Latest / The Financial Exchange Show / Oil Risks, Fed Pressure and the Market’s AI Hangover

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Oil Risks, Fed Pressure and the Market’s AI Hangover · The Financial Exchange Show

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Speaker 1: a donation today. This is the Financial Exchange with Chuck
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Speaker 1: Zada and Mike Armstrong.
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Speaker 2: I hope y'all had a great weekend. It is Chuck, Mike,
1:17
Speaker 2: and Tucker with you, and as we kick things off here,
1:22
Speaker 2: we do have a nice busy week of data on tap.
1:28
Speaker 2: Not much today, Monday is usually pretty quiet on that front,
1:32
Speaker 2: but tomorrow we have big item is going to be
1:36
Speaker 2: existing home sales data. We also get ADP's weekly employment data,
1:40
Speaker 2: which I find just it's another nice thing that's been
1:42
Speaker 2: added in the last six months and it's just, you know, again,
1:46
Speaker 2: kind of a nice, nice little piece to have. It's
1:49
Speaker 2: not that important, but I like to look at it
1:51
Speaker 2: just to get a sense of what might be happening
1:54
Speaker 2: in the labor market. Wednesday, though, we've got the big
1:57
Speaker 2: one for this week with CPI. We also get the
1:59
Speaker 2: weekly the EIA report on crude oil and refined product
2:04
Speaker 2: inventories in the US, so that's always been fun to
2:06
Speaker 2: look at. For the last I don't know, six to
2:09
Speaker 2: ten weeks, we get on Thursday PPI and jobless claims.
2:13
Speaker 2: In Friday, we get the what should be a relevant
2:17
Speaker 2: University of Michigan consumer Sentiment reports that continues to tell
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Speaker 2: us that Americans think the current economy is the worst ever,
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Speaker 2: despite it not being the worst ever.
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Speaker 3: Literally ever well since they started collecting data in the sixties.
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Speaker 3: So yeah, I agreed that one's not terribly relevant. Big
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Speaker 3: report will be the inflation one, Chuck, because the I
2:38
Speaker 3: would argue approximate cause of the sell off on Friday
2:42
Speaker 3: had to do with a stronger than anticipated jobs report,
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Speaker 3: which affected expectations around what the FED does next and
2:48
Speaker 3: interest rate assumptions, and the Fed's actions are determined by
2:53
Speaker 3: two major factors. One would be inflation and two would
2:55
Speaker 3: be the labor market. And so if we had one
2:58
Speaker 3: scare coming from the labor market, you could get a
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Speaker 3: I guess you'd get. Counter to that, you could get
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Speaker 3: an inflation report that comes in nicer than expected, or
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Speaker 3: come in worse than expected, and perhaps even drive those
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Speaker 3: concerns about interest rates further.
3:15
Speaker 2: So that's what we've got in terms of economic data.
3:18
Speaker 2: The news over the weekend really starting yesterday, Israel and
3:23
Speaker 2: Iran started firing stuff at each other again basically the
3:28
Speaker 2: timeline the way that I saw things unfold on I
3:33
Speaker 2: think it was yesterday morning. Israel had attacked a couple
3:39
Speaker 2: of locations in the suburbs of Bay route Iran had
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Speaker 2: indicated by the ways in Lebanon, not in Iran. Iran
3:49
Speaker 2: had indicated that any attacks on BEA route would be
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Speaker 2: met with a retaliation. In multiple waves, Iran launched about
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Speaker 2: thirty or so ballistic missiles at Israel. It doesn't appear,
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Speaker 2: based on the reporting that there was too much in
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Speaker 2: the way of damage, but Israel then launched a couple
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Speaker 2: waves of fighters in order to attack some targets in Iran.
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Speaker 2: And this all concluded, as you know one would expect
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Speaker 2: given the modern niceties of war, by the time the
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Speaker 2: market opened this morning, where Iron said, hey, you know
4:23
Speaker 2: what we're done, and we're not going to do anything
4:26
Speaker 2: more as long as you don't do anything more.
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Speaker 3: I was talking to macayon this morning just about the
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Speaker 3: silliness of words these days, when we still call this
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Speaker 3: a ceasefire, but.
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Speaker 4: Nonetheless a ceasefire.
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Speaker 3: Holding this morning, I guess I think I don't know
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Speaker 3: how you use that word anymore.
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Speaker 2: The President, I forget the exact quote from last week
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Speaker 2: on this, but it was something along the lines of, well,
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Speaker 2: in that part of the world of ceasefires, just when
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Speaker 2: you're not shooting as much at each other, Okay, it
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Speaker 2: is what it is. I mean, look, I don't really
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Speaker 2: have any any good answers on this. What I do
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Speaker 2: know is that we continue to be just in this
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Speaker 2: holding pattern, waiting to see if we are going to
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Speaker 2: be able to get a meaningful amount of traffic moving
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Speaker 2: through the straight of horror moves in order to improve
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Speaker 2: the energy situation around the globe in the near future.
