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Oil at $180? The Strait of Hormuz Enters a Dangerous Phase · The Financial Exchange Show

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Speaker 2: Ah right, all right, all right, it's Friday here, and
1:21
Speaker 2: that's right. You see those Texas Longhorns last night, Michael, Nope,
1:25
Speaker 2: is that basketball? Well it's not table tennis, Okay, I
1:29
Speaker 2: tell you that much. But yeah, those Texas Longhorns knocking
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Speaker 2: off BYU yesterday. My most successful upset pick, my only
1:41
Speaker 2: upset pick yesterday. Actually, as the NCAA tournament's gotten chalkier
1:46
Speaker 2: and chalkier, But we won't get too far into that,
1:50
Speaker 2: so let's instead talk a little bit more about what's
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Speaker 2: going on in the Middle East, because we are now
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Speaker 2: into day twenty one of the conflict, with the straight
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Speaker 2: up for moves remaining shut, and we're now getting to
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Speaker 2: the point where, look to this point, like you've already
2:09
Speaker 2: had things happen that can't be undone, Like you're not
2:12
Speaker 2: gonna see physical commodity markets just snap back to where
2:15
Speaker 2: they were before. But we are to point now where
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Speaker 2: if this continues in the current status quo as far
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Speaker 2: as transits through horror moves, the really bad stuff to
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Speaker 2: the global economy starts happening in a matter of weeks.
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Speaker 3: What are some of those really bad things we talked
2:31
Speaker 3: yesterday about some of the indications that countries, especially poorer
2:35
Speaker 3: Asian nations, are already beginning to ration energy. You have
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Speaker 3: Pakistan calling for a four day work week, You've got
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Speaker 3: Bangladesh closing universities. Vietnam has been urging citizens to work
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Speaker 3: from home. So those are I would consider to be
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Speaker 3: relatively minor acts that those countries are taking. What are
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Speaker 3: some of the more severe things that you start to
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Speaker 3: become concerned about.
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Speaker 2: The stuff that you start looking out are widespread flight
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Speaker 2: cancelations for international flights because they don't have fuel, you know,
3:07
Speaker 2: like things like that.
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Speaker 3: And you've seen some CEOs not say that they are
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Speaker 3: immediately concerned about that, but you know they're making contingency
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Speaker 3: plans in airlines that fly frequently to Asia, saying, you know,
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Speaker 3: we're not concerned about getting there, we are concerned about
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Speaker 3: resupplying on fuel and getting people back home.
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Speaker 2: Yes, So that's the stuff that starts to pop up.
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Speaker 2: Other things ships unable to get bunker fuel, which means, hey,
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Speaker 2: instead of x percent, you know, instead of x number
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Speaker 2: of ships going from Asia to the US in any
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Speaker 2: given week, I don't know how many ships go from
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Speaker 2: Asia to the US in any given week. Probably should
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Speaker 2: have learned that a few years ago with all the
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Speaker 2: port stuff that was going on, but we probably knew
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Speaker 2: back in twenty We probably did even last year. You remember,
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Speaker 2: we were all counting ships, you know, outside the port
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Speaker 2: along beach because of the tariff stuff. We've we spend
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Speaker 2: a lot of time around ships in the last decade.
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Speaker 2: Mic It's it's been kind of NonStop between twenty twenty
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Speaker 2: and then the ever Given or ever Yes, ever given
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Speaker 2: Given ever Grand was the Chinese real estate company that
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Speaker 2: blew up.
4:15
Speaker 3: Ye ever Given was the ship that got struck.
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Speaker 2: So we we've been through some stuff. But in any case,
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Speaker 2: you start running into Okay, if X number of ships
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Speaker 2: normally go from Asia to the United States, maybe it's
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Speaker 2: x minus five percent, maybe it's x minus ten percent.
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Speaker 2: And who knows what goods aren't able to get on
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Speaker 2: those ships based on who's willing to pay the most
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Speaker 2: for the cargo containers. Uh, It's stuff like, hey, do
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Speaker 2: manufacturers in Korea, Japan and Taiwan have to halt their
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Speaker 2: facilities for you know, the night shift or an extra
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Speaker 2: day a week because the countries just don't have enough
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Speaker 2: power to keep all of those things running twenty four
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Speaker 2: to seven and the way they want to right these
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Speaker 2: are the things that you start to run into that
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Speaker 2: don't just have an impact on those local economies, it
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Speaker 2: starts to spill over more to the United States. Now
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Speaker 2: we've talked about, you know, how resilient the US has
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Speaker 2: become to energy shocks because of combination of a greater
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Speaker 2: production in the United States and b you know, better
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Speaker 2: fuel economy in our vehicles and you know forms of
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Speaker 2: you know, power and things like that. But ultimately, the
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Speaker 2: US economy still relies hugely on consumption, and consumption, yes,
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Speaker 2: can get more expensive, but if stuff just doesn't show up,
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Speaker 2: it also can just halt and that causes problems in
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Speaker 2: the US economy as well. So these are the things
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Speaker 2: that I think you start to watch out for. And
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Speaker 2: you know, just in terms of what you're seeing now
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Speaker 2: in Japan, a couple oil refineries are reporting that they
5:55
Speaker 2: are having to reduce some runs of product because they
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Speaker 2: don't have enough inputs, meaning they don't have enough crew
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Speaker 2: to refine all of the stuff they want to And
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Speaker 2: this is going to build over the next few weeks.
