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Oil and Bond Pressure Return to Markets · The Financial Exchange Show

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  Speaker 1: exchange with chuck zotta and mike armstrong your exclusive look
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  Speaker 1: is The Financial Exchange with Chuck Zotta and Mike Armstrong.
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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. Talking about the two things that we've
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  Speaker 2: been focused on basically for the entire year. Oil and
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  Speaker 2: the bonds. That's what we're going to be discussing as
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  Speaker 2: we kick things off. Mark Venditti made a good point yesterday, Mike, that,
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  Speaker 2: you know, whenever stocks get to all-time highs, people are like,
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  Speaker 2: thank you, Mark. You know, people go like, wow, like
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  Speaker 2: stocks made all-time highs. But the thing that you have
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  Speaker 2: to remember is that the most predictive element about whether
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  Speaker 2: stocks will make new all-time highs is whether they have recently.
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  Speaker 2: And so the expectation is basically that if you look
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  Speaker 2: out over any reasonable period of time, meaning more than
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  Speaker 2: about 18 months or so, stocks should be making new
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  Speaker 2: all-time highs pretty consistently because of economic growth and the
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  Speaker 2: earnings growth that comes along with that.
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  Speaker 3: Yeah, the look of disgust on his face every time
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  Speaker 3: I say that the equity markets have reached new all-time highs.
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  Speaker 3: I don't know, his eyes just.
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  Speaker 4: Burn through you at that stage.
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  Speaker 2: No, he looks at you and he goes, internally and
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  Speaker 2: occasionally externally, he goes, you mere peasant.
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  Speaker 4: Yeah, you fool.
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  Speaker 1: You are a fly on the....
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  Speaker 2: The buttocks of economics. And I'm going to swat you
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  Speaker 2: with my economic tail.
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  Speaker 4: Yeah, the dismissiveness really comes out.
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  Speaker 2: Look at the size of that thing.
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  Speaker 5: How can you not stare at it?
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  Speaker 2: As I was saying.
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  Speaker 3: And by the way, we were not talking about oil
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  Speaker 3: or bonds for the first two months of the year, Chuck.
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  Speaker 3: So I think there was plenty of time that was
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  Speaker 3: not all about oil. energy and bonds and at least
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  Speaker 3: a month and a half this summer where we weren't talking.
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  Speaker 4: About it either.
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  Speaker 1: Right.
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  Speaker 2: The spells in between have just been AI. Yeah.
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  Speaker 4: AI. Yeah.
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  Speaker 2: AI and all the other vowels just feel left out.
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  Speaker 2: You know, poor EO and you, you're like, you.
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  Speaker 1: Yeah.
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  Speaker 4: Good. Good.
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  Speaker 2: That's what they sound like when you put them together.
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  Speaker 4: Yeah.
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  Speaker 2: So let's talk a little bit about oil. We got
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  Speaker 2: crude up about four and a half percent today. diesel
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  Speaker 2: and gasoline also moving in that direction for their futures markets.
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  Speaker 2: And the big thing here, I was talking to Chris
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  Speaker 2: Ryan on our New Hampshire affiliate earlier today, and he
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  Speaker 2: asked the question, he's like, Chuck, we're seeing reports out
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  Speaker 2: of the Persian Gulf that you've got oil transits through
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  Speaker 2: Hormuz back up to normal. Why are we still seeing
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  Speaker 2: pricing the way we are? And there are a few
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  Speaker 2: different things that feed into this. The first is the
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  Speaker 2: transit side of things, which is prior to the outbreak
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  Speaker 2: of this war, it cost about $ 1 to $ 2 a
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  Speaker 2: barrel to ship stuff through the Strait of Hormuz into
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  Speaker 2: wherever it was going. So you load a couple million
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  Speaker 2: barrels of oil onto a very large crew carrier, a VLCC,
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  Speaker 2: as they're known in the biz, and you say, okay,
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  Speaker 2: we're going to pay that ship $ 2 million to take
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  Speaker 2: it from Saudi Arabia to Beijing.
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  Speaker 1: Great.
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  Speaker 4: Got it.
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  Speaker 2: That sounds, you know, lovely. And the problem is that
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  Speaker 2: now it doesn't cost $ 2 million. Now it costs between, like,
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  Speaker 2: $ 50 and $ 70 million to do so.
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  Speaker 1: Right.
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  Speaker 3: Yeah, I'd seen the transport costs up somewhere between 10
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  Speaker 3: and 15x from pre-war time.
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  Speaker 2: And you can look at the cost of bunker fuel.
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  Speaker 2: We're now close to 15 to 20, actually. This week
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  Speaker 2: it's gone up again with how many ships have been
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  Speaker 2: hit in the Persian Gulf in the last week now. Right.
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  Speaker 3: So you've got the bunker fuel costs, then you've got
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  Speaker 3: the insurance costs, all of which are tremendously higher than
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  Speaker 3: they were previously.
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  Speaker 2: It's just like companies are not willing to ship the
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  Speaker 2: stuff unless they're getting paid a premium. Because right now,
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  Speaker 2: somewhere in the ballpark between 1 in 20 and 1
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  Speaker 2: in 15 ships are being struck. And so you're kind
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  Speaker 2: of like, okay, I don't know if mine's going to
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  Speaker 2: be the one that gets hit today.
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  Speaker 4: Right.
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  Speaker 3: So you've got to pay the workers extra. You've got
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  Speaker 3: to pay the insurance extra. You've got to pay everything.
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  Speaker 4: Extra interesting headline that just splashed.
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  Speaker 1: We'll talk about it.
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  Speaker 5: Don't do it now.
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  Speaker 3: Sorry.
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  Speaker 4: We can finish the energy conversation.
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  Speaker 2: So, in any case, you've got that stuff that's going on.
