May 11, 2026 • 38 mins
Gas prices are climbing again and the global energy situation continues to deteriorate.
Chuck Zodda and Mike Armstrong break down why ongoing disruptions in the Strait of Hormuz are creating mounting pressure on oil supply, fertilizer markets, air travel, and fuel prices across the global economy.
Also covered:
Chuck Zodda and Mike Armstrong break down why ongoing disruptions in the Strait of Hormuz are creating mounting pressure on oil supply, fertilizer markets, air travel, and fuel prices across the global economy.
Also covered:
- Why analysts believe the world is racing toward a major energy shortage
- How India’s fertilizer warning could signal bigger global supply problems ahead
- Why oil inventories may reach critical operational levels by late summer
- The growing risk of $6 gas becoming reality in parts of the United States
- Why California could face even higher fuel prices than the rest of the country
- How jet fuel shortages may impact airlines and summer travel demand
- What President Trump hopes to accomplish during this week’s trip to China
- Why AI and semiconductor negotiations remain central to US-China relations
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Episode Transcript
Available transcripts are automatically generated. Complete accuracy is not guaranteed.
Speaker 1 (00:00):
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(00:20):
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(00:42):
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donation today. This is the Financial Exchange with Chuck Zada,
(01:06):
and Mike Armstrong.
Speaker 2 (01:10):
It's Chuck and Mike with you here. Bend's along, well,
Ben's not along for the ride. Ben's driving the ship.
Ben's making sure that you can actually hear us, which
may or may not be important to your daily life.
But in any case, we're here, and another week is
passed with the Straight offor moves not reopening in any
(01:31):
meaningful capacity. We continue to see a handful of ships
getting through on any particular day, but the lack of
flow through the straight means that you have a lack
of production from shut in wells to the tune of
twelve to thirteen million barrels a day throughout the Middle East,
and that ultimately means that we continue to be steaming
(01:52):
headlong into what's basically a brick wall in the middle
of the summer. Where this is going to make itself
very apparent, not through you know, the current gas prices
that we're seeing, but by much higher prices throughout the
United States and rest of the developed world, and through
(02:13):
absolute shortages throughout much of the developing world. And you know,
not a not an oil thing today. But I don't
know if either of you happened to catch Indian Prime
Minister in the render Mody what he happened to say
this morning. He called on farmers in India to plant
with fifty percent less fertilizer. Now that's not really something
(02:36):
that you just say, like like, you don't just you know,
walk up to your bread basket and say, guys, have
I got a challenge for you? Do your job with
fifty percent less than what you previously had. And ultimately
what this is going to mean, Mody phrased it in
terms of, well, you know, you know, inorganic fertilizers there,
(03:00):
you know, not great for the environment, and we need
to you know, become more sustainable. Blah blah blah. The
subtext is we don't have fertilized we're not going to
be able to get you the fertilizer you need for
future planting seasons. And the reason this is important is
this is one of the products that comes through the
straight of Horn Moves and India I would characterize as
(03:21):
kind of a middle of the road country when it
comes to overall levels of wealth and income on a
per capita basis. If you look at the numbers here,
you know again it's it's not one where you're sitting
there saying, hey, it's it's not wealthy by any means.
You're not talking about you know, most of Europe and
(03:44):
even you know, most of you know, kind of North America,
South America, you're talking it's again. The countries that are
surrounding it are countries like Jordan, like the Philippines, Jamaica, Guatemala,
South Africa like you know, again kind of middle of
the road. There's you know, ballpark two hundred countries in
(04:04):
the world. India's right around one hundred in terms of
most rankings for GDP and per capita income. And so ultimately,
what this is telling you is that the pain, as
we've been saying for the last two months, is going
to be felt first through these types of countries that
simply can't afford to pay the higher prices. In the
(04:25):
United States, you don't walk into home depot and see,
you know, no Scott's fertilizer. There Again, I'm trying to
make this relatable to the average person. The average you know,
farmer doesn't walk into home depot to buy, you know,
a bag of fertilizer.
Speaker 3 (04:37):
I thought, that's what I got it.
Speaker 2 (04:39):
They get three of them delivered, and that's that's all
they need obviously. But look, you're not going to see
shortages in the United States. It's just the price is
going to go up, which could mean bankrupt farmers and
other problems. Absolutely in places like India, it's going to
mean we can't pay those higher prices and we're going
(04:59):
to have to do without, whatever that means.
Speaker 4 (05:01):
So Morgan Stanley this morning morning called it a race
against time when it comes to the Straight of hormones.
I think we've described that and why it is that
race against time on poly market, you have a if
there's one nice thing about these markets that are creating
all sorts of gambling addictions. I do find the odds
of certain events as just yes or no gambling out
(05:22):
there to be interesting to me. And clearly there's some
informative no informative, but interesting.
Speaker 2 (05:27):
Yes.
Speaker 4 (05:28):
So there's a bet on there will the Straight of
Horror moves traffic return to normal by end of May.
By normal, what they described that as is if the
IMF Portwatch publishes a seven day moving average of transit
calls for the Straight equal to or above sixty by
May thirty. First, they're pricing it a fourteen percent chance. Yeah,
that's that's a hard no. Yeah, it's a hard no.
(05:51):
You can't get there. But interesting to me, as of
April seventeenth, just three weeks ago, it was a seventy
four percent chance based on the optimism of a deal
getting done.
Speaker 3 (06:02):
And so I think that's clearly deteriorated.
Speaker 4 (06:04):
And as we've gotten closer to that end of May point,
it's very today seemingly unlikely that you get to that
again average normalcy by end of May. Could you get
a day there if there's a deal, then yeah, you
could get a day there. But we are now I think,
very much pricing in energy shortages and lack of traffic
through end of May and into June. At this point,
(06:27):
there's seemingly very little likelihood among the trading public and
experts that traffic flows normally by end of May.
Speaker 2 (06:35):
Well, and look, here's the timeline of the last week
and what's happened. On Tuesday, we got the reports that
you know, the US and Iran were close to a
one page memorandum of understanding to you know, be able
to move forward with a thirty day negotiating period over
the weekend. It leaked kind of throughout the day yesterday
(06:55):
that Iran basically said, now, this ain't it, and here's
our you know, here's the list of you know, demands
that we have. There's again this is all leaked, so
like none of it is concrete. I don't think we
have a specific list, but the gist of it is, Look,
Iran does not want to negotiate the situation of Hormuz
(07:18):
or the situation of nuclear issues before they get a cessation,
a permanent cessation to hostilities. And the reason why, again
I'm not saying this is right or wrong, is Look,
they view those things as their leverage. They're not going
to give them up in order to negotiate the United States.
President Trump yesterday, in no uncertain term, said this ain't
(07:39):
it either. Like getting the proposal back from Iran, He's like,
this isn't gonna work either. So you're in the same
situation we've been in for the last month or so,
which is on a daily basis, there's not really much
going through Hormos. There are scattered, sporadic flare ups of
the conflict that might happen once or twice a week
(08:00):
and generally are put to bed in fairly short order.
But every day that you go by is another twelve
million barrels of oil that is not produced from that region,
in addition to all the other stuff that's not being
produced there. And we're now seeing the draws happening on
a worldwide basis and in terms of United States reserves.
(08:22):
That point two again, there was a piece published in
I think it was Bloomberg over the week that, by
the way, thank you Bloomberg for you know, listening to
our show over the last few weeks. We appreciate it
because it basically said what we've been saying, which is, guys,
if you pop this out and just do the simple math,
which is subtraction, you learn it in I want to say,
(08:43):
first grade.
Speaker 3 (08:44):
Yeah, between first and second first.
Speaker 2 (08:46):
Second grade is when you learn subtraction. So the math
is not hard. It's very basic math. There's no calculus,
there's no algebra. It's basic math, and the math points
to look, you're gonna reach minimal operational levels sometime in
the back half of the summer throughout different parts of
the world. That's the math. There's no way around it.
