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What Happens if Oil Stays Above $100? · The Financial Exchange Show

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Speaker 1: This is the Financial Exchange with Chuck Zada and Mike Armstrong.
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Speaker 2: Chuck, Mike and Tucker kicking things off for another week
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Speaker 2: here on the Financial Exchange and top story for today,
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Speaker 2: and pretty much the only one that like really really
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Speaker 2: matters to markets right now is what's going on in
1:27
Speaker 2: the Middle East. So I would expect that we're going
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Speaker 2: to spend somewhere between seventy and one hundred percent of
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Speaker 2: our time discussing this today because jobs report not the
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Speaker 2: job report is not going to matter if the Middle
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Speaker 2: East situation persists for an extended period of time. So
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Speaker 2: let's discuss where we stand right now. And I want
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Speaker 2: to also use the caveat in the context that Mike
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Speaker 2: and I have no idea what's actually going to happen,
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Speaker 2: but I know it's shocking, but we can game out
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Speaker 2: some scenarios, which is all that anyone can really do
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Speaker 2: in this and try to talk about what it means
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Speaker 2: for the world economy, what it means for markets, and
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Speaker 2: what it means for your personal portfolio, because ultimately, like
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Speaker 2: that's why a lot of you are listening is like, hey,
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Speaker 2: what does this mean for me? And we don't give
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Speaker 2: any personalized advice on this stuff on this show, Like
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Speaker 2: it's just not what we do because we don't know you, like,
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Speaker 2: we don't even know if you're listening, someone is out there,
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Speaker 2: but we don't know any of the specifics. But ultimately,
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Speaker 2: a lot of people tune into our show because they
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Speaker 2: want to know how world events may impact their lives,
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Speaker 2: and that's what we're going to focus on in the
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Speaker 2: context of this. So, in terms of where we stand
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Speaker 2: right now, straight afour moves remains largely blocked. Typically in
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Speaker 2: a normal day you would have about sixty to seventy
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Speaker 2: ships going in either direction, so about one hundred and
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Speaker 2: thirty hundred and forty ships total right now. The last
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Speaker 2: five days you've had anywhere from one to four, and
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Speaker 2: they've generally been either direct Iranian affiliated tankers or tankers
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Speaker 2: affiliated with like kind of the shadow fleet that exists
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Speaker 2: that has been skirting sanctions, you know, to and from
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Speaker 2: Russian Iran and so on and so forth for the
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Speaker 2: last several years. Right So, you can't get a lot
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Speaker 2: of oil out of the straight ofform moves on one
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Speaker 2: to four ships a day when you're used to having
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Speaker 2: sixty to sixty five going through. It's just not going
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Speaker 2: to work.
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Speaker 3: I was a little bit curious about this so I
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Speaker 3: went and found out how the insurance on this stuff works.
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Speaker 3: Because when you're a tanker, an oil tanker, or any
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Speaker 3: sort of you know, goods shipment company, you have insurance
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Speaker 3: against your cargo, and most of that insurance includes insurance
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Speaker 3: against acts of war. And as we covered, all those
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Speaker 3: insurance policies got canceled last week, and I was kind
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Speaker 3: of curious, like, okay, but how does like how does
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Speaker 3: that work? If you are one of these companies, you
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Speaker 3: buy insurance and then the second the risk goes up,
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Speaker 3: your insurance gets canceled. And so as it turns out.
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Speaker 2: The same way it used to work with a lot
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Speaker 2: of insurance in the United States, It's like.
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Speaker 3: But how this all works is all these insurance policies
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Speaker 3: basically have a carve out to say, if the risk
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Speaker 3: of war in the area increases in their view, they
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Speaker 3: have the ability to cancel the policy. But they give
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Speaker 3: somewhere between two and seven days notice. Yes, so if
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Speaker 3: you are currently navigating the straight then you know, okay,
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Speaker 3: I've got to get out of there within you know,
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Speaker 3: however long it takes my insurance policy to be canceled,
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Speaker 3: and then since then you can still buy insurance against
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Speaker 3: maybe not navigating the straight of Horm Moves, but you
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Speaker 3: can still buy risk of war insurance, but it is
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Speaker 3: currently between ten and thirty times more expensive than it was,
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Speaker 3: which is a lot prior to the events.
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Speaker 2: Yes, so in terms of what the closure of the
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Speaker 2: straight of Horm Moves actually means, about twenty percent of
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Speaker 2: the world's oil supply and about ten percent of LNG
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Speaker 2: supply is not getting out on a daily basis right now.
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Speaker 2: And look beyond even that, You've got all kinds of
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Speaker 2: petrochemical products, you know, fertilizers and things like that. You've
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Speaker 2: got all kinds of industrial materials that also come through there, aluminum, copper,
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Speaker 2: things like that. So there's a lot of stuff that
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Speaker 2: transits and basically where where things stand and what's being
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Speaker 2: priced in by markets. And we can go into some
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Speaker 2: of these specifics, but I don't want to get too
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Speaker 2: too technical, but here's the deal. The United States is
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Speaker 2: in a remarkably lucky position when it comes to energy,
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Speaker 2: and that we produce a ton of it domestically. The
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Speaker 2: impacts that we are going to feel here are going
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Speaker 2: to be muted compared to what the rest of the
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Speaker 2: world feels. And I say that despite the fact that
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Speaker 2: gas prices have now risen about sixty cents in the
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Speaker 2: last month and are moving up anywhere from two to
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Speaker 2: twelve cents a day, averaging about seven eight cents a
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Speaker 2: day over the last week, and are likely going to
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Speaker 2: continue to move in that fashion until there's some kind
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Speaker 2: of resolution here. So it's not out of the question
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Speaker 2: that we see for gasoline by the end of this week.
