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Oil Shock, Shipping Halted — Are Energy Prices About to Surge Again? · The Financial Exchange Show

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Speaker 1: donation today. This is the Financial Exchange with Chuck Zada,
1:06
Speaker 1: and Mark Vandetti.
1:09
Speaker 2: It's Chuck and Mark and Tucker with you. And as
1:13
Speaker 2: we kick things off here, we've got some continued, you know,
1:16
Speaker 2: upside from yesterday morning in markets. Remember we were down
1:19
Speaker 2: about one hundred and seventy points on the S and
1:21
Speaker 2: P yesterday before closing down sixty, so he had one
1:24
Speaker 2: hundred point intra day rally that happened today. We're making
1:27
Speaker 2: up the last sixty of that. We're up fifty seven
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Speaker 2: points on the S and P right now, three hundred
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Speaker 2: and twenty on the Dow, about three hundred and seven
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Speaker 2: on the Nasdaq Composite, So anywhere from a two thirds
1:37
Speaker 2: of a percent to one in a third percent gain
1:41
Speaker 2: across your major US indices. So that is nice to see.
1:47
Speaker 2: You've got the ten year treasury selling off just a
1:49
Speaker 2: touch today, down I'm sorry, up two point three basis
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Speaker 2: points to four point oh eight percent dollar after two
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Speaker 2: days of significant strength, you've got a little bit of
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Speaker 2: dollar weakness today, down one zero point two percent to
2:01
Speaker 2: ninety eight eighty one. The price of gold up thirty
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Speaker 2: seven dollars per ounce to fifty one sixty one and
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Speaker 2: twenty cents, and crude oil basically hanging out flat after
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Speaker 2: two gains two days of significant gains. West Texas Intermediate
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Speaker 2: is off thirty three cents of barrel to seventy four
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Speaker 2: to twenty three right now, as it knows the market
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Speaker 2: tries to make sense of will shipping restart in horror
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Speaker 2: moves or through horror moves in the near future. Trip
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Speaker 2: A national average for gas prices up another nine cents
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Speaker 2: overnight to three nineteen and eight tenths. So we're up
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Speaker 2: about thirty two cents overall in the last month now,
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Speaker 2: with the vast majority of that being the last couple
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Speaker 2: of days, and based on where based on where oil
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Speaker 2: prices are and gas futures are, you're probably getting into
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Speaker 2: that three twenty four to three twenty seven range by tomorrow,
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Speaker 2: and then we'll see where we go. On the shipping
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Speaker 2: side of things. Shipping Giant Marisk did announced this morning,
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Speaker 2: this was maybe ten twenty minutes ago, that they are
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Speaker 2: suspending all bookings basically from anywhere that needs to go
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Speaker 2: through the Strait of Hormuz, the impacted areas. I just
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Speaker 2: want to make sure I get the list right here.
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Speaker 2: Hold on, it's it's somewhere around here. Okay. Yeah, So
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Speaker 2: the impacted areas that you have. You've got Oman obviously,
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Speaker 2: like nothing's coming from Iran, but you've got Oman, Kuwait,
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Speaker 2: the UAE, Iraq, Qatar, Bahrain, in Saudi Arabia. They've suspended
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Speaker 2: all bookings from those countries at the moment. And remember
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Speaker 2: Mariska is, you know, one of the three or four
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Speaker 2: biggest shipping companies on the planet. And so this is
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Speaker 2: the current state of play is still further reductions in
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Speaker 2: potential transit. Again, this is not even you know, tankers,
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Speaker 2: this is cargo ships that are saying we're not going
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Speaker 2: right now. And so we're gonna see, you know, exactly
4:01
Speaker 2: how things develop in the coming days and weeks. Markets
4:05
Speaker 2: from an oil price perspective, I think are still pricing
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Speaker 2: in that there's going to be merely a moderate reduction
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Speaker 2: in transit through HORRM moves beginning, you know, within the
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Speaker 2: next week or so. If it becomes apparent that that's
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Speaker 2: not the case, oil still has some room to run
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Speaker 2: to the upside. Obviously, Goldman Sachs was out this morning.
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Speaker 2: Their case that they're outlining is that you basically have
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Speaker 2: transit through HORM moves back up to regular levels by
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Speaker 2: mid April. So within the next five to six weeks.
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Speaker 2: Is that too optimistic? Is that too pessimistic? I don't know.
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Speaker 2: I'm just telling you again, there are people that know
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Speaker 2: way more about this stuff than I do. I'm not
4:46
Speaker 2: going to pretend to be an expert. I can tell
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Speaker 2: you what's going on. I can tell you what other
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Speaker 2: people are saying. The value of my statements on the
4:54
Speaker 2: straight of horror moves pretty much or nothing like. I
4:57
Speaker 2: don't have enough information, but I can tell you what
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Speaker 2: other smart people are saying, and they probably know more
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Speaker 2: than I do.
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Speaker 3: Yeah, we can say some things about the reaction historically
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Speaker 3: of things like spending to increases in the price of oil,
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Speaker 3: that things like the price of gasoline relative to the
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Speaker 3: price of oil. I went through some of those earlier,
5:17
Speaker 3: and the results are exactly what you'd expect. Even brief
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Speaker 3: increases in the price of oil sap spending because people
5:23
Speaker 3: have less to spend in other areas. You might think
5:26
Speaker 3: that would bring down inflation, but it typically doesn't, because
5:28
Speaker 3: not all prices that people of items people are spending
5:32
Speaker 3: less on fall with the same frequency that oil.
5:35
Speaker 4: Oil adjusts quickly.
5:37
Speaker 2: Gas prices get adjusted every day by gas stations.
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Speaker 3: Exactly we all know that the rest of the stuff
5:41
Speaker 3: we buy typically does not. So there will be an
5:46
Speaker 3: impact on inflation, and it will be a positive not positive.
