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Why Markets Keep Rising Despite an Energy Crisis · The Financial Exchange Show

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1:03
Speaker 1: This is the Financial Exchange with Mike Armstrong and Paul Lane.
1:11
Speaker 2: Good morning, Welcome back to the Financial Exchange.
1:14
Speaker 3: Happy Tuesday.
1:14
Speaker 2: Here it's Mike, Paul and Tucker with you on a
1:17
Speaker 2: jobs week. We've got data from the Bureau Labor Statistics
1:21
Speaker 2: out this morning for the Adjults Survey. That's the job
1:25
Speaker 2: openings labor Turnover survey that we report on once a month.
1:28
Speaker 2: This Friday, we'll be getting a full blown jobs report.
1:31
Speaker 3: Thursday. Of course we get our weekly jobless.
1:33
Speaker 2: Claims in the context of a FED that is now
1:40
Speaker 2: much more worried, seemingly about the inflation effects than the
1:43
Speaker 2: labor market. But obviously, you know, a few rough labor
1:46
Speaker 2: market reports can change that viewpoint. And you've got the
1:50
Speaker 2: new chair coming in with Kevin Warsh. We've got obviously
1:55
Speaker 2: the airline news continuing with Spirit Spirit Airlines demise and
2:00
Speaker 2: the Great Wealth transfer that will be playing out of
2:02
Speaker 2: the course the next couple of decades. But frankly all
2:05
Speaker 2: of that taking a back seat to the news over
2:07
Speaker 2: the last couple of days regarding the Middle East Iran
2:11
Speaker 2: attacks on the United United Arab Emirates and what it
2:16
Speaker 2: means for the US presence in the Strait of horror.
2:18
Speaker 2: Mouse So Paul picking up right there. We kicked off
2:22
Speaker 2: the show yesterday very much in a state of not
2:26
Speaker 2: really sure what's going on there. There was a lot
2:28
Speaker 2: of confusion starring.
2:30
Speaker 3: In a town.
2:31
Speaker 2: Yeah, starting at around four or five in the morning yesterday,
2:35
Speaker 2: after the President's Sunday statements about helping ships navigate the
2:40
Speaker 2: Straight and US military presence in that space. What we
2:44
Speaker 2: now know with a higher degree of certainty is that
2:48
Speaker 2: two ships were struck, one Korean flag vessel another UAE
2:53
Speaker 2: flag vessel. There were also attempted strikes on the United
2:56
Speaker 2: Arab Emirates mainland. They put out a bunch of warnings
2:59
Speaker 2: to citizens, one of them ended up being a very
3:02
Speaker 2: quick false warning, another one then repeated. But I think
3:07
Speaker 2: the biggest thing that we can conclusively say is that
3:10
Speaker 2: once again, in spite of the US's best efforts, ships
3:14
Speaker 2: are not feeling safe enough to navigate the Straight. The
3:17
Speaker 2: US is actively blockading any ships that are navigating the
3:21
Speaker 2: Straight with Iranian permission, and we are in not much
3:25
Speaker 2: of a different position than we have been for the
3:28
Speaker 2: last two months when it comes at least to the
3:30
Speaker 2: supply of oil and all other goods that navigate through
3:34
Speaker 2: the Strait.
3:35
Speaker 4: Yeah, continued uncertainty in the region, Mic, and it seems
3:38
Speaker 4: like potential for some sort of pessimism if you sort
3:41
Speaker 4: of look at the events over the last few days here.
3:45
Speaker 4: I know you guys have been covering this extensively on
3:48
Speaker 4: a day to day basis. The question that I keep
3:49
Speaker 4: coming back to is we have this backdrop where now we're,
3:53
Speaker 4: what sixty plus days into this whole war, where we
3:57
Speaker 4: were typically accustomed to one hundred and fifteen, one hundred
4:00
Speaker 4: and thirty ships traveling through the Strait. We're far off
4:03
Speaker 4: those numbers, and it's basically been a standstill. We've talked
4:05
Speaker 4: about on the show at nauseum the impacts that has
4:08
Speaker 4: on the oil and energy markets as well as global
4:11
Speaker 4: supply chains. But yet still we sit here, Mike, with
4:15
Speaker 4: a market that is up again today though it was
4:18
Speaker 4: slightly down yesterday, and a market that's up close to
4:21
Speaker 4: six percent your date. I'm just curious you and Chuck's
4:24
Speaker 4: view kind of covering this day to day as to
4:26
Speaker 4: why the markets seem to continue to chug along. Obviously,
4:30
Speaker 4: we've had a really nice earning season here where we've
4:32
Speaker 4: seen double digit earnings growth for a lot of those
4:35
Speaker 4: companies in the S and P five hundred. That's certainly
4:37
Speaker 4: a positive here domestically, But I just am curious is
4:39
Speaker 4: why we continue to see such positive investor sentiment. When
4:42
Speaker 4: I read these headlines in preparation for the show, it
4:45
Speaker 4: makes me a little more pessimistic on markets.
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Speaker 2: Yeah, I mean, we're gonna be talking about semiconductors and
4:51
Speaker 2: Taiwan and everything else later in the program. But I
4:53
Speaker 2: think the answer is fairly simple. Energy markets are accurately
4:59
Speaker 2: pricing in the shortage. Now you know twenty percent of
5:02
Speaker 2: the world supply of oil gone. The United States is
5:08
Speaker 2: not dependent on low oil prices like they were in
5:12
Speaker 2: the nineteen seventies and nineteen eighties in order to support
5:16
Speaker 2: their economy. In fact, energy overall the US economy is
5:20
Speaker 2: far less energy intensive than it was a few decades ago.
5:23
Speaker 2: And realistically speaking here, I think I think the main
5:28
Speaker 2: answer is that this market in the United States since
5:31
Speaker 2: twenty twenty three has cared about one thing and one
5:34
Speaker 2: thing only, which has been semiconductors and ai right, And
5:37
Speaker 2: so long as that supply chain isn't getting disrupted, I'm
5:40
Speaker 2: not sure that much else matters. There's other things that
5:44
Speaker 2: forced at work here too. Clearly, there's a by the
5:47
Speaker 2: dip mentality. I think there is an interesting role that
5:50
Speaker 2: retail investors are playing today.
