Latest / The Financial Exchange Show / Oil Shock Escalates as Strait of Hormuz Closure Fuels Global Energy Crisis

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Oil Shock Escalates as Strait of Hormuz Closure Fuels Global Energy Crisis · The Financial Exchange Show

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  Speaker 2: Chuck, Mike and Tucker with you today, and uh yeah,
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  Speaker 2: we're gonna talk a little bit about oil because well
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  Speaker 2: we got no there's other stuff we could talk about.
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  Speaker 2: We got a bunch of economic stuff this morning. Is
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  Speaker 2: well yeah, and I'm sure we'll touch on it at
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  Speaker 2: some point, but that point is not going to be
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  Speaker 2: right now. It's going to be in a little bit.
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  Speaker 2: So a couple of things. Again, We've got, you know,
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  Speaker 2: pieces from the New York Times and Wall Street Journal,
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  Speaker 2: the headlines Wall Street Journal Oil Markets brace for lasting
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  Speaker 2: turmoil in the Gulf and the New York Times oil
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  Speaker 2: shock sense tremors through world economy. Quote, this really is
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  Speaker 2: the big one, and it is like again, we've been
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  Speaker 2: talking about this all week, but remember straighthr moves carries
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  Speaker 2: about twenty million barrels of oil in one form or another,
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  Speaker 2: either crude or refined products, on any given day and.
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  Speaker 3: Has never been blocked to the degree it has been
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  Speaker 3: for the last two weeks.
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  Speaker 2: Correct, this is already the largest energy shock in world history.
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  Speaker 2: It's like it's in the scale is important context like ever,
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  Speaker 2: right like fifteen hundreds, like before oil was necessary, right
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  Speaker 2: like this, this is you know big and again domestically,
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  Speaker 2: the effect that we are going to see here is
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  Speaker 2: in the form of higher prices. I do not anticipate
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  Speaker 2: shortages unless like something really really weird happens, which again
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  Speaker 2: you can never like cross like everything off the the
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  Speaker 2: bingo card at this point. But I don't think you
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  Speaker 2: can have shortages in the US, so it's not going
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  Speaker 2: to be repeated the seventies in that fashion. What I
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  Speaker 2: do think you're going to see are shortages, and you're
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  Speaker 2: already starting to see shortages around the world as well
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  Speaker 2: as substitutions. Asian economies that aren't going to be able
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  Speaker 2: to get the oil or net gas to power plants,
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  Speaker 2: to power power plants, they're going to fire up additional
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  Speaker 2: coal plants. But that's gonna come at high additional cost
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  Speaker 2: because the coal market was largely in balance, and so
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  Speaker 2: it's going to cost more to buy the coal. Those
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  Speaker 2: are plants that you then have to staff up. It's
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  Speaker 2: going to cost more to staff them, so again higher cost.
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  Speaker 2: There plus some shortages probably of you know, electricity and
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  Speaker 2: heat and things like that and rationing like that's where
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  Speaker 2: we are likely heading in Southeast Asia and in other
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  Speaker 2: parts of the world. And I think the piece that's
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  Speaker 2: really instructive in terms of like what oil prices oil
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  Speaker 2: markets are pricing in is you can look at the
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  Speaker 2: future's curves to tell what's happening here. So right now,
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  Speaker 2: just as an example, the May twenty twenty six Bent
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  Speaker 2: crude contract. So this is the contract where if you
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  Speaker 2: want to buy oil to take delivery two months from now,
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  Speaker 2: this May contract that currently sits at ninety nine sixty two.
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  Speaker 2: It's down about eighty cents overnight. So you say, oh,
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  Speaker 2: that means that the immediate supply crunch is looking marginally
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  Speaker 2: better today again, like one percent move after it ran
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  Speaker 2: up ten percent yesterday is basically flat. You're basically saying, hey,
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  Speaker 2: the immediate supply crunch not really showing too much.
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  Speaker 3: Movement relative to yesterday, right, but fifty percent bump compared
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  Speaker 3: to prior to the Iran.
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  Speaker 2: Correct But like over and overnight, it's hey, the immediate
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  Speaker 2: situation hasn't worse and hasn't gotten better. It just kind
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  Speaker 2: of is if you go out further on the future's
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  Speaker 2: curve though, So looking at the I'm just gonna find
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  Speaker 2: a contract that actually has like decent trading volume today.
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  Speaker 2: Here we go December of twenty seven, so a year
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  Speaker 2: out from now, a year and a half out from now.
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  Speaker 2: The December twenty seventh contract is up thirty eight cents
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  Speaker 2: a barrel, which again not a compared masterday, compared to yesterday,
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  Speaker 2: not a huge amount. But what you're seeing is, hey,
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  Speaker 2: current prices are coming in very very slightly. Again, the
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  Speaker 2: aggregates still up tremendously, but longer term ones are starting
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  Speaker 2: to price in the idea that prices are going to
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  Speaker 2: remain higher for longer. And so this is the thing
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  Speaker 2: that you need to really watch, and this is what
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  Speaker 2: we've seen this week is since the beginning of the week,
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  Speaker 2: the front month contract is up a dollar, because we
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  Speaker 2: were already at one hundred, you know, when we kick
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  Speaker 2: things off on Monday. So the front month contracts up
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  Speaker 2: a dollar. The contracts for the rest of the year
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  Speaker 2: are up anywhere from like two to three dollars. And
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  Speaker 2: so that is how you're seeing oil markets starting to
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  Speaker 2: price in that prices are not going to come down
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  Speaker 2: in the short term to clear that backwardation of the curve.
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  Speaker 2: The long end is starting to rise, and that means
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  Speaker 2: higher prices at the pump, higher prices well I guess
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  Speaker 2: at the pump, higher prices for products for longer. This
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  Speaker 2: is where we are going.
