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The Most Powerful Force Moving Markets Right Now · The Financial Exchange Show

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Speaker 1: donation today. This is the Financial Exchange with Chuck Zada
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Speaker 1: and Mike Armstrong, Chuck.
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Speaker 2: Mike and Tucker with you.
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Speaker 3: And as we continue through the week, top story remains
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Speaker 3: the same, continuing to watch closely what is going on
1:20
Speaker 3: in the Middle East for signs of a change from
1:24
Speaker 3: how things have been for the last four weeks. Now
1:27
Speaker 3: tomorrow is going to be the official four week mark
1:31
Speaker 3: of the conflict in the Middle East, and so you know,
1:36
Speaker 3: we're getting to the point now where depending on how
1:39
Speaker 3: much longer this moves or how much longer this goes on,
1:43
Speaker 3: the knock on effects from the lack of energy products
1:47
Speaker 3: and other commodities transiting the Strait of Horn moves becomes larger.
1:53
Speaker 3: This is something that we've said since the beginning that
1:55
Speaker 3: every day this goes on, the economic damage is going
1:59
Speaker 3: to become more challenging to overcome. And so as we
2:04
Speaker 3: get to this point, it's clear to me, and this
2:09
Speaker 3: piece from the Wall Street Journal kind of echoes it,
2:12
Speaker 3: that the White House would prefer to have this thing,
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Speaker 3: you know, kind of done and dusted at this point,
2:17
Speaker 3: you know, would like to have operations wrapped up. But
2:21
Speaker 3: the question is, can you wrap operations up with a
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Speaker 3: sufficient resolution as far as what the what the what
2:33
Speaker 3: any kind of settlement at the end of this looks
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Speaker 3: like and that's something that you can't necessarily put a
2:40
Speaker 3: timetable on if you really want to prioritize getting the
2:44
Speaker 3: best outcome versus moving as quickly as possible.
2:49
Speaker 4: Yeah, I continue to go back to I don't know
2:52
Speaker 4: how you possibly price the risk of this continuing versus ceasing.
2:57
Speaker 4: I'm willing to say that when you have head lines
3:01
Speaker 4: like the one that I'm seeing on Bloomberg right now,
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Speaker 4: where Iron claims to have officially responded to the fifteen
3:10
Speaker 4: point cease fire and is now putting it back in
3:13
Speaker 4: the US's hands, I suppose that leads me to believe
3:18
Speaker 4: that this is closer to a resolution.
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Speaker 2: Than we were a week ago.
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Speaker 4: But that could still mean many months out, and it
3:26
Speaker 4: could mean nothing that they have responded to this.
3:29
Speaker 5: And the other headline that I.
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Speaker 4: Just saw is that they're accusing the United States of
3:32
Speaker 4: deception and so well, that was their response, right, The
3:35
Speaker 4: response was, this is deception and it's again. Do I
3:38
Speaker 4: take that as encouraging that at least there are words
3:40
Speaker 4: being exchanged, I guess, But it is impossible for me
3:44
Speaker 4: or I think anybody else to price the risk of
3:46
Speaker 4: that being meaningless, and as we keep saying, the only
3:49
Speaker 4: thing that really matters is do boats start moving through
3:52
Speaker 4: the strait? So it's interesting to talk about these things.
3:55
Speaker 4: Markets are reacting pretty substantially, minute by minute on the
4:00
Speaker 4: headlines of who's speaking and when. But you know, I
4:05
Speaker 4: keep going back to I just don't know what to
4:07
Speaker 4: do with that information.
4:09
Speaker 3: And my answer continues to be the same thing it's
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Speaker 3: been all along.
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Speaker 2: You don't really do anything with it, you know.
4:14
Speaker 3: It's Look, here's the thing that there, here's the way
4:20
Speaker 3: the market psychology is set up right now. And this
4:23
Speaker 3: goes back to basically exactly a year ago. And this
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Speaker 3: is why I can telle This has been my view
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Speaker 3: since this started. I asked you a couple of weeks ago, Mike,
4:35
Speaker 3: what's been the single most powerful force in markets over
4:38
Speaker 3: the last fourteen months? And my answer was President Trump,
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Speaker 3: And specifically, the day after, uh not the day after,
4:47
Speaker 3: two days after, two trading days after when the Liberation
4:51
Speaker 3: Day tariffs were repealed, the S and P five went
4:54
Speaker 3: up nine and a half percent a single day. Yep,
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Speaker 3: I am convinced more than ever after watching how this
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Speaker 3: market has moved for the last four weeks that that
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Speaker 3: single event has changed the psychology of market participants to
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Speaker 3: I can't miss that next time when that happens. But
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Speaker 3: in doing so, are you preventing that next time from
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Speaker 3: actually happening? Because the market can't fall in response to
5:25
Speaker 3: bad news before rallying, right, And so it's kind of
5:28
Speaker 3: short circuited the market's approach to managing risk because no
5:33
Speaker 3: one wants to miss when there's a solution that's announced
5:37
Speaker 3: and the market rallies. But if the market hasn't really
5:41
Speaker 3: fallen that far, can that rally happen? And just to
5:45
Speaker 3: like take you back a year ago, because again I
5:48
Speaker 3: think this is informative just for you know, talking about
5:52
Speaker 3: where we are right now. On the day after Liberation Day,
5:57
Speaker 3: So the day before the S and P cost at
5:58
Speaker 3: fifty six to seventy. The day after went down to
6:02
Speaker 3: fifty three ninety six. It was about a four percent fall.