(09:09):
At this point. The only thing you can do is
mitigate how long that problem lasts and whether you want
to have it last a week or two, or whether
it's going to last longer.
Speaker 3 (09:21):
Yeah, because so part of this math that Bloomberg laid out.
Speaker 4 (09:24):
I think it was Bloomberg in one of the pieces
I read this morning was that the US is exporting
some three million barrels a day and China has stopped
importing some five or six million barrels a day.
Speaker 2 (09:34):
But yeah, because the barrels aren't on the water, so
they're working through their strategy, so they can't there are
no barrels for them to import, right.
Speaker 4 (09:41):
And so the point being that there's this eight to
nine million barrels a day that you know is not well,
maybe it's not being.
Speaker 2 (09:50):
They're saying it's balancing demand, but it's it's not really
balancing demand. It's just drawing on supplies from somewhere else
while you can. And so should those supplies dry up,
which they will, by the way, in anywhere from like
twelve to eighteen weeks, depending on how fast they draw,
then the question is how artificially lower that are those
factors keeping oil prices now in the midst of this,
(10:13):
By the way, that I was mentioning that bet on polymarket,
where you know resolution by end of May was being
priced in at a fourteen percent chance resolution by end
of June. Thirty nine percent odds on that bet right now.
So believe I'm quoting this stuff, but you know what,
I will believe we're going to be quoting things like
this on these sites, probably more frequently now as they
(10:36):
get more and more attention. And again, not necessarily informative.
I think a thirty nine percent odds of something happening
is not a whole lot better than a coin flip,
but it is interesting to look at that, and you know,
you can read optimism or pessimism about a certain situation
based on it. So this is the lay of the
land as we enter into this week, and we do
have a busy week this week for economic data. This
(10:59):
morning on ten AM we got existing home sales data.
Nothing interesting there, just you know, treading water around four
million units per year, which is where we've been for
the last several years. Tomorrow we've got ADP's weekly jobs report.
We've got CPI for April as well, we'll talk a
little bit about that, and then Wednesday we've got Producer
Price Index as well as the weekly EIA Crude oil
(11:22):
and refined product inventory data that we get, which is
now front and center for anyone who's paying attention. And
on Thursday we've got retail sales and jobless claimed. So
nice little week here as far as economic data. No
major earnings of a huge note this week. You do
get a couple of you know, smaller ones that are
out there, but we're kind of on hold for earnings
(11:44):
until next week. We're through most of the big ones.
The only things next week that I think will be interesting.
You got Home Depot next Tuesday on May nineteenth. Just
tell me a little bit about what's going on construction wise.
It's always good to get information there in video is
going to be reporting on Wednesday, May twenty is so
again a week from Wednesday. You've got lows then as well,
and Thursday. One that I'm particularly interested in a little
(12:08):
tiny company out of Bentonville, Arkansas, by the name of Walmart.
They happen to report earnings next Thursday, and I'm really
interested to hear what they are saying about the economy
because Walmart is obviously the low cost supplier to many Americans,
and they are the biggest grocery store in the country,
and so I want to hear what they're saying about
how the last few weeks have impacted things more than
(12:31):
you know. Hey, what are you seeing from Q one earnings?
Could care less? Actually I couldn't care less. I could,
but not much. I'm really more interested in terms of Walmart.
What are you seeing now? Not what did you see
in January? Quick break here when we return, let's talk
a little bit about President Trump's trip to China. He
is heading there this week. What are expectations, what are
(12:54):
key items to discuss? We'll discuss that next.
Speaker 1 (12:59):
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Speaker 2 (13:36):
All right, let's talk a little bit about President Trump's
trip to China this week.
Speaker 3 (13:43):
Long awaited.
Speaker 2 (13:44):
Yeah, this trip was originally scheduled for mid April, given
the conflict of the Middle East, the fact that was
hot at that point. Uh, it was pushed back to
an unscheduled date or an unspecified date, and now has
officially been confirmed by the Chinese government that the President
will be visiting China from May thirteenth to fifteenth. So
(14:04):
this Wednesday to Friday piece in the Wall Street Journal,
the headline sorry. In Bloomberg, the headline is Trump aims
to press g over China's approach to war in Iran.
And I'm not sure that press is going to be
the word I would use to describe just because I
want you to be President Trump, Mike, and I'm going
(14:25):
to be g okays ask me to stop supplying Iran.
Speaker 3 (14:29):
With stuff, stop buying Iranian oil.
Speaker 2 (14:33):
No, now I want you to ask me again, please,
what can you do for me? And like that's the
whole crux of it is. It's an if if President
Trump is going to ask g for any help on Iran,
the first answer is going to be no, and the
second one is going to be Okay, Now here's what
I want you to do for me, And like that
(14:55):
that's not how you want to go into a negotiation.
So I'm actually not really convinced that there's going to
be much of an ask on the Iran situation. To
be honest, what is.
Speaker 4 (15:05):
The I ask is for something in the future, because
it's not as though is there material support.
Speaker 3 (15:09):
Going to Iran in this moment.
Speaker 2 (15:11):
Let's be honest.
Speaker 4 (15:11):
There probably is, probably, but there's no real exchange. It's
not like China's getting a whole bunch of Iranian oil out.
Speaker 2 (15:18):
So I think ultimately, I don't think either side really
wants to address the Iran issue during this meeting.
Speaker 3 (15:24):
Yeah.
Speaker 2 (15:24):
I think for the US it's, Hey, I don't want
to ask for something new because then I'm gonna have
to give up something new. For China, it's well, I
don't really like that I can't get the Iranian oil
that I need. But yeah, I'm not really going to
change my posture with regards to Iran. That's an internal
issue for US to debate with the Iranians and not
(15:46):
with a third party.
Speaker 4 (15:47):
I have not heard or seen anyone speak very optimistically
about anything coming out of these meetings. There are other
subjects to discuss, such as rare earths, there's art intelligence
conversations that both parties want to happen, talks about Taiwan
and semiconductors, and many other subjects. But I'm trying to
(16:10):
even envision what a best case scenario looks like out
of all of this, and.
Speaker 3 (16:14):
I don't I don't even see. Here's my guess, for instance,
purchases of agricultural products. No, I don't know here.
Speaker 2 (16:21):
Here's my guess is when you look at the list
of CEOs that are going with President Trump to China.
Speaker 3 (16:32):
This week, that's always informative.
Speaker 2 (16:34):
Again, it kind of tells you, you know, what what
is I think expected here? And ultimately the invites were
for in video Jensen Wang. So there's gonna be something
AI related to discuss, maybe the sale of chips Apple, Okay,
like obviously Apple's you know, big producer there, Like you
know Sure always exon mobile. Sure energy is going to
(16:57):
be a discussion Boeing, Like those are the four headliners
that came out. Buy some airplanes, buy some airplanes, buy
some chips, let's figure out, you know, what to do
on energy, and we'll go from there. Like that to
me is kind of where things are going this week.
I think the hope before all of this was that
(17:17):
this could have been some kind of larger summit leading
towards a broader deal. I just don't think that you
can get there with the world looking like it does
right now.
Speaker 4 (17:27):
No, like anything that you anything that you would want
to do on there would be paused merely for the
fact that none of no party knows what's going to
happen with energy prices, and you're just not going to
be willing to say, oh, yeah, we'll have a commitment
to do something different with Iran in the future when
you very well may need their oil desperately in order
(17:48):
to refill your strategic petroleum reserve over in China. So
I just don't. Yeah, I have a tough time envisioning
anything there. There will be other national security conversations and
all likely, of course they likely some of them won't
make it to the public eye. You know, we're talking
a lot about this Mythos model that was released to
(18:10):
large institutions to test out how damaging it could be
to their critical infrastructure. So I'm sure there will be
conversations like that behind closed doors that we might not
hear about.
