PPI just exploded higher. Florida Freeze about to hit our wallets. The Fed is on hold but not happy. And the War carry’s on…
Transcript
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This episode of The Disciplined Investor is sponsored by Horowits & Company. If you're looking for a portfolio manager, look no further. Horowits & Company. From seed through harvest, cultivating financial success. >> PPI just exploded higher. Florida freeze about to hit our wallets. The Feds on hold but not happy. And the war carries on. Our guest today is David Gaffin, breaking news editor at Reuters. All this and much more on episode number 965 of the Disciplined Investor podcast and welcome to birthday headquarters. It's my birthday this weekend. Well, not the whole weekend. You know, my kids, they have like birthday months. My wife has birthdays that just go on and on, right? One right into the next holiday into the next. I have a day, maybe two. Going to go out to some great dinners uh over the next couple of days with my family and enjoy the time together and spend time together because what's more important than family? And you are my family, too. So, I hope that you are celebrating as well. This is Andrew Horowitz. I am the host and the birthday boy of the discipline investor podcast, the co-host of DH Unplugged. We got a bit of an update on DH Unplugged. I spoke with John C. D'vorak uh about two day uh two or three days ago. Two days ago, he was actually sounding pretty good. You know, he had a heart situation. He was in the hospital. He had a double bypass. Everybody knows that. And I've been working with his son, John S. D'vorak for DH unplugged and we've had a lot of fun. He's really good with AI. As a matter of fact, the last episode he brought a Google uh canvas that he put together to estimate not only the unemployment rate but oil pricing, what would happen under certain circumstances that he put together with Gemini? Very cool. I mean, I was like, "Wow, how do you do that?" That was awesome. So, uh, we talked about that. We talked about AI. We talked about the jobs. We talked about oil. We talked about what's going on around the world. Lots of great information. Uh much different vibe than it is with John C. D'Vorak, who you know and love probably, but uh check it out. dhplugged.com is where you'll find the information. Also on YouTube, Amazon Music, uh Spotify, Apple Podcasts, wherever that you get your podcast, you get DH Unplugged and the disciplined investor as well. And in fact, if you're on one of your particular podcast apps right now, click the share button and send it out to a couple of friends that you're listening to this right now because we're going to get down and deep into what's going on with PPI that came out last week or this last, you know, few days ago and uh it was pretty ugly. The Bureau of Labor Statistics, the BLS, told us that inflation was well above expectations. This came out the same morning as Powell talked. That was Wednesday. And he talked about how he's not really happy with where inflation is right now. Markets didn't respond very well to that notion, even though they know that he's kind of a at this point kind of a lame duck, right? He's, you know, as soon as Walsh is confirmed, he's out. And in fact, maybe some time due to the lawsuits that are going on, but but Powell was gracious enough to say that, you know, if in fact it takes a while for wars to come in and get confirmed, he will maintain that proemp position just as long as it needs to be. So that was nice. I guess he's uh standing up to the ridicule, the lawsuits, the constant pounding about being too late, etc. for a while. He is talking about some of this and looking at the inflation numbers x the war which we're going to get into in a second but the PPI number just to be clear well above is an understatement shocking what happened the headline final demand PPI came in at.7% on a month-over-month basis which is more than double the consensus that came in at plus.3 03 now core PPI which excluded the food and energy. That's kind of what a lot of people look like look at to see okay uh even though we do eat and we utilize energy but those are volatile numbers what did the rest come in at? Well came in pretty bad too plus.5% which was ahead of the.3% expected number and on a year-over-year basis it was 3.4% versus about 3% expected. We're going to have a couple of I think we're going to put a couple of charts up on the show notes for episode number 965. You can go to the disciplinedinvestor.com. If you haven't gone there, by the way, you should you should make a special trip right now as we're talking, as you're listening, as we're spending time together. Go over to the disciplinedinvestor.com. There's plenty on there to see all the past podcasts, some of the strategies, how we work, what we do. But in the show notes, I'll embed a couple of these tables and charts that we have here. Um, now the surprise that was here's what was so interesting and why I wanted to bring this up and talk about this and get through uh some of the ideas of what's happening because the surprise in this particular PPI number was this strength that we saw and it was it was goods and services and a few key categories really was like what are you kidding? fresh vegetables, travel accommodations are how much up? So, we're talking about hotels, we're talking about um you know uh uh air you know the whole vacationing travels it was like wow and you know gains in food and energy other services and more than half the overall rise came from services. Well, check this out. Foods