6:04
Speaker 3: On Friday, April third, I'm sorry, Thursday, April third, we
6:09
Speaker 3: then came in on Friday and the market took another
6:13
Speaker 3: eight percent down, move to i'm sorry, seven percent down,
6:16
Speaker 3: moved to around five thy seventy four. It then for
6:19
Speaker 3: the next couple days bounced all the way is low.
6:23
Speaker 3: It got down to forty nine to ten. Actually intra
6:26
Speaker 3: day it got down to forty eight thirty five. So
6:29
Speaker 3: in the days after Liberation Day we saw a move
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Speaker 3: from like fifty seven hundred to forty eight hundred. That's
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Speaker 3: almost a twenty percent move in a span of three
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Speaker 3: to four days, right, and then you had that big
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Speaker 3: nine and a half percent rally that kicked off, you know,
6:44
Speaker 3: the subsequent six month rally from late April through early October,
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Speaker 3: and so investors don't want to miss that, and I
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Speaker 3: totally understand. But if you have a market that has very,
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Speaker 3: very begrudgingly fallen four percent over the course of a
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Speaker 3: month instead of four percent the day after the tariff announcement,
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Speaker 3: it suggests to me that investors are more nervous about
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Speaker 3: missing upside right now than pricing and potential downside. And
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Speaker 3: I'm not saying that's wrong, Like maybe that is the
7:17
Speaker 3: right approach, because that downside can be you know, managed
7:22
Speaker 3: into certain ways. Like I don't know, I'm not saying
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Speaker 3: that's inherently wrong or anything, but what I am telling
7:27
Speaker 3: you is if at any other point in time, with
7:31
Speaker 3: anyone else in the White House, you'd tell me, hey, guys,
7:36
Speaker 3: straighthorror moves is closed for a month, what's the market response.
7:40
Speaker 3: It's not it's not four percent down. I gotta be
7:43
Speaker 3: honest with you. Yeah, you know, so markets are betting
7:46
Speaker 3: on President Trump being able to navigate this to a
7:50
Speaker 3: conclusion that avoids those worst case outcomes. And maybe that
7:55
Speaker 3: is the right answer, Like I don't know, but this
7:59
Speaker 3: is not a market that is poised for a ten
8:03
Speaker 3: percent rally the day that a solution is announced in
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Speaker 3: my opinion now, of course, like I'll end up being
8:10
Speaker 3: wrong and like right, and I go up to like
8:11
Speaker 3: seventy two hundred the.
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Speaker 4: Day out my answers, I have no idea, but kings,
8:15
Speaker 4: But you're right.
8:16
Speaker 3: I keep get the reason most big updates, Like the
8:18
Speaker 3: reason why you always hear that, Oh, like if you
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Speaker 3: you know, miss like the biggest updays in markets each year,
8:23
Speaker 3: like you know you'd miss so many of the returns?
8:25
Speaker 3: Is they usually happen when things have gotten really bad, right,
8:29
Speaker 3: and then the recovery is when you see those big updates.
8:31
Speaker 3: If the market is six percent off its all time high,
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Speaker 3: I don't know, Like do you get the nine and
8:38
Speaker 3: a half percent update, then it strikes me as challenging at.
8:42
Speaker 5: Least, I would think.
8:43
Speaker 2: So.
8:43
Speaker 4: My counterpoint, Chuck would be, I have probably not listeners
8:47
Speaker 4: to this show on a daily basis, but I have
8:49
Speaker 4: gotten a multitude emails, calls, and otherwise questions about, hey,
8:53
Speaker 4: markets are getting hammered. Is now the time to do it?
8:56
Speaker 4: And I think if you do not actually look at
8:58
Speaker 4: the numbers, and you just follow the headlines, you might
9:01
Speaker 4: be inclined to believe that the market has gotten hammered.
9:04
Speaker 4: On the news, every headline is about how the S
9:06
Speaker 4: and P has sank, you know, third week in a
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Speaker 4: row of down markets. But to your point, it's resulted
9:12
Speaker 4: in in a market that is less than seven percent
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Speaker 4: off of its all time highs and less than five
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Speaker 4: percent off of the pre war highs.
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Speaker 5: So my point would be, I don't know.
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Speaker 4: Maybe there are a whole bunch of people that jump
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Speaker 4: into markets because they perceive they have been down and
9:26
Speaker 4: hammered because of the events in Iran.
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Speaker 3: Now, I will say, like, on a micro level, again,
9:32
Speaker 3: this has been the story for the last five six months. Now,
9:35
Speaker 3: if you look at what's happened since the start of
9:39
Speaker 3: the month, you can look at parts of this market
9:42
Speaker 3: and be like, ooh, that's pretty gross. You know, Like
9:45
Speaker 3: you take a look at Google and Meta just as
9:47
Speaker 3: an example, they're both down around ten percent. I don't
9:50
Speaker 3: think Google and Meta are particularly tied to the outcome
9:52
Speaker 3: in the Middle East, but they're still down, you know,
9:55
Speaker 3: about ten percent. You got a bunch of healthcare companies
9:58
Speaker 3: down around ten percent. You go through the industrial space
10:02
Speaker 3: and you've got you know, ge off fifteen percent sinceince
10:04
Speaker 3: start of the month, Boeing off thirteen. You've got who else,
10:09
Speaker 3: Parker Hannifin's down ten. You go to you know, consumer cyclicals,
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Speaker 3: home Depot and Lows are both down more than ten
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Speaker 3: percent since the start of the month. You know, homebuilders
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Speaker 3: have gotten wrecked. Even like you look at your safe thing,
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Speaker 3: you know, things that people think of as safe. Procter
10:22
Speaker 3: and Gambles off fourteen percent. Coreox is off fourteen percent.
