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Why the Oil Shock May Be Just Weeks Away · The Financial Exchange Show

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  Speaker 2: It's Chuck, Mike and Tucker with you here, and we
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  Speaker 2: kick things off today with an update on the story
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  Speaker 2: that broke while we were in the middle of the
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  Speaker 2: show yesterday around ten thirty or so, there was an
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  Speaker 2: Axios report that came out that indicated that the US
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  Speaker 2: and Iran were nearing an agreement to extend the ceasefire
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  Speaker 2: to sixty days, and with that, you know, have some
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  Speaker 2: additional provisions related to potentially opening the straight ofform moves,
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  Speaker 2: allowing additional traffic through and so on and so forth.
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  Speaker 2: We still don't have any details on that, but that
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  Speaker 2: report indicated that this was pending President Trump's approval and effectively,
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  Speaker 2: you know, looking for that senior level approval.
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  Speaker 3: There.
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  Speaker 2: There also was no confirmation from the Iranian side, and
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  Speaker 2: so it still looks like we.
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  Speaker 3: Are in a holding pattern on this.
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  Speaker 2: But Bloomberg and Reuter's as well as Fox News confirming
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  Speaker 2: the Axios reporting yesterday. So it does appear that we are,
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  Speaker 2: you know, inching closer to something. Exactly when something ends
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  Speaker 2: up being signed, and the specifics of it are still
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  Speaker 2: up in the air at this point.
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  Speaker 4: No doubt, oil price is now down about twenty percent
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  Speaker 4: from their twenty twenty six highs. Most of that haven't
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  Speaker 4: been given up just over the last couple of weeks
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  Speaker 4: here with the optimism of this deal. At the same
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  Speaker 4: time that, you know, informed executives in the oil industry
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  Speaker 4: are warning of record low inventories, which we've been highlighting
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  Speaker 4: on this program now for a.
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  Speaker 3: Couple of months.
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  Speaker 4: So look, I think there's very clearly a incentive within
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  Speaker 4: the White House to move things along. I'm sure that
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  Speaker 4: they are meeting with oil executives and understanding from the
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  Speaker 4: EIA just how dire a situation the US energy market,
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  Speaker 4: and you know, as dire as it is here, much
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  Speaker 4: worse overseas. So I think there are some incentives that
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  Speaker 4: are lining up. But the question remains, right, I don't
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  Speaker 4: think we've had anything that has looked quite as serious
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  Speaker 4: as this over the course of the war in terms
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  Speaker 4: of winding things down. But it's really tough to judge
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  Speaker 4: from the outside how serious this ceasefire is and how
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  Speaker 4: serious it is to the most important factor of reopening
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  Speaker 4: the straight up horn moves to at least some degree
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  Speaker 4: of traffic.
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  Speaker 2: Yeah, so I think that again it does appear that
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  Speaker 2: maybe there's some room for optimism here. We have had
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  Speaker 2: you know, a number of fallse starts over the last
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  Speaker 2: six weeks, and it does appear, at least like from
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  Speaker 2: the reading that I have, this isn't going to be
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  Speaker 2: a final deal that addresses all points. It simply is
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  Speaker 2: to extend the ceasefire that's already in place, maybe with
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  Speaker 2: a couple other provisions included in there. But we don't
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  Speaker 2: have any specifics. We haven't seen anything in writing at
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  Speaker 2: this point. Ron's had a number of different people come
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  Speaker 2: out and say different things in the last day or two.
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  Speaker 2: We haven't really heard much from the White House directly
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  Speaker 2: at this point. To be quite honest, generally, when you're
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  Speaker 2: not hearing anything directly, I tend to think that that's
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  Speaker 2: actually when progress tends to be made. It's usually not
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  Speaker 2: with you know, big public pronouncements. It's generally, you know,
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  Speaker 2: more okay, like we're getting close. Let's not you know,
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  Speaker 2: say anything while we're inching closer there, and we'll just
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  Speaker 2: have to kind of see where this goes again. Maybe
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  Speaker 2: there's something that breaks over the weekend, maybe it's later today,
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  Speaker 2: or maybe this is another false start. I don't really know,
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  Speaker 2: but it does seem based on the confirmation of reporting
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  Speaker 2: that things are moving in the right direction on.
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  Speaker 3: These negotiations, but.
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  Speaker 2: You never know, Like I just don't know, and we've
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  Speaker 2: had enough false starts that I'm kind of waiting for
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  Speaker 2: the signed document before I say okay, like here we go,
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  Speaker 2: and there's something, you know, really to this.
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  Speaker 4: I'm sitting here, you know, I guess comparing this to
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  Speaker 4: other events in the past, especifically the last couple of
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  Speaker 4: years and the Terraff Wars for example, of you know,
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  Speaker 4: sitting here and thinking about, okay, will something negotiated happen?
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  Speaker 4: We have the rollout of these high teriffs, which ones
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  Speaker 4: are going to be wiped away? And in those events
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  Speaker 4: there wasn't a firm deadline, and this one there isn't
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  Speaker 4: a firm deadline either.
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  Speaker 3: But there's clearly a looming.
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  Speaker 4: Land line in the sand here where oil prices, which
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  Speaker 4: are you know, by any experts reckoning well below where
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  Speaker 4: they kind of figured they would have been, have to
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  Speaker 4: shoot up at some point because we are just getting
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  Speaker 4: to these levels of inventories that can't be sustained across
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  Speaker 4: the globe. And so while I think a lot of
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  Speaker 4: people are looking at it in the same way that
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  Speaker 4: they did tariff talk and other things. We're talking about
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  Speaker 4: these very physical commodities that everybody needs, and it's not
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  Speaker 4: going to be the same. It's not going to play
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  Speaker 4: out in the same way that those other things did,
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  Speaker 4: because it's not a question of what price importers have
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  Speaker 4: to pay for a good. It is will you have
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  Speaker 4: the physical availability of oil? And oil is the easiest
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  Speaker 4: one to talk about. There's other things too, but it
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  Speaker 4: is so fundamentally different from those other moments in time
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  Speaker 4: that we've experienced over the last few years.
