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Are Higher Gas Prices About to Push the U.S. Into Recession? · The Financial Exchange Show

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  Speaker 2: Good morning, Welcome back to the Financial Exchange Tuesday. Here
• 1:16
  Speaker 2: with second day of market gains on the board so
• 1:19
  Speaker 2: far this morning after the S and P five hundred
• 1:22
  Speaker 2: yesterday closed up about one percent. We're still down since
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  Speaker 2: the since the war in Iran began, but now only
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  Speaker 2: about two percent from the from the close that we
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  Speaker 2: reached on Friday, February twenty seventh before the war broke out.
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  Speaker 2: And this as President Trump asks for and largely does
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  Speaker 2: not receive, assistance in reopening the Strait of Hormuz, and
• 1:50
  Speaker 2: that action continues. We also have a FED meeting occurring
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  Speaker 2: today and tomorrow, the press conference will be tomorrow, and
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  Speaker 2: more being written about the private credit industry and the
• 2:01
  Speaker 2: possible spillovers there. But as we have been for the
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  Speaker 2: last two and a half weeks, we start off the
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  Speaker 2: show in the Middle East, in Iran and the latest there,
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  Speaker 2: and you know, quite honestly important to once again acknowledge
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  Speaker 2: that fog of war in the moment here not a
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  Speaker 2: ton of perfect information from the Middle East, and even
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  Speaker 2: statements both from US and leaders in the Middle East
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  Speaker 2: unclear in the moment if they have perfect information. We've
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  Speaker 2: seen several from the US administration walked back. We have
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  Speaker 2: seen a few from raining officials inside and outside Iran
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  Speaker 2: walked back, And so what is clear to me is
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  Speaker 2: that we don't appear much closer to a culmination of
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  Speaker 2: activities in Iran or finishing of a ceasefire or anything
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  Speaker 2: along those lines.
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  Speaker 3: In Iran.
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  Speaker 2: We don't see it much closer to reopening the strait.
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  Speaker 2: I think the best news that you can take from
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  Speaker 2: any of this is that there has been, according to experts,
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  Speaker 2: of very clear indication that the volume of weapons coming,
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  Speaker 2: missiles being sent out of Iran, and the types of
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  Speaker 2: munitions the US is using to strike Iran have been
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  Speaker 2: changing because basically our defense systems have been brought down
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  Speaker 2: there and so the need for the most expensive and
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  Speaker 2: most advanced missiles that the United States has to strike
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  Speaker 2: Iran have not been quite as necessary over the last
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  Speaker 2: week or so. But none of that really indicates that
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  Speaker 2: a ceasefire is on its way or that or that
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  Speaker 2: tensions are slowing down there. And in spite of that,
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  Speaker 2: markets reaching back close to the highs.
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  Speaker 3: Reached prior to the events in Iran.
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  Speaker 4: Yeah, I mean capital markets complacency aside. The longer this
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  Speaker 4: goes on from an economic perspective, and this is kind
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  Speaker 4: of obvious, not even to talk about inflation yet. Let's
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  Speaker 4: just talk about the cost. The cost to consumers. We
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  Speaker 4: consume about four hundred million gallons of gasoline a day.
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  Speaker 4: I looked it up. The government reports that statistic seventy
• 4:07
  Speaker 4: five cents per gallon roughly the average increase. The math
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  Speaker 4: is really I rounded up from three seventy five to four.
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  Speaker 4: That three seventy five number was from twenty twenty four.
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  Speaker 4: So let's just call it four hundred million barrels a day,
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  Speaker 4: even though it's probably a little bit less than that.
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  Speaker 4: That's a three hundred million dollar per day tax increase
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  Speaker 4: on citizens. Now, we spend a lot more than that.
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  Speaker 4: We spend like, you know, one point eight trillion a month,
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  Speaker 4: so you know, sixty or so billion a day. Sorry
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  Speaker 4: for all the numbers here, but I'm what I'm trying
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  Speaker 4: to get at is this is a tax increase. Now,
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  Speaker 4: it's also a windfall for oil producers, but they don't
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  Speaker 4: spend every incremental dollar of that windfall, So it's a
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  Speaker 4: tax increase. It's going to be a drag on economic growth.
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  Speaker 4: That's one factor that the Fed is going to be
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  Speaker 4: thinking about over the next couple of days, do we
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  Speaker 4: ease The answer to that is almost certainly no, because
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  Speaker 4: you've got the flip side, which is rising prices.
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  Speaker 2: The events in Aray. We talked about it at the outbreak.
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  Speaker 2: You know, the best and worst case scenarios, and I
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  Speaker 2: don't think they have diverged a whole lot. The best
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  Speaker 2: case scenario is very obviously that some term of ceasefire
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  Speaker 2: is reached here where Iran does not have permanently more
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  Speaker 2: influence or the current leadership and Urn does not have
• 5:23
  Speaker 2: more influence over events in the Middle East. That seems
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  Speaker 2: very on a table unattainable in the extremely short term.
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  Speaker 2: But you know, I have to admit here that it's
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  Speaker 2: really difficult to see.
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  Speaker 4: But we just gave them a blueprint for a choke
• 5:38
  Speaker 4: point on the world for the foreseeable future. They've got
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  Speaker 4: the straight of horror moves. Geographically, they will always dominate
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  Speaker 4: it unless you're willing to just bulldoze the whole place
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  Speaker 4: and size of what California plus ninety million people probably
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  Speaker 4: not an option.
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  Speaker 3: Mike, especially not with that boot zone.
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  Speaker 4: Okay, so we just basically gave them a blueprint for
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  Speaker 4: holding the world economy hostage indefinitely because they can, you know,
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  Speaker 4: just fire a cheap drone into the straight sink and
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  Speaker 4: oil tanker and all traffic stops and definite, and we
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  Speaker 4: showed them how to do that. So I don't know
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  Speaker 4: about the geopolitical implications, they're probably not good. I'll lead
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  Speaker 4: that to those experts. But the economic implications, they're sort
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  Speaker 4: of stagflationary.
