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Why are oil prices jumping up today? · The Financial Exchange Show

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Speaker 1: donation today. Face is the Financial Exchange with Mike Armstrong,
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Speaker 1: and Mark Vandetti.
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Speaker 2: Good morning, Happy Thursday. Welcome back to the Financial Exchange.
1:14
Speaker 2: It's Mike, Mark and Tucker with you. We've got Russian
1:16
Speaker 2: oil sanctions, We've got Tesla earnings, and Elon doing a
1:21
Speaker 2: typical weird freak out during the earnings call, which is entertaining.
1:24
Speaker 2: I guess it wasn't a freak out, but it was
1:26
Speaker 2: a demand for money. We have got beyond meatstock continuing
1:31
Speaker 2: to go all over the place in memestock mania once again.
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Speaker 2: And so we're gonna dive right in with I think
1:39
Speaker 2: probably the biggest story of the day, which is the
1:42
Speaker 2: price bike on oil. This is the largest single day
1:44
Speaker 2: move on oil since Israel Iran tensions earlier this year.
1:49
Speaker 2: We've got oil prices on West Texas crewed moving up
1:52
Speaker 2: over five percent in early trading.
1:55
Speaker 3: So, I it was.
1:57
Speaker 2: Kind of flummix because every story out there is talking
1:59
Speaker 2: about the price moves, it's talking about how significant it
2:01
Speaker 2: could be for India and China, and almost no news
2:05
Speaker 2: outlet out there told me what the actual threat of
2:09
Speaker 2: sanctions are.
2:11
Speaker 3: Reading through the Wallstreet Journal piece.
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Speaker 2: And and the CNBCPCE and everything out there and all
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Speaker 2: was just oh yeah, there's new sanctions. They could be
2:19
Speaker 2: really important. It depends on whether or not it causes
2:21
Speaker 2: India and China stop buying oil. But I think what
2:25
Speaker 2: we have here is actually a threat of sanctions on
2:29
Speaker 2: companies that buy Russian oil now, which has not yet
2:33
Speaker 2: existed previous you know, prior to all this, it was,
2:37
Speaker 2: you know, the threat of sanctions on Russian oil executives,
2:41
Speaker 2: threatens on threats on the companies themselves. We now seem
2:45
Speaker 2: to be threatening access to the US financial system for
2:49
Speaker 2: buyers of the Russian oil finally, which is making apparently
2:54
Speaker 2: some Indian refiners take a second look at whether or
2:56
Speaker 2: not they should be doing this. But what's your take
2:59
Speaker 2: on what we are actually threatening in terms of sanctions
3:02
Speaker 2: and what the reaction has been from those out there?
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Speaker 4: No special to your point, it's hard to I have
3:08
Speaker 4: not seen any work on this yet.
3:12
Speaker 5: Because we don't know the specific very it's tough to.
3:14
Speaker 4: Quantify the Once you know, I think what the level
3:17
Speaker 4: and the breath of the sanctions are, you can pretty
3:20
Speaker 4: quickly quantify and assuming supply, assuming demand stays constant, which
3:25
Speaker 4: is a dangeroussumption, I guess you can then estimate the
3:28
Speaker 4: impact on supply. So I'm waiting like you are, Mike,
3:31
Speaker 4: like we all are, for estimates of how much damage
3:35
Speaker 4: in terms of and this is necessary damage. Arguably it's
3:38
Speaker 4: the right thing to do geopolitically. Maybe we just have
3:41
Speaker 4: to start with that assumption this is necessary.
3:44
Speaker 5: Next step.
3:45
Speaker 4: We've tried diplomacy for the last several months. The administration
3:49
Speaker 4: has been exceptionally flexible. You might even say nice to
3:52
Speaker 4: Russia hasn't worked. Okay, fair enough. Now we have to
3:54
Speaker 4: move to something punitive.
3:56
Speaker 2: So what has been happening over the course of the
3:58
Speaker 2: last several years is that European and Western nations have
4:04
Speaker 2: not in any large degree in buying Russian oil. It
4:08
Speaker 2: has continued to flow to China, it has continued to
4:10
Speaker 2: flow to India, who have been skirting any threats of
4:13
Speaker 2: sanctions and continuing to buy it. What we do know
4:15
Speaker 2: is that India's top refiner this morning publicly said this.
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Speaker 2: The company's name is Reliance and they said on Thursday
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Speaker 2: it would quote recalibrate their imports in line with Indian
4:25
Speaker 2: government guidelines, specifically after the US measures against Russian groups
4:31
Speaker 2: Rosneft and Luke Oil are reverberating right now, and to
4:36
Speaker 2: those that are familiar. Basically, this is the large, the
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Speaker 2: world's largest refining complex.
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Speaker 3: It's led by the richest.
4:44
Speaker 2: Man in Asia and basically saying, hey, if the threat
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Speaker 2: is that we won't be able to access dollars, for example,
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Speaker 2: then certainly we will finally stop buying this stuff from Russia,
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Speaker 2: which we have been buying at a very steep discount
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Speaker 2: for the last several years, because guess what, you can't
5:00
Speaker 2: sell it just about anywhere else.
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Speaker 4: Yeah, look at the response of markets. That probably tells
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Speaker 4: you all you need to know. West Texas Intermediate, our
5:07
Speaker 4: benchmark in this hemisphere is up a little over five percent,
5:11
Speaker 4: which is a totally rational response.
5:13
Speaker 2: Investors seemed to be thinking that this might be serious. Obviously,
5:17
Speaker 2: if Russian oil cannot be purchased, maybe the Chinese continue
5:21
Speaker 2: to purchase it. But if India steps away, China probably
5:24
Speaker 2: can't fill that entire I guess gap in purchases.
