Latest / The Financial Exchange Show / Oil Shock, Supply Chains & Five Straight Down Weeks

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Oil Shock, Supply Chains & Five Straight Down Weeks · The Financial Exchange Show

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Speaker 1: a donation today. This is the Financial Exchange with Chuck
1:06
Speaker 1: Zada and Mike Armstraw, Chuck.
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Speaker 2: Mike and Tucker with you here kicking off what is
1:13
Speaker 2: going to be a busy shortened week of trading. In
1:18
Speaker 2: terms of what is scheduled this week. As far as
1:22
Speaker 2: data releases, Tuesday, we're pretty jammed up. We got the
1:27
Speaker 2: SMPK show our Home Price Index, we got the FHFA
1:30
Speaker 2: Housing Price Index. We got the job openings in Labor
1:33
Speaker 2: Turnover Survey or the JOLTS report. Coming out Wednesday, We're
1:37
Speaker 2: going to be getting the ADP Employment Report and retail
1:41
Speaker 2: sales as well as the ISM manufacturing Thursday, just one
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Speaker 2: big item for the day. We get weekly jobless claims,
1:49
Speaker 2: and then on Friday, when the stock market's going to
1:51
Speaker 2: be closed, in observance of Good Friday, we do still
1:54
Speaker 2: get a Friday jobs report, So that is we get
1:58
Speaker 2: those occasionally. This is one of those years where we will,
2:01
Speaker 2: and so it's kind of like, what do you do
2:05
Speaker 2: with that on Thursday? And does that really even matter
2:10
Speaker 2: in the context of what's going on in the Middle East.
2:14
Speaker 2: I'll make the case, yes it does, but not the
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Speaker 2: way you think it does, and we'll discuss that as
2:19
Speaker 2: we go.
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Speaker 3: Good Friday is a weird one where market stock markets closed,
2:23
Speaker 3: bond markets partially open, but even banks are open on
2:28
Speaker 3: it's not a federal bank holiday, so it is a
2:30
Speaker 3: stock market holiday but not a bank holiday.
2:31
Speaker 4: We don't get a lot of those, No, So.
2:33
Speaker 2: A lot of times you have the opposite where like
2:35
Speaker 2: you have I forget which one it is where the
2:37
Speaker 2: bond market metrosday or the stock markets open, but the
2:41
Speaker 2: bond market's closed and banks are closed. Yeah, yeahs So
2:45
Speaker 2: you get the why can't they all just agree on
2:47
Speaker 2: stuff like pick the days when you're going to allow
2:50
Speaker 2: money to be you know, exchanged, and pick the days
2:54
Speaker 2: where you're gonna say no, like don't be like, well
2:57
Speaker 2: we'll have you know this and that. But either way,
2:59
Speaker 2: I digress.
3:00
Speaker 4: This is an interesting week.
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Speaker 3: As you mentioned, this is the first real week since
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Speaker 3: the outbreak of war that we will be getting any
3:07
Speaker 3: real read on the economy since.
3:09
Speaker 4: The outbreak of the war.
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Speaker 3: Right, the jobs report measures jobs in March, the ism
3:13
Speaker 3: manufacturing measures industrial surveys in March.
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Speaker 2: We have the retail sales report does not does not.
3:21
Speaker 2: We're still a month behind there, but we're getting closer.
3:25
Speaker 2: I do believe that the retail sales data for March
3:27
Speaker 2: will be out sometime in mid to late April, so
3:31
Speaker 2: we're starting to get caught up on some of this.
3:33
Speaker 3: And then consumer sentiment measures March as well. So three
3:37
Speaker 3: data points that I think are relatively relevant. We can
3:41
Speaker 3: talk about.
3:41
Speaker 2: How is consumer sentiment this week? I thought, so, I'm
3:45
Speaker 2: showing Friday, April tenth, but your mileage may vary. Mike's
3:54
Speaker 2: been to the future, guys, and let me tell you
3:58
Speaker 2: it's awesome. Yeah, yeah, what.
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Speaker 3: No, sorry, consumer confidence is out at on Tuesday, not sentiment.
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Speaker 4: My apologies.
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Speaker 3: So consumer confidence at ten am, I don't know, on Tuesday,
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Speaker 3: so that was close. There was something that indicated how
4:14
Speaker 3: confident or sentimentally consumer was feeling.
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Speaker 2: Isn't confidence a type of sentiment? It is? Yeah, So
4:21
Speaker 2: you're not wrong, right, You're just well.
4:24
Speaker 4: I'm wrong.
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Speaker 3: No, I don't know unless you want to stretch your man.
4:28
Speaker 3: Not as precise as you should have been. In any case,
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Speaker 3: the news, all of this is all well and good,
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Speaker 3: quite honestly. The future data will depend on what's going
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Speaker 3: on in the Middle East, and so as we sit
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Speaker 3: here today, the status quo is the same. We are
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Speaker 3: seeing very very few transits through the straight of horror
4:49
Speaker 3: moves and as such, until that is resolved, it's kind
4:56
Speaker 3: of impossible to see any type of sustained upside in
5:02
Speaker 3: risk markets.
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Speaker 2: Agreed, you know, it's you might get a relief day
5:06
Speaker 2: or two. I'm not saying that that doesn't happen. We
5:08
Speaker 2: had when last Monday as an example, on the back
5:11
Speaker 2: of some optimistic social media posts from the President. But ultimately,
5:16
Speaker 2: until things start flowing at a normal capacity, you do
5:21
Speaker 2: not have the potential for a sustained rally because we're
5:25
Speaker 2: now getting to the point where you're starting to have
5:29
Speaker 2: the acute physical shortages hitting over the next week or
5:34
Speaker 2: two in various parts of the world. And it's not
5:39
Speaker 2: an exact analog because it obviously was a very different situation.