Speaker 3 (18:20):
Yeah, but any.
Speaker 4 (18:21):
Promise of a framework for a new deal seems just
incredibly unlikely at this point.
Speaker 2 (18:27):
So in any case, we'll see what comes out of
the back half of this week. I do think that
it's something at least worth watching. Because again, anytime the
president travels somewhere, remember now its presidents of any country.
They don't travel somewhere just to go hang out with
(18:48):
other leaders. The reason you make a bilateral visit, like
a state visit to another country is because the lower level,
you know, conversations have already yielded certain you know, things
that just need to be finalized at the leadership level.
And so it's okay, what are we going to see
finalized there? There will be something that comes out of it. Sure,
(19:11):
it's just a question of how meaningful it's going to be.
And given the context of everything else going on, it's
probably not going to be you know, something earth shattering
that we see come out of this weekend.
Speaker 4 (19:20):
And let's not minimize it, right, I mean US and
China are the only two countries that matter in the
AI trade.
Speaker 2 (19:24):
So yeah, quick break here, We've got Wall Street Watch
coming up next.
Speaker 1 (19:40):
Like us on Facebook and follow us on Twitter at
TFE show. Breaking business news is always first right here
on the Financial Exchange Radio Network. Turn now full Wall
Street Watch treking the stocks, the data, and the headlines
driving markets so far today. Right here on the financial exchange,
radio netw work well.
Speaker 5 (20:02):
Not a tremendous amount of activity out there as markets
continue to react to Trump's latest denial of Iran's latest
peace proposal. Right now, the Dow Jones is up twenty
nine points or point zero six percent, the S and
P five hundreds up four points or point zero five percent,
and Nasdagman Mihele is negative, down two tenths of a percent.
(20:26):
Biotechnology company Maderna is jumping nearly seven percent after a
US citizen tested positive for the hantavirus. Another American had
symptoms for the virus, but it yet to test positive.
Maderna last week announced that it was in an early
stage development of a vaccine for hantavirus. Intel shares have
dropped slightly down down half a percent, as the chip
(20:46):
maker looks to continue its rally following its first quarter
earnings report in April. Intel is now up almost one
hundred percent from its trading levels before its earning earning
report after the bell on April twenty third, Constellation Energy
is down eight tenths of a percent after it reported
better than expected revenue of eleven point one two billion
dollars in its first quarter financial report. Analysts polled expected
(21:09):
revenue of eight point four to six billion dollars from
the clean energy company. And finally, Lumentum is rising over
ten percent on news it will join the Nasdaq one
hundred index. The company will replace co Star on May eighteenth.
I am Ben Kitchen and that was Wall Street Watch.
Speaker 2 (21:28):
Ben mentioned the hantavirus during Wall Street Watch. We had
a couple of pieces that he popped in the stack.
Speaker 3 (21:37):
Here.
Speaker 2 (21:38):
Gotta tell you two things. Number One, in general, I'm
anti hantavirus, don't like it.
Speaker 3 (21:43):
Any good platform to run on.
Speaker 2 (21:44):
Any virus that comes from rats is one that I
can get, you know, behind being against.
Speaker 5 (21:50):
What if it came from pizza rat?
Speaker 2 (21:52):
I don't even know what that is.
Speaker 5 (21:54):
You don't remember pizza rat? What's all that video of
the giant rat pulling up a huge slice of pizza
the New York subway.
Speaker 3 (22:00):
This was a couple years ago.
Speaker 2 (22:01):
Oh okay, Yeah, I didn't know that there was like
specifically called pizza rout. Like I thought you were talking
maybe like Splinter from Ninja Turtles or something.
Speaker 3 (22:08):
I thought we were talking about Chuck E Cheese for
a moment there.
Speaker 2 (22:11):
Then I started thinking we just crossed the anniversary of
the guy at the Red Sox game that threw the
pizza at the guy trying to catch the foul ball,
so that one was always top of mine too. But hantavirus,
I gotta say, I am I'm not buying that this
is going to be a thing. I know that ever
since COVID, anytime that anyone gets anything that's kind of weird.
(22:32):
You remember the monkey Pocks situation that was going on
for a bit. Yeah, look, I don't know anything about virology,
but I do know something about math, and given what
I see in terms of the math on hantavirus and
how it spreads, how quickly it spreads, and what conditions
it needs to spread in, I'm not buying this as
(22:55):
something that is a pandemic threat, even if it may
cause some localized health issues in parts of the world.
It apparently is very much you know, quite deadly in humans,
but also doesn't spread particularly fast, and that means that
typically when it pops up, it causes a lot of
problems locally, but has a lot of trouble spreading beyond
(23:18):
those local situations.
Speaker 3 (23:20):
Yeah, two things.
Speaker 4 (23:21):
One of them I mentioned to Ben, which just explains
my state of mind right now. When I heard of
you know, people getting quarantined in Nebraska, my first thought was,
you know, I could really go for a two week
quarantine in Nebraska. Not that I want hantavirus, but it
says some relaxed time. Second piece of this, I suspect
(23:43):
that my fear of cruise ships is similar to my
fear of being struck by lightning in terms of its
unlikeliness to happen.
Speaker 2 (23:53):
No, it's way more likely to get stick on a
cruise ship than struck by lightning.
Speaker 4 (23:56):
Agreed, I would be very interested in the probability of
getting I'm not talking about getting hauntavirus and dying. I'm
talking about just coming back from a cruise ship unwell
or in a worst case scenario like this one. How
long were these passengers stuck on there? Like fifty days
on these cruise ships stuck in the Canary Islands. Just
I don't think that I fully understand the appeal of
(24:19):
a cruise ship. Never been on a cruise so I
guess I am not a very good not a very
good reference for all of this. But the appeal of
it is just never really gotten to me.
Speaker 2 (24:33):
Look, it's like anything else. Some people love them. Some people,
you know whatever, And again it's it's some people's thing,
and that's totally fine. The estimates that I've seen from
the CDC, just because I pulled this up. Generally, when
you look at long term trends like five to ten years,
(24:56):
zero point one point eight percent of cruise passengers report
the most common thing that happens on a cruise ship
is gi stuff. Sure like, that's that's what it generally is.
It's about a quarter percent of passengers typically report it.
So no, it's not tiny, and ultimately it's something where
(25:19):
it's probably not a huge threat overall. But if you're
on a ship when it happens, you're probably not getting
out without some symptoms. Is kind of how it, like
I feel about the whole thing. But in that respect, look,
a cruise ship is not really that different from preschool.
Speaker 4 (25:37):
Yeah that's fair. If I'm really that worried about, you know, problems,
I should just not have children.
Speaker 2 (25:43):
If you don't want to get sick. Like again, kids
are like that. They're the transmitters for like everything. I say.
This is like the proud parent of like two great kids.
But my goodness, what they bring back into the house
like we never had any of this stuff before them.
Let's talk about this next piece here, what happens to
air travel when twenty percent of the world's exported jet
(26:05):
fuel vanishes gets more expensive, it will it goes down
like you here's the thing. There's a limited amount of
crude oil in the world with which to produce refined product,
and you do have some ability to shift at the
margin between what you are producing. So as an example,
(26:26):
if you are normally a refinery that produces like thirty
percent gasoline, twenty percent jet fuel and fifty percent diesel
and bunker fuel and stuff, I'm just again spitballing, you
might be able to say, hey, if jet fuels in demand,
I can cut runs on gasoline by a couple percent,
(26:46):
cut runs on you know, diesel by a couple percent,
and figure out how to move things around so I
can go from twenty percent jet fuel to twenty five.
The problem is then you are, you know, not able
to produce as much of those other fuels. And this
is the problem that we find ourselves in today, which
is you're robbing Peter to pay Paul. It's a zero
some game. There are only so many barrels to go around.
(27:09):
And so if you are trying to produce more jet
fuel because that's getting you higher prices, it means that
you are producing less of the other stuff and running
into problems there at some point along the way.