alone were about 40% of the goods increase. Yeah, 40% of the goods increase. Here's the problem. There was about a 48.9% month-over-month surge in the PPI subcategory for fresh and dried vegetables, and that was a huge component of this whole thing. It accounted for 20% of the overall rise in the final demand goods prices. And energy was 2.3% month-over-month change. um travel accommodations 5.7% which is about 20% of the service advance. So this was a problem. Florida was the problem right here in my own backyard. We knew that the beginning part of this year, the first couple of three months, we saw uh you know a good amount of cold weather come through, right? But we had those freezes. But here's the thing. The country, United States, in the PPI, what we spend our money on in terms of the vegetables and fruits we rely on during this time of the year, Florida and the late January and early February freezes were absolutely brutal. You remember we had these multiple rounds of this unusually cold weather that hit through here. We had, in fact, there was record-breaking cold record-breaking lows in some spots. And what it do? It obliterated, hammered, took apart the crops all across the state. And it was especially tough on vegetables. Melons got just smoked. Reports from the Florida Department of Agriculture, I I dug into this. I wanted to see what was going on. Showed that the preliminary estimates of total agricultural losses exceeded about $3.1 billion with some estimates as hard um as about 3.17. Vegetables were among the hardest hit in the the produce category. Now, it it was it was concentrated in South and um central area. The growers got the worst of it all for the key staples. We're looking at things like tomatoes. Listen to this. There was about an 80% production loss on the remaining crop, wiping out roughly $164 million of total, you know, revenue cost from selling or or or revenue from selling. Sweet corn got devastated up to 100% loss in some cases in many fields around the Florida leading to about $255 million in damage. Bell peppers 80% hit, $108 million. squash. That's uh they do a lot of that in the in down south as well. Um in in um Homestead and south of Homestead, but also all around the all around the uh the state losses as high as listen 90%. We're not talking about little bit ah you know there's a couple of one out of eight. No, we're talking about you know seven out of eight squash were frozen lost about 24 and a half million. other veggies like potatoes about a 75% loss. Cabbage around a 40% loss and uh that was a lot. Now it wasn't just the fields getting wiped out completely either. That wasn't the only thing. Other you know on the stuff that survived it's reported that yields dropped sharply because you have all this cold and if it didn't get wiped out it was having problem growing right it was stymied. Shelf life was shortened. Shipments got messed up right through the February harvesting and shipping window. All of this rounded out to this incredible which you're going to see show up by the way in cost factors. If you haven't seen it already at the grocery store, you're going to see it. And that was looking back. What's coming is a whole different animal. Why? You say to me, Andrew, what? It's not going to get colder. What are we worrying about here? The next phase. The next phase. what could come from this ura and fertilizer shortages tied to the straight of Hormuz. Uh, it's not funny. Now, what what is this doing? It's like it's like pouring salt onto an already open wound for the growers specifically and and especially down in here in Florida. Now, ura prices have already shot up sharply. key markets have been seeing since about February lots of volatility right when the northern hemisphere is going to start their spring plantings. It's going to kick into high gear into the March through May here, you know, in the United States for veggies, corn, and all the rest. And some reports are showing that New Orleans barge prices, New Orleans, New Orleans, Nolan's barge barge prices, they're jumping somewhere in the 17 to 30% range is what we're seeing. That was the initial surge with others even steeper prices that are increasing for all of this. This is what, you know, moves things back and forth. uh and particularly the the nitrogen based and other fertilizers about 25 to 35% because this whole thing is related to the street of hormuz why well there's all this about 40% of the ura that passes through is related to the straight of hormuz and what are we seeing just like oil you have a stoppage of this well what happens your prices are jumping They've climbed about 35% in the past month. Southeast Asia has seen some big moves as well, up about 40% on their pricing over there. Now, US farmers who rely on imports to up to half the ura in certain areas are starting to really feel this shortage. There's been reports from the uh fertilizer institute and other areas other other reports that come out that shows that we're about 25% short on the usual spring supplies needed for planting. So now we have looking back the freeze and the frost where we relied on Florida for a lot of these things for the vegetables and other uh fruits and now we're working ourselves into the March through May area where there's all of a sudden a supply shortage on the fertilizer that is required for the planting so that we can grow these vegetables and reach decent yields. Now, this initial hit wasn't bad enough that we saw it's now layering on the higher input costs and potential supply issues right when we're replanting. The spring season is