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  Speaker 2: On top of that, I mentioned, look, in the last
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  Speaker 2: four or five days now, you've had the highest level
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  Speaker 2: of Iranian activity against ships transiting through the Persian Gulf
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  Speaker 2: that we have seen probably in weeks, maybe even in months.
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  Speaker 2: And so, number two, there's no guarantee that you are
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  Speaker 2: going to see the level of transits from last week continue,
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  Speaker 2: which then gets us to point three, which is, hey,
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  Speaker 2: there's really no ballast at this point in the system.
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  Speaker 2: There's no excess reserves. Like basically we're very low in
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  Speaker 2: terms of any ability to withstand any future volatility of supply.
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  Speaker 2: And so unlike the spring where, okay, like you can
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  Speaker 2: have a couple months of low, you know, transits out
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  Speaker 2: and all you're doing is eating down those onshore reserves.
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  Speaker 2: Those are gone now. You know, there's not much cushion there.
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  Speaker 2: And so there's just not a lot of fat in
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  Speaker 2: the system that you have to work through. And the
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  Speaker 2: other piece is no one really knows what China is
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  Speaker 2: going to do. And there are signs that they're spooling
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  Speaker 2: up their refiners again. And so that is something that's
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  Speaker 2: driving oil right now. So I don't know where it
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  Speaker 2: goes over the next month or two or year even
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  Speaker 2: at this point. But what I can tell you is
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  Speaker 2: that just because you're seeing volumes getting back to where
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  Speaker 2: they were before, doesn't mean that price is because inventories
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  Speaker 2: are still very tight and it's clear that disruption uh
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  Speaker 2: can pop up a little bit mike what do you
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  Speaker 2: got for your interesting headline that.
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  Speaker 3: Bloomberg is reporting that star financial times financial times reported
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  Speaker 3: initially thank you uh that starbucks has been allegedly exploring
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  Speaker 3: an acquisition of chipotle.
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  Speaker 2: Starbucks and chipotle okay so we're gonna have how much
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  Speaker 2: does it cost to get guac in your coffee yeah uh.
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  Speaker 3: So I don't think this tie-up makes any sense other
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  Speaker 3: than the fact that the CEOs have been shared.
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  Speaker 2: Makes sense to me also. Another perspective.
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  Speaker 5: Brian Nickel made Chipotle what it was.
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  Speaker 2: And premium price brands on both sides.
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  Speaker 5: I like it.
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  Speaker 2: The people that shop at... I bet there's a lot
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  Speaker 2: of overlap between Starbucks and Chipotle customers. You market the
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  Speaker 2: same way to them.
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  Speaker 3: So show me where the synergies are, I guess, because
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  Speaker 3: I'm having a tough time. I see how, yeah, there
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  Speaker 3: could be some customer overlap. I don't think you can
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  Speaker 3: save on space by offering both products in one location
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  Speaker 3: because that is going to completely disrupt the brand if
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  Speaker 3: you have a Chipotle store inside a Starbucks or vice versa.
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  Speaker 4: I'm unconvinced.
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  Speaker 2: Why do you need to save space? Why is that
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  Speaker 2: the consideration?
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  Speaker 3: I'm thinking that when you merge two companies together, one
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  Speaker 3: of the major things you're looking for is the two
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  Speaker 3: pieces are better as a whole and make more money
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  Speaker 3: as a whole than they.
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  Speaker 4: Do as separate pieces.
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  Speaker 3: And I'm having a pretty tough time figuring out how
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  Speaker 3: you do that with these two very different brands.
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  Speaker 2: I'm not sure there's, the two things that I look
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  Speaker 2: at are, I'm not sure they're as different as you think. Like,
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  Speaker 2: both target a more upscale person who wants food outside
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  Speaker 2: the home. Yeah. So I think the marketing's, like, fairly similar.
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  Speaker 4: Mm-hmm.
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  Speaker 2: The other piece is, look at the big restaurant conglomerates
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  Speaker 2: that are out there. Yeah. None of them are really,
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  Speaker 2: you know, aside from Yum! Brands, none of them are about, like,
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  Speaker 2: co-location or about, like, oh, like, Come into this spot
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  Speaker 2: and buy this stuff. You look at Darden just as
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  Speaker 2: an example.
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  Speaker 4: Sure.
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  Speaker 2: And you're like, okay, so Darden's got Yard House, Capital Grill,
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  Speaker 2: Bahama Breeze, Longhorn Steakhouse, and Olive Garden. You don't really
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  Speaker 2: look at that and you're like, wow, look at the synergies.
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  Speaker 2: I think, honestly, in the food space where things are commoditized,
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  Speaker 2: I think it's economies of scale. Or what you get to.
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  Speaker 3: But even on the economies of scale size, you're not
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  Speaker 3: going to have additional buying power here because you're not
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  Speaker 3: buying any of the same stuff.
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  Speaker 2: Well, you're not between Olive Garden and Yard House either.
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  Speaker 2: Sure you are.
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  Speaker 3: All of your food supplies are coming from the same
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  Speaker 3: suppliers and you're just buying different types of stuff. All
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  Speaker 3: of your kitchen equipment is all the same. These are
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  Speaker 3: just pretty different.
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  Speaker 2: I don't know. I... I'm not as negative as you are.
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  Speaker 2: I'll see how it goes. And again, Brian Nichols got
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  Speaker 2: like a pretty good track record.
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  Speaker 3: The other piece of it that I always look at
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  Speaker 3: is I don't think that this would ever have been
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  Speaker 3: brought up had Brian Nichols not gotten the Starbucks job.
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  Speaker 3: And so I'm automatically suspicious of it because of that.
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  Speaker 5: Yeah, definitely wouldn't have come up.
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  Speaker 4: Definitely wouldn't have.
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  Speaker 3: Come up if Nichols didn't take that Starbucks job. And
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  Speaker 3: so you just have a predisposed bias to looking at
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  Speaker 3: the company that you just left and merging them together.