5:28
Speaker 3: And so we will.
5:30
Speaker 2: We will see where it goes from here or potentially
5:32
Speaker 2: the sanctions are strong enough to deter Chinese buyers as well,
5:35
Speaker 2: but I don't know that there's much evidence of that.
5:37
Speaker 2: What's your larger take though, I mean oil prices generally,
5:40
Speaker 2: you know, other than this jump today, have been on
5:43
Speaker 2: a pretty steady you know, other than a few spikes
5:46
Speaker 2: here over the course of the you know, back in June,
5:49
Speaker 2: for instance, when was that when we struck Irun June
5:53
Speaker 2: of this year, I forget it's but we've been on
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Speaker 2: a pretty steady to cli. And I don't think this
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Speaker 2: is all because of you know, domestic oil production or
6:05
Speaker 2: anything like that. It seems to me that there might
6:07
Speaker 2: be an underlying trend here too, and lower oil prices.
6:11
Speaker 2: While I certainly appreciate to fill up, you know, any
6:14
Speaker 2: of my three cars are not exactly a great indication
6:18
Speaker 2: for where the world economy is.
6:20
Speaker 3: That is that still fair to say in twenty twenty five.
6:23
Speaker 4: Lower oil prices a fair No, yeah, I think that's
6:27
Speaker 4: I'm just thinking back over the decades. I mean, obviously,
6:29
Speaker 4: we produce a lot more than we used to hear
6:31
Speaker 4: in the United States. So there are pockets of the
6:35
Speaker 4: US economy. They're more than pockets, they're big regions now
6:39
Speaker 4: that are very dependent on energy prices. So people in
6:42
Speaker 4: that corridor from the Dakotas down to Texas and elsewhere
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Speaker 4: are cheering this morning. So this unlike twenty years ago
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Speaker 4: when you could say on equivocally and in the nineties
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Speaker 4: when you in late eighties on equivocally, lower oil prices
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Speaker 4: are good. High oil prices are bad for the economy.
6:59
Speaker 4: Late eadies we're boom period. Inflation came way down in
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Speaker 4: part because of better monetary policy, but in part two
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Speaker 4: because we got lucky. It was the flip side of
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Speaker 4: the seventies in many ways.
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Speaker 5: Energy.
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Speaker 4: We all remember oil prices crashing in the late in
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Speaker 4: the mid late nineteen eighties and again in the very
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Speaker 4: early nineteen nineties, ninety three, ninety four, when something like
7:16
Speaker 4: ten dollars a barrel that was unequivocally good. It's no
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Speaker 4: longer unequivocally good. I think it was one way to
7:21
Speaker 4: answer your question, Mike, there were probably more globally now,
7:26
Speaker 4: which I think was the broader context you were suggesting.
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Speaker 4: There are obviously more winners than losers.
7:32
Speaker 5: Yeah, I don't know.
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Speaker 4: Hard to say how it would all if this represents
7:36
Speaker 4: now a change in the trend. As you said, it's
7:38
Speaker 4: been kind of bumping around high fifties, low sixties for several.
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Speaker 2: Months, which is not a level that domestic producers are
7:44
Speaker 2: terribly comfortable.
7:45
Speaker 4: No, No, they want high minimum these shale guys who
7:48
Speaker 4: access hard to access oil through so called fracking techniques,
7:51
Speaker 4: They need what seventy seventy five something just to break even,
7:55
Speaker 4: so they're not making any new investments. That hurts energy
7:58
Speaker 4: independence but helps places like Massachusetts which don't make any Sure,
8:02
Speaker 4: you know, the the United States economy is pretty heterogeneous,
8:05
Speaker 4: it's pretty it's pretty varied. We prefer lower prices, other
8:09
Speaker 4: regions prefer higher prices, so net effect hard to say.
8:13
Speaker 2: The other offshoot of all this being that, you know,
8:16
Speaker 2: because that domestic oil production has been fine but not
8:21
Speaker 2: exactly growing. The same goes for net gas production because
8:24
Speaker 2: that is a direct offshoot of some of the fracking
8:26
Speaker 2: activities that we do, and so net gas production also
8:29
Speaker 2: has been down here domestically.
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Speaker 4: Let's go at a FED angle too, which we could
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Speaker 4: talk about. I mean, this complicates the inflation picture.
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Speaker 2: Yeah, I guess that would be the big piece here too.
8:38
Speaker 2: We'll get an inflation reading tomorrow in spite of the
8:41
Speaker 2: government shutdown. But oil prices generally have been a real
8:46
Speaker 2: help to the FED.
8:46
Speaker 5: Over the luxy the last few years.
8:48
Speaker 2: Yeah, yeah, you know, if you take a look at
8:50
Speaker 2: the last twelve months, we've had what about three percent inflation,
8:54
Speaker 2: depending on which trading you're looking at, and a big
8:59
Speaker 2: help to that has been the gas and oil prices
9:01
Speaker 2: have been down over ten percent over that period of time.
9:03
Speaker 4: And that may sound confusing because we often say the FED,
9:05
Speaker 4: which controls the money supply, is responsible for long term inflation.
9:08
Speaker 4: This is true, but in the short term because not
9:11
Speaker 4: every price changes every month. If oil prices go up
9:13
Speaker 4: by a lot and nothing else changes, the average goes up,
9:15
Speaker 4: and that's all that the CPI or whatever your preferred
9:18
Speaker 4: inflation measure is. It's just an average, so it can
9:20
Speaker 4: complicate the short term picture. The FED does have to
9:22
Speaker 4: think about it because it affects not only the headline number,
9:27
Speaker 4: but it affects our expectations. Perhaps nothing is more conspicuous
9:30
Speaker 4: than what we pay for gas, and that in turn
9:32
Speaker 4: drives what we expect inflation to do in the short term.