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Speaker 2: And I really got to tell you this is one
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Speaker 2: thing where I'm getting flashbacks to early twenty twenty, not
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Speaker 2: in that like, oh, market's going to crash or this
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Speaker 2: in that, but just you have you have financial markets
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Speaker 2: that don't understand the physical reality on the ground, is
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Speaker 2: how I'll put it. And again, it's not like I'm
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Speaker 2: not sitting here being like, oh, like markets are gonna crash.
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Speaker 2: That's not what I'm saying. What I am saying is
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Speaker 2: you can't rely on financial markets to tell you about
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Speaker 2: what is actually happening with the physical commodity because they
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Speaker 2: don't deal with it. They deal with futures, they deal
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Speaker 2: with screens. And yes, like I know that eventually a
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Speaker 2: futures contract has to be delivered in many cases, but
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Speaker 2: ultimately there it's it's not the same. And just look now,
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Speaker 2: talk to anyone who is trying to get a barrel
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Speaker 2: of oil somewhere east of you know, the Red Sea,
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Speaker 2: and they will tell you we're paying one hundred and
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Speaker 2: sixty dollars a barrel for it at a minimum. It
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Speaker 2: doesn't matter what you see on the screen, that's what
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Speaker 2: we're paying for it.
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Speaker 3: So let's talk about the Strait. What is changing as
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Speaker 3: of late. You know, there's the Joint statement from the
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Speaker 3: leaders of Canada, UK, France, Germany, Italy, Netherlands, Japan just yesterday,
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Speaker 3: I think right after the show. The relevant statement there is,
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Speaker 3: let me get the exact quote. We express our readiness
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Speaker 3: to contribute to appropriate efforts to ensure a safe passage
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Speaker 3: through the Strait. We welcome the commitment of nations who
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Speaker 3: are engaging in preparatory planning. So an obvious statement there,
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Speaker 3: I think, mostly driven by concern for their own economies
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Speaker 3: more than anything else, but more of a statement in
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Speaker 3: terms of well I think it is a move compared
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Speaker 3: to all the statements that other nations have been making
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Speaker 3: since the outbreak of they weren't around.
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Speaker 2: I think it's not worth the paper it's printed on. Now, Okay,
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Speaker 2: what are they actually doing nothing thus far? I am
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Speaker 2: a big believer pay attention to what people do, not
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Speaker 2: what people say. And they're not doing anything right, they're not,
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Speaker 2: so I like, yeah, so hey, we want to take
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Speaker 2: you know, appropriate action. Okay, what does that mean? Tell
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Speaker 2: me what you are doing. Don't be like, oh, we're
8:32
Speaker 2: gonna do nice things to tell me what you're doing.
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Speaker 2: Like it's I I again, it's easy to be it's
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Speaker 2: such a general statement can you read that? Gibber jabber
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Speaker 2: to me.
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Speaker 3: We express our readiness to contribute to appropriate efforts to
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Speaker 3: ensure safe passages.
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Speaker 2: What does that mean? What does that mean?
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Speaker 3: Could mean anything from sending you know, uh ships with
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Speaker 3: the mining capabilities to supplying supplying uniforms to other people
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Speaker 3: that are to.
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Speaker 2: Doing nothing to doing nothing like we're willing to was
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Speaker 2: it we're willing to contribute?
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Speaker 1: Uh?
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Speaker 3: Yes, readiness to contribute.
9:15
Speaker 2: Okay, I have a readiness to contribute to the New
9:19
Speaker 2: England Patriots. Yeah, okay, I'm not going to have an
9:23
Speaker 2: effect on the team because I'm not actually doing anything
9:26
Speaker 2: for them.
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Speaker 3: And I think there are also serious questions. There's been
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Speaker 3: the entire effort of the Trump administration when it comes
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Speaker 3: to Europe over the last few years, at least one
9:35
Speaker 3: of the main things has been invest in your militaries,
9:38
Speaker 3: you know, you push to have NATO countries contribute to defense.
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Speaker 3: And so I think there's a both serious question about willingness,
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Speaker 3: but there's also a very serious question about capability.
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Speaker 2: Guys. As I forget who it was that said this,
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Speaker 2: it was the prime minister or president of some country.
9:57
Speaker 2: If the US Navy isn't going to be able to
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Speaker 2: do it. We're not going to be able to do it, okay,
10:04
Speaker 2: like you will get any you know, either navy or
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Speaker 2: air force or military force of any kind in Europe.
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Speaker 2: They don't have the capabilities that the United States does. Now,
10:15
Speaker 2: you could say, oh, well, like what if we all
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Speaker 2: get together and do this, like that's that's fine, that's
10:18
Speaker 2: all well and good, but it doesn't seem like that's
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Speaker 2: what's happening at the moment. So I know, I'm poopooing
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Speaker 2: that statement pretty hard, and that's because talk is cheap, Like,
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Speaker 2: show me what the actions are that you're actually taking
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Speaker 2: in order to change the status quo. And I gotta
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Speaker 2: be honest. I don't see nothing. That's the technical term
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Speaker 2: for what I don't see is nothing. So let's take
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Speaker 2: a quick break here, and when we come back, we'll
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Speaker 2: talk about this Wall Street Journal exclusive that the Saudis
10:51
Speaker 2: see a world in which oil goes north of one
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Speaker 2: hundred and eighty dollars a barrel. We'll discuss whether that's
10:57
Speaker 2: worth the paper it's printed on.