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  Speaker 3: Let's talk about the obvious and not so obvious reasons
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  Speaker 3: traders might be factoring this in. The obvious one would
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  Speaker 3: be they're worried that this could continue to last for
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  Speaker 3: an unknown period of time. And the longer you have
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  Speaker 3: twenty million barrels a day not moving through the strait,
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  Speaker 3: the higher that long term price is going to be.
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  Speaker 3: That's an obvious, you know, reason for the trading that
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  Speaker 3: you are seeing. Yes, I think some of the not
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  Speaker 3: so obvious stuff would be the IEA. Right, the release
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  Speaker 3: of spr of oil from the sprs across the globe
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  Speaker 3: is now occurring at a fairly slow pace.
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  Speaker 2: It'd be like three to five million barrels a day.
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  Speaker 3: And we've talked about here, at least domestically in the
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  Speaker 3: United States, just how low the SPR is. It will
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  Speaker 3: be effectively empty after this, and so logically one would hope,
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  Speaker 3: I would have hoped over the last five years, but
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  Speaker 3: one would hope, you know, whenever it is that the
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  Speaker 3: straight reopens, whenever it is that the geopolitical event, political
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  Speaker 3: events and relationships with Middle Eastern countries begins to normalize,
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  Speaker 3: which I presume it will again someday that we begin
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  Speaker 3: to refill our spr China probably starts to refill its.
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  Speaker 3: India might say we have to build one.
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  Speaker 2: There is forty million barrels, which is not even a
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  Speaker 2: drop in the book, and it's half a drop, So
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  Speaker 2: you know, will you.
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  Speaker 3: Have this kind of floor in prices baked into markets
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  Speaker 3: for a period of time post whatever the resolution to
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  Speaker 3: Iran is. I think some of those things are being
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  Speaker 3: asked of markets right now, and clearly some are being
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  Speaker 3: too speculate.
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  Speaker 2: On the other piece that you have to keep in mind,
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  Speaker 2: the estimates that I've seen are that somewhere between five
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  Speaker 2: and seven million barrels of supply are currently shut in,
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  Speaker 2: meaning that their wells have basically been plugged in the
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  Speaker 2: Middle East, with another five million potentially being shut in
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  Speaker 2: next week because of a lack of storage in the
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  Speaker 2: region to continue pumping.
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  Speaker 3: Okay, so reopen the flow of everything. Let's call it
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  Speaker 3: three weeks from now. Maybe you have another three to
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  Speaker 3: see six weeks for wells to be reopened and start
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  Speaker 3: pumping again, and they.
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  Speaker 2: May not come back to their probably like from doing
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  Speaker 2: reading on this, when you shut in a well, you're
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  Speaker 2: not guaranteed to get back to the prior flow from it.
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  Speaker 2: You know, like you've disrupted the entire ecosystems not the
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  Speaker 2: right word, but you've disrupted the entire physics of the
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  Speaker 2: thing that made it work the way that it did,
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  Speaker 2: and so you might not get back to the same flow.
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  Speaker 2: You might see a five percent drop, ten percent drop.
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  Speaker 2: So there's production stuff that's offline. And this is even
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  Speaker 2: before you get to the damage to infrastructure in the region,
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  Speaker 2: which might require months of repair before you're able to
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  Speaker 2: actually get everything working again on that side. So it's
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  Speaker 2: going to be a process. Even if things ended today,
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  Speaker 2: which I don't know, there's a chance that this thing
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  Speaker 2: is over today, there are paths where you can be
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  Speaker 2: like so like again, just the breadth of paths, I
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  Speaker 2: could see something where, again the US in theory today
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  Speaker 2: could say, you know what, we've accomplished what we want,
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  Speaker 2: We're done, and Iran could say we're done too. I'm
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  Speaker 2: not saying that that's likely, but I'm saying it's possible.
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  Speaker 2: You could also see a world in which, like if
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  Speaker 2: you're gaming out like worst case scenarios, the US, you know,
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  Speaker 2: digs in and says okay, like, we can't allow Iran
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  Speaker 2: to effectively control the straight going forward. We need to
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  Speaker 2: stick with this as long as it takes, and this
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  Speaker 2: could be months that this is going on. You could
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  Speaker 2: also see one in which the US says, hey, we're done,
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  Speaker 2: We're not doing anything else. Iran says, okay, screw all
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  Speaker 2: you guys. You know, we're not letting the ships go
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  Speaker 2: through anyways. Like, even if you're done, we're still going
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  Speaker 2: to maintain control over the straight. Like, there are millions
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  Speaker 2: of scenarios that you can consider, and I don't know
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  Speaker 2: which one is going to happen here. So there's a
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  Speaker 2: lot of uncertainty. But what I can tell you with
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  Speaker 2: certainty every day that the Strait remains shut from an
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  Speaker 2: energy perspective, even with remember we're talking twenty million barrels
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  Speaker 2: a day to begin with, was the deficit. The Saudis
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  Speaker 2: have rerouted about five million barrels a day across Saudi
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  Speaker 2: Arabia to the Red Sea. So now you're a deficit
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  Speaker 2: of fifteen million sprs are going to clean up another
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  Speaker 2: three to five, so now you're at ten to twelve,
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  Speaker 2: and maybe Iron starts letting a couple you know, ships
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  Speaker 2: through here and there, which it seems like they may
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  Speaker 2: start doing. And so maybe you get a couple million
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  Speaker 2: more coming through, but you've already got a two hundred
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  Speaker 2: million barrel deficit that you've built, yep, and you're probably
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  Speaker 2: grown that by ten million barrels a day now. And
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  Speaker 2: so by the end of the month, if this is
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  Speaker 2: still the status quo, now you've got a four hundred
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  Speaker 2: million barrel deficit. That is the entire global SPR release
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  Speaker 2: that you've authorized.