5:49
Speaker 3: Is in a good outcome. Positive, it's going to push
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Speaker 3: it up. Question is how much and for how long?
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Speaker 3: What does that do to inflation expectations?
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Speaker 4: Chuck? Do you and I demand morphrom our employer in
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Speaker 4: terms of a wage increase?
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Speaker 3: That's one channel through which inflation expectations translate into upward
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Speaker 3: pressure on wages, which into earned drives inflation. You get
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Speaker 3: that vicious cycle effect. So there are some historical precedents,
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Speaker 3: not perfect parallels in terms of the way events unfolded,
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Speaker 3: but statistical relationships which are always a little dangerous to
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Speaker 3: generalize from because people's expectations change.
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Speaker 4: You have to deal with that fact.
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Speaker 2: Are we piece in from Paul Kirkman's substack? That again
6:28
Speaker 2: everyone's got a substack. Now at this point it's kind
6:30
Speaker 2: of wild. I feel like I should have one. You should.
6:34
Speaker 2: I don't want the responsibility. Then you got to write
6:36
Speaker 2: on a regular schedule.
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Speaker 4: You know, some guys just mail it in.
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Speaker 2: Well, you can't online. Some guys, what are you going
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Speaker 2: to mail it to.
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Speaker 3: To to to clarify, it doesn't have to be poetic.
6:49
Speaker 3: I mean some some guys do a couple of paragraphs.
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Speaker 2: Do you know how I feel about the power of word?
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Speaker 1: No?
6:53
Speaker 4: You you revere.
6:55
Speaker 2: Words I think everywhere, even when I make them money
6:59
Speaker 2: for a reason you do. And so I couldn't mail
7:03
Speaker 2: at all of it. Yeah, you know. Okay, so even
7:05
Speaker 2: when we're talking about a below toe or even when
7:08
Speaker 2: we're talking about.
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Speaker 4: I forget about that.
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Speaker 2: Yeah, what was the intermediatory instead of transitory? You know, like,
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Speaker 2: these words exist for a reason, and it's not just
7:18
Speaker 2: because I want to make them up. So I couldn't
7:20
Speaker 2: just write a substack and mail it in because I
7:24
Speaker 2: like to be a little bit of an artist with
7:25
Speaker 2: the words, you know, I like to make you feel something,
7:28
Speaker 2: not just read something. In any case, Paul Krugman wrote
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Speaker 2: a substack and the title is this the subheader? Actually,
7:38
Speaker 2: are we less vulnerable to an oil price shock than
7:40
Speaker 2: we were in nineteen seventy nine? Oh yeah, yeah, I
7:43
Speaker 2: wasn't alive in nineteen seventy nine. What's your what? What
7:47
Speaker 2: does the data tell us about how an oil price
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Speaker 2: shock may impact us today? Compared to forty five.
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Speaker 3: The most striking that was a gem of a piece.
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Speaker 3: That he's a Nobel laureate economist, specializes in trade.
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Speaker 4: He's worth three. He's a left winger.
8:03
Speaker 3: Even if you disagree with some of his political opinions,
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Speaker 3: you can learn something from him because he reasons so
8:07
Speaker 3: clearly and he presents his results so clearly. The most
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Speaker 3: striking thing about that particular substack Krugman we're talking about
8:15
Speaker 3: here to me was how less energy intensive the economy is.
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Speaker 3: And one way to measure that is oil. He doesn't
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Speaker 3: use gallons. He uses a measure of the energy that
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Speaker 3: you can produce with oil relative to GDP. And the
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Speaker 3: upshot is it's seventy percent less than it used to be.
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Speaker 3: GDP is seventy percent less energy intensive than it used
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Speaker 3: to be. Said differently, and I'll end with this, we
8:40
Speaker 3: use seventy percent less energy to produce a dollars worth
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Speaker 3: of GDP than we did oil excuse me, than we
8:45
Speaker 3: did in say, nineteen seventy.
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Speaker 2: Is that because of just general gains and efficiency, do
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Speaker 2: we know? Or because we're using different sources?
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Speaker 3: It's both the shift to services, so the economy's changed
8:53
Speaker 3: a lot. Manufacturing used to be three out of every
8:55
Speaker 3: ten workers. Now it's less than fewer than one out
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Speaker 3: of every ten. And all that so that the complex
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Speaker 3: action of economic output has changed, and stuff like the
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Speaker 3: oil crisis of seventy three seventy four and then OPEC
9:08
Speaker 3: and the Iran revolution and all that crap in the
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Speaker 3: late seventies forced us to become more conservation.
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Speaker 4: So it's a combination, Chuck, as you suggest.
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Speaker 2: Yeah, let's take a quick break here. When we come back,
9:19
Speaker 2: we're doing trivia, and then we're talking about those lazy
9:24
Speaker 2: US homeowners. They just won't sell their homes. They're so
9:27
Speaker 2: lazy right now, why won't they move?
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11:32
Speaker 2: According to a new report from Redfin, the typical homeowner
11:37
Speaker 2: has stayed in their home for twelve years as of December.
11:41
Speaker 2: That is nearly double the media and tenure of two
11:44
Speaker 2: decades ago. So couple things to unpack here. The first
11:48
Speaker 2: is I did the math, and Tucker, can you double
11:51
Speaker 2: check this for me? Sure?
11:52
Speaker 4: I'm good at math.
11:53
Speaker 2: Two decades ago was two thousand and six, which was
11:57
Speaker 2: precisely when the housing mark it was at its most insane.
12:02
Speaker 5: Carry the one yep, okay, check it out.