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  Speaker 2: Yeah, and I made reference yesterday there was a quote
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  Speaker 2: going on, not a quote, there was a conference going
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  Speaker 2: on that Sanford Bernstein had put on, and I mentioned
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  Speaker 2: that an Exon Mobile executive had said some things related
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  Speaker 2: to the price of oil. Yesterday I got the full quote, actually,
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  Speaker 2: and this is from Neil Chapman, a senior vice president
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  Speaker 2: of Exon Mobile. So look, Neil, probably you know, has
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  Speaker 2: forgot more about the energy markets than I will ever know.
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  Speaker 2: But this is his quote. I'm going to read the
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  Speaker 2: full thing in its entirety. Commercial inventories of crude oil,
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  Speaker 2: of liquids, think petroleum, gasoline, diesel, jet fuel, they've all
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  Speaker 2: run down, and running down those inventories has mitigated or
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  Speaker 2: offset supplemented by the release of strategic petroleum reserves, which
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  Speaker 2: most of the Western countries have done. All of this
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  Speaker 2: has mitigated the impact. You can model this, and we've
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  Speaker 2: modeled it, and I think a lot of people in
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  Speaker 2: the industry have modeled it. We're approaching unheard of inventory levels,
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  Speaker 2: I mean really really low levels. You can debate whether
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  Speaker 2: that's going to hit those levels in two weeks or
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  Speaker 2: three weeks, but once you get to that point, then
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  Speaker 2: you'll see the price shoot up. I mean, I think
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  Speaker 2: dated Brent most people would say that dated Brent will
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  Speaker 2: shoot up.
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  Speaker 3: Dated Brent.
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  Speaker 2: He's referring to Brent crude that has a specific date
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  Speaker 2: for delivery, not just a futures contract. Once you get
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  Speaker 2: to that really low inventory level, potentially up to one
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  Speaker 2: hundred and fifty or one hundred and sixty dollars, the models.
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  Speaker 3: Would tell you that.
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  Speaker 2: And then what happens is that when the price gets
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  Speaker 2: to a certain level, demand destruction brings it back into balance,
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  Speaker 2: and prices go so high that it becomes unaffordable.
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  Speaker 3: And that's what happens. And so we're at that level. Now,
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  Speaker 3: I think.
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  Speaker 2: Crude being in this ninety to one hundred and ten
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  Speaker 2: dollars range for whatever it is, the last six weeks
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  Speaker 2: has really been mitigated by running down inventories. But it
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  Speaker 2: can't last forever, and we'll see what happens. And predicting
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  Speaker 2: this in the exact timing is always a challenge, but
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  Speaker 2: that's the way we see the picture. So you've got
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  Speaker 2: someone pretty high up in Exonmobile basically saying what we've
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  Speaker 2: been talking about for the last four to six weeks,
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  Speaker 2: which is, look, you've got these inventory drawdowns, which are
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  Speaker 2: not theoretical anymore, like that they are happening right now.
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  Speaker 2: Four of the largest fifteen weekly drawdowns of US commercial
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  Speaker 2: crude inventories have happened over the last five weeks, and
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  Speaker 2: so like it is happening now. And the question is
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  Speaker 2: is just a matter of hey, is this something that
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  Speaker 2: becomes a problem in the next four to six weeks,
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  Speaker 2: the next six to ten, then ten to sixteen weeks,
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  Speaker 2: Like that's the timeframe that we're talking about. And remember
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  Speaker 2: that because of the transit times of ships around the world,
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  Speaker 2: it's not like you can just take oil from the
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  Speaker 2: Middle East and be like, hey, get it to you know,
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  Speaker 2: the US in you know, a day, or get it
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  Speaker 2: to Asia in a day, or get it to Europe
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  Speaker 2: in a day. It's something where it's going to be
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  Speaker 2: a multi month process to unlock Hormuz and actually get
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  Speaker 2: productions spooled up. And so this is what we've been
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  Speaker 2: talking about, which is that, look, as of a few
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  Speaker 2: weeks ago, you're probably at a point of no return
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  Speaker 2: where you're going to see some kind of issue this
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  Speaker 2: summer with pricing just because of what's already in the
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  Speaker 2: system and how things are moving. It's just a matter
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  Speaker 2: of how high do those prices have to go and
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  Speaker 2: how long does it last. And that's kind of what
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  Speaker 2: this this senior vice president of ex On Mobile was
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  Speaker 2: talking about yesterday.
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  Speaker 4: And the way he said all that, By the way,
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  Speaker 4: I don't think he was expressing his personal opinion. He
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  Speaker 4: used the word we several times, so he is giving
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  Speaker 4: the opinion of the experts at Exonmobile here. And I
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  Speaker 4: don't think there's a whole lot of people globally who
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  Speaker 4: have a better.
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  Speaker 3: View into it. You can say, I sure don't.
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  Speaker 4: You can certainly argue that, Oh, while they're just trying
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  Speaker 4: to insert pressure on the Trump administration negotiates something. But
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  Speaker 4: this wasn't a press conference that they gave. This was
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  Speaker 4: a guy at an investment conference. So I tend to think, Yeah,
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  Speaker 4: the real experts out there are sending out warning signals
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  Speaker 4: that hey, in the next few weeks, not months, next
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  Speaker 4: few weeks, we get to very unsustainable levels of inventories
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  Speaker 4: here in the United States, which does not mean shortages,
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  Speaker 4: but well hopefully does not mean shortages, but very likely
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  Speaker 4: means higher prices.
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  Speaker 3: Let's take a quick break. I want to dig in
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  Speaker 3: on that afterwards.
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  Speaker 2: The idea of shortages versus price hikes, because it is
• 10:51
  Speaker 2: somewhat binary, and I want to talk about the mechanics
• 10:54
  Speaker 2: of that and explain it. So let's take a quick
• 10:56
  Speaker 2: break and we'll discuss that when we return.
