaker 2: center there and you don't know what the picture looks
18:16
Speaker 2: like ten years from now.
18:17
Speaker 3: Yeah.
18:17
Speaker 4: Look, the entirety of the developed Middle East has spent
18:20
Speaker 4: the last decade and a half, I think, trying to
18:24
Speaker 4: convince the world that it is a modern, safe, secure
18:28
Speaker 4: place that and.
18:29
Speaker 2: It basically did for the last twenty years.
18:31
Speaker 3: Let's be honest, it was and has been.
18:35
Speaker 4: I think I think it's still a question as to
18:38
Speaker 4: whether or not that reputation has been permanently damaged. But
18:42
Speaker 4: you know, it has been seen as an investable place
18:46
Speaker 4: that you know, maybe you don't want to travel to
18:48
Speaker 4: on vacation. I understand all those things, but you know,
18:51
Speaker 4: it's hosted World Cups, it's it's become a modern place
18:55
Speaker 4: that businesses have considered investing, and this all does somewhat
18:59
Speaker 4: called that into QUI.
19:00
Speaker 2: I don't think anything is permanent in terms of like
19:03
Speaker 2: after twenty twenty. I don't think anything is permanent in
19:06
Speaker 2: terms of like how it affects that, you know, the image.
19:08
Speaker 3: I still remember all the pieces about like, oh, New
19:11
Speaker 3: York City's.
19:12
Speaker 2: Dead after twenty twenty, and gotta be honest, like New
19:14
Speaker 2: York City after the nixt one this year looked pretty cool,
19:16
Speaker 2: looked like a good place to hang out. I do think, hey,
19:20
Speaker 2: does this potentially, you know, kill that extra push for
19:23
Speaker 2: the rest of this business cycle towards the Middle East?
19:25
Speaker 3: Yeah, it probably does.
19:27
Speaker 2: Quick break here, we've got Wall Street Watch next.
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19:58
Speaker 5: Markets are lower to begin the week, with the busy
20:00
Speaker 5: slate ahead, including Bank earnings and inflation reading and testimony
20:04
Speaker 5: from new FED Chairman Kevin Warrish tomorrow. Tensions between the
20:08
Speaker 5: US and Iran have also escalated, where President Trump posted
20:12
Speaker 5: moments ago that the US is reinstating the Iranian blockaded
20:16
Speaker 5: on the Street of Horne Moves Right now, the Dow
20:19
Speaker 5: is down only thirteen points, SMP five hundred is off
20:23
Speaker 5: about three tenths of a percent, Nasdaq down eight tenths
20:27
Speaker 5: of one percent, RUSS two thousand is down about two
20:29
Speaker 5: thirds of a percent. Tenure Treasure reeled up two basis
20:32
Speaker 5: points at four point five to nine percent, and Oil
20:35
Speaker 5: up four and a half percent, trading at seventy four
20:38
Speaker 5: dollars a barrel after a successful ipo on Friday. Shares
20:42
Speaker 5: in South Korean chip maker sk Highnis are volatile but
20:45
Speaker 5: currently up by four percent. Korean shares of the company
20:49
Speaker 5: stock plunch more than fifteen percent, marking its largest one
20:53
Speaker 5: day drop on record. Other chip in memory stock seeing
20:56
Speaker 5: volatility as investors assessed the AI trade. Micro Technology and
21:01
Speaker 5: Intel down by four percent, AMD off by two percent,
21:04
Speaker 5: and Sandis shares a tumbling seven percent. Meanwhile, the Wall
21:08
Speaker 5: Street Journal report of that MGM Resorts has been negotiating
21:11
Speaker 5: a potential deal with Barry Diller's People, Inc. After the
21:15
Speaker 5: media Mogul offered to buy the casino giant MGM up modestly,
21:19
Speaker 5: and Jefferys upgraded both Shopify and Deckers Outdoor to a
21:22
Speaker 5: by rating. The analyst said Shopify as strong fundamentals and
21:27
Speaker 5: that Deckers has upside potential thanks to product innovation at
21:31
Speaker 5: its sports where bran Hoka. Shopify up by half a
21:34
Speaker 5: percent while Deckers is rising by three percent. I'm Tucker Silva,
21:39
Speaker 5: and that is Wall Street Watch.
21:41
Speaker 3: All right.
21:41
Speaker 2: So Kevin Warsh, as we noted, is heading to Capitol
21:44
Speaker 2: Hill this week, and look, he's gonna be talking a
21:48
Speaker 2: little bit about you know, his views in front of
21:51
Speaker 2: the House Financial Services Committee as well as the.