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Speaker 2: It's very much possible. And this again is muted relative
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Speaker 2: to the rest of the world, and the reason why
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Speaker 2: is that most of the rest of the world is
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Speaker 2: not energy independent or anywhere close to it. Specifically, like
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Speaker 2: if you look at places like South Korea, Japan, Taiwan,
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Speaker 2: they basically make none of their own energy. And when
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Speaker 2: you look at Europe, a significant amount is imported, large
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Speaker 2: amount from the Middle East, large amount from the US too,
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Speaker 2: but there's a lot that comes from you know, Katari
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Speaker 2: shipments of LNG and so on and so forth. So
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Speaker 2: basically here's where this goes is the markets for refined products,
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Speaker 2: specifically diesel jet fuel what's known as bunker fuel, which
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Speaker 2: is basically maritime fuel like boat. I don't know any
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Speaker 2: better way to say it than boat fuel like ship fuel.
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Speaker 2: Those markets are now pricing in international shortages in the
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Speaker 2: next month or two if the status quote is not changed.
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Speaker 2: Now what I mean by this, they are pricing in
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Speaker 2: that there will not be enough fuel to satisfy demand
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Speaker 2: in those areas. It's not that the price is going
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Speaker 2: to go up, it's just going to be there's not
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Speaker 2: going to be enough. And the reason why is that
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Speaker 2: a ton of international refining takes place in places like Singapore,
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Speaker 2: you know, kind of all throughout that area in Southeast Asia.
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Speaker 2: They are heavily reliant on transits from the Persian Gulf
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Speaker 2: through the Straight of Hormus in order to get the
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Speaker 2: raw materials needed for refinement. If they can't get it,
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Speaker 2: it's not a question of like what does it cost,
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Speaker 2: it's just no, we don't have it. And the best
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Speaker 2: example that I can give you on this is there's
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Speaker 2: a type of bunker fuel that is known as forget
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Speaker 2: what the abbreviation is to begin with, But it's like
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Speaker 2: something something one eighty, and the premise of it is
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Speaker 2: generally it trades a barrel of it. It's it's pretty
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Speaker 2: much all the crap that's left over after you refine
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Speaker 2: all of the stuff that you want. It's like, okay,
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Speaker 2: you fine a barrel of oil into jet fuel and
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Speaker 2: into gasoline and diesel, and here's all like the sludgy
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Speaker 2: like crap that's left after. Hey, let's put that into
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Speaker 2: boats and use that for you know, shipping stuff at okay.
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Speaker 2: Typically because it's just all the leftover crap, it trades
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Speaker 2: it like a four to six dollars per barrel discount
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Speaker 2: to crude oil, because it's like, okay, so we get,
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Speaker 2: you know, a barrel of crude oil, we take all
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Speaker 2: the stuff we want, what's left is here, and then
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Speaker 2: we do that like four or five times. Now we
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Speaker 2: got a new barrel of this stuff that we can
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Speaker 2: package it. Currently, right now, if you will get international markets,
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Speaker 2: it's trading at a twenty plus dollars premium to crude,
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Speaker 2: which is telling you there's more demand for that refined
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Speaker 2: product than there is crude to go into it. Right
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Speaker 2: and like this, you are literally having shortages priced in
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Speaker 2: by the international market. Again, not an issue domestically because
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Speaker 2: of where the production is and what we can do,
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Speaker 2: but this has the potential if we're still seeing horror moves,
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Speaker 2: you know, snagged up like this, I would say, anywhere
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Speaker 2: from like six to eight weeks from now, you've got
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Speaker 2: very very high probability that you have some kind of
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Speaker 2: global recession because you're just not going to have the
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Speaker 2: jet fuel, maritime fuel and diesel fuel that you need
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Speaker 2: internationally to be able to ship stuff where you need
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Speaker 2: to ship it, and this creates this backlog.
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Speaker 3: You've probably heard that the Saudis have slowed production, a
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Speaker 3: rack halted production of oil, and part of that is
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Speaker 3: out of concern of being struck. If you are currently
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Speaker 3: operating your pumps and Iran strikes those pumps, it's a
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Speaker 3: lot much bigger problem than if.
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Speaker 2: They are inactive.
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Speaker 3: The other part, though, is if they continue production at
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Speaker 3: the current pace, they won't have anywhere to put it
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Speaker 3: right because the ships can't get there to take it.
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Speaker 3: And so even the event where it restarts, you know,
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Speaker 3: the event dies down in Iran and production can restart,
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Speaker 3: it is not instantaneous and it does take a little while. Now,
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Speaker 3: prices probably snap back very quickly, but to your point
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Speaker 3: about shortages if they come to pass, yeah, these things
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Speaker 3: take a while to start back up. And as anybody knows,
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Speaker 3: when you shut down a facility of any sort, whether
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Speaker 3: it's a shipping facility, or a grocery store, or in
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Speaker 3: this case, oil production, it takes a little while to
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Speaker 3: start back up, and so you're seeing this across every
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Speaker 3: layer of the supply chain.