5:44
Speaker 2: But just like back in twenty twenty, we kind of
5:46
Speaker 2: saw this wave of you know, the pandemic moving from
5:50
Speaker 2: east to west across the globe, It's going to be
5:54
Speaker 2: the same thing when it comes to energy. So ultimately,
5:59
Speaker 2: when you look at Southeast Asia, you're going to have
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Speaker 2: most deliveries of oil and other resources from the Middle
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Speaker 2: East stopping this week because the ships that have already
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Speaker 2: left are are going to be exhausted. There aren't going
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Speaker 2: to be any more transits that have exited in any
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Speaker 2: meaningful capacity. I know that there's like two ships a
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Speaker 2: day that are going through. Actually, in the last few
6:26
Speaker 2: days we did have a little bit of an uptick
6:28
Speaker 2: up to around ten. The vast majority of those were
6:31
Speaker 2: inbound grain shipments to Iran that Iran was allowing through
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Speaker 2: so that they could feed their population and things like that.
6:39
Speaker 2: There were only two exits of any kind of petrochemical,
6:45
Speaker 2: not even petrochemical like petroleum product shipments going out, So
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Speaker 2: there's just no flow. So basically, what you have Southeast
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Speaker 2: Asia this week, you're going to have them scrambling saying, Okay,
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Speaker 2: where are we going to get the stuff next week?
7:01
Speaker 2: You end up with that situation occurring in Europe just
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Speaker 2: because it takes longer to get ships from the Strait
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Speaker 2: of Hormones to Europe than it does to Southeast Asia.
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Speaker 2: The week after Australia and New Zealand is where you
7:14
Speaker 2: run into problems. Africa has been running into problems already
7:18
Speaker 2: because quite honestly, they cannot pay the high prices that
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Speaker 2: everyone else can, and so ships are being rerouted from
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Speaker 2: Africa to these other markets. As it is so ultimately
7:29
Speaker 2: it's something where these shortages are going to start popping
7:32
Speaker 2: up over the next week or two. And even if
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Speaker 2: you get things resolved immediately today, there still is going
7:40
Speaker 2: to be a delay in getting you know, that resumption there.
7:43
Speaker 2: And this is before you even get to the fact
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Speaker 2: that we have ten million barrels a day of production offline,
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Speaker 2: so not even talking about shipping. This stuff's just not
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Speaker 2: being produced. And so as it sits right now, we're
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Speaker 2: short about three hundred and fifty million barrels of production.
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Speaker 2: And the most optimist estimates that I've seen are, at
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Speaker 2: this point you get out of this with maybe a
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Speaker 2: five hundred to six hundred million barrel gap that you
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Speaker 2: have to figure out how to bridge. The most pessimistic
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Speaker 2: ones are Look, if this continues indefinitely, it's another three
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Speaker 2: hundred million barrels a month that you are building up.
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Speaker 2: As far as that gap, you have the ability in
8:25
Speaker 2: theory to like, you know, maybe patch things together for
8:30
Speaker 2: another month or so using strategic petroleum reserves. Once you
8:36
Speaker 2: get past that, things get pretty dodgy. If this is
8:38
Speaker 2: still the status quo, I mean like things are already
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Speaker 2: like things are already going to be very gnarly, and
8:45
Speaker 2: I don't think we realize it because of how good
8:47
Speaker 2: the energy situation is in the US. Sure, but if
8:49
Speaker 2: you're sitting here, I've laid down the Sinco Demio line
8:53
Speaker 2: since the beginning, and if you are still in this situation,
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Speaker 2: then you're quite honestly talking about a world that can't
9:03
Speaker 2: function the way that it used to because of the
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Speaker 2: severity of the economic damage from the lack of oil
9:11
Speaker 2: and refined products that you can get to where it
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Speaker 2: needs to go.
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Speaker 3: The final piece that I think makes this week particularly
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Speaker 3: worth paying attention to is the arrival of that Marine
9:22
Speaker 3: Expeditionary unit into the into the Middle East. Yeah, right,
9:27
Speaker 3: Like you know, to this point, the optionality for the
9:30
Speaker 3: White House in terms of what actions to take has
9:34
Speaker 3: been to a degree limited. And you know, the Marine
9:39
Speaker 3: Expeditionary units are referred to as that Swiss army knife
9:41
Speaker 3: of the US military, and so there's a number of
9:44
Speaker 3: different options that the President is now likely weighing given
9:48
Speaker 3: its arrival. And it doesn't mean anything will happen, but
9:51
Speaker 3: it just opens up the potential scenarios that could be
9:55
Speaker 3: occurring this week in the Middle East.
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Speaker 2: Yes, you've got them. That Marine exp diditionary units there.
10:01
Speaker 2: The eighty second Airborne is also they've been in the
10:05
Speaker 2: Middle East recently as well. And then you also have
10:09
Speaker 2: another marine expeditionary unit that is coming from the West Coast.