here. We're in the end of March. So, that in in itself is a big problem. So, here's what we're thinking. Here's what we think we can expect. Consumers, you, me, everyday shoppers at grocery stores, restaurant goers, families, all the people that have to eat, kids, adults, everybody. We're going to see the biggest pinch from these higher fresh vegetables and food prices coming soon. The Florida freeze damage and the URA fertilizer shortages probably will drive up costs and get passed straight from farmers to the checkout line and the restaurant menus right now. that spring season as we're that that that planting growing ramps up feels like we're going to be just kicking farmers right in the teeth when they're already down. Now, there's some things you could do. You could buy some of these, you know, agricultural ETSs. We own actually CF Industries, which is probably the largest producer of variety of fertilizers here in the United States. We own that for clients, um, as full disclosure, by the way. Uh but that's something to to think about and to look into if you are of the same mindset that the potential higher costs are coming. Not to mention what is going to do for inflation. Whole different topic. We're going to talk about that with our guest and we're going to get to that in just a short second. Before we do so, I want to mention IB, IBKR, Interactive Brokers once again and ask you what's driving your portfolio's performance. Do you know? Well, you can ask IBKR. Ask IBKR is a breakthrough AI powered tool from Interactive Brokers that lets you interact with your portfolio using plain English. Ask a question and you know you're going to get an instant datadriven answer about positions, risk, and returns. It's it's actually built right into the IBKR platform. I want you to check it out. Go to ibkr.comask because the best informed investors choose interactive brokers. Now, with all that, we got to talk about oil. We're going to talk about weather effects and in information about what's going on with inflation, and we're going to talk about what's going on about the economic growth in the country. All of that with David Gaffin. He's the US breaking news uh company's editor at Reuters, where he's worked for almost two decades. He also did stints at the US energy uh as a US energy editor, US deputy markets editor, and been as a business journalist for more than 20 years. During that time, he's covered the 2008 financial crisis, the oil markets meltdown in 2020, and was nominated for a lab um a LEAB award for a series of articles on the growth of stock buybacks in 2015. Let's welcome right now. So, David Gaffin, how are you? It's been a while, my friend. >> It's been a while. Uh I'm doing well. Uh it's better that I can say for the rest of the world, I suppose, in a way, but I'm doing pretty well. Um it's certainly interesting. It's a very very busy time as you can imagine. >> Yeah, it is. I mean, last time we talked the world was round. Now it's kind of pear-shaped. >> Yeah. You know, >> seems to be the direction we're going, isn't it? >> And and the idea of no wars, no foreign wars. And then, uh, of course, the wars now are played more like the movie Enders Game, uh, where we have people just on joysticks, it seems, shooting things at random areas that they have no connection to. So boots on the ground. We don't see any kind of horrible. We see building destruction. We don't see any kind of human destruction, right? I mean, have you seen any signs of I mean, we see numbers of kill, but you know, you don't see any of those like people coming back with their heads wrapped up and bleeding and all that. That's kind of like not part of the new age war, I guess. >> Yeah, we're not seeing a lot of those images. Obviously, we're doing a lot to try to tell the stories of people who are caught up in this, which is, you know, not an easy thing to do. because it involves putting our assets on the ground, our reporters to to deal with those kinds of things. And it's, you know, not easy. Of course, there's not a lot of visibility in Iran by any means. And and there's been a lot of destruction obviously in Lebanon. We've got a lot of, you know, burned up buildings and, you know, rubble and that kind of thing. Uh, but it's um, you know, it's it's obviously, you know, engulfing a lot of the world here, uh, the entire region. And it's gotten very grim very quick, I think, for a lot of people. So, as a journalist in the in the media of today, and you've been doing this for a long time, how do you deal with trying to report? I'm not even talking about taking a position. I'm talking about just reporting facts where that can be characterized as against the current administration and the backlash would be great. Is that something that you guys are dealing with on a regular basis? >> Yeah. So reporters deal with this kind of thing on a on a regular basis. And certainly we deal with it right now. Um, and I would say that uh it's less me because I'm in New York and doing a lot of editing and scrambling a lot of business related coverage than it is, you know, a lot of my um really smart colleagues in Washington DC and of course in Jerusalem and uh Beirut and all over the Middle East where uh reporting is even more fraught because you're dodging you know explosive devices and things like that and weapons uh in addition to you know the eyeire of the administration. And you know, you do have to just sort of stick to the principles that we have on reporting accurately, on making sure that there's time for fair comment and when you can't get it, you know, at least trying to