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Speaker 2: So let's take a quick break. When we come back,
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Speaker 2: we're gonna talk about three things. We're gonna game out,
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Speaker 2: what's the best case scenario, what's the worst case scenario,
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Speaker 2: and what is the state of play that could Where
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Speaker 2: does the current state of play point towards. So let's
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Speaker 2: take a quick break and when we come back we'll
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Speaker 2: discuss that.
10:50
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11:28
Speaker 2: Okay, so we've talked about, you know, kind of where
11:32
Speaker 2: things are just from what's going through Horror moves and
11:36
Speaker 2: YADI audits its impact.
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Speaker 3: Would you like me to set the stage on just
11:39
Speaker 3: where oil and stocks have moved since Friday of before
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Speaker 3: the event.
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Speaker 2: Yeah, why not?
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Speaker 3: Stocks down as of today around three and a third
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Speaker 3: percent from Friday the twenty seventh, I think it was
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Speaker 3: it's just nothing, very little. It was, you know, one
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Speaker 3: and a half percent before today. Obviously, this kind of
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Speaker 3: moving the vics.
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Speaker 2: Normally you'd see like a ten to fifteen percent moving stocks.
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Speaker 3: Oil prices sixty seven dollars a barrel at the clobe
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Speaker 3: on that Friday the twenty seventh, now one hundred, So
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Speaker 3: it's like a fifty line. Gas prices sitting around two
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Speaker 3: ninety a gallon prior to this event closing in on
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Speaker 3: three p fifty a gallon now, so about a twenty
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Speaker 3: percent move in gasoline prices. So again, the big one
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Speaker 3: that stands out to me, obviously is stock prices having
12:21
Speaker 3: barely moved downward.
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Speaker 2: So here's where I want to discuss this the segment
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Speaker 2: best case scenario, worst case scenario, current state of play,
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Speaker 2: and what it tells us about what's more likely. Let's
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Speaker 2: talk about best case scenario. Best case scenario is I
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Speaker 2: would imagine a ceasefire that has announced today.
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Speaker 3: Yeah, I don't know if that's a real best case scenarios.
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Speaker 3: I don't think it's possible. So let's talk about a
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Speaker 3: real best case scenario. Because I like, again I don't
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Speaker 3: think that's possible. Realistic best case scenario is probably somewhere
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Speaker 3: in the next week or two, you end up with
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Speaker 3: either it's one of two things.
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Speaker 2: Either the Iranian regime ceases to function with you know,
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Speaker 2: command and control of units and basically can't continue to
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Speaker 2: harass the way that they have been the region as
13:13
Speaker 2: far as whether you're talking about shipping production, you know,
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Speaker 2: US military assets, whatever. That's one possibility. The other is
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Speaker 2: the US says, Okay, we've accomplished our goals, we're going home,
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Speaker 2: and Iran says, fine, we're done too.
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Speaker 1: Yeah.
13:27
Speaker 3: And again, what's interesting about this event is how different
13:32
Speaker 3: it is from even a decade ago of strikes, where
13:35
Speaker 3: you know, the usage of drones has really changed how
13:37
Speaker 3: all this works and what you are striking at and
13:39
Speaker 3: where these things are hiding is a lot different than
13:42
Speaker 3: it was ten years.
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Speaker 2: Well, and quite honestly, like look just look at the
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Speaker 2: topography of Iran. Yeah, it's a bunch of freaking mountains
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Speaker 2: leading to the sea. You can hide stuff anywhere in there,
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Speaker 2: Like it's it's really not hospitable to you know, trying
13:56
Speaker 2: to identify threats that may be very close to tankers
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Speaker 2: and stuff trying to go through hormones. Worst case scenario
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Speaker 2: is the the US and Israel say, hey, the only
14:11
Speaker 2: way that we can finish this is to make sure
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Speaker 2: that that regime, the Iranian regime, is gone, because if
14:17
Speaker 2: we leave them in place, they're going to realize that
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Speaker 2: the only credible deterrent is either wrecking the world economy
14:26
Speaker 2: or building a nuclear bomb as quickly as they can,
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Speaker 2: And so they're going to do one of those two things,
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Speaker 2: which probably involves boots on the grounds.
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Speaker 3: If that's the stance.
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Speaker 2: I'm not saying I don't know enough to be able
14:37
Speaker 2: to say whether it will or will not, but just
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Speaker 2: saying like, that's like that we're kind of the worst
14:43
Speaker 2: case scenario and Iran saying, fine, we don't have to
14:46
Speaker 2: we don't have to beat the American and Israeli armies.
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Speaker 2: We just have to make things so economically uncomfortable that
14:53
Speaker 2: no one ever tries to do this again. So now
14:58
Speaker 2: we've got kind of our best and worst case current
15:00
Speaker 2: state of play. What does it suggest that we are
15:02
Speaker 2: heading towards neither one of those but more towards the
15:08
Speaker 2: latter than the former, in my opinion. And here's the
15:10
Speaker 2: evidence that I have in hand, I'll present my case
15:13
Speaker 2: in the and then you can sure about it if
15:14
Speaker 2: you want, because again you might be like Chuckie being
15:16
Speaker 2: too like Debbie Downer Doomer, you know, like, sure, it's fine.