12:05
Speaker 2: So I think comparing anything in housing to two thousand
12:07
Speaker 2: and six is dumb, right, Like, there's nothing that was
12:12
Speaker 2: real about the two thousand and six housing market. It
12:15
Speaker 2: was stupid, funny money. Everyone was moving every like three
12:18
Speaker 2: weeks because your house value doubled in three weeks. Like
12:22
Speaker 2: I know that's an exaggeration, but not much Like things
12:25
Speaker 2: were insane then. We were building two and a half
12:27
Speaker 2: million homes a year. You could get a mortgage literally
12:30
Speaker 2: by showing up with a pulse sometimes not even like
12:33
Speaker 2: it was just insane what was going on. So I
12:36
Speaker 2: don't think comparing the housing market to two thousand and
12:38
Speaker 2: six is useful. But what I do think is interesting
12:43
Speaker 2: is that homeowners are staying in their homes longer, and
12:47
Speaker 2: there are two major reasons for it. In my opinion
12:49
Speaker 2: that it both tied the same thing, which is, sorry,
12:51
Speaker 2: you're giggling, what did I do?
12:53
Speaker 3: I'm laughing at you, rippin' that's redpin right, because you
12:56
Speaker 3: have like a team of PhDs.
12:57
Speaker 4: You can't do this.
12:58
Speaker 2: You can't compare the housing market to two thousand and six.
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Speaker 4: Crapped on a month's worth of the work.
13:03
Speaker 2: Sorry, guys, but like, those are the rules. I don't
13:05
Speaker 2: make them.
13:06
Speaker 4: That's okay, that's not listening.
13:07
Speaker 2: Maybe they are, Maybe they are. In any case, that's true,
13:12
Speaker 2: we're on national exactly. What I do think is interesting
13:16
Speaker 2: is that the two reasons why more people are staying
13:18
Speaker 2: at homes. Number one, the baby boomers can't downsize because
13:22
Speaker 2: they're looking at and they're like, well, I'm in my
13:24
Speaker 2: four bedroom home right now, I want the two beds,
13:26
Speaker 2: you know, on single level. I'm trying to sell the
13:29
Speaker 2: four bedroom home for five hundred, but the two beds
13:32
Speaker 2: with you know, single level housings four fifty? Why am
13:34
Speaker 2: I gonna do that? I'm gonna come out fifty grand ahead. Like,
13:37
Speaker 2: what's the point. So that's number one. The other piece,
13:41
Speaker 2: and this is the one we've talked about quite a bit.
13:43
Speaker 2: There are a bunch of people that are mortgage locked
13:46
Speaker 2: in their home because their rate is somewhere below four percent,
13:49
Speaker 2: and in order to move now, they'd have to take
13:51
Speaker 2: out a mortgage at six percent, and they don't want
13:54
Speaker 2: to do that. And that's what's kind of grinding the
13:58
Speaker 2: thing to a halt. What's interesting if you look at
14:02
Speaker 2: the data. I forget who releases it each quarter. I
14:05
Speaker 2: think it's the FED, but it might be someone else.
14:08
Speaker 2: But there's someone there's some big research institution that tracks
14:13
Speaker 2: the average interest rate outstanding on mortgages. Okay, I don't
14:18
Speaker 2: know who it is. I think it's the FED. For
14:20
Speaker 2: some reason. It's creeping up gradually, because even though people
14:23
Speaker 2: don't want to leave low mortgages, sometimes they do because
14:27
Speaker 2: they have to. You know, your company says move across
14:29
Speaker 2: the country or else, and so you move, and some
14:32
Speaker 2: people do it voluntarily. And there are new mortgages for
14:34
Speaker 2: people who've never owned before that are being underwritten at
14:37
Speaker 2: six percent, And so each quarter that we go by,
14:40
Speaker 2: I think it's the average mortgage rate is ticking up
14:42
Speaker 2: by like ten to fifteen basis points.
14:44
Speaker 4: It's like a rolling windows exactly.
14:47
Speaker 2: So we're at the point now where that average mortgage
14:50
Speaker 2: that is in circulation is at around four and a tenth,
14:54
Speaker 2: four and a quarter somewhere there and gradually moving up.
14:58
Speaker 2: The hypothesis that I have and that I've seen out
15:01
Speaker 2: there is really when you get to, hey, when does
15:05
Speaker 2: the housing market unlock? Is when effective mortgage rates are
15:09
Speaker 2: pretty close to in line with that, which suggests probably
15:13
Speaker 2: another couple of years.
15:15
Speaker 3: Assuming that's the impediment. I think it's a big one probably.
15:19
Speaker 2: I mean, you're talking again, all else being equal, if
15:21
Speaker 2: you have to take out the same size mortgage to move,
15:23
Speaker 2: it's a twenty percent jump in your principle and interest costs.
15:26
Speaker 3: Yet it's not helping, you know. So I just don't
15:28
Speaker 3: know to what degree it's responsible for.
15:31
Speaker 2: But yes, so in any case, this is what I
15:34
Speaker 2: think is going on. And sorry, Redfin researchers, I just
15:38
Speaker 2: don't think you can compare the housing market to two
15:41
Speaker 2: thousand and six and expect that to be like a
15:43
Speaker 2: normal comparison. It was insane back then. It was just nuts.
15:51
Speaker 2: You know, we've all seen the big short at this
15:52
Speaker 2: point another piece here, record number of workers are rating
15:58
Speaker 2: therefore one K savings. What do you make this is
16:00
Speaker 2: anything meaningful hardness?
16:03
Speaker 3: Okay, So the law allows you to take a so
16:05
Speaker 3: called hardship, and it doesn't always have to be a
16:07
Speaker 3: hardship like you're on the brink of financial turmoil.
16:12
Speaker 2: It could be you're just taking it.
16:14
Speaker 3: Yeah, it could be first time home purchase.