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Speaker 2: What we've been seeing, and again this is going to
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Speaker 2: start to matter and probably the next four to six
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Speaker 2: weeks here we've talked about how like the back half
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Speaker 2: of the summer, there's some dodgy stuff coming if there's
5:39
Speaker 2: no improvement. But what we've seen is to this point
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Speaker 2: in the last month or so, a little bit more
5:48
Speaker 2: than that, five out of the last five out of
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Speaker 2: the sixteen biggest crude oil draws in US history have
5:55
Speaker 2: happened during that time, including the largest and third largest
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Speaker 2: one in May. So it's something where we are surviving
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Speaker 2: at these prices for gasoline simply because we are depleting
6:12
Speaker 2: the commercial and strategic stockpiles of crude oil in the
6:16
Speaker 2: United States. At a certain point, we are unable to
6:20
Speaker 2: do that anymore because you get down to minimum operating levels,
6:23
Speaker 2: which on the commercial side, most of the projections that
6:26
Speaker 2: I'm seeing now are for late July to early August.
6:30
Speaker 2: On the strategic reserve side, you're talking somewhere in the
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Speaker 2: September to October range. So that's that's kind of what
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Speaker 2: we're looking at, and we'll see how things go on
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Speaker 2: that front. I've talked about this at length of the
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Speaker 2: risk that is posed here if for whatever reason, this
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Speaker 2: doesn't materialize, because the factor's X, Y and Z happy
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Speaker 2: to take the l on it if it doesn't come.
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Speaker 2: But based on what I am seeing here, it's increasingly
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Speaker 2: challenging to see a world in which we don't see
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Speaker 2: at least some short term pricing pressures that show up
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Speaker 2: on the crude oil side of things as we get
7:07
Speaker 2: into the late summer.
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Speaker 4: The US EIA.
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Speaker 3: The Energy Information Administration, I know this is only part
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Speaker 3: of the equation, but does publish weekly data on the
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Speaker 3: US stock of crude oil in the Strategic Strategic Petroleum Reserve.
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Speaker 4: That got a nice little chart.
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Speaker 3: Well it's kind of a scary chart, if you want
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Speaker 3: my opinion, but we are at levels that we haven't
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Speaker 3: seen since the.
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Speaker 4: Early eighties on the amount of oil in that strategic reserve.
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Speaker 3: And yeah, that's as of the last measurement about a
7:37
Speaker 3: week ago May twenty ninth, And you can't get a
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Speaker 3: heck of a lot lower than where we are right now,
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Speaker 3: which is the point that's been made by pretty much
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Speaker 3: every energy executive out there.
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Speaker 2: Yeah, strategic reserve, you again, you probably have somewhere in
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Speaker 2: the range of twelve to sixteen weeks. On the commercial
7:51
Speaker 2: side of things, you've got probably somewhere in the four
7:54
Speaker 2: to eight week range or six to eight week range.
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Speaker 2: And so this is just it's where we are, and
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Speaker 2: you need to see some improvement in terms of being
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Speaker 2: able to actually ship stuff at a consistent clip through
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Speaker 2: the straight up formulause. I know occasionally you get you know,
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Speaker 2: this tanker was able to sneak out, that one was
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Speaker 2: able to you know, there might be one or two
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Speaker 2: a day that are able to move, but that's just
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Speaker 2: not enough to And remember you need them to be
8:22
Speaker 2: able to go in both directions, like ships need to
8:24
Speaker 2: be able to want to go in in order to
8:27
Speaker 2: pick up cargoes. Because ultimately, based on the latest data
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Speaker 2: out of OPEK, you're now talking like twelve to thirteen
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Speaker 2: million barrels a day of production. That's offline. It's been
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Speaker 2: mitigated by strategic and commercial inventory drawdowns. It's been mitigated
8:43
Speaker 2: by China basically going on a buyer strike to a
8:46
Speaker 2: certain extent, reducing its imports by five million barrels a day.
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Speaker 2: None of that can continue in perpetuity, and so you've
8:53
Speaker 2: got this ticking clock to try to get something moving,
8:56
Speaker 2: and we'll see if it does at some point in
9:00
Speaker 2: the future. Let's take a quick break here. When we
9:02
Speaker 2: come back, let's recap what we saw on Friday as
9:06
Speaker 2: markets got a little wild to the downside, and we'll
9:09
Speaker 2: discuss next.
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Speaker 4: All right.
9:57
Speaker 2: We got a piece in the Wall Street Journal about
10:02
Speaker 2: what happened on Friday. It's got the headline Market route
10:06
Speaker 2: leaves Wall Street bracing for rockier times, because look, if
10:11
Speaker 2: there's one thing that has to be true, Michael, it's that, hey,
10:15
Speaker 2: after the S and P five hundred spends basically the
10:20
Speaker 2: last two to three months reaching all time highs, well,
10:23
Speaker 2: as soon as you have one two percent down day,
10:26
Speaker 2: that means that the end is near. Yeah, yeah, that's
10:29
Speaker 2: certainly what it means. The NASDAK right now, just sir,
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Speaker 2: for some frame of reference is back up to a
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Speaker 2: level that it last saw on May twenty first, so
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Speaker 2: two and a half weeks ago, three weeks ago. What's
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Speaker 2: that bring us to, Yeah, somewhere in the three weeks
10:43
Speaker 2: ago range. Yeah. Yeah.
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Speaker 3: There was a big pullback on Friday of last week.
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Speaker 3: Like I said in the first time, I mean, I
10:50
Speaker 3: think proximate cause was likely concerns about interest rates and
10:55
Speaker 3: just kind of the changing environment combined with general nervous
11:00
Speaker 3: about how much people are paying.
11:01
Speaker 4: For tech stocks.