15:19
Speaker 2: I may be. We all have our opinions, and I
15:21
Speaker 2: have no idea if I'm right, just like no one
15:23
Speaker 2: has any idea if they're right. Here's my opinion. The
15:27
Speaker 2: Iranian regime suffered a huge loss of you know, dozens,
15:31
Speaker 2: if not hundreds of leaders. To this point, they've still
15:34
Speaker 2: managed to harass the entire region for the last ten
15:37
Speaker 2: days with no meaningful shift in terms of things improving.
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Speaker 2: Number one. Number two reportedly the new leader of Iran
15:48
Speaker 2: is the son of the previous Grandia toola Ye, who
15:52
Speaker 2: by all accounts, and again I know nothing about the
15:54
Speaker 2: guy other than what I've read by all counts though
15:57
Speaker 2: pretty hardline got to begin with. And he just killed
15:59
Speaker 2: his dad. Mm hmm. That doesn't really strike me as
16:02
Speaker 2: you know, someone who's gonna just want to be like, hey,
16:04
Speaker 2: let's play nice immediately. But again I only know what
16:07
Speaker 2: I read, so YadA YadA. Number three the United States
16:12
Speaker 2: has also just tesked I believe was the George hw
16:15
Speaker 2: Bush to the region, meaning they're now sending a third
16:18
Speaker 2: carrier group to the region. That doesn't really suggest that
16:20
Speaker 2: you're expecting hostilities to stop tomorrow. It's a hugely expensive,
16:26
Speaker 2: time consuming, morale consuming effort to move a carrier group
16:31
Speaker 2: into an active conflict region. You typically don't do that
16:36
Speaker 2: if you just think things are gonna be over the
16:38
Speaker 2: next week or so.
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Speaker 3: So I don't honestly have a firm opinion one way
16:42
Speaker 3: or the other in which direction we are, But I
16:43
Speaker 3: guess my question would be if that's your viewpoint, is
16:46
Speaker 3: your viewpoint that the US market is well insulated enough
16:50
Speaker 3: that the downturn inequities is logical, or is your personal
16:55
Speaker 3: view that equity markets are completely misinterpreting the risk of
16:58
Speaker 3: this event.
17:00
Speaker 2: I think all markets are still misinterpreting the risk of
17:02
Speaker 2: this event. And I know it's those of you who
17:07
Speaker 2: listen a lot know that I'm not, you know, typically,
17:10
Speaker 2: like I'm usually the one who's like, Hey, this is dumb,
17:13
Speaker 2: don't get excited about this, Like this headline is stupid.
17:16
Speaker 2: I'm now like kind of in a position where I'm like,
17:20
Speaker 2: it feels to me like oil at a hundred is
17:24
Speaker 2: not pricing in the potential for further escalation or continuation.
17:29
Speaker 2: It's it's still looking at okay, this could be over
17:33
Speaker 2: in a matter of weeks and and hopefully it is.
17:36
Speaker 2: Like I'm not hoping for something longer, but like you
17:40
Speaker 2: just game out the incentives on each side and the Again,
17:43
Speaker 2: the incentives for Iran are, Hey, you don't need to
17:47
Speaker 2: beat the US military. You just need to make it
17:50
Speaker 2: so uncomfortable for the US and everyone else that they're
17:54
Speaker 2: just like, we gotta get out. We can't do this anymore.
17:58
Speaker 2: It's it's it's an asymmetric fight, and so it's it's
18:03
Speaker 2: not about like who wins or loses, just like who
18:05
Speaker 2: can stomach more pain? And I don't know that, like
18:07
Speaker 2: you don't know the answers to that in a game
18:08
Speaker 2: of chicken. I've said this repeated Sure, So I think
18:12
Speaker 2: that where we are, in my opinion, is that the
18:16
Speaker 2: market is still trying to price in that things are
18:18
Speaker 2: going to get fairly back to normal in the next
18:20
Speaker 2: few weeks. Not entirely, but fairly.
18:23
Speaker 1: Yeah.
18:24
Speaker 3: I think you certainly see that in equity markets, like,
18:26
Speaker 3: for whatever reason, equity investors are shrugging this off in
18:31
Speaker 3: a very meaningful way. In the US, and I get
18:33
Speaker 3: why the US market is more insulated to oil shocks
18:36
Speaker 3: like this, But if what we're talking about plays out
18:39
Speaker 3: like it's currently mispricing things.
18:42
Speaker 2: The estimates like that I've seen in terms of like
18:44
Speaker 2: the impact on US GDP and things like that, the
18:47
Speaker 2: current move and energy probably takes like half a percent
18:50
Speaker 2: off GDP and raises inflation by a third to two
18:53
Speaker 2: thirds of a percent. Sure, which is not nothing like.
18:56
Speaker 2: Those are still numbers, but it's not, you know, catastrophic.
18:59
Speaker 2: The problem is if you know this does persist for
19:02
Speaker 2: an extended period of time, and remember the Houthis were
19:05
Speaker 2: able to basically shut down red sea transits for a
19:07
Speaker 2: couple of years with way less sophisticated tools than you know,
19:10
Speaker 2: the Iranian military has. I'm kind of looking at this
19:14
Speaker 2: and being like, okay, like not saying this will last
19:16
Speaker 2: a couple of years, but hey, if this even lasts
19:19
Speaker 2: you know, four or five months instead of the one
19:21
Speaker 2: or two priced in by the market, right, it's a
19:23
Speaker 2: big difference, and it's a possible path. I'm not saying
19:26
Speaker 2: we go there. I'm just saying this is possible, and
19:28
Speaker 2: things to be aware of. Take a quick break here
19:31
Speaker 2: when we come back, We've got Wall Street Watch.