21:54
Speaker 3: Senate Banking Committee.
21:56
Speaker 2: I think the big question is, hey, look, what is
22:01
Speaker 2: you know worsh going to do or what's he going
22:03
Speaker 2: to try to lead the rest of the FED to
22:06
Speaker 2: do over the next six months of the year, the
22:11
Speaker 2: final six months of the year. And as of right now,
22:14
Speaker 2: here's here's where we currently sit for these these different meetings.
22:19
Speaker 2: The July meeting, which is two weeks from Wednesday, has
22:23
Speaker 2: about a thirty five percent chance of an interest rate
22:26
Speaker 2: hike is zero percent chance of a cut. There there
22:28
Speaker 2: are no cuts priced in for the remainder of this year.
22:33
Speaker 2: The September meeting is basically like a seventy to thirty
22:38
Speaker 2: split towards one or more hikes, as is the October
22:44
Speaker 2: and December meetings. So actually December is closer to like
22:48
Speaker 2: an eighty five percent chance of one or more hikes.
22:51
Speaker 2: So I think that in looking at this, you've got,
22:55
Speaker 2: you know, these these hikes that the market is pricing
22:58
Speaker 2: in right now. And remember the market is pricing these in,
23:03
Speaker 2: and so if the Fed indeed does not hike at
23:07
Speaker 2: these meetings, it's effectively easy because the market has these
23:11
Speaker 2: priced in right now.
23:12
Speaker 3: So I think that for Worsh, if.
23:18
Speaker 2: If I am looking at Worsh trying to build credibility
23:22
Speaker 2: such that look, it's clear that from Worsh's testimony, heading
23:26
Speaker 2: into his confirmation hearing and everything, Worsh wants to be
23:30
Speaker 2: able to cut interest rates.
23:32
Speaker 3: Yeah. Fair, Yeah.
23:34
Speaker 2: The way that you actually get to be able to
23:36
Speaker 2: cut interest rates is if the market believes that you
23:38
Speaker 2: will hike if you need to. And so I gotta
23:43
Speaker 2: be honest, I've said this before. The best thing for
23:46
Speaker 2: Kevin worsh to do if he wants to eventually be
23:49
Speaker 2: able to cut interest rates is hey, if the market
23:52
Speaker 2: warrants it, hike them first, it will give you far
23:56
Speaker 2: more runway because the market will believe that you're credible
23:59
Speaker 2: against an inflation.
24:01
Speaker 3: And this is something, by the way, that.
24:02
Speaker 2: If you talk to like any head of any emerging
24:04
Speaker 2: market central bank, they'll tell you this. The central bankers
24:08
Speaker 2: that get in trouble in emerging markets, and these are
24:10
Speaker 2: the ones that you want to study, because you talk
24:13
Speaker 2: about like the head of the Brazilian Central Bank, they
24:16
Speaker 2: got problems if they don't address inflation.
24:20
Speaker 3: People don't eat.
24:21
Speaker 2: If they should up the Brazilian real is not the
24:23
Speaker 2: reserve currency for anything. Like I have buddies who have
24:26
Speaker 2: spent time in Brazil, like as kids, and they'll tell you, Hey,
24:30
Speaker 2: we used to go to the grocery store and there
24:32
Speaker 2: was a guy who was, you know, putting today's prices
24:34
Speaker 2: on the items. You wanted to be in front of
24:37
Speaker 2: that guy so that you got the items priced yesterday.
24:41
Speaker 2: Central bankers eat in emerging markets. What they realize is, hey,
24:44
Speaker 2: even if I want to eventually cut I got to
24:48
Speaker 2: be kind of a tough guy at first in order
24:50
Speaker 2: to be able to get that credibility. So the market knows,
24:53
Speaker 2: I'm cutting because it's warranted, not because I want to.
24:58
Speaker 4: As he heads into this, I mean just to kind
25:01
Speaker 4: of revisit the critical things that he's got to keep
25:04
Speaker 4: an eye on. So obviously they've talked about the war
25:08
Speaker 4: in Iran and oil prices as though they might eventually
25:11
Speaker 4: want to look through it. But you now have this
25:14
Speaker 4: going on again today and no ability to look through
25:17
Speaker 4: any of that stuff.
25:19
Speaker 3: I do.
25:21
Speaker 4: You're looking at what four percent inflation on average when
25:24
Speaker 4: you look at the combination of PCE, CPI and those
25:27
Speaker 4: different you know items, let's call.