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  Speaker 3: Because you're going to see synergies where there potentially aren't any.
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  Speaker 4: I can buy that.
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  Speaker 2: I just think, look, Nikola's executed across Taco Bell and
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  Speaker 2: Chipotle over the last 15 years. And in both cases, like,
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  Speaker 2: did a fantastic job turning companies that had real problems.
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  Speaker 2: I mean, people forget how... baddest shape Chipotle was in
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  Speaker 2: when he came in. I mean, they had all of the, uh,
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  Speaker 2: constantly the food safety issues that they were going on.
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  Speaker 2: They had a bunch of new products they had introduced
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  Speaker 2: that were like really having like problems getting, you know,
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  Speaker 2: any kind of, uh, traction. And so he came in
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  Speaker 2: in 2018 and again, I'm just pulling up the, uh,
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  Speaker 2: the stock price now.
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  Speaker 5: Yeah.
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  Speaker 2: He came in in 2018 stock price was nine, 10
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  Speaker 2: bucks a share. By the time he left, it was
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  Speaker 2: in the 60s. So a really nice execution there. And
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  Speaker 2: I don't know. I guess if you want to take
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  Speaker 2: the cynical side of things, does he really just want
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  Speaker 2: to go back to Chipotle because the Starbucks thing isn't
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  Speaker 2: working out? He hates the commute to Seattle. He's like, yeah,
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  Speaker 2: I can't do it anymore. I'm like, okay, I could
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  Speaker 2: buy that as something interesting.
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  Speaker 4: I'm not a shareholder of either.
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  Speaker 2: As one.
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  Speaker 3: I would want to see proof that he's capable of
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  Speaker 3: turning around Starbucks before we're talking about combining two massive companies.
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  Speaker 4: And the proof isn't there yet.
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  Speaker 2: I haven't paid close enough attention to Starbucks to see
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  Speaker 2: what he's doing there. I know that I'm just kind
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  Speaker 2: of taking a glance through their financials. Again, it still
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  Speaker 2: is very much early stages. Revenue hasn't really gone anywhere
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  Speaker 2: interesting yet. Earnings are at $ 1. 98 billion. Earnings are starting
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  Speaker 2: to turn. They're up about, trailing 12 months, earnings are
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  Speaker 2: up about 50% since the end of last year. So
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  Speaker 2: the earnings picture is starting to turn around.
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  Speaker 4: It's been two years.
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  Speaker 2: Free cash flow.
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  Speaker 3: I forgot that it hadn't been two years already.
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  Speaker 4: September 9th of 24, he took the job.
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  Speaker 2: Yeah, free cash flow since the beginning of the year
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  Speaker 2: is up 50%. So it does seem like there's something
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  Speaker 2: going on. Let me take a look at margins. Yeah,
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  Speaker 2: margins have gone from 9% up to 10%, so margins
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  Speaker 2: are up 10%. So there are some signs that things
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  Speaker 2: are improving in the last two quarters now, which, look,
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  Speaker 2: when you take over a company like this, it's not
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  Speaker 2: going to happen Q1. So I do think, yeah, second,
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  Speaker 2: third year is where you want to see improvement. It's
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  Speaker 2: kind of like a coach of a sports team. First
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  Speaker 2: year is okay, get their feet under them, and then
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  Speaker 2: years two and three you've got to improve. Starbucks does
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  Speaker 2: seem to be seeing some improvement there. This is the
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  Speaker 2: piece that's interesting on this. just in terms of this
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  Speaker 2: being a purchase here. Starbucks is around a $ 38 billion company.
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  Speaker 2: Chipotle is $ 12 billion. So the scale makes sense there.
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  Speaker 2: I'm curious what price you need to pay to Chipotle
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  Speaker 2: shareholders because since Nickel left, the stock's down 50%. So
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  Speaker 2: you might not need to pay a huge premium necessarily.
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  Speaker 2: It's not like Chipotle has been cooking with gas, dare
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  Speaker 2: I say.
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  Speaker 3: And just one final offering point here. You mentioned guac
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  Speaker 3: in the coffee. I'll mention pumpkin spice burritos.
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  Speaker 2: I didn't just throw up in my mouth, but my
• 13:53
  Speaker 2: mind's still making up its mind as to what the
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  Speaker 2: body should do. Let's take a quick break here. When
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  Speaker 2: we return, let's talk a little bit about what we
• 14:02
  Speaker 2: saw from the Fed Minutes yesterday.
• 14:05
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• 14:41
  Speaker 2: Mike, yesterday we got Fed meeting minutes. I didn't see
• 14:45
  Speaker 2: anything particularly interesting there. Did you notice anything that caught
• 14:52
  Speaker 2: your eye, wet your whistle?
• 14:53
  Speaker 1: No.
• 14:54
  Speaker 3: I think the narrative coming out of that last meeting
• 14:57
  Speaker 3: was that the majority of Fed officials thought that rates
• 15:00
  Speaker 3: needed to be higher and needed to be higher still
• 15:03
  Speaker 3: even after the most recent rate hike. And the meeting
• 15:05
  Speaker 3: minutes really did nothing in my view to contradict that.
• 15:10
  Speaker 3: But while that does mean rates probably need to go higher,
• 15:13
  Speaker 3: it does not mean that they need to go higher
• 15:15
  Speaker 3: at the next meeting at the end of October. I'm
• 15:18
  Speaker 3: not gleaning anything about that from the Fed meeting minutes,
• 15:20
  Speaker 3: but rather from interviews that have been given.
• 15:24
  Speaker 4: Post.
• 15:25
  Speaker 2: Yeah, you saw Waller this morning, I'm guessing. I did.