19:41
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19:48
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19:53
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19:57
Speaker 1: driving markets so far today right here on the the
20:00
Speaker 1: Nachel Exchange Radio Network.
20:03
Speaker 4: Oil has surpassed one hundred dollars as the war in
20:07
Speaker 4: the Middle East extends to its tenth day, sending markets
20:10
Speaker 4: into sell off mode. To kick off the week right now,
20:13
Speaker 4: the Dow down one and a half percent, or seven
20:16
Speaker 4: hundred and seven points lower, SMP five hundred down one
20:19
Speaker 4: point two percent or seventy nine points lower, Nasdaq down
20:23
Speaker 4: nine tenths one percent or two hundred and four points lower,
20:26
Speaker 4: Rusted two thousand selling off two point three percent ten,
20:30
Speaker 4: Your Treasure reeled up two basis points at four point
20:32
Speaker 4: one five six percent, and Oil up nearly eleven percent
20:37
Speaker 4: higher today training right at one hundred dollars barrel. Several
20:41
Speaker 4: oil stocks, including APA, Devon Energy, Conico, Phillips, and others
20:45
Speaker 4: are seeing gains due to the recent surge in oil. However,
20:49
Speaker 4: travel stocks including American Airlines, United Airlines, and Carnival are
20:52
Speaker 4: taking a hit of as much as seven percent as
20:55
Speaker 4: a result of higher energy costs. Meanwhile, some breaking news
20:59
Speaker 4: from the health set this morning, after Novo Nordisk dropped
21:02
Speaker 4: its case against telehealth provider Hymns and Hers over patent infringement.
21:07
Speaker 4: After the two companies agreed, Hymns would sell Novo's branded medicines,
21:11
Speaker 4: including Ozepic and we go Be through its platform, hims
21:14
Speaker 4: in Her stock is surging thirty five percent. Well, Norvo
21:18
Speaker 4: shares are up about half a percent. In Live Nation
21:21
Speaker 4: reached a settlement with the Justice Department that lets the
21:24
Speaker 4: concert promoter keep ticket Master. However, the agreement still needs
21:28
Speaker 4: approval from a judge. Live Nation shares of climbing six percent.
21:33
Speaker 4: On that news, I'm Tucker Silva and that is Wall
21:36
Speaker 4: Street Watch, Mike.
21:38
Speaker 2: We got a piece here in Bloomberg and talking about
21:41
Speaker 2: Americans relationship with gas prices being complicated. So here's the deal.
21:46
Speaker 2: Just a couple important statistics. Back in nineteen seventy nine,
21:50
Speaker 2: when we saw the Iranian Revolution, Americans spent five per
21:56
Speaker 2: spent five percent. That's kind of a combo word. We
22:01
Speaker 2: can think five percent of US consumer spending was going
22:05
Speaker 2: to gasoline and other fuels for vehicles back in nineteen
22:09
Speaker 2: seventy nine. Today it's one point eight percent, So it
22:13
Speaker 2: is a far smaller chunk of our overall spending than
22:18
Speaker 2: it was at the time for a number of reasons,
22:20
Speaker 2: increased fuel efficiency, you know, increased reliance on mass transit
22:24
Speaker 2: in cities and things like that like this, there's different reasons.
22:27
Speaker 2: So this is why when we look at the data,
22:30
Speaker 2: despite gas prices having risen to this point, the estimated
22:33
Speaker 2: impact on GDP is anywhere from the ones I've seen
22:37
Speaker 2: or anywhere from like negative point two to point five percent.
22:41
Speaker 2: So again, not a huge impact on GDP. And it's not.
22:45
Speaker 3: Only that relative incomes have risen compared to the inflation
22:50
Speaker 3: adjusted price for gas. It's also that the US economy
22:53
Speaker 3: now benefits to some degree from higher oil prices compared
22:57
Speaker 3: to the nineteen seventies, when you know, US oil production
23:01
Speaker 3: was a very small portion of global.
23:03
Speaker 2: Not equally, there are parts of the country where that
23:05
Speaker 2: benefit is you know, more heavily distributed, think Texas, Western Pennsylvania, Colorado,
23:10
Speaker 2: North Dakota, like all the big you know shale and
23:13
Speaker 2: drilling sites. But it still matters because it still is
23:17
Speaker 2: more of a net positive. In fact, it is a
23:18
Speaker 2: very much net positive in a number of those areas.
23:21
Speaker 3: So to the articles uh you know title, the only
23:26
Speaker 3: part of americans relationship with gas prices that I find
23:29
Speaker 3: to be complicated is that back in the day, it
23:33
Speaker 3: was far more impactful, you know, dollar for dollar wise
23:37
Speaker 3: than it is now. From every other aspect, it's pretty simple.
23:41
Speaker 3: Americans don't like higher gas prices. Even those that live
23:45
Speaker 3: in areas that benefit from higher gas prices get pissed
23:48
Speaker 3: off when bat.
23:49
Speaker 2: Gas prices go up.
23:50
Speaker 3: And I think that's the real message here is in
23:55
Speaker 3: my this is purely an opinion, but in my personal opinion,
24:00
Speaker 3: there is no single price point that affects consumers' views
24:05
Speaker 3: about inflation more than gas prices. It's not the most
24:11
Speaker 3: impactful part of the budget. Like housing costs way more
24:14
Speaker 3: important to somebody's budget, food costs.