Speaker 4 (27:20):
Arian Goren, I think I'm pronouncing her name right. It's
the CEO of Expedia, and she gave an interview to
the Wall Street Journal just this morning. And actually, sorry,
I haven't update. That just came across YEP. This is
from Reuter's. Apparently in video, CEO Jensen.
Speaker 2 (27:34):
Huang was not invited in not going to Beijing during
the trip.
Speaker 3 (27:39):
Was that like a change?
Speaker 2 (27:41):
So remember we were part of the last segment that
he was going that was like displidly diseminated last week.
I don't know if he just was never invited or
if this is their way of trying to rescind that invitation.
Speaker 3 (27:53):
What if he goes anyway, he won't. He won't.
Speaker 4 (27:57):
So the interview from Marion Goren was just interesting in
the context of the seeming optimism among Americans that this
just resolves itself, and not in a way that the
Iran crisis and energy prices. Her comment was that everyone
in the space her space of you know, she runs
(28:18):
Expedia Group, and speaking to other airline executives, we're still
seeing really healthy demand for summer travel plans. Just report
first quarter earnings, strongest first quarter that we've had in years,
and basically saying like, hey, we're kind of preparing for
this pullback and demand, but still, at least from Americans,
(28:38):
that demand is not abating. In front of these higher
flight prices, gas prices, etc. People are booking hotels, they
are booking flights, and they are just assuming that things
get better before they get worse. Which, again i'm summarizing
her comments. She didn't say that specifically, but that was
the takeaway from the interview was, you know, a little
(29:00):
bit of surprise on her part, but nonetheless optimism based
on what consumers are doing. I just do wonder it
does feel as though there's another airline to go bankrupt
before this all gets done with. To me, I'm not
saying a domestic one necessarily, but it just seems impossible
for me to view all this without an Asian airline
(29:20):
going bankrupt throughout all this.
Speaker 2 (29:22):
I mean, I can tell you today, like you look
at airline stocks broadly, Delta's down two percent Americans down three,
United's down to Southwest is down two, Frontiers down four,
Air Canada is down two, Allegiance down three, Alaska Airs
down four, sky West is down two. Yeah, this isn't
getting into all the overseas guys. But yeah, I mean, look,
(29:46):
you're going to get to a point where this becomes
problematic because prices have to go up so much that
people do stop paying them. Yeah, we're not there yet
on anything. By that way, Like you look at impied
demand for gasoline four fifty gas. What I can tell
you every time I stop at the pump. Now there's
someone who wants to talk about gas prices to me,
(30:09):
and it's like, guys, I'm just not interested. I'm paying
the same thing you are, Like I just I could care,
like whatever, Like just fill up your tank. I don't
need to commiserate, you know, but we're still paying it. Like,
despite all of the grumbling, the actual implied demand numbers
are not changing in any meaningful way.
Speaker 3 (30:30):
No real demand destruction occurring in the US.
Speaker 2 (30:32):
So people are, you know, not feeling good about it,
but they're not changing their habits yet. At some point
we probably get there. A lot of the analysis that
I've seen is five fifty to six dollars a gallon.
Is where that happens. I hope we don't get there,
But the only path I can see to not getting
there this summer is if there's a resolution in the
next couple weeks. And that's where we are. Let's take
(30:56):
a quick break. I do want to talk more about
gas prices when we come back, pecifically national gas tax
and California. What's going on there with gas prices? They're
always the highest in the country. How much worse can
it get? There?
Speaker 1 (31:09):
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Speaker 5 (31:37):
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Speaker 2 (31:49):
Yesterday, on Meet the Press, American Energy Secretary Chris Wright
had the following response when asked about suspending the federal
gas tax temporarily. Quote all measures that can be taken
to lower the price of gas at the pump and
lower the prices for Americans. The administration is in supportive.
So federal gas tax is about was eighteen point four cents,
(32:10):
I believe it is, and it's been that way since
nineteen ninety three, so for thirty three years at this point,
and produces between thirty and about thirty five to forty
billion dollars a year in revenue, and that revenue does
go to the Highway Trust Fund, but in our research
on this, the Highway Trust Fund has expense as far
in excess of that, so it doesn't fully fund it anyways.
Speaker 4 (32:31):
Yeah, that, I mean the same story as the SOB
Security Trust Fund and the Medicare Trust Fund, just worse.
The Highway Trust Fund has been in a chronic state
of insolvency, relying on about two hundred and seventy five
billion dollars in tax payer funded bailouts since eight.
Speaker 2 (32:48):
So there's that.
Speaker 1 (32:49):
So not great.
Speaker 2 (32:49):
Here's the deal. You can get rid of the federal
gas tax. Ultimately, it's not really going to dramatically change
the trajectory of the US budget. It's still gonna make
the deficit worse. Obviously, but hey, we've been doing that
for twenty six years now, so like okay, like what's
another you know, forty billion amongst friends. My point is more, Hey,
when you cut the gas tax, what you are doing
(33:12):
is you are moving the price of gas down, which
reduces the demand destruction, which speeds up the pace at
which you are heading to the eventual brick wall that
is ahead of us. So again, it's one of those
things where it's like, hey, this might feel good for
like eight weeks, and then it will stop feeling good
because you will run out of gas sooner then you
(33:33):
will otherwise, now say run out again. I'm not saying
the US will run out. What I am saying is
you'll run out of the gas that can be sold
at the price you're buying at, and prices will have
to move way up anyways, regardless of whether or not
the gas tax is there.
Speaker 4 (33:46):
I few states tested this out in twenty twenty two.
I remember Connecticut cut their gas taxes.
Speaker 2 (33:50):
There are a bunch that have suspended it now.
Speaker 4 (33:52):
California has the highest one as we know, it's seventy
one cents a gallon. Illinois's up there, Pennsylvania's up there.
Washington State is up there in terms the highest you know,
all of New England is around that high twenties low
thirties range on their gas tax. But nonetheless you can
see why you would want to do it. But to
your point, one, at further bankrupts an already insolvent government
(34:17):
agency that does need to do a lot of infrastructure
work over the course the next couple decades. And two,
if you lower prices, you are maintaining you know, demand
at those lower prices and therefore making the ultimate problem
worse because nobody's going to stop driving because of it.
Speaker 2 (34:34):
It's one where if you have a you know, finite
end to the current problem, okay, it can work as
a bridge. But if you don't, then it's just going
to speed up the problem becoming you know bigger.
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Speaker 2 (35:50):
Pierce in the Wall Street Journal thinks six dollar gas
is bad. It's about to get even worse in California,
And yes, California basically does, aside from you know, a
few unique situations always have the highest gas price in
the country. Right now, it's six fifteen and eight tenths
of ascent, so things are already you know bad. There
the big thing with California because of where refineries are
(36:13):
in the United States relative to where California is in
the United States, they tend to import a decent amount
of refined product from Asian markets. And as you know,
Asia is pretty much ground zero for lacking enough crude oil,
which means eventually they will lack enough refined product. You've
(36:35):
already seen the imports from South Korea drop from about
one hundred thousand barrels a day down to thirty five
thousand barrels a day over the last month. And so
this is something that's going to become more and more
problematic for California and the West Coast. And there's again,
nothing that you can really do about this.
Speaker 4 (36:56):
By the way, I don't want to make this seem
like an complete accident, right, Like, yes, there's some geographic
features that make California difficult to get energy to, but
you know, they mainly policy decisions. Right They've chased away
every refinery in the state. They used to be the
headquarters of Chevron, known one of the big oil companies
(37:19):
that relocated to Texas after years of just doing battle
with the state of California and the legislators there. And
so while there are some mountainous regions that do make
it difficult to get pipelines into California, the bigger problem
is that they have the highest tax in the country
on gasoline, and their policies have largely chased refineries out
(37:41):
of the state and made it so that they need
to import pretty much everything they have, and then when
you get hit with a crisis like this, it doesn't
work terribly well.