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  Speaker 3: Mike.
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  Speaker 2: So, during the last segment, we were talking about where
• 12:07
  Speaker 2: oil inventories are going, and we shared a quote from
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  Speaker 2: a senior vice president Exonomobile that said, yeah, at some
• 12:15
  Speaker 2: point within a matter of weeks, you know, it could
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  Speaker 2: be in June, July, August, Like there's something coming that's
• 12:21
  Speaker 2: probably going to push prices up. Whether that actually comes
• 12:24
  Speaker 2: to fruition or not, we don't know. Again, like that,
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  Speaker 2: I don't think there's anyone who would be sitting here
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  Speaker 2: being like, hey, Hormu has been closed for three months
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  Speaker 2: and the price of oil is you know, still in
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  Speaker 2: the eighties or nineties, Like, I don't think anyone would
• 12:36
  Speaker 2: have said that.
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  Speaker 3: Was the case before. But here we are.
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  Speaker 2: So here here's where the question comes in in terms of, hey,
• 12:44
  Speaker 2: do we see higher prices or shortages? And what we
• 12:50
  Speaker 2: see is a situation where generally what happens is as
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  Speaker 2: the oil inventory system gets stressed in any particular country
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  Speaker 2: or part of a system, prices rise because the way
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  Speaker 2: that you avoid a shortage is through prices rising to
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  Speaker 2: reduce demand, which then prevents you from getting to those
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  Speaker 2: critical levels. That's the mechanism for not running out basically
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  Speaker 2: in the event that prices stay low for whatever reason.
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  Speaker 2: And generally what my point of view is, look, in
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  Speaker 2: the United States, you're really really unlikely to see shortages
• 13:29
  Speaker 2: outside of maybe the West Coast because their system is
• 13:34
  Speaker 2: kind of disconnected from the rest of the US system,
• 13:37
  Speaker 2: particularly California, and you've got some maybe minor problems with
• 13:42
  Speaker 2: East Coast diesel supply and things like that. But again,
• 13:46
  Speaker 2: even there, I'm not really, you know, saying that you're
• 13:48
  Speaker 2: gonna see shortage. It's just because it's not very likely.
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  Speaker 2: And the reason why is that the the US, being
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  Speaker 2: a relatively wealthy country compared to most other countries on Earth, Earth,
• 14:01
  Speaker 2: has the ability to outbid everyone for both crude and
• 14:05
  Speaker 2: refined product. We can afford to pay. I'm not saying
• 14:09
  Speaker 2: that we would like this, but we could afford to
• 14:11
  Speaker 2: pay seven dollars a gallon for gas, Whereas if you
• 14:15
  Speaker 2: live in Thailand you can't. You just don't have the
• 14:18
  Speaker 2: income to be able to do so. And so the
• 14:21
  Speaker 2: demand gets destroyed over there as opposed to here, and
• 14:25
  Speaker 2: so supply stays in the US and you don't see
• 14:28
  Speaker 2: product shortages. You simply see higher prices. The question that
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  Speaker 2: I think is an interesting one to ask, because again
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  Speaker 2: we haven't seen prices move, you know, as high as
• 14:41
  Speaker 2: a lot of people have expected to this point, is
• 14:44
  Speaker 2: if prices stay low, does that change the situation. And
• 14:47
  Speaker 2: the answer is it's possible, because with oil priced at
• 14:52
  Speaker 2: ninety a barrel, if prices do not rise, then you
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  Speaker 2: do not get that same level of demand destruction. And
• 15:00
  Speaker 2: so if prices stay in that range, it's okay, We're
• 15:03
  Speaker 2: gonna send you know, some of the ninety dollars oil
• 15:06
  Speaker 2: over to Thailand because they were able to bid successfully
• 15:09
  Speaker 2: on it, and that doesn't stay domestically, and maybe you
• 15:13
  Speaker 2: end up with shortages in that situation because there is
• 15:16
  Speaker 2: only so much oil to go around and finish product.
• 15:20
  Speaker 3: The product is really what matters.
• 15:21
  Speaker 4: Yeah, Chuck, I just have a tough time comprehending the
• 15:26
  Speaker 4: mechanism by which that happens, right, Like, I know you're saying, like, oh,
• 15:32
  Speaker 4: what if prices just stay low? And my answer is
• 15:35
  Speaker 4: they can't if it just I'm confused by the mechanism. Right,
• 15:41
  Speaker 4: we don't talk. We don't talk about prices as though
• 15:43
  Speaker 4: they are just a magical thing that happens. No, I
• 15:48
  Speaker 4: don't have to bid them in one direction or another.
• 15:50
  Speaker 4: And so I just can't envision a scenario where refiners
• 15:55
  Speaker 4: or gas stations run out of gasoline here at the
• 15:58
  Speaker 4: same time that Thailand is outbidding us on gasoline.
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  Speaker 3: It just doesn't mechanically make any sense to me. So, yeah,
• 16:05
  Speaker 3: we will see.
• 16:06
  Speaker 4: But quite honestly, the price of oil right now doesn't
• 16:09
  Speaker 4: make any sense to me. The price of gasoline doesn't
• 16:11
  Speaker 4: make any sense to me at this point in time,
• 16:14
  Speaker 4: and so far be it from me from knowing with
• 16:17
  Speaker 4: any degree of certainty. But I just have a tough
• 16:19
  Speaker 4: time envisioning this scenario.
• 16:21
  Speaker 3: Yeah, again, we'll have to see.
• 16:23
  Speaker 2: I find that, you know, over the last like seven
• 16:28
  Speaker 2: eight years, it's best to keep an open mind with
• 16:31
  Speaker 2: regards to what may or may not happen. Yeah, and
• 16:35
  Speaker 2: I think we'll just have to see how things go
• 16:37
  Speaker 2: over the course of the summer based on everyone who
• 16:41
  Speaker 2: I hear from it. And this is literally like everyone
• 16:44
  Speaker 2: in the energy industry that I talk to or read
• 16:46
  Speaker 2: or like any publications that I can find on this.