10:15
Speaker 2: They reportedly, I believe, over the weekend stopped at Pearl
10:20
Speaker 2: Harbor to refuel and are still two to three weeks
10:24
Speaker 2: out on their journey. So again you try to put
10:28
Speaker 2: together a timeline of you know, when can you actually
10:31
Speaker 2: get things moving in any meaningful fashion, And you keep
10:37
Speaker 2: coming in every Monday saying, well, maybe this will be
10:39
Speaker 2: the week that things get better, and it just hasn't yet.
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Speaker 2: It's just the case where we're still not seeing that
10:45
Speaker 2: kind of movement, and it's being reflected across different markets.
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Speaker 2: It's being reflected in oil prices which have continued to
10:52
Speaker 2: move up, equity prices which have continued to move down,
10:54
Speaker 2: bond prices which have moved down. And so it's a
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Speaker 2: pretty dodgy market and some real global economic questions that
11:05
Speaker 2: are out there at this point clarify one thing.
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Speaker 3: Markets this morning up slightly, NAZAC barely holding onto gains,
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Speaker 3: SMP up about a fifth percent, Dow up about a third.
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Speaker 3: Both the Dow and Nasdaq last Friday closed in correction territory,
11:20
Speaker 3: meaning a ten percent drop off their recent highs. So
11:23
Speaker 3: seeing a bit of a rebound off of those lows,
11:26
Speaker 3: but generally speaking, yeah, the trajectory for several weeks. Have
11:30
Speaker 3: we had a upward week in market since the outbreak
11:34
Speaker 3: of the war.
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Speaker 4: I don't believe we have.
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Speaker 2: Let me take a look. No, I don't think we have.
11:38
Speaker 2: I'm just curious when the last up week actually was.
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Speaker 2: Give me just a second to get my chart adjusted here,
11:43
Speaker 2: I could have asked one, two, three, four, five. We've
11:46
Speaker 2: actually had five negative weeks in a row. Even the
11:49
Speaker 2: the one prior to the outbreak of the war was
11:53
Speaker 2: negative as well. So we're we're five weeks now of
11:57
Speaker 2: negative movement in markets. Here. Let's take a quick break.
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Speaker 2: When we come back. We've talked a lot about oil.
12:04
Speaker 2: We'll talk about some of the other markets that are
12:06
Speaker 2: being rattled by the hormones blockage right after this.
12:10
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12:52
Speaker 2: Here's the Wall Street Journal. The other market's being rattled
12:55
Speaker 2: by the blockage of hormones. We've been talking about this
12:57
Speaker 2: since the beginning, and that most people think of the
12:59
Speaker 2: Middle They're like, oh, oil and gas flow through there,
13:02
Speaker 2: and it's true they do. We're not going to say
13:05
Speaker 2: anything to the contrary, agreed, even though right now there's
13:08
Speaker 2: not much flowing through there.
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Speaker 3: Yeah, the other stuff that flows through that area tends
13:13
Speaker 3: to be any number of other goods that are very
13:16
Speaker 3: energy intensive.
13:18
Speaker 2: Fertilizer big one. Usually it's a byproduct of a lot
13:21
Speaker 2: of the refining and stuff that gets done there. Aluminum
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Speaker 2: not a product of the refining, but rather, Hey, if
13:27
Speaker 2: you've got really cheap electricity in the Middle East, sure
13:31
Speaker 2: you'll send over the raw aluminum or there, smelt it
13:34
Speaker 2: into the refined aluminum, and then send it to wherever
13:37
Speaker 2: it needs to go in order to be made into
13:41
Speaker 2: whatever it is, cars, aluminum cans.
13:44
Speaker 3: It's a lot easier to ship aluminum than it is
13:46
Speaker 3: to liquefy a bunch of natural gas, put it on
13:49
Speaker 3: a boat and ship that somewhere else to have it.
13:51
Speaker 2: Yes, that other things that come through the Straight in
13:53
Speaker 2: meaningful quantities. Helium. We send a lot of balloons through
13:57
Speaker 2: the Straight of Hormuz each year. It's actually kind of
13:59
Speaker 2: a question why do you ship Quite honestly, hear me out,
14:04
Speaker 2: why do you ship the helium on ships and not
14:07
Speaker 2: just giant blimps like deflate them when they get where
14:11
Speaker 2: they're going.
14:12
Speaker 4: Germans tried something similar.
14:13
Speaker 2: No, they tried it with hydrogen, which was admittedly bad. Yeah,
14:18
Speaker 2: but helium, Why don't you just why that? Which part
14:22
Speaker 2: why they tried hydrogen in part because it was really
14:25
Speaker 2: abundant and.
14:26
Speaker 3: The US actually blocked exports of of I believe it
14:29
Speaker 3: was helium. If we were using helium back then to
14:32
Speaker 3: Germany at the up, you know, at the outbreak of
14:35
Speaker 3: one of the wars. I think so that that wasn't
14:38
Speaker 3: their first choice, is what I understand.
14:40
Speaker 2: Yeah, generally you would prefer to avoid it, but it
14:43
Speaker 2: is what it is. In any case, I don't understand
14:45
Speaker 2: why you don't just fill a blimp with the helium
14:47
Speaker 2: send it where you're going, deflate it, and then you
14:49
Speaker 2: can send the blimp back on a ship like just
14:52
Speaker 2: you know, roll it up or whatever you gotta do
14:54
Speaker 2: and call it a day.
14:56
Speaker 4: But I don't know.
14:57
Speaker 2: They don't do that, probably because they actually know what
14:59
Speaker 2: they're doing, and I don't.
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Speaker 4: The helium active nineteen twenty five banned.