11:02
Speaker 3: In the AI trade, we saw a couple of earnings
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Speaker 3: what was it Broadcom that reported last week they got
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Speaker 3: demolished in trading after that. I mean, there's clearly some
11:12
Speaker 3: concern that we could be in a bubble when it
11:16
Speaker 3: comes to.
11:17
Speaker 4: A lot of these stocks.
11:18
Speaker 3: You've heard our personal opinions on where the market is
11:20
Speaker 3: right now and the bubble bubble like qualities to it.
11:26
Speaker 3: But I think when you combine hey, a surprise jobs report,
11:29
Speaker 3: that makes it very difficult for the Fed to cut
11:32
Speaker 3: interest rates at all this year with those already existing
11:35
Speaker 3: concerns about prices people are paying for stocks. Yeah, you
11:38
Speaker 3: can get market movements like we saw on Friday last week.
11:41
Speaker 2: I don't think the job support had anything to do
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Speaker 2: with it. Really, I'm gonna be honest.
11:45
Speaker 3: Where didn't we open the day on Friday? I'm having
11:47
Speaker 3: a tough time recalling.
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Speaker 2: We opened at seventy five thirty seven on the S
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Speaker 2: and P five hundred, and we closed it seventy three
11:55
Speaker 2: eighty three. So it was a steady consistent sell off
11:58
Speaker 2: across the course of the day. And what I mean
12:01
Speaker 2: by it, I don't think that the job's report was
12:03
Speaker 2: you know that the approximate cause you mentioned Broadcom they
12:08
Speaker 2: reported earnings. It was either last Wednesday or Thursday before
12:13
Speaker 2: all this hit the fan, and specifically they reported earnings
12:18
Speaker 2: and then the next day they fell twelve and a
12:19
Speaker 2: half percent. Did investors only in Broadcom know that the
12:25
Speaker 2: job's report was coming, No, they didn't. There was a
12:28
Speaker 2: problem with Broadcom's earnings and that the guidance just wasn't
12:31
Speaker 2: good enough to keep the stock at the obscenely high
12:35
Speaker 2: valuations and obscenely high levels that it's at, and as
12:39
Speaker 2: a result, the stock felt twelve and a half percent.
12:42
Speaker 2: Now you did get a job support. That one of
12:44
Speaker 2: the things it did is it kicked up interest rates
12:46
Speaker 2: because hey, lo and behold, as we've been talking about
12:49
Speaker 2: all spring, the labor market is showing some signs of strength.
12:53
Speaker 2: The US economy is not collapsing in on itself, despite
12:58
Speaker 2: I know that households are struggling with you know, higher
13:00
Speaker 2: gas prices and things like that, but overall, the US
13:03
Speaker 2: data remains remarkably consistent in that the economy is not
13:08
Speaker 2: showing signs of recession at this point. And so I
13:14
Speaker 2: think that when you look at this, is it really
13:17
Speaker 2: the job support or is it As we talked about, Hey,
13:20
Speaker 2: semiconductors about a week ago got as extended as they've
13:24
Speaker 2: ever been in history. The only other time that we've
13:28
Speaker 2: seen the semiconductor index more extended relative to you know,
13:33
Speaker 2: it's two hundred day moving average. Was the tech bubble?
13:38
Speaker 2: That's it? And is it just maybe, hey, this got
13:40
Speaker 2: a little too high too quickly, and maybe you just
13:44
Speaker 2: needed a little bit of a brief pause or, in
13:46
Speaker 2: the case of how semiconductors typically correct now, a brief
13:50
Speaker 2: violent reversal. Because this is what happens in the semiconductor sector.
13:55
Speaker 2: So on Friday we saw semiconductor stocks down ten and
13:58
Speaker 2: a half percent as a whole. Is that because hey,
14:02
Speaker 2: there's too many jobs and interest rates are gonna have
14:04
Speaker 2: to go up. No, Like, I don't think it is.
14:07
Speaker 4: Maybe maybe not.
14:08
Speaker 3: Look doing these counter narratives of hey, if the jobs
14:12
Speaker 3: reported come in at ten thousand jobs and the unemployment
14:15
Speaker 3: rate had gone up to four to four instead of
14:16
Speaker 3: state at four to three, would we have gotten a.
14:19
Speaker 4: Better market performance on Friday?
14:21
Speaker 2: I don't, No one has.
14:22
Speaker 3: I guess it's a contributing factor, would be my guest.
14:25
Speaker 3: But is it the actual cause?
14:27
Speaker 4: Fair enough?
14:27
Speaker 3: I like single day price moves, there's no point in
14:31
Speaker 3: trying to attribute any single story to them.
14:33
Speaker 2: No, So I think that the big thing. I don't
14:37
Speaker 2: know if rockier times in markets are ahead or not.