25:29
Speaker 2: It for Yeah, if you headline inflation, I'm stripping out
25:33
Speaker 2: PPI because that's a fundamentally different beast. But you've got
25:37
Speaker 2: four to two on CPI and four to one on PCE.
25:41
Speaker 2: Core is between two eight and three four, so call
25:43
Speaker 2: it three and a quarter on CORE.
25:46
Speaker 4: You've got jobs numbers that haven't shown any real concern,
25:50
Speaker 4: and you know, frankly, longer term rates, well, let's put
25:54
Speaker 4: it this way. Longer term rates were probably averaging in
25:57
Speaker 4: early twenty twenty six before this war at like four
26:00
Speaker 4: to four and a quarter and are now sitting yet
26:02
Speaker 4: more like four and a half. And that's all happening,
26:06
Speaker 4: by the way, amidst massive bond issuance from a bunch
26:10
Speaker 4: of tech players. And so yeah, there are some questions
26:14
Speaker 4: to answer on how hawkish Kevin Warsh is going to
26:20
Speaker 4: be able to be and then also balanced with the
26:24
Speaker 4: fact that he does not want to paint himself into
26:26
Speaker 4: a corner and he's been really clear about that. So
26:29
Speaker 4: it will be an interesting couple of days. And my
26:32
Speaker 4: main question is can he get away with saying as
26:34
Speaker 4: little as he did during the press conference or will
26:37
Speaker 4: he need to answer more direct questions from lawmakers.
26:40
Speaker 2: Ultimately, he doesn't need to say anything. I mean, when
26:46
Speaker 2: you look at the Federal Reserve, until the last twenty
26:49
Speaker 2: five years, basically they didn't say very much. Now the
26:54
Speaker 2: thinking has evolved that hey, by telling people what we
26:59
Speaker 2: are going to do in advance and kind of setting
27:02
Speaker 2: the stage, we're able to reduce volatility and guide towards
27:06
Speaker 2: you know, better outcomes. And maybe even the guidance prevents
27:09
Speaker 2: us from having to act as much. Right, So, like
27:12
Speaker 2: there's there's some thinking behind that. Worsh's view is no like,
27:16
Speaker 2: the market doesn't need to be spoon fed. We don't
27:18
Speaker 2: need to be hanging on the word of every FED speaker.
27:21
Speaker 2: And look, there's a reasonable case that that could be
27:23
Speaker 2: the right approach to It's just that it might take
27:25
Speaker 2: the market a little bit of time to get used
27:27
Speaker 2: to it and understand what that means. I think the
27:32
Speaker 2: big thing that you come back to with any leader
27:35
Speaker 2: of any central bank, the most important thing is that
27:39
Speaker 2: they make good decisions, that they make the right ones.
27:42
Speaker 2: J Powell made some bad ones back in twenty twenty
27:45
Speaker 2: one and twenty two that led to inflation being higher
27:48
Speaker 2: than it would have for longer than it would have
27:49
Speaker 2: been all else being equal, I think aside from that
27:52
Speaker 2: period he generally did a pretty darn good job. But
27:56
Speaker 2: he made, you know, some some pretty significant errors during
27:59
Speaker 2: that time, and his FED was one that largely was
28:04
Speaker 2: more cautious about losing ground on the employment side than
28:10
Speaker 2: losing ground on the inflation side. We'll have to see
28:15
Speaker 2: what the warst FED looks like, which by the way,
28:17
Speaker 2: still has Powell on it another you know, just great
28:20
Speaker 2: thing that we're going to be, you know, watching to
28:21
Speaker 2: see how that evolves.
28:23
Speaker 3: Here.
28:25
Speaker 2: Let's move forward now to talk about this piece from
28:27
Speaker 2: the Wall Street Journal that gets it something that Mike
28:29
Speaker 2: and I have been talking about for I think at
28:32
Speaker 2: least six to nine months, maybe longer. Do we really
28:35
Speaker 2: feel this lousy about the economy? Or is a key
28:37
Speaker 2: survey Broken's talking about the University of Michigan Consumer Sentiment Survey,
28:42
Speaker 2: And pretty much what this survey is showing, not pretty much.
28:46
Speaker 2: What it is showing is that the University of Michigan
28:49
Speaker 2: Consumer Sentiment Index is at its lowest readings ever. This
28:54
Speaker 2: survey goes back into the nineteen sixties, So if you
28:57
Speaker 2: take that for what it is, it's pretty much saying, hey,
29:00
Speaker 2: people feel worse about the economy now than in the
29:02
Speaker 2: nineteen seventies, than after the tech bubble, than during the
29:05
Speaker 2: financial crisis. And look, I'm not saying the economy is
29:09
Speaker 2: perfect right now. It's better than every other one of
29:12
Speaker 2: those times I mentioned.