15:02
Speaker 3: The export, and look where we are now, and we
15:05
Speaker 3: had a monopoly on it back in the day.
15:07
Speaker 2: Look where we are now. So these are all other
15:10
Speaker 2: commodities that get shipped back and forth. And the problem
15:13
Speaker 2: is not just that they're not being shipped, but also
15:16
Speaker 2: the UAE has some of the biggest aluminum plants on
15:20
Speaker 2: the planet. Two of those were attacked over the weekend
15:24
Speaker 2: in response to attacks in Iran. And where I continue
15:28
Speaker 2: to go with this is, Guys, even when transit eventually
15:32
Speaker 2: opens up back up in whatever form it may be,
15:36
Speaker 2: the facilities that are damaged are not just spooling right
15:39
Speaker 2: back up to one hundred percent capacity right away. A
15:42
Speaker 2: lot of these things have been damaged. Whether you're talking
15:44
Speaker 2: about energy facilities, aluminum smelters, you can go down the list.
15:49
Speaker 2: A lot of this stuff is not just in normal
15:51
Speaker 2: working order. Some of it probably can be repaired within
15:55
Speaker 2: a matter of weeks to months. Other stuff like the
15:57
Speaker 2: LNG plant that was damaged in Qatar, the chatter out
16:02
Speaker 2: of Katars is going to take three to five years
16:04
Speaker 2: to get it back up to normal speed.
16:06
Speaker 3: There are so many relevant questions about that. It's becoming
16:09
Speaker 3: more and more clear that there will be shortages of
16:13
Speaker 3: different items for an unknown period of time. And again,
16:18
Speaker 3: it's very clear that you'll have shortages, but if the
16:22
Speaker 3: Straight reopens permanently, they'll be relatively minor. But you can
16:25
Speaker 3: even imagine a scenario chuck like again, I'm making the
16:29
Speaker 3: comparison to COVID, where Okay, the Straight reopens and then
16:32
Speaker 3: oh a bunch of ships get struck by Iran, it
16:35
Speaker 3: has to close again. We you know, we have this
16:37
Speaker 3: on again, off again type of scenario. So you have
16:41
Speaker 3: these very possible supply chain issues that we domestically are
16:45
Speaker 3: not yet feeling, but you know, eventually we will start
16:48
Speaker 3: to the Other piece that is extraordinarily relevant and unknown
16:52
Speaker 3: at this time is how do governments across the globe
16:55
Speaker 3: react to a supply chain shortage the likes of which
16:58
Speaker 3: we haven't seen since COVID, Which is kind of my
17:00
Speaker 3: guess of where things are looking right now. Not to
17:03
Speaker 3: say it will be as bad as the supply chain
17:05
Speaker 3: shortage of COVID, I suspect it won't. But you know,
17:09
Speaker 3: that's the last time we've seen anything to this scale
17:11
Speaker 3: because the reason that's relevant it is a massive contributor
17:15
Speaker 3: to inflation. So let me give you an example. In Singapore.
17:19
Speaker 3: I think you said they started fuel rationing right Pakistan too,
17:23
Speaker 3: so that was run reaction is, hey, we're going to
17:25
Speaker 3: try and start limiting demand for this stuff artificially by
17:29
Speaker 3: you know, letting people, not forcing people to not buy fuel.
17:33
Speaker 3: Australia has gone a completely different route. They just cut
17:36
Speaker 3: their gas tax overnight. So in Australia's case, they're saying, hey,
17:40
Speaker 3: we are going to artificially bring down the price rather
17:44
Speaker 3: than which is, by the way, going to do one
17:46
Speaker 3: thing increase demand for gas all else equal. It's not
17:49
Speaker 3: terribly elastic type of thing. But you know, if you're
17:52
Speaker 3: worried about shortages and they just cut the gas tax,
17:55
Speaker 3: you might fill up the truck a little bit more often.
17:58
Speaker 3: And so all of these things combination, probably most importantly,
18:01
Speaker 3: what the United States does if we start feeling supply
18:04
Speaker 3: chain shortages will contribute to what the next five years
18:07
Speaker 3: look like in terms of inflation, employment, all the whole
18:10
Speaker 3: slew of things, and why I think this is such
18:14
Speaker 3: an incredibly complicated environment to deal with and partly why
18:19
Speaker 3: investors don't seem to know what to do with it. No,
18:22
Speaker 3: because there's so many different possible routes that this goes down.
18:26
Speaker 3: But I want to focus on that for a moment,
18:28
Speaker 3: that it's not just US policy that matters here.
18:31
Speaker 2: No, you can make a case that US policy is
18:35
Speaker 2: not going to be a driving force in resolving any
18:41
Speaker 2: of these issues over the next one to two years,
18:43
Speaker 2: because we're not. We are going to feel the pain
18:46
Speaker 2: like three places removed from where it's actually happening. Yeah,
18:53
Speaker 2: at least based on what we know now. I mean,
18:55
Speaker 2: this can obviously change, but we'll see how things develop there.
19:00
Speaker 2: Let's take a quick break here when we return, a
19:04
Speaker 2: couple pieces that I want to touch on. First, this
19:06
Speaker 2: piece in the Wall Street Journal. Three reasons the stock
19:09
Speaker 2: market can endure the war. Second one battered by stock
19:12
Speaker 2: losses investors find little relief in bonds. We'll talk about
19:16
Speaker 2: both of those when we come back, because I think
19:19
Speaker 2: it gets to the question that investors are all asking
19:22
Speaker 2: right now, which is where do I go while this
19:25
Speaker 2: is going on? And what do things look like once
19:27
Speaker 2: it stops going on? We'll discuss when we return.