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Speaker 3: You know, sorry, Clorox is off seventeen percent. So, like
10:30
Speaker 3: you go through the individual names and you're like, yeah,
10:33
Speaker 3: it's been kind of grim for a lot of them.
10:35
Speaker 3: But there have been pockets of the market that have
10:37
Speaker 3: somehow held up. You know, energy being the biggest one obviously,
10:41
Speaker 3: but software has had an overall bounce back after a
10:44
Speaker 3: really bad January and February. You've got you know, companies
10:48
Speaker 3: that have rallied in that area. And so you know,
10:51
Speaker 3: the S and P five hundred if you take a
10:53
Speaker 3: look at it and say, g like, how's the S
10:55
Speaker 3: and P actually done? You know over the last you know,
11:00
Speaker 3: which again includes you know sometime before S and P's
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Speaker 3: off around five and a half percent during that time,
11:05
Speaker 3: which is I'm not saying that's like, hey, great, but
11:09
Speaker 3: it's it's not even correction territory right, you know, like
11:12
Speaker 3: the the wheels are not falling off the bus. It's
11:15
Speaker 3: just the bus is kind of on you know, bumpy territory.
11:18
Speaker 3: Bumpy uh, you know, bumpy terrain right now. So we'll
11:22
Speaker 3: see where things go here again. I think ultimately the
11:26
Speaker 3: next ten days are pretty pivotal just because like you
11:29
Speaker 3: get to that point and a again every day that
11:32
Speaker 3: the impacts worsen. But b it's hey, you're gonna have
11:36
Speaker 3: those marines in theater right now, You're going to have
11:39
Speaker 3: you know, some of those additional forces there. What happens
11:42
Speaker 3: in terms of is this a negotiating ploy, is this
11:45
Speaker 3: actually you know some action that's coming. We're getting to
11:48
Speaker 3: a pretty pivotal point in this and I think within
11:53
Speaker 3: the next ten days UH is going to be a
11:56
Speaker 3: pretty important period to watch, because, as I've saying all along,
12:00
Speaker 3: the actions are going to make this thing, not the words.
12:02
Speaker 3: Don't pay attention to what each side is saying, pay
12:04
Speaker 3: attention to what they're doing. Right now, there's still lobbing
12:07
Speaker 3: missiles and bombs at each other, and hormos remains largely
12:10
Speaker 3: closed aside from a few small exceptions here and there.
12:14
Speaker 3: Let's take a quick break, and when we return, let's
12:18
Speaker 3: talk a little bit about what we're seeing in energy markets.
12:21
Speaker 3: Is this going to be a short term shock? Is
12:23
Speaker 3: it a longer term one? We'll discuss after this.
12:27
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13:37
Speaker 2: Mike.
13:37
Speaker 3: We got a piece here from the Wall Street Journal.
13:41
Speaker 3: Trump says the energy shock will be short lived. CEO's
13:43
Speaker 3: paint a scarier picture, and specifically it's talking about what
13:48
Speaker 3: we're seeing from oil and gas CEOs and again across
13:55
Speaker 3: you know, several of them basically talking about what they
14:00
Speaker 3: see as the potential for longer disruptions. So a couple
14:03
Speaker 3: of quotes here just that I'll put into the record,
14:05
Speaker 3: if you will. What they fail to understand is that
14:08
Speaker 3: the daily tweets. Driving volatility in both the commodity market
14:11
Speaker 3: and equity market isn't good for anyone. It's really just
14:13
Speaker 3: difficult to make any type of intelligent decisions in that environment.
14:18
Speaker 3: This from Mark Viviana, who's a managing partner at Kimmeridge,
14:21
Speaker 3: who is an energy investment firm.
14:23
Speaker 4: So is the way to read that that no oil
14:25
Speaker 4: executive wants to pump additional oil based on the volatility
14:29
Speaker 4: we're seeing right now, even though it's strongly upward.
14:32
Speaker 3: Yeah, it's it's something where Okay, they can't make concrete
14:36
Speaker 3: decisions because they don't know what the picture is going
14:38
Speaker 3: to look like six twelve months from now at a minimum,
14:42
Speaker 3: and longer term two three, four years. I mean again,
14:47
Speaker 3: there are reasonable questions that I think if you're if
14:49
Speaker 3: you're an energy executive, like let's let's say that you
14:52
Speaker 3: are considering, you know, projects in the Middle East, just
14:55
Speaker 3: as an example, which remember US energy company partner with
15:01
Speaker 3: stayed on enterprises throughout the Middle East on a regular basis.
15:04
Speaker 3: The Qatar LNG plant that was hit last week last Wednesday,
15:09
Speaker 3: I think it was not a US firm that was
15:11
Speaker 3: a partner there, but Shell Oil, you know, Royal Dutch
15:14
Speaker 3: Shell is a.