• 15:29
  Speaker 3: And I'm wondering if once again, the media is just
• 15:31
  Speaker 3: misinterpreting what he has to say, because he was heavily
• 15:33
  Speaker 3: quoted going into the last meeting as, oh, maybe Waller
• 15:36
  Speaker 3: doesn't think rates need to go higher. And then he
• 15:38
  Speaker 3: voted for higher rates because the press pretty much misinterpreted
• 15:41
  Speaker 3: what he had to say. And he didn't directly say
• 15:44
  Speaker 3: in this most recent interview either that they're not going
• 15:47
  Speaker 3: to hike rates at the October meeting.
• 15:50
  Speaker 2: So I think there are a few different quotes that
• 15:54
  Speaker 2: Waller has this morning that I think give the full picture.
• 15:58
  Speaker 2: The first one that I do think takes October off
• 16:01
  Speaker 2: the table is, Waller says, you know, more rate increases
• 16:05
  Speaker 2: may be necessary, but we're open to adjusting the timing.
• 16:08
  Speaker 2: Further hikes don't have to occur in a row.
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  Speaker 4: Yeah.
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  Speaker 2: That, to me, I think is saying we're not going
• 16:14
  Speaker 2: in October. But there are a couple of other quotes
• 16:19
  Speaker 2: that are interesting. One of the things that's been discussed is, hey,
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  Speaker 2: should the Fed focus more on, like, three-month inflation than 12-month?
• 16:27
  Speaker 2: And Waller throws some cold water on that. He says, quote,
• 16:29
  Speaker 2: looking at the history of our 12-month core inflation... It's
• 16:33
  Speaker 2: been between roughly 2.5% and 3% since spring 2024. This
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  Speaker 2: is obviously higher than we want above our target and
• 16:40
  Speaker 2: not showing sufficient progress. So that's Waller, you know, saying, listen, y'all,
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  Speaker 2: I know you're talking about wanting to target, you know,
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  Speaker 2: the last three months of inflation. We can't just ignore
• 16:51
  Speaker 2: the previous nine like these matter, too. Right. So I
• 16:55
  Speaker 2: think that that's that's notable. Another one that he said,
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  Speaker 2: I am concerned that the recent acceleration in inflation, after
• 17:01
  Speaker 2: what will soon be five and a half years of
• 17:02
  Speaker 2: it above the FOMC's target, will lead consumers, investors, and
• 17:06
  Speaker 2: price-setting businesses to revise up their expectations for future inflation.
• 17:11
  Speaker 2: So again, kind of saying, yeah, I'm nervous about inflation
• 17:15
  Speaker 2: expectations getting out there a little bit. And the reason
• 17:19
  Speaker 2: why inflation expectations matter, remember, think of it just from
• 17:22
  Speaker 2: a personal perspective. If you go to the grocery store,
• 17:26
  Speaker 2: and every time you go, you're like, ugh, I'm just
• 17:29
  Speaker 2: paying more, then what you do, it changes your behavior
• 17:33
  Speaker 2: in a couple ways. The first is, when price increases
• 17:36
  Speaker 2: come through, you say, well, I've got to pay this
• 17:38
  Speaker 2: because it's just going to get more expensive later. The
• 17:41
  Speaker 2: second thing is, if you expect more inflation, you start
• 17:44
  Speaker 2: asking for more compensation to cover that. And that's when
• 17:46
  Speaker 2: you get into that wage-price spiral situation, especially tight labor market,
• 17:51
  Speaker 2: now low unemployment. And the concern is, hey, could wages
• 17:54
  Speaker 2: start to tick up? And that causes that next leg
• 17:57
  Speaker 2: of inflation, like settling in and becoming a longer term problem.
• 18:01
  Speaker 2: That's the other piece that you watch there. So Waller,
• 18:04
  Speaker 2: I think the message that I get from him is, hey,
• 18:08
  Speaker 2: we don't need to hike in October, but I'm nervous
• 18:12
  Speaker 2: about inflation. And you better believe there's more hikes queued up.
• 18:14
  Speaker 2: And if it continues to move the way that, you know,
• 18:17
  Speaker 2: in a way that's not happy to us. Yeah, we're
• 18:21
  Speaker 2: going to have to do more.
• 18:23
  Speaker 3: I'm beginning to believe that the Fed officials that are
• 18:27
  Speaker 3: out there like Waller simply do not know how to
• 18:30
  Speaker 3: speak without providing forward guidance.
• 18:33
  Speaker 4: Oh, I don't think it's... I think they want to
• 18:35
  Speaker 4: provide forward guidance. You think so?
• 18:37
  Speaker 2: Yeah, Kevin Warsh can't fire them.
• 18:38
  Speaker 4: Yeah.
• 18:40
  Speaker 2: What's Warsh going to do? Admonish them in the Fed
• 18:43
  Speaker 2: committee room?
• 18:45
  Speaker 4: I wonder if it's that.
• 18:48
  Speaker 3: I wonder if it's that or if he actually just,
• 18:50
  Speaker 3: you know, is saying let's not do forward guidance and
• 18:53
  Speaker 3: then really... I think he got a bad message after
• 18:56
  Speaker 3: his press conference that didn't go so well.
• 18:59
  Speaker 4: And I wonder if he's tacitly approving these comments.
• 19:03
  Speaker 2: It's possible. It's possible. But here's the thing. If he is,
• 19:08
  Speaker 2: then it makes interpret... It makes it more difficult to manage,
• 19:14
  Speaker 2: to try to understand what they're going to do then.
• 19:16
  Speaker 2: Like if... If it's really no forward guidance, great. The
• 19:19
  Speaker 2: market can figure that out. If it's, well, there might
• 19:22
  Speaker 2: be some from some people. Okay, so when do we
• 19:26
  Speaker 2: expect it and when do we not? Let's take a
• 19:29
  Speaker 2: quick break. When we return, we've got Wall Street Watch next.