5:52
Speaker 5: Little more of a risk environment a decade ago.
5:54
Speaker 2: But overall, I don't want to overcomplicate it all that much.
6:00
Speaker 2: There is a looming crisis in energy markets. Spelling out
6:06
Speaker 2: exactly what the effect is on US markets because of
6:10
Speaker 2: that is pretty complicated, right, Like do I see a
6:12
Speaker 2: path where gas prices could be over five bucks a
6:15
Speaker 2: gallon this summer?
6:16
Speaker 3: Sure?
6:16
Speaker 5: Do yep?
6:17
Speaker 2: Would that be painful for Americans? Absolutely? Would it be
6:22
Speaker 2: any substantially more painful than the existence of the tariffs
6:26
Speaker 2: that we initially thought were going into place in the
6:28
Speaker 2: spring of last year, or other big disruptions to things overall?
6:34
Speaker 2: Maybe maybe not, you know, like I have a tough
6:36
Speaker 2: time drawing out how much worse five dollars a gallon
6:41
Speaker 2: gas is for the average American compared to.
6:45
Speaker 3: You know, tax rates.
6:46
Speaker 2: Where they were two years ago, or tariffs being you know,
6:50
Speaker 2: a major contributing factor to things. You know, there are
6:53
Speaker 2: these offsetting forces, and when I look at, for example,
6:57
Speaker 2: the total consumption of oil in the United States dates
7:00
Speaker 2: and the increased price they are compared to the total
7:03
Speaker 2: benefit of tax cuts that went into place in twenty
7:05
Speaker 2: twenty six, they kind of wash each other out.
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Speaker 4: Yeah, I just wonder that the five dollars a gallon
7:11
Speaker 4: particularly parallels to where we saw it, I believe, around
7:14
Speaker 4: July of twenty twenty two, where inflation was at that
7:17
Speaker 4: breakneck pace. And I'm not suggesting that we get back
7:20
Speaker 4: to those levels. And perhaps it's worth discussing when you
7:23
Speaker 4: have oil and gas that high at five dollars a gallon,
7:26
Speaker 4: it seeps into other areas beyond what you and I
7:28
Speaker 4: pay in the pump. Obviously, anything from a transportation standpoint,
7:32
Speaker 4: for the goods that we buy from Amazon or others
7:35
Speaker 4: out there, you'd have to think that they would have
7:38
Speaker 4: to increase their prices in order to combat and we've
7:42
Speaker 4: seen it with the airlines and we're going to talk
7:43
Speaker 4: about that. In today's program to combat higher fuel costs,
7:46
Speaker 4: fares have to go up. The same thing applies, And
7:49
Speaker 4: so I just wonder that it seems that perhaps the
7:53
Speaker 4: argument could be and I get it, we're not coming
7:55
Speaker 4: off of post COVID stimulus where people were flushed with
7:58
Speaker 4: a bunch of money, But how is the inflationary picture
8:01
Speaker 4: which you did allude to, The FED is concerned about
8:04
Speaker 4: doesn't seep into to market pess And I guess it
8:07
Speaker 4: goes back to your overall point is that the market
8:09
Speaker 4: is lesser concerned about an inflationary picture or a pessimistic
8:12
Speaker 4: inflationary future here in the next three to six months
8:15
Speaker 4: than the emergence of continued just crazy demand for semiconductors.
8:21
Speaker 5: And yeah, I mean that overpowers it.
8:23
Speaker 2: I think I don't know the exact numbers. I'll try
8:26
Speaker 2: and pull them during the break, but I believe that
8:29
Speaker 2: year over year earnings growth for this quarter right now
8:31
Speaker 2: is on there no more closer to twenty wow. Okay,
8:36
Speaker 2: And so I think my answer is you can pave
8:40
Speaker 2: over a heck of a lot of problems so long
8:43
Speaker 2: as you have the big boys, which are the semiconductor
8:46
Speaker 2: AI players out there, some other tech companies too. But
8:49
Speaker 2: if you have those big boys pulling in profits that
8:52
Speaker 2: are growing twenty percent on an annual basis.
8:56
Speaker 4: While also spending billions of dollars on capex too to
8:59
Speaker 4: build out out of which is helpful, you know.
9:02
Speaker 2: You might just take a back seat and say, yeah, okay,
9:04
Speaker 2: I can deal with interest rates at four percent for
9:07
Speaker 2: longer I can deal with inflation at three to four
9:10
Speaker 2: percent if companies continue to produce earnings that are just
9:15
Speaker 2: literally knocking the cover off the ball, right, I think
9:18
Speaker 2: that's my answer, and it's surprising in a lot of ways.
9:22
Speaker 2: I don't think it's I don't think it's sustainable from
9:25
Speaker 2: a political standpoint to have Americans paying five dollars a
9:28
Speaker 2: gallon for gas and six dollars a gallon for diesel.
9:32
Speaker 2: And I don't think that it's a good formula for
9:35
Speaker 2: anybody trying to run for re election in general to
9:38
Speaker 2: see inflation, you know, getting to nine percent, coming back
9:42
Speaker 2: down to three, and then you know, shooting back up.
9:46
Speaker 2: But from a pure US stock market perspective, Wall.
9:51
Speaker 5: Street's not about that.
9:53
Speaker 2: It's about yeah, that's it's now, you know. To be clear,
9:57
Speaker 2: if we start to get into a position where inflation
9:59
Speaker 2: is now running so hot that interest rates, rather than
10:02
Speaker 2: staying where they need where they are now need to
10:04
Speaker 2: go up like it did in twenty twenty two, that's a
10:06
Speaker 2: different set of circumstances. But we're not there yet. Right,
10:09
Speaker 2: Let's take a quick break. When we come back. I
10:11
Speaker 2: do want to get to that job opening's labor turnover survey,
10:14
Speaker 2: and then a little bit more about this energy impact
10:17
Speaker 2: on the US economy.