15:14
Speaker 2: Partner in that.
15:15
Speaker 3: There are Chevron and Exxon facilities in the region as well.
15:20
Speaker 3: If you're trying to even if you're not talking about
15:22
Speaker 3: domestic production, even if you're talking about, hey, do we
15:25
Speaker 3: want to be a partner in you know, repairing you know,
15:27
Speaker 3: those refineries in this and that. Questions that might be
15:31
Speaker 3: in your mind are, hey, what's the path going to
15:33
Speaker 3: look like for us being able to get ships out
15:35
Speaker 3: of the region?
15:37
Speaker 2: Right?
15:37
Speaker 3: Is Iran going to be you know, in a position
15:40
Speaker 3: where they think they're charging a toll for the foreseeable future?
15:43
Speaker 2: Are there still.
15:44
Speaker 3: Going to be sporadic you know conflicts that break out,
15:48
Speaker 3: you know, on a regular basis. These are questions that
15:51
Speaker 3: you ask in that region, and domestically you're asking a
15:55
Speaker 3: different set of questions, which is, hey, prices are this
15:58
Speaker 3: way now, but given where global supply is going, you know,
16:02
Speaker 3: kind of longer term, if we get back to that balance. Remember,
16:06
Speaker 3: if you're talking about developing, you know, oil projects, you're
16:09
Speaker 3: talking something that takes you know, years to happen and
16:12
Speaker 3: then a decade or so to actually pay off. This
16:16
Speaker 3: is a question where you sit there and you go, hey,
16:18
Speaker 3: I'm not willing to commit to anything long term right now,
16:21
Speaker 3: because I don't know what the lay of the land
16:23
Speaker 3: is going to look like in twenty seven, eight nine,
16:25
Speaker 3: and twenty thirty right other things that we have from
16:29
Speaker 3: Chevron's CEO, they are very real, physical manifestations of the
16:32
Speaker 3: closure of the straight offor moves that are working their
16:34
Speaker 3: way around the world and through the system that I
16:37
Speaker 3: don't think are fully priced in.
16:38
Speaker 2: That's from Chevron's CEO.
16:40
Speaker 5: Should we talk.
16:41
Speaker 4: About a few of those real like the South Korea,
16:43
Speaker 4: the Philippines. What's actually happening in some of those places?
16:47
Speaker 4: I know we have talked about it, but with China
16:50
Speaker 4: banning fuel exports for all of March, South Korea is
16:53
Speaker 4: no driving gas powered vehicles, or at least restrictions on
16:57
Speaker 4: gas powered vehicles, Philippines allowing dirty or dirty of fuels,
17:01
Speaker 4: Laos cutting.
17:02
Speaker 2: The number of datas.
17:03
Speaker 4: Japan, Yeah, children attend school, They've cut school to three
17:07
Speaker 4: days a week, Bangladesh, Pakistan closed universities, moved classes online.
17:11
Speaker 4: So we talk through everything through a very US centric focus.
17:15
Speaker 4: But this is the point that I've been making is
17:16
Speaker 4: elsewhere in the world they're already dramatically seeing the effects
17:20
Speaker 4: and they're doing this. Yeah, these preemptive measures that are
17:23
Speaker 4: being done are being made so that those economies can
17:28
Speaker 4: push energy to the most critical areas of their economy,
17:32
Speaker 4: which are generally manufacturing for most of those that we
17:35
Speaker 4: just listed, and that is where ultimately the US could,
17:37
Speaker 4: I think feel it would be these places can't manufacture things.
17:42
Speaker 3: The other place is the fact that, look, we're talking
17:45
Speaker 3: about energy right now, and I know that everyone loves
17:48
Speaker 3: to just talk about this as an energy shock, but
17:52
Speaker 3: it's a fertilizer shock, it is a plastic shock, it
17:56
Speaker 3: is an aluminum shock. Like all of these things are
17:59
Speaker 3: made and produced in significant quantities throughout the Middle East
18:03
Speaker 3: and flow through to the rest of the world. And
18:06
Speaker 3: just as an example, Dow Chemical, Like y'all are familiar
18:09
Speaker 3: with Dow Chemical, They're.
18:10
Speaker 2: Yes, you know, they're they're out.
18:12
Speaker 5: They're Dow Chemical.
18:13
Speaker 2: They're Dow Chemical, Like you know exactly.
18:16
Speaker 3: Uh, they came out, I think it was on Tuesday
18:19
Speaker 3: of this week and they announced a sixty percent price
18:23
Speaker 3: hike on all their polyethylene products. Now again polyethylene, if
18:28
Speaker 3: you're not familiar with it, Uh, open your fridge. Everything
18:32
Speaker 3: in your fridge is packaged with some type of polyethylene,
18:37
Speaker 3: and so you're talking about you know, sixty percent moving
18:39
Speaker 3: up there. Uh Mike, I'm I'm sitting in front of
18:42
Speaker 3: a laptop right now. Have to believe that there's all
18:45
Speaker 3: kinds of plastic polymers in it, because I'm not just
18:47
Speaker 3: looking at a giant piece of metal. This like, this
18:51
Speaker 3: is where this stuff hits. The hits the system as well.