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12:09
Speaker 2: Mike. Have you ever been to the Persian Golf?
12:12
Speaker 3: No?
12:12
Speaker 2: I haven't either. I haven't. Uh. But what I want
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Speaker 2: to do is is take us on a little journey
12:19
Speaker 2: there now, and I want to take you actually just
12:22
Speaker 2: outside the person Golf, I want to take you to
12:24
Speaker 2: Oman and in Oman right now, if you wanted to
12:30
Speaker 2: buy a barrel of sour crude, which is again sour
12:34
Speaker 2: refers to the sulfur content of oil, and what is
12:38
Speaker 2: that taste? Go on, sorry, just maybe, Michael. In any case,
12:45
Speaker 2: if you wanted to buy a barrel of sour crude
12:47
Speaker 2: in Oman right now, as of the clothes yesterday, you
12:51
Speaker 2: had to pay one hundred and sixty two dollars and
12:53
Speaker 2: fifty three cents for that barrel. If you went to Brent,
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Speaker 2: which is not actually a place, but if you want
13:01
Speaker 2: to go buy a barrel of oil in Europe right now,
13:04
Speaker 2: which is largely using the Brent benchmark, you would be paying,
13:09
Speaker 2: as of the close of yesterday, about one hundred and
13:11
Speaker 2: seven dollars a barrel. And if you wanted a nice
13:14
Speaker 2: frosty barrel of West Texas intermediate from here in the
13:17
Speaker 2: good old United States of America, you're paying ninety four
13:20
Speaker 2: to fifty seven a barrel. So we got a piece
13:22
Speaker 2: here in the Wall Street Journal, and it says in
13:27
Speaker 2: the title, or I guess the title is the other
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Speaker 2: way to phrase that Saudi Arabia sees a spike to
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Speaker 2: one hundred and eighty dollars oil if energy shock persists
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Speaker 2: past April. And here's the long and short of this.
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Speaker 2: There are two takeaways that I have on this piece.
13:43
Speaker 2: The first is the only reason that this is being
13:46
Speaker 2: printed is because the Saudis want to scare the crap
13:49
Speaker 2: out of the United States so that they can start
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Speaker 2: exporting oil through the Strait of Hormoes. Again, that's not fair.
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Speaker 3: I think they might want to scare the crap out
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Speaker 3: of Europe too.
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Speaker 2: What is europ matter?
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Speaker 3: Not involved? They're not, but I think they're interested in Europe.
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Speaker 2: Knows they're screwed. Europe's been screwed for years. Like Europe
14:06
Speaker 2: understands the state of their energy situation. Like Europe is
14:09
Speaker 2: perpetually sitting there going who's it going to be this time?
14:13
Speaker 2: Just just tell me how much we have to pay?
14:15
Speaker 2: Who's it going to be this time? Yeah? You know?
14:17
Speaker 2: Is it the Russians? Is it the Middle East? Like,
14:21
Speaker 2: just tell us how it's gonna screw us, like we're
14:23
Speaker 2: used to it. Like Europe knows that from an energy perspective,
14:27
Speaker 2: it's not good the toast. So the reason why the
14:30
Speaker 2: Saudis reach out to the Wall Street Journal is because
14:33
Speaker 2: the Saudis are kind of upset that instead of being
14:35
Speaker 2: able to export like ten million barrels a day. They
14:38
Speaker 2: can only get like four million barrels a day out
14:40
Speaker 2: right now. Plus they've got you know, ballistic missiles and
14:42
Speaker 2: drones that are attacking them, and they generally don't like that.
14:46
Speaker 2: Like it's it's not a hospitable environment. You wouldn't want to,
14:49
Speaker 2: you know, raise your kids in an environment like that.
14:51
Speaker 2: Bad from morale, it's not great. So the Saudis do
14:55
Speaker 2: exactly what you would expect, which is they go to
14:56
Speaker 2: the Wall Street Journal and say, hey, we envision a
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Speaker 2: world in which you know, oil reached you know, one
15:00
Speaker 2: hundred and eighty. So I see this for what it is,
15:02
Speaker 2: Like there's a reason why certain news gets printed, and
15:06
Speaker 2: this is the Saudis trying to, you know, point American
15:10
Speaker 2: opinion towards a certain outcome that Americans wouldn't want. And
15:14
Speaker 2: I realize that. But there's also another piece that I
15:18
Speaker 2: do need to point out here, which is that if
15:20
Speaker 2: you are trying to get oil just outside of the
15:23
Speaker 2: strait of horror moves in Oman, it's already one hundred
15:26
Speaker 2: and sixty two dollars a barrel right now, which tells
15:29
Speaker 2: you that the Saudis also aren't really lying about this.
15:34
Speaker 2: They didn't have to say this, but they're also not lying.