14:42
Speaker 2: What I can tell you is, I've been telling you
14:44
Speaker 2: for the last, you know, a couple of weeks, semiconductor
14:48
Speaker 2: stocks are not going to double every two months. They're
14:52
Speaker 2: just not gonna do that forever. If if they do,
14:56
Speaker 2: I'll eat my hat, which is not made out of
14:58
Speaker 2: semiconductors and thus is going to be you know, relatively
15:02
Speaker 2: affordable on the broad scheme of things. But the odds
15:06
Speaker 2: of semiconductor stocks doubling every two months for the rest
15:10
Speaker 2: of our lives or even the rest of this year,
15:14
Speaker 2: I'm gonna go with a no, that's not very likely
15:17
Speaker 2: to happen, kind of where I tend to land. So
15:23
Speaker 2: I think my view is, hey, this is a market
15:25
Speaker 2: that had gone kind of you know, it's gone really
15:29
Speaker 2: hot for about two months. I mean, even the S
15:32
Speaker 2: and P five hundred from you know, trough to top, it
15:35
Speaker 2: was up like twenty percent. Yeah, you're gonna tell me like,
15:40
Speaker 2: it's just gonna keep going up twenty percent every two
15:42
Speaker 2: months forever with no interruption. No, Like, markets go through
15:45
Speaker 2: these fits and starts and we just can't publish pieces
15:50
Speaker 2: about the stock market fell today. That means everything's gonna
15:55
Speaker 2: be bad. Forever, Like, what is this is twenty was
16:00
Speaker 2: it last year? The year before when we had like
16:03
Speaker 2: two days down to start the year and you had
16:06
Speaker 2: the pieces coming out weld up, means it's gonna be
16:09
Speaker 2: a tough one this year. And by the way, it wasn't. Guys,
16:12
Speaker 2: it wasn't a tough one that year.
16:14
Speaker 3: Yeah, two percent market sell offs are not the end
16:16
Speaker 3: of the world.
16:18
Speaker 4: It's been a little while.
16:19
Speaker 3: I wonder how often actually we average a two percent
16:22
Speaker 3: down day in markets?
16:23
Speaker 2: They happened anywhere like generally five to seven times a year.
16:26
Speaker 4: Okay, it's it's not fairly normal, you know, they weirder
16:29
Speaker 4: did not have a year with one.
16:30
Speaker 2: You've got two hundred and fifty trading days out of
16:32
Speaker 2: the year. It's a you know, bottom two to three
16:35
Speaker 2: percent occurrence in a given year. But out of the
16:39
Speaker 2: thousands of trading days that we've had, there's nothing notable
16:43
Speaker 2: about it. I mean, do you sit back, just as
16:45
Speaker 2: an example, do we sit back and say, man, November
16:50
Speaker 2: twentieth last year, that was a day. Man, No, we don't,
16:54
Speaker 2: because like it didn't it wasn't anything. Yes, it was
16:57
Speaker 2: a two percent down day, but no, like it didn't
17:00
Speaker 2: mean anything. Do we sit back and say, oh, October tenth,
17:04
Speaker 2: the last year, gosh, that was the one that really
17:08
Speaker 2: you know started at No, it was a big down
17:11
Speaker 2: day that turned into nothing because stocks rallied for the
17:14
Speaker 2: next two weeks after that.
17:15
Speaker 4: Yeah, mark the ones that matter.
17:17
Speaker 3: When we get into a correction or into a bear market,
17:20
Speaker 3: we'll be sure to let you know. Yes, not that
17:22
Speaker 3: they signify anything about what comes next, but you know,
17:24
Speaker 3: those are items to note and to mark, and we're
17:28
Speaker 3: nowhere near them right now.
17:29
Speaker 2: You want to get like excited on a single day
17:32
Speaker 2: sell off in the S and P.
17:34
Speaker 4: Pause trading for the day, that's no, like not even that.
17:37
Speaker 2: Like, talk to me when we get north of like
17:39
Speaker 2: three and a half to four percent, then you can
17:41
Speaker 2: be like, oh, okay, there's something interesting here, or talk
17:44
Speaker 2: to me when the S and P, you know, has
17:46
Speaker 2: fallen fifteen percent. That's where we can start saying, yes,
17:50
Speaker 2: like there's there's something like real here, not oh hey,
17:54
Speaker 2: S and P fell like two percent today or five
17:56
Speaker 2: percent over the last few weeks. Those are ANDed operating
18:01
Speaker 2: procedures for markets that are healthy and can experience volatility.
18:05
Speaker 3: Yeah, I do openly wonder about market mechanics this year
18:10
Speaker 3: with the I know we're going to be speaking about
18:13
Speaker 3: companies like SpaceX, Open Ai, and Anthropic all going public.
18:16
Speaker 3: But you know, with these massive emerging companies into markets
18:21
Speaker 3: and you know a lot of people excited about them, where.
18:26
Speaker 4: Does the cash come from?
18:27
Speaker 3: Ultimately, do we see more volatility in markets because of
18:31
Speaker 3: pending giant IPOs that get a lot of consumer attention
18:35
Speaker 3: or does it? Does it not really create anything there?
18:38
Speaker 2: I think it does. And by the way, this is
18:40
Speaker 2: something worth talking about. Also, Google last week, out of
18:44
Speaker 2: nowhere decides hey, we're going to do a big eighty
18:46
Speaker 2: five billion dollar equity raise. Well, that money's got to
18:49
Speaker 2: come from somewhere. You don't just have eighty five billion
18:51
Speaker 2: dollars sitting around. And this is an interesting dynamic to watch,
18:55
Speaker 2: which is look for the last fifteen years, the story
18:58
Speaker 2: that you've been seeing, the major one providing support to
19:01
Speaker 2: markets is companies buying backstock. There are fewer shares outstanding
19:06
Speaker 2: this year than they're worth a year prior. If we
19:09
Speaker 2: now move from net buyers of stock at the corporate
19:13
Speaker 2: level to net issuers, that's a dynamic that's worth paying
19:17
Speaker 2: attention to. I think let's take a quick break when
19:20
Speaker 2: we return, we got Wall Street Watch, and then we're
19:24
Speaker 2: talking about the FED.