• 16:50
  Speaker 2: It's rare to find like unity amongst energy analysts because generally,
• 16:55
  Speaker 2: like there's plenty of stuff to disagree on pretty much
• 16:58
  Speaker 2: everyone that I read, you know, whether they're like normally
• 17:02
  Speaker 2: oil bulls, oil bears, everyone in between, you know, oil
• 17:05
  Speaker 2: agnostics like you. They've basically all looked at the situation
• 17:09
  Speaker 2: and been like, yeah, this is gonna create a problem
• 17:12
  Speaker 2: sometime this summer. Exactly when the problem shows up, and
• 17:16
  Speaker 2: the magnitude of it is an open question. You know,
• 17:19
  Speaker 2: it's it's anywhere from Okay, problems start to show up
• 17:22
  Speaker 2: in June to problems start to show up in you know,
• 17:24
  Speaker 2: late August, early September.
• 17:27
  Speaker 3: But like, it's it's there. It's a question.
• 17:29
  Speaker 2: It's a matter of weeks and you know, a handful
• 17:31
  Speaker 2: of months, not a question of oh, are we gonna wait,
• 17:34
  Speaker 2: waiting for this for years. And the other thing that
• 17:37
  Speaker 2: like they'll universally say is, look, every day that you
• 17:39
  Speaker 2: don't have ships traveling, the problem gets worse, to the
• 17:41
  Speaker 2: tune of, we have an extra ten million barrel gap
• 17:44
  Speaker 2: that needs to be filled from somewhere. So I think
• 17:48
  Speaker 2: that this is something that we're just gonna have to watch.
• 17:52
  Speaker 3: Again. I think it's.
• 17:53
  Speaker 2: Incredibly likely that we see gas prices after you know,
• 17:57
  Speaker 2: a brief dip here, you know, start to rebound in
• 18:00
  Speaker 2: the latter half of the summer. But like, there's part
• 18:05
  Speaker 2: of me that looks at this is like I don't know,
• 18:07
  Speaker 2: like things are moving different, Like is there something that
• 18:10
  Speaker 2: everyone is missing on this and is that not going
• 18:14
  Speaker 2: to be the case? Maybe, but I can't see what
• 18:17
  Speaker 2: it is personally, and maybe I'm just not plugged in
• 18:20
  Speaker 2: enough to be able to tell what it is. But
• 18:23
  Speaker 2: the math that we were doing on this is basic subtraction, right.
• 18:27
  Speaker 4: I mean, I have a tough time envisioning how that
• 18:30
  Speaker 4: you know, explosion of price doesn't happen this summer. But
• 18:35
  Speaker 4: I also have a very difficult time justifying how we're
• 18:38
  Speaker 4: at such a low price for oil and gasoline right now. Yeah,
• 18:41
  Speaker 4: So Yeah, both of those things contradict my understanding of
• 18:47
  Speaker 4: how these oil markets should be working right now. And
• 18:49
  Speaker 4: so who's to say precisely what's going to happen next.
• 18:52
  Speaker 3: So we'll continue to see how things go.
• 18:54
  Speaker 2: Again, Maybe we get some movement on a deal this weekend,
• 18:57
  Speaker 2: Maybe we get some movement on ships start in you know,
• 19:01
  Speaker 2: early next week. That would be welcome news. It still
• 19:04
  Speaker 2: doesn't change what the short term situation looks like, because
• 19:08
  Speaker 2: again the travel times just may mean that, you know,
• 19:12
  Speaker 2: this is going to be something that resolves over a
• 19:14
  Speaker 2: period of months, not instantly. But you got to start somewhere,
• 19:19
  Speaker 2: and it's better to start, you know, today than tomorrow.
• 19:21
  Speaker 3: And so we'll see where things go. Let's take a
• 19:24
  Speaker 3: quick break.
• 19:24
  Speaker 2: When we return, We've got Wall Street Watch next.
• 19:40
  Speaker 1: Like us on Facebook and follow us on Twitter at
• 19:43
  Speaker 1: TFE show. Breaking business news is always first right here
• 19:47
  Speaker 1: on the Financial Exchange Radio Network. Time now full Wall
• 19:52
  Speaker 1: Street Watch treking the stocks, the data and the headlines
• 19:56
  Speaker 1: driving markets so far today, right here on the Financial
• 19:59
  Speaker 1: Exchange Radio.
• 20:00
  Speaker 5: Network, on the final trading session of May, markets are
• 20:03
  Speaker 5: extending their gains on news of a possible sixty day
• 20:06
  Speaker 5: sees fire extension. Between the US and Iron pending approval
• 20:10
  Speaker 5: of President Trump. Wall Street's also witnessing yet another tech
• 20:13
  Speaker 5: company staging a substantial rally. Right now, the Dow is
• 20:17
  Speaker 5: up about a half a percent, SMP five hundred is
• 20:20
  Speaker 5: up a quarter of a percent, NASDAC up two cents
• 20:22
  Speaker 5: of one percent. RUS two thousand selling off by about
• 20:25
  Speaker 5: one percent. Tenure Treasure reeled is flat at four point
• 20:29
  Speaker 5: four four to nine percent, and Oil down about three
• 20:33
  Speaker 5: quarters of a percent, trading at eighty eight dollars a barrel.