15:37
Speaker 2: And here's why. If the straight horror moves opens at
15:40
Speaker 2: some point in the very near future, those higher prices
15:43
Speaker 2: just outside are going to come down to match other
15:47
Speaker 2: worldwide benchmarks. We know this because just prior to this,
15:50
Speaker 2: West Texas Intermediate was trading in the in the high sixties,
15:54
Speaker 2: and all these other benchmarks Brent and Oman and Dubai,
15:57
Speaker 2: they were all trading about five dollars, just because that's
16:00
Speaker 2: how it typically is. So they were all pretty close.
16:04
Speaker 2: Right now, if you want a barrow of oil in Oman,
16:06
Speaker 2: it's almost twice what it is to get it in
16:09
Speaker 2: West Texas. And so the two ways of this resolve,
16:12
Speaker 2: and number one of four moves reopens all those other
16:15
Speaker 2: benchmarks that are really stressed right now, they come back
16:19
Speaker 2: down they meet West Texas Intermediate. To get close to it,
16:22
Speaker 2: West Texas might have to float up a little bit,
16:24
Speaker 2: because I think the market's still not pricing in you know,
16:26
Speaker 2: the full extent. But you know, okay, oil like hangs
16:30
Speaker 2: out in the one hundred dollars a barrel range for
16:32
Speaker 2: a little bit, and you know, we go about our
16:34
Speaker 2: day we might not love it, but it is what
16:36
Speaker 2: it is. The other way that this goes is, remember
16:40
Speaker 2: the reason that oil is one hundred and sixty two
16:41
Speaker 2: a barrel in Oman right now is because you can't
16:44
Speaker 2: get enough of it, like they can't. And the reason
16:48
Speaker 2: why Brent is only one oh seven is because in
16:51
Speaker 2: order to get oil from the North Sea down to Oman,
16:57
Speaker 2: it's a bit of a hike mic you know, like
17:00
Speaker 2: it's you can't just put the kids in the car
17:02
Speaker 2: for the afternoon and be like, hey, get the barrel
17:04
Speaker 2: of oil, we're going to Oman. No, you got to
17:06
Speaker 2: load up the tanker ship, ship it for about three
17:09
Speaker 2: weeks to get it to Oman, and then unload it.
17:12
Speaker 2: It's a whole process. And so if you're in Oman
17:15
Speaker 2: right now, your first priority is, look, I need oil
17:18
Speaker 2: right now. I need it right now to run like
17:20
Speaker 2: our refineries or whatever it might be. I need it.
17:24
Speaker 2: Pay the one sixty two for it. Yep. But at
17:27
Speaker 2: some point a that oil is available to them starts
17:30
Speaker 2: to you know, run out, you run into actual shortages,
17:33
Speaker 2: and b they say, look it might take three weeks
17:37
Speaker 2: to get here, but we've got to secure more long
17:39
Speaker 2: term supply. Start buying the stuff from the North Sea,
17:44
Speaker 2: and so those other benchmarks that in the short term
17:46
Speaker 2: of deviated, they start to get pulled up because of
17:52
Speaker 2: a barrel of sour cruit is a barrel of sour crude. Yeah,
17:55
Speaker 2: there are small differences around the margins, but it is.
17:57
Speaker 3: What it gets there.
17:59
Speaker 2: So eventually the omanis get fed up paying one sixty
18:04
Speaker 2: two and they're like, hey, start buying some Brent at
18:06
Speaker 2: one oh seven. Well the guy's selling Brent. They're like, oh,
18:09
Speaker 2: we've got more orders. Now we can raise the price
18:11
Speaker 2: to one ten and then one fifteen and one twenty,
18:13
Speaker 2: and maybe everything meets in the middle like one forty
18:15
Speaker 2: or one fifty, Like I don't know exactly where, but
18:19
Speaker 2: those other benchmarks get pulled up. And so my conclusion
18:24
Speaker 2: on the Saudi piece is they absolutely went to the
18:27
Speaker 2: journal because the reason you publish something in the Wall Street.
18:29
Speaker 3: Journal, you want, what is the Americans to read it.
18:31
Speaker 2: You want to scale, like you want to send a
18:33
Speaker 2: message to American business. But the other thing, when you
18:38
Speaker 2: actually look at the numbers that are printing for oil,
18:40
Speaker 2: if you want to buy a barrel in the Middle
18:42
Speaker 2: East right now outside horm moves the pretty dark cloes
18:46
Speaker 2: to one eighty, so not necessarily a lie, but a
18:51
Speaker 2: targeted message for a very specific reason. Sure is it
18:55
Speaker 2: the most likely outcome? I don't know. I don't think so.
19:00
Speaker 2: But none of us know for certain what the next week, month,
19:05
Speaker 2: or year are going to bring for energy prices.
19:08
Speaker 3: The problem, too, is nobody has a firm line on
19:11
Speaker 3: how long, if closed for X number of weeks, this
19:15
Speaker 3: is what the world looks like.
19:16
Speaker 2: I don't think any of us have. There have been
19:18
Speaker 2: some estimates that I've seen put out there, basically like
19:20
Speaker 2: every month this goes on, krue goes up twenty bucks.