Speaker 2 (37:49):
Yeah, so you still do have a handful of refineries
that operate there, but there's been like three or four
that have closed in the last twenty five years. And
this is not just for anything. This is around the country, Like,
we've had way more refinery closures than openings during that time.
In fact, I don't think we've opened a new one
in the US since nineteen seventy three, maybe seventy seven,
(38:10):
somewhere in that range. U So, yeah, this is a problem.
Let's take a quick break. We got hour two coming
up in just a little bit.
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(01:06):
and Mike Armstrong.
Speaker 2 (01:10):
It's Chuck and Mike with you here. Bend's along, well,
Ben's not along for the ride. Ben's driving the ship.
Ben's making sure that you can actually hear us, which
may or may not be important to your daily life.
But in any case, we're here, and another week is
passed with the Straight offor moves not reopening in any
(01:31):
meaningful capacity. We continue to see a handful of ships
getting through on any particular day, but the lack of
flow through the straight means that you have a lack
of production from shut in wells to the tune of
twelve to thirteen million barrels a day throughout the Middle East,
and that ultimately means that we continue to be steaming
(01:52):
headlong into what's basically a brick wall in the middle
of the summer. Where this is going to make itself
very apparent, not through you know, the current gas prices
that we're seeing, but by much higher prices throughout the
United States and rest of the developed world, and through
(02:13):
absolute shortages throughout much of the developing world. And you know,
not a not an oil thing today. But I don't
know if either of you happened to catch Indian Prime
Minister in the render Mody what he happened to say
this morning. He called on farmers in India to plant
with fifty percent less fertilizer. Now that's not really something
(02:36):
that you just say, like like, you don't just you know,
walk up to your bread basket and say, guys, have
I got a challenge for you? Do your job with
fifty percent less than what you previously had. And ultimately
what this is going to mean, Mody phrased it in
terms of, well, you know, you know, inorganic fertilizers there,
(03:00):
you know, not great for the environment, and we need
to you know, become more sustainable. Blah blah blah. The
subtext is we don't have fertilized we're not going to
be able to get you the fertilizer you need for
future planting seasons. And the reason this is important is
this is one of the products that comes through the
straight of Horn Moves and India I would characterize as
(03:21):
kind of a middle of the road country when it
comes to overall levels of wealth and income on a
per capita basis. If you look at the numbers here,
you know again it's it's not one where you're sitting
there saying, hey, it's it's not wealthy by any means.
You're not talking about you know, most of Europe and
(03:44):
even you know, most of you know, kind of North America,
South America, you're talking it's again. The countries that are
surrounding it are countries like Jordan, like the Philippines, Jamaica, Guatemala,
South Africa like you know, again kind of middle of
the road. There's you know, ballpark two hundred countries in
(04:04):
the world. India's right around one hundred in terms of
most rankings for GDP and per capita income. And so ultimately,
what this is telling you is that the pain, as
we've been saying for the last two months, is going
to be felt first through these types of countries that
simply can't afford to pay the higher prices. In the
(04:25):
United States, you don't walk into home depot and see,
you know, no Scott's fertilizer. There Again, I'm trying to
make this relatable to the average person. The average you know,
farmer doesn't walk into home depot to buy, you know,
a bag of fertilizer.
Speaker 3 (04:37):
I thought, that's what I got it.
Speaker 2 (04:39):
They get three of them delivered, and that's that's all
they need obviously. But look, you're not going to see
shortages in the United States. It's just the price is
going to go up, which could mean bankrupt farmers and
other problems. Absolutely in places like India, it's going to
mean we can't pay those higher prices and we're going
(04:59):
to have to do without, whatever that means.
Speaker 4 (05:01):
So Morgan Stanley this morning morning called it a race
against time when it comes to the Straight of hormones.
I think we've described that and why it is that
race against time on poly market, you have a if
there's one nice thing about these markets that are creating
all sorts of gambling addictions. I do find the odds
of certain events as just yes or no gambling out
(05:22):
there to be interesting to me. And clearly there's some
informative no informative, but interesting.
Speaker 2 (05:27):
Yes.
Speaker 4 (05:28):
So there's a bet on there will the Straight of
Horror moves traffic return to normal by end of May.
By normal, what they described that as is if the
IMF Portwatch publishes a seven day moving average of transit
calls for the Straight equal to or above sixty by
May thirty. First, they're pricing it a fourteen percent chance. Yeah,
that's that's a hard no. Yeah, it's a hard no.
(05:51):
You can't get there. But interesting to me, as of
April seventeenth, just three weeks ago, it was a seventy
four percent chance based on the optimism of a deal
getting done.
Speaker 3 (06:02):
And so I think that's clearly deteriorated.
Speaker 4 (06:04):
And as we've gotten closer to that end of May point,
it's very today seemingly unlikely that you get to that
again average normalcy by end of May. Could you get
a day there if there's a deal, then yeah, you
could get a day there. But we are now I think,
very much pricing in energy shortages and lack of traffic
through end of May and into June. At this point,
(06:27):
there's seemingly very little likelihood among the trading public and
experts that traffic flows normally by end of May.
Speaker 2 (06:35):
Well, and look, here's the timeline of the last week
and what's happened. On Tuesday, we got the reports that
you know, the US and Iran were close to a
one page memorandum of understanding to you know, be able
to move forward with a thirty day negotiating period over
the weekend. It leaked kind of throughout the day yesterday
(06:55):
that Iran basically said, now, this ain't it, and here's
our you know, here's the list of you know, demands
that we have. There's again this is all leaked, so
like none of it is concrete. I don't think we
have a specific list, but the gist of it is, Look,
Iran does not want to negotiate the situation of Hormuz
(07:18):
or the situation of nuclear issues before they get a cessation,
a permanent cessation to hostilities. And the reason why, again
I'm not saying this is right or wrong, is Look,
they view those things as their leverage. They're not going
to give them up in order to negotiate the United States.
President Trump yesterday, in no uncertain term, said this ain't
(07:39):
it either. Like getting the proposal back from Iran, He's like,
this isn't gonna work either. So you're in the same
situation we've been in for the last month or so,
which is on a daily basis, there's not really much
going through Hormos. There are scattered, sporadic flare ups of
the conflict that might happen once or twice a week
(08:00):
and generally are put to bed in fairly short order.
But every day that you go by is another twelve
million barrels of oil that is not produced from that region,
in addition to all the other stuff that's not being
produced there. And we're now seeing the draws happening on
a worldwide basis and in terms of United States reserves.
(08:22):
That point two again, there was a piece published in
I think it was Bloomberg over the week that, by
the way, thank you Bloomberg for you know, listening to
our show over the last few weeks. We appreciate it
because it basically said what we've been saying, which is, guys,
if you pop this out and just do the simple math,
which is subtraction, you learn it in I want to say,
(08:43):
first grade.
Speaker 3 (08:44):
Yeah, between first and second first.
Speaker 2 (08:46):
Second grade is when you learn subtraction. So the math
is not hard. It's very basic math. There's no calculus,
there's no algebra. It's basic math, and the math points
to look, you're gonna reach minimal operational levels sometime in
the back half of the summer throughout different parts of
the world. That's the math. There's no way around it.
(09:09):
At this point. The only thing you can do is
mitigate how long that problem lasts and whether you want
to have it last a week or two, or whether
it's going to last longer.
Speaker 3 (09:21):
Yeah, because so part of this math that Bloomberg laid out.
Speaker 4 (09:24):
I think it was Bloomberg in one of the pieces
I read this morning was that the US is exporting
some three million barrels a day and China has stopped
importing some five or six million barrels a day.
Speaker 2 (09:34):
But yeah, because the barrels aren't on the water, so
they're working through their strategy, so they can't there are
no barrels for them to import, right.