represent the viewpoint of, you know, the administration in this case, uh, as much as you possibly can in, you know, based on things they've said previously or things they've said publicly. Um and obviously uh it's hard not to avoid um feeling like there that people are going to accuse you of taking a position. There's always going to be people who say that you're taking a view that you have a bias and I suppose there's bias inherent in everything. But we try to use as neutral language as possible. But you know there are things that are hard to escape um and things like energy prices which don't lie. Uh and you know uh casualties which don't lie and uh from that respect you know it's a very complicated situation. Uh uh war is unpredictable and then there are a lot of things that people don't know and a lot of people want to run with you know certain information without really making it clear where their information is coming from. So, we're constantly sifting through facts, um, sifting through opinions to try to present things as accurately as possible. Um, but it's not easy. Uh, and and you know, it is, as they say, first draft of history. And I will say that we've had a number of big scoops about what's going on, about, you know, the potential for ground troops that, you know, was discussed um, excuse me, that, you know, we got a scoop on that the other day or excuse me, yesterday. um you know the uh amount of uh impairment there is at the big uh natural gas field in Qatar. Uh so we've been really all over the place and and it's you know obviously a big moment for for journalists as much as possible because people do want that information somehow you know. >> Yeah. They want the Well, that's an interesting thing. That's why I mean to be not just telling you this, but seriously, Reuters is one of my go-to places because I find it to be uh as neutral from a political standpoint and as clean from a news standpoint and from a factual standpoint that you could find. And there's only probably I would say that I am aware of uh I'm just going under five and I'm going to go with the number three by the way. uh places that I can actually go to that I feel comfortable that the information that I'm getting whether it's on world news um whether it's on business whether it's on uh breaking right you know something is is going to be the facts ma'am just please the facts that that's my opinion >> yeah that's our kind of goal we try to be pretty much straight up the middle on everything to pre present things in as unadorned a way as possible to just present the facts to without you know, taking a point of view without, you know, really taking an editorial stance. And and in a lot of ways, there's always an editorial stance everywhere. Um I think that the idea that some others present, you know, bias is a bit overstated at times. Um sometimes people just don't like, you know, the truth and what they're hearing. But, you know, you can't really help that. um you know but uh we do have a reputation for being very much a straight arrow in a lot of this and our reputation around the world especially in conflict zones and in complicated markets like energy is very very strong and it's one that I think we want to keep and uh that we've done very well with um and for that reason you know it's moments like this that I think we tend to do well and I don't mean to just be you know just tooting our own horn And I know that's not the primary reason I'm here, but it's a we're in a bit of a a crazy time. And so that's how I do feel about it. I will say that much. So when it comes to what's going on right now, there seems to be this interesting variance that is appearing with regard to the idea that and and I think well I'm not going to put words in your mouth, but I think for what I think is is this this proverbial carrot that keeps on putting us in in front of us that this is going to be a short-lived war that we're going to get all of our things that we want done, which we're still unclear. I think most of us are unclear exactly what we want done. We think we know that maybe we're rooting out evil and the issues with regard to uh you know the potential for nuclear armament of a adversary and you know we're all okay with this kind of thing but then Iran is like hey you know what go screw they start who would have thought did you think that this kind of thing would lead to Iran bombing Qatar UAE I do you think Iran was going to do that >> was that ever was that in anybody's playbook >> you know I I I feel like it should have been in somebody's playbook and maybe and I don't want to you know characterize what the administration is has done and you know not try not to play pundit but you know uh the Trump administration managed to remove Nicholas Maduro with no real relative problems uh it was relatively you know as these things go and I don't know the nature of the exact bits of the operation it went in that respect smoothly a you know his vice you know president became the president or acting president if you like and you know is clearly much more pliant as these things go >> and it's possible they want >> well he knows he needs to be >> yeah vice president if not we can come and kill you it's up to you >> right that's kind of what she may be dealing with um but Iran has you know is a large uh place that is essentially a fortress in terms of its terrain because it's all mountains on every single border um And when it became clear by way of these attacks and statements from the president that their goal and then immediately by killing the Ayatollah was regime change. That is