9:36
Speaker 2: In any case, national average for gas price is now
9:39
Speaker 2: sitting at three dollars seven cents a gallon. Obviously we're
9:41
Speaker 2: not seeing that full price swing today with this with
9:45
Speaker 2: this action, but that's down from about three dollars sixteen
9:48
Speaker 2: cents a year ago. Will continue to monitor gas prices
9:50
Speaker 2: over the course of the next week or so, as
9:52
Speaker 2: we learn more about these sanctions and India's willingness to
9:55
Speaker 2: buy Russian oil. Quick break when we come back. Tesla
9:59
Speaker 2: report darnings yesterday after the bell, What did they say?
10:02
Speaker 2: What did Elon have to say? And where are the
10:05
Speaker 2: when are the driverless taxis coming to the whole nation?
10:08
Speaker 3: We'll cover that next year on the Financial Exchange.
10:12
Speaker 1: There's only one show that follows well Street's continued volatility.
10:16
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10:19
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10:23
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10:27
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10:29
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10:43
Speaker 2: Tesla stock down about three and a third percent in
10:46
Speaker 2: early training today after being down about eight ten percent
10:49
Speaker 2: yesterday in trading. It's marked a fine year for them. Actually,
10:55
Speaker 2: stock price wise, they're up about twelve percent for the
10:58
Speaker 2: year when you look at the.
11:01
Speaker 3: Full story here. But a lot of people.
11:04
Speaker 2: Kind of disappointed, I think by the earnings call and
11:08
Speaker 2: the I guess the real facts of the earnings as well.
11:11
Speaker 2: The revenue came in beating estimates about a twenty nine
11:15
Speaker 2: percent increase twenty eight point one billion, whereas they missed
11:19
Speaker 2: on earnings by about four cents. The big push here
11:24
Speaker 2: was that they did make a lot of sales in
11:26
Speaker 2: September ahead of the expiration of the electric vehicle tax credit,
11:31
Speaker 2: which I believe was September thirtieth, if memory serves me.
11:37
Speaker 2: But the executives there really made the entire earnings call
11:43
Speaker 2: once again, because this is what Tesla does, not about
11:46
Speaker 2: their business, but about their future aspirations, goals and dreams,
11:50
Speaker 2: and Robotaxi really took front and center there. So I
11:56
Speaker 2: don't know if it's actually gonna happen, but we should
11:59
Speaker 2: talk about it services expanding or planning to expand to
12:03
Speaker 2: eight to ten metro areas by the end of the year.
12:06
Speaker 3: Again.
12:06
Speaker 2: Tesla's robotaxi business is built on the idea of autonomous
12:09
Speaker 2: vehicles driving themselves. The only city they're currently doing this in,
12:14
Speaker 2: or attempting to do it in, is Austin, Texas, where
12:17
Speaker 2: they are not actually driving themselves yet they still have
12:19
Speaker 2: safety drivers in the seat monitoring.
12:23
Speaker 3: The vehicle to make sure it's capable of doing this.
12:25
Speaker 2: And I guess here is my overall point on this,
12:34
Speaker 2: there are a lot of companies currently, a lot of
12:37
Speaker 2: very big companies who do not robotaxis, but that do
12:43
Speaker 2: taxi services really well. Uber Lift and Waimo have spent
12:48
Speaker 2: over a decade rolling out that business. In the case
12:51
Speaker 2: of Uber, they had to lose money on it for
12:53
Speaker 2: a good eight years before they built up the customer
12:56
Speaker 2: base and then know how to actually break even on
12:58
Speaker 2: this business model and make sure that it works for them.
13:02
Speaker 2: Waimo has been driving self driving cars across Phoenix, San Francisco, LA,
13:10
Speaker 2: and I think a couple of other cities as well
13:13
Speaker 2: for several years now, and I'm just curious as to
13:19
Speaker 2: whether or not Tesla is actually going to be able
13:21
Speaker 2: to a make a dent in this business model and
13:24
Speaker 2: b make a profit in this business model, because it
13:28
Speaker 2: is not. It's not just some magic thing, and it's
13:32
Speaker 2: not as though putting and deploying a whole bunch of
13:37
Speaker 2: driverless cars is going to be a cheap endeavor by
13:39
Speaker 2: any stretch of the imagination.
13:41
Speaker 3: Not to say they can't afford it.
13:42
Speaker 2: They've got plenty of capital, but this is a completely
13:44
Speaker 2: different business model.
13:46
Speaker 4: To be willing to pay for future earnings. What investors
13:49
Speaker 4: are currently willing to pay relative to and I shorthand
13:53
Speaker 4: for that's just the pe ratio.
13:55
Speaker 3: Tesla Stock's never been about.
14:00
Speaker 5: Which I'm not I'm not an automotive analyst, but I.
14:02
Speaker 4: Always ask, well, what does a serious I was going
14:07
Speaker 4: to say believer. That's maybe the right word, maybe the
14:10
Speaker 4: wrong word, Maybe a little bit unfair because it implies faith.
14:13
Speaker 4: Maybe the right word, because this all comes down to
14:14
Speaker 4: whether or not you think must can execute. Will we
14:16
Speaker 4: see cyber cabs in twenty twenty six? Will we see
14:19
Speaker 4: the mega battery pack in twenty twenty six? Will we
14:21
Speaker 4: see the optimist robots being deployed on a large scale?
14:24
Speaker 4: This is all all of these potentially revolutionary, not economy
14:29
Speaker 4: wide revolutionary, but they could revolutionize little markets.
14:33
Speaker 3: Yep.
14:33
Speaker 4: Maybe they have broader applications. I don't know, not my area.