19:23
Speaker 2: I don't know if that's right or wrong, but that's
19:25
Speaker 2: what I've seen from some estimates. Let's take a quick break.
19:29
Speaker 2: When we return, We've got Wall Street Watch next.
19:40
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20:00
Speaker 4: Network, markets extending their losses as we are now three
20:04
Speaker 4: weeks into the conflict in Iran, markets are also on
20:06
Speaker 4: pace for their fourth consecutive losing week. Right now, the
20:10
Speaker 4: Dow is down by half a percent or two hundred
20:13
Speaker 4: and twenty four points, SMP five hundred down three quarters
20:16
Speaker 4: of a percent's Nasdaq down over one percent or two
20:20
Speaker 4: hundred and fifty points. Russell two thousand selling off by
20:23
Speaker 4: one and a half percent. Ten Youre Treasure Reel jumping
20:26
Speaker 4: nine bases points is at four point three seven eight
20:30
Speaker 4: percent to In crude oil up nearly one percent higher,
20:34
Speaker 4: trading right around ninety seven dollars a barrel.
20:37
Speaker 3: Well.
20:37
Speaker 4: Shares in super Microcomputer are tumbling twenty eight percent after
20:41
Speaker 4: US prosecutors charged three people, including the company's co founder,
20:45
Speaker 4: with smuggling machines with high end in video chips to China. Meanwhile,
20:50
Speaker 4: FedEx is gaining by two percent after the shipping giant
20:53
Speaker 4: hike did's outlook as revenue increased in.
20:56
Speaker 2: The previous quarter.
20:57
Speaker 4: Elsewhere, the Wall Street Journal reported that Unilever is in
21:00
Speaker 4: talks to separate its food business and combine it with
21:02
Speaker 4: spice maker McCormick. Both companies have confirmed the talks.
21:07
Speaker 3: You Know.
21:08
Speaker 4: Lever shares are trading modestly higher, while McCormick is down
21:11
Speaker 4: over one percent, and Planet Labs is rallying thirty percent
21:15
Speaker 4: after the satellite imagery company reported better than expected fourth
21:19
Speaker 4: quarter results, while it's full year revenue guidance also impressed.
21:24
Speaker 4: I'm Tucker Silva and that is Wall Street Watch.
21:29
Speaker 2: Can we talk about that super Micro story for just
21:31
Speaker 2: a second. Yeah, is there anything related to that company
21:37
Speaker 2: that feels like it's above board. I mean, they went
21:39
Speaker 2: through like multiple auditors who refused to you know, certify
21:43
Speaker 2: their documents. They almost got booted out of uh the
21:46
Speaker 2: Nasdaq for not having an annual report filed in a
21:50
Speaker 2: timely manner. They've reported material weakness and financial controls multiple times.
21:56
Speaker 3: Now the co founder is taking stickers off the devices
22:00
Speaker 3: with a hair dryer.
22:01
Speaker 2: It's just like wearing like really big pants.
22:03
Speaker 3: And like sorry, that's I'm not sure that allegation is
22:06
Speaker 3: against the actual co founder, but that is the allegation
22:09
Speaker 3: against members of the company, removing labels of the the devices. Yeah,
22:14
Speaker 3: with a hair dryer and you know, applying different ones
22:17
Speaker 3: to it to disguise them as older technology.
22:21
Speaker 2: It's not good. No, that's the nice way to put it.
22:25
Speaker 2: That's that's the best, the most charitable version of it is.
22:29
Speaker 2: It's not good.
22:30
Speaker 3: And in the least charitable version.
22:32
Speaker 2: It's treason.
22:33
Speaker 3: Yes, it's light treason, just a little light trees, you know,
22:40
Speaker 3: just boy.
22:42
Speaker 2: So yeah, there's there's that. Let's talk about this piece
22:45
Speaker 2: in the Wall Street Journal. Can't believe I'm gonna read
22:48
Speaker 2: this headline, how to trade the war avoid gimmicky strategies
22:53
Speaker 2: and overheated assets. I mean, this feels like a headline
22:56
Speaker 2: out of Saturday Night Live, Like how to trade the war. Guys,
23:00
Speaker 2: here's the deal. If you're trying to read the Wall
23:03
Speaker 2: Street Journal to figure out what to do about a
23:05
Speaker 2: military conflict in the Middle East as it relates to
23:08
Speaker 2: your portfolio, go take a nap or something. Do anything
23:13
Speaker 2: other than that. Yeah, is the advice.
23:16
Speaker 3: It's not saying definitely, don't trade the war. It is
23:19
Speaker 3: saying the Wall Street Journal, if you're looking to it
23:24
Speaker 3: for advice on how to you might be a little
23:27
Speaker 3: bit late to the game.
23:28
Speaker 2: Yes, And again, like just some of the things that
23:32
Speaker 2: are talked about in here that are not necessarily good
23:35
Speaker 2: or bad ideas, but they're still talking about trading, and
23:38
Speaker 2: trading is something that's fundamentally different from investing. Indeed, so
23:44
Speaker 2: again just different things here. I'll quote the companies in
23:49
Speaker 2: the I Shares US Aerospace and Defense ETF for trading
23:52
Speaker 2: in an average of forty one point times earnings in
23:54
Speaker 2: the past twelve months, more than fifty percent costlier than
23:57
Speaker 2: the stock market as a whole. Okay, Amazon was trading
24:01
Speaker 2: way more expensively than the market as a whole for
24:03
Speaker 2: like twenty years and it did great. So I don't
24:05
Speaker 2: know that this is like good or bad. It just is.