no longer a negotiating position for the Iranians. They, you know, prior to this with the original bombing campaigns last year to try to destroy the nuclear facilities, you know, the Iranians could at least look at it and say, "Well, this is a limited goal you have. whether you're successful or not will be one thing. But they responded in turn and that they responded with their own bombing campaign. But the idea of this sort of, you know, mutually assured destruction, not quite the same in this case that the US and the Soviets always used to have, but the idea was we both know we're going to be restrained on this because you have the thing you're going to try to do and we're going to anomally try to stop you. But they would not say to themselves, well, why would we risk everything, you know, if your goal is this one thing? But once you decide to sort of try to say we're going to decapitate the leadership and then kill every subsequent person who might be a leader, well then why would you know Iran not necessarily just decide to go scorched earth, which is what they have done literally gone scorched earth. David, the other problem is that it isn't just a simple res regime change from a political standpoint. This is a government is ingrained with religion handinand. It is it is the the the Ayatollah was not only a political leader but to a degree he was a religious leader. Right. >> That's correct. >> So there therefore you're now you're messing with God. >> Well, right. So now now now the Zealots come out and now everybody doesn't mind that you know what this is now a much more than just a war over land. It's a world it's a it's a war over God and that is a bloody war. >> That's a war that people don't go to the mat for. >> Yeah. Right. And it's clear that they've decided to go to the mat with you know targeted attacks on energy infrastructure in Saudi Arabia Qatar Bahrain. they've just hit the refinery in Israel. Uh and so that's, you know, a signal that they feel that their existence is one that is not, you know, guaranteed. That is a very different war than you have this facility we don't like, so we're going to try to blow it up. Um this is a fundamental different change here. And in some ways, you know, if you were to say compare the two militaries, and by two I mean the United States and Iran against each other, of course, it's no contest. The United States is much better prepared and much more well equipped. But in a lot of ways, I think that what some people are realizing is that Iran in a sense can win by not losing. And by not losing, I mean drawing this out, you know, doing what it is doing to energy infrastructure around the entire region, which is so crucial. um keeping the straight of hormuz completely impaired where nobody wants to go through it. And whether there were people who I'm sure there were people who thought this through, it does not seem clear that those people were the ones who had the ear of the president of the United States. >> So there is a there's a difference. There is a chasm between the beltway and Wall Street. The How do you balance this? What's going on? Is this like I said when I started this discussion about the carrot the the beltway the the the pundits the everybody in Washington this is going to be quick it's going to be no big deal and and then and then everything goes back to normal by the way that's that's the that's the I think that's the way they're trying to you know couch this whole thing right and but but Wall Street's starting to be like wait a second and I'll tell you my own opinion is and I and I talked to a few clients about this today this thing just stops today tomorrow next week maybe two weeks Uh, okay. You got I'll use the word transitory for inflation with regard to energy. Um, and and but you have other problems. You know, you saw that piece I wrote this week about PPI and agricultural prices that Straits of Hormuz blockade uh on not only on oil but on ura and and and and fertilizers. That's going to be long lasting. That's going to be inflationary. How where is this difference that you're sensing from reporting on the political side of this from oh yeah we're you know we can get through this quickly and we're we're America we're strong to Wall Street saying wait a second we need to gear up for this. >> It's funny because in in the initial way of thinking the way the markets were reacting it was something of the reverse. Um and and one of the very smart analysts from RBC said something along those lines a week ago where you know she said that there's she was struck by the fact that many Washington-based security analysts anyway who probably operate a little bit you know behind the scenes were working with much more of a longer duration timeline than you know people in market. It seems like the market is at least waking up to that now. Certainly in the energy markets and in the bond markets, which is kind of your first real signs of real concern here, that those markets are, you know, starting to get frightened. You know, we have mortgage rates back at a 3-month high. We have, you know, short-term bond yields are going up on the expectation that the Fed is now kind of in a box, that they are not going to lower rates. Um, so, you know, the market is, I think, finally waking up to it. And while there are the pundits out there who are saying, you know, yes, this could only take this amount of time or that amount of time, I think the market's reaction to the idea that Qatar's uh LNG terminals and you know, production has been impaired now, as they said, as they told us for 3 to 5 years