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  Speaker 3: I made this point yesterday, but these millions of barrels
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  Speaker 3: per day are difficult to contextualize. So a few points
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  Speaker 3: on that global oil demand I think right now is
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  Speaker 3: around one hundred five million barrels per day without the
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  Speaker 3: price shock that we've seen. So yeah, just some context
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  Speaker 3: for that. Right for as a planet consuming about one
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  Speaker 3: hundred and five million, this is around twenty percent that
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  Speaker 3: has disappeared. We're replacing some of that, as Chuck mentioned
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  Speaker 3: with SPR releases. For some context here, back in twenty
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  Speaker 3: twenty in the height of COVID, when nobody was moving around,
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  Speaker 3: when cars were not driving, you know, all sorts of
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  Speaker 3: stuff was shut down. The total reduction in consumption of
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  Speaker 3: oil during that period of time was about thirty million
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  Speaker 3: barrels per day.
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  Speaker 2: So that's the level of demand destruction you would need
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  Speaker 2: to get to in order to balance a pret pretty
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  Speaker 2: close to you would.
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  Speaker 3: Need a global pandemic level demand disruption to get back
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  Speaker 3: to a balanced market right now given the supply disruption,
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  Speaker 3: and that's obviously not going to happen, and so what
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  Speaker 3: you're going to have as shortages, you're going to have
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  Speaker 3: as much higher prices, and you're going to have economies
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  Speaker 3: that can't afford oil switching and panicking defined ways to
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  Speaker 3: replace it with something else, like Cole. As Chuck pointed out, let's.
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  Speaker 2: Take a quick break. When we come back, we'll talk
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  Speaker 2: about you know, even with the market selling off a
• 12:09
  Speaker 2: little bit this week, there's been no panic in stocks.
• 12:13
  Speaker 2: There's been panic in other parts of the market, but
• 12:17
  Speaker 2: not in stocks. So let's discuss that when we return.
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  Speaker 2: All right. So we got a piece in the Wall
• 13:20
  Speaker 2: Street Journal. It's titled wars raging tankers of burning at
• 13:23
  Speaker 2: the stock market? Isn't panicking for now? And it's it's
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  Speaker 2: true if you look at the stock market this week
• 13:31
  Speaker 2: and again just over the last five days. Here on
• 13:35
  Speaker 2: Monday of this week, we opened at sixty six ninety
• 13:40
  Speaker 2: nine on the S and P five hundred. Right now
• 13:44
  Speaker 2: we are at sixty six ninety six right there. We're
• 13:47
  Speaker 2: been a three point move.
• 13:48
  Speaker 3: We are now what two percent off the Friday February
• 13:52
  Speaker 3: twenty seventh close two and a half.
• 13:55
  Speaker 2: It has not been a big move. I mean, the
• 13:56
  Speaker 2: S and P five hundred at sixty seven at sixty
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  Speaker 2: seven hundred is about four and a quarter percent off
• 14:03
  Speaker 2: all time highs.
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  Speaker 3: Okay, so logical illogical. Look, I don't like to attribute
• 14:09
  Speaker 3: feelings and and you know, views on the world to
• 14:14
  Speaker 3: day to day price moves in the stock market, So
• 14:16
  Speaker 3: I don't want to go too far with all of this.
• 14:19
  Speaker 3: But I gotta be a few ways to read this.
• 14:22
  Speaker 2: I gotta be honest, it's kind of wild, you got, yeah,
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  Speaker 2: I've never seen anything like this before. And we talked
• 14:30
  Speaker 2: about like in the last you know, a couple months,
• 14:33
  Speaker 2: we've seen a ton of stocks taking like ten fifteen
• 14:36
  Speaker 2: percent drawdowns and the market just keeps chugging because the
• 14:38
  Speaker 2: money's coming out of them and just rotating somewhere else
• 14:41
  Speaker 2: in the market. That rotation has kept it afloat somehow.
• 14:44
  Speaker 2: But the thing that's I guess most wild to me
• 14:48
  Speaker 2: is you guys, big fans of the turduccin, no.
• 14:54
  Speaker 3: Only done it once and sty overcooked it, So.
• 14:58
  Speaker 2: I've never done it either, So overrated For those you
• 15:01
  Speaker 2: know who aren't familiar with the tur ducan, it's you
• 15:03
  Speaker 2: take a turkey, a duck, and a chicken. You stick
• 15:05
  Speaker 2: them together. It's got stick six legs and you cook
• 15:08
  Speaker 2: it and it tastes like something.
• 15:09
  Speaker 4: Keep my birds separate.
• 15:11
  Speaker 2: I like that. So in terms of what we have here,
• 15:16
  Speaker 2: it's just this turducan of risk where we've taken. On
• 15:22
  Speaker 2: the AI side, you got this concern about you know, hey,
• 15:26
  Speaker 2: is this tech bubble two point zero? So we're like,
• 15:29
  Speaker 2: we got two thousand in here. Yep. On the financial
• 15:33
  Speaker 2: side of things, we've got private credit that's showing some
• 15:36
  Speaker 2: real problems. So we got like a sprinkling of two
• 15:40
  Speaker 2: thousand and eight, and then we just tossed nineteen seventy
• 15:43
  Speaker 2: three into the mix here, and somehow stocks are four
• 15:46
  Speaker 2: and a quarter percent off their all time highs. Like,
• 15:51
  Speaker 2: so there's one of two things. Has one of two
• 15:55
  Speaker 2: things has to happen. It's either the market is dramatically
• 15:59
  Speaker 2: pre dramatically mispricing the downside risk or all of this
• 16:06
  Speaker 2: is just going to be fine very soon. So yeah,
• 16:13
  Speaker 2: like there's no middle ground on this.