Speaker 4 (09:41):
And so the point being that there's this eight to
nine million barrels a day that you know is not well,
maybe it's not being.
Speaker 2 (09:50):
They're saying it's balancing demand, but it's it's not really
balancing demand. It's just drawing on supplies from somewhere else
while you can. And so should those supplies dry up,
which they will, by the way, in anywhere from like
twelve to eighteen weeks, depending on how fast they draw,
then the question is how artificially lower that are those
factors keeping oil prices now in the midst of this,
(10:13):
By the way, that I was mentioning that bet on polymarket,
where you know resolution by end of May was being
priced in at a fourteen percent chance resolution by end
of June. Thirty nine percent odds on that bet right now.
So believe I'm quoting this stuff, but you know what,
I will believe we're going to be quoting things like
this on these sites, probably more frequently now as they
(10:36):
get more and more attention. And again, not necessarily informative.
I think a thirty nine percent odds of something happening
is not a whole lot better than a coin flip,
but it is interesting to look at that, and you know,
you can read optimism or pessimism about a certain situation
based on it. So this is the lay of the
land as we enter into this week, and we do
have a busy week this week for economic data. This
(10:59):
morning on ten AM we got existing home sales data.
Nothing interesting there, just you know, treading water around four
million units per year, which is where we've been for
the last several years. Tomorrow we've got ADP's weekly jobs report.
We've got CPI for April as well, we'll talk a
little bit about that, and then Wednesday we've got Producer
Price Index as well as the weekly EIA Crude oil
(11:22):
and refined product inventory data that we get, which is
now front and center for anyone who's paying attention. And
on Thursday we've got retail sales and jobless claimed. So
nice little week here as far as economic data. No
major earnings of a huge note this week. You do
get a couple of you know, smaller ones that are
out there, but we're kind of on hold for earnings
(11:44):
until next week. We're through most of the big ones.
The only things next week that I think will be interesting.
You got Home Depot next Tuesday on May nineteenth. Just
tell me a little bit about what's going on construction wise.
It's always good to get information there in video is
going to be reporting on Wednesday, May twenty is so
again a week from Wednesday. You've got lows then as well,
and Thursday. One that I'm particularly interested in a little
(12:08):
tiny company out of Bentonville, Arkansas, by the name of Walmart.
They happen to report earnings next Thursday, and I'm really
interested to hear what they are saying about the economy
because Walmart is obviously the low cost supplier to many Americans,
and they are the biggest grocery store in the country,
and so I want to hear what they're saying about
how the last few weeks have impacted things more than
(12:31):
you know. Hey, what are you seeing from Q one earnings?
Could care less? Actually I couldn't care less. I could,
but not much. I'm really more interested in terms of Walmart.
What are you seeing now? Not what did you see
in January? Quick break here when we return, let's talk
a little bit about President Trump's trip to China. He
is heading there this week. What are expectations, what are
(12:54):
key items to discuss? We'll discuss that next.
Speaker 1 (12:59):
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(13:20):
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Speaker 2 (13:36):
All right, let's talk a little bit about President Trump's
trip to China this week.
Speaker 3 (13:43):
Long awaited.
Speaker 2 (13:44):
Yeah, this trip was originally scheduled for mid April, given
the conflict of the Middle East, the fact that was
hot at that point. Uh, it was pushed back to
an unscheduled date or an unspecified date, and now has
officially been confirmed by the Chinese government that the President
will be visiting China from May thirteenth to fifteenth. So
(14:04):
this Wednesday to Friday piece in the Wall Street Journal,
the headline sorry. In Bloomberg, the headline is Trump aims
to press g over China's approach to war in Iran.
And I'm not sure that press is going to be
the word I would use to describe just because I
want you to be President Trump, Mike, and I'm going
(14:25):
to be g okays ask me to stop supplying Iran.
Speaker 3 (14:29):
With stuff, stop buying Iranian oil.
Speaker 2 (14:33):
No, now I want you to ask me again, please,
what can you do for me? And like that's the
whole crux of it is. It's an if if President
Trump is going to ask g for any help on Iran,
the first answer is going to be no, and the
second one is going to be Okay, Now here's what
I want you to do for me, And like that
(14:55):
that's not how you want to go into a negotiation.
So I'm actually not really convinced that there's going to
be much of an ask on the Iran situation. To
be honest, what is.
Speaker 4 (15:05):
The I ask is for something in the future, because
it's not as though is there material support.
Speaker 3 (15:09):
Going to Iran in this moment.
Speaker 2 (15:11):
Let's be honest.
Speaker 4 (15:11):
There probably is, probably, but there's no real exchange. It's
not like China's getting a whole bunch of Iranian oil out.
Speaker 2 (15:18):
So I think ultimately, I don't think either side really
wants to address the Iran issue during this meeting.
Speaker 3 (15:24):
Yeah.
Speaker 2 (15:24):
I think for the US it's, Hey, I don't want
to ask for something new because then I'm gonna have
to give up something new. For China, it's well, I
don't really like that I can't get the Iranian oil
that I need. But yeah, I'm not really going to
change my posture with regards to Iran. That's an internal
issue for US to debate with the Iranians and not
(15:46):
with a third party.
Speaker 4 (15:47):
I have not heard or seen anyone speak very optimistically
about anything coming out of these meetings. There are other
subjects to discuss, such as rare earths, there's art intelligence
conversations that both parties want to happen, talks about Taiwan
and semiconductors, and many other subjects. But I'm trying to
(16:10):
even envision what a best case scenario looks like out
of all of this, and.
Speaker 3 (16:14):
I don't I don't even see. Here's my guess, for instance,
purchases of agricultural products. No, I don't know here.
Speaker 2 (16:21):
Here's my guess is when you look at the list
of CEOs that are going with President Trump to China.
Speaker 3 (16:32):
This week, that's always informative.
Speaker 2 (16:34):
Again, it kind of tells you, you know, what what
is I think expected here? And ultimately the invites were
for in video Jensen Wang. So there's gonna be something
AI related to discuss, maybe the sale of chips Apple, Okay,
like obviously Apple's you know, big producer there, Like you
know Sure always exon mobile. Sure energy is going to
(16:57):
be a discussion Boeing, Like those are the four headliners
that came out. Buy some airplanes, buy some airplanes, buy
some chips, let's figure out, you know, what to do
on energy, and we'll go from there. Like that to
me is kind of where things are going this week.
I think the hope before all of this was that
(17:17):
this could have been some kind of larger summit leading
towards a broader deal. I just don't think that you
can get there with the world looking like it does
right now.
Speaker 4 (17:27):
No, like anything that you anything that you would want
to do on there would be paused merely for the
fact that none of no party knows what's going to
happen with energy prices, and you're just not going to
be willing to say, oh, yeah, we'll have a commitment
to do something different with Iran in the future when
you very well may need their oil desperately in order
(17:48):
to refill your strategic petroleum reserve over in China. So
I just don't. Yeah, I have a tough time envisioning
anything there. There will be other national security conversations and
all likely, of course they likely some of them won't
make it to the public eye. You know, we're talking
a lot about this Mythos model that was released to
(18:10):
large institutions to test out how damaging it could be
to their critical infrastructure. So I'm sure there will be
conversations like that behind closed doors that we might not
hear about.
Speaker 3 (18:20):
Yeah, but any.
Speaker 4 (18:21):
Promise of a framework for a new deal seems just
incredibly unlikely at this point.
Speaker 2 (18:27):
So in any case, we'll see what comes out of
the back half of this week. I do think that
it's something at least worth watching. Because again, anytime the
president travels somewhere, remember now its presidents of any country.
They don't travel somewhere just to go hang out with
(18:48):
other leaders. The reason you make a bilateral visit, like
a state visit to another country is because the lower level,
you know, conversations have already yielded certain you know, things
that just need to be finalized at the leadership level.