10:18
Speaker 3: That's next here on the Financial Exchange.
10:20
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10:57
Speaker 2: We've got a listener text during the last segment about
11:01
Speaker 2: gas and all sorts of other pieces that I thought
11:05
Speaker 2: was interesting. By the way, you can text the show
11:07
Speaker 2: at six one seven three six two thirteen eighty five.
11:10
Speaker 2: We also do our weekly mail bag segment on is
11:14
Speaker 2: that Friday's Tucker?
11:16
Speaker 5: Yeah, Friday, eleven thirty five, And.
11:17
Speaker 3: What's that phone number for that?
11:19
Speaker 6: Uh three nine nine three nine nine four triple three
11:23
Speaker 6: or email TFE Show at gmail dot com.
11:27
Speaker 2: You just did it wrong, but it's today three three
11:29
Speaker 2: nine three nine nine four triple three. Why did you
11:31
Speaker 2: ask me I TFE Show email number until you said it, Tucker?
11:36
Speaker 2: In any case, the text, I'll read it. So the
11:38
Speaker 2: price of gasoline being up significantly is not helpful. Tariffs
11:40
Speaker 2: are not particularly helpful. It's straight of horror moo Hormuz
11:44
Speaker 2: blockade war in the Ukraine. All of this is not good.
11:47
Speaker 2: But I'm a home improven contractor. Yesterday two customers signed
11:50
Speaker 2: contracts with me for home improvement work. Total is ninety
11:53
Speaker 2: eight thousand dollars. Single best day I've had in two years.
11:56
Speaker 2: Previous mark was seventy two thousand. The point is, I
11:59
Speaker 2: know things are not rate, but there are people who
12:01
Speaker 2: have the money and choose to spend it in almost
12:04
Speaker 2: any economy would not agree.
12:07
Speaker 5: More like that text.
12:08
Speaker 4: Yeah, it's a nice way to kind of crystallize everything
12:11
Speaker 4: that's gone on, and that's spend the story has been
12:12
Speaker 4: a resilient consumer through everything for the last three or
12:16
Speaker 4: four years.
12:16
Speaker 5: Yeah.
12:17
Speaker 2: And it's not to minimize the experience of a good
12:19
Speaker 2: chunk of Americans a third or more who are in
12:24
Speaker 2: very tough place and seeing gas prices increase this much
12:28
Speaker 2: may knock them over the edge, right, And I am
12:31
Speaker 2: certain that with gas prices being up like we saw
12:33
Speaker 2: spirit airlines demise, there will be individuals who fall beyond
12:37
Speaker 2: the precipice and can't make their student loan payments or
12:40
Speaker 2: can't pay off that credit card or do those things.
12:43
Speaker 2: But on the other hand, we have this extraordinarily wealthy group,
12:47
Speaker 2: especially over the age of sixty, who.
12:51
Speaker 3: Are continuing to spend.
12:53
Speaker 2: And in this you know, in this individual's instance here,
12:56
Speaker 2: they usually own a home, they oftentimes have a more mortgage.
13:00
Speaker 2: That mortgage rate is oftentimes below four percent. And so yeah,
13:04
Speaker 2: I believe it. I believe that people are spending money
13:07
Speaker 2: on home renovations. I believe that people are choosing not
13:11
Speaker 2: to move and instead making those decisions to stay in
13:13
Speaker 2: their homes for longer and make them the better homes
13:18
Speaker 2: that they want. Because especially the events of these last
13:21
Speaker 2: few months have I think signaled to a whole bunch
13:24
Speaker 2: of people, Well, that mortgage that I was hoping to
13:26
Speaker 2: get below five and a half percent doesn't look like
13:29
Speaker 2: it's happening anytime soon.
13:30
Speaker 3: So I'm staying right where I am.
13:32
Speaker 4: And the other thing that we've seen over the course
13:33
Speaker 4: of the last five or six years, as much as
13:35
Speaker 4: we can try and forecast potential economic issues in the future,
13:39
Speaker 4: the bottom line is to this texture's point, and kind
13:42
Speaker 4: of that disregards my initial question, the first segment of
13:46
Speaker 4: why is the market still up? Even though there are
13:48
Speaker 4: these concerns geopolitically, is that the market has just kicked
13:52
Speaker 4: putt for the last five or six years. With the
13:54
Speaker 4: exception of twenty twenty two being a down year, all
13:57
Speaker 4: these other years post twenty eighteen really have been some
14:01
Speaker 4: really strong market years. And so as a result, like
14:03
Speaker 4: you mentioned, this baby boomer population that has pretty significant
14:07
Speaker 4: amounts of sums in the market in their retirement accounts
14:10
Speaker 4: or other investment accounts have seen their money grow on paper,
14:13
Speaker 4: and as a result, when you see that money grow,
14:15
Speaker 4: it's easier to pay for these type of renovations.
14:17
Speaker 3: It's not just the boomers.
14:18
Speaker 2: There are plenty of working folks and younger folks that
14:21
Speaker 2: are independently wealthy and able to do this too. But
14:24
Speaker 2: in terms of one key demo that holds a lot
14:27
Speaker 2: of the nation's wealth and is very comfortable spending right now,
14:31
Speaker 2: it is that younger baby boomer demo that's healthy, newly retired,
14:35
Speaker 2: and looking to upgrade their lifestyle a little bit. This
14:39
Speaker 2: morning at ten am, we received a report from the
14:42
Speaker 2: Bureau of Labor Statistics. It's the first jolt support we've
14:45
Speaker 2: gotten since the outbreak of war in Iran. It's measuring
14:49
Speaker 2: data from the month of March, and I think the
14:52
Speaker 2: key answer here, Paul, is what we kind of already
14:56
Speaker 2: knew regarding the economy in March, which which was not
15:01
Speaker 2: much has changed on that front. We did see job
15:06
Speaker 2: openings increase a little bit, the hiring rate increase a
15:09
Speaker 2: little bit as well, But overall, if you're looking for
15:13
Speaker 2: that sign that the economy the labor market is either
15:16
Speaker 2: on the precipice of dramatically slowing down or quickly heating up,
15:21
Speaker 2: I don't really see much in the way of signals
15:23
Speaker 2: on that front.