• 16:16
  Speaker 3: I think the danger that investors could be the risk
• 16:21
  Speaker 3: that how do I put this precisely? So the we
• 16:25
  Speaker 3: talk a lot about the geopolitical lessons for investors from
• 16:28
  Speaker 3: the last quarter century, which is to ignore geopolitical tensions.
• 16:35
  Speaker 3: That has been the tried and true lesson from the
• 16:39
  Speaker 3: war in Iraq, the war in Afghanistan, the you know,
• 16:43
  Speaker 3: the Russian invasion of Ukraine, you know, build up of
• 16:47
  Speaker 3: tensions in North Korea, build up intensions Israel striking.
• 16:54
  Speaker 2: All of these idea that goes around the internet, is
• 16:56
  Speaker 2: nothing ever happens.
• 16:57
  Speaker 3: Yeah, and and on at if you invested with that
• 17:01
  Speaker 3: in mind for the last quarter century, it's not that
• 17:02
  Speaker 3: there weren't disruptions, it's just that they weren't caused by
• 17:05
  Speaker 3: geopolitical events. They were not caused by wars. And if
• 17:10
  Speaker 3: you are an investor right now, you may be using
• 17:13
  Speaker 3: that same lesson, And I think the concern would be
• 17:17
  Speaker 3: you may be wrong this time.
• 17:18
  Speaker 2: Can I toss one more idea into the mix? Sure, Mike,
• 17:23
  Speaker 2: what is the single strongest force in the market over
• 17:26
  Speaker 2: the past fourteen months? I no, Tucker, what's the single
• 17:32
  Speaker 2: strongest force in the market over the past fourteen months?
• 17:35
  Speaker 4: Fourteen months?
• 17:37
  Speaker 3: Fourteen months was the only piece that confused me about this.
• 17:39
  Speaker 2: So since since January of twenty twenty five, I was
• 17:45
  Speaker 2: I would have said software disruption AI the correct answer
• 17:48
  Speaker 2: that I was looking for, was President Trump. What I
• 17:53
  Speaker 2: mean by this is.
• 17:54
  Speaker 3: I don't actually think so. No, okay, no, go ahead.
• 17:56
  Speaker 2: Hear me out. Over the last fourteen months, any time
• 18:01
  Speaker 2: that the market has gotten to a place where things
• 18:03
  Speaker 2: have started to look dangerous.
• 18:05
  Speaker 3: Yeah, President Trump's come to the rescue.
• 18:06
  Speaker 2: He's basically come in and said, here's how we're solving this. Yep.
• 18:10
  Speaker 2: And part of me wonders if there's such a strong
• 18:15
  Speaker 2: buy the dip response, because basically, on any dip for
• 18:18
  Speaker 2: the last year, if you actually got nervous and bailed out,
• 18:22
  Speaker 2: you got pummeled.
• 18:23
  Speaker 3: You were wrong.
• 18:25
  Speaker 2: Part of me wonders if the market's early warning system
• 18:28
  Speaker 2: effectively is kind of short circuited because people are so
• 18:31
  Speaker 2: nervous about missing out on upside because of how the
• 18:35
  Speaker 2: President has been able to move markets in the last year,
• 18:38
  Speaker 2: that no one actually wants to sell in meaningful numbers.
• 18:42
  Speaker 2: And I'm not saying that this is like good or bad.
• 18:44
  Speaker 2: I'm just saying that it might be. And I just
• 18:48
  Speaker 2: wonder if it's kind of short circuited. How we would
• 18:51
  Speaker 2: normally be viewing market conditions like this, and we're just
• 18:56
  Speaker 2: not getting that move because investors are so reticent to
• 18:59
  Speaker 2: bail out because they don't want to miss the upside
• 19:02
  Speaker 2: of policy changes.
• 19:03
  Speaker 3: Yeah. Look, I mean I'm definitely hearing once again the
• 19:07
  Speaker 3: taco trade, the Trump always checks out trade. You're hearing
• 19:11
  Speaker 3: that work around, you know, forums and being talked about.
• 19:16
  Speaker 3: But again, the point that we've made over and over again,
• 19:18
  Speaker 3: this is not all in the president's ability to change.
• 19:23
  Speaker 2: I'm not saying it will or won't work with you.
• 19:25
  Speaker 2: I'm just saying there's a psychology that you can understand
• 19:29
  Speaker 2: that might be influencing this. Let's take a quick break.
• 19:31
  Speaker 2: When we return, it's Wall Street Watch.
• 19:41
  Speaker 1: Like us on Facebook and follow us on Twitter at
• 19:44
  Speaker 1: TFE show. Breaking business news is always first right here
• 19:48
  Speaker 1: on the Financial Exchange Radio Network till now full of
• 19:53
  Speaker 1: Wall Street Watch, treking the stocks, Thedato, and the headlines
• 19:57
  Speaker 1: driving markets so far today right here on the final
• 20:00
  Speaker 1: Ninchel Exchange Radio Network.
• 20:01
  Speaker 4: Well, we're officially two weeks into the war in Iran
• 20:03
  Speaker 4: and markets are currently rebounding. Right now, the Dow is
• 20:07
  Speaker 4: up by about six tenths of one percent, or two
• 20:10
  Speaker 4: hundred and eighty eight points higher, SMP five hundred up
• 20:13
  Speaker 4: about a half a percent, Nasdaq also up by half
• 20:16
  Speaker 4: a percent or one hundred and ten points. RUSSED two
• 20:18
  Speaker 4: thousand is up two tenths of one percent, Tenure treas
• 20:21
  Speaker 4: reeled down three basis points at four point two four
• 20:25
  Speaker 4: to three percent, and crude oil retreating slightly today about
• 20:28
  Speaker 4: one and a half percent, trading right around ninety four.
• 20:31
  Speaker 2: Dollars a barrel.