16:16
Speaker 2: That doesn't qualify as a hardship withdroll and not anymore
16:19
Speaker 2: those of a principal residence, the ten thousand that you're
16:22
Speaker 2: allowed to take out, those are not hardships.
16:24
Speaker 4: That's alone, right.
16:26
Speaker 2: I don't Maybe I'm hang on, Maybe I'm misunderstanding.
16:30
Speaker 4: God, what did we researched this before we go on radio.
16:33
Speaker 2: Showing what I'm what we're here.
16:36
Speaker 3: I believe one of the hardship criteria used to be
16:39
Speaker 3: first time.
16:40
Speaker 2: I didn't think that was a hardship cr I thought
16:42
Speaker 2: that was just an allowable.
16:43
Speaker 3: Tuition present eviction of foreclosure, certain costs directly related to
16:51
Speaker 3: the purchase of this is from the IRS as well,
16:53
Speaker 3: so that that does count as all fly Because I
16:55
Speaker 3: used to work with institutions and that was one of
16:57
Speaker 3: the hardship criterias.
16:59
Speaker 2: The funny thing is I took one of those, but like,
17:02
Speaker 2: I didn't know what would qualify as like a hardship.
17:03
Speaker 2: That's like again, when I bought my when I bought
17:05
Speaker 2: my first house, I didn't have any other money. It
17:07
Speaker 2: was the only way I could make it down.
17:09
Speaker 3: This is this is a potential mitigating factor before we
17:12
Speaker 3: all freaking out flocked to the conclusion that, oh my god, hardship,
17:15
Speaker 3: it must mean hardship. Well, no, it could be tuition educational.
17:19
Speaker 3: You can find the criteria on the website. If you
17:20
Speaker 3: have a four O one K plan. Look at the
17:22
Speaker 3: criteria for hardship. What's are all Some of them are
17:24
Speaker 3: situations that suggest financial distress, some of them aren't. Vanguard
17:28
Speaker 3: doesn't break it down, and I looked elsewhere couldn't find it.
17:31
Speaker 3: So I don't want to see naive here. It's probably
17:33
Speaker 3: not a good thing, Chuck, But we don't know why
17:35
Speaker 3: people who are record kept by Vanguard. By the way,
17:38
Speaker 3: this is not a random sample. Sure, this is plans
17:41
Speaker 3: that a record kept by Vanguard. Vanguard is one of
17:44
Speaker 3: the big.
17:44
Speaker 2: Three or about five million people that they say you
17:46
Speaker 2: get several.
17:47
Speaker 3: Million on their platforms, but that's not see. Well, that
17:50
Speaker 3: in itself is telling I missed that that fact because
17:53
Speaker 3: they have more than that on their platforms total. I
17:56
Speaker 3: know because we look at four o one K plants
17:58
Speaker 3: for part of our day job. Sure, so some of
18:00
Speaker 3: the plans say no, you cannot use me in that survey.
18:03
Speaker 3: My point is you got to ask, when you see
18:05
Speaker 3: any statistic, any estimate, is it a random sample. This
18:08
Speaker 3: is not a random sample, So it's it's you may
18:11
Speaker 3: not want to generalize from it, That's all I'm saying.
18:14
Speaker 2: Yeah, I wonder which way like the average person covered
18:18
Speaker 2: by a Vanguard four to one K skews from like
18:22
Speaker 2: a demographic person.
18:23
Speaker 3: Depends on the plans that they were allowed. If IBM,
18:26
Speaker 3: they don't, I don't think they have. Well, whatever company,
18:29
Speaker 3: X company, I guess I'm just trying to use a
18:30
Speaker 3: household name says I'm sorry, No, you cannot include us
18:33
Speaker 3: in that survey. Sure, because the information's proprietary. Our data
18:37
Speaker 3: is valuable, and so is our employees privacy, and that
18:41
Speaker 3: happens a lot.
18:42
Speaker 4: Then that just.
18:43
Speaker 3: Makes the sample more skewed to Maybe it makes it
18:45
Speaker 3: more skew to smaller employers who don't have in house
18:48
Speaker 3: counsel to look at a proposal by Vanguard to share
18:51
Speaker 3: data where somebody at a big company X, their general
18:54
Speaker 3: counsel loves that. It gives them something to do. You know,
18:57
Speaker 3: you just have to be careful about ways that limitations
19:00
Speaker 3: you may not even be thinking about, can bias your
19:03
Speaker 3: sample for what that's worth.
19:05
Speaker 2: Let's take a quick break on that note here. When
19:09
Speaker 2: we come back, we've got a few things to get to. First,
19:13
Speaker 2: we got to give the trivia answer. Second, we've got
19:17
Speaker 2: to do Wall Street Watch. Third, we got to talk
19:20
Speaker 2: about private credit. I know no one wants to hear it,
19:23
Speaker 2: but something stinks over there, and we're going to discuss
19:26
Speaker 2: after this.
19:42
Speaker 1: Bringing the latest financial news straight to your radio. Every day,
19:46
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19:52
Speaker 1: Tell you out full Wall Street Watch, tracking the stocks,
19:55
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19:59
Speaker 1: right here on the Financial Exchange Radio Network.
20:01
Speaker 5: Markets rebounding today as Wall Street continues to monitor developments
20:05
Speaker 5: on the conflict between the US and Iran. Right now,
20:08
Speaker 5: the Dow is up two thirds of a percent, or
20:10
Speaker 5: three hundred and twelve points higher, SMP five hundred up
20:13
Speaker 5: eight tenths of a percent, Nasdaq up one on a
20:16
Speaker 5: third percent, or three hundred and three points higher. 'russell
20:19
Speaker 5: two thousands up one percent. Ten Youre Treasure reeled up
20:22
Speaker 5: one basis point at four point zero seven one percent,
20:26
Speaker 5: Crude Oil retreating two thirds of a percent, rating just
20:29
Speaker 5: above seventy four dollars a barrel. CrowdStrike reported strong quarterly
20:34
Speaker 5: earrings and said clients are increasingly turning to the company
20:37
Speaker 5: due to more complicated AI cyber threats. CrowdStrike also issued
20:41
Speaker 5: strong forward guidance for the first quarter and full year.