29:13
Speaker 3: I agree. I'm gonna make this just very simple.
29:18
Speaker 4: In May or sorry, in the most recent reading, we
29:22
Speaker 4: had a sentiment IndX of forty four point eight, which,
29:25
Speaker 4: like you said, is an all time low. In twenty
29:30
Speaker 4: twenty two, you had a higher reading on sentiment.
29:35
Speaker 2: When inflation was running nine percent annually.
29:37
Speaker 4: So like, let's just look at the last couple of
29:38
Speaker 4: years here, right, Because I don't know how surveys and
29:41
Speaker 4: response rates changed compared to the nineteen eighties.
29:43
Speaker 3: It's really tough for me to say, but I do.
29:45
Speaker 4: Know that, you know, the people that we're responding to
29:48
Speaker 4: surveys in twenty twenty two are probably about the same
29:50
Speaker 4: type of people that we're responding in twenty twenty six.
29:52
Speaker 2: If you held they think they all have social media,
29:54
Speaker 2: then they have social media.
29:55
Speaker 4: Now in twenty twenty four, they changed how they did
29:58
Speaker 4: the survey, and since that change, the readings have been
30:02
Speaker 4: a lot worse. The leader of the survey has been saying, hey,
30:07
Speaker 4: you know, I think this really has to do with
30:08
Speaker 4: a shifting sentiment since COVID, And my point would be, well,
30:13
Speaker 4: then why did the readings drop in twenty twenty two
30:16
Speaker 4: or sorry today compared to twenty twenty two. Yeah, because
30:19
Speaker 4: if it was a COVID related thing, I would have
30:21
Speaker 4: expected consistently bad readings since COVID, which you did see
30:25
Speaker 4: some effect there. But I think really what we're seeing is, hey,
30:30
Speaker 4: you went from a reach out to you via text
30:33
Speaker 4: and phone call survey to an entirely online survey, and
30:36
Speaker 4: that is leading more people to respond more extremely and
30:42
Speaker 4: maybe has some political bias in here too, with more
30:44
Speaker 4: Democrats responding to the survey than conservatives.
30:48
Speaker 2: I think whatever's going on, we're never gonna know. What
30:54
Speaker 2: I do know is this used to be kind of
30:56
Speaker 2: like a Crown Jewel report of hey, like what do
31:01
Speaker 2: people think about the economy? And I think it's completely
31:05
Speaker 2: useless now. Yep, it is completely one hundred percent useless now.
31:10
Speaker 2: And we talk about it because of what it's meant historically.
31:15
Speaker 2: But I'm kinda along the lines of, hey, this should be,
31:18
Speaker 2: you know, relegated to the dustbin. You know, it's it's
31:22
Speaker 2: it's just not a useful signal at this point, and
31:27
Speaker 2: I'm just not sure that we should be paying attention
31:31
Speaker 2: at this point. Let's take a quick break, and when
31:36
Speaker 2: we return, let's talk a little bit about what's going
31:39
Speaker 2: on with bond issuance for AI companies.
31:43
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32:38
Speaker 3: All right, we got a piece here.
32:40
Speaker 2: It's titled the quarter trillion dollar Onslaught of AI bonds
32:44
Speaker 2: is testing investors' limits, so better tech giants are borrowing
32:48
Speaker 2: even more than expected, weighing on bond prices and a
32:52
Speaker 2: couple different things here, because it's hard to untangle. You've
32:56
Speaker 2: got just a ton of bond issuanes that's coming through
32:58
Speaker 2: from AI companies because specifically the hyperscalers, most of them
33:04
Speaker 2: don't have the free cash flow to continue to expand
33:06
Speaker 2: their capex the way that they are doing. So sure
33:08
Speaker 2: a couple of them do, but a lot of them don't.