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19:57
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20:01
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20:01
Speaker 5: Market's trading modesty hired to begin the week after President
20:04
Speaker 5: Trump took to social media this morning saying the US
20:07
Speaker 5: is in serious discussions to end the operation in Iran.
20:11
Speaker 5: Trump also renewed his threat on Iran's energy sites if
20:15
Speaker 5: the Strait of Hormuz is not immediately reopened. Right now,
20:20
Speaker 5: the Dow is up over half a percent, or two
20:22
Speaker 5: hundred and thirty nine points, SMP five hundred up nearly
20:26
Speaker 5: a quarter percent, NASDAK is mostly flat, edging higher, Rusted
20:29
Speaker 5: two thousand down four tenths of a percent, ten year
20:32
Speaker 5: Treasure reeled down nine basis points at four point three
20:35
Speaker 5: four eight percent, and Oil up two percent higher today,
20:40
Speaker 5: trading right around one hundred and one dollars a barrel
20:43
Speaker 5: aluminum company ALCS stock jumping over ten percent, fallowing reports
20:47
Speaker 5: of our Ranian attacks of critical infrastructure for metal in
20:51
Speaker 5: the Middle East, with traders betting Alcoa could potentially benefit
20:55
Speaker 5: from the supplied disruptions. Meanwhile, shares in wholesale food distributor
21:01
Speaker 5: Cisco tumbling twelve percent after the company agreed to buy
21:05
Speaker 5: Jetro restaurant depot and a deal valued at about twenty
21:09
Speaker 5: nine billion dollars expected to close in Cisco's twenty twenty
21:13
Speaker 5: seven fiscal third quarter, and CrowdStrike rising four percent after
21:18
Speaker 5: the security company was upgraded by Wolf Research to outperform,
21:23
Speaker 5: saying you will benefit from increased cyber risk from AI
21:27
Speaker 5: rather than have its business model disrupted by the technology.
21:32
Speaker 5: I'm Tucker Silvan. That is Wall Street.
21:34
Speaker 2: Watch, Mike. So we got two interesting pieces that I'm
21:39
Speaker 2: glad Tucker popped in the stack this morning. Let's start
21:41
Speaker 2: with this first one, the three reasons the stock market
21:44
Speaker 2: can endure the war. And here are the three that
21:48
Speaker 2: are laid out here. I'll put them right off the bat,
21:50
Speaker 2: and then we can discuss the merits. The first is
21:53
Speaker 2: historically I'll quote here the average drop across thirty major
21:58
Speaker 2: geopolitical events since nineteen thirty nine was just four percent
22:01
Speaker 2: in US stocks, according to Deutsche Bank, and the rebound
22:05
Speaker 2: was quick. So Deutsche Bank making the argument that a
22:06
Speaker 2: lot of people have made, which is war is not
22:10
Speaker 2: necessarily bad for US equities.
22:12
Speaker 4: Okay.
22:13
Speaker 2: Number two earnings forecasts forecast for company earnings at the
22:17
Speaker 2: S and P five hundred over the next twelve months
22:19
Speaker 2: have gone up since the first attacks in Iran, with
22:22
Speaker 2: Wall Street's expectations for earnings per share now up three
22:25
Speaker 2: point six percent, the fastest over such a short period
22:28
Speaker 2: in five years. So earnings expectations are still going up.
22:33
Speaker 2: The third one, AI optimism. Hopes for the AI boom
22:37
Speaker 2: continue to support the market, with investors betting that the
22:39
Speaker 2: money will keep pouring into data centers needing. That word
22:44
Speaker 2: doesn't make sense. It says shed loads of new microchips.
22:47
Speaker 2: But I don't know what that typo is. But it's
22:53
Speaker 2: not shed is not a term of quantity. No, So
22:59
Speaker 2: it's like a shed your back here, you know.
23:01
Speaker 3: It sounds like they're trying to say something else. There's
23:04
Speaker 3: lots of different sheds. In any case, here's the deal
23:09
Speaker 3: of these The only one that to me is persuasive
23:15
Speaker 3: in any way, shape or form. Is the first in
23:18
Speaker 3: that historically global conflicts have not been bad for US equities, So.
23:22
Speaker 4: Why haven't they been bad?
23:24
Speaker 2: And this is where and this is where you start
23:26
Speaker 2: to poke some holes in it. They generally have not
23:28
Speaker 2: been bad because the US, by virtue of its position
23:32
Speaker 2: in the world, like its physical position, A has access
23:35
Speaker 2: to all kinds of natural resources, b has oceans surrounding
23:39
Speaker 2: it that prevent any kind of bombing campaign of any
23:43
Speaker 2: kind of the industrial base, and so the US economy
23:46
Speaker 2: generally is pretty well insulated during any conflict from the
23:51
Speaker 2: impacts you do see on the termination of conflicts. You've
23:55
Speaker 2: had problems in a number of different instances coming out
23:58
Speaker 2: of World War two, the Vietnam War, like, you had
24:00
Speaker 2: real problems there for very different reasons. But the actual time,
24:05
Speaker 2: during a conflict, the US industrial base is typically not
24:08
Speaker 2: impacted in any way, shape or form.
24:10
Speaker 3: Yeah, And when you combine it with what's usually a
24:12
Speaker 3: big fiscal expansion to afford the war without a corresponding
24:16
Speaker 3: increase in tax rates, generally you can kind of paint
24:20
Speaker 3: a picture for how you move your way out of
24:22
Speaker 3: these things.