18:54
Speaker 3: And it's not to say that like the cost of
18:56
Speaker 3: your grapes are gonna go up by sixty percent of
18:58
Speaker 3: the cost of your laptops will, but it's a combination
19:01
Speaker 3: of things. Number One doubt also indicated by the way
19:04
Speaker 3: last week they don't even know if they can source
19:07
Speaker 3: all of the polyethylene they need. They're not sure they can.
19:11
Speaker 3: And you're talking about one of the biggest chemical companies
19:14
Speaker 3: in the world. So part of this also might be, hey,
19:18
Speaker 3: we can only produce x number of you know, whatevers
19:22
Speaker 3: it is, be it you know, plastic bags or shrink
19:24
Speaker 3: wrap or you know, keyboard keys. These are going to
19:27
Speaker 3: be things that play in as well. Let's take a
19:31
Speaker 3: quick break, and when we return, let's talk about private credit.
19:36
Speaker 3: We've done enough Middle East for now. We'll talk about
19:38
Speaker 3: what Lloyd Blank find has to say about private credit next.
19:41
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20:01
Speaker 6: Markets remained volatile as Wall Street keeps its focus on
20:04
Speaker 6: the war in Iran, where President Trump threatened to escalate
20:06
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20:11
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20:14
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20:18
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20:20
Speaker 6: hundred down four tenths of a percent, NASDAC down about
20:24
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20:58
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21:03
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21:05
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21:08
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21:13
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21:17
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21:22
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21:26
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21:30
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21:34
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21:37
Speaker 6: or loser. However, shares are up by two percent. I'm
21:40
Speaker 6: Tucker Silva and that is Wall Street Watch.
21:44
Speaker 2: Mike, we got another week.
21:45
Speaker 3: Another comment from former Goldman Sachs CEO Lloyd Blankfine, saying quote,
21:51
Speaker 3: this is in regards to private credit. At some point
21:54
Speaker 3: there needs to be a forcing function or a reckoning
21:56
Speaker 3: that causes you to come to grips with what your
21:57
Speaker 3: balance sheet really is worth the best. The analogy I
22:01
Speaker 3: like to give is you accumulate tinder on the floor
22:03
Speaker 3: of the forest, and eventually a spark will come. But
22:05
Speaker 3: the longer between intervals where there's a spark that sets
22:08
Speaker 3: it on fire, the more that accumulates. So basically saying, hey,
22:11
Speaker 3: there's some crap that's built up here and you need
22:14
Speaker 3: to flush it from the system, but it can be
22:16
Speaker 3: painful to do. So there's not really any specifics here,
22:19
Speaker 3: so I don't think that you know, there's there's anything
22:22
Speaker 3: that you know he necessarily knows on this. And I
22:27
Speaker 3: want to touch on a few things that have been
22:28
Speaker 3: bothering me about just the way that private credit's been
22:32
Speaker 3: talked about in the last week or so. I'm no
22:35
Speaker 3: way like defending private credit, which I think has some
22:38
Speaker 3: very real problems they're reckoning with. But Apollo Group operates
22:43
Speaker 3: a large private credit fund and they had requests for
22:48
Speaker 3: what was't Mike, I think it was like eleven percent
22:50
Speaker 3: of funds to be with, and this is it's it's
22:55
Speaker 3: through what's known as an interval fund, which basically on
22:58
Speaker 3: a quarterly basis, allows investors to redeem five percent of
23:03
Speaker 3: these shares in the fund if they want to after
23:07
Speaker 3: that withdrawals or capped. That's the standard procedure for how
23:10
Speaker 3: they operate. And a lot was made this week that
23:14
Speaker 3: oh like investors submitted request for eleven percent, but you know,
23:17
Speaker 3: Apollo only let them get five percent out. That's how
23:22
Speaker 3: the fund is set up to function right even before
23:25
Speaker 3: any problems. That was the standard operating procedure for it
23:31
Speaker 3: was to let five percent out. Because these funds a
23:34
Speaker 3: do keep you know a little bit of liquidity. They
23:36
Speaker 3: often do have you know, some facilities that they can
23:40
Speaker 3: borrow against for that if they need to. They have
23:42
Speaker 3: income that gets kicked out, so you know, the five
23:44
Speaker 3: percent makes sense in that respect. They do have to
23:47
Speaker 3: go and sell some stuff, and they usually will start
23:50
Speaker 3: to sell off the higher quality stuff that they can
23:52
Speaker 3: get you know, better value for. But ultimately it's something
23:56
Speaker 3: where for all of the problems with private credit, the
24:00
Speaker 3: fact that a fund that always has had a five
24:03
Speaker 3: percent gate let five percent of assets out is not
24:07
Speaker 3: something I'm going to criticize them for.
24:10
Speaker 4: Yeah, you know, the other thing that I keep seeing,
24:13
Speaker 4: and part of this is because right now I just
24:16
Speaker 4: happened to be rereading Michael Lewis's The Big Short just
24:20
Speaker 4: I don't know why I decided to pick it up again,
24:22
Speaker 4: but I'm rereading it at the moment.
24:23
Speaker 2: And is it because you're a little short?
24:25
Speaker 5: Yeah?
24:27
Speaker 2: Me too?
24:27
Speaker 5: Nice quite short.
24:28
Speaker 4: That was fantastic, But I'm rereading it right now, and
24:32
Speaker 4: probably that's influencing how I read some of these articles.