15:23
Speaker 3: And this is one of those reports.
15:26
Speaker 2: The reason we report on this one generally speaking, I
15:28
Speaker 2: don't mean to overly generalize with this, but the reason
15:31
Speaker 2: that we look at this report specifically is many economists
15:34
Speaker 2: have looked at it and said, this is a better
15:36
Speaker 2: indicator of what's going to happen with wage inflation than
15:39
Speaker 2: the unemployment rate or any other different measure that we
15:44
Speaker 2: have to look at the state of the labor market.
15:46
Speaker 2: The pace of hiring and the number of jobs that
15:49
Speaker 2: are open right now, how many employers are looking for
15:51
Speaker 2: workers is a better indication of where wages are going
15:54
Speaker 2: to go. And we saw this in twenty twenty one
15:56
Speaker 2: and twenty twenty two when there was a real shortage
15:58
Speaker 2: for workers.
15:59
Speaker 4: Yeah, there's I guess the jobs reports have become under
16:03
Speaker 4: scrutiny over the course of the last few years just
16:04
Speaker 4: because of some questions regarding how good is the survey
16:08
Speaker 4: data that they're getting. There's always these revisions to them,
16:11
Speaker 4: and so this one has been leaned on a little
16:13
Speaker 4: bit more. But with the labor market, whether it's this report,
16:17
Speaker 4: the Jolts one that we're covering here, or the Jobs
16:20
Speaker 4: report that we've got a new one coming out on Friday,
16:23
Speaker 4: the takeaway has been the same for the last few months.
16:27
Speaker 4: There's been no real deviation that you can continue to
16:30
Speaker 4: characterize this labor market as low, fire low, higher and
16:34
Speaker 4: the unemployment rate has remained kind of plateaued at this
16:38
Speaker 4: what's anticipated to come in at four point three percent
16:41
Speaker 4: on Friday, and you've had very little job editions. But
16:46
Speaker 4: we've talked about some of the factors in place that
16:48
Speaker 4: have kind of kept that unemployment rate stabilized in terms
16:52
Speaker 4: of older workers sort of exiting the labor force. Those
16:55
Speaker 4: baby boomers that Mike and I were just talking about
16:57
Speaker 4: are retiring in droves and you've got fewer new people
17:00
Speaker 4: coming in, whether it's immigration or younger workers.
17:03
Speaker 5: That is the state of the labor market.
17:05
Speaker 4: This report here does nothing to sway opinion or sentiment
17:09
Speaker 4: for me in one way or the other from what
17:11
Speaker 4: we've kind of been on this course.
17:13
Speaker 2: By the way, this wasn't in the stack that you got, Paul,
17:16
Speaker 2: But the Wall Street Journal put together a piece on Sunday.
17:19
Speaker 2: I believe it was on the hiring hotspots, Tucker. I
17:22
Speaker 2: don't think you guys covered that last week, did you.
17:24
Speaker 1: No.
17:25
Speaker 2: So there's been a lot written, obviously in a lot
17:28
Speaker 2: of uproar from younger, younger college grads that I've heard
17:32
Speaker 2: about the difficulty in finding jobs right now. And Wall
17:35
Speaker 2: Street Journal put together their list of hiring hot spots
17:38
Speaker 2: based on wages, affordability in the pace of hiring, and
17:41
Speaker 2: a bunch of places that I certainly wouldn't have guessed. Yes,
17:45
Speaker 2: San Jose is on there, a beneficiary of the tech boom.
17:48
Speaker 2: But when you go take a look, the number one
17:49
Speaker 2: spot taking the cake is Birmingham, Alabama. And this is
17:55
Speaker 2: again for top five US metro areas by percentile for
17:59
Speaker 2: twenty some things with college degrees. This is not just
18:02
Speaker 2: general hiring. It's specifically looking at, hey, you've got a
18:05
Speaker 2: college degree, where are you going to get the best
18:08
Speaker 2: bang for your buck, both in terms of wages and affordability. Birmingham,
18:11
Speaker 2: Alabama taking the first spot, Tampa, Florida taking the second spot.
18:16
Speaker 2: Not quite as good on the wages or affordability stand front,
18:19
Speaker 2: but hiring pace has been incredible there. San Jose Wages
18:24
Speaker 2: taking the number one spot on that front. Affordability obviously
18:27
Speaker 2: a real hit there, but the pace of hiring is
18:29
Speaker 2: still pretty good in San Jose. So if you can
18:31
Speaker 2: make it work, you can get paid a lot and
18:33
Speaker 2: get hired. Columbus, Ohio taking that fourth spot, and then Raleigh,
18:37
Speaker 2: North Carolina rounding out the top five there. They've got
18:41
Speaker 2: a whole list here, and I think the key answer
18:43
Speaker 2: to me is one where Hey, you know, this situation
18:49
Speaker 2: has always been the case, but if you are willing
18:51
Speaker 2: to relocate and upend your lifestyle in your twenties, you
18:55
Speaker 2: can dramatically expand your potential options for employment. It's a
19:00
Speaker 2: big ask to go and leave your family and relocate
19:03
Speaker 2: to the other side of the country, but it's also
19:07
Speaker 2: hell of a lot easier to do when you're in
19:08
Speaker 2: your twenties than it is when you are in your
19:10
Speaker 2: thirties or forties.
19:11
Speaker 3: So interesting case. You can go take a look at it.