14:35
Speaker 4: But a lot really turns on their ability to launch
14:38
Speaker 4: these things in twenty twenty six. What excuses for lack
14:41
Speaker 4: of a kinder word? Will champions in the analyst community
14:45
Speaker 4: make for this when one or more of those things
14:47
Speaker 4: don't happen in twenty twenty six?
14:49
Speaker 3: I mean, I mean Elon always executes on his problems.
14:52
Speaker 3: This is what I mean.
14:52
Speaker 5: I mean, there's there's a pattern here.
14:54
Speaker 4: He's executed on many of them, but not as ambitiously
14:56
Speaker 4: as he had as as he had asserted, or as.
15:00
Speaker 3: And almost never on the appropriate timeline.
15:02
Speaker 5: That's this, Yeah, that's what I'm sorry.
15:03
Speaker 4: I was being very long witted, right, So what excuses
15:05
Speaker 4: what we hear next year when two out of three
15:07
Speaker 4: of these I just ticked off a few initiatives?
15:09
Speaker 5: Again not my area. Maybe there are more. Maybe that's not.
15:13
Speaker 4: I think though, based on casual reading this morning, that's
15:16
Speaker 4: what people are expecting. What will the judgment of analysts
15:20
Speaker 4: who ultimately make the buy seller hold recommendations that we
15:23
Speaker 4: all have to rely on because we all don't meet
15:26
Speaker 4: with Tesla management, go on site and look at their
15:28
Speaker 4: factories and do the same with other manufacturers so as
15:31
Speaker 4: to have reference points. It's just not most people's area.
15:36
Speaker 4: What are we going to make of it when they
15:37
Speaker 4: don't meet these goals next year? Assuming they don't.
15:38
Speaker 2: I'll also point out for a moment here, so Waimo
15:42
Speaker 2: again is the Google owned subsidiary that does self driving
15:46
Speaker 2: taxes in a number of different cities. They have been
15:49
Speaker 2: in Phoenix for seven or eight years now mapping out
15:55
Speaker 2: roads and successfully driving people in autonomous vehicles all around
16:02
Speaker 2: the city of Phoenix.
16:03
Speaker 3: There are some exclusions.
16:04
Speaker 2: You can't go everywhere, but in a large portion of
16:06
Speaker 2: that city you can use one. I've used it on
16:10
Speaker 2: three or four occasions, and my general conclusion was really
16:13
Speaker 2: cool because it's a new technology and you get to
16:16
Speaker 2: sit in the back seat and there's literally no driver there,
16:18
Speaker 2: and it's just a neat, weird experience. But I can
16:24
Speaker 2: honestly say it's not better than or cheaper than calling
16:28
Speaker 2: an uber one. Your areas are limited where you can
16:32
Speaker 2: go into. They don't go on highways, they drive pretty slowly,
16:38
Speaker 2: and so and the price differential isn't really there either.
16:42
Speaker 2: You are still paying a pretty hefty price for one
16:44
Speaker 2: of these autonomous vehicles. And so what you're accepting by
16:47
Speaker 2: you know, driving a Weima which is not Tesla, maybe
16:49
Speaker 2: they have a completely different idea.
16:50
Speaker 3: Of all this is really cool product to be in.
16:54
Speaker 2: I don't need to, you know, be hassled by a
16:57
Speaker 2: driver that I'm worried about, but I'm need to be
17:00
Speaker 2: willing to accept about an extra ten minutes of drive time.
17:02
Speaker 2: And yeah, there's no pressure to tip the driver because
17:05
Speaker 2: there's no drive.
17:05
Speaker 4: Okay, So if it's not cheaper and one cab can
17:08
Speaker 4: still only drop off one pert, you could take you
17:10
Speaker 4: could you could ride share yep, but it's it's still
17:12
Speaker 4: not really scalable. I mean, only so many human beings
17:15
Speaker 4: can fit in a cab, and a cab can therefore
17:17
Speaker 4: only transport so many fares at once. If it's not cheaper,
17:21
Speaker 4: then this technology will not by definition, it won't revolutionize anything,
17:25
Speaker 4: even that sector potentially good.
17:28
Speaker 2: I think Tesla's dream of this and what they've what
17:31
Speaker 2: they've thrown out there is Look, you're gonna buy a
17:35
Speaker 2: fleet of these things as an individual and run your
17:38
Speaker 2: own business or of a taxi, or as just an
17:41
Speaker 2: individual owner of a Tesla, you will be able to
17:45
Speaker 2: rent it out onto a fleet of self driving cars.
17:48
Speaker 2: So imagine for a moment here that you do Mark
17:50
Speaker 2: Fandetti drive out to Needa, Massachusetts, and then you say, okay, Tesla,
17:54
Speaker 2: now go, you know, make me some money as a taxi.
17:57
Speaker 5: Sir, until you need it.
17:59
Speaker 4: Pardon me, but to Oh, your kids sick, come pick
18:01
Speaker 4: them up, or somebody had to be admitted to the hospital.
18:03
Speaker 4: Where's my car? Oh, it's in Dover. That's then I
18:06
Speaker 4: got to use your then i'm and your car is affair.
18:09
Speaker 5: Yeah, would you do that? Would you? Would you do
18:12
Speaker 5: that during the day, No, I would not.
18:13
Speaker 4: We can't in the business we're in. In our day
18:15
Speaker 4: jobs here, you need to drive to other offices.
18:17
Speaker 2: Sure, but even you know, even if I had that
18:20
Speaker 2: commuter job into downtown Boston, I'm not sure that Americans
18:24
Speaker 2: are really okay with that idea.