• 20:36
  Speaker 5: Well Dell Technologies. That stock is rocketing thirty one percent
• 20:41
  Speaker 5: after the tech company hiked its full year outlook, where
• 20:44
  Speaker 5: it's first quarter sales searched eighty eight percent for demand
• 20:48
  Speaker 5: for its AI products. Other computer stocks included Hewlett Packard Enterprise,
• 20:53
  Speaker 5: super Microcomputer and HPR, seeing significant gains in reaction to
• 20:57
  Speaker 5: Dell's earnings. Meanwhile, Gap cut its sales outlook for the
• 21:00
  Speaker 5: year after posting slowing sales for its old Navy chain
• 21:03
  Speaker 5: that stocked down by sixteen percent. Another retailer and American
• 21:07
  Speaker 5: Eagle Outfitters, also seeing a loss of thirteen percent after
• 21:10
  Speaker 5: the company said its core brand isn't performing as well
• 21:13
  Speaker 5: as management would like, where the segment sales declined in
• 21:17
  Speaker 5: the first quarter. According to Bloomberg, UBS has eliminated several
• 21:21
  Speaker 5: hundred positions across operations in Europe, the Middle East, and Africa,
• 21:24
  Speaker 5: marking the largest latest wave of reductions tied to the
• 21:28
  Speaker 5: acquisition of Cortis Credit Sweet three years ago, and several
• 21:33
  Speaker 5: space stocks including AST Space Mobile, Echo Star and rocket
• 21:37
  Speaker 5: Lab seeing losses on the day after Blue Origin rocket
• 21:40
  Speaker 5: exploded on a launch pad during a ground test last
• 21:44
  Speaker 5: night in Florida. I'm Tucker Silva, and that is Wall
• 21:47
  Speaker 5: Street Watch, Mike.
• 21:49
  Speaker 2: We got a piece in the Boston Globe today. It's
• 21:53
  Speaker 2: titled the next recession could be a middle class massacre subheader.
• 21:57
  Speaker 3: We're not ready for what's about to Hito scary.
• 22:02
  Speaker 2: What's what's going on with the middle class and a
• 22:07
  Speaker 2: recession that is not showing up anywhere in the data.
• 22:10
  Speaker 4: So first things first, nobody should wish upon a recession.
• 22:14
  Speaker 4: Recessions are just brutal.
• 22:17
  Speaker 3: They suck.
• 22:18
  Speaker 2: We've forgotten because we haven't been through a real one
• 22:21
  Speaker 2: in almost twenty years.
• 22:23
  Speaker 3: Yep. They are extraordinarily painful.
• 22:26
  Speaker 4: And permanently damaging, yes to all sorts of things. So
• 22:31
  Speaker 4: nobody should wish for a recession. That's not what I'm
• 22:33
  Speaker 4: doing here. But this article is bogus.
• 22:38
  Speaker 2: This article is hot garbage of the hottest garbagest sense.
• 22:43
  Speaker 4: So I want to quote for a moment here because
• 22:45
  Speaker 4: there's one piece that I can so easily refute that
• 22:49
  Speaker 4: it's just laughable to compound matters. The buffers that eased
• 22:53
  Speaker 4: past down turns are thinner now. In previous slumps, households
• 22:56
  Speaker 4: could draw and built up home equity to stay afloat. Today,
• 22:59
  Speaker 4: much of that equity has already been borrowed against through
• 23:02
  Speaker 4: home equity lines of credit. No it hasn't, No, it hasn't.
• 23:05
  Speaker 4: Home equity right now is at our record level. The
• 23:09
  Speaker 4: highest we've ever been was Q two of twenty twenty five.
• 23:12
  Speaker 4: We are just below that. It's estimated that right now
• 23:16
  Speaker 4: the percentage of home equity that people have in their
• 23:19
  Speaker 4: homes is approximately seventy percent of the homes value, which
• 23:23
  Speaker 4: is the highest we have seen since the nineteen fifties.
• 23:26
  Speaker 4: So don't tell me that we have no options to
• 23:30
  Speaker 4: draw upon home equity when we are literally sitting near
• 23:34
  Speaker 4: all time levels of dollar amounts available in our homes
• 23:38
  Speaker 4: to borrow against. Not that you should, but it's just
• 23:42
  Speaker 4: provably false. You can look the data up yourself, by
• 23:45
  Speaker 4: the way, that Saint Louis fed has a nice little
• 23:47
  Speaker 4: data point of households owners' equity in real estate level.
• 23:50
  Speaker 4: But you know, realtor dot com published this is this
• 23:53
  Speaker 4: stuff all the time. Any concerns about the housing market
• 23:56
  Speaker 4: do not exist right now. So I will start there
• 23:59
  Speaker 4: with just no.
• 24:00
  Speaker 2: I'm gonna continue with the garbage because honestly, this piece
• 24:03
  Speaker 2: is just pure poppy cock.
• 24:06
  Speaker 4: Uh.
• 24:07
  Speaker 2: And there's there's all these links in it because it's
• 24:09
  Speaker 2: written on lines, so you gotta have links this stuff.
• 24:11
  Speaker 3: Man, you get a link all the crap.
• 24:13
  Speaker 2: So it starts with leading economists Warren and there's a
• 24:16
  Speaker 2: link on the word warn. It's it's a guy Gary
• 24:21
  Speaker 2: Shilling who predicted the nineteen sixty nine to seventy recession,
• 24:25
  Speaker 2: saying that we might see one now, okay, great, Like
• 24:30
  Speaker 2: that's useful. Then there's another links there's another word for
• 24:34
  Speaker 2: another downturn, which is is talking about Moody Analytics chief
• 24:41
  Speaker 2: economist Mark Zandi said there's a forty percent chance of
• 24:44
  Speaker 2: recession this year.
• 24:45
  Speaker 3: So less than a coin flip? Got it? That?
• 24:47
  Speaker 2: Also, like again, like this is no different from twenty
• 24:51
  Speaker 2: twenty two, when like we were getting these kinds of
• 24:53
  Speaker 2: predictions in recession didn't materialize. Other things, the International Monetary
• 24:57
  Speaker 2: Fund projects inflation could reach six percent next year. Yes,
• 25:00
  Speaker 2: this is talking about global inflation, not US inflation.
• 25:03
  Speaker 4: Nor would that necessarily be recessionary. Okay, six percent recession
• 25:08
  Speaker 4: because the world you get six percent inflation because the world.
• 25:11
  Speaker 3: Is not in recession.