19:13
Speaker 2: The Wall Street Journal just where they rank these cities,
19:15
Speaker 2: and they do change year to year, but for the moment,
19:18
Speaker 2: these were their top five and they've got it broken
19:20
Speaker 2: out by region two, which I found interesting. Quick break
19:23
Speaker 2: when we come back, full market update. They're in rebound
19:25
Speaker 2: mode after yesterday's sell off, with Wall Street Watch coming
19:28
Speaker 2: up next.
19:40
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20:01
Speaker 6: Markets rebounding today after yesterday's sell off amid the fragile
20:04
Speaker 6: ceasefire between the US and Iran.
20:06
Speaker 5: Yesterday, the UAE set.
20:08
Speaker 6: That Iran launched drones and missiles against it. Right now,
20:12
Speaker 6: the Dow is up over half a percent, SMP five
20:14
Speaker 6: hundred is up about three quarters of a percent, Nasdaq
20:18
Speaker 6: up about one percent higher two hundred and forty seven points.
20:21
Speaker 6: RUSS two thousand is up one and a quarter percent,
20:24
Speaker 6: Tenure treasure reil down two basis points at four point
20:27
Speaker 6: four to two percent, and oil pulling back about four
20:30
Speaker 6: percent today, training at one hundred and two.
20:32
Speaker 5: Dollars a barrel.
20:34
Speaker 6: According to Bloomberg, Appled has held exploratory discussions with Intel
20:38
Speaker 6: and Samsung about producing main processors for its devices in
20:42
Speaker 6: the US as a secondary option beyond longtime partner Taiwan Semiconductor.
20:47
Speaker 6: Intel stock rallying again today, up fourteen percent, while Apple
20:52
Speaker 6: shares are up by one percent. Mewhile Pallanteer stock falling
20:55
Speaker 6: over five percent, despite the data analytics company posting a
20:59
Speaker 6: record quarterly red new and profit for its previous quarter. Elsewhere,
21:02
Speaker 6: Beer Giant Aarnheuser Busch Imbev booked its first sales volumes
21:06
Speaker 6: growth in three years, sending shares up by nine percent,
21:11
Speaker 6: PayPal sinking ten percent despite beating earnings expectations. Pfizer reported
21:16
Speaker 6: stronger than expected first quarter earnings in revenue, batstocked down
21:19
Speaker 6: by one percent. Coinbase announced the company we'll cut about
21:22
Speaker 6: fourteen percent of its workforce, sending shares down by over
21:27
Speaker 6: two percent, and after today's closing, bell A and D
21:31
Speaker 6: will post its quarterly results I'm Tucker Silvan, that is
21:35
Speaker 6: Wall Street Watch.
21:36
Speaker 2: Well, if you haven't already heard, over the weekend, Spirit
21:40
Speaker 2: announced their own demise liquidation, however you want to phrase
21:46
Speaker 2: it here, end of an era for the largest discount airline.
21:50
Speaker 2: I'm not sure that I would still throw Southwest into
21:53
Speaker 2: the discount to airline category, although I guess you have to.
21:56
Speaker 2: They don't have any first class cabins, so I guess
21:59
Speaker 2: you would still put them and Jet Blue in there,
22:01
Speaker 2: in which case Southwest is the bigger one. But in
22:03
Speaker 2: terms of fair cost, I'm not sure you can really
22:06
Speaker 2: put them in the same category that Spirit was. Nonetheless
22:10
Speaker 2: the business model which had been under strained for the
22:13
Speaker 2: better part of a decade and extreme strain since the
22:16
Speaker 2: last four years and since COVID finally met its demise
22:20
Speaker 2: as they did not find a path to reopening and
22:23
Speaker 2: are now facing liquidation to well of all of their
22:29
Speaker 2: assets and I'm sure a long drawn out process as
22:33
Speaker 2: they go through all of this, but ceasing operations effective
22:36
Speaker 2: this past weekend.
22:37
Speaker 4: And ultimately as much as they are the punching bag,
22:40
Speaker 4: I feel like in the airline industry, where a lot
22:43
Speaker 4: of us will say with families or whatever, I'm never
22:45
Speaker 4: gonna fly Spirit again. This piece does a good job
22:48
Speaker 4: of outlining while I did have mixed reactions, a little
22:52
Speaker 4: bit of a similar reaction, what's outlined this piece this
22:54
Speaker 4: idea that it's not good for all of us as
22:57
Speaker 4: consumers of the airfares that the lowest, the cheapest discount
23:01
Speaker 4: option gets eliminated because of the simple thing that you
23:03
Speaker 4: learn in economics of supply and demand them being out there,
23:07
Speaker 4: Spirit with these cut rate flights does allow for it
23:11
Speaker 4: creates increased competition, and it makes the other Jet Blues
23:15
Speaker 4: and other competitors keep their prices lower. And their studies
23:19
Speaker 4: that have been done that even in twenty four and
23:21
Speaker 4: twenty five that in roots that Spirit backed away from,
23:26
Speaker 4: they saw a twenty three percent average increase of the
23:28
Speaker 4: cost of other fares in that same transit route that
23:31
Speaker 4: was backed away by Spirit. There's all sorts of data
23:34
Speaker 4: that points to what all of us should probably know
23:36
Speaker 4: that if you don't have a competitor in the market,
23:39
Speaker 4: you're probably going to lean in and increase your prices further.
23:42
Speaker 4: There's also arguments that have been made by United Airlines
23:46
Speaker 4: executives that airline fares pre pandemic versus where they are today,
23:51
Speaker 4: are still twenty seven percent lower on an inflation adjustent
23:55
Speaker 4: basis from where they should be.
23:57
Speaker 5: So that and now you have the.
23:58
Speaker 2: Course against So if you look at twenty nineteen airfares,
24:03
Speaker 2: they are lower than inflation would have predicted them.
24:07
Speaker 4: No, So if you look at the price of airfares
24:10
Speaker 4: in twenty twenty five compared to were where they were
24:12
Speaker 4: a pre pandemic, they're twenty seven percent lower than they
24:16
Speaker 4: should be if you equate it to pre pandemic pricing
24:18
Speaker 4: adjusted for inflation.