18:25
Speaker 4: The whole point of a car is optionality. It's there
18:28
Speaker 4: when I nine out of ninety nine, nine hundred ninety
18:32
Speaker 4: nine out of a thousand days, I don't need it unexpectedly,
18:35
Speaker 4: but when I do, boy, it's so there's an insurance
18:38
Speaker 4: optionalities of finance person's way of saying, there's an insurance
18:41
Speaker 4: element to owning a car. They sit in my garage
18:43
Speaker 4: for a week, but and.
18:44
Speaker 5: Frankly here when I need it.
18:46
Speaker 2: I would suspect that we're a good decade away from
18:50
Speaker 2: that idea actually being possible of you know, a lot
18:53
Speaker 2: of people being able to drive to work in the
18:55
Speaker 2: morning and then just send their car out as a
18:58
Speaker 2: self driving taxi for the day and actually have it
19:01
Speaker 2: make a meaningful amount of money to be worked.
19:03
Speaker 4: I don't know if you're not there, and then you know,
19:05
Speaker 4: the guy went to Taco Bell for lunch, and then
19:07
Speaker 4: I gotta sit in it later.
19:08
Speaker 5: I mean, think about all of these things.
19:10
Speaker 2: Yeah, I think there are some very serious We all
19:14
Speaker 2: love Taco Bell here.
19:14
Speaker 3: I'm not about the Yeah you mentioned Frien Tesla, not.
19:18
Speaker 5: Taco No, God forbid. Now we love Taco.
19:20
Speaker 3: Let's take a quick break.
19:21
Speaker 2: When we come back, we're going to have a full
19:23
Speaker 2: market recap coming up next with Wall Street.
19:25
Speaker 5: Watch.
19:41
Speaker 1: Like us on Facebook and follow us on Twitter at
19:43
Speaker 1: TFFE show. Breaking business news is always first right here
19:48
Speaker 1: on the Financial Exchange Radio Network. Time now for Wall Street.
19:54
Speaker 1: Watch a complete look at what's moving market so far
19:57
Speaker 1: today right here on the Financial Exchange Radio Network.
20:01
Speaker 6: Markets are mixed amid another batch of third quarter earnings,
20:06
Speaker 6: including from IBM and Tesla. All Street's also seeing a
20:10
Speaker 6: jump in oil prices after President Trump announced new sanctions
20:14
Speaker 6: on Russia's two biggest oil companies. Right now, the Dow
20:18
Speaker 6: is down about a tenth of a percent, or fifty
20:20
Speaker 6: four points lower. SMP five hundred is up a quarter
20:23
Speaker 6: percent higher fifteen points. NASDAK up about half a percent
20:27
Speaker 6: or one hundred and nine points. RUSS two thousand is
20:30
Speaker 6: up a quarter of a percent. Tenure Treasure reeled up
20:33
Speaker 6: two basis points at three point nine seven eight percent.
20:37
Speaker 6: In crude oil up five percent today, trading at sixty
20:41
Speaker 6: one dollars in forty one cents a barrel. Tesla falling
20:44
Speaker 6: about three percent after the ev maker posted a thirty
20:48
Speaker 6: seven percent drop in quarterly profit, citing R and D
20:51
Speaker 6: spending in lower tax credit revenue. Meanwhile, IBM stock is
20:56
Speaker 6: also dropping three percent, despite the computing company swinging to
21:00
Speaker 6: a quarterly profit in reporting higher earnings, noting that customers
21:04
Speaker 6: have shifted from experimenting with AI to using it at scale.
21:09
Speaker 6: Sticking with the tech sector, where several quantum computing stocks
21:13
Speaker 6: are seeing substantial gains after The Wall Street Journal reported
21:16
Speaker 6: that the Trump administration is in talks to acquire equity
21:19
Speaker 6: stakes in several quantum computing firms. Ion q Rerighetti Computing,
21:25
Speaker 6: and Quantum Computing are all up anywhere between ten and
21:28
Speaker 6: twelve percent. Elsewhere, American Airlines narrowed its quarterly loss, saying
21:33
Speaker 6: it expects to end the year more profitable than analysts
21:37
Speaker 6: had been forecasting. Shares are up by about three percent.
21:41
Speaker 6: Las Vegas Sands posted solid third quarter results driven by
21:44
Speaker 6: the growth of its Macau and Singapore investments, sending that
21:48
Speaker 6: stock up by twelve percent. Honeywell up by six percent
21:52
Speaker 6: after the industrial giant posted better than expected quarterly results,
21:56
Speaker 6: and Intel will report their third quarter earnings after today's
22:00
Speaker 6: closing bell. I'm Tucker Silva and that is Wall Street
22:03
Speaker 6: Watch well Mark.
22:05
Speaker 2: Something that we don't frequently report on would be foreign elections,
22:08
Speaker 2: But in three days Argentines will head to the head
22:12
Speaker 2: to the polls as the first legislative elections under Javier
22:15
Speaker 2: Malay take place, and some big questions to be answered here.
22:21
Speaker 2: This is the only reason we might consider caring about
22:26
Speaker 2: that here is because we've just loaned the Argentine government
22:29
Speaker 2: about twenty billion dollars amidst A Would you call it
22:34
Speaker 2: a run on the peso?
22:35
Speaker 5: There absolutely a currency crisis.
22:38
Speaker 2: And the United States is now involved financially. We have
22:42
Speaker 2: learned a significant amount of money, and these elections in
22:46
Speaker 2: three days could determine where that whether that run on
22:49
Speaker 2: the peso continues and we see a swing back in
22:53
Speaker 2: a direction of higher inflation and weakening pay So I
22:56
Speaker 2: think we need a little bit more context. So if
22:59
Speaker 2: you would, I mean, take a step back here. We've
23:01
Speaker 2: been talking about this now for about a month. It
23:05
Speaker 2: stemmed initially from a local election in the Buenos Aires
23:11
Speaker 2: area that surprised everyone in the Malay administration and moved
23:17
Speaker 2: in a very different direction from his politically from his
23:20
Speaker 2: economic goals over the course of the last few years.