• 25:13
  Speaker 2: Not let me continue, Let me continue, because I'm I'm
• 25:16
  Speaker 2: fired up about this piece. Wall Street hasn't received the memo.
• 25:20
  Speaker 2: Oh did someone forget to deliver the memo to Wall Street?
• 25:23
  Speaker 2: Earlier this month, the SMP hit a record seventy two thirty. Well,
• 25:27
  Speaker 2: guess what now it's at seventy five hundred. And the
• 25:29
  Speaker 2: reason why is because earnings estimates keep going through the
• 25:32
  Speaker 2: roof because the AI trend that's going on, and yes,
• 25:35
  Speaker 2: it might be a bubble and eventually it's gonna you know, pop,
• 25:38
  Speaker 2: But that doesn't mean that you're going into recession just
• 25:40
  Speaker 2: because stocks are going up.
• 25:41
  Speaker 3: They're not ignoring anything.
• 25:42
  Speaker 2: In fact, they're paying attention to earnings, which is what
• 25:45
  Speaker 2: they should be paying attention to.
• 25:47
  Speaker 3: Yep. So there's that other things that you're seeing.
• 25:51
  Speaker 2: Math layoffs and finance, media and consulting.
• 25:54
  Speaker 3: You've become the norm. No, they haven't.
• 25:58
  Speaker 2: We're seeing the layoff rate exactly the same as it's
• 26:01
  Speaker 2: been for the last five years.
• 26:04
  Speaker 4: You just can't what happened to like citing sources for
• 26:08
  Speaker 4: your claims, Mike.
• 26:09
  Speaker 2: They are citing sources, They're just misinterpreting what's what they're saying. Actually,
• 26:14
  Speaker 2: that's the worst part is like they're citing all of
• 26:16
  Speaker 2: this stuff and being like, oh, this means that the
• 26:19
  Speaker 2: middle class is going to get decimated when the recession comes.
• 26:24
  Speaker 4: So so here's let's lay it out, Chuck. I don't
• 26:28
  Speaker 4: think you or I would debate is it possible that
• 26:30
  Speaker 4: we're in a recession next year?
• 26:32
  Speaker 3: Next year?
• 26:33
  Speaker 4: Sure, it's possible, Like it's always possible, And there are
• 26:37
  Speaker 4: legitimate problems with what could happen if we do enter
• 26:40
  Speaker 4: a recession right now because of the way our government
• 26:44
  Speaker 4: is spending money. So in previous recessions, what you did
• 26:49
  Speaker 4: that The playbook that's been developed over the last fifty
• 26:52
  Speaker 4: to one hundred years has been, Hey, if you go
• 26:54
  Speaker 4: into a real recession where unemployment bumps up, in economic
• 26:57
  Speaker 4: activity stalls, then the government has a role to play
• 27:01
  Speaker 4: of expanding services and spending in order to prevent it
• 27:05
  Speaker 4: from getting really bad and damaging the economy permanently. And
• 27:09
  Speaker 4: so during recessions of past times, you see that deficits
• 27:13
  Speaker 4: go up because tax receipts go down and spending goes
• 27:17
  Speaker 4: up in order to spend your way out of the recession.
• 27:19
  Speaker 4: And arguably we've done better jobs of doing that at
• 27:22
  Speaker 4: other you know, better and worse jobs of doing that
• 27:25
  Speaker 4: during different periods of time. The problem that we face
• 27:28
  Speaker 4: now is that for the last four years, no really
• 27:33
  Speaker 4: since since twenty twenty, we've been running deficits to GDP
• 27:39
  Speaker 4: that were historically unheard of outside of really bad recessions
• 27:43
  Speaker 4: or war. Yeah, in twenty twenty five we ran a
• 27:47
  Speaker 4: deficit to GDP that was five point seven six percent.
• 27:51
  Speaker 4: You did not see anything like that for any extended
• 27:56
  Speaker 4: period of time outside of World War two and maybe
• 28:01
  Speaker 4: the Great Recession. But even that, you know that spending
• 28:03
  Speaker 4: didn't last terribly long. And so if you want to
• 28:06
  Speaker 4: make the argument that, hey, if we fall into a recession,
• 28:08
  Speaker 4: the United States can't afford to print the money out
• 28:11
  Speaker 4: of it without sparkling a whole bunch of inflation, I'll
• 28:14
  Speaker 4: happily have that debate. But giving me this blooney about
• 28:19
  Speaker 4: how the average American household just is worse prepared for
• 28:23
  Speaker 4: a recession today and it's just looming on our doorstep, man,
• 28:27
  Speaker 4: the evidence does not pile up in your favor of
• 28:30
  Speaker 4: that argument.
• 28:32
  Speaker 2: I just want to talk about, like more of the
• 28:33
  Speaker 2: stuff that's in here. Quote, more than one in four
• 28:36
  Speaker 2: Americans have nothing set aside for emergencies. Okay, That's basically
• 28:40
  Speaker 2: been the case since I've been in this business. I'm
• 28:43
  Speaker 2: not saying that that's good. But what I'm saying is
• 28:45
  Speaker 2: that doesn't mean that this is going.
• 28:47
  Speaker 3: To be worse equally sucky.
• 28:50
  Speaker 2: Right, Like recessions suck, they always suck when the next
• 28:55
  Speaker 2: one comes, It's not going to be like uniquely worse
• 28:58
  Speaker 2: for the middle class, especially because of anything that's in
• 29:00
  Speaker 2: this piece. So I'm sorry, this is pure fear mongering.
• 29:06
  Speaker 2: There is nothing we are seeing in the economic data
• 29:10
  Speaker 2: right now that is pointing to recession in my opinion,
• 29:14
  Speaker 2: And I say this to someone. Look, if you've listened
• 29:16
  Speaker 2: to our show like all spring, y'all know that I'm
• 29:19
  Speaker 2: concerned about where gas prices can go this summer. How
• 29:22
  Speaker 2: many times have you heard me say I'm worried about
• 29:24
  Speaker 2: recession this summer? The answer is probably zero.