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19:58
Speaker 5: Market's trying to claw back law. This is from Friday's
20:01
Speaker 5: tech sell off. As for the Middle East, oil prices
20:04
Speaker 5: were up five percent earlier this morning after Ourn and
20:07
Speaker 5: Israel exchange military attacks. However, oil prices have since ease
20:12
Speaker 5: after Iran said its military operations against Israel were over.
20:16
Speaker 5: Right now, the Dow is up about a third of
20:18
Speaker 5: a percent, SMP five hundred up over three quarters of
20:21
Speaker 5: a percent, Nasdaq up one and a quarter percent or
20:24
Speaker 5: three hundred and twenty two points. Russell two thousand is
20:28
Speaker 5: up about one percent. Tenure Treasure reeled up one basis
20:33
Speaker 5: point at four point five to four percent. In oil
20:37
Speaker 5: up about eight tenths of a percent, trading right around
20:40
Speaker 5: ninety one dollars a barrel. Marvel Technology rallying eleven percent
20:44
Speaker 5: following news that the chip maker will join the SMP
20:47
Speaker 5: five hundred later on. Meanwhile, Amazon announced it will pay
20:52
Speaker 5: Corning billions of dollars for optical fiber to power and
20:55
Speaker 5: connect its rapidly expanding AI data centers. This marks the
21:00
Speaker 5: another significant deal for Corning after its previous agreements with
21:04
Speaker 5: Meta in Nvidia earlier this year. Corning up by about
21:08
Speaker 5: seven percent. Elsewhere, Alphabet's Google recently placed an order with
21:12
Speaker 5: Intel to manufacture more than three million of its specialized
21:15
Speaker 5: AI chips.
21:16
Speaker 2: In twenty twenty eight.
21:17
Speaker 5: That report, according to The Information, Intel shares jumping by
21:22
Speaker 5: ten percent, and Apple will hold its final Worldwide Developer's
21:26
Speaker 5: Conference this afternoon with Tim Cook at the Helm. The
21:29
Speaker 5: tech giant is expected to unveil a revamped Serie Digital
21:33
Speaker 5: Assistant along with other AI features. Applestock is up about
21:38
Speaker 5: one and a half percent ahead of that conference. I'm
21:41
Speaker 5: Tucker Silva and that is Wall Street Watch.
21:43
Speaker 2: Piece in the Wall Street Journal. Here. It's titled Kevin
21:46
Speaker 2: Warsh's job just got a lot more complicated, sub better.
21:50
Speaker 2: The labor market rebound is setting in motion a collision
21:53
Speaker 2: between the new Fed chairman, the bond market, and the
21:55
Speaker 2: White House.
21:56
Speaker 3: Uh I think it was in place. Yeah, guys, that
22:00
Speaker 3: Friday Jobs report didn't really change it. You got to
22:02
Speaker 3: be living under a rock if you haven't been paying
22:04
Speaker 3: a ta Here's the deal. If you're the FED chair
22:08
Speaker 3: and you wake up on a Friday and see a
22:10
Speaker 3: job's report and you're like, oh, this changes everything, that
22:14
Speaker 3: means you're FED chairing wrong.
22:16
Speaker 2: That's that's not how you do it. We've been covering
22:19
Speaker 2: on this show for the last couple of months the
22:21
Speaker 2: fact that the labor market has been seeing some green
22:23
Speaker 2: shoots and side and signs of improvement. We're not saying
22:28
Speaker 2: that everything is all hunky dory in the labor market.
22:30
Speaker 2: We're not saying that this is like a great time
22:32
Speaker 2: to be hired or anything. But what we have been
22:34
Speaker 2: saying is, hey, here's some of the things we've been seeing.
22:37
Speaker 2: Number one, job openings have been ticking up. Number two,
22:40
Speaker 2: both initial and continuing jobless claims have been ticking down.
22:45
Speaker 2: Number three, payroll tax withholding has been ticking up. Number four,
22:51
Speaker 2: we've been seeing improved monthly jobs numbers. Number five, we've
22:55
Speaker 2: been seeing the unemployment rate holding steady. You look and
22:59
Speaker 2: you put all of this together across multiple sources, both
23:02
Speaker 2: public sector ones and private sector ones, and the message
23:06
Speaker 2: that you get from the labor market is the deceleration
23:10
Speaker 2: that was going on in the second half of last
23:12
Speaker 2: year has ended, and there's a modest upswing in place,
23:15
Speaker 2: even though we're still seeing relatively low rates of hiring.
23:19
Speaker 2: Kevin Warsh does not need to listen to our show
23:23
Speaker 2: in order to know that he's been following this too.
23:25
Speaker 2: He's no dummy, and so I don't think his job
23:29
Speaker 2: just got a lot more complicated. I think, quite honestly,
23:33
Speaker 2: like the piece that's going to complicate it more than
23:35
Speaker 2: anything else is the inflation side of things, which was
23:38
Speaker 2: showing some improvement last year before, even before the Iran conflict,
23:44
Speaker 2: starting to show signs of core PCE ticking up a
23:47
Speaker 2: little bit in January and February of this year, and
23:50
Speaker 2: now that gas prices are firmly in that four dollars
23:53
Speaker 2: plus range, you do have some things happening on the
23:57
Speaker 2: inflation side that are going to complicate his ability to
24:01
Speaker 2: build consensus to get rate cuts moving at anytime in
24:05
Speaker 2: the next few meetings.