20:45
Speaker 5: Shares are now modestly higher. Meanwhile, software development tools company
20:49
Speaker 5: get lab set it anticipates slower annual sales growth, raising
20:53
Speaker 5: worries about potential AI disruption for the sector. Get Lab
20:57
Speaker 5: stock is sinking by seven percent. Elsewhere, Moderner shares jumping
21:01
Speaker 5: nine percent following news that will pay nine hundred and
21:03
Speaker 5: fifty million dollars to settle a patent litigation with our
21:07
Speaker 5: Beutis Biopharma and a Royviant Sciences subsidiary in a bid
21:13
Speaker 5: to compete with chromebooks and entry level Windows laptops. Apple
21:16
Speaker 5: unveil the MacBook Neo that will cost five hundred and
21:20
Speaker 5: ninety nine dollars. Apple stock edging higher, and after today's
21:23
Speaker 5: closing bell, we'll see more tech earnings, this time from Broadcom.
21:28
Speaker 5: I'm Tucker Silva and that is Wall Street Watch. In
21:33
Speaker 5: the previous segment, we asked you the trivia question which
21:36
Speaker 5: band canceled their nineteen ninety four tour because of a
21:39
Speaker 5: dispute with Ticketmaster.
21:41
Speaker 2: Nope, it was in Metallica.
21:43
Speaker 4: That was with Napster.
21:44
Speaker 5: This band was Pearl Jam Patrick from North Andover, Mass
21:48
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21:50
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21:54
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21:58
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22:01
Speaker 2: All right, so we've been talking about private credit for
22:04
Speaker 2: the last we'll just say mark maybe like seven eight months,
22:09
Speaker 2: like seriously, since August. And for those of you just
22:13
Speaker 2: who aren't familiar with the term, private credit refers to
22:16
Speaker 2: loans that are made outside of public markets. So an
22:19
Speaker 2: example of a loan on a public market is a bond.
22:22
Speaker 2: It could be a sovereign bond from the US government
22:24
Speaker 2: a US Treasury. It could be a corporate bond from
22:27
Speaker 2: a company. It could be a municipal bond from a city, state,
22:32
Speaker 2: or town. Again, like instruments that trade on public markets
22:37
Speaker 2: where you can see the price of them and they're
22:39
Speaker 2: you know, liquid throughout the day, and YadA YadA. Private
22:43
Speaker 2: credit refers to basically loans that are made that don't
22:46
Speaker 2: publicly trade, and they could be for anything. Generally, the
22:50
Speaker 2: ones that we see, you know, used most heavily are
22:53
Speaker 2: for buying inventory and things like that, expanding you know,
22:57
Speaker 2: small businesses to mid sized ones. You have things along
22:59
Speaker 2: the those lines. Is where you typically see a lot
23:02
Speaker 2: of private credit. But like I've seen all kinds of
23:05
Speaker 2: stuff and presentations, anything from hey, like we loan money
23:08
Speaker 2: to a museum to buy art, to like we loan
23:12
Speaker 2: money to a you know company that helps to buy
23:18
Speaker 2: like equipment for medical development. Like I've seen everything. So
23:23
Speaker 2: it's not one thing. But here's what we do know
23:25
Speaker 2: is starting last fall, there were a wave of kind
23:29
Speaker 2: of ugly not a wave, but a ripple of ugly
23:31
Speaker 2: defaults in a few you know, cases of private credit
23:36
Speaker 2: loans going bad. They mostly at the time seem to
23:39
Speaker 2: look like fraud. But you know, we had questions that, Okay,
23:42
Speaker 2: as they're more here and it appears that we're not
23:45
Speaker 2: the only ones that have had those questions, because in
23:46
Speaker 2: the last few months now, there have been significant changes
23:52
Speaker 2: from a number of private credit managers that have restricted
23:55
Speaker 2: investors' ability to withdraw funds from those products and or
23:59
Speaker 2: given big haircuts of prior stated values. And now we're
24:04
Speaker 2: getting to the point where the executives at these private
24:07
Speaker 2: asset managers are starting to say stuff that doesn't give
24:12
Speaker 2: you the warm and fuzzies. From Apollo Global Management, such
24:16
Speaker 2: CEO Mark Rowan quote, people made choices. If you wanted
24:20
Speaker 2: to hire dividend, you could take more risk. That felt
24:23
Speaker 2: really good on the way up. That's not going to
24:25
Speaker 2: feel so good on the way down. Oh, I've never
24:31
Speaker 2: heard it said quite that way. Soros Fund Management Chief
24:36
Speaker 2: investment Officer Don fitzpatrickson, investors in private credit and private
24:39
Speaker 2: equity are in for a quote painful eighteen to twenty
24:42
Speaker 2: four months, Okay, Aries Management Corporation CEO Mark Mike Arraghetti says,
24:52
Speaker 2: quote diversification is a big way to mitigate risks, it's
24:54
Speaker 2: also a way to dampen returns. We're constantly trying to
24:57
Speaker 2: find that right balance and.
25:00
Speaker 1: And so.
25:02
Speaker 2: Look, here's what we're seeing at this point again, You've
25:05
Speaker 2: got now a number of these funds that have had
25:08
Speaker 2: to either gate their products and or write down the
25:12
Speaker 2: asset values already. And this is early innings right now.
25:17
Speaker 2: We don't really know how big the private credit space is.