24:19
Speaker 3: Got yeah, OK, So.
24:21
Speaker 4: Their point being that prices should should be higher, and
24:26
Speaker 4: you do step away and that that's probably the takeaway
24:28
Speaker 4: from this. You have the jet fuel price increases that
24:29
Speaker 4: are muddying some of the data that we're getting recently
24:32
Speaker 4: and probably will muddy it going forward now that Spirit
24:34
Speaker 4: is no longer flying, but this will create upwards pricing
24:38
Speaker 4: pressure on domestic airfares aside from everything with the jet
24:43
Speaker 4: fuel cost.
24:44
Speaker 3: Yeah, it's interesting.
24:45
Speaker 2: I'm sure other people have experiences too, But I personally
24:48
Speaker 2: use Google Flights. When I'm looking for a new flight
24:51
Speaker 2: and I want to track the prices, I use that
24:54
Speaker 2: and I started tracking a couple of international flights prior
24:57
Speaker 2: to the outbreak of war in Iran. Both of those
25:00
Speaker 2: are up a good forty percent in terms of total costs.
25:04
Speaker 2: And somebody did an analysis out there I think I
25:06
Speaker 2: heard quoted that international flights are up about fifty percent
25:10
Speaker 2: of the outbreak of war, domestic flights in the US
25:13
Speaker 2: up about twenty five percent. And frankly, you know, the
25:18
Speaker 2: demise of Spirit really the only path there is for
25:22
Speaker 2: it to be driven higher. Now, I do also think
25:25
Speaker 2: that there is a place for that business model, and
25:28
Speaker 2: it does leave the door open for more success from
25:31
Speaker 2: say Jet Blue, Frontier, Allegiant, towards some of these other
25:36
Speaker 2: you know, these other airlines that Jet Blue wasn't modeled
25:38
Speaker 2: after Spirit, but some of the other ones were, Hey,
25:41
Speaker 2: we're going to be a no frills airline that charges you.
25:45
Speaker 3: I have this experience because I just flew my.
25:46
Speaker 2: Mother in law two weeks ago on Spirit Airlines down
25:49
Speaker 2: to Florida. I think it was seventy five bucks for
25:52
Speaker 2: a carry on, eighty bucks for a check bag. Yeah,
25:54
Speaker 2: like that was the model, like, yeah, we are going
25:57
Speaker 2: to charge you for everything. It's not going to be
26:00
Speaker 2: a Delta experience. But they were also pretty clear about it. Yeah,
26:04
Speaker 2: like they weren't sugarcoating it, like, hey, you know, if
26:08
Speaker 2: you pay extra, we're gonna put you in this nice first. No,
26:10
Speaker 2: like that wasn't the deal. The deal was you took
26:13
Speaker 2: a lower price ticket and you got a lower price experience.
26:19
Speaker 4: Yeah, I mean the parallel They modeled themselves after Ryan
26:22
Speaker 4: Air in Europe. And for anyone who's been a study
26:25
Speaker 4: of Bridespoon, like I was back in the day, that's
26:27
Speaker 4: what you were getting. You were getting an experience where
26:29
Speaker 4: it wasn't the nicest ride around, but you got from
26:32
Speaker 4: point A to eight point B cheaply. And there's something
26:36
Speaker 4: to be said about having that as an option for
26:39
Speaker 4: consumers out there. And so hopefully you do see some
26:42
Speaker 4: of those other players take the mantle there and keep
26:45
Speaker 4: you know, sort.
26:46
Speaker 5: Of the lower end around. But we'll see.
26:48
Speaker 2: I'm unconvinced that this will be the last domestic airline
26:52
Speaker 2: bankruptcy that we see in twenty twenty six or twenty
26:55
Speaker 2: twenty seven. Yeah, we talked about this a bit yesterday.
26:58
Speaker 2: Jet Blues finances they're on the ropes, not great, has
27:02
Speaker 2: not made a full year profit since twenty nineteen. They've
27:06
Speaker 2: got some you know They've got some cash, but they
27:08
Speaker 2: face a lot of big hurdles, and like Spirit, I
27:11
Speaker 2: doubt they had the cash available to hedge against fuel
27:15
Speaker 2: jet fuel prices. So I think one, they're already facing
27:18
Speaker 2: reputational damage from being an unreliable airline according to the
27:21
Speaker 2: Wall Street Journal reliability rankings, and now this additional hurdle.
27:26
Speaker 4: And how does that not point to like higher airfares
27:28
Speaker 4: if you think about that, right, Like, they've one competitor
27:30
Speaker 4: has been eliminated. They are jet blues on the ropes.
27:33
Speaker 4: If you want to seize their territory, you're gonna have to.
27:35
Speaker 4: You'll charge a little bit more because there's not other options. Yeah,
27:39
Speaker 4: I think it's.
27:39
Speaker 2: Very clear which direction airfares will be going over the
27:43
Speaker 2: course the next five years, and it's not going to
27:45
Speaker 2: benefit consumers. So yeah, is what it is. End of
27:49
Speaker 2: an era with Spirit Airlines. Not that they were the
27:51
Speaker 2: biggest I think in total. Yeah, their total passenger volume
27:54
Speaker 2: only accounted for the overall market travel wasn't huge, but
28:01
Speaker 2: it was enough of a player in critical roots to
28:04
Speaker 2: keep airfares lower elsewhere. And that era is now dead
28:09
Speaker 2: from the Spirit perspective. Let's take a quick break when
28:13
Speaker 2: we come back. I want to talk about Ford's thirty
28:16
Speaker 2: thousand dollars truck.
28:17
Speaker 3: You just wait.
28:18
Speaker 2: It's allegedly coming in twenty twenty seven. We'll be talking
28:21
Speaker 2: about it next on The Financial Exchange.
28:23
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29:31
Speaker 3: Uh.