• 20:33
  Speaker 4: We saw a flurry of economic data points this morning,
• 20:35
  Speaker 4: including the Fed's preferred measure of inflation, the core PC index,
• 20:39
  Speaker 4: which mostly came in line with estimates. Excluding food and
• 20:42
  Speaker 4: energy prices. Core PCE inflation climbs slightly to three point
• 20:46
  Speaker 4: one percent in January from three percent in December. Meanwhile,
• 20:51
  Speaker 4: the Commerce Department said that GDP grew at a zero
• 20:54
  Speaker 4: point seven percent annual rate in the fourth quarter, well
• 20:57
  Speaker 4: short of the one point four percent pace of reported
• 21:00
  Speaker 4: in its advance GDP report last month. Elsewhere, software provider
• 21:05
  Speaker 4: Adobe announced its longtime CEO, Shantanu Narayan, will step down
• 21:10
  Speaker 4: after serving for the past eighteen years, where the company
• 21:14
  Speaker 4: will seek a new leader for the AI era. Adobe
• 21:17
  Speaker 4: also posted higher quarterly sales, but disappointed with its AI
• 21:21
  Speaker 4: driven revenue. That stock is dropping by six percent. Alta
• 21:25
  Speaker 4: Beauty shares are sinking by ten percent after the beauty
• 21:27
  Speaker 4: products retailer posted weak earnings for the fourth quarter, and
• 21:31
  Speaker 4: according to The New York Times, Meta's new AI model
• 21:34
  Speaker 4: has been delayed as its performance has fallen short of
• 21:38
  Speaker 4: rivals from Google OpenAI and Anthropic Meta down by about
• 21:42
  Speaker 4: two percent. I'm Tucker Silvan. That is Wall Street Watch.
• 21:46
  Speaker 2: Let's see. We did get some economic data this morning,
• 21:50
  Speaker 2: and some of it's interesting, some of it's not, some
• 21:55
  Speaker 2: of it's pretty old. The part that's actually not interesting
• 21:58
  Speaker 2: to me is the PCEE data. Why because it's from January. Yeah,
• 22:02
  Speaker 2: I don't care what January inflation is at this point.
• 22:05
  Speaker 2: It's not relevant to the world right now.
• 22:07
  Speaker 3: Yeah. I think the only thing that's relevant about this
• 22:10
  Speaker 3: is that it was already hot. The divergence between CPI
• 22:13
  Speaker 3: and PCE has been something to take note of. CPI
• 22:17
  Speaker 3: has been telling us inflation's run in two and a
• 22:19
  Speaker 3: half percent. Pc has been consistently telling us it's running
• 22:23
  Speaker 3: three percent. Usually it's the other way around. I think
• 22:28
  Speaker 3: the big thing, sorry, the other way around. What I
• 22:30
  Speaker 3: mean by that is usually PCE is lower than CPI.
• 22:33
  Speaker 2: The big thing, I think where I land is Again,
• 22:37
  Speaker 2: none of us actually know what the inflation rate is
• 22:41
  Speaker 2: it's probably somewhere in the high twoes to low threes.
• 22:44
  Speaker 2: Is that awful? No, I'll I'll make the case that
• 22:48
  Speaker 2: again the nineteen nineties average three percent inflation. Damn good economy.
• 22:52
  Speaker 3: Sure.
• 22:53
  Speaker 2: So the problem is that when you bottom at three percent,
• 22:57
  Speaker 2: and we said this coming into the year, by the way,
• 22:59
  Speaker 2: if you bottom at three percent with a tailwind of
• 23:03
  Speaker 2: lower energy prices over the neck over the last year,
• 23:07
  Speaker 2: one of the risks that we said was present is look,
• 23:09
  Speaker 2: if those energy prices reverse, you have a very quick
• 23:12
  Speaker 2: path to four to five percent inflation, depending on the
• 23:15
  Speaker 2: magnitude of the energy shock.
• 23:16
  Speaker 1: Right.
• 23:16
  Speaker 2: And unfortunately, it precise, it's exactly what we got like.
• 23:20
  Speaker 2: It wasn't expecting it like now in this form, but
• 23:24
  Speaker 2: that's that's what you ended up getting here.
• 23:25
  Speaker 3: The other, I guess unfortunate piece about inflation, depending on
• 23:30
  Speaker 3: your perspective, is that the Federal Reserve tends to believe
• 23:33
  Speaker 3: that PCE is a more useful indicator of actual prices.
• 23:39
  Speaker 3: I don't know if they believe that it's a better
• 23:41
  Speaker 3: indicator of where prices actually are, but they certainly believe
• 23:43
  Speaker 3: that it's a better indicator of prices that they can
• 23:47
  Speaker 3: influence with their policy. Sure. Yeah, so if that one's
• 23:51
  Speaker 3: running hotter, then the likelihood that Kevin worshed the new
• 23:54
  Speaker 3: incoming FED share who's replacing Powell will be less likely.
• 23:59
  Speaker 3: He'll be six ful and convincing the rest of the
• 24:01
  Speaker 3: governors to lower interest rates if that's what he wants
• 24:04
  Speaker 3: to accomplish.
• 24:05
  Speaker 2: So I think that the PCE data today is not
• 24:09
  Speaker 2: really that interesting to me. Uh, it is interesting to
• 24:12
  Speaker 2: me the revision of the Q four GDP data. Q
• 24:17
  Speaker 2: four came in at one point four percent on the
• 24:19
  Speaker 2: first read, revised down two point seven percent, a big,
• 24:23
  Speaker 2: big change, which again, like do you remember back when
• 24:27
  Speaker 2: we were in January and I think was January, maybe
• 24:31
  Speaker 2: it was even December. At some point there, the Atlanta
• 24:34
  Speaker 2: FEDS GDP now tracker was like projecting like five percent
• 24:37
  Speaker 2: GDP for Q four and people were sitting there like
• 24:40
  Speaker 2: scratching their heads. They're like, okay, like what gives Like
• 24:43
  Speaker 2: we've had very low job growth and somehow it looks
• 24:48
  Speaker 2: like GDP is like absolutely on fire in Q four.