25:19
Speaker 2: We don't know how big the issues are. I think
25:22
Speaker 2: it's very much a stretch to say this is going
25:24
Speaker 2: to be any kind of, you know, global financial crisis event.
25:28
Speaker 2: I think it's also a stretch to say this is
25:29
Speaker 2: going to end up being a non event to markets
25:32
Speaker 2: as well. And a lot of you listening are probably
25:35
Speaker 2: sitting there going chuck, like, I don't own any private credit,
25:37
Speaker 2: why should I care? And the answer is that's true,
25:41
Speaker 2: Like you probably don't own it. Most Americans don't directly
25:45
Speaker 2: own any private credit. But one of the areas that
25:50
Speaker 2: has absolutely bought a ton of this stuff in recent
25:53
Speaker 2: years are life insurers because they say, Okay, we have
25:57
Speaker 2: our actuaries that tell us we need X number of
26:00
Speaker 2: dollars X years from now to pay out claims based
26:03
Speaker 2: on the number of policies, we have the demographics of
26:05
Speaker 2: those policies, and YadA YadA, and so we take your
26:08
Speaker 2: premiums and we invest. You know, this is what the
26:10
Speaker 2: life insurers say, they say they take the premiums they
26:13
Speaker 2: invest in, typically bonds of some kind, and say, Okay,
26:17
Speaker 2: we invested one hundred million dollars today, it's gonna give
26:20
Speaker 2: us ten million dollars, and this year ten in, this
26:22
Speaker 2: one and so on down the road, based on the
26:24
Speaker 2: claims we think we have, Well, how can we get
26:27
Speaker 2: more juice so that we can, you know, make better returns. Well,
26:30
Speaker 2: you can ratchet up the risk. And so Life Insuran
26:32
Speaker 2: has bought a ton of this private credit stuff, and
26:35
Speaker 2: in particular, there are a lot of Life insurers that
26:37
Speaker 2: are captive within investment management companies that also have private
26:42
Speaker 2: credit arms that just got stuffed with this stuff. And
26:46
Speaker 2: one of the things to watch for is whether or
26:49
Speaker 2: not we start to see some of those companies reporting
26:54
Speaker 2: some problems in terms of what their general accounts look
26:57
Speaker 2: like and needing to figure out how do they make
27:01
Speaker 2: ends meet for claims that they're going to have to
27:03
Speaker 2: pay in the future. Yeah, real problem that could happen.
27:06
Speaker 3: Yeah, I'm not Jesus might sound naive, but I'm not
27:09
Speaker 3: as concerned about that as you might be, because the
27:15
Speaker 3: liquidity is not liquidity in that segment of the general
27:18
Speaker 3: account but liquidity is otherwise usually sufficient to meet even
27:23
Speaker 3: extreme sort of circumstances. I'm not saying they'd be. And
27:29
Speaker 3: most insurance companies they originate that themselves, and it's mostly mortgages.
27:33
Speaker 3: They are like the original private debt or credit, you know, lender.
27:38
Speaker 3: Sometimes you'll hear those two terms used interchangeably some of
27:42
Speaker 3: the dodgier stuff. I'm not sure pension funds have a
27:44
Speaker 3: lot of exposure.
27:45
Speaker 4: Could they could be.
27:46
Speaker 2: Noting pension funds endowments, you know.
27:47
Speaker 3: Yeah, but they're buying like private debt, which is usually
27:51
Speaker 3: associated with a private equity investment. So a manager takes
27:55
Speaker 3: a company private because they think they can improve it
27:58
Speaker 3: and they need some funding to do that. It's a
28:00
Speaker 3: natural complement.
28:02
Speaker 4: Oh yeah. Again.
28:03
Speaker 3: I don't mean to sound naive here. I'm just I'm
28:06
Speaker 3: like you, I'm not sure.
28:08
Speaker 2: No one knows how big of a deal it's going
28:09
Speaker 2: to be. I'm simply saying it's tough to see a
28:13
Speaker 2: path where you see like a global financial crisis, great
28:16
Speaker 2: financial crisis type situation. It's also tough at this point
28:20
Speaker 2: for me to see something where there's no impact at all.
28:23
Speaker 2: That's a wide range.
28:25
Speaker 3: Obvious systemic it is how systemic and a big disruption
28:31
Speaker 3: to that industry would be. It is part of the
28:33
Speaker 3: so called shadow banking industry, which it.
28:35
Speaker 2: All just stinks. Mark though no, I it smells the
28:39
Speaker 2: same way that mortgages smelled in two thousand and seven.
28:44
Speaker 2: It's how this smells.
28:46
Speaker 3: Underwriting for certain types of private credit underwriting standards definitely deteriorated.
28:52
Speaker 3: Good investors new to avoid those for the most part.
28:57
Speaker 3: There are some big names associated, and they've been rehashed
29:01
Speaker 3: in the media, so we.
29:02
Speaker 4: Don't need to rehash it further. People that should have
29:06
Speaker 4: known better.
29:07
Speaker 3: It's just not clear how isolated those instances were or
29:09
Speaker 3: whether there's something systemic there just isn't clear.
29:12
Speaker 2: Let's take a quick break here when we return stack Roulette.
29:16
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29:20
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29:34
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29:49
Speaker 2: Mark, what do you got for me for stack Roulettes.
29:50
Speaker 4: Quick follow up on something you were talking about? Earlier Chuck.
29:53
Speaker 3: According to the Financial Times, the cost of insuring a
29:55
Speaker 3: ship sailing through the Strait of Hormuz is sored twelvefold,
29:59
Speaker 3: even after through the United States about to backstop trade
30:02
Speaker 3: through the key oil choke point. One broker, insurance broker
30:08
Speaker 3: quoted here in the FT says we've heard nothing more
30:10
Speaker 3: other than the president's statement on social media, adding that
30:15
Speaker 3: insurers were unsure of how broadly US support would apply
30:19
Speaker 3: despite the pledge to insure all trade through the Gulf.