• 19:39
  Speaker 1: Like us on Facebook and follow us on Twitter at
• 19:42
  Speaker 1: TFE Show. Breaking business news is always first, right here
• 19:46
  Speaker 1: on the Financial Exchange Radio Network. Time now for Wall
• 19:51
  Speaker 1: Street Watch. Tracking the stocks, the data, and the headlines
• 19:55
  Speaker 1: driving markets so far today. Right here on the Financial
• 19:58
  Speaker 1: Exchange Radio Network.
• 19:59
  Speaker 5: Markets are modestly negative with volatile treasury yields and oil
• 20:03
  Speaker 5: prices jumping higher. Right now the Dow is down about
• 20:09
  Speaker 5: a tenth of a percent or 65 points off S
• 20:11
  Speaker 5: & P 500. Also down about a tenth of a
• 20:13
  Speaker 5: percent or nine points lower. NASDAQ down. Over two-tenths of
• 20:17
  Speaker 5: 1% or 57 points lower. Russell 2000 is down over
• 20:20
  Speaker 5: half a percent. 10-year Treasury yield flat at the moment
• 20:24
  Speaker 5: at 5.282%. And oil jumping over 4% higher, trading at
• 20:30
  Speaker 5: $ 91 a barrel. Brent is at $ 104 a barrel. Very
• 20:36
  Speaker 5: interesting development in the fast casual space this morning after
• 20:38
  Speaker 5: the Financial Times reported that Starbucks has explored a takeover
• 20:42
  Speaker 5: of Chipotle's that would rank as the largest ever tie-up
• 20:46
  Speaker 5: in the restaurant sector. Starbucks is down by 3%, while
• 20:50
  Speaker 5: Chipotle's stock is rising 4%. Meanwhile, third-quarter earnings are starting
• 20:54
  Speaker 5: to trickle in after Pepsi reported better than expected earnings
• 20:57
  Speaker 5: and revenue. However, the food and beverage giant cut its
• 21:01
  Speaker 5: full-year earnings forecast as its North America business continues to lag.
• 21:05
  Speaker 5: Pepsi shares are up by 2%. Elsewhere, shares in Levi
• 21:10
  Speaker 5: Strauss are falling 3% after the G-Maker missed third quarter
• 21:13
  Speaker 5: revenue forecast. Broadcom shares are down 1% after The Wall
• 21:18
  Speaker 5: Street Journal reported it has been working to arrange more
• 21:21
  Speaker 5: than $ 50 billion in financing for OpenAI's custom AI chip.
• 21:26
  Speaker 5: And tomorrow morning, ahead of the opening bell, we'll see
• 21:29
  Speaker 5: third quarter earnings from Delta. I'm Tucker Sullivan. That is
• 21:33
  Speaker 5: Wall Street Watch.
• 21:36
  Speaker 2: Mike, yesterday we got the New York Fed's survey on
• 21:41
  Speaker 2: consumer expectations from their Center for Microeconomic Data. A few
• 21:46
  Speaker 2: key survey results here. Inflation expectations increased by about a
• 21:51
  Speaker 2: third of a percent on the one-year horizon and 0.1
• 21:55
  Speaker 2: percent on the three-year. Unemployment expectations increased. effectively the probability
• 22:04
  Speaker 2: that the U.S. unemployment rate will be higher a year
• 22:07
  Speaker 2: from now decreased a little bit, but still remained above
• 22:10
  Speaker 2: where it's been for the last 12 months. So people
• 22:12
  Speaker 2: feeling a little more optimistic on the labor market, which
• 22:15
  Speaker 2: jives with the labor market data that we have been
• 22:19
  Speaker 2: getting there. But overall, people just continuing to say that
• 22:25
  Speaker 2: on a personal level, they are in a worse financial
• 22:28
  Speaker 2: situation than a year ago. and expect to be in
• 22:31
  Speaker 2: a worse situation a year from now. This is a
• 22:34
  Speaker 2: survey that the New York Fed does on a regular
• 22:37
  Speaker 2: basis from about 1,300 people. And so I actually think
• 22:43
  Speaker 2: this is giving kind of a good read on the
• 22:46
  Speaker 2: overall state of the economy, which is people are concerned
• 22:48
  Speaker 2: about inflation, job expectations are getting a little bit better,
• 22:52
  Speaker 2: and people are still pessimistic overall.
• 22:54
  Speaker 3: Yeah, I think the pessimistic overall matches up with the
• 22:57
  Speaker 3: rest of the sentiment stuff that we hear. But I
• 23:00
  Speaker 3: do think more and more consumers and just everyday people
• 23:04
  Speaker 3: are coming to terms with the fact that inflation may
• 23:11
  Speaker 3: be more of a problem for them over the next
• 23:13
  Speaker 3: decade or the next couple of years than they were
• 23:16
  Speaker 3: previously anticipating.
• 23:17
  Speaker 4: But I guess you never know, right?
• 23:18
  Speaker 3: If gas prices do shoot back down, I would imagine
• 23:21
  Speaker 3: that those expectations shoot down with it, whereas I'm just
• 23:26
  Speaker 3: kind of of the mindset now that inflation over the
• 23:29
  Speaker 3: longer term, let's call it the next 10 to 20 years,
• 23:32
  Speaker 3: I think just has only one possible direction, which is
• 23:36
  Speaker 3: higher than it was for the last 10 to 20.
• 23:38
  Speaker 1: Right.
• 23:38
  Speaker 2: It doesn't mean like 5% to 7% inflation, but if
• 23:41
  Speaker 2: inflation was 2.5% for the last 20 years- Is 3%
• 23:46
  Speaker 2: to 3.5% where it might be for the next 20%
• 23:48
  Speaker 2: because of changes in the forces that power it? Yeah,
• 23:51
  Speaker 2: I think that's reasonable. I also want... There is a
• 23:54
  Speaker 2: great chart that Jason Furman put out. Furman... I'm trying
• 24:00
  Speaker 2: to think. He worked in a couple different administrations on...