• 29:29
  Speaker 3: Maybe, like no, it is zero. Okay, okay, okay, thank you.
• 29:33
  Speaker 3: So Tucker records you every day. That is true. Tucker
• 29:36
  Speaker 3: doesn't listen to everything that we say.
• 29:39
  Speaker 2: So again, I very much have things that I am
• 29:43
  Speaker 2: nervous about in the US economy as we go through
• 29:45
  Speaker 2: the next three to six months.
• 29:47
  Speaker 3: And especially in the stock market. Like recession is not
• 29:49
  Speaker 3: one that's my base case.
• 29:50
  Speaker 2: Do you always have to keep in the back of
• 29:52
  Speaker 2: your mind like something unexpected could happen? Sure, of course,
• 29:56
  Speaker 2: But unemployment claims remain low, continue and claims are actually
• 30:01
  Speaker 2: dropping relative to last year and the year before. You've
• 30:05
  Speaker 2: got housing that is slow and steady. It's not doing
• 30:08
  Speaker 2: anything exciting, but it can't really fall apart more than
• 30:10
  Speaker 2: it already has in the last four years because of
• 30:13
  Speaker 2: higher interest rates. Uh, You've got this AI bubble that
• 30:16
  Speaker 2: is moving things forward. And yes, I called it a
• 30:18
  Speaker 2: bubble because eventually we're gonna stop seeing semiconductor spending growing
• 30:22
  Speaker 2: by like seventy to eighty percent a year. That can't
• 30:24
  Speaker 2: continue forever. Again, there's no signs that it's slowing down now,
• 30:28
  Speaker 2: So I'm not really worried about the next six months
• 30:30
  Speaker 2: in that regard, And so I look at, you know,
• 30:33
  Speaker 2: the overall setup, and I say, yeah, at a certain point,
• 30:36
  Speaker 2: maybe if gas prices get high enough for long enough,
• 30:39
  Speaker 2: could it cause some some gnarliness. Yeah, but you got
• 30:42
  Speaker 2: to kind of prove it that you're gonna actually get
• 30:44
  Speaker 2: there first. And so you obviously have to, you know,
• 30:49
  Speaker 2: keep an open mind that looks something unexpected could happen.
• 30:52
  Speaker 2: But man, like people have been trying to will recessions
• 30:55
  Speaker 2: into it. People just love It's like the people that
• 30:58
  Speaker 2: get upset when like a hurricane isn't a Category five.
• 31:01
  Speaker 3: It's like, oh, I thought this was gonna be it.
• 31:03
  Speaker 2: What you want to root for, Like people dying, like,
• 31:07
  Speaker 2: go like do something else, Go read a book or something. Man,
• 31:11
  Speaker 2: go like outside and pick a flower and smell it.
• 31:14
  Speaker 2: Don't root for a recession just so you can be
• 31:17
  Speaker 2: like I told you it was coming, Like, no, recessions
• 31:20
  Speaker 2: suck and you should never root for them. If they develop,
• 31:24
  Speaker 2: we'll tell you, you know, like the second half of
• 31:27
  Speaker 2: last year, we said, hey, there's some concerning things in
• 31:29
  Speaker 2: the labor market. Let's watch and see how they develop.
• 31:32
  Speaker 2: Things have gotten better. We've told you that. If they
• 31:34
  Speaker 2: had continued to get worse, we would tell you that too.
• 31:37
  Speaker 2: But wait for the recession to actually happen before you
• 31:41
  Speaker 2: freak out, because if you just go by what you read,
• 31:45
  Speaker 2: I think we've had forty eight recessions in the last
• 31:47
  Speaker 2: five years. Let's take a quick break. When we come back,
• 31:53
  Speaker 2: let's talk about what what are we gonna do.
• 31:56
  Speaker 5: Todid Lutsky's gonna join us on the other side. Oh
• 31:59
  Speaker 5: he is, Yes, that's what. That's what the schedule says.
• 32:02
  Speaker 2: I'm reading it right now, and it's great.
• 32:05
  Speaker 3: It's a good schedule. We'll talk to Todd when we return.
• 32:07
  Speaker 1: Subscribe now to our YouTube page, where you'll find daily
• 32:11
  Speaker 1: interviews and full shows of the Financial Exchange. We'll get
• 32:14
  Speaker 1: you caught up on anything and everything you might have
• 32:16
  Speaker 1: missed right here on the Financial Exchange text does six
• 32:20
  Speaker 1: one seven, twenty six, two one, three eighty five with
• 32:23
  Speaker 1: your comments and questions about today's show. This is the
• 32:26
  Speaker 1: Financial Exchange Radio Network.
• 32:40
  Speaker 3: All right, Mike.
• 32:41
  Speaker 2: We got a piece here in the Wall Street Journal.
• 32:44
  Speaker 2: It's titled the Record Divide between Corporate profits and worker pay.
• 32:50
  Speaker 2: Quoting here worker compensation wage and benefits group point eight
• 32:53
  Speaker 2: percent in the first quarter from the fourth, while domestic
• 32:55
  Speaker 2: corporate profits jump two point seven percent. As a result,
• 32:58
  Speaker 2: labor shaff grossestic income conceptually similar to GDP, sank to
• 33:02
  Speaker 2: fifty one percent, the lowestance records began in nineteen forty seven.
• 33:06
  Speaker 2: Profit's climb to twelve point one the highest since nineteen fifty.
• 33:09
  Speaker 4: So there's two ways that a ratio like this can
• 33:13
  Speaker 4: do something like this. One is worker income falling, to
• 33:17
  Speaker 4: is profit growing. We're experiencing the profit growing piece of this,
• 33:21
  Speaker 4: not the worker income falling, which is a good silver lining.
• 33:28
  Speaker 3: I don't know.
• 33:29
  Speaker 4: I guess, how do you look at this and do
• 33:31
  Speaker 4: you look at this and say, is this a problem that?