24:09
Speaker 2: You know, it's Oh. On the other hand, you know,
24:12
Speaker 2: energy stocks are cheap relative to the market. Okay, Well,
24:15
Speaker 2: energy stocks have been cheap for years and they've been
24:17
Speaker 2: dead money. So like I My point is you're not
24:21
Speaker 2: going to get good trading information from an article in
24:23
Speaker 2: the Wall Street Journal. And it could be good, it
24:26
Speaker 2: could be bad, it could be neither, but you have
24:29
Speaker 2: no way to measure whether it's going to be good, bad,
24:32
Speaker 2: or neither in advance. And so ultimately, if you read
24:36
Speaker 2: this and you're like again like just first like dark,
24:41
Speaker 2: like bad, thoughts like yeah, I should trade the war,
24:44
Speaker 2: Like no, you probably shouldn't. And if you haven't ever
24:51
Speaker 2: like traded a geopolitical conflict before, you probably shouldn't. Just
24:58
Speaker 2: start now, you probably shouldn't make your your entrance into
25:02
Speaker 2: that arena. While the strait of horror moves is closed.
25:07
Speaker 2: Things can change very quickly, and you'll probably get overwhelmed
25:10
Speaker 2: and do something dumb.
25:11
Speaker 3: Speaking of trading, the war and all that, dude, do
25:15
Speaker 3: we want to price update as of today on you know,
25:17
Speaker 3: the main things that I've been tracking price wise since
25:19
Speaker 3: the breakout.
25:20
Speaker 2: Of the war, like beanie babies, no so.
25:23
Speaker 3: West Texas crude was at sixty seven dollars a barrel.
25:26
Speaker 3: Let's where it closed on Friday, February twenty seventh. As
25:28
Speaker 3: of today, we're around ninety six dollars fifty cents, about
25:31
Speaker 3: a forty four percent bump. Gas prices at the pump
25:34
Speaker 3: according to Triple LA where two ninety eight prior to
25:36
Speaker 3: the breakout, we're at three ninety one now about a
25:38
Speaker 3: thirty percent bump. S and P five hundred was around
25:42
Speaker 3: sixty eight eighty. We're down at sixty five forty seven,
25:48
Speaker 3: sixty five fifty three, so sixty five fifty let's call it.
25:51
Speaker 3: That's about a five percent drop since the breakout. The
25:54
Speaker 3: ni K down about nine percent, that's the Japanese NIK.
25:59
Speaker 3: The US Dollar Index moved up a little bit. A
26:02
Speaker 3: lot's been talked about with the dollar index, and you know,
26:05
Speaker 3: is the dollar dead the reserve currency, et cetera. It's
26:07
Speaker 3: up about two point one percent since the breakout of
26:10
Speaker 3: the war, and the tenure treasury has moved from three
26:14
Speaker 3: point nine to six up to four. We have to
26:18
Speaker 3: four to four now we're three seven right now, Yeah,
26:22
Speaker 3: so pretty substantially. Sorry, we just touched four to three eight,
26:25
Speaker 3: So about a forty basis point jump in treasury yields
26:29
Speaker 3: long term treasury yields here in the United States since
26:31
Speaker 3: the breakout of war. I've been tracking these numbers just
26:34
Speaker 3: as kind of a you get a sense of the
26:38
Speaker 3: where things have gone since well prior to So.
26:42
Speaker 2: We've got that going on. Let's see, do we want
26:46
Speaker 2: to talk about options expiration dates? Actually, but we kind
26:51
Speaker 2: of do. Yeah.
26:52
Speaker 3: It's it's an interesting thing for people to learn about
26:55
Speaker 3: because nobody outside of traders talks about witching day.
26:58
Speaker 2: Yes for witches, true they do you ever met a witch? I?
27:07
Speaker 3: Yeah, Well, let me put it this way. I've met
27:09
Speaker 3: people who think they are witches.
27:10
Speaker 2: Yeah, I have two.
27:11
Speaker 3: Yeah, it's pretty fun. It's a little bit. I haven't
27:14
Speaker 3: been to Salem. Go to Salem.
27:15
Speaker 2: Oh no, I'm not talking about no, I'm talking about
27:18
Speaker 2: like people actually think they're witches. It kind of scares
27:23
Speaker 2: me a little bit. But so here's what we have
27:27
Speaker 2: going on this week. Many different securities also have what
27:32
Speaker 2: are called options, which are a type of derivative that
27:36
Speaker 2: trades alongside them, and options. Conventionally, they exist in two forms,
27:44
Speaker 2: call options, which give the holder the right to buy
27:47
Speaker 2: a security at a certain price before a certain point
27:49
Speaker 2: in time, and put options, which give a holder the
27:52
Speaker 2: right to sell a security at a certain price before
27:55
Speaker 2: a certain point in time. And you've got all kinds
27:59
Speaker 2: of different options that are out there. There are single
28:03
Speaker 2: stock options, there are index options, there are index futures,
28:08
Speaker 2: single stock futures, and four times a year, all of
28:11
Speaker 2: those closed on the same day. And this is one
28:15
Speaker 2: of them. And here here's the thing. It's what I'm
28:20
Speaker 2: going to say is going to be scary, but I
28:24
Speaker 2: don't want it to because it's it's it's not just
28:27
Speaker 2: a coincidence. But it doesn't mean anything's definitively happening. When
28:34
Speaker 2: you look at some of the recent major market downturns
28:37
Speaker 2: that we've had in the spring, and I don't know why,
28:43
Speaker 2: it's always freaking March, but it like it's we've just
28:48
Speaker 2: been on this run the last five or six years.