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  Speaker 3: Lie they seem that way.
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  Speaker 2: My best case with all this is, you know, taking
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  Speaker 2: in the larger geopolitical context of the last few months,
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  Speaker 2: there has been action in Venezuela, action and Cuba action
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  Speaker 2: now in Iran. If by some miracle, those actions are
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  Speaker 2: able to be wrapped up in the way that they
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  Speaker 2: were in some of these other places and allow the
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  Speaker 2: United States to finally execute its pivot to the Pacific,
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  Speaker 2: then that to me is the best case scenario. And
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  Speaker 2: I don't know how you get there in Iran in
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  Speaker 2: the short term. It seems very unclear to me, but
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  Speaker 2: I can see the case, and others have you know,
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  Speaker 2: brought this up as the overall theory of the overall
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  Speaker 2: strategy here is, Hey, if you want to pivot to
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  Speaker 2: the Pacific, you need to take these items off of
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  Speaker 2: your life list of dealing with an unprintable venezuela and
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  Speaker 2: unprintable iron in the sir, how.
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  Speaker 4: Are those things connected that they could always be a
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  Speaker 4: thorn on our side and they always be a thorn.
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  Speaker 4: Might there's a war in the Pacific, they might make trouble.
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  Speaker 4: So let's squash all those problems now and then turn
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  Speaker 4: our attention. Yes, we've subdued the rest of the world.
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  Speaker 2: Yes, officials, officials outside of the current administration who either
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  Speaker 2: served previously or have brought it up as a hypothetical
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  Speaker 2: strategy in a worst case scenario.
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  Speaker 3: You know, we keep talking about the worst case scenario.
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  Speaker 2: As just oil prices being elevated, short you know, shortages.
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  Speaker 3: Of gas products.
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  Speaker 4: That's what we do here.
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  Speaker 2: And you know, we talked about worst case scenario as
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  Speaker 2: a famine and other problems in parts of the world
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  Speaker 2: outside the United States. More and more people have been
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  Speaker 2: drawing attention to the Pacific, and so I think it's
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  Speaker 2: time to acknowledge the true worst case scenario of events
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  Speaker 2: like this would be the eventual action in the Pacific
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  Speaker 2: of China, North Korea, some actor moving on Taiwan, because
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  Speaker 2: you know, if you're worried about oil security. For a
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  Speaker 2: moment here, I have to bring up that its security
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  Speaker 2: to the United States is in my mind at least
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  Speaker 2: a fraction of the importance of semiconductor and technology innovation
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  Speaker 2: in Taiwan. And so the real worst case scenario that
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  Speaker 2: I'm only bringing up because many other publications have been
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  Speaker 2: talking about the fact that, yeah, the assets that are
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  Speaker 2: moving to the Middle East right now are coming from
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  Speaker 2: Korea and Japan. There is concern about what that could
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  Speaker 2: mean for action in the Pacific. You know, the job
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  Speaker 2: of the Marines that are bringing brought to the Middle East,
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  Speaker 2: their entire job was to serve as a deterrent to
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  Speaker 2: China in Taiwan. That is what they did. They sailed
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  Speaker 2: ships in the straight and they acted as a deterrent.
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  Speaker 2: That is the real worst case scenario, if we're really
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  Speaker 2: playing all of this out in terms of worst worst cases,
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  Speaker 2: it is action in Taiwan because ninety percent of the
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  Speaker 2: world's most advanced logic chips are manufactured there, and by
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  Speaker 2: all accounts, if they go offline, it takes you know,
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  Speaker 2: close to the better part of half a decade to
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  Speaker 2: re establish them somewhere else. If you can even get there.
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  Speaker 2: So I had to just acknowledge that because of how
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  Speaker 2: many other people have been writing about it and publishing
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  Speaker 2: pieces about it, that yeah, worst case scenario is much
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  Speaker 2: higher oil price is much higher inflation. But I don't
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  Speaker 2: think people fully appreciate the technological disruption that would occur
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  Speaker 2: if something's spilled over into Taiwan, And I just have
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  Speaker 2: to acknowledge that for a moment here, that that is
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  Speaker 2: the true worst case scenario that the Chinese government has
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  Speaker 2: set as a key goal of being capable of doing
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  Speaker 2: something there by twenty twenty seven. So I don't have
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  Speaker 2: a theory for how you invest on that or what
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  Speaker 2: you do about it. But you cannot talk about the
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  Speaker 2: actions in the Middle East right now without acknowledging that it's,
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  Speaker 2: you know, drawing our attention from the Pacific, where there
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  Speaker 2: is is a lot of Also potentially.
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  Speaker 4: You said earlier that there are some strategists who think
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  Speaker 4: this is part of some grand plan. Yes, to subdue
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  Speaker 4: hot spots elsewhere.
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  Speaker 3: And then to our attention there.
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  Speaker 4: But we're using all of our interceptors in the Middle East.
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  Speaker 4: How many years worth of patriot missile production have we used?
• 10:17
  Speaker 4: The Patriots are key interceptors. I don't know much about it,
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  Speaker 4: but I do know that and all other kinds of
• 10:24
  Speaker 4: munitions that I'm not qualified to talk about. So we're
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  Speaker 4: drawing our stocks down.
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  Speaker 3: I'm right there with you.
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  Speaker 2: I'm not I'm not claiming that's your point of view,
• 10:33
  Speaker 2: and I'm not claiming.
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  Speaker 3: That I think one of them likely than the other.
• 10:37
  Speaker 2: But that is the key concern of some is Yeah,
• 10:40
  Speaker 2: we are drawing down much of our missile stock, and
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  Speaker 2: you know what is what is the ability to focus
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  Speaker 2: on the po We.