24:23
Speaker 2: Counterpoint, this time, the US even though it still is
24:26
Speaker 2: the major industrial power in the world. People always forget that.
24:29
Speaker 2: They're like, oh, like so and so's are you know,
24:31
Speaker 2: the US still is the biggest manufacturer in the world,
24:35
Speaker 2: like by dollar volume, like it just is so even
24:39
Speaker 2: though we still are in that position. Manufacturing is not
24:44
Speaker 2: what it used to be. The industrial base of the
24:46
Speaker 2: US is not as important to the economy as it
24:49
Speaker 2: used to be. We're more of a services and transaction
24:52
Speaker 2: based economy now, and a lot of the stuff that
24:54
Speaker 2: we like to buy is made overseas, and a lot
24:57
Speaker 2: of that stuff is going to have its price and
24:59
Speaker 2: avai ability impacted by these supply disruptions. So that's the
25:04
Speaker 2: counter to it. But again I'm willing to kind of
25:07
Speaker 2: be open on this because his it does matter. The
25:13
Speaker 2: other two I think are pure poppy cock for two reasons.
25:17
Speaker 2: The first, when it comes to earnings forecasts, markets typically
25:20
Speaker 2: bottom when earning's forecasts start to get revised down, not
25:23
Speaker 2: when they're still moving up. True, like, you look at
25:26
Speaker 2: it in twenty twenty two, you look at it in
25:29
Speaker 2: twenty twenty, you look at it in two thousand and nine,
25:32
Speaker 2: you look at it in two thousand and one. This
25:34
Speaker 2: is what you see markets don't think. Markets don't actually
25:39
Speaker 2: have the worst being over until analysts start saying, oh,
25:43
Speaker 2: these earnings estimates are too high. We need to start
25:45
Speaker 2: bringing them down, because that's when you get remember, market's top,
25:51
Speaker 2: not when bad news happens, but when stocks stop going
25:54
Speaker 2: up from good news happening.
25:56
Speaker 4: On the third point about AI optimism, I.
25:58
Speaker 2: Was going to do the other side to it, okay,
26:00
Speaker 2: which is market's bottom, not when bad news stops, but
26:03
Speaker 2: when they stop going down on bad news. Think October
26:06
Speaker 2: of twenty twenty two. We got a scorching hot inflation report.
26:10
Speaker 2: The market tanked that day and never looked back. It
26:13
Speaker 2: rallied immediately afterwards. It might have even rallied that day.
26:17
Speaker 2: It might have been down pre market and then and
26:19
Speaker 2: then rallied like four percent that day. I can't remember exactly,
26:22
Speaker 2: but that's what we mean by Hey, when you get
26:24
Speaker 2: the bad news and the market shrugs it off, that's
26:28
Speaker 2: when you know you're, you know, starting to see some
26:30
Speaker 2: positive you know, momentum in markets. It's not Hey, we're
26:33
Speaker 2: getting good news and no, that's that's not how market's bottom. Right.
26:38
Speaker 2: The last one AI hype, I have to optimism.
26:42
Speaker 3: It's only optimistic until it's not like we've been optimistic
26:47
Speaker 3: on AI for three years? Is there any indication that
26:49
Speaker 3: that must continue through twenty twenty six? And I will also,
26:53
Speaker 3: by the way, make an argument here that the optim
26:57
Speaker 3: the AI narrative about optimism has shifted pretty considerably since
27:04
Speaker 3: sometime in summer to fall of twenty twenty five is
27:07
Speaker 3: when I think most people detected a pretty big shift
27:09
Speaker 3: in terms of what it actually means.
27:12
Speaker 2: Allow me to introduce you to a little known semiconductor
27:15
Speaker 2: company called an Invidia. Yes, yes, that's it. They are
27:20
Speaker 2: now trading at their lowest price since let me see
27:24
Speaker 2: what date this is here we go September fifth. Okay,
27:29
Speaker 2: they are officially and look, you can't really do this
27:32
Speaker 2: for a single stock. I hate to, but I'm going
27:34
Speaker 2: to anyways, because occasionally you can break your own rules.
27:38
Speaker 2: And Video is trading at one hundred and sixty seven
27:40
Speaker 2: bucks a share right now. Its peak was at two
27:43
Speaker 2: hundred and twelve bucks a share. What this means if
27:46
Speaker 2: you do the math out, it is now twenty one
27:48
Speaker 2: and a half percent off. It's all time high. If
27:51
Speaker 2: it were an index, you'd call it a bear market.
27:53
Speaker 2: So it's in bear market territory AI optimism. And by
27:57
Speaker 2: the way, that high price was hit in late October,
28:01
Speaker 2: if investors were still optimistic about AI, it would be
28:05
Speaker 2: reflected in the price of AI companies. Now I'm not
28:08
Speaker 2: saying that I'm not saying that this is like guaranteed
28:11
Speaker 2: how things are going to go. But you can't just
28:13
Speaker 2: be like AI optimism when by the way, this is
28:16
Speaker 2: not just an nvidious story. If you look at Microsoft,
28:20
Speaker 2: Microsoft stock is down oh boy, almost forty almost forty
28:25
Speaker 2: percent from its October peak. You talk about who else
28:29
Speaker 2: is big in the AI space, Let's talk about Broadcom there,
28:32
Speaker 2: They've been a big beneficiary. They are down over twenty
28:35
Speaker 2: five percent from their December peak.