24:16
Speaker 2: Far more important to Groceries are anywhere from like a
24:19
Speaker 2: ten to twelve percent of household's budget generally, but you.
24:23
Speaker 3: Don't see them every single day, And there's not one
24:27
Speaker 3: grocery price. There's one gasoline price price differently at every
24:30
Speaker 3: different station you go to drive, and so you see
24:34
Speaker 3: it every single day, and it's very visible and in
24:40
Speaker 3: absolute necessity as well. You know, we talk about elasticity
24:45
Speaker 3: of demand, right, If gas prices go up, you buy
24:48
Speaker 3: the same amount of gas. If gas prices go down,
24:50
Speaker 3: you generally buy the same amount of gas. Most of
24:52
Speaker 3: us don't start carpooling when gas prices go to four
24:55
Speaker 3: bucks a gallon, And so it is front and center
24:58
Speaker 3: and probably the most public facing price point and also
25:02
Speaker 3: the one that influences consumers' views about inflation and the
25:05
Speaker 3: economy overall is whether or not gas prices are high
25:09
Speaker 3: in their own context.
25:10
Speaker 2: Now, you do, at a certain point get to what's
25:12
Speaker 2: called demand destruction, where prices rise so far that household
25:17
Speaker 2: budgets don't have the ability to absorb that. The estimates, again,
25:21
Speaker 2: and these are estimates, they're always changing, but the estimates
25:24
Speaker 2: that are generally out there today, or that gas has
25:27
Speaker 2: to get somewhere into the four dollars and fifty cents
25:30
Speaker 2: to five dollars and fifty cents range before Americans would
25:33
Speaker 2: start making different decisions at a large enough scale to
25:37
Speaker 2: really impact gasoline demand. The other place that you do
25:42
Speaker 2: have to pay attention to, though, when it comes to
25:44
Speaker 2: gas prices is the one that is always there on
25:48
Speaker 2: the sign but you never really watch, and that is
25:52
Speaker 2: diesel because the vast majority of Americans don't drive diesel
25:56
Speaker 2: vehicles unless I mean it's basically like what Volkswag has
26:00
Speaker 2: a few Mercedes has faking? Do they have a few Mercedes?
26:05
Speaker 2: Has some even in the US?
26:06
Speaker 4: Yeah, as far as I know, I've seen some used diesels.
26:09
Speaker 2: I know they had older ones. I don't know if
26:11
Speaker 2: they still do for some reason. But in any case, yeah,
26:13
Speaker 2: there's a lot of you know, German vehicles and things
26:15
Speaker 2: like that. But the fact is that the stuff that
26:20
Speaker 2: gets to and from your grocery store, or to and
26:22
Speaker 2: from Walmart, or to and from Best Buy, it is
26:25
Speaker 2: traveling on trucks that fill up with diesel. And here's
26:29
Speaker 2: the lay of the land there right now. A month ago,
26:33
Speaker 2: just we'll talk regular gas. First gas was two ninety
26:35
Speaker 2: according to Triple A. Today it's three forty seven, So
26:37
Speaker 2: it's a fifty seven cent increase in regular gas in
26:41
Speaker 2: the last month. Diesel was it three sixty three, it's
26:44
Speaker 2: not four to sixty five. That's one a dollar and
26:46
Speaker 2: two cents that the rise has been there, which means
26:49
Speaker 2: the cost of shipping has gone up faster than the
26:51
Speaker 2: cost of you driving. Excuse me, just got too excited
26:56
Speaker 2: talking about diesel. Ah, it happens. So here, here's the deal.
27:02
Speaker 2: This is going to seep into other parts of the economy.
27:05
Speaker 2: I remember back when I was in college and the
27:08
Speaker 2: number one thing that I bought in college was beer.
27:12
Speaker 2: Hell yeah, and specifically Keystone Light. We were consumers of
27:15
Speaker 2: only the finest beer that America had to offer, just
27:19
Speaker 2: like Keithstone. And I still remember my heading into my
27:23
Speaker 2: senior year, a case of Keystone Light was nine to
27:25
Speaker 2: ninety nine. Again, like we were talking like bargain basement.
27:28
Speaker 2: But this was also the summer that West Text Intermedia
27:31
Speaker 2: touched one hundred and forty seven dollars per barrel, and
27:34
Speaker 2: by the end of the fall, the cost of Keystone
27:37
Speaker 2: Light had gone from ten dollars a case up to
27:40
Speaker 2: twelve dollars a case. Yeah, yeah, okay. And it's not
27:44
Speaker 2: because it became more expensive for Molsen Cores to produce
27:48
Speaker 2: Keystone Light. It was more expensive for them to ship it,
27:52
Speaker 2: and so it seeps into all of these other areas.
27:55
Speaker 2: And this is something that I think we need to
27:58
Speaker 2: watch for. Number one, but the other piece that I
28:00
Speaker 2: think is going to have, you know, some inflationary impacts
28:03
Speaker 2: that we really need to watch is on the food
28:06
Speaker 2: side of things. One of the other major things that
28:08
Speaker 2: is produced throughout the Persian Gulf is urea, which is
28:12
Speaker 2: a basically like fertilizer precursor and things like that. And
28:17
Speaker 2: when you're talking about the amount of supply, the estimates
28:19
Speaker 2: that I've seen here anywhere from like twenty to thirty
28:21
Speaker 2: percent of the global urea supply flows through horm moves.