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  Speaker 4: Can't even subdue the strait of hor moves apparently, nor
• 10:51
  Speaker 4: would I expect us to. Although we do spend four
• 10:55
  Speaker 4: times i RAN's GDP in our military every year. I
• 10:58
  Speaker 4: was expecting a quick victory there and credit to our military.
• 11:01
  Speaker 4: But also we got the military we pay for. Let's
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  Speaker 4: not forget that I RAN's GDP is about three hundred
• 11:07
  Speaker 4: sum odd billion. We spend about a trillion on our military.
• 11:11
  Speaker 4: That's more than I'm just going to call it three
• 11:12
  Speaker 4: and a third times on rounding. Of course, we should
• 11:15
  Speaker 4: have quickly dispensed with they the conspicuous military threat, but
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  Speaker 4: we don't seem to be able to close the deal
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  Speaker 4: on the hard part, and we're supposed to pivot to
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  Speaker 4: the Pacific now right. Oh okay, not my area.
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  Speaker 2: But what yeah, it seems well, seems like a challenge.
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  Speaker 2: Let's take a quick break when we return. Moody's predicts
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  Speaker 2: a recession will be hard to avoid if oil prices
• 11:40
  Speaker 2: stay elevated, even for a few more weeks. We're't be
• 11:44
  Speaker 2: covering that next year on The Financial Exchange.
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  Speaker 2: All right, Mark, let's turn from hypothetical breadth and worst
• 13:00
  Speaker 2: case scenarios because it's comfortable. Ye I don't know where
• 13:03
  Speaker 2: they could go and talk about realities on the ground
• 13:06
  Speaker 2: Right now. Moody's saying a recession would be hard to
• 13:08
  Speaker 2: avoid if oil prices stay elevated for even more than
• 13:11
  Speaker 2: a few weeks. So I want to, as part of this,
• 13:13
  Speaker 2: bring us back to twenty twenty two, which is not,
• 13:17
  Speaker 2: you know, perfect comparison to.
• 13:18
  Speaker 3: Where we are now.
• 13:19
  Speaker 2: But we did have elevated gas prices in twenty twenty
• 13:21
  Speaker 2: two and elevated everything else prices.
• 13:23
  Speaker 3: In twenty twenty two.
• 13:25
  Speaker 2: In January of twenty two, gasoline prices, according to Saint
• 13:28
  Speaker 2: Louis FED, sitting at three dollars and thirty cents per gallon.
• 13:32
  Speaker 2: We then peaked at nearly five dollars per gallon.
• 13:37
  Speaker 3: In June of twenty twenty two, and you.
• 13:39
  Speaker 2: Did not see prices return to that you know, early
• 13:45
  Speaker 2: twenty twenty two levels until December. So I think you
• 13:48
  Speaker 2: could argue that for twenty twenty two we had a
• 13:50
  Speaker 2: extended period of time of high gas prices. We avoided
• 13:54
  Speaker 2: a recession, although barely, and there were a lot of
• 13:59
  Speaker 2: different condition on the ground back in twenty twenty two.
• 14:01
  Speaker 2: Largely there was a ton of that, that's the technical
• 14:07
  Speaker 2: measure of it, a ton of cash flowing through the
• 14:09
  Speaker 2: system from the post pandemic spending era.
• 14:12
  Speaker 3: So what's different this time?
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  Speaker 2: And do you buy that, hey, two weeks from nowf
• 14:17
  Speaker 2: gas prices are high, we have a recession, because that
• 14:20
  Speaker 2: seems like a pretty bold call to me from Moody's.
• 14:23
  Speaker 4: Well, they are looking at the gas price increase the
• 14:27
  Speaker 4: same way I was. I think in the last segment
• 14:30
  Speaker 4: it's at tax yep, we consume. I'll just repeat it
• 14:34
  Speaker 4: because I didn't know this. I didn't have this on
• 14:37
  Speaker 4: the tip of my tongue, so I'm trying to sort
• 14:39
  Speaker 4: of synthesize it all myself. We consume about four hundred
• 14:42
  Speaker 4: million barrels a day. A seventy five cent increase is
• 14:46
  Speaker 4: a three hundred million dollars, So if it was a
• 14:48
  Speaker 4: one dollar increase, to be a four and a million
• 14:49
  Speaker 4: dollar tax increase per day. Now, that's not quite the
• 14:51
  Speaker 4: right way to look at it, because producers.
• 14:53
  Speaker 3: Do benefit, yes, but only they We have a lot
• 14:55
  Speaker 3: of them.
• 14:55
  Speaker 4: Only they don't spend immediately anyway, all of that to
• 15:01
  Speaker 4: make up for the contraction in demand that results from
• 15:04
  Speaker 4: people having to spend more on gas. Because the demand
• 15:07
  Speaker 4: for gas is pretty insensitive to the price of gas.
• 15:09
  Speaker 4: You gotta go to work.
• 15:10
  Speaker 1: You gotta go to work.
• 15:11
  Speaker 4: Nothing you can do about it. You can make little changes,
• 15:13
  Speaker 4: but not big ones. So that's a tax increase. Mic.
• 15:16
  Speaker 4: That's where the drag comes from. And the longer this
• 15:19
  Speaker 4: goes on the longer, the longer the drag to spending
• 15:24
  Speaker 4: and thus to short term growth. Now, you could argue,
• 15:28
  Speaker 4: and the President has actually made this argument. I respect it.
• 15:30
  Speaker 4: He said, I don't care. I think this is the
• 15:32
  Speaker 4: right thing to do. Sure, that's kind of refreshing to
• 15:34
  Speaker 4: hear from a politician. So maybe that's your point of view.
• 15:36
  Speaker 4: You say, I don't care, this is a threat. I
• 15:37
  Speaker 4: don't care if I have to pay four dollars a
• 15:39
  Speaker 4: gallon or whatever for gasoline. I'm not really talking about that.