really matters. And it's a slow creep that's kind of kind of growing through the rest of the energy market. These things as you say they they ripple and they ripple into places like a agriculture and and that's the part where you go from the idea of the transitory inflation as you know the Fed officials and Janet Yellen like to say uh four years ago after Russia invaded Ukraine to something that is not transitory as we saw it took a long time for inflation to even come down to roughly the 3% level which was still higher than optimal for the Fed and that trend lower has now been once again completely interrupted and now we're going the other direction. >> And then you have things like diesel fuel prices through the roof. And let let's kind of just say the obvious. >> Who uses diesel fuel? Well, a lot of places, but truckers, >> trucks use diesel fuel. And what do truckers do? They transport my widget from Florida to New York so you can get it and buy it there, right? You know what I'm saying? And that means that the widget price is going to go up. This is no longer a hey companies can absorb for so long like you've been probably hearing about this right what companies have been saying we're going to absorb these tariffs we don't know how long they're going to be on now we're maybe getting a refund now they're being hit again how are companies reacting to this >> yeah they are so I mean the first areas you start to see things are the obvious ones the energy companies and then airlines and people that are immediately affected by the likes of rising jet prices jet fuel that is They are now starting to talk about whether they have to cut flights. They are talking about having to absorb a higher, you know, bill uh from from jet fuel, but that hasn't even really sunk in and kind of fanned out into the rest of the world just yet. We're only starting to see the first trickles. I mean, CH Robinson, the logistics company, spoke about it last week. Honeywell uh a few days ago said that it is going to see you know some sort of uh revenue uh related um hit as a result of you know its operations in the Middle East being completely impaired. And then you brought up diesel and you brought up truckers and you know and and agriculture. I mean they use diesel for their machinery. They use it for fertilizer production of which of course that has also been hit by what's happened in the Middle East. And it kind of all then flows through back into groceries, back into you know um making gigantic things like steel and aluminum and all that stuff. It it you know continues here and we are you know into a bit of a worrying economic uh situation that you know seemed like we were finally receding from the combination of you know years of higher energy costs and of course the you know shock from tariffs uh from 2025 that had finally started to recede as well. So, you know, it's interesting because I, you know, the word I'm going to use is hand ringing for a while. Uh, I was looking at this like, okay, you know what? Oil's going to go up. Of course, uh, straight horm. The straight of hormuz in my opinion, not a problem. That will eventually open up and that will get things rolling again. It is these attacks on we'll call it the manufacturer of oil in the refiners or in any other production. Those that you all of us, think about this. I mean, if you're listening, think about this. The oil is stuck in ships on this within the uh in the vessels that are floating along sea can't get through the straight of Hormus and then pass and get to its final destination. Okay, fine. The oil is there. It's there. So eventually it will get to where it needs to go and you take that till its fullest completed thought. I would think okay, stays elevated for a while because of supply constraints and then it drops off. You cut off oil production, right? You you cut off LNG, natural gas. You cut that all off. That's a whole different discussion. Especially because it's not like, okay, start the boat and drive through. You're talking about the facility is down and how long does it take to rebuild it? Isn't that what's happening? Yes, that's what's happening. I mean, Qatar has already said it's going to be 3 to 5 years before it can get its capacity online. That's an enormous amount of capacity, 17% of its capacity. and they're one of the biggest natural gas producers in the world. Most of which obviously they export because they are very very small country. So they are there for export power. Um you know and and the other big ones of course are Australia and the United States and we've seen it with that and with other attacks and it's not clear that those attacks are going to stop right now. Those things really do complicate things and I would say that it's clear that a prolonged shutting of the straight of hormones which we are continually in continually which we are in you know right now may ultimately ripple into other markets that we are perhaps in the United States not seeing as much because the international benchmarks are doing worse than US crude in terms of the rise. Um but certainly that feeds through to uh big importers u in Asia like Japan and like uh South Korea and you know China and the rest of those and and so what matters is having the supply that you have on hand and what may be sort of limiting the oil price rise is that it appears that you know quite a few countries did have a good deal of supply and storage as we do as you know some of the EU nations do but you know that's why there's this sort of you know weird sort liinal space where what you're talking about could very