28:27
Speaker 2: What we tend to see in these cases the price
28:30
Speaker 2: of fertilizer goes up, which means the price of food
28:32
Speaker 2: goes up, and so you have another inflationary impulse coming
28:35
Speaker 2: from there as well. So these are the things where, yes,
28:39
Speaker 2: like the price of gas changing probably has a i
28:43
Speaker 2: won't say minimal, but a relatively small impact on the
28:47
Speaker 2: broad US economy right now. It has a huge impact
28:50
Speaker 2: on the Japanese economy and the Taiwanese and the Korean
28:53
Speaker 2: economy because they don't have the same production we do.
28:56
Speaker 2: But in the US, the price of gas rising, we
28:59
Speaker 2: all really dislike it. It sucks, but it doesn't have
29:02
Speaker 2: a huge impact on the broad economy. When you start
29:06
Speaker 2: adding in all of these follow on effects where you know,
29:10
Speaker 2: diesel prices go up, so transportation of anything is gonna
29:12
Speaker 2: cost more. Food price is going up because of fertilizer
29:15
Speaker 2: costs moving up. This is where there are some larger,
29:18
Speaker 2: you know, impacts that you can have. And so it's
29:22
Speaker 2: apparent to me that even if you get things flowing
29:25
Speaker 2: back through hormones quickly, you still have you know, disruptions
29:29
Speaker 2: to how much you know has been able to flow.
29:31
Speaker 2: And you're not gonna be back to one hundred percent.
29:33
Speaker 2: You know right away, you're gonna have an inflationary impulse
29:37
Speaker 2: through the rest of this year at a minimum, Right,
29:39
Speaker 2: how big is it? I don't think you're getting back
29:41
Speaker 2: to you know, what we saw in twenty twenty two, Like,
29:43
Speaker 2: you're not gonna have nine percent, but could inflation, depending
29:47
Speaker 2: on how long this lasts at the end of this year,
29:49
Speaker 2: be anywhere from like four to six percent. I think
29:53
Speaker 2: there's a path there. Unfortunately, four would not be world ending.
29:58
Speaker 3: Six percent would be a very big shock to the
30:01
Speaker 3: financial system compared to what's anticipated it would be. So
30:04
Speaker 3: we're close to three now, so jump to four would
30:07
Speaker 3: be problematic. I jumped to six would be see.
30:10
Speaker 2: Six as if things go wrong for a longer period
30:13
Speaker 2: of time, Like you don't get to six if there's
30:15
Speaker 2: you know, more of a resolution in the next you know,
30:17
Speaker 2: month or two, you get to six if there's still
30:20
Speaker 2: real problems by fourth of July. So this is kind
30:24
Speaker 2: of again where we stand right now, looking at the
30:27
Speaker 2: situation and starting to dig in on some of the
30:30
Speaker 2: different pieces here. Let's take a quick break and when
30:34
Speaker 2: we come back, what do we want to talk about
30:37
Speaker 2: to we Let's talk aboutut jobs. Okay, yeah, let's talk
30:40
Speaker 2: about the jobs report and the FED and how the
30:42
Speaker 2: Fed's going to try to balance all of this.
30:44
Speaker 1: When we return, text us at six one seven three,
30:47
Speaker 1: six two one three eighty five with your comments and
30:50
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30:52
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31:46
Speaker 2: Peace in Bloomberg today. And this is it's only half
31:51
Speaker 2: the equation. We'll put the other half in as well.
31:53
Speaker 2: Fed's view of stabilizing employment gets tested by surprise slumps.
31:57
Speaker 2: So we had a job support on Friday where we
32:00
Speaker 2: had ninety two thousand jobs lost in the course of
32:03
Speaker 2: February and some downward revisions to the prior months as well.
32:07
Speaker 2: I'm not one hundred percent sure that I buy like
32:09
Speaker 2: some huge, huge, huge level of new concern with jobs.
32:12
Speaker 2: And I say, this is someone who is concerned about
32:14
Speaker 2: the job situation heading into the year, but some of
32:17
Speaker 2: the other supporting data has gotten better, and so this
32:21
Speaker 2: to me for February is kind of an outlier in
32:25
Speaker 2: that I'm just not sure there's you know, another you
32:29
Speaker 2: know trend that's beginning there. There could be one that
32:32
Speaker 2: you know, becomes problematic, but I need to see another
32:35
Speaker 2: reporter or too, because weekly claims have remained very calm. Yeah,
32:40
Speaker 2: the job openings picture is stabilized with no further degradation there,
32:44
Speaker 2: and so I just think at this point this is
32:49
Speaker 2: one job support that admittedly was quite bad, but it
32:53
Speaker 2: still is just one report, and I need to see
32:56
Speaker 2: more to be able to say, yeah, this is where
32:59
Speaker 2: you need to really focusing, given you know, everything going
33:03
Speaker 2: on in energy markets that's going to impact inflation. Even
33:07
Speaker 2: if the FED wants to try to look through them,
33:09
Speaker 2: they can't look through them entirely. Given the magnitude and
33:12
Speaker 2: potential scale of this.
33:13
Speaker 3: I'll honestly say that I think the January report was
33:15
Speaker 3: a bigger surprise than the February. So January you got
33:18
Speaker 3: one hundred and thirty thousand jobs created, and I was
33:21
Speaker 3: Christopher Waller, one of the Reserve.