24:35
Speaker 4: But when I hear blank find warrnt of fire risks,
24:38
Speaker 4: I mean it's the same terms that all of the
24:42
Speaker 4: author's POSTGFC. We're describing things prior to and the people
24:46
Speaker 4: that were shorting all of the you know, the entire
24:49
Speaker 4: subprime mortgage market, we're talking about it leading up to it.
24:53
Speaker 5: And again I'm thinking it's.
24:55
Speaker 4: Just because you are talking about the guy who led
24:59
Speaker 4: Goldman's Act during that period of time, so I think
25:02
Speaker 4: he's predisposed to talking about things in terms of fire risk.
25:06
Speaker 4: But if you go one, if you're an investor that
25:10
Speaker 4: hasn't read The Big Short, like we talked about good
25:14
Speaker 4: books to you know, familiarize yourself with, that's probably one
25:18
Speaker 4: of them. It's also really entertaining in a very easy read,
25:20
Speaker 4: so you.
25:20
Speaker 2: Might as well.
25:22
Speaker 4: But the way that they are talking about it is
25:26
Speaker 4: in the same context of that, and they are really
25:30
Speaker 4: very very different events in terms of like, yeah, there's
25:34
Speaker 4: opacity that is consistent between the two of them, but
25:37
Speaker 4: that's really all that I can see in terms of similarities.
25:44
Speaker 3: I mean, here's the thing, and this is the thing
25:48
Speaker 3: with private credit. None of us know how big the
25:51
Speaker 3: asset class actually is because it's private. The estimates are
25:54
Speaker 3: anywhere from like three to six trillion dollars. It's kind
25:58
Speaker 3: of a big variation either way. That is smaller than
26:01
Speaker 3: the US mortgage market both at the time in two
26:04
Speaker 3: thousand and eight and today, and so I think it's
26:08
Speaker 3: incredibly likely that you do not have a two thousand
26:11
Speaker 3: and eight type scenario because of a the size of
26:13
Speaker 3: it be who's holding this, and those are the main thing.
26:16
Speaker 4: Remember too, though, during the eight mortgage market, it wasn't
26:18
Speaker 4: just the mortgage market that was being short It was
26:20
Speaker 4: all of these synthetic derivatives that were created to mirror
26:23
Speaker 4: the mortgage market and effectively duplicated the exposure of the
26:28
Speaker 4: mortgage market on top of everything else. Yes, so there
26:32
Speaker 4: was a lot more in terms of just the measurement
26:35
Speaker 4: of the total outstanding debt.
26:38
Speaker 3: But if you want to say, here's where I think
26:40
Speaker 3: there's a key similarity that has some danger to the
26:43
Speaker 3: US economy in terms of how it could play out.
26:46
Speaker 3: Back during the run up to the what ended up
26:50
Speaker 3: breaking the mortgage market was banks eventually saying no, we're
26:55
Speaker 3: not going to put any more money into mortgage backed securities,
26:58
Speaker 3: like we've got enough, and so that in turn dried
27:01
Speaker 3: up the market for new mortgages, which made it harder
27:04
Speaker 3: to sell properties, which made values fall further, which exacerbated
27:08
Speaker 3: the problem, and eventually everything just broke because the stuff
27:11
Speaker 3: had no value. That that's not where you're going with this,
27:14
Speaker 3: because this is not the same fundamental issue. But you
27:17
Speaker 3: do have a lot of these mid market businesses that
27:20
Speaker 3: they rely on private credit to by inventory or to
27:24
Speaker 3: expand their business or whatever it might be. And when
27:30
Speaker 3: that funding mechanism dries up, it may result in a
27:34
Speaker 3: slowdown in the US economy because these businesses can't expand
27:37
Speaker 3: the same way, and so it could represent a threat
27:40
Speaker 3: to the overall economic growth of the economy in that
27:42
Speaker 3: fashion and in turn then exacerbate some of the problems
27:46
Speaker 3: in private credit through that same cyclical mechanism, because if
27:50
Speaker 3: the US economy doesn't expand as quickly, then the companies
27:54
Speaker 3: that have borrowed, you know, already done the borrowing to
27:56
Speaker 3: try to expand aren't going to see as much in
27:58
Speaker 3: the way of demand, and so the problem gets worse there.
28:01
Speaker 4: Yeah, and the tentacles of it have reached it. You
28:05
Speaker 4: are far reaching like it was during away And I'll
28:08
Speaker 4: acknowledge that for a moment here too, that, yeah, all
28:11
Speaker 4: sorts of buyers over the course of the last five
28:13
Speaker 4: years especially, have been gobbling this stuff up under the
28:16
Speaker 4: assumption that it is infallible, not maybe infallible, but that
28:21
Speaker 4: it is good and low, lower risk than you know,
28:28
Speaker 4: seemingly we're discovering right now.
28:30
Speaker 3: So that's kind of where things stand with private credit.
28:32
Speaker 3: It's still, uh, we're watching, but no one knows, you know,
28:37
Speaker 3: how big the problem is. And again, I think it's
28:40
Speaker 3: something where you got to keep your antenna up for
28:43
Speaker 3: the next you know, twelve to eighteen months.
28:46
Speaker 2: Maybe. I think we said, like.