• 15:43
  Speaker 4: I'm just talking about the short term economic impact here,
• 15:45
  Speaker 4: I'm not trying to evaluate its moral implications or its
• 15:49
  Speaker 4: long term benefit. So it's going to be a drag
• 15:51
  Speaker 4: mic and of course it pushes inflation up at the
• 15:53
  Speaker 4: same time. So in that sense, it's very similar to
• 15:55
  Speaker 4: what the fiscal impulse, so to speak, is different, although
• 16:01
  Speaker 4: we are dumping jacked up rebates into the economy, so
• 16:07
  Speaker 4: fiscal policy is arguably expansionary. Monetary policy, what the Fed
• 16:11
  Speaker 4: does is arguably expansionary, and we're getting hit with an
• 16:14
  Speaker 4: energy shock which is going to be inflationary. So over
• 16:18
  Speaker 4: the next twelve months, Mike, if you're an economic forecaster,
• 16:20
  Speaker 4: you're probably expecting slower growth and higher inflation. That's why
• 16:24
  Speaker 4: you hear the term stagflation, which can mean a lot
• 16:27
  Speaker 4: of different things. The stag is the contraction and demand part.
• 16:30
  Speaker 4: The flation is obviously the inflation part. That's why you
• 16:33
  Speaker 4: hear that term thrown around.
• 16:35
  Speaker 2: According to TRIPAA, the national average on a gallon of
• 16:37
  Speaker 2: gas today sitting at three dollars seventy nine cents. A
• 16:40
  Speaker 2: month ago, we were sitting at two ninety two in
• 16:43
  Speaker 2: plast a buck in places like California, you're now seeing
• 16:46
  Speaker 2: prices over five dollars fifty cents a gallon on the
• 16:49
  Speaker 2: average for the state, and here in the Northeast we
• 16:52
  Speaker 2: are around that national average.
• 16:55
  Speaker 3: The other piece of this mark, other than the.
• 16:57
  Speaker 2: Just pure money out of your pocket piece, which is impactful,
• 17:02
  Speaker 2: I'm not trying to diminish that, but expectations are important
• 17:05
  Speaker 2: to well. Now we're moving on to the FLA and
• 17:07
  Speaker 2: consumer attitudes and just you know, attitudes towards the economy
• 17:12
  Speaker 2: are very important, and this is where I think gas prices.
• 17:17
  Speaker 2: While an increase in gas prices has some offsetting, there's
• 17:21
  Speaker 2: the very clear tax increased piece of it, where more
• 17:25
  Speaker 2: money has to go towards gasoline and less money can
• 17:27
  Speaker 2: go towards other sources. But that's partially offset like you said,
• 17:30
  Speaker 2: by gains from the companies that drill the stuff and
• 17:33
  Speaker 2: sell the stuff. The piece that is a pure downside,
• 17:37
  Speaker 2: and I think even worse than say a tax increase
• 17:39
  Speaker 2: to the psyche of the American public is that gas
• 17:42
  Speaker 2: is the single most public facing price that any of
• 17:46
  Speaker 2: us use or pay or whatever the right term. It
• 17:52
  Speaker 2: is not the same as your marginal tax bracket. It
• 17:57
  Speaker 2: is not the same as milk or eggs or chicken
• 18:01
  Speaker 2: or steak, you know, any of these things people have
• 18:03
  Speaker 2: complained about over the last year. In terms of prices,
• 18:07
  Speaker 2: I would argue that gasoline is far more impactful to
• 18:10
  Speaker 2: what people think prices will look like in the future.
• 18:13
  Speaker 3: Their willingness to go out and.
• 18:15
  Speaker 2: Spend on other things, their willingness to go travel over
• 18:18
  Speaker 2: the summer holiday travel season, and even their car shopping
• 18:22
  Speaker 2: process all influenced heavily by current gasoline prices, and so
• 18:27
  Speaker 2: I think that does add to the possibility for recession
• 18:31
  Speaker 2: or perhaps more inflation. How does the FED think about
• 18:35
  Speaker 2: those expectations.
• 18:36
  Speaker 4: About basically, the way you're look expectations are an important
• 18:39
  Speaker 4: part of the inflation. I know you're talking about consumer
• 18:41
  Speaker 4: confidence in part people how people batten down the hatches.
• 18:49
  Speaker 4: For lack of a pithy of term, that's part of it.
• 18:51
  Speaker 4: But it feeds into expectations, feed into inflation by the
• 18:55
  Speaker 4: by the channels you would expect, people demand higher wages,
• 18:59
  Speaker 4: firms pass us along price increases, and that makes the
• 19:03
  Speaker 4: Fed's job harder. That makes the cost of getting inflation
• 19:06
  Speaker 4: down all the more severe. MinC it creates a whole
• 19:10
  Speaker 4: lot of problems. We're in a pickle.
• 19:12
  Speaker 2: We are, and again It all ultimately comes down to
• 19:19
  Speaker 2: the duration of said pickle. Pickle is a very delicate
• 19:25
  Speaker 2: it is a very nice term to describe it, but yeah,
• 19:28
  Speaker 2: it picks him along the last a week, then it's
• 19:30
  Speaker 2: a problem. If it's not a problem, we've got to
• 19:32
  Speaker 2: take quick break markets station in their second day of recovery.
• 19:35
  Speaker 2: Here on Wall Street. We'll have a full recap next
• 19:37
  Speaker 2: with Wall Street Watch.
• 19:41
  Speaker 1: Like us on Facebook and follow us on Twitter at
• 19:44
  Speaker 1: TFE show. Breaking business news is always first right here
• 19:48
  Speaker 1: on the Financial Exchange Radio Network. Time out full Wall
• 19:53
  Speaker 1: Street Watch tracking the stocks, theodato and the headlines driving
• 19:57
  Speaker 1: markets so far today right here on the Financial Exchange
• 20:01
  Speaker 1: Radio Network.