33:11
Speaker 2: Uh So even the ones that do are borrowing some
33:15
Speaker 2: money here, Yes, because look, why not get it while
33:17
Speaker 2: the gett's good? So that the two things that you
33:20
Speaker 2: have to untangle in it, and I don't think that
33:22
Speaker 2: we really can. Number one, Hey, is this investors actually
33:27
Speaker 2: being concerned about the ability of those companies to pay
33:31
Speaker 2: the money back. That's one possibility. Possibility too, is hey,
33:36
Speaker 2: there's just so much of this out there that it's
33:40
Speaker 2: a lot of issues for the market to absorb, and
33:42
Speaker 2: as more comes through. It's not necessarily that investors don't
33:47
Speaker 2: believe in the bonds that have already been purchased. It
33:49
Speaker 2: just might be, hey, in order to buy the new ones,
33:52
Speaker 2: you might need to pull money from the old ones,
33:55
Speaker 2: and there just might not be enough money to go
33:57
Speaker 2: around right now because of how much bondish wins and
34:01
Speaker 2: how much equity issuance there is. I mean, you're talking
34:03
Speaker 2: like a third of a trillion dollars has come online
34:06
Speaker 2: between bonds and equities in the last couple months. It's
34:09
Speaker 2: just a lot for the market to absorb in a
34:11
Speaker 2: short period.
34:12
Speaker 3: Which we'll have to see.
34:13
Speaker 4: But if that is the thing that's driving this, right,
34:15
Speaker 4: if it's not fear of default and there's just not
34:19
Speaker 4: enough liquidity to absorb it, then that means one thing.
34:24
Speaker 4: One they could you know, potentially not issue as many bonds.
34:26
Speaker 4: But what it means is that they would need to
34:30
Speaker 4: offer higher rates to get those bonds.
34:33
Speaker 2: Absorbed correct, and they might make the projects not financially feasible.
34:37
Speaker 4: And this you know, goes throughout the you know, throughout
34:41
Speaker 4: the market, right. You if you are applying for a mortgage,
34:44
Speaker 4: are kind of hypothetically competing for rates with giant bond
34:50
Speaker 4: do issuers who need capital as well. You're competing with
34:53
Speaker 4: the United States government who needs to issue debt as well.
34:55
Speaker 4: And not that it's the same pool of buyers for
34:57
Speaker 4: all of these things, right, there are institutions that don't
35:00
Speaker 4: buy corporate bonds and only buy treasury bonds, and so
35:03
Speaker 4: it's not one for one. But when you have a
35:05
Speaker 4: whole bunch of people looking for cash at the same time,
35:09
Speaker 4: if they cannot be absorbed, there's one path for.
35:12
Speaker 3: It to get absorbed. Rates go higher.
35:15
Speaker 4: And so yeah, you know, if you're looking at a mortgage,
35:17
Speaker 4: if you're looking at any of these things, you've probably
35:18
Speaker 4: noticed this over the course of the last few months.
35:21
Speaker 4: It's partly due to inflation concerns, but it's also partly
35:25
Speaker 4: because of this massive economic activity that we're saying.
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36:43
Speaker 2: Skhinex, who went through a US listing of their stock,
36:49
Speaker 2: was that on Thursday or Friday, remember it's Friday, so
36:53
Speaker 2: they fell fifteen percent this morning and I gotta tell
36:58
Speaker 2: you something is just not really healthy in the semiconductor
37:03
Speaker 2: space right now. We talked about this a bit last week.
37:07
Speaker 2: If you take a look at the Philadelphia Semiconductor Index,
37:11
Speaker 2: the last month basically looks like an EKG.
37:13
Speaker 3: It's just like all over the place.
37:15
Speaker 2: Five percent up one day, five down the next that
37:18
Speaker 2: there's no consistency there. And this comes after that index
37:23
Speaker 2: in more than doubled from the start of April through
37:27
Speaker 2: mid June. And I gotta tell you, between this and
37:31
Speaker 2: now you've got Meta and SpaceX leasing out computing capacity.
37:37
Speaker 2: At this point, it is starting.
37:40
Speaker 3: To feel like overbuilt.
37:44
Speaker 2: Not necessarily overbuilt, but like the it's starting to feel like, hey,
37:47
Speaker 2: there's gonna be like some gravity that starts to pull
37:50
Speaker 2: this stuff towards what it's really worth.
37:52
Speaker 3: And we'll see how.
37:54
Speaker 2: That develops over the next you know, a couple quarters.
37:57
Speaker 2: I think this is not you know, like, hey, everything's
37:59
Speaker 2: gonna fall apart to but semiconductor stocks are just not
38:03
Speaker 2: behaving the way they do in healthy markets. They're behaving
38:07
Speaker 2: kind of nuts at the moment, and that's not really
38:11
Speaker 2: encouraging given that this market over the last couple of
38:13
Speaker 2: years has been best when tech's been able to thrive.
38:17
Speaker 2: Quick Break Hour two coming up in a bit