28:38
Speaker 3: So now the devil's advocate view here, which is not
28:42
Speaker 3: necessarily one that I share, but those who are still
28:45
Speaker 3: very optimistic on AI would be saying, look, this is
28:50
Speaker 3: simply a reshaping of the II narrative that hey, these
28:53
Speaker 3: companies have benefited greatly, and while they'll continue to they
28:56
Speaker 3: are there going to be commoditized prices, they are going
28:59
Speaker 3: to come down, and other companies are going to outshine
29:01
Speaker 3: them for their tools that they're creating, rather than the
29:04
Speaker 3: semiconductors that go into those tools. But I'll just say
29:08
Speaker 3: it's pretty tough to have the sector lifted without the
29:13
Speaker 3: single biggest two companies out there benefiting from it.
29:16
Speaker 2: Yeah, if these guys are getting hit, it's not just
29:20
Speaker 2: the tech sector. It's tough for the S and P
29:22
Speaker 2: five hundred to move forward when, yeah, you have thirty
29:26
Speaker 2: percent of the index is tied to these companies that
29:29
Speaker 2: are so AI driven in terms of their recent performance.
29:33
Speaker 2: If they're lagging, it's it's gonna be tough, you know,
29:35
Speaker 2: tough sledding for the index. So I buy that. Hey, historically,
29:42
Speaker 2: as bad as you know war can be on a
29:44
Speaker 2: societal and personal level, it doesn't have a huge impact
29:49
Speaker 2: on the US economy, a huge negative one. I buy that.
29:52
Speaker 4: Yep.
29:53
Speaker 2: I don't buy the earning story and I don't buy
29:56
Speaker 2: the AI optimism story because neither of them are really
30:00
Speaker 2: reflect how markets are working right now. We do then
30:03
Speaker 2: get to this piece here, Battered by stock losses, investors
30:06
Speaker 2: find little relief in bonds. Just take a quick break,
30:09
Speaker 2: and then we'll talk about what's going on in the
30:10
Speaker 2: bond market.
30:11
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30:22
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30:47
Speaker 2: Well Street journal piece talk about how look stocks have
30:50
Speaker 2: been selling off, but so of bonds, and so investors
30:52
Speaker 2: are feeling like it's twenty twenty two all over again,
30:54
Speaker 2: where it's like, hey, where do I go?
30:58
Speaker 3: How far off they? You know, if you are a
31:00
Speaker 3: bond investor and you know, looking at that aggregate market
31:04
Speaker 3: of a combination of government securities and corporate bonds, I
31:08
Speaker 3: mean what if you lost, Like, will we down like
31:10
Speaker 3: a one and a half percent range?
31:12
Speaker 2: Where are we could question Michaels. So the US aggregate
31:17
Speaker 2: bond index is off about two and a half percent
31:20
Speaker 2: at this point.
31:21
Speaker 4: From its all time highs.
31:22
Speaker 2: Yes, the drawdown back in twenty twenty two got to
31:31
Speaker 2: hold please seventeen point eight percent.
31:35
Speaker 3: And that was an environment where again I don't know
31:39
Speaker 3: where things go, but the Federal Reserve at the beginning
31:43
Speaker 3: of twenty twenty two was holding.
31:45
Speaker 4: Rates out or near zero.
31:47
Speaker 3: We were at zero to one quarter of one percent
31:50
Speaker 3: on the Fed Funds target rate, and we increased to
31:53
Speaker 3: five and a quarter to five and a half by September.
31:56
Speaker 2: Not by September, by like early the following year. Okay,
31:59
Speaker 2: which I I did say that they should have just
32:01
Speaker 2: done five percent right away, and by the way, that
32:03
Speaker 2: would have been right.
32:04
Speaker 3: But uh yeah, so I guess the question would be
32:09
Speaker 3: should invest? Yeah, nobody knows until you see what happens
32:13
Speaker 3: with bond yields. But it seems to me that it
32:14
Speaker 3: would be unlikely for the Federal Reserve to hike interest
32:18
Speaker 3: rates from where they are now, which is three and
32:20
Speaker 3: a half ish to seven and a half for example.
32:24
Speaker 2: Mike, the Fed can't hike that, correct, the economy would.
32:28
Speaker 2: Here's why the FED hikes. Let's think of this in
32:30
Speaker 2: context of why the FED hikes. The Fed hikes to
32:33
Speaker 2: reduce demand in order the Fed hikes to go outside.
32:37
Speaker 2: Oh stop it, Mike, talk, No, no, it's good. I
32:43
Speaker 2: had a picture on my door in the office once.
32:44
Speaker 2: It was Roger Federer in the Swiss Alps, and the
32:48
Speaker 2: caption was the Fedish hiking. So I appreciate what Mike's doing.
32:54
Speaker 2: In any case, the FED hikes to suppress demand, with
32:57
Speaker 2: the hope quite honestly, of throwing the US economy into
33:01
Speaker 2: a mild recession such that people do not have either
33:06
Speaker 2: the means nor the desire to pay higher prices anymore,
33:09
Speaker 2: thus stopping inflation. At this point in time, you wouldn't
33:14
Speaker 2: have to go anywhere near four percent of hikes to
33:16
Speaker 2: break the US economy. If you did two percent from here,
33:20
Speaker 2: it probably gets us to a pretty gnarly place. If
33:23
Speaker 2: you get back to like five and a half percent,
33:25
Speaker 2: FED funds means the long end probably goes like the
33:28
Speaker 2: ten year and thirty year probably in like the five
33:31
Speaker 2: and three quarters range. Mortgage rates go up to somewhere
33:34
Speaker 2: around eight percent. That probably does it.