23:23
Speaker 3: But where do we where do we sit here?
23:26
Speaker 2: And what is the significance of these upcoming elections for
23:30
Speaker 2: US investors and US taxpayers.
23:31
Speaker 4: Well, I'll answer the last question first, and then maybe
23:33
Speaker 4: we can backfill with context to make it all make sense.
23:38
Speaker 4: Argentina needs dollars to defend the paso.
23:41
Speaker 5: What does that mean?
23:42
Speaker 4: You buy and sell currencies on foreign markets, including the dollar,
23:45
Speaker 4: just like you buy and sell any other good win.
23:47
Speaker 4: Investors are on the margin, looking to buy something, they
23:52
Speaker 4: push the price up. When they're looking to sell something,
23:54
Speaker 4: they push the price down. The only way to buy
23:56
Speaker 4: another currency is with a currency, So for example, an
23:59
Speaker 4: investor may exchange dollars for or buy pesos with dollars,
24:02
Speaker 4: or vice versa. Why does Argentina need dollars? Well, the
24:07
Speaker 4: peso has been falling because investors believe that it is overvalued.
24:12
Speaker 4: It takes too many dollars to buy a peso or
24:15
Speaker 4: too few pasos to buy a dollar. Malay has been
24:18
Speaker 4: keeping the paso and he's not the first one to
24:20
Speaker 4: try to do this artificially high because that helps him
24:23
Speaker 4: bring inflation down. He's done a great job bringing inflation down.
24:26
Speaker 3: That's a bit technical.
24:27
Speaker 2: So the reason the reason keeping the paeso at a
24:31
Speaker 2: reasonable pace keeps inflation.
24:33
Speaker 3: Down is because imports are cheese.
24:35
Speaker 2: Argentina imports a bunch of stuff, right Like, if they
24:37
Speaker 2: want to buy oil, they can't try and buy it
24:39
Speaker 2: in pesos.
24:40
Speaker 3: They need to buy it in dollars.
24:42
Speaker 2: And if you have to exchange your paesos now for
24:45
Speaker 2: fewer dollars, then.
24:46
Speaker 4: Imports get more expensive by the peso when your domestic
24:49
Speaker 4: currency goes down.
24:50
Speaker 2: So and especially when you are a country like Argentina
24:52
Speaker 2: that tends to import a fair bit of stuff, you
24:57
Speaker 2: have that trouble, which is obviously Yeah, I explain all
25:00
Speaker 2: this because most of us are operating under the American context,
25:03
Speaker 2: where we are the reserve currency for the world, which.
25:05
Speaker 4: Leads we can print as many dollars as we need
25:07
Speaker 4: to do whatever we need to do.
25:08
Speaker 2: We also have a significantly more diverse economy than Argentina's,
25:14
Speaker 2: which is heavily agriculture.
25:16
Speaker 5: There's really no comparison, not really.
25:19
Speaker 4: You're right, we're blessed this because we have the exorbitant
25:22
Speaker 4: privilege is a French premiere once called it, of owning,
25:25
Speaker 4: of maintaining being custodian whatever, of the world's reserve current.
25:29
Speaker 2: It's even different from Europeans too, where very much. Okay,
25:32
Speaker 2: they might not have the world's reserve currency, but they
25:35
Speaker 2: all operate on the Euro. And once again, while Greece's
25:40
Speaker 2: economy might be heavily agricultural, they still have the benefit
25:44
Speaker 2: of all their Eurozone countries that produce a whole bunch
25:47
Speaker 2: of other things and help stabilize that currency. Argentina is
25:50
Speaker 2: in a very different place.
25:52
Speaker 4: Argentina needs dollars. I think it's the easiest way to
25:54
Speaker 4: think about this. It's because it can get hairy, and
25:59
Speaker 4: this is a this is a specialty in and of itself.
26:02
Speaker 4: So we've agreed to give them dollars.
26:04
Speaker 5: We very unusual.
26:07
Speaker 4: We did it with Mexico thirty years ago. Circumstances were
26:09
Speaker 4: different there. We could talk about why that's the case.
26:11
Speaker 4: It actually worked out, so we have in theory loaned
26:14
Speaker 4: them in the form of a swap. Swap is just
26:16
Speaker 4: like it sounds, you give me some of your currency.
26:18
Speaker 4: We gave them twenty billion dollars in exchange for twenty
26:21
Speaker 4: billion in PAESO.
26:22
Speaker 3: Let's say it's more than a theory. We did loan
26:24
Speaker 3: them the money. It's just a question.
26:26
Speaker 5: Because they may not.
26:27
Speaker 4: They may run out of dollars with which to pay
26:29
Speaker 4: us back, in which case we're out twenty billion. So
26:32
Speaker 4: that's why it's you to answered the question you started
26:35
Speaker 4: this segment with. That's why it's of interest to us
26:39
Speaker 4: the outcome of these elections if they don't go Malay's way.
26:42
Speaker 4: And this happens every several years in Argentina, Argentina elects
26:46
Speaker 4: a center right government, a more conservative government.
26:49
Speaker 5: If you like people, it's gonna be tight with which
26:51
Speaker 5: he is.
26:51
Speaker 4: Yeah, he's more Libby's, he's more libertarianish than past governments.