• 33:37
  Speaker 3: Like?
• 33:38
  Speaker 4: I guess, what's the point of bringing this to our attention?
• 33:41
  Speaker 3: Well, here's the thing.
• 33:42
  Speaker 2: Isn't this kind of symbolic of why everyone thinks the
• 33:46
  Speaker 2: economy sucks?
• 33:48
  Speaker 3: I don't know.
• 33:49
  Speaker 2: Don't people just feel like the economy is not working
• 33:51
  Speaker 2: for them? And well, actually no, here's what's interesting. Again,
• 33:55
  Speaker 2: The polling on this is very consistent.
• 33:57
  Speaker 3: Yep.
• 33:58
  Speaker 2: If you ask people about their own financial situation, they
• 34:02
  Speaker 2: generally say they're fine. If you ask people about their local, fine,
• 34:06
  Speaker 2: local economic situation. They say it's worse than how they
• 34:10
  Speaker 2: are doing.
• 34:11
  Speaker 3: Yep.
• 34:11
  Speaker 2: And if you ask people about the national economy, they
• 34:14
  Speaker 2: consistently say it's worse than.
• 34:15
  Speaker 3: The local economy.
• 34:16
  Speaker 2: Right, So part of it, like you look at and
• 34:19
  Speaker 2: it's kind of like, okay, Like people have this ego
• 34:21
  Speaker 2: that protects them from thinking their situations bad, but they
• 34:25
  Speaker 2: see so many bad things on the news that they
• 34:26
  Speaker 2: think that the world, you know, the US economy is
• 34:29
  Speaker 2: just always bad. So like some of it I take
• 34:32
  Speaker 2: from that, But what I will say is the data
• 34:35
  Speaker 2: that we do get it, and like the actual data
• 34:37
  Speaker 2: on you know, incomes and stuff like that does show
• 34:40
  Speaker 2: a growing divide between haves and have nots, and this
• 34:44
  Speaker 2: can indicate why that's happening and why people might just feel,
• 34:47
  Speaker 2: you know, unhappy with the overall economy. And I continue
• 34:51
  Speaker 2: to think, look, corporate profits in and of itself going
• 34:55
  Speaker 2: up are not bad. It is bad when those profits
• 34:59
  Speaker 2: don't make their way back to the people who produce.
• 35:03
  Speaker 3: Them in any meaningful way.
• 35:05
  Speaker 2: And so like part of me looks at this is like, okay,
• 35:08
  Speaker 2: if you want to resolve this in like the easiest,
• 35:10
  Speaker 2: cleanest way, find ways to expand profit sharing or stock
• 35:14
  Speaker 2: ownership plans for employees so they participate in these gains too.
• 35:18
  Speaker 3: Yeah.
• 35:18
  Speaker 4: Look, I think part of this comes down to you
• 35:22
  Speaker 4: do you want to adopt policy?
• 35:24
  Speaker 3: Right?
• 35:24
  Speaker 4: And that's the question that I was asking. Is this
• 35:26
  Speaker 4: a Is this a problem that the government should be solving?
• 35:29
  Speaker 4: I generally don't think so, but we have talked about
• 35:32
  Speaker 4: how Look, capital gains are taxed at a different rate
• 35:36
  Speaker 4: than income, and that is partly to blame for what
• 35:39
  Speaker 4: we're seeing right now.
• 35:40
  Speaker 5: A long term care cost can reach thousands of dollars
• 35:43
  Speaker 5: per month and can put a serious strain on your savings. Well,
• 35:47
  Speaker 5: the experts at Cushing and Dolan often see families caught
• 35:50
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• 35:55
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• 35:57
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• 36:00
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• 36:04
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• 36:08
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• 36:11
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• 36:16
  Speaker 5: May is winding down folks. June first is Monday, so
• 36:18
  Speaker 5: this is your last chance to get this guide. It
• 36:22
  Speaker 5: breaks down some of the most common and costly mistakes
• 36:25
  Speaker 5: people make and explains how to help protect your assets,
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  Speaker 5: your family, and your future. To get the guide called
• 36:31
  Speaker 5: eight sixty six eight four eight five six nine nine
• 36:35
  Speaker 5: to get your free copy today Again, May is winding down.
• 36:40
  Speaker 5: June first is Monday, so this is your last chance
• 36:43
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• 36:46
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• 36:54
  Speaker 1: The proceeding was paid for and the views expressed are
• 36:56
  Speaker 1: solely those of Cushing and Dolan. Cushing and Dolan and
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• 37:02
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• 37:06
  Speaker 2: Dell reported earnings after the bell yesterday and the stock
• 37:09
  Speaker 2: is up thirty two percent today. Again just a monster
• 37:14
  Speaker 2: move for the company. This on the back of their
• 37:17
  Speaker 2: guidance that revenue for the fiscal year that ends in
• 37:20
  Speaker 2: January of twenty seven will be one hundred and sixty
• 37:22
  Speaker 2: seven billion dollars, including sixty billion from the sale of
• 37:25
  Speaker 2: AI servers. That is topping analyst estimates of one hundred
• 37:29
  Speaker 2: and forty two billion by about twenty percent. So just
• 37:33
  Speaker 2: a monster projection for Dell when it comes to where
• 37:38
  Speaker 2: their business is going.
• 37:39
  Speaker 4: Yeah, they landed a military contract for nine point seven
• 37:43
  Speaker 4: billion dollars, but yeah, the story here is one of
• 37:49
  Speaker 4: AI absorbing anything even modestly attached to the industry, and
• 37:56
  Speaker 4: I think Dell falls into the same category as we've
• 37:59
  Speaker 4: seen with them. There's like Ford, Toto, Corning, and others
• 38:03
  Speaker 4: that are being looped into this overall trade recently.
• 38:06
  Speaker 3: Let's take a quick break.
• 38:07
  Speaker 2: We got a whole lot more to come on hour
• 38:10
  Speaker 2: two and that'll be happening in just a little bits.