24:06
Speaker 4: Right, this guy needs to build credibility.
24:10
Speaker 3: Well, he's got to build credibility with a lot of
24:12
Speaker 3: different parties and they are in direct conflict. We've talked
24:15
Speaker 3: about this before, but he likely wants credibility with the president.
24:19
Speaker 4: It's not fun to have the you know, the.
24:22
Speaker 2: No one wants your boss yelling at you on social
24:25
Speaker 2: media and stuff.
24:26
Speaker 4: That's not fun.
24:26
Speaker 3: No, he has to build credibility with the other twelve
24:29
Speaker 3: voting members of the Federal Reserve who rotate in and out,
24:32
Speaker 3: and so he needs to be seen as a fundamentally
24:35
Speaker 3: serious person that takes their mandate seriously. He needs to
24:39
Speaker 3: build credibility with you know, buyers of US treasuries who
24:43
Speaker 3: are need to be convinced that they're not going to
24:46
Speaker 3: allow inflation to just run away.
24:49
Speaker 4: Uh.
24:49
Speaker 3: And I think this is always to a lesser degree.
24:53
Speaker 3: You do have to have some credibility with the American
24:55
Speaker 3: people that you can actually fundamentally seriously control inflation. I
24:58
Speaker 3: generally think that that part gets over state because I
25:00
Speaker 3: don't think anybody can pick pick a fed chair.
25:03
Speaker 4: Out of the lineup, generally speaking. But you know, that
25:07
Speaker 4: is an important.
25:07
Speaker 3: One, especially in times of very high inflation or very
25:11
Speaker 3: high unemployment.
25:13
Speaker 2: Who do you think is more recognizable to the American
25:17
Speaker 2: public right now, Kevin warsh Or or Harry Kane from
25:27
Speaker 2: the British from the English soccer team. Like if if
25:32
Speaker 2: you put like ten guys in the lineup and you're like,
25:35
Speaker 2: one of these guys runs the fed. One of these
25:38
Speaker 2: is like one of the two or three best scores
25:40
Speaker 2: of soccer balls on the planet. Who's more recognizable to
25:44
Speaker 2: the American public? I say it's on the eve of
25:46
Speaker 2: the World Cup kicking off, which is why I bring
25:48
Speaker 2: this up.
25:48
Speaker 4: I don't know.
25:49
Speaker 3: I couldn't pick Harry Kane out of a lineup, so
25:51
Speaker 3: I know where I land on that.
25:52
Speaker 4: But that's unsurprising.
25:53
Speaker 2: Okay, yeah, we we should.
25:57
Speaker 3: I think they would generally fail at both might be
26:00
Speaker 3: a tie.
26:02
Speaker 2: Yeah, I'm guessing. I'm guessing that the overlap of people
26:06
Speaker 2: who can successfully identify both is probably like one to
26:09
Speaker 2: two percent of Americans. Yeah, somewhere in that ballpark. So
26:13
Speaker 2: here's what I can tell you. If I were Kevin Walsh,
26:16
Speaker 2: which I'm not because I'm shorter and he's got better
26:18
Speaker 2: hair than me. But if I were to reason, tho
26:21
Speaker 2: are the only two reasons I'm not Kevin, and my
26:22
Speaker 2: name's not Kevin. My parents did not name me Kevin.
26:29
Speaker 2: If I were Kevin Walsh, the way I would approach it,
26:35
Speaker 2: ultimately the relationship with my committee is going to be
26:39
Speaker 2: more important in terms of me actually being able to
26:42
Speaker 2: get what I want long term. Sure, the President can
26:45
Speaker 2: yell at me on Twitter all he wants, but he's
26:48
Speaker 2: not in the voting process for the FED. And so
26:53
Speaker 2: the way that I would approach this is again, first
26:56
Speaker 2: FED meeting for Worsh's next week, I come out in
27:01
Speaker 2: my press conference and be like, yeah, of course we
27:04
Speaker 2: can't cut rates right now. Inflation is way too high.
27:08
Speaker 2: It's a problem and we need to be serious about
27:11
Speaker 2: dealing with it to make sure that we are keeping
27:14
Speaker 2: prices stable for Americans. We absolutely will consider raising rates
27:20
Speaker 2: if we need to. Right now, I don't feel that
27:22
Speaker 2: that's necessary, but will absolutely be ready at the you know,
27:25
Speaker 2: at the button if we need to. And then after
27:30
Speaker 2: that I would let the market do its work for me,
27:34
Speaker 2: and if I need to raise rates at some point,
27:37
Speaker 2: great I will. But otherwise this gives me a credibility
27:41
Speaker 2: with my committee so that they know, hey, I'm not
27:44
Speaker 2: just trying to hit that button. You know, from day one,
27:47
Speaker 2: they can see that I'm a reasonable person. And from there,
27:52
Speaker 2: when I do come to them saying, hey, the data
27:55
Speaker 2: is improving on the inflation side. I think we need
27:58
Speaker 2: to cut rates. I have like that relationship that I've
28:02
Speaker 2: built with them going forward. That's how I would personally
28:06
Speaker 2: approach it. But again I'm not Kevin Warsh.