• 20:02
  Speaker 5: All markets are continuing their rebound as the turmoil in
• 20:05
  Speaker 5: the Middle East extends another day and oil remains volatile.
• 20:09
  Speaker 5: Right now, the Dow is up about a half a
• 20:13
  Speaker 5: percent or two hundred and twenty points, SMP five hundreds
• 20:16
  Speaker 5: up six tenths of one percent or thirty nine points,
• 20:18
  Speaker 5: Hired Nasdaq up nearly seven tenths of one percent. Russell
• 20:22
  Speaker 5: two thousand is up over nine tenths of a percent.
• 20:25
  Speaker 5: Tenior Treasureel is down two basis points at four point
• 20:29
  Speaker 5: one nine to eight percent. In Oil up nearly two
• 20:31
  Speaker 5: percent higher, hovering right around ninety five dollars a barrel,
• 20:36
  Speaker 5: and Video shares are mostly flat after a CEO Jensen
• 20:39
  Speaker 5: Wong said at the company's annual Developer conference yesterday that
• 20:42
  Speaker 5: he expects orders for its Blackwell and Vera Rubin AI
• 20:46
  Speaker 5: chips to reach one trillion dollars through twenty twenty seven. Meanwhile,
• 20:50
  Speaker 5: Uber shares are jumping five percent after the right hailing
• 20:53
  Speaker 5: company in in Nvidia said they were expanding their self
• 20:56
  Speaker 5: driving partnership elsewhere. Delta lifted its first quarter revenue growth guidance,
• 21:00
  Speaker 5: calling for high single digit expansion. In an interview with CNBC,
• 21:05
  Speaker 5: CEO Ed Bastian said the company had taken a four
• 21:08
  Speaker 5: hundred million dollars hit so far for the fourth quarter,
• 21:10
  Speaker 5: but demand has been really, really great. Separately, American said
• 21:15
  Speaker 5: in a securities filing that it now expects total revenue
• 21:19
  Speaker 5: to increase by more than ten percent due to stronger
• 21:21
  Speaker 5: than expected demand. Delta stock is up by three percent,
• 21:25
  Speaker 5: while American shares are up by two percent. Honeywell said
• 21:28
  Speaker 5: that the US Iran war could have a high single
• 21:31
  Speaker 5: digit impact on first quarter revenue, sending shares down by
• 21:35
  Speaker 5: two percent, and after today's closing bell, we'll see earnings
• 21:38
  Speaker 5: from apparel retailer Lulu Lemon. I'm Tucker Silvan.
• 21:43
  Speaker 2: That is Wallstreet Watch Breaking News as we continue mostly
• 21:47
  Speaker 2: economic coverage of the war in Iran. But Fox News
• 21:50
  Speaker 2: reporting that the top counter terrorism official in the United
• 21:55
  Speaker 2: States has resigned today.
• 21:58
  Speaker 3: This is.
• 22:01
  Speaker 2: Joe Kent, the top US counter terrorism official quote. After
• 22:04
  Speaker 2: much reflection, I've decided to resign from my position as
• 22:07
  Speaker 2: director of the National counter counter Terrorism Center, effective today.
• 22:12
  Speaker 2: I cannot in good conscience support the ongoing war in Iran.
• 22:14
  Speaker 2: Iran post no imminent threat to our nation. It is
• 22:17
  Speaker 2: clear that we started this war due to pressure from
• 22:20
  Speaker 2: Israel and its powerful American lobby. So Breaking News here
• 22:24
  Speaker 2: picking up by Fox among many other outlets, and will
• 22:28
  Speaker 2: continue to cover all facets of the war in Iran
• 22:32
  Speaker 2: as they continue to develop. But one of the one
• 22:35
  Speaker 2: of the areas here that flows right into our wheelhouse
• 22:39
  Speaker 2: mark is the term stagflation, which was very popular in
• 22:43
  Speaker 2: twenty twenty two to describe the economy and is obviously
• 22:46
  Speaker 2: rearing its head again today. So let's let's start off
• 22:50
  Speaker 2: by describing this combination word because it's not a real.
• 22:56
  Speaker 4: It was invented in the seventies because it was never
• 22:58
  Speaker 4: experienced before. It was normally when unemployment went up, inflation
• 23:03
  Speaker 4: went down because there is a short term trade off
• 23:05
  Speaker 4: between the two.
• 23:06
  Speaker 2: In fact, that's kind of the entire premise of what
• 23:08
  Speaker 2: the Fed is supposed to be able to.
• 23:10
  Speaker 4: They do try to exploit that short term trade off.
• 23:12
  Speaker 4: In the seventies, things went a little haywire for various reasons,
• 23:16
  Speaker 4: some of which give us parallels or at least a
• 23:19
  Speaker 4: lens through which to view events today. So that term
• 23:24
  Speaker 4: resulted from high unemployment and high inflation. And again it
• 23:28
  Speaker 4: was new, nobody expected it. The Fed didn't know how
• 23:31
  Speaker 4: to deal with it. The Fed did not think at
• 23:33
  Speaker 4: the time that inflation could be combated with monetary policy.
• 23:37
  Speaker 4: Believe it or not, they advocated tighter fiscal policy, incomes policies,
• 23:42
  Speaker 4: and of course Nixon tried price control. So the long
• 23:46
  Speaker 4: and the short of it is Mike stagflation was more
• 23:48
  Speaker 4: or less unique to the nineteen seventies. The term came
• 23:51
  Speaker 4: out of the nineteen seventies. Can it happen again? Well,
• 23:53
  Speaker 4: if you get hit with a supply shock. A supply
• 23:56
  Speaker 4: shock pushes output down and prices up. That's what makes
• 24:00
  Speaker 4: it weird. Demand shock does the opposite. It pushes output
• 24:04
  Speaker 4: up and prices up.