26:56
Speaker 4: He's been more ardent about and acting spending cuts and
27:01
Speaker 4: getting inflation under control. But this is not the first
27:03
Speaker 4: time in this century alone. It's been tried three maybe
27:05
Speaker 4: four times. You lose count. A politician comes in, a
27:09
Speaker 4: center right politician comes in, says we're going to clean
27:11
Speaker 4: up this mess. They cut spending, they try to get
27:12
Speaker 4: inflation down, but they keep the paso within a band
27:16
Speaker 4: relative to the dollar. It gets overvalued. Speculators attack it,
27:19
Speaker 4: knowing it's overvalued. They run out of dollars, They run
27:23
Speaker 4: to the IMF. When you run out of dollars, you default, effectively.
27:26
Speaker 4: If you're a foreign country, you can't print them like
27:27
Speaker 4: we can. Yep, And they need a bailout. They've had
27:30
Speaker 4: three so far this century. So what's happening here, Mike.
27:33
Speaker 4: Many experts, and again this is a specialty, so you
27:35
Speaker 4: have to be careful you read here. Most experts agree
27:38
Speaker 4: that payso is overvalued. They're gonna run out of dollars.
27:40
Speaker 4: We've seen this movie before.
27:42
Speaker 5: And the question will.
27:44
Speaker 2: Be if this election goes in the other direction, and
27:48
Speaker 2: you know the guesses are correct, that the paso once
27:51
Speaker 2: again falls apart, what does the United States do?
27:54
Speaker 4: Then we're out twenty billion, effectively double down, they'll exhaust there. No, Well,
27:59
Speaker 4: the president has already Trump has already said if the
28:02
Speaker 4: elections don't go our way, we're not gonna help them anymore,
28:04
Speaker 4: which is the exact opposite thing of what you should say.
28:06
Speaker 4: You should say we are committed to Argentine if you are,
28:08
Speaker 4: and I don't know why you would be. They absorb
28:10
Speaker 4: only a very small fraction of our exports. We don't
28:12
Speaker 4: share a border with them, so there's no risk as
28:14
Speaker 4: there was with Mexico, of a destabilized country sending a lot.
28:18
Speaker 5: Of refugees if you will, over the border.
28:21
Speaker 4: So the same rationale which applied to our bailout of
28:23
Speaker 4: Mexico thirty years ago, which again worked out for US financially,
28:26
Speaker 4: does not apply here. So I'm a little bewildered by it.
28:28
Speaker 4: I love Malay too, but I ain't gonna give him
28:30
Speaker 4: twenty billion dollars when we're making big sacrifices elsewhere. It's
28:34
Speaker 4: actually kind of nuts.
28:35
Speaker 3: He's a huge fan of his Rolling Stones covery.
28:37
Speaker 4: Like you said, he's libertarian. I mean, you gotta love it,
28:40
Speaker 4: or at least I do. So if the worst thing
28:43
Speaker 4: in the world you can do is what the press
28:44
Speaker 4: was what Trump actually did, which is to say we're
28:47
Speaker 4: walking away from this if the vote doesn't go our way,
28:49
Speaker 4: because you know, speculators know we're not going to back
28:51
Speaker 4: them up any further, so they're gonna eventually take pace,
28:55
Speaker 4: take the peso off its peg. Malay's got to devalue
28:59
Speaker 4: either way. It's just a question of is it going
29:01
Speaker 4: to be abrupt and steep or is it going to
29:03
Speaker 4: be something more orderly. We'll know more on the twenty seventh.
29:06
Speaker 2: Yeah, so Saturday elections, and we will see which direction
29:11
Speaker 2: they go and whether or not it is enough to
29:13
Speaker 2: stabilize things in Argentina and therefore stabilize the future of
29:17
Speaker 2: the American loan to the Argentinian government. Let's take a
29:21
Speaker 2: quick break when we come back, Let's talk a little
29:25
Speaker 2: bit about Rare Earth. They've been back in the news
29:28
Speaker 2: once again this year after taking a bit of a
29:30
Speaker 2: hiatus over the last few months. US and China Rare
29:34
Speaker 2: Earth conflict. That's next on the Financial Exchange.
29:36
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30:38
Speaker 2: New York Times This morning, the US struggles to break
30:41
Speaker 2: out from China's grip on rare earth. On Monday of
30:44
Speaker 2: this week, the US announced a strategic agreement with Australia
30:47
Speaker 2: to invest billions of dollars in order to develop mineral supplies.
30:52
Speaker 2: There's been other discussion of price floors for certain rare
30:56
Speaker 2: earth materials, strategic reserves of certain rare earth materials. I'm
31:02
Speaker 2: just gonna acknowledge that, you know, accomplishing something like this
31:07
Speaker 2: has a lot of challenges. We don't have a lot
31:10
Speaker 2: of expertise in mining this stuff, or a whole lot
31:14
Speaker 2: of tolerance compared to the Chinese government for the side
31:18
Speaker 2: effects of mining this stuff and the disastrous environmental repercussions
31:24
Speaker 2: of doing so. But I will also say that I'm not.
31:28
Speaker 3: Sure it's reasonable to judge our success or failure at
31:34
Speaker 3: breaking away from China's rare earths in a course of
31:38
Speaker 3: like a month.
31:40
Speaker 5: Yeah, it's been a lot.
31:41
Speaker 4: Our dependence has been a long time in the making.
31:43
Speaker 4: We sold company GM sold a subsidiary right to China
31:47
Speaker 4: like fifteen years ago. That so that expertise takes time
31:51
Speaker 4: to build up.
31:52
Speaker 3: It's been since April they've been restricting this stuff.
31:55
Speaker 4: I mean, Michael, a lot of you can put part
31:57
Speaker 4: of the blame on the George W. Bush administration where
31:59
Speaker 4: approved a couple of those sales. So I guess my
32:01
Speaker 4: point is it's been a long time in the making.