28:10
Speaker 3: Yeah, and we will see if again, if they go
28:15
Speaker 3: that route, does the President give him the time that's
28:19
Speaker 3: likely needed to.
28:20
Speaker 4: Go with that approach.
28:21
Speaker 3: Again, nothing that doesn't can force him to change his mind.
28:23
Speaker 3: We've seen that, but certainly can make life living hell.
28:28
Speaker 2: Just take a quick break. When we return, we're talking
28:31
Speaker 2: oil and cars after this.
28:34
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28:51
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29:05
Speaker 2: We got a piece in Bloomberg today by Javier Blas,
29:08
Speaker 2: who is their energy columnist, and I'm gonna read one
29:13
Speaker 2: quote from it. Just it's about, Hey, what happens when
29:17
Speaker 2: Hormuz reopens quote. Unsurprisingly, the commodity market is deeply divided
29:21
Speaker 2: about how long it would take. Oil bears believe it
29:24
Speaker 2: could be done in days and weeks. This is about
29:26
Speaker 2: restarting production. Well the bulls say bulls talk about six
29:29
Speaker 2: to eight months, perhaps even a year. The most pessimistic say,
29:32
Speaker 2: many wells won't restart at all. Here is the general
29:37
Speaker 2: place that I've personally landed is you take what the
29:42
Speaker 2: most bullish people say and what the most bearish people say,
29:45
Speaker 2: and it's usually somewhere in the middle. And the people
29:49
Speaker 2: that I follow on this that I think are pretty
29:51
Speaker 2: plugged in tend to land on like again, it's between there.
29:55
Speaker 2: It's like probably like three months maybe four to get
29:59
Speaker 2: production back up. After you know you have the ability
30:03
Speaker 2: to resume exports. The question that matters about this is
30:07
Speaker 2: when can you resume the exports in sufficient quantities to
30:11
Speaker 2: allow production to spool up again. And beyond that, the
30:17
Speaker 2: other piece that and again this is this is a
30:20
Speaker 2: relatively short term issue because at least for the next
30:25
Speaker 2: year and a half you're still talking about exporting through
30:27
Speaker 2: the strait of hormones. Every country in the Middle East
30:30
Speaker 2: now is talking about building bypass pipelines in order to
30:33
Speaker 2: not get caught like this again. But the title of
30:38
Speaker 2: this piece is there is brace for a flood of
30:41
Speaker 2: oil as soon as Hormoz reopens. Now that flood of
30:44
Speaker 2: oil is going to be produced at the same pace
30:47
Speaker 2: eventually that it was previously. It's not like there was
30:50
Speaker 2: a ton of spare capacity in Saudi Arabia or Kuwait.
30:53
Speaker 2: They were basically producing as much as they could then.
30:56
Speaker 2: So it's like, okay, like brace for oil to get
30:58
Speaker 2: back up to previous production. That's absolutely true, and that's
31:03
Speaker 2: coming at some point. But remember the previous production was
31:08
Speaker 2: matched with demand based on the state of the world
31:13
Speaker 2: before all of this. Afterwards, you're going to have countries
31:17
Speaker 2: like the US and Japan and China trying to rebuild
31:20
Speaker 2: their strategic reserves. So plus you've got commercial inventories that
31:24
Speaker 2: need to build back up. And then you've got the
31:26
Speaker 2: other countries that were caught off guard by this, India, Australia, Vietnam.
31:32
Speaker 2: They're gonna be sitting there saying, hey, we should probably
31:34
Speaker 2: increase the size of our strategic reserves as well. And
31:38
Speaker 2: so where I think I tend to end up is
31:44
Speaker 2: if you do think that the price of oil is
31:46
Speaker 2: going to move up in the near future, it is
31:51
Speaker 2: a near future spike that you're talking about somewhere before
31:55
Speaker 2: the end of this year. As you get out into
31:58
Speaker 2: twenty seven twenty nine, you're going to have other ways
32:01
Speaker 2: for this oil to exit the Middle East, and you
32:03
Speaker 2: need to be prepared for that. You do need to
32:05
Speaker 2: be prepared for structurally higher demands. So the idea that
32:09
Speaker 2: you're going to go back to fifty five dollars barrels
32:12
Speaker 2: of oil, I think is a really tough putt in
32:15
Speaker 2: that time. But you're not going to be even if
32:17
Speaker 2: you were to see like a spike into you know,
32:20
Speaker 2: the one twenty to one fifty range. I don't think
32:23
Speaker 2: you're looking three years out at that because you're gonna
32:25
Speaker 2: have this supply being re routed through new pipelines and things.
32:29
Speaker 2: So I don't know exactly where any of this ends
32:34
Speaker 2: up from a pricing perspective, But if you want to
32:36
Speaker 2: say higher, then lower, but not as low as before,
32:40
Speaker 2: I think that's where I tend to land.
32:42
Speaker 3: Yeah, and look, I found this piece to be an
32:45
Speaker 3: interesting thought exercise, But doesn't bracing for a flood of
32:49
Speaker 3: oil as soon as hormones reopened seem like seven steps
32:52
Speaker 3: in the future, right, The first thing that we need
32:54
Speaker 3: to do is reopen hor moves Like I don't mean
32:58
Speaker 3: to be critical here, But like, are you planning the
33:03
Speaker 3: you know, Stanley Cup parade for your team at during
33:07
Speaker 3: pre season, because that seems.