• 24:05
  Speaker 2: I think there's it's fair to say that there have
• 24:07
  Speaker 2: been other moments, albeit brief moments, where we've experienced some
• 24:11
  Speaker 2: of the parts of stagflation, maybe even twenty twenty two. Right,
• 24:15
  Speaker 2: I mean, no, you did not have our session. You
• 24:17
  Speaker 2: did not have the major loss in the planement, that's fair,
• 24:20
  Speaker 2: But you had an economic slow down defined by two
• 24:22
  Speaker 2: quarters of GDP contraction.
• 24:24
  Speaker 4: But that was that was arguably fed engineered. Yeah, I mean,
• 24:27
  Speaker 4: or fear of rate hike, a result of fear of
• 24:33
  Speaker 4: rising rates for the which the FED had to do
• 24:35
  Speaker 4: to help squash inflation. Though the role they played in
• 24:38
  Speaker 4: that is debatable.
• 24:39
  Speaker 2: So for those who didn't live through it, let's talk
• 24:43
  Speaker 2: about what made the nineteen seventies stagflation so incredibly damning.
• 24:47
  Speaker 2: It was a period that was defined by several price shocks,
• 24:52
  Speaker 2: not all at once. Right, This was not a slow,
• 24:55
  Speaker 2: prolonged period.
• 24:55
  Speaker 4: Of the economic two oil price shocks seventy three seventy
• 24:58
  Speaker 4: four and then seventy eight seventy nine the Iranian Revolution, right,
• 25:02
  Speaker 4: and then there was a weird food shock in the
• 25:04
  Speaker 4: early nineteen seventies, some of you may remember a lot
• 25:08
  Speaker 4: of talk about anchovies. Anchovies disappeared who knew that chickens
• 25:13
  Speaker 4: ate anchovies? And it pushed up the price of chickens
• 25:17
  Speaker 4: and meat as a result because people substituted away from chickens.
• 25:20
  Speaker 4: So the seventies it was like a series of unfortunate
• 25:23
  Speaker 4: and weird events coupled with policy makers not understanding what
• 25:28
  Speaker 4: was going on.
• 25:29
  Speaker 2: And you know, tough to argue that the nineteen seventies
• 25:33
  Speaker 2: was worse than No, I won't argue it was not
• 25:38
  Speaker 2: worse than the Great Depression other than they.
• 25:40
  Speaker 4: Had good real GDP growth in the seventies.
• 25:42
  Speaker 2: It was defined by a period of just uncertainty about
• 25:46
  Speaker 2: the American future and policymakers who didn't.
• 25:48
  Speaker 4: Have the misery index, another term that came out of
• 25:52
  Speaker 4: the seventies. You just add inflation and unemployment. That fits
• 25:56
  Speaker 4: nicely with this new concept of stagflation. It's a way
• 25:59
  Speaker 4: to make it waitable.
• 26:00
  Speaker 2: So the Federal Reserve is meeting today and tomorrow it
• 26:04
  Speaker 2: is all but a certainty that they will not move
• 26:07
  Speaker 2: on interest rates. But I expect that this question of
• 26:11
  Speaker 2: stagflation will be probably the single most asked one when
• 26:16
  Speaker 2: when the press asks J. Powell about the meeting itself
• 26:21
  Speaker 2: and how they are adapting to the war in Iran,
• 26:24
  Speaker 2: I suppose the most commonly asked question is going to
• 26:26
  Speaker 2: be what are you going to do about higher oil prices?
• 26:28
  Speaker 2: And how does it you know, how does it change
• 26:30
  Speaker 2: your overall view on interest rates? But certainly there are
• 26:34
  Speaker 2: going to be questions about stagflation and how how does
• 26:37
  Speaker 2: the FED approach an event like this, a price shock
• 26:41
  Speaker 2: like this, especially given the context of the nineteen seventies
• 26:44
  Speaker 2: which J. Powell and the rest of the feders are
• 26:46
  Speaker 2: board members are.
• 26:48
  Speaker 4: Yeah, given what we know now, they do nothing, I suspect,
• 26:51
  Speaker 4: and given what if it persists and inflation starts to rise,
• 26:56
  Speaker 4: They're going to have to decide do we accommodate the increase.
• 27:00
  Speaker 4: It's like saying, well, I put on weight, so I'm
• 27:01
  Speaker 4: gonna buy bigger pants. You know, well that's not a
• 27:04
  Speaker 4: good long term No, Seriously, it's I'm just gonna I'm
• 27:08
  Speaker 4: gonna break out the elastic.
• 27:09
  Speaker 2: Coming from somebody who does not wear all of his
• 27:12
  Speaker 2: suits quite as often as they used to. For that
• 27:14
  Speaker 2: exact reason, I can relate to this this conundrum.
• 27:17
  Speaker 4: So is the FED gonna put bigger pants on the
• 27:19
  Speaker 4: economy and just let this pass. They tried that in
• 27:22
  Speaker 4: the seventies. By the way, they didn't think that the
• 27:25
  Speaker 4: sacrifice economic sacrifice, that that containing inflation, even when they
• 27:32
  Speaker 4: don't cause it entails. They didn't think it was worth it.
• 27:35
  Speaker 4: So the Fed's gonna have to make a judgment call.
• 27:36
  Speaker 4: I find it hard to believe that the new FED
• 27:39
  Speaker 4: under Walsh in a few months, is gonna do anything
• 27:42
  Speaker 4: to constrain economic growth, given that Trump put him there
• 27:46
  Speaker 4: because he thought he would be amenable to Trump's suggestions.
• 27:52
  Speaker 3: That's where I struggle.
• 27:53
  Speaker 2: I'm with you in all of his pot of statements
• 27:55
  Speaker 2: have been indicative of somebody who you know, is going
• 27:59
  Speaker 2: to look pasted an oil price shock.