28:52
Speaker 2: Twenty twenty, it was March twenty twenty two, it was
28:57
Speaker 2: March twenty twenty five, it was March twenty twenty six. March. Yo.
29:05
Speaker 2: So here's the deal. When you have a large options expiration,
29:11
Speaker 2: a lot of the money that was tied up there
29:13
Speaker 2: that was kind of effectively because of how flows and
29:16
Speaker 2: things move between you know, brokers and dealers and things offset.
29:21
Speaker 2: Once that expiration happens, it tends to unpin the market
29:24
Speaker 2: a little bit from the level that it was trading at.
29:27
Speaker 2: And generally, if you have something that's kind of gnarly
29:30
Speaker 2: going on in the world, that unpinning can result in
29:36
Speaker 2: market moves that can be significant in a short period
29:40
Speaker 2: of time and for whatever reason. In twenty twenty, twenty
29:45
Speaker 2: twenty two, and twenty twenty five, either after the February
29:49
Speaker 2: or March option expiration is basically like when things started
29:54
Speaker 2: going badly. And it doesn't mean that you will this
29:57
Speaker 2: time because again, like it, there other years where this
30:00
Speaker 2: didn't happen in the last five or six and plenty
30:02
Speaker 2: historically where nothing did. But you can have a little
30:06
Speaker 2: bit of volatility associated with a large options expiration. If
30:11
Speaker 2: there's something that people are nervous about that the market
30:14
Speaker 2: might not have been pricing in fully because it was
30:16
Speaker 2: kind of pinned by all of that stuff that was
30:20
Speaker 2: kind of holding it together. So what do you do
30:24
Speaker 2: with this? Not much? Okay Again, it doesn't say anything
30:28
Speaker 2: about like what this future state of the world could
30:31
Speaker 2: be and how the hormonus situation could resolve next week.
30:34
Speaker 2: It doesn't say anything about, you know, what can change
30:37
Speaker 2: over you know, the next month or two. But it's
30:39
Speaker 2: simply a something where Hey, one of the things that
30:43
Speaker 2: I have noticed is that, for whatever reason, the last
30:49
Speaker 2: few major downturns that we've had not you know, five percent,
30:52
Speaker 2: but the ones that have been like twenty percent plus,
30:55
Speaker 2: they've generally started immediately after a large options expiration. And
31:00
Speaker 2: so there are some conditions in place where you look,
31:02
Speaker 2: get you go, okay, filed away in the back of
31:04
Speaker 2: your mind, and you know, see what happens. Let's take
31:08
Speaker 2: a quick break, and when we come back, we'll talk
31:12
Speaker 2: a little bit about the Chinese economy and well why
31:15
Speaker 2: it's just not great even before all this stuff with
31:19
Speaker 2: energy prices.
31:21
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31:55
Speaker 2: Peace in the Wall Street Journal. Beijing's big problem and
31:57
Speaker 2: incredible shrinking economy. That does sound like a big ablem Michael, Yeah,
32:02
Speaker 2: especially for Beijing.
32:04
Speaker 3: A few things to note this one just interesting to statistics, right,
32:08
Speaker 3: everyone always has talked about over the last three decades,
32:12
Speaker 3: how China is, you know, inevitably going to overtake the
32:15
Speaker 3: United States economy in terms of its contribution to world GDP.
32:20
Speaker 3: China's grows domestic product as a share of the global economy,
32:23
Speaker 3: it peaked back in twenty twenty one at eighteen and
32:25
Speaker 3: a half percent. Today it is at least, you know,
32:29
Speaker 3: twenty twenty five, it's around sixteen and a half percent.
32:32
Speaker 3: Now less than two thirds the size of the United States.
32:34
Speaker 3: So it is remain smaller and the economy isn't in contraction,
32:42
Speaker 3: that's not what it means. But as a share of
32:45
Speaker 3: the total global GDP, it is contracting. From that perspective,
32:48
Speaker 3: other economies are taking its place in terms of importance,
32:52
Speaker 3: And I guess it comes as a surprise to a
32:57
Speaker 3: number of people, But I think.
32:59
Speaker 2: China economies no great shakes. It's kind of a mess
33:03
Speaker 2: and has been basically since the pandemic. Yeah, and even
33:07
Speaker 2: before then it had some problems that we're kind of
33:09
Speaker 2: being papered over.