33:09
Speaker 4: Like kind of what we're doing here.
33:11
Speaker 3: I know it's somebody's job to make sure that if
33:14
Speaker 3: the Straight of Hormos reopens, we have some way of
33:16
Speaker 3: getting the oil into the strategic preserves and tankers and
33:19
Speaker 3: et cetera. But there's a number of steps that need
33:21
Speaker 3: to happen first, the first being ships not getting shot
33:25
Speaker 3: at when they are navigating the coast of Iran.
33:27
Speaker 2: I also just have to read one sentence and here
33:29
Speaker 2: that I found lovely. Actually, I'll read a couple of
33:35
Speaker 2: sentences just because it pulls it all together. Often I
33:39
Speaker 2: hear that the reopening would be a two phase operation. First,
33:41
Speaker 2: tankers already laden would depart, and then ships on ballast
33:44
Speaker 2: could go beyond the straight to load. That's nonsense. It
33:46
Speaker 2: would happen simultaneously. And here's the sentence that I really like.
33:50
Speaker 2: Greek ship owners have already pre positioned multiple empty supertankers
33:54
Speaker 2: within three to five days of navigation from Hormus for
33:56
Speaker 2: the jobs. So here's the deal. As some one who
34:00
Speaker 2: is of Mediterranean descent, I can confidently say that the
34:06
Speaker 2: Greek ship owners are among the most insane owners of
34:10
Speaker 2: tankers on the planet. Like they're known in this fashion.
34:13
Speaker 2: They're nuts, they have their ships do all kinds of
34:16
Speaker 2: crazy stuff. Again, I know this because I'm Italian and
34:20
Speaker 2: we're like separated by like a tiny little body of water,
34:22
Speaker 2: but we share the same kind of nuts DNA in
34:25
Speaker 2: our bodies. So when you're talking about like what normal
34:30
Speaker 2: people would do, you can't reference the Greek ship owners
34:34
Speaker 2: because they are very much like the nuttiest people in
34:38
Speaker 2: the business, and they tell you how far people are
34:41
Speaker 2: willing to go, but not what the average company is
34:44
Speaker 2: willing to risk. So I think it's worth taking that
34:48
Speaker 2: with a grain of salt and a couple of klumud
34:51
Speaker 2: of olives Tooah.
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36:04
Speaker 2: Piece in the Wall Street Journal, Americans are keeping their
36:06
Speaker 2: cars longer than ever and remaking the auto industry. The
36:10
Speaker 2: average vehicle on the road now is thirteen years old,
36:14
Speaker 2: which is a historic high and a ten percent jump
36:16
Speaker 2: from a decade ago. A couple things happening here. Number One,
36:19
Speaker 2: cost of cars has gone up dramatically, and so people
36:22
Speaker 2: are saying, no, I don't want to spend that much
36:25
Speaker 2: money on a new card rather keep my old one.
36:28
Speaker 2: The other thing that is hard to like rationalize in
36:34
Speaker 2: some respects because there is stuff on our cars now
36:36
Speaker 2: that breaks more than it used to. But overall, cars
36:40
Speaker 2: as a whole are so much better made than they
36:42
Speaker 2: were forty or fifty years ago, sure in terms ofity. Well,
36:48
Speaker 2: and there is some stuff that breaks more because it's okay, like, yeah,
36:51
Speaker 2: this is made out of cheap plastic and like so
36:54
Speaker 2: I get it. There is some stuff that that breaks more,
36:57
Speaker 2: but overall, long term reliability is a lot higher than
37:00
Speaker 2: it used to be. And that's driving this as well,
37:03
Speaker 2: because I mean you talk about like some of the
37:05
Speaker 2: cars and brands that were available in like the sixties
37:08
Speaker 2: and seventies, and look, they were a joke. They might
37:11
Speaker 2: have been fun cars to drive, and like you have
37:13
Speaker 2: fond memories of them, but look, my dad had an
37:16
Speaker 2: old MG and he'll he'll tell me about it's like, yeah,
37:19
Speaker 2: like it was a blast, but it was something where hey,
37:22
Speaker 2: if it was raining, And remember some of these, like
37:24
Speaker 2: the old MG's they were convertible soft tops. He tells me, No, no,
37:28
Speaker 2: wouldn't even rust. He tells me stories. He's like, you're
37:30
Speaker 2: driving in a heavy rain storm and the roof starts
37:33
Speaker 2: collapsing on you because of the weight of the rain
37:35
Speaker 2: that's soaking into the soft top, Like you don't get
37:37
Speaker 2: that with modern cars.
37:39
Speaker 3: Yeah, I mean, I think the car industry to me
37:42
Speaker 3: follows similar trends we've seen from airlines and other areas,
37:45
Speaker 3: which is, they are all catering to a very high
37:48
Speaker 3: end consumer that has cash to spend, which has driven
37:52
Speaker 3: prices a lot higher for pretty much all vehicles. But
37:55
Speaker 3: they make all their profits on one hundred thousand dollars
37:57
Speaker 3: pickup trucks and luxury vehicles and don't want to produce
38:01
Speaker 3: a lot of yeah, lower profit margin cars, and so yeah,
38:05
Speaker 3: the rest of us are in the middle.
38:06
Speaker 2: There's take a quick break. When we return, we got
38:11
Speaker 2: our two coming up. If you like this one, the
38:14
Speaker 2: next one is next