30:22
Speaker 4: For example, this.
30:23
Speaker 3: Guy says, you might have some reaction to this, Chuck.
30:25
Speaker 3: Would US insurance such as it is apply to the
30:29
Speaker 3: cargo of a Chinese of Chinese oil, excuse me, carried
30:33
Speaker 3: on a European tanker? The broker says, we simply don't know.
30:37
Speaker 2: I want to talk a little bit about artificial intelligence,
30:41
Speaker 2: which is obviously not real intelligence. Artificial piece of the
30:47
Speaker 2: Financial Times, the title is what if AI just makes
30:50
Speaker 2: us work harder? In my answers, well, then we should
30:52
Speaker 2: get rid of it.
30:55
Speaker 4: Pretty much.
30:56
Speaker 2: I'm sorry if it was just like, huh if the
30:58
Speaker 2: whole thing and look, here's the thing, this piece from
31:02
Speaker 2: the Financial Times, it does outline something that employees are
31:05
Speaker 2: saying that they're seeing with AI, which is basically the
31:08
Speaker 2: AI accelerates things so much that employees feel like they
31:11
Speaker 2: have so much to do that they're just like running
31:15
Speaker 2: so fast and the intensity of work is picked up
31:17
Speaker 2: a lot. Interesting to which I say, why would we
31:20
Speaker 2: do it? Then? Like, as as an employee, like, think
31:23
Speaker 2: about this. The general promise that you have of new technology,
31:28
Speaker 2: and I'm not saying it always works this way, is
31:30
Speaker 2: that it should make your life easier in some way,
31:34
Speaker 2: shape or form. Hey, we moved from the screwdriver to
31:38
Speaker 2: power tools because it's easier, Like, yes, you can build
31:42
Speaker 2: more with it, obviously, but it's easier on the body
31:46
Speaker 2: and so on and so forth. We moved from you know,
31:50
Speaker 2: the horse and carriage to the automobile because it's easier, Like,
31:55
Speaker 2: you know, you don't have to feed the autumn. I mean,
31:57
Speaker 2: you gotta put gas in your tank, but like you
31:58
Speaker 2: don't have to feed the automobile and clean up it's
32:01
Speaker 2: poop and everything. Like you know, you just you get
32:03
Speaker 2: in the car and you drive. If AI if all
32:07
Speaker 2: it's going to do is turn us into even more
32:10
Speaker 2: perpetually stressed out, Like this is moving too fast, and
32:14
Speaker 2: I can't handle this machines, Well, I'm just gonna call
32:17
Speaker 2: it quits, Like what's the point? Like, eventually you get
32:22
Speaker 2: to a point where you're like, how is this actually
32:24
Speaker 2: enriching my life instead of just like someone who's sitting
32:27
Speaker 2: at the top hold in the bag and you're like,
32:29
Speaker 2: what what gives here?
32:31
Speaker 4: Can they give any examples? I missed that piece?
32:33
Speaker 2: So this is so I'll quote here. Uh, this is
32:38
Speaker 2: from a theory perspective. Consider a freelance programmer who gets
32:41
Speaker 2: paid by results, who used to work for ten hours
32:44
Speaker 2: a day and now finds that they can do the
32:46
Speaker 2: same thing in two hours. Great, you might say that
32:50
Speaker 2: they'll just have a two hour work day, but instead
32:53
Speaker 2: what you end up with is that because there's more
32:56
Speaker 2: time for them to do stuff, they get asked to
32:58
Speaker 2: do more, and so they end up having to do
33:01
Speaker 2: more and it's just too much for them to handle.
33:05
Speaker 2: And so I think that ultimately it's one where look,
33:13
Speaker 2: this is clearly gonna be a big adjustment, But you
33:16
Speaker 2: do find that when you start poking around on different
33:19
Speaker 2: use cases for AI, you can see ones where it's like, man,
33:22
Speaker 2: there's so much to do that it just feels overwhelming
33:26
Speaker 2: and maybe that'll pass as we get more used to
33:29
Speaker 2: the technology as well, because I'm sure in any great
33:31
Speaker 2: technological shift, that's probably the case. You know, when you
33:35
Speaker 2: went from having to travel by covered wagon to bring
33:39
Speaker 2: stuff across the country to the railroads, right, it's probably
33:42
Speaker 2: which By the way, do you know that that's when
33:45
Speaker 2: time zones were invented.
33:46
Speaker 4: Oh I thought it was railroad based.
33:48
Speaker 2: That's what I meant. That's what I said, like with railroads.
33:50
Speaker 4: Oh you did say the word I'm sorry, yeah, my graphic.
33:52
Speaker 2: No, it's okay. I appreciate you paying attention.
33:56
Speaker 4: Hey, Chuck, what about railroads?
33:57
Speaker 2: But no, that's when you moved to times was because.
34:01
Speaker 4: I heard was covered with kits like where's he going?
34:03
Speaker 2: Thank you?
34:04
Speaker 4: Sorry? Sorry? Sorry?
34:05
Speaker 2: In order for like people to actually know when something
34:08
Speaker 2: was happening, it used to just be okay, every town
34:10
Speaker 2: had its own cock because it didn't really matter to the.
34:14
Speaker 4: Sun is at its peak.
34:15
Speaker 2: Inferent, it took too long to go from New York
34:18
Speaker 2: to Boston for then it need to be on the
34:19
Speaker 2: same time zone. Once you add railroads and was like,
34:22
Speaker 2: oh no, wait, we need to know what time it
34:24
Speaker 2: actually is here because you can go between these in
34:27
Speaker 2: under a day. So I bet that was kind of stressful.