• 28:02
  Speaker 3: All of that having been said, I still think that.
• 28:05
  Speaker 2: The Federal Reserve as an institution is so dramatically scarred
• 28:10
  Speaker 2: by the events of the nineteen seventies and.
• 28:12
  Speaker 3: The very very clear.
• 28:15
  Speaker 2: I'd even go beyond saying the mistakes and almost the
• 28:19
  Speaker 2: vilification of those who led the FED during the early
• 28:22
  Speaker 2: nineteen seventies, who were you know, basically turned into buffoons
• 28:29
  Speaker 2: through history with their policies. I just struggle to believe
• 28:34
  Speaker 2: that somebody's going to be able to be willing to
• 28:36
  Speaker 2: completely look past a price shock that is so directly
• 28:43
  Speaker 2: correlated to what the FED did in the nineteen seven.
• 28:45
  Speaker 4: I think they Yeah, it took a long time for
• 28:48
  Speaker 4: the FED to earn credibility. I mean, hell, it's the
• 28:49
  Speaker 4: same country and to anchor expectations. But the dynamics have
• 28:54
  Speaker 4: changed in the past year because Trump has been so
• 28:56
  Speaker 4: forceful about imposing his will on the FED. He's fed
• 29:00
  Speaker 4: governors with jail time for beat's sake. So I think
• 29:02
  Speaker 4: FED credibility is shot. I don't think inflation expectations are anchored.
• 29:06
  Speaker 4: That's not my conclusion, it's the conclusion of a lot
• 29:09
  Speaker 4: of researchers. Obviously, there's not unanimity on that. And you say,
• 29:13
  Speaker 4: look past the shock, and that's a common phrase. It
• 29:16
  Speaker 4: implies sort of Olympian detachment, you know, patients, So we
• 29:21
  Speaker 4: can look past that shock. The problem is is that
• 29:23
  Speaker 4: expectations are not anchored, arguably, and that's going to push
• 29:27
  Speaker 4: inflation up, and then it's going to require even more
• 29:30
  Speaker 4: economic pain than nipping the problem in the bud would
• 29:33
  Speaker 4: have entailed.
• 29:34
  Speaker 2: In any case, the FED target interest rate is now
• 29:37
  Speaker 2: currently setting it three and a half to three point
• 29:40
  Speaker 2: seventy five percent. There is currently a ninety nine point
• 29:43
  Speaker 2: one percent priced and chance according to the CME futures,
• 29:46
  Speaker 2: that there is no change in interest rate policy. When
• 29:49
  Speaker 2: we take a look through the end of this year
• 29:51
  Speaker 2: and get to the December meeting, the most likely outcome,
• 29:55
  Speaker 2: according to that same tool, is now that rates are
• 29:58
  Speaker 2: merely one quarter of one percent lower than where they
• 30:02
  Speaker 2: are today. A month ago, that was a bit of
• 30:05
  Speaker 2: a different story. The most likely outcome was half a
• 30:09
  Speaker 2: percentage point lower than where we are today, with a
• 30:11
  Speaker 2: good tail chance of much.
• 30:13
  Speaker 3: Lower interest rates.
• 30:14
  Speaker 2: That whole view of things has shifted now due to
• 30:18
  Speaker 2: the war and Iran oil prices moving up, gas prices
• 30:21
  Speaker 2: moving up, and so expectations about where interest rates go
• 30:24
  Speaker 2: have pretty dramatically changed over the course of the last
• 30:27
  Speaker 2: thirty days. Let's take quick break. When we come back,
• 30:29
  Speaker 2: I want to talk about another sector that very likely
• 30:33
  Speaker 2: will be impacted by the changeing oil prices. That would
• 30:35
  Speaker 2: be the travel and airline industry. That's next here on
• 30:37
  Speaker 2: the Financial Exchange.
• 30:39
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• 31:06
  Speaker 5: We know you have questions and we've got your answers.
• 31:09
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• 31:12
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• 31:16
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• 31:45
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• 31:51
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• 31:53
  Speaker 3: Yeah, very good. Yeah.
• 31:55
  Speaker 2: Two stories related to travel and the airline industry specifically,
• 31:59
  Speaker 2: and very much still in the early stages of how
• 32:02
  Speaker 2: this will fall out with airlines. I suspect that the
• 32:07
  Speaker 2: biggest and best capitalized airlines.
• 32:09
  Speaker 3: Will whether the storm as they always do.
• 32:12
  Speaker 2: I do have concerns about the likes of Spirit Airlines
• 32:15
  Speaker 2: and other discounters who tend to not hedge against oil
• 32:20
  Speaker 2: prices or jet fuel prices as much as some of
• 32:22
  Speaker 2: the big guys do. But Delta raised their revenue guidance,
• 32:25
  Speaker 2: as their CEO says, travel demand.
• 32:27
  Speaker 3: Has been quote really really great.
• 32:30
  Speaker 2: And look, this falls right in line with all the
• 32:34
  Speaker 2: reporting that we have regarding those who make a quarter
• 32:37
  Speaker 2: million dollars a year or more. That's really the key
• 32:43
  Speaker 2: demo for Delta Airlines is those wealthy Americans who's spending
• 32:49
  Speaker 2: has continued at a breakneck pace. And you know, again,
• 32:53
  Speaker 2: what he's issuing here is revenue guidance. What we don't
• 32:56
  Speaker 2: have a great view into at this stage is how
• 33:01
  Speaker 2: much do expenses have to increase with increased jet fuel prices.
• 33:05
  Speaker 2: I can say that I'm right now tracking three different
• 33:08
  Speaker 2: flights for family vacation that we have planned, and over
• 33:12
  Speaker 2: the course of the last week, all of them have risen,
• 33:15
  Speaker 2: you know, to the tune of about ten percent so far.