28:47
Speaker 3: Earlier this week, like, hey, if you haven't seen problems
28:49
Speaker 3: by the end of next year, you can kind of
28:52
Speaker 3: start to put things to bed. But it's something where
28:54
Speaker 3: you just kind of have to watch and see how
28:56
Speaker 3: it develops. There's no other way to do it, and
28:59
Speaker 3: we'll just have to see what comes from it.
29:03
Speaker 2: I think that's kind of where it is.
29:05
Speaker 3: Let's take a quick break here, and when we come back,
29:09
Speaker 3: we'll talk about prediction markets and Congress. Are they going
29:13
Speaker 3: to get their act together to maybe prevent members of
29:16
Speaker 3: Congress from using prediction markets for trading. We'll discuss that next.
29:22
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29:53
Speaker 3: We got some news yesterday a exclusive.
29:58
Speaker 2: From Politico that quote here.
30:00
Speaker 3: Lawmakers are introducing bipartisan legislation to prohibit members of Congress,
30:04
Speaker 3: the President, and others in the executive branch from trading
30:06
Speaker 3: in certain prediction markets, according to Bill Tech shared exclusively
30:10
Speaker 3: with Politico, and basically it would be called the Preventing
30:17
Speaker 3: Real Time Exploitation and Deceptive Congressional Trading Act. The predict Act,
30:21
Speaker 3: and it would prevent members of Congress from participating in
30:25
Speaker 3: prediction markets related to political events or policy decisions. It
30:29
Speaker 3: also says that the legislation would implement to find a
30:32
Speaker 3: violators of ten percent of the value of violating transactions,
30:36
Speaker 3: plus force any profits from those transactions to go to
30:38
Speaker 3: the US Treasury, to which I say, this is nothing.
30:44
Speaker 3: This is nothing. So here's the deal. First of all,
30:48
Speaker 3: it's not actually banning them from using prediction markets. It's
30:53
Speaker 3: trying to ban them from prediction markets related to political
30:55
Speaker 3: events or policy decisions. Aren't there like a million different
31:01
Speaker 3: ways that you can like finago, Oh, this wasn't a
31:04
Speaker 3: policy decision. Yeah, you know, like if you were to
31:09
Speaker 3: wager on the price of oil, is that not reflective
31:11
Speaker 3: of policy decisions right now?
31:13
Speaker 4: Yes, it would be bis argue that it wouldn't be correct.
31:17
Speaker 4: This is again they're making this so complicated. The real
31:22
Speaker 4: solution is that anyone serving in Congress, anyone that works
31:28
Speaker 4: for a congress men or woman, anybody in the executive
31:31
Speaker 4: branch should not be able to trade, whether that is
31:36
Speaker 4: you know, whether that is equities, whether that is prediction markets, it's.
31:40
Speaker 3: Horn futures, soybean futures options on the moon.
31:45
Speaker 5: I just don't like care. This is the job you chose,
31:49
Speaker 5: and it.
31:50
Speaker 4: Comes with some reasonable restrictions to restore the faith of
31:56
Speaker 4: the American public that you are.
31:57
Speaker 5: Not just.
32:00
Speaker 2: The money.
32:01
Speaker 4: Yeah, I was gonna use some bad words in it.
32:03
Speaker 4: For the money buy me dinner first. So I think
32:06
Speaker 4: ultimately this is pure poppycock. It's hot garbage.
32:13
Speaker 3: Oh it's a fine of ten percent the value of
32:15
Speaker 3: the transactions? Why not one hundred? Why not two hundred?
32:19
Speaker 3: Why not a million percent? Do you actually want to
32:21
Speaker 3: put down like a marker, like hey, don't do this,
32:24
Speaker 3: or do you just want to be like, oh, well
32:27
Speaker 3: we tried, like you know, gosh, golly, g willkers. So look,
32:33
Speaker 3: I'm on the record. If you are serving anywhere near
32:36
Speaker 3: Congress or the White House or whatever, basically you should
32:40
Speaker 3: have access to whatever the funds are in like the
32:42
Speaker 3: TSP program, you know, like the any any government employees
32:45
Speaker 3: will tell you got like you know, the G Fund,
32:47
Speaker 3: the C Fund, you know, so on and so forth. Great,
32:50
Speaker 3: you can do that if you want to be able to,
32:52
Speaker 3: you know, execute trades at the end of a quarter
32:56
Speaker 3: in those limited sets of funds, fine, you can do so.
33:00
Speaker 3: You know in writing within you know, a ten day
33:01
Speaker 3: period at the beginning of the quarter or.
33:03
Speaker 2: Something like that.
33:04
Speaker 3: Other than that, if you're going to be serving in
33:07
Speaker 3: a place where you have access to that kind of
33:09
Speaker 3: classified information, no, you should not be able to trade
33:14
Speaker 3: on it.
33:14
Speaker 4: And here again, like the evidence is so compelling, here
33:18
Speaker 4: go look at lawmakers who sold stocks in like February.
33:21
Speaker 2: Of twenty twenty yep.
33:23
Speaker 4: If you need the recent information, they add very clearly
33:28
Speaker 4: insider information about how bad the government response was going
33:31
Speaker 4: to be to COVID and sold their stocks because of it.
33:36
Speaker 4: Come on, they are screwing everybody else.