• 24:51
  Speaker 2: How is this going to square itself? The answer that
• 24:54
  Speaker 2: we're now seeing as we've gotten more data, is it
• 24:57
  Speaker 2: don't it well? It squared itself by GDP is not
• 25:01
  Speaker 2: printing five percent. And so the danger that you have here,
• 25:04
  Speaker 2: in my opinion, is you have an economy that does
• 25:09
  Speaker 2: now appear to have been slowing in the second half
• 25:11
  Speaker 2: of the year, that's now getting hit with an energy
• 25:14
  Speaker 2: price shock. Like right as you're seeing problems, you know
• 25:19
  Speaker 2: that are becoming more apparent with the state of growth
• 25:21
  Speaker 2: in the economy, and so it becomes increasingly challenging to
• 25:26
  Speaker 2: try to navigate that environment, not just for households, but
• 25:29
  Speaker 2: also for the FED, because the FED sitting there going Okay,
• 25:33
  Speaker 2: So we've got GDP that's slowing down, we had a
• 25:35
  Speaker 2: negative jobs report last month, unemployment's moving up, and now
• 25:39
  Speaker 2: you've got gas. Now you've got an inflation shock happening
• 25:43
  Speaker 2: at the same time, Which way do like, what are
• 25:47
  Speaker 2: we going to look through or are we going to
• 25:49
  Speaker 2: look through the inflation problem and say this will be
• 25:53
  Speaker 2: Dare I say transitory? Or are we going to look
• 25:56
  Speaker 2: through the labor problem and say this will be transitory?
• 26:00
  Speaker 3: Who is most dubvish out there right now?
• 26:03
  Speaker 2: Waller Waller pivoted last week what he said, I think
• 26:06
  Speaker 2: once he didn't get the FED job, He's like Okay,
• 26:08
  Speaker 2: I'm not.
• 26:09
  Speaker 3: I'm not.
• 26:10
  Speaker 2: I forget exactly what he said, but he it was
• 26:14
  Speaker 2: very much. I'm shifting my opinion based on the new
• 26:17
  Speaker 2: data that I've seen. Let me let me see if
• 26:19
  Speaker 2: I can pull a quote.
• 26:19
  Speaker 3: This was post invasion of Iran.
• 26:22
  Speaker 2: I don't know the exact timing. Let me get the
• 26:25
  Speaker 2: quote and I'll pull it for you. So, yeah, I
• 26:27
  Speaker 2: do take your point, Chuck. The GDP stuff is now
• 26:31
  Speaker 2: coming in much weaker from a job growth perspective. Just
• 26:36
  Speaker 2: to contextualize this again, in twenty twenty four, the US
• 26:40
  Speaker 2: economy created somewhere around two and a half million jobs.
• 26:43
  Speaker 2: In twenty twenty sorry, that was in twenty twenty three,
• 26:48
  Speaker 2: the US economy created a round two and a half
• 26:50
  Speaker 2: million jobs. In twenty twenty four, it created around one
• 26:53
  Speaker 2: and a half million jobs. In twenty twenty five, the
• 26:56
  Speaker 2: US economy created about one hundred thousand jobs.
• 27:00
  Speaker 3: You're showing a trend line here, right. It's pretty easy
• 27:02
  Speaker 3: to see GDP tracks the exact same way. Inflation fortunately
• 27:07
  Speaker 3: has tracked the same way as well. We have consistently
• 27:10
  Speaker 3: come down in terms of the pace of price increases.
• 27:15
  Speaker 3: But any person that serves on the federal Reserve is
• 27:20
  Speaker 3: a student of history and the lesson from history. The
• 27:23
  Speaker 3: biggest lesson for the Federal Reserve that made everyone question
• 27:27
  Speaker 3: their capabilities was the nineteen seventies, and it's setting up
• 27:30
  Speaker 3: to look a lot like that at the moment.
• 27:32
  Speaker 2: Here is this was Waller. This was on February twenty third,
• 27:37
  Speaker 2: so this was before the Middle East conflict kicked off.
• 27:39
  Speaker 3: Yeah.
• 27:40
  Speaker 2: I saw this interview and he basically like, remember Waller
• 27:43
  Speaker 2: was one of the descents in January saying we should
• 27:45
  Speaker 2: have cut then, and after the January jobs report came
• 27:50
  Speaker 2: out in February, Waller said, yeah, because of the strength
• 27:53
  Speaker 2: of that, I don't really think we need to cut
• 27:55
  Speaker 2: in March at this point. So like that was a
• 27:59
  Speaker 2: pretty big shift from being one of the dissenters too.
• 28:01
  Speaker 2: I don't think we need to do anything. The counter
• 28:04
  Speaker 2: to this is that last week Waller had an interview
• 28:09
  Speaker 2: with It was on Bloomberg and I'll see here's the
• 28:14
  Speaker 2: quote from him. You're going to see a spike and
• 28:15
  Speaker 2: gasoline prices. That's what American citizens are going to see
• 28:18
  Speaker 2: when they go to the pump. If it's unwound in
• 28:20
  Speaker 2: a couple weeks or even two months, it's not gonna
• 28:22
  Speaker 2: be a big factor down the road. So again, it's
• 28:28
  Speaker 2: he certainly is you know, he's not really giving any
• 28:31
  Speaker 2: clues as to where he would personally go at this point.
• 28:35
  Speaker 2: But it's really hard for me to see the FED
• 28:38
  Speaker 2: hiking right now.
• 28:41
  Speaker 3: Agreed.