• 33:18
  Speaker 2: With I assume that that's related to what's going on
• 33:22
  Speaker 2: in around in oil prices.
• 33:23
  Speaker 3: But we will we will ultimately see here.
• 33:26
  Speaker 2: The other story that I think worth mentioning regarding airlines.
• 33:29
  Speaker 2: Security lines at airport terminals continue to worsen here as
• 33:34
  Speaker 2: TSA remains unpaid. Here about fifty thousand TSA officers have
• 33:40
  Speaker 2: been working without pace since February fourteenth. Their last paycheck
• 33:45
  Speaker 2: was last Friday, which or their last paycheck was due
• 33:47
  Speaker 2: last Friday, which was missed. More than three hundred officers
• 33:51
  Speaker 2: have quit since the shutdown, and according to the department,
• 33:54
  Speaker 2: more than ten percent did not report to work on Sundays.
• 33:58
  Speaker 2: So if you are traveling anytime soon, I'll count myself
• 34:01
  Speaker 2: in that group. I'll be leaving about a month from now,
• 34:04
  Speaker 2: so good luck, I hope. I told you guys that
• 34:06
  Speaker 2: you need to find somebody else to do the program.
• 34:12
  Speaker 2: The TSA lines apparently across the country are unpredictable and
• 34:16
  Speaker 2: sporadically quite bad depending on the location, and unfortunately something
• 34:22
  Speaker 2: we've become used to at this stage, but a new
• 34:26
  Speaker 2: interruption for those taking flight over the course, like looking at.
• 34:29
  Speaker 4: The price of jet fuel, because somebody reminded me internally
• 34:32
  Speaker 4: this morning when I was talking about diesel prices making
• 34:34
  Speaker 4: their way through to transportation and into headline inflation and
• 34:38
  Speaker 4: the problem that creates for the FED sort of the
• 34:40
  Speaker 4: same thread that we were discussing earlier. Not surprisingly, because
• 34:45
  Speaker 4: diesel prices, which are I guess closely related to the
• 34:47
  Speaker 4: kerosene type jet someone schooled me on this this morning,
• 34:51
  Speaker 4: both are up about forty percent, or at least jet
• 34:54
  Speaker 4: fuel prices were up about forty percent through last Friday.
• 34:57
  Speaker 4: They plunged yesterday, So this is a very volatile series.
• 35:01
  Speaker 4: But I guess it's sufficient to say that diesel and
• 35:07
  Speaker 4: jet fuel prices up about forty percent since the war
• 35:10
  Speaker 4: or the conflict, whatever we're calling it now to avoid
• 35:12
  Speaker 4: upsetting people since that started a few weeks ago.
• 35:16
  Speaker 5: Many families consider using a life estate as part of
• 35:19
  Speaker 5: their planning, but without a clear understanding, it can lead
• 35:22
  Speaker 5: to unintended consequences. Cushing and Dolan avenue guide called Calculating
• 35:27
  Speaker 5: the Consequences of Life Estates that explains what to watch
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• 35:35
  Speaker 3: Key rules to.
• 35:36
  Speaker 5: Be aware of include the five year Medicaid look back,
• 35:40
  Speaker 5: where the state reviews financial transactions over the prior five years.
• 35:44
  Speaker 5: In certain transfers like giving away property or assets can
• 35:48
  Speaker 5: create a period where benefits are delayed. Call Cushing and
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• 36:19
  Speaker 2: The SEC is preparing a proposal to eliminate quarterly reporting requirement.
• 36:24
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  Speaker 2: to a requirement to only disclose earnings twice a year.
• 36:45
  Speaker 2: I believe the thinking here is from a push from
• 36:48
  Speaker 2: those companies because the cost of complying with every ninety
• 36:52
  Speaker 2: days telling every investor out there how you are doing
• 36:55
  Speaker 2: has become pretty immense. In fact, there is such a
• 36:59
  Speaker 2: shortage of accountants out there these days that a few
• 37:01
  Speaker 2: companies have had to delay their earnings reports because of
• 37:05
  Speaker 2: inability to have them audited by official accounting companies.
• 37:10
  Speaker 3: Big take on this.
• 37:11
  Speaker 2: Is I think it's a small move to attempt to
• 37:15
  Speaker 2: make being a publicly traded company less expensive, but at
• 37:19
  Speaker 2: the same time, it also removes publicly available information about
• 37:23
  Speaker 2: what you're investing in.
• 37:24
  Speaker 1: Yeah.
• 37:24
  Speaker 4: More transparency with greater frequency is typically better, So investors
• 37:28
  Speaker 4: are going to have to guess. We'll see if companies
• 37:30
  Speaker 4: that choose to take advantage of this. I assume it'll
• 37:32
  Speaker 4: be approved if their stock prices become more volatile relative
• 37:36
  Speaker 4: to the previous reporting regime. I suspect that they will,
• 37:39
  Speaker 4: because investors are going to have to guess also, and
• 37:41
  Speaker 4: then they'll find it's in their interest, by the way,
• 37:43
  Speaker 4: to to report more often, So this could be self correcting.
• 37:47
  Speaker 4: It's an interesting little experiment.
• 37:48
  Speaker 3: Yeah.
• 37:48
  Speaker 2: I suspect that big cash rich companies will continue to
• 37:52
  Speaker 2: go quarterly, but smaller companies that don't have the capital
• 37:58
  Speaker 2: to be able to spend on this sort of thing
• 37:59
  Speaker 2: might move move to buy annually, and we'll see if
• 38:01
  Speaker 2: that makes them even smaller and more volatile.
• 38:05
  Speaker 3: Let's take a quick break.
• 38:07
  Speaker 2: A lot more to cover in the second hour of
• 38:09
  Speaker 2: the show, markets remaining strongly in positive territory after a
• 38:13
  Speaker 2: solid day in the green yesterday. We'll be right back
• 38:15
  Speaker 2: here on the Financial exchange