32:03
Speaker 4: It is a little baffling in retrospect that nobody thought,
32:06
Speaker 4: do we Well, it's not true that nobody thought, but
32:08
Speaker 4: that the voices in favor of independence in this area
32:13
Speaker 4: given it's.
32:13
Speaker 2: Frankly, our policy towards everything trade related with China over
32:16
Speaker 2: the course of the last thirty years has been confounding.
32:20
Speaker 2: A little bit nice confounding in every way other than
32:22
Speaker 2: it's been a little bit naive.
32:23
Speaker 3: How can we make more money? Right?
32:26
Speaker 2: I mean, that's what it's really come down to, is Okay,
32:28
Speaker 2: what's the lowest cost place to produce?
32:30
Speaker 4: We treated China like any other big potential trading partner. Yeah,
32:33
Speaker 4: not as a strategic adversary because they appear to be
32:36
Speaker 4: going in the other direction. I mean, if you read
32:39
Speaker 4: stories about open engaging with trade in China on a
32:43
Speaker 4: trade basis, on the basis of trade in the mid
32:45
Speaker 4: nineties to two thousand, all the way up to twenty fifteen,
32:48
Speaker 4: the stories were about China opening, liberalizing, but coming we
32:52
Speaker 4: strike us like everybody's gonna wear blue jeans, listen to
32:55
Speaker 4: Bruce Springsteen, and eventually they'll be democratized.
32:59
Speaker 2: So things have gone, First come the blue jeans, then
33:02
Speaker 2: come the spring and then they democratically elect presidents.
33:08
Speaker 5: And then then NBA basketball.
33:10
Speaker 3: Then.
33:11
Speaker 5: I mean that was the thinking of the era.
33:13
Speaker 4: Though I mean it seems really muddled and like stupid now, but.
33:17
Speaker 2: So, I mean that is my only commentary is that
33:20
Speaker 2: doing this is gonna be extremely complex. I think that
33:23
Speaker 2: we are now committed to doing so, and it is
33:25
Speaker 2: going to be probably very unprofitable because my guess is
33:30
Speaker 2: that the Chinese at some point we'll look at the
33:32
Speaker 2: threat of a domestic US and Australian partnership on rare earth.
33:37
Speaker 2: Presumably there's some of these things in Canada that will
33:39
Speaker 2: get out of the ground Greenland. You know, all of
33:43
Speaker 2: these nations are going to be pushing hard to produce
33:45
Speaker 2: this stuff, but it's not going to happen in six months.
33:49
Speaker 2: And that's really the timeline that we're looking at here,
33:51
Speaker 2: because the latest announcements on rare earth's restrictions were done
33:55
Speaker 2: in April of this year, after the US proposed uh
34:00
Speaker 2: trade tariffs on China, and so any sort of judgment
34:04
Speaker 2: I can pass on this at the stage is way
34:06
Speaker 2: too early, entirely way too early. But I do think
34:10
Speaker 2: looking at this as, oh, yeah, this is going to
34:12
Speaker 2: be a real profitable industry in the future, I have
34:15
Speaker 2: some serious doubts.
34:16
Speaker 3: About that, because.
34:18
Speaker 2: It's going to If it's going to be profitable, it's
34:20
Speaker 2: going to be profitable because the United States will set
34:22
Speaker 2: a price floor on it and basically subsidize the hell
34:24
Speaker 2: out of it.
34:25
Speaker 4: Go ahead, this should be one of those areas where
34:28
Speaker 4: there is or ought to be tremendous bipartisan support from
34:33
Speaker 4: Manhattan Project like initiative. I mean something broaden scale, clear, objective.
34:39
Speaker 3: Yeah, god god, it reminds me of the Chips Act.
34:42
Speaker 5: From something like that. Look, we didn't like it.
34:45
Speaker 4: I didn't like it because if not, why micro chips
34:48
Speaker 4: and not potato chips?
34:49
Speaker 5: And why?
34:49
Speaker 4: You know, what is that actually essential here? But it
34:51
Speaker 4: would be nice to have a coherent the administration. I
34:54
Speaker 4: guess it has been pretty consistent, but I've not since
34:56
Speaker 4: a coherent framework for isolating China. If that's what we
35:00
Speaker 4: need to explain to the American people, why and then
35:03
Speaker 4: investing billions, maybe trillions of dollars in our own capacity,
35:06
Speaker 4: explaining that the threat is existential. If we do not
35:09
Speaker 4: do this will be at such a severe disadvantage in
35:12
Speaker 4: terms of weapons technology in fifteen years that will effectively
35:15
Speaker 4: be a sitting duck. That is an unacceptable risk. Any
35:18
Speaker 4: investment is worth it, no matter how modest the payoff,
35:22
Speaker 4: it's going to be positive, no matter how seeming, how
35:25
Speaker 4: modest the positive, how modest the margin, It's either we
35:28
Speaker 4: exist or we don't make that case to the American people.
35:31
Speaker 4: Both parties should be able to get behind it, so
35:33
Speaker 4: I'm not sensing that urgency which is disappointing. You can
35:37
Speaker 4: make the same case, by the way, with nuclear power.
35:39
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Speaker 2: I discovered the biggest surprise I think so far in
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37:16
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Speaker 2: who asked me about Beyond Meat and we were talking
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Speaker 2: seems that once again we are getting swept into memestock
37:58
Speaker 2: mania like we did a few years ago in twenty
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Speaker 2: twenty one. And all I will say about it is
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Speaker 2: buyer beware, exercise some extreme caution and know what you're
38:06
Speaker 2: doing before you jump into any of these games that
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Speaker 2: have nothing to do with the businesses themselves.
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Speaker 3: Quick Break.
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Speaker 2: A lot more to cover in the second hour the
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Speaker 2: financial Exchange. We'll be right back