• 28:42
  Speaker 2: It's also really hard for me to see them cutting
• 28:44
  Speaker 2: into the teeth of a potential inflationary, you know problem
• 28:48
  Speaker 2: that's coming. So I suspect they do nothing in March
• 28:52
  Speaker 2: and wait for more information about you know, how long
• 28:56
  Speaker 2: is this going to last? What are we seeing in
• 28:57
  Speaker 2: second and third order effects? Like honest check, that's like
• 29:00
  Speaker 2: the most justifiable thing. Equity markets haven't broken, credit markets
• 29:03
  Speaker 2: haven't broken, Inflation risk has turned upwards, and the labor
• 29:08
  Speaker 2: market growth that you saw in January was pretty much
• 29:11
  Speaker 2: wiped out by the labor market trinkets you saw in February.
• 29:14
  Speaker 2: And I think they're fine not hiking. I was very
• 29:17
  Speaker 2: critical in January of or in March of twenty two,
• 29:21
  Speaker 2: when the Russia Ukraine crisis had just broken out and
• 29:25
  Speaker 2: I was in Powell came out with his quotes like,
• 29:29
  Speaker 2: you know, we're not sure what the long term impacts
• 29:31
  Speaker 2: are going to be of this on you know, inflation,
• 29:33
  Speaker 2: and I'm like, how could you possibly think that this
• 29:34
  Speaker 2: is going to be deflationary? What's going on? The problem
• 29:39
  Speaker 2: there was that inflation was already running like seven percent,
• 29:42
  Speaker 2: and so the FED was behind the curve because remember
• 29:44
  Speaker 2: they had done a quarter percent hike, and we're just
• 29:46
  Speaker 2: kind of moseying on along like, oh, we'll just go
• 29:49
  Speaker 2: slow and steady. That'll be the way we deal with inflation,
• 29:52
  Speaker 2: way above targets. And this is different because yes, inflation's
• 29:57
  Speaker 2: you know, running three percent or you know, high to
• 30:00
  Speaker 2: low threes. You don't have the sense of urgency because
• 30:04
  Speaker 2: you're not behind the eight ball. The same way you've
• 30:06
  Speaker 2: got the FED funds rate in the high threes. Inflation
• 30:08
  Speaker 2: has been in the low threes. You can give this
• 30:11
  Speaker 2: a couple of meetings to let things play out and
• 30:14
  Speaker 2: see how they develop. Ye, and then if you do
• 30:16
  Speaker 2: have an inflation problem, then I do think you need
• 30:19
  Speaker 2: to move quickly, but you can let things develop there
• 30:22
  Speaker 2: to see how the risk of inflation balances and mixes
• 30:26
  Speaker 2: with the risk of a slowdown that costs jobs. That's
• 30:30
  Speaker 2: kind of where we are to take a quick break, Rooney,
• 30:33
  Speaker 2: and when we come back, let's see that's enough fed
• 30:36
  Speaker 2: talk here. Mortgage rate? Should we talk about those? Because
• 30:39
  Speaker 2: after the spring housing market, the spring housing season is
• 30:41
  Speaker 2: in full force. Let's talk mortgages after this.
• 30:44
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• 30:48
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• 30:51
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• 31:00
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  Speaker 4: This segment of the Financial Exchange is brought to you by
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  Speaker 2: Real estate agents and perspective Home buyers have gotten a
• 31:51
  Speaker 2: root awakening over the last week and a half, as
• 31:54
  Speaker 2: the average thirty year fixed rate mortgage has moved from
• 31:58
  Speaker 2: five point nine to nine percent at the end of
• 32:00
  Speaker 2: February to six point three five percent as of yesterday.
• 32:05
  Speaker 2: This according to data from Mortgage News Daily. The reason
• 32:08
  Speaker 2: why is that the long end of the yieldcare for
• 32:13
  Speaker 2: US treasuries has moved up in response to the conflict
• 32:17
  Speaker 2: in the Middle East, and so hey, if you're going
• 32:20
  Speaker 2: to demand a higher interest amount from the US government
• 32:24
  Speaker 2: because of this, well you're also going to demand that
• 32:27
  Speaker 2: from private buyers who don't have the resources of the
• 32:31
  Speaker 2: US government. So what we've got here is mortgage rates
• 32:35
  Speaker 2: again back to six point three five percent. In terms
• 32:39
  Speaker 2: of where this puts US, it's basically where they were
• 32:41
  Speaker 2: last November. It still is meaningfully better than last spring,
• 32:45
  Speaker 2: where we were floating between six seven and seven percent
• 32:49
  Speaker 2: on mortgages. I appreciate you picking that up. Have you noticed,
• 32:54
  Speaker 2: by the way that kids hate that now, Yes, Yeah,
• 32:56
  Speaker 2: because parents adopted. Yes, it is great. Easiest way to
• 33:00
  Speaker 2: kill a fad is to adopt it as an older person.
• 33:05
  Speaker 3: That's why I've become best friends with all my daughter's
• 33:07
  Speaker 3: boy future boyfriends.
• 33:08
  Speaker 2: There you go. So, mortgage rates in a better spot
• 33:12
  Speaker 2: than last year, but still higher than a few weeks ago,
• 33:15
  Speaker 2: and so it does present something that's kind of a
• 33:20
  Speaker 2: new drag in the housing market because rates had been
• 33:23
  Speaker 2: falling really since last June, and now this uptick you know,
• 33:28
  Speaker 2: is going to impact the bids that you'll be able
• 33:31
  Speaker 2: to see for housing as a result.
• 33:33
  Speaker 3: Yeah, Mike Simonson released him data four days ago, now,
• 33:36
  Speaker 3: so pretty recent. He is pointing out that while pending
• 33:41
  Speaker 3: home sales are still on the rise, listings don't appear
• 33:44
  Speaker 3: to be good news, new listings running below last year.
• 33:48
  Speaker 3: This week he counted sixty two thousand newly listed single
• 33:51
  Speaker 3: family homes. That compares to sixty four thousand.