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33:58
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34:02
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34:31
Speaker 1: The proceeding was paid for and the views expressed are
34:33
Speaker 1: solely those of Cushing and Dolan. Cushing and Dolan and
34:35
Speaker 1: or Armstrong Advisory may contact you offering legal or investment services.
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Speaker 1: Cushing and Armstrong do not endorse each other and are
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34:42
Speaker 3: The US Postal Service is going to impose its first
34:45
Speaker 3: ever searcharge on packages related.
34:48
Speaker 2: To fuel cost.
34:50
Speaker 3: It's going to be an eight percent search charge that
34:52
Speaker 3: begins on April twenty six that they will then plan
34:56
Speaker 3: to phase out on January seventeenth, twenty twenty seven. Again,
35:00
Speaker 3: this will apply just to packages, not to regular letters
35:03
Speaker 3: that are delivered via first class mail. And a few
35:08
Speaker 3: different thoughts on this that I have. The first is
35:11
Speaker 3: we've seen energy prices spike before, so why is the
35:14
Speaker 3: Post Office doing this now?
35:16
Speaker 2: Because they're broke.
35:18
Speaker 3: That's the second question, which is the answer rather well,
35:21
Speaker 3: it's an answer to the second question, which is, hey,
35:24
Speaker 3: is there anything about the Post Office's financial conditions.
35:26
Speaker 2: Now that's different from those other times.
35:28
Speaker 3: The answer is yes, there are you know, the post
35:31
Speaker 3: offices problems with you knows, its revenue continued to be
35:38
Speaker 3: a growing problem.
35:40
Speaker 5: Are you surprised that the White Houses allowing this to
35:43
Speaker 5: go through?
35:44
Speaker 3: We'll see if they end up actually doing it. This
35:46
Speaker 3: is pending approval of the who is it? Hang on,
35:51
Speaker 3: there's a commissioner something that this needs to be approved by.
35:55
Speaker 2: You know what?
35:55
Speaker 5: This feels exactly like to me. Do you remember in
35:59
Speaker 5: the postal.
35:59
Speaker 2: Regul Tory commission has to approve it.
36:01
Speaker 4: It was second quarter of twenty twenty five and Amazon
36:04
Speaker 4: decided they were going to start rolling out a price
36:07
Speaker 4: marker on how much the price increase due to tariffs
36:11
Speaker 4: and start you know, showing that as a line item
36:13
Speaker 4: on their sales. And a quick call from the President
36:16
Speaker 4: to Jeff Bezos, uh, you know, killed that within like
36:20
Speaker 4: forty eight hours.
36:21
Speaker 5: This feels exactly the same to me.
36:23
Speaker 3: So I've said for a while, like with certain things,
36:26
Speaker 3: I kind of wonder about it.
36:28
Speaker 2: Why do we care if the post office is profitable
36:30
Speaker 2: or not?
36:34
Speaker 5: I don't have a good answer.
36:36
Speaker 3: Like there's there's no reason to like, we don't go like,
36:38
Speaker 3: as an example, we don't go to the US military
36:43
Speaker 3: and say, why didn't you turn a profit? Well, that's
36:47
Speaker 3: that's not our job. But why didn't you turn a
36:49
Speaker 3: or our jobs to you know, defend America? Yes, but
36:52
Speaker 3: can you do it with a profit, Like no, Like,
36:54
Speaker 3: they have one job and if you try to confuse
36:58
Speaker 3: that job with something else, then you lose you know,
37:01
Speaker 3: the functionality that you're trying to get out of, you know,
37:04
Speaker 3: that particular branch. Likewise, if you were to go to,
37:10
Speaker 3: as an example, like the Department of Energy, most people
37:13
Speaker 3: don't realize that most of the DOE budget relates to
37:16
Speaker 3: maintenance and like decommissioning of anything nuclear, Like it's it's
37:20
Speaker 3: that's like what they actually do. You don't ask that
37:23
Speaker 3: the DOE turns a profit because you'd prefer that they
37:25
Speaker 3: don't blow up the nuclear material.
37:27
Speaker 2: Yeah, like generally, like how it.
37:29
Speaker 5: Works, I'm not sure that the Post Office needs to
37:31
Speaker 5: run a profit.
37:32
Speaker 4: I do think it's reasonable to ask, like the mandate
37:34
Speaker 4: that they have of delivering to more than one hundred
37:37
Speaker 4: and seventy million addresses six days a week, is that
37:39
Speaker 4: a necessary mandate in twenty twenty six.
37:41
Speaker 2: Yes, it is. In my opinion.
37:42
Speaker 3: Yeah, I disagree, and I'm going I'm going to stand
37:45
Speaker 3: up for the rural communities that don't have great connection
37:49
Speaker 3: to the rest of the country otherwise. Yeah, and like
37:53
Speaker 3: it's the again, the ones they'd be talking about getting
37:56
Speaker 3: rid of. It's not you know, your suburban post office, right,
38:00
Speaker 3: It's it's not your downtown, you know New York City
38:03
Speaker 3: post office. It's out in you know, Smooth Wyoming, which
38:07
Speaker 3: has four hundred people in it. And it's like, oh,
38:11
Speaker 3: now you're gonna make things inconvenient from them because the
38:14
Speaker 3: post office needs to turn a profit for some reason.
38:18
Speaker 3: Let's take a quick break. We got hour two coming
38:20
Speaker 3: up in a little bit.