• 24:05
  Speaker 2: Here we go. He was in the Obama administration on
• 24:08
  Speaker 2: the Council of Economic Advisors, and then.
• 24:13
  Speaker 2: What else does he do? Oh, he teaches at Harvard now. So,
• 24:16
  Speaker 2: big nerd. But again, puts out some good stuff on
• 24:21
  Speaker 2: what's going on in the economy. And there's a good
• 24:24
  Speaker 2: one that he put out this morning about, hey, this
• 24:27
  Speaker 2: is another reason why people don't feel great about the economy. Look,
• 24:31
  Speaker 2: the economy is growing quickly, but it's not broadly benefiting
• 24:34
  Speaker 2: them or impacting the businesses they work in. Just in
• 24:38
  Speaker 2: the construction side of things... Mike, what do you think
• 24:41
  Speaker 2: the change is year over year in data center spending?
• 24:48
  Speaker 2: Like how much is data center spending in the U.S.
• 24:50
  Speaker 2: grown since this time last year?
• 24:52
  Speaker 4: Let's see. Hold on a second. 64%. Yes, Tucker, 64.5. Tucker,
• 24:55
  Speaker 4: did you look at this?
• 24:56
  Speaker 2: I swear on everything I did not. 64.5%. Which is
• 24:58
  Speaker 2: how many dollars? Like half a trillion? Whatever Tucker says
• 25:09
  Speaker 2: is good to them. I just did the math.
• 25:13
  Speaker 1: Yes.
• 25:13
  Speaker 2: So data center spending up 64.5%. Power spending up 4.1%.
• 25:17
  Speaker 2: So this is all kinds of different construction. Multifamily construction
• 25:22
  Speaker 2: down 5.6%. Single family construction down 8.4%. Healthcare construction down 10.1%.
• 25:29
  Speaker 2: Commercial construction down 10.1%. Educational, down 12.6%. Office, down 13.9%. Lodging,
• 25:42
  Speaker 2: down 14.7%. Manufacturing, down 23.9%. If you want a reason
• 25:49
  Speaker 2: why Americans feel that the economy isn't good, even though
• 25:53
  Speaker 2: the overall top-line number is fine, it's because the growth...
• 25:59
  Speaker 2: Just look at construction. I think this is emblematic of
• 26:01
  Speaker 2: what we're seeing in a lot of other places. Data centers...
• 26:05
  Speaker 2: Powering ahead. Utilities, slow and steady growth. Everything else is
• 26:10
  Speaker 2: seeing less spending than last year. Now, that's not the
• 26:13
  Speaker 2: case in the broad economy when we talk about retail spending.
• 26:16
  Speaker 2: Retail spending is still fine. Consumer spending is okay. But
• 26:20
  Speaker 2: if you talk to someone in the residential construction business,
• 26:24
  Speaker 2: they'll be like, yeah, it's tough out there. Because it's
• 26:28
  Speaker 2: a fundamentally different read than what the data center builders
• 26:31
  Speaker 2: are doing. If you talk to someone who's in the
• 26:33
  Speaker 2: office management space, they're like, yeah, it's tough out there.
• 26:39
  Speaker 2: And so the aggregate masks some of the weakness under
• 26:43
  Speaker 2: the surface in some of these areas.
• 26:44
  Speaker 3: I was just speaking with somebody who works in residential construction,
• 26:47
  Speaker 3: and they were letting me know that they are taking
• 26:50
  Speaker 3: a job out of state for three months. And I
• 26:53
  Speaker 3: don't know, I didn't get an answer, but immediately my
• 26:55
  Speaker 3: question was, oh, cool, is it for data centers?
• 26:58
  Speaker 4: That was my immediate guess.
• 27:00
  Speaker 3: You've got a construction job out of state, it's probably
• 27:02
  Speaker 3: because some giant tech company is paying you a boatload
• 27:06
  Speaker 3: of money to frame out data center construction.
• 27:09
  Speaker 2: Reasonable guess.
• 27:11
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• 27:14
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• 28:10
  Speaker 1: The proceeding was paid for and the views expressed are
• 28:12
  Speaker 1: solely those of Cushing and Dolan. Cushing and Dolan and
• 28:15
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• 28:18
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• 28:22
  Speaker 2: Let's talk a little bit about this piece from the
• 28:23
  Speaker 2: Wall Street Journal. Rising rates are eroding the value of
• 28:27
  Speaker 2: even the most high-flying tech stocks.
• 28:30
  Speaker 4: Maybe.
• 28:31
  Speaker 2: Well, I don't know.
• 28:33
  Speaker 3: Or maybe their suspected lack of future growth is eroding
• 28:37
  Speaker 3: the value of tech stocks.
• 28:38
  Speaker 4: All right.
• 28:39
  Speaker 3: Yeah, it's tough to nail that one down, huh? Because
• 28:42
  Speaker 3: here's the thing.
• 28:42
  Speaker 2: If you look at the story behind rising rates, it's
• 28:45
  Speaker 2: basically entirely a rising real rate story, meaning it's not
• 28:49
  Speaker 2: because of higher inflation expectations or concern about dollar weakness.
• 28:54
  Speaker 2: That's not it. So the piece that you struggle with is, okay,
• 28:59
  Speaker 2: rising real rates are because markets are pricing in that
• 29:02
  Speaker 2: there's going to be more growth coming in the future
• 29:05
  Speaker 2: because of all this data center stuff. So I can't
• 29:08
  Speaker 2: reconcile that with saying, hey, these rising rates are now
• 29:12
  Speaker 2: making these really expensive growth stocks cheaper because they're the
• 29:17
  Speaker 2: ones that should be driving the growth.
• 29:18
  Speaker 4: Again, the market mechanics here, right?