29:33
Speaker 2: As Tucker pointed out during the break, there's a secret
29:36
Speaker 2: team blowing up for its assembly line. It's not much
29:38
Speaker 2: of a secret, given that the Wall Street Journal and
29:41
Speaker 2: every other major news publication is reporting it this morning,
29:45
Speaker 2: but they're blowing up the assembly lines in order to
29:48
Speaker 2: make a thirty thousand dollars electric truck, to which I
29:53
Speaker 2: gotta say, does this not feel exactly like Elon Musk
29:56
Speaker 2: promising a twenty five thousand dollars Tesla since like twenty ten?
30:02
Speaker 2: And that's what it feels like to me, is that
30:04
Speaker 2: we are going to get this promise of a thirty
30:07
Speaker 2: thousand dollars Ford electric truck that.
30:09
Speaker 5: I just.
30:11
Speaker 3: I'm not buying. I don't believe it's ever gonna happen.
30:15
Speaker 5: Yeah.
30:15
Speaker 4: So, Ford has had previously set up a secret team that,
30:18
Speaker 4: as we you just mentioned, is no longer a secret,
30:21
Speaker 4: but put together a skunkworks Ford version of the.
30:26
Speaker 2: Ragtag group of misfits, yells of techies, and old school four.
30:32
Speaker 4: Veterans to create a super team to try and basically
30:35
Speaker 4: take on the Chinese EV market. It sounds like a
30:38
Speaker 4: great movie plot, but the execution is what it's all
30:42
Speaker 4: gonna come down to. It's rumored that this car would
30:44
Speaker 4: come out in twenty twenty seven. The new truck is
30:48
Speaker 4: supposed to have three hundred miles on a single charge,
30:51
Speaker 4: and like you mentioned, cost thirty thousand, and be as
30:55
Speaker 4: fast as the Mustang. And a little bit of skepticism here,
31:01
Speaker 4: like you mentioned, because Ford, like you said, has been
31:04
Speaker 4: sort of going through its tried and true playbook.
31:06
Speaker 5: They were the ones who basically.
31:09
Speaker 4: Created the manufacturing supply line that companies have been so
31:15
Speaker 4: familiar with for hundreds of years, and they're trying to
31:17
Speaker 4: blow this thing up and do it in a more
31:19
Speaker 4: cost effective fashion.
31:20
Speaker 5: The reason I have a.
31:21
Speaker 4: Degree of skepticism on it is that the person that
31:24
Speaker 4: was leading Ford's EV and tech, their chief of that
31:28
Speaker 4: since twenty twenty one, Doug Field, who was a former
31:30
Speaker 4: Tesla executive, just left this last month in the month
31:34
Speaker 4: of April. So I'm sitting here saying, Okay, this guy
31:37
Speaker 4: was the head of this EV and digital design officer
31:41
Speaker 4: overseeing this endeavor for the last five or six years.
31:44
Speaker 4: You would think if he feels that this is going
31:46
Speaker 4: to be a rousing success, that perhaps he hangs on.
31:50
Speaker 4: And again I'm speculating, maybe there were other reasons why
31:53
Speaker 4: he left his posts. Sure, but you would won't think
31:55
Speaker 4: that if it was going to be met with a
31:57
Speaker 4: tremendous amount of adulation, that he would want to be
32:00
Speaker 4: there in twenty twenty seven when it rolls.
32:02
Speaker 2: Out, one would think that, yes, look other factors at
32:06
Speaker 2: play here. Just yesterday we were covering how Ford themselves.
32:11
Speaker 2: We're talking about how the F one fifty is kind
32:15
Speaker 2: of screwed because of the amount of aluminum that goes
32:17
Speaker 2: into it. Ford's own aluminum costs have nearly doubled this
32:22
Speaker 2: year because of well three factors. A fire at one
32:26
Speaker 2: of the main US aluminum production facilities, tariffs on imported aluminum,
32:31
Speaker 2: plus the fact that there is not really any imported
32:34
Speaker 2: aluminum because it all comes from the Middle East, and
32:36
Speaker 2: the straight up fom Moves is blocked has made it
32:38
Speaker 2: so that, Yeah, the aluminum that goes into their F
32:41
Speaker 2: one fifty has been really expensive. And I got to
32:44
Speaker 2: guess that if you're planning on building a thirty thousand
32:46
Speaker 2: dollars electric truck.
32:47
Speaker 3: There's probably a heck of a lot of.
32:49
Speaker 2: Aluminum that goes into that too, So I'm going to
32:51
Speaker 2: file this one in Tugra. If you want a prediction
32:54
Speaker 2: that we can. I don't know how you pay this off.
32:57
Speaker 2: But it'll never happen. Okay, you thirty thousand dollars truck
33:02
Speaker 2: will it'll get released, but it won't be thirty thousand dollars.
33:05
Speaker 3: Okay, it'll never be. There will never be.
33:07
Speaker 2: A thirty thousand dollar truck, and we can you can
33:10
Speaker 2: put an end date on that if you want, But
33:12
Speaker 2: there will not ever be a Ford branded thirty thousand
33:16
Speaker 2: dollars pickup truck that's electric. I just I'm not seeing
33:19
Speaker 2: it happening. I don't think they ever get there. Wow, Yeah,
33:23
Speaker 2: I think this is I think this is silliness. Just again,
33:28
Speaker 2: they're not the only ones. Elon Musk's been promising a
33:30
Speaker 2: twenty five thousand dollars ev since god knows when, and
33:34
Speaker 2: it's never gonna happen either. Maybe just for inflation, yeah
33:38
Speaker 2: you want to adjust it for inflation, that's fine, But
33:40
Speaker 2: in terms of an actual yeah, it's just never gonna happen.
33:45
Speaker 2: Thank you for And by the way, I drive one
33:47
Speaker 2: of your electric vehicles. I own a Ford Mustang mache
33:51
Speaker 2: I love it.
33:52
Speaker 3: It's a good car, but it was forty five grand.
33:55
Speaker 2: You're just not going to get there on a pickup
33:57
Speaker 2: truck for thirty thousand.