34:32
Speaker 2: I mean, imagine the imp.
34:34
Speaker 4: Like I remember it. Yes, yes, it was you know,
34:37
Speaker 4: like I.
34:38
Speaker 2: Bet that was kind of stressful to people being like, oh,
34:41
Speaker 2: going from you know, Huntington beach time to carl'sbad time. No,
34:46
Speaker 2: g like, we've got to like standardize these, like even
34:49
Speaker 2: it's a lot. So I'm sure some of this is
34:52
Speaker 2: just it's new, But I also do think that there
34:57
Speaker 2: could be something here just in terms of like how
35:01
Speaker 2: the scale of change may be so different from what
35:04
Speaker 2: we've experienced that humans might just have a hard time
35:07
Speaker 2: adapting because we have these rhythms that were used like
35:10
Speaker 2: that are based into our body.
35:11
Speaker 3: I was gonna say, well, productivity's up like fivefold since
35:15
Speaker 3: World War Two, like isn't this a good thing? But
35:17
Speaker 3: you just made I think a good counterpoint or at
35:20
Speaker 3: least something to consider, which is if that gets compressed
35:23
Speaker 3: into like five years, that's not really a good thing
35:26
Speaker 3: because we can't adjust the productivity that we've seen with
35:29
Speaker 3: translates in rising standards of living. It happened very gradually,
35:32
Speaker 3: one to two percent a year. You can adjust, it's
35:34
Speaker 3: not disruptive, but if you can press all that into
35:37
Speaker 3: a shorter period, I think, is what you're just saying.
35:39
Speaker 2: Yeah, it's kind of where I'm going.
35:41
Speaker 4: Have you considered the case of railroads. What you hear
35:45
Speaker 4: about these time zones?
35:47
Speaker 2: You hear about this?
35:48
Speaker 4: Why do we do that?
35:49
Speaker 2: You know where they're come from?
35:51
Speaker 5: No?
35:51
Speaker 2: Can you tell me it's fantastic? Let's uh, what else
35:58
Speaker 2: you got for me? Mark anything on the chart? What
36:00
Speaker 2: you were looking at?
36:01
Speaker 3: Well, I was looking at productivity post World War Two.
36:03
Speaker 3: I mean it sounds a little silly to complain about it,
36:06
Speaker 3: which the lament in that article seems to be, well,
36:09
Speaker 3: we're gonna get really good at doing stuff and we
36:11
Speaker 3: might be asked to do more. Yeah, that's why living
36:14
Speaker 3: standards go up. So on its face, that seems like
36:16
Speaker 3: a really strange thing to say, But I'm just repeating
36:20
Speaker 3: myself here.
36:20
Speaker 4: And then we can talk about railroads again.
36:21
Speaker 3: Maybe if that gets compressed into a very suppose you
36:24
Speaker 3: could like snap your fingers and have every you know,
36:27
Speaker 3: Genie or whatever grant you wishes. That would be really disruptive.
36:32
Speaker 3: And I think others have hinted at this too, Like
36:33
Speaker 3: we always think the sinister aspect of AI or the
36:37
Speaker 3: one of the detrimental knock on.
36:39
Speaker 4: Effects would be that it it kills us right, well, yeah,
36:44
Speaker 4: it hunts us down.
36:45
Speaker 3: The other could be that it makes things so easy
36:47
Speaker 3: that we're expected to do a lot more and just
36:50
Speaker 3: can't handle it. I never really thought about that at all.
36:55
Speaker 2: Part of it might just be that it can do
36:58
Speaker 2: that much more in our expectations. Oh, it's gonna be
37:01
Speaker 2: so hard for us to do that much more, but
37:03
Speaker 2: it's not actually right. You know, Like if you dropped
37:06
Speaker 2: someone from nineteen fourteen into the world today, they'd be like,
37:10
Speaker 2: I can't keep up with all this, like they and
37:13
Speaker 2: we're like, oh, yeah, I check my email when I
37:15
Speaker 2: wake up, like you know, what's email? Things that are normal,
37:19
Speaker 2: Whereas they they would see a car driving, like driving
37:23
Speaker 2: seventy miles an hour on the highway and be like,
37:24
Speaker 2: oh yeah, oh my goodness, like this is too fast,
37:28
Speaker 2: like icause we would.
37:29
Speaker 3: Freak out if there were animals everywhere, and you know,
37:32
Speaker 3: if we were transported back and there's horses everywhere, you're
37:35
Speaker 3: stepping in large.
37:36
Speaker 4: Plans of manure, and there's all.
37:38
Speaker 3: Types of unseemly stuff gone, Like there are things that
37:41
Speaker 3: would cause us to go hide too.
37:43
Speaker 4: Yes, maybe right, I mean true. No, it's me thinking
37:46
Speaker 4: too deeply about this.
37:47
Speaker 2: No, maybe not deeply enough in any case, special lions
37:52
Speaker 2: all over the place for some reason.
37:54
Speaker 4: Yeah, fair enough.
37:55
Speaker 2: Yeah no, But there's the great leopards of New York.
37:57
Speaker 3: There where animal animals were common. People had cows for milky.
38:01
Speaker 2: The monkeys of Cleveland, you had to watch that.
38:05
Speaker 4: I guess.
38:06
Speaker 3: I met mainly horses, tigers, you don't worry about getting trampled,
38:10
Speaker 3: it happens.
38:10
Speaker 2: And the salamanders of Philadelphia. They came in packs.
38:16
Speaker 4: The salamanders.
38:18
Speaker 2: We're gonna take a quick break for the rest of
38:19
Speaker 2: the day, and when we return tomorrow there will be
38:23
Speaker 2: no animals on the show. We'll see you then,