• 29:20
  Speaker 3: If you are analyzing a company and you're saying, hey,
• 29:23
  Speaker 3: I want to own XYZ company because I think their
• 29:25
  Speaker 3: profits are going to grow by 20% a year over
• 29:29
  Speaker 3: the next five years. That looks a heck of a
• 29:32
  Speaker 3: lot more attractive when your alternative is lending the U.S.
• 29:36
  Speaker 3: government money at 3% compared to when you.
• 29:40
  Speaker 4: Can lend the U.S.
• 29:40
  Speaker 3: Government money at 5.3%. So there's the mechanics, and I
• 29:45
  Speaker 3: think logically you can draw out the idea that, oh yeah, valuations,
• 29:52
  Speaker 3: which the S & P 500 earlier this year was,
• 29:56
  Speaker 3: you know, trading at 22.2 times future earnings. Now it's
• 30:00
  Speaker 3: at 19.3. But the other stuff that's going, you know,
• 30:04
  Speaker 3: it's not like the S & P 500 went down
• 30:06
  Speaker 3: to get you that new valuation. Rather, the earnings expectations
• 30:10
  Speaker 3: went up. So yeah, it's tough to tie out specifically, okay,
• 30:17
  Speaker 3: what is bringing valuations down? Is it because there's an
• 30:19
  Speaker 3: alternative finally? or is it that people are getting a
• 30:24
  Speaker 3: little bit more nervous about how much more these companies
• 30:25
  Speaker 3: can grow?
• 30:26
  Speaker 2: Let's take a quick break here. When we return, we've
• 30:29
  Speaker 2: got Ray Dalio's latest warning for markets, and then we'll
• 30:33
  Speaker 2: talk about airfares and what the NFL has to say
• 30:35
  Speaker 2: about prediction markets.
• 30:38
  Speaker 1: Your business day moves fast. Keep up with the Financial
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• 31:10
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• 31:42
  Speaker 2: Mike, I've got a hypothetical question for you.
• 31:45
  Speaker 1: Okay.
• 31:46
  Speaker 4: Purely hypothetical? Yes. Okay.
• 31:49
  Speaker 2: If Ray Dalio speaks in a forest and no one
• 31:53
  Speaker 2: is there, does anything happen?
• 31:58
  Speaker 4: I don't know.
• 31:58
  Speaker 3: Is he getting to the stage of being the perpetual bear?
• 32:05
  Speaker 2: It's not even Perpetual Bear. It's just I don't know
• 32:08
  Speaker 2: what to do with this. And look, if you pulled
• 32:10
  Speaker 2: the tapes or whatever we store the shows on from 10,
• 32:14
  Speaker 2: 12 years ago, I was a huge Ray Dalio fan
• 32:18
  Speaker 2: early in my career. And as I've gotten older, it's
• 32:22
  Speaker 2: not that I don't think what he did was impressive. Again,
• 32:24
  Speaker 2: he built Bridgewater Associates, which is one of the world's
• 32:27
  Speaker 2: largest and for about 25 years most successful hedge funds
• 32:30
  Speaker 2: out there. They are... incredibly smart, so make no mistake.
• 32:35
  Speaker 2: I'm not saying that Ray Dalio is dumb. He is
• 32:38
  Speaker 2: way smarter than I am. He is better in his
• 32:43
  Speaker 2: career than I am. He's done better in his career.
• 32:47
  Speaker 2: Everything about him is very good. I just don't find
• 32:52
  Speaker 2: anything useful when he publicly speaks about markets now, and
• 32:56
  Speaker 2: I'm just kind of like, what do I do with this?
• 33:00
  Speaker 2: I just kind of throw it in the Jamie Dimon pile.
• 33:02
  Speaker 4: Jamie Dimon.
• 33:03
  Speaker 2: Again, another really smart guy with a fantastic career who,
• 33:07
  Speaker 2: when he speaks, I don't know if there's any signal there.
• 33:11
  Speaker 4: Yeah, I might put Michael Burry in the same category.
• 33:14
  Speaker 2: No, Michael Burry, these guys have chunks of Michael Burry
• 33:20
  Speaker 2: in what they ate last night. Michael Burry is not
• 33:25
  Speaker 2: in the category. Michael Burry had one good trade that
• 33:29
  Speaker 2: now everyone's like, oh, Michael Burry.
• 33:31
  Speaker 4: Yeah.
• 33:31
  Speaker 2: You know? Like, these guys, like, Diamond built the gold
• 33:35
  Speaker 2: standard for a bank, and Dalio built the gold standard
• 33:40
  Speaker 2: for a hedge fund, or at least, like, you know,
• 33:42
  Speaker 2: one of the top three or four that you'd mentioned
• 33:44
  Speaker 2: from the last 30, 40 years. Burry's not... Burry's just like, oh,
• 33:49
  Speaker 2: I'm angry about this. I'm like, okay, like, that's fine. Like,
• 33:52
  Speaker 2: it's not an investment strategy, but you.
• 33:55
  Speaker 4: Can be angry.
• 33:57
  Speaker 3: The one piece that I think is always worth, you know, keeping...
• 34:02
  Speaker 3: People that don't pay attention to the bond market, it's
• 34:04
  Speaker 3: not necessarily logical how this all works. But we talk
• 34:07
  Speaker 3: about the idea of government spending crowding out the private sector.
• 34:11
  Speaker 3: And this gets mentioned in Dalio's comments, which is the
• 34:15
  Speaker 3: government and big tech companies are competing right now for capital.
• 34:19
  Speaker 3: And practically speaking, what that means is when the government's
• 34:22
  Speaker 3: running such massive deficits, and we have a 30-year treasury
• 34:25
  Speaker 3: auction going off today, for example, investors all across the
• 34:28
  Speaker 3: board have to decide, Do they want to buy that
• 34:30
  Speaker 3: or do they want to buy Facebook or Microsoft or
• 34:33
  Speaker 3: Oracle or Amazon or any of these.