And so it's okay, what are we going to see
finalized there? There will be something that comes out of it. Sure,
(19:11):
it's just a question of how meaningful it's going to be.
And given the context of everything else going on, it's
probably not going to be you know, something earth shattering
that we see come out of this weekend.
Speaker 4 (19:20):
And let's not minimize it, right, I mean US and
China are the only two countries that matter in the
AI trade.
Speaker 2 (19:24):
So yeah, quick break here, We've got Wall Street Watch
coming up next.
Speaker 1 (19:40):
Like us on Facebook and follow us on Twitter at
TFE show. Breaking business news is always first right here
on the Financial Exchange Radio Network. Turn now full Wall
Street Watch treking the stocks, the data, and the headlines
driving markets so far today. Right here on the financial exchange,
radio netw work well.
Speaker 5 (20:02):
Not a tremendous amount of activity out there as markets
continue to react to Trump's latest denial of Iran's latest
peace proposal. Right now, the Dow Jones is up twenty
nine points or point zero six percent, the S and
P five hundreds up four points or point zero five percent,
and Nasdagman Mihele is negative, down two tenths of a percent.
(20:26):
Biotechnology company Maderna is jumping nearly seven percent after a
US citizen tested positive for the hantavirus. Another American had
symptoms for the virus, but it yet to test positive.
Maderna last week announced that it was in an early
stage development of a vaccine for hantavirus. Intel shares have
dropped slightly down down half a percent, as the chip
(20:46):
maker looks to continue its rally following its first quarter
earnings report in April. Intel is now up almost one
hundred percent from its trading levels before its earning earning
report after the bell on April twenty third, Constellation Energy
is down eight tenths of a percent after it reported
better than expected revenue of eleven point one two billion
dollars in its first quarter financial report. Analysts polled expected
(21:09):
revenue of eight point four to six billion dollars from
the clean energy company. And finally, Lumentum is rising over
ten percent on news it will join the Nasdaq one
hundred index. The company will replace co Star on May eighteenth.
I am Ben Kitchen and that was Wall Street Watch.
Speaker 2 (21:28):
Ben mentioned the hantavirus during Wall Street Watch. We had
a couple of pieces that he popped in the stack.
Speaker 3 (21:37):
Here.
Speaker 2 (21:38):
Gotta tell you two things. Number One, in general, I'm
anti hantavirus, don't like it.
Speaker 3 (21:43):
Any good platform to run on.
Speaker 2 (21:44):
Any virus that comes from rats is one that I
can get, you know, behind being against.
Speaker 5 (21:50):
What if it came from pizza rat?
Speaker 2 (21:52):
I don't even know what that is.
Speaker 5 (21:54):
You don't remember pizza rat? What's all that video of
the giant rat pulling up a huge slice of pizza
the New York subway.
Speaker 3 (22:00):
This was a couple years ago.
Speaker 2 (22:01):
Oh okay, Yeah, I didn't know that there was like
specifically called pizza rout. Like I thought you were talking
maybe like Splinter from Ninja Turtles or something.
Speaker 3 (22:08):
I thought we were talking about Chuck E Cheese for
a moment there.
Speaker 2 (22:11):
Then I started thinking we just crossed the anniversary of
the guy at the Red Sox game that threw the
pizza at the guy trying to catch the foul ball,
so that one was always top of mine too. But hantavirus,
I gotta say, I am I'm not buying that this
is going to be a thing. I know that ever
since COVID, anytime that anyone gets anything that's kind of weird.
(22:32):
You remember the monkey Pocks situation that was going on
for a bit. Yeah, look, I don't know anything about virology,
but I do know something about math, and given what
I see in terms of the math on hantavirus and
how it spreads, how quickly it spreads, and what conditions
it needs to spread in, I'm not buying this as
(22:55):
something that is a pandemic threat, even if it may
cause some localized health issues in parts of the world.
It apparently is very much you know, quite deadly in humans,
but also doesn't spread particularly fast, and that means that
typically when it pops up, it causes a lot of
problems locally, but has a lot of trouble spreading beyond
(23:18):
those local situations.
Speaker 3 (23:20):
Yeah, two things.
Speaker 4 (23:21):
One of them I mentioned to Ben, which just explains
my state of mind right now. When I heard of
you know, people getting quarantined in Nebraska, my first thought was,
you know, I could really go for a two week
quarantine in Nebraska. Not that I want hantavirus, but it
says some relaxed time. Second piece of this, I suspect
(23:43):
that my fear of cruise ships is similar to my
fear of being struck by lightning in terms of its
unlikeliness to happen.
Speaker 2 (23:53):
No, it's way more likely to get stick on a
cruise ship than struck by lightning.
Speaker 4 (23:56):
Agreed, I would be very interested in the probability of
getting I'm not talking about getting hauntavirus and dying. I'm
talking about just coming back from a cruise ship unwell
or in a worst case scenario like this one. How
long were these passengers stuck on there? Like fifty days
on these cruise ships stuck in the Canary Islands. Just
I don't think that I fully understand the appeal of
(24:19):
a cruise ship. Never been on a cruise so I
guess I am not a very good not a very
good reference for all of this. But the appeal of
it is just never really gotten to me.
Speaker 2 (24:33):
Look, it's like anything else. Some people love them. Some people,
you know whatever, And again it's it's some people's thing,
and that's totally fine. The estimates that I've seen from
the CDC, just because I pulled this up. Generally, when
you look at long term trends like five to ten years,
(24:56):
zero point one point eight percent of cruise passengers report
the most common thing that happens on a cruise ship
is gi stuff. Sure like, that's that's what it generally is.
It's about a quarter percent of passengers typically report it.
So no, it's not tiny, and ultimately it's something where
(25:19):
it's probably not a huge threat overall. But if you're
on a ship when it happens, you're probably not getting
out without some symptoms. Is kind of how it, like
I feel about the whole thing. But in that respect, look,
a cruise ship is not really that different from preschool.
Speaker 4 (25:37):
Yeah that's fair. If I'm really that worried about, you know, problems,
I should just not have children.
Speaker 2 (25:43):
If you don't want to get sick. Like again, kids
are like that. They're the transmitters for like everything. I say.
This is like the proud parent of like two great kids.
But my goodness, what they bring back into the house
like we never had any of this stuff before them.
Let's talk about this next piece here, what happens to
air travel when twenty percent of the world's exported jet
(26:05):
fuel vanishes gets more expensive, it will it goes down
like you here's the thing. There's a limited amount of
crude oil in the world with which to produce refined product,
and you do have some ability to shift at the
margin between what you are producing. So as an example,
(26:26):
if you are normally a refinery that produces like thirty
percent gasoline, twenty percent jet fuel and fifty percent diesel
and bunker fuel and stuff, I'm just again spitballing, you
might be able to say, hey, if jet fuels in demand,
I can cut runs on gasoline by a couple percent,
(26:46):
cut runs on you know, diesel by a couple percent,
and figure out how to move things around so I
can go from twenty percent jet fuel to twenty five.
The problem is then you are, you know, not able
to produce as much of those other fuels. And this
is the problem that we find ourselves in today, which
is you're robbing Peter to pay Paul. It's a zero
some game. There are only so many barrels to go around.
(27:09):
And so if you are trying to produce more jet
fuel because that's getting you higher prices, it means that
you are producing less of the other stuff and running
into problems there at some point along the way.
Speaker 4 (27:20):
Arian Goren, I think I'm pronouncing her name right. It's
the CEO of Expedia, and she gave an interview to
the Wall Street Journal just this morning. And actually, sorry,
I haven't update. That just came across YEP. This is
from Reuter's. Apparently in video, CEO Jensen.
Speaker 2 (27:34):
Huang was not invited in not going to Beijing during
the trip.
Speaker 3 (27:39):
Was that like a change?
Speaker 2 (27:41):
So remember we were part of the last segment that
he was going that was like displidly diseminated last week.