33:25
Speaker 2: Yeah he's a governor. I was doing an interview right before.
33:29
Speaker 3: The February job support he said, honestly, you know, the
33:32
Speaker 3: January one was pretty surprising. I'd be surprised if we
33:36
Speaker 3: repeated that. If we do, then I need to rethink
33:38
Speaker 3: my outlook. But my outlook has been labor market is
33:41
Speaker 3: weakening and continues to do so. I think the best
33:44
Speaker 3: thing you can do with these last two jobs reports
33:47
Speaker 3: is average them and say, Okay, you know, over two months,
33:50
Speaker 3: we created about forty thousand jobs, which is kind of
33:54
Speaker 3: on trend for what we've been doing for the last
33:57
Speaker 3: year or so. The revised data for twenty twenty five
34:02
Speaker 3: now showed total job creation at less than one hundred
34:06
Speaker 3: fewer than one hundred and twenty thousand jobs for the entire years.
34:09
Speaker 3: It is not really which is pretty bad, just pretty
34:13
Speaker 3: plainly bad. Now, does that mean that we are heading
34:15
Speaker 3: for dramatically higher unemployment. That's a different question. And to
34:19
Speaker 3: your point, Chuck, I think the narrative around the labor
34:22
Speaker 3: market is simply one of a very low hiring environment.
34:25
Speaker 3: That does not mean a bunch of layoffs and a
34:28
Speaker 3: bunch of job loss, which is kind of what the
34:30
Speaker 3: February report indicated.
34:32
Speaker 2: Yeah, if again, this can change quickly, especially in light
34:36
Speaker 2: of you know, changing information about cost structures. Like just
34:40
Speaker 2: as an example, if you are an airline right now,
34:45
Speaker 2: you're freaking out. Yeah, and then by you know, extension
34:48
Speaker 2: of that, if you are a hotel chain right now,
34:51
Speaker 2: you're freaking out and like not for like bad reason,
34:56
Speaker 2: like for good reason. Like this may resolve itself, but
34:58
Speaker 2: if you're an airline, your cost structure just got shredded.
35:02
Speaker 2: And by the way, airlines don't hedge their fuel prices
35:04
Speaker 2: nearly as much as they used to. So there's some real,
35:08
Speaker 2: you know, dodgy things that are going to be going on.
35:11
Speaker 3: There and conspirat airlines get more bankrupt.
35:17
Speaker 2: You know, you'd like to think it's binary, but it
35:20
Speaker 2: might actually be tertiary. There might be like double secret
35:23
Speaker 2: bankruptcy that you can get to. So these are some
35:27
Speaker 2: of the things that I think you need to watch
35:29
Speaker 2: in terms of Hey, as companies have to adapt to
35:32
Speaker 2: you know, changes in input costs, do they try to
35:36
Speaker 2: get rid of one of their biggest input costs or
35:38
Speaker 2: reduce it in headcounts? And you know, this potentially gives
35:42
Speaker 2: companies an additional reason to say, yeah, we need to
35:47
Speaker 2: reduce headcount because our input costs are going through the roof,
35:50
Speaker 2: so watch that as a potential impulse. I again, these
35:55
Speaker 2: are all just possibilities. We have to like think about this,
35:58
Speaker 2: but I don't think it. Like aside from if you're
36:00
Speaker 2: an actual oil driller, you don't typically look at like
36:03
Speaker 2: the price of gas going up and be like Billy
36:07
Speaker 2: break out the LinkedIn we got a hire.
36:09
Speaker 3: Yeah, very few companies are in that camp.
36:12
Speaker 2: Yeah.
36:13
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37:14
Speaker 2: One other thing that I just want to touch on
37:16
Speaker 2: is strategic petroleum reserve releases. That's where I was going, Oh,
37:20
Speaker 2: you were pulling that up. Wow, look at that. We
37:22
Speaker 2: didn't even talk so a couple things. US strategic petroleum
37:25
Speaker 2: reserve is about half of what it used to be,
37:27
Speaker 2: I think around four hundred million barrels and change. There
37:30
Speaker 2: are rate limits as to how quickly you can actually
37:32
Speaker 2: get that out. You can't just be like, hey, pull
37:35
Speaker 2: five million barrels a day out. Back in twenty twenty two,
37:38
Speaker 2: the peak that we got to was around one point
37:39
Speaker 2: two million. I would suspect you can get to around
37:41
Speaker 2: the same this time. Overall, when you look at the
37:46
Speaker 2: major strategic reserves around the world, you can probably get
37:49
Speaker 2: somewhere between five and seven five and eight million barrels
37:52
Speaker 2: a day out. That is about half of the disruption
37:57
Speaker 2: that is currently happening. And so you can't cover that entirely.
38:01
Speaker 2: The other thing that I will point out, there are
38:03
Speaker 2: no strategic reserves of that gas ureea, like all these
38:08
Speaker 2: other things, insufficient quantities to handle the disruptions that are
38:12
Speaker 2: currently being posed. So again, a lot of questions in
38:17
Speaker 2: a lot of different areas related to commodities. So hey,
38:21
Speaker 2: we're not talking about AI. I guess is the uh
38:24
Speaker 2: the case. We'll take a quick break. More to come
38:27
Speaker 2: in a bit.