33:59
Speaker 5: Dollars, Mike the Ford Skunkirk Stent.
34:01
Speaker 2: And if you do, it's going to give you a
34:02
Speaker 2: fifty mile range because it's going to have a basically
34:05
Speaker 2: golf cart battery in it. So that's that's I guess
34:09
Speaker 2: my point. Switching gears here away from electric vehicles. Want
34:13
Speaker 2: to talk a bit about gas taxes. There's a piece
34:16
Speaker 2: in Bloomberg You'll you'll miss gas taxes when they're gone. Yeah,
34:20
Speaker 2: we would, because our infrastructure across the nation is crumbling
34:22
Speaker 2: and this is one of the main sources to pay
34:24
Speaker 2: for it. The gas tax at the federal level is
34:28
Speaker 2: around eighteen cents a gallon. I believe it's more for diesel,
34:32
Speaker 2: and there's obviously state gas taxes as well. But unsurprisingly,
34:38
Speaker 2: when we've got the national average for gasoline today sitting at.
34:44
Speaker 4: I'm gonna guess for forty close for forty eight on
34:50
Speaker 4: the national average, there's obviously a lot of pushback and
34:52
Speaker 4: like in.
34:53
Speaker 2: Twenty twenty two when a number of states pause their
34:56
Speaker 2: gas tax. Connecticut was one of those states, are con
35:00
Speaker 2: considering doing so again. And the point that's being made
35:03
Speaker 2: here is not on the merits of gas tax or not.
35:06
Speaker 2: He actually makes the point that, you know, with the
35:08
Speaker 2: growing number of evs, we need some sort of different replacement,
35:11
Speaker 2: a use tax of roads instead of just a gas tax,
35:15
Speaker 2: because I'm personally not paying any gas taxes and contributing
35:18
Speaker 2: to highway funding in any way, shape or form when
35:21
Speaker 2: I drive my EV. But the point he makes is
35:25
Speaker 2: if you just get rid of them, are crumbling infrastructure
35:28
Speaker 2: that's already problematic across the country is going to get worse.
35:32
Speaker 4: Completely on board with this. It's no one likes the
35:34
Speaker 4: idea of a tax, but this one is pretty straightforward,
35:38
Speaker 4: and the incentives or the costs around it makes sense
35:42
Speaker 4: in that cars that are less fuel sufficient, that are
35:45
Speaker 4: typically heavier and really grind down the roads more think
35:50
Speaker 4: a big eighteen wheeler or an suv versus you know your.
35:54
Speaker 2: Which is why diesel gas taxes are higher. Exactly what
35:56
Speaker 2: the thought problem.
35:57
Speaker 4: The diesel gas tax are about twenty five cents a
36:00
Speaker 4: gallon versus eighteen for for just regular, regular gas. So
36:04
Speaker 4: that makes sense. Okay, right, you've got a bigger vehicle,
36:06
Speaker 4: it's beating up the roads more. That is a higher
36:09
Speaker 4: tax that you should have to incur. And we all
36:12
Speaker 4: like to be able to drive on highways that are
36:14
Speaker 4: maintained in good order for safe and safety reasons and
36:17
Speaker 4: for just you know, making an easy drivable experience. So
36:21
Speaker 4: all this makes sense that you have to have this
36:24
Speaker 4: in place. It's really easy to administer. There's not the
36:28
Speaker 4: nuances of tracking mileage or all these other GPS positioning
36:32
Speaker 4: things that there's been room not rumored. But he suggests
36:35
Speaker 4: here as to how you can combat this as it
36:37
Speaker 4: from an ev perspective, which I guess I'm less concerned
36:40
Speaker 4: over from a market share perspective. I don't have the
36:42
Speaker 4: numbers out front of me, but it's not so much
36:43
Speaker 4: that it's going to lead to roads being in disarrayed.
36:46
Speaker 5: But he's right, it's a point that it.
36:48
Speaker 2: Is something more of a fairness issue than it is
36:50
Speaker 2: anything else. People have the perception of, well, you know,
36:52
Speaker 2: these jerk evy people with their you know, Braggadocia's license
36:56
Speaker 2: plates aren't paying.
36:57
Speaker 3: The gas tax. And I am so I agree.
36:59
Speaker 2: There the other thing that I would be perfectly willing
37:03
Speaker 2: as a taxpayer to flirt with the idea on, Hey,
37:07
Speaker 2: you want to eliminate the gas tax. If the national
37:10
Speaker 2: average is above five bucks a gallon, I'm on board,
37:13
Speaker 2: But double it if it's under four bucks a gallon.
37:17
Speaker 2: Wouldn't like just listening out there, Wouldn't you be willing
37:20
Speaker 2: to pay a higher gas tax if gasoline was at
37:23
Speaker 2: a lower price at the moment in exchange for a
37:27
Speaker 2: lower gas tax if the gas was at a higher price.
37:29
Speaker 2: Now again, don't trust the government. I'm not saying that
37:32
Speaker 2: we should trust them to do this properly, but just
37:35
Speaker 2: as a concept, I would be perfectly willing to say, Yeah,
37:38
Speaker 2: if gas prices are up over five bucks a gallon,
37:40
Speaker 2: the gas tax is zero. If it's four to five
37:43
Speaker 2: bucks a gallon, then it's eighteen cents. And it's under
37:45
Speaker 2: four bucks a gallon, it's thirty six cents. Interesting, I'd
37:48
Speaker 2: be all on board. You also need to know trigger
37:51
Speaker 2: this stuff with inflation, because that gas tax hasn't been
37:54
Speaker 2: moved since the nineties, so it doesn't actually pay for anything, right.
37:56
Speaker 2: But yeah, different story for a different day. We've got
38:00
Speaker 2: to take a quick break markets remain in positive territory
38:03
Speaker 2: as we close out the first hour of the show here,
38:05
Speaker 2: but a lot more to cover in the second hour
38:07
Speaker 2: and including a full market recap.
38:09
Speaker 3: We'll be right back