• 33:54
  Speaker 2: The day before.
• 33:55
  Speaker 3: And so his main point here is, with a combination
• 33:58
  Speaker 3: of higher interest rates and geopolitical slash labor market concern,
• 34:03
  Speaker 3: he's a little bit worried that the pace of inventory
• 34:08
  Speaker 3: growth is not going to be able to quite repeat
• 34:11
  Speaker 3: what it did last year, and so that could set
• 34:13
  Speaker 3: up a very interesting housing market for twenty twenty six,
• 34:16
  Speaker 3: because I think my Bingo card had pretty substantially more
• 34:20
  Speaker 3: homes for sale in twenty twenty six, and I'm not
• 34:22
  Speaker 3: sure it's going to becoming given what we're seeing right now.
• 34:26
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• 35:27
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• 35:30
  Speaker 3: There was one more piece about housing inventory that he
• 35:32
  Speaker 3: cited that I want to point out. So, single family
• 35:35
  Speaker 3: home inventory right now, it's up about seven percent from
• 35:39
  Speaker 3: a year ago. That's compared to thirty percent inventory growth
• 35:43
  Speaker 3: at this time last year, So the pace of growth
• 35:45
  Speaker 3: obviously slowing. He points out that, you know, with that
• 35:48
  Speaker 3: gap closing so quickly, his concern would be that summer
• 35:51
  Speaker 3: inventory could be below twenty twenty five levels. So again
• 35:55
  Speaker 3: he knows more about this stuff than I do, and
• 35:57
  Speaker 3: I tend to trust him on it. Obviously, the conditions
• 35:59
  Speaker 3: can change, interest rates can change. All of that stuff
• 36:02
  Speaker 3: can influence how many listings there are. But at this
• 36:05
  Speaker 3: current pace, we're not seeing a big uptick in inventory
• 36:09
  Speaker 3: for twenty twenty six.
• 36:10
  Speaker 2: Mike, did you know that we're going back to the moon?
• 36:13
  Speaker 3: Who is WE?
• 36:15
  Speaker 2: We is the Artemis Moon Mission. Artemis two is going
• 36:20
  Speaker 2: to be launching potentially as early as April first, And
• 36:25
  Speaker 2: as you know, someone who enjoys all things space related,
• 36:30
  Speaker 2: I think this is just awesome that we're.
• 36:32
  Speaker 3: Can you launch a spaceship powered by coal?
• 36:35
  Speaker 2: Sure? Isn't that what They're all powered by? Mark All?
• 36:39
  Speaker 2: You know, it's someone.
• 36:43
  Speaker 3: Old timy guy and a hat and shoveling coal into
• 36:46
  Speaker 3: the Yeah.
• 36:47
  Speaker 2: You go down to the bottom of any rocket and
• 36:48
  Speaker 2: it's basically like the Titanic, you know. It's just they
• 36:51
  Speaker 2: got the boilers in there and it just it's a
• 36:54
  Speaker 2: really really powerful steam engine that they use.
• 36:58
  Speaker 3: Sorry, that's not funny, it's kind of funny.
• 37:00
  Speaker 2: It's hilarious.
• 37:01
  Speaker 1: What are you talking about?
• 37:01
  Speaker 2: It pretty funny. I like a col powered rocket is
• 37:04
  Speaker 2: just I mean, the only thing that would be better
• 37:06
  Speaker 2: than that is if it were like Unicorn powered or
• 37:08
  Speaker 2: something like that.
• 37:09
  Speaker 3: Ye.
• 37:10
  Speaker 2: So, in any case, we're going back to the Moon.
• 37:12
  Speaker 2: This is going to be a ten day mission that
• 37:15
  Speaker 2: just orbits the Moon, but it keeps NASA on track
• 37:17
  Speaker 2: to eventually land on the Moon again by twenty twenty eight,
• 37:21
  Speaker 2: and we're gonna build a moon base.
• 37:23
  Speaker 3: I'm not sure I'm ready to say we're going to
• 37:25
  Speaker 3: the Moon. Then, what do you mean? Are going around
• 37:28
  Speaker 3: the Moon? We're going to We're going to the We're
• 37:31
  Speaker 3: going to the Moon's neighborhood.
• 37:33
  Speaker 2: Mike, if we're going around it, technically we're going past
• 37:36
  Speaker 2: the moon.
• 37:36
  Speaker 3: Sure you're also going to it, but unless you unless
• 37:40
  Speaker 3: you head it up, I'm not sure.
• 37:43
  Speaker 2: Tucker, what do you think? Yeah, I completely agree you've
• 37:46
  Speaker 2: got to go to the moon. Go to the moon.
• 37:47
  Speaker 2: Well I think you got to test it first.
• 37:49
  Speaker 1: Oh you don't.
• 37:51
  Speaker 2: We've done it.
• 37:52
  Speaker 4: Come on, just you know, park it there, It's fine,
• 37:55
  Speaker 4: would be fine.
• 37:56
  Speaker 2: Would you ever live on it? Trive through the neighborhood
• 37:58
  Speaker 2: and not stop and visit it.
• 38:00
  Speaker 3: We're just just debating the language. We're not saying we
• 38:02
  Speaker 3: should go to the moon, just saying you can't say
• 38:05
  Speaker 3: you went to the moon if you took a lap
• 38:07
  Speaker 3: around it.
• 38:10
  Speaker 2: I don't know. If you're like looking at houses, you say,
• 38:12
  Speaker 2: oh I went to look at this house today, you
• 38:14
  Speaker 2: might just done a drive by. Would you live in
• 38:17
  Speaker 2: a moon base?
• 38:18
  Speaker 3: Sure kidding?
• 38:20
  Speaker 2: I would? No Wi Fi not yet? Quick break here
• 38:23
  Speaker 2: our two coming up.