33:10
Speaker 3: Yeah, I mean, what do we I think there's plenty
33:13
Speaker 3: of things to attribute to this, most of which you
33:17
Speaker 3: can point to mistakes of a you know, top down
33:22
Speaker 3: run society and economy. Demographics is a huge piece.
33:26
Speaker 2: The demographics, by the way, go back to that. Also,
33:30
Speaker 2: the demographics are a fault of the one child post.
33:32
Speaker 3: I mean, it's like, you know, all of it stems
33:34
Speaker 3: from bad decisions of current and prior leaders. But I
33:41
Speaker 3: guess my question is where does it land China three
33:44
Speaker 3: decades from now, because I don't think they are going
33:46
Speaker 3: to cease to be a world superpower.
33:50
Speaker 2: It's so it's it's so tough to know what's going
33:55
Speaker 2: to be important three decades from now. Yeah, here's why. Like,
33:59
Speaker 2: just as an example, the most important thing for any economy,
34:06
Speaker 2: like the number one factor that predicts an economy's growth
34:08
Speaker 2: rate historically is the population growth rate. If you can
34:14
Speaker 2: grow a population, you can grow an economy. You know,
34:16
Speaker 2: if you can dodge a rent, you can dodge a ball.
34:18
Speaker 3: It doesn't mean that you will have a good economy,
34:21
Speaker 3: but it's really difficult to have one without it.
34:23
Speaker 2: Historically. Yeah, if you didn't have population growth, your economy
34:27
Speaker 2: usually wasn't great. Yeah. Does that change based on you know,
34:32
Speaker 2: more automation and things like that in the future. I'm
34:35
Speaker 2: not saying it will. I'm just saying it's an open
34:37
Speaker 2: question now that I don't have a firm answer for, Like,
34:40
Speaker 2: is this potentially an inflection point on that, and if
34:42
Speaker 2: it is, that could help China other things that you know, Again.
34:47
Speaker 3: There's no by the way, Yeah, there's nowhere better in
34:49
Speaker 3: the world to test out automation technology than China shrinking
34:53
Speaker 3: population combined with the best manufacturing country in the world. Yeah,
35:00
Speaker 3: and it's not even really close, right, have that like
35:02
Speaker 3: this is this is your your playground for that technology.
35:07
Speaker 2: On the other hand, like you look at and you're like, okay, Generally,
35:12
Speaker 2: authoritarian regimes tend to collapse in on themselves after a
35:15
Speaker 2: period of time because there's no feedback mechanism to tell them, hey,
35:19
Speaker 2: what you're doing is wrong, and eventually the population gets
35:22
Speaker 2: fed up and says, no, we're not going to do
35:25
Speaker 2: this anymore. But I think there's no open question with China,
35:28
Speaker 2: like does that change, because the level of surveillance that
35:31
Speaker 2: you can do now and you know, nudging the population
35:34
Speaker 2: in the direction you want is so much higher than
35:36
Speaker 2: it used to be. You know, if King George was
35:40
Speaker 2: upset with you know, the colonists, he had to get
35:43
Speaker 2: one of his people on a boat, send him across
35:45
Speaker 2: the Atlantic for a few months, put him on top of,
35:48
Speaker 2: you know, a soapbox and say you shall not throw
35:52
Speaker 2: out tea in the ocean. It was like it was
35:55
Speaker 2: kind of a whole thing. Whereas now, okay, they know
35:59
Speaker 2: that you cross the street the second that you did.
36:01
Speaker 2: In China, they know who you are, they know what
36:04
Speaker 2: you spent your money out, like, there's a lot more
36:06
Speaker 2: information they have. So I don't know. But the Chinese economy,
36:12
Speaker 2: it's not like they're not super geniuses that always get
36:15
Speaker 2: everything right, and their economy is, you know, in a
36:19
Speaker 2: little bit of a challenging spot.
36:20
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36:23
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37:17
Speaker 2: Mike, how do you pronounce r IVR? Is it river
37:21
Speaker 2: or river?
37:22
Speaker 3: I'd go River?
37:23
Speaker 2: River? So Amazon is buying this startup called River that
37:30
Speaker 2: is trying to get four Legged delivery robots to handle
37:34
Speaker 2: last mile delivery for well shipping stuff. Sorry mailman and
37:41
Speaker 2: not mailman ups man. Actually sorry Amazon Man, Amazon Man.
37:46
Speaker 3: But they do have a massive contract with United States
37:49
Speaker 3: Postal Service that they are apparently top threatening.
37:53
Speaker 2: Yeah, and so obviously, you know, you want to have
37:55
Speaker 2: you know, some beverage in this and that. But look,
37:58
Speaker 2: there's all kinds of different ways that these companies are
38:00
Speaker 2: trying to do what I remember all of the talk about,
38:02
Speaker 2: you know, drone delivery ten years ago. And thankfully the
38:05
Speaker 2: skies overhead are not filled with Amazon drones, but the
38:09
Speaker 2: sidewalk could be filled with Amazon robot dogs soon enough.
38:13
Speaker 3: I'd like spiders.
38:14
Speaker 2: Yeah, just make a mateleged.
38:15
Speaker 3: Yeah what I was gonna say.
38:17
Speaker 2: Yeah, they'll keep everyone away from him. Let's take a
38:19
Speaker 2: quick break and our two's coming up.