• 34:34
  Speaker 4: Other bonds that are also being issued at the same time?
• 34:37
  Speaker 3: And that is fundamentally like the problem with too much
• 34:40
  Speaker 3: government spending is that it actually causes the type of
• 34:44
  Speaker 3: inflation that we are seeing right now.
• 34:47
  Speaker 1: Yeah.
• 34:48
  Speaker 2: Can we also just talk about this in the context
• 34:50
  Speaker 2: of the AI spending?
• 34:51
  Speaker 4: Yeah.
• 34:51
  Speaker 2: Because the other piece on the AI spending is we
• 34:54
  Speaker 2: talk about crowding out of the private sector from public
• 34:58
  Speaker 2: sector borrowings. But even certain private sector expansions can crowd
• 35:02
  Speaker 2: out other private sector ones as well. We talked in
• 35:05
  Speaker 2: the last segment about the crazy growth in AI construction spending,
• 35:09
  Speaker 2: but basically nothing else is growing. Yeah, I mean, look–
• 35:13
  Speaker 2: But here's the thing, that still makes all of the
• 35:15
  Speaker 2: other stuff that's needed for those other things more expensive too.
• 35:19
  Speaker 2: And so it's okay, like my industry isn't growing and
• 35:23
  Speaker 2: the stuff I need for it's more expensive because Satya
• 35:27
  Speaker 2: Nadella's building billions of dollars in data centers.
• 35:30
  Speaker 4: Yeah, if you want.
• 35:31
  Speaker 3: The really easy to understand and overly simplified populist argument here,
• 35:37
  Speaker 3: the reason you can't afford a home is because of
• 35:40
  Speaker 3: data centers.
• 35:42
  Speaker 2: Which I don't think is accurate.
• 35:44
  Speaker 4: I agree. It's a very big over-exaggeration.
• 35:48
  Speaker 3: But part of the reason mortgage rates are as high
• 35:50
  Speaker 3: as they are right now is in part due to
• 35:53
  Speaker 3: data center construction.
• 35:55
  Speaker 2: Now, the counter to it is if you didn't have that,
• 35:58
  Speaker 2: mortgage rates would be much lower because the economy would
• 36:00
  Speaker 2: be much suckier.
• 36:02
  Speaker 1: Yeah.
• 36:02
  Speaker 2: And so you might not be able to afford the
• 36:04
  Speaker 2: house because you don't have a job.
• 36:07
  Speaker 1: Right.
• 36:07
  Speaker 2: So you really what I'm asking you to do is
• 36:09
  Speaker 2: decide the reason why you can't afford the house. Not
• 36:13
  Speaker 2: that you'll be able to have one. Isn't that what
• 36:17
  Speaker 2: it feels like to a lot of people, though?
• 36:18
  Speaker 3: Yeah, I guess that's my point is like that's a
• 36:21
  Speaker 3: pretty powerful political message right now that is. like I said,
• 36:25
  Speaker 3: an extreme simplification and over-exaggeration. And I tend to think
• 36:29
  Speaker 3: that the benefits of data center construction right now are
• 36:33
  Speaker 3: outweighing the costs, but- Until they kill us. Until they
• 36:37
  Speaker 3: all kill us and use up all of our water supply.
• 36:40
  Speaker 3: But that is a pretty compelling message to voters, right?
• 36:46
  Speaker 3: Turn down the thousands of dollars they're going to give
• 36:48
  Speaker 3: you Because they are causing all of these downstream effects.
• 36:52
  Speaker 3: And it's pretty easy to draw the line between this
• 36:55
  Speaker 3: and things like mortgage rates and construction costs.
• 36:59
  Speaker 2: Mike, I want to talk about this piece on airfares.
• 37:01
  Speaker 2: It's titled, Airfares Have Spiked. Is the Death of Spirit
• 37:04
  Speaker 2: Airlines to Blame? The answer is no. And here's why.
• 37:07
  Speaker 4: It's because... Yeah, go ahead.
• 37:09
  Speaker 2: Here's the deal. If you look at just Delta Airlines
• 37:12
  Speaker 2: as an example, before Delta completed its big merger with
• 37:15
  Speaker 2: Northwest and a whole bunch of other mergers happened in
• 37:17
  Speaker 2: the mid-early 2010s, Airlines basically didn't make any money. Since then,
• 37:22
  Speaker 2: they basically made, Delta, just as an example, made consistently
• 37:25
  Speaker 2: like 7% to 12% profit. The median profit over that
• 37:29
  Speaker 2: time is around 9.25%. Delta's trailing 12-month profit is 8.08%,
• 37:34
  Speaker 2: and in their last quarter, their profit margin was 9.43%,
• 37:38
  Speaker 2: basically right in line with their long-term average. So Delta
• 37:41
  Speaker 2: has not, like, jacked up fares and made, like, higher
• 37:44
  Speaker 2: profit margins because Spirit's out of business. Delta's jacked up
• 37:48
  Speaker 2: fares because the price of one of their main inputs, Fuel,
• 37:51
  Speaker 2: has gone up, and they're just maintaining margin. Is it
• 37:54
  Speaker 2: easier for them to maintain margin with Spirit out of
• 37:56
  Speaker 2: the way? Yes, but if you really want to fix
• 37:59
  Speaker 2: the issue, you've got to go through a whole bunch
• 38:02
  Speaker 2: of unconsolidation, or whatever you would call it, breaking these
• 38:05
  Speaker 2: guys up to get back to what things were in
• 38:07
  Speaker 2: the 2000s, not 2010s. Your thoughts, Mike?
• 38:13
  Speaker 3: I have some, but my thoughts are, look, Spirit was
• 38:17
  Speaker 3: going out of business no matter what.
• 38:18
  Speaker 2: I was looking for a quick answer. We've got to go.
• 38:20
  Speaker 2: Back in a few.