33:37
Speaker 3: Yeah, I agree there with the housing situation what it is,
33:40
Speaker 3: and then private credits, uh you pins of issues, a
33:45
Speaker 3: couple percentage points of rate hikes would pretty quickly demolish
33:50
Speaker 3: things on the ground.
33:50
Speaker 2: Now, a couple percentage points and rate hikes does mean
33:54
Speaker 2: that if you do the math out, yeah, you could
33:57
Speaker 2: have like another seven to ten percent down in if
34:01
Speaker 2: like if you're trying to price out you know, realistic
34:03
Speaker 2: scenarios for how bad it could get. Look, it can
34:06
Speaker 2: always get worse, So I'm not saying that that's like
34:08
Speaker 2: the the be all end all, but yeah, you could
34:11
Speaker 2: absolutely see another five to ten percent down in broad
34:14
Speaker 2: bond markets depending on how the inflation picture looks. But
34:18
Speaker 2: there's also a case where hey, if higher inflation in
34:22
Speaker 2: and of itself and supply chain problems snarl the US economy,
34:27
Speaker 2: FED probably doesn't have to hike then, and so you
34:29
Speaker 2: can make a case that maybe the worst is already over,
34:32
Speaker 2: and that's a reasonable position to have as well. I
34:35
Speaker 2: think that it's it's not one where I look at
34:38
Speaker 2: this and see, you know, clean black and white answers
34:41
Speaker 2: on this, But there obviously is still a lot of
34:43
Speaker 2: inflation that is going to be felt around the world
34:46
Speaker 2: and domestically, and we just have to see how that
34:49
Speaker 2: ends up playing out.
34:51
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35:42
Speaker 1: The proceeding was paid for and the views expressed are
35:44
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35:54
Speaker 2: A lot of you may be eagerly anticipating the World
35:58
Speaker 2: Cup this summer, to be hosted jointly between the US,
36:01
Speaker 2: Mexico and Canada. And the Boston Globe has a piece here.
36:07
Speaker 2: It's titled wan an Airbnb rental close to Jellette for
36:11
Speaker 2: the World Cup. Here's how much it will cost you
36:15
Speaker 2: and so Jullett Stadium is going to be one of
36:18
Speaker 2: the stadiums that is going to be hosting World Cup games.
36:21
Speaker 2: Including just a classic rivalry between Scotland and Haiti on
36:25
Speaker 2: June thirteenth. The Scots and Haitians go, well, I'm actually
36:30
Speaker 2: not sure they've ever met, to be honest, but in
36:33
Speaker 2: any case, they're going to be playing on June thirteenth.
36:36
Speaker 2: And the average rate for a night in an airbnb
36:41
Speaker 2: in Greater Boston is going for four hundred and eighty
36:44
Speaker 2: three dollars a night, which is two hundred dollars more
36:47
Speaker 2: than the same time last year. But if you're trying
36:50
Speaker 2: to stay near the stadium, which is again kind of
36:53
Speaker 2: what you would do, because if you've ever tried to
36:55
Speaker 2: get to Foxboro Stadium from far away, it's not really
36:58
Speaker 2: the quickest and easiest thing too.
37:00
Speaker 4: You can't get that from here.
37:02
Speaker 2: The stays nearby, you generally have to do a week there,
37:05
Speaker 2: and you're talking thirty to forty thousand dollars for the week.
37:09
Speaker 3: Yeah, I've been seeing this story is all over too, right,
37:12
Speaker 3: I mean, yeah, where are they playing down in New
37:14
Speaker 3: York MetLife? Yeah, so I've seen places there, you know,
37:18
Speaker 3: fifty grand a week for airbnbs in that area.
37:22
Speaker 4: So this is a phenomenous let's got to tell you.
37:23
Speaker 2: That's a nice part in New Jersey.
37:25
Speaker 4: Right now, what are the real dates you're looking at it?
37:27
Speaker 3: Because I see the July ninth is like the actual
37:30
Speaker 3: quarterfinal match, so I would imagine that's a big one.
37:33
Speaker 3: But in terms of volume, it's that it's that second
37:36
Speaker 3: week in June that has just the Haiti, Scotland, Scotland, Morocco,
37:40
Speaker 3: a whole bunch of games taking place.
37:42
Speaker 4: So I will we're going to make a few quick bucks.
37:45
Speaker 2: The reminder, I'll point out, if you're seeing these prices listed,
37:49
Speaker 2: it does mean that no one's paid that price yet,
37:51
Speaker 2: that's true, So like very well, could be these come
37:54
Speaker 2: way way down in the next couple months as people realize, oh,
37:58
Speaker 2: I'm not going to be able to get fifty thous
38:00
Speaker 2: dollars for the week. But again, there are you talk
38:05
Speaker 2: about the World Cup, so a lot of wealthy people
38:07
Speaker 2: from around the world that come for these things, and
38:10
Speaker 2: so we'll see, uh, we'll see what happens. But yeah,
38:14
Speaker 2: Scotland Haiti on June thirteenth, guess who's gonna be there.
38:17
Speaker 2: Actually here's truly yeah, I can't wait. I will not
38:21
Speaker 2: be staying in the forty thousand dollars a week house
38:23
Speaker 2: hour two coming up in a bit