I don't know if he just was never invited or
if this is their way of trying to rescind that invitation.
Speaker 3 (27:53):
What if he goes anyway, he won't. He won't.
Speaker 4 (27:57):
So the interview from Marion Goren was just interesting in
the context of the seeming optimism among Americans that this
just resolves itself, and not in a way that the
Iran crisis and energy prices. Her comment was that everyone
in the space her space of you know, she runs
(28:18):
Expedia Group, and speaking to other airline executives, we're still
seeing really healthy demand for summer travel plans. Just report
first quarter earnings, strongest first quarter that we've had in years,
and basically saying like, hey, we're kind of preparing for
this pullback and demand, but still, at least from Americans,
(28:38):
that demand is not abating. In front of these higher
flight prices, gas prices, etc. People are booking hotels, they
are booking flights, and they are just assuming that things
get better before they get worse. Which, again i'm summarizing
her comments. She didn't say that specifically, but that was
the takeaway from the interview was, you know, a little
(29:00):
bit of surprise on her part, but nonetheless optimism based
on what consumers are doing. I just do wonder it
does feel as though there's another airline to go bankrupt
before this all gets done with. To me, I'm not
saying a domestic one necessarily, but it just seems impossible
for me to view all this without an Asian airline
(29:20):
going bankrupt throughout all this.
Speaker 2 (29:22):
I mean, I can tell you today, like you look
at airline stocks broadly, Delta's down two percent Americans down three,
United's down to Southwest is down two, Frontiers down four,
Air Canada is down two, Allegiance down three, Alaska Airs
down four, sky West is down two. Yeah, this isn't
getting into all the overseas guys. But yeah, I mean, look,
(29:46):
you're going to get to a point where this becomes
problematic because prices have to go up so much that
people do stop paying them. Yeah, we're not there yet
on anything. By that way, Like you look at impied
demand for gasoline four fifty gas. What I can tell
you every time I stop at the pump. Now there's
someone who wants to talk about gas prices to me,
(30:09):
and it's like, guys, I'm just not interested. I'm paying
the same thing you are, Like I just I could care,
like whatever, Like just fill up your tank. I don't
need to commiserate, you know, but we're still paying it. Like,
despite all of the grumbling, the actual implied demand numbers
are not changing in any meaningful way.
Speaker 3 (30:30):
No real demand destruction occurring in the US.
Speaker 2 (30:32):
So people are, you know, not feeling good about it,
but they're not changing their habits yet. At some point
we probably get there. A lot of the analysis that
I've seen is five fifty to six dollars a gallon.
Is where that happens. I hope we don't get there,
But the only path I can see to not getting
there this summer is if there's a resolution in the
next couple weeks. And that's where we are. Let's take
(30:56):
a quick break. I do want to talk more about
gas prices when we come back, pecifically national gas tax
and California. What's going on there with gas prices? They're
always the highest in the country. How much worse can
it get? There?
Speaker 1 (31:09):
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Speaker 5 (31:37):
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Speaker 2 (31:49):
Yesterday, on Meet the Press, American Energy Secretary Chris Wright
had the following response when asked about suspending the federal
gas tax temporarily. Quote all measures that can be taken
to lower the price of gas at the pump and
lower the prices for Americans. The administration is in supportive.
So federal gas tax is about was eighteen point four cents,
(32:10):
I believe it is, and it's been that way since
nineteen ninety three, so for thirty three years at this point,
and produces between thirty and about thirty five to forty
billion dollars a year in revenue, and that revenue does
go to the Highway Trust Fund, but in our research
on this, the Highway Trust Fund has expense as far
in excess of that, so it doesn't fully fund it anyways.
Speaker 4 (32:31):
Yeah, that, I mean the same story as the SOB
Security Trust Fund and the Medicare Trust Fund, just worse.
The Highway Trust Fund has been in a chronic state
of insolvency, relying on about two hundred and seventy five
billion dollars in tax payer funded bailouts since eight.
Speaker 2 (32:48):
So there's that.
Speaker 1 (32:49):
So not great.
Speaker 2 (32:49):
Here's the deal. You can get rid of the federal
gas tax. Ultimately, it's not really going to dramatically change
the trajectory of the US budget. It's still gonna make
the deficit worse. Obviously, but hey, we've been doing that
for twenty six years now, so like okay, like what's
another you know, forty billion amongst friends. My point is more, Hey,
when you cut the gas tax, what you are doing
(33:12):
is you are moving the price of gas down, which
reduces the demand destruction, which speeds up the pace at
which you are heading to the eventual brick wall that
is ahead of us. So again, it's one of those
things where it's like, hey, this might feel good for
like eight weeks, and then it will stop feeling good
because you will run out of gas sooner then you
(33:33):
will otherwise, now say run out again. I'm not saying
the US will run out. What I am saying is
you'll run out of the gas that can be sold
at the price you're buying at, and prices will have
to move way up anyways, regardless of whether or not
the gas tax is there.
Speaker 4 (33:46):
I few states tested this out in twenty twenty two.
I remember Connecticut cut their gas taxes.
Speaker 2 (33:50):
There are a bunch that have suspended it now.
Speaker 4 (33:52):
California has the highest one as we know, it's seventy
one cents a gallon. Illinois's up there, Pennsylvania's up there.
Washington State is up there in terms the highest you know,
all of New England is around that high twenties low
thirties range on their gas tax. But nonetheless you can
see why you would want to do it. But to
your point, one, at further bankrupts an already insolvent government
(34:17):
agency that does need to do a lot of infrastructure
work over the course the next couple decades. And two,
if you lower prices, you are maintaining you know, demand
at those lower prices and therefore making the ultimate problem
worse because nobody's going to stop driving because of it.
Speaker 2 (34:34):
It's one where if you have a you know, finite
end to the current problem, okay, it can work as
a bridge. But if you don't, then it's just going
to speed up the problem becoming you know bigger.
Speaker 5 (34:47):
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Speaker 2 (35:50):
Pierce in the Wall Street Journal thinks six dollar gas
is bad. It's about to get even worse in California,
And yes, California basically does, aside from you know, a
few unique situations always have the highest gas price in
the country. Right now, it's six fifteen and eight tenths
of ascent, so things are already you know bad. There
the big thing with California because of where refineries are
(36:13):
in the United States relative to where California is in
the United States, they tend to import a decent amount
of refined product from Asian markets. And as you know,
Asia is pretty much ground zero for lacking enough crude oil,
which means eventually they will lack enough refined product. You've
(36:35):
already seen the imports from South Korea drop from about
one hundred thousand barrels a day down to thirty five
thousand barrels a day over the last month. And so
this is something that's going to become more and more
problematic for California and the West Coast. And there's again,
nothing that you can really do about this.
Speaker 4 (36:56):
By the way, I don't want to make this seem
like an complete accident, right, Like, yes, there's some geographic
features that make California difficult to get energy to, but
you know, they mainly policy decisions. Right They've chased away
every refinery in the state. They used to be the
headquarters of Chevron, known one of the big oil companies
(37:19):
that relocated to Texas after years of just doing battle
with the state of California and the legislators there. And
so while there are some mountainous regions that do make
it difficult to get pipelines into California, the bigger problem
is that they have the highest tax in the country
on gasoline, and their policies have largely chased refineries out
(37:41):
of the state and made it so that they need
to import pretty much everything they have, and then when
you get hit with a crisis like this, it doesn't
work terribly well.
Speaker 2 (37:49):
Yeah, so you still do have a handful of refineries
that operate there, but there's been like three or four
that have closed in the last twenty five years. And
this is not just for anything. This is around the country, Like,
we've had way more refinery closures than openings during that time.
In fact, I don't think we've opened a new one
in the US since nineteen seventy three, maybe seventy seven,
(38:10):
somewhere in that range. U So, yeah, this is a problem.
Let's take a quick break. We got hour two coming
up in just a little bit.
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