well be true in that the supply that's out there in storage in floating storage in various caverns and things like that may be enough to hold over this market for a little bit if Hormuse can get open again. If it doesn't then that is not quite as bad as destruction of of supply but it certainly isn't good either. It's not not close as you said destruction of of oil fields of refineries. I mean that is you know like you know people have said the absolute you know nightmare when it comes to uh the energy world. Uh and the only way you you know offset that is through demand destruction. It's through prices that go so high as to people that they stop using it. And of course, the places they'll stop using energy will be in emerging markets and in parts of Asia and places that depend on those imports from the Middle East. >> You know, it's interesting. You look at a country like South Korea and you would wonder, well, wait a minute. Why is South Korea getting hit so hard in their stock market due to the fact which is, you know, a lot of technology there, but but with this whole thing, they do not, and they're not the only ones, but they do not have any production of oil or energy at the country at all. They're fully reliant >> on outside sources and the closest place to it was, you know, the Middle East, etc. And that's why their stock markets were moving like what, 8, 10, 12% in a day. >> Yep. >> Which is unbelievable. Now, mind you, the dollar came up a bit, then it came down a bit. Um, then it came back up again. that hurt a little bit from uh you know the South Korean Juan and uh but the main culprit was the fear that the energy was not there especially to run their data centers. How are they gonna how are they gonna do that, right? If not running through the LG, liquid, you know, LG and and and oil related. Um they have some um renewables, but not enough. >> Not enough, >> right? >> Pretty amazing. That's something to watch. EWY is the symbol, by the way, on the South Korean Cosby ETF. And that one is a real mover. A lot of fun to watch >> to see what's going on. >> But I'll tell you this, too. If in my opinion, if in fact there is a significant break in the oil prices, you'll see that jump pretty hard >> probably. >> I see that happening. >> So, let's talk about um the economy itself. Things that you're seeing here about um you know, we see we talk about this K-shaped recovery or this cave-shaped it's not a recovery anymore. There's an economy where >> the the halves the po people in the markets those in the top 1% 2% 5% are doing really well. Everybody else >> is not. The people that are reliant on a fixed paycheck are getting hurt by not this is before gas prices went up. Let's forget that. Let's forget about this last three weeks. Before that, the people on fixed income, those that were reliant on hourly wage, were seeing a much different picture over the last number of years, but especially over the last year when it comes to the economy. Can you explain that? >> Yeah, that's correct. And and so what had been happening for a while uh um about four or five years ago as we came out of the pandemic is that the folks on the lower end of the income ladder in terms of wages were actually seeing a little bit of catchup. that was, you know, notable for a year or two um in part due to some fiscal policy and then just part um labor related issues and that's disappeared and of late you know the income gains are widening once again both not just between you know the top and the bottom but also between the top and the middle and what's resulted is that much of the consumer spending in this country in fact almost half of it comes from the top 10% of earners in America uh That is the thing that increasingly drives economic activity and you can see it through the various announcements and pronouncements that come from publicly traded companies who talk about you know their efforts. You see numerous up until recently numerous airlines all talking about wanting to go up market and I don't just mean the likes of Delta which has always been in that area but you know the likes of Frontier and Southwest and and companies that were you know more uh inclined to serve the sort of broader mass market you know and you have the same thing you know one of the best performing stocks over the last something like 10 years or so has outdone most of the tech names is Walmart. Why? because Walmart has found through online uh its online memberships that it can serve, you know, the plus 100,000 uh a year earners even more who are, you know, flocking to it. Um and and that's become sort of the main stay of things. And so sometimes I ask the question and I don't have a good answer for it is that you see the you know weakness in consumer sentiment surveys. You see that when those surveys go up, it's largely because the upper echelon earners when asked are happy about their stock portfolios. Um, but you see the reasonably okay consumer spending figures that continue at least until recently to chug along in the United States. If we were in a recession, would we even know or is is 70% of the country in recession and everybody else and the rest are the ones that are just kind of carrying this thing along? And maybe that's, you know, not much different from 10 years ago or something, but it can't it's certainly not the way the economy always was. And so I can't help but think about that sometimes. And I don't know the answer. >> Well, it's like it's like a company that does very well in their earnings, but yet multiple divisions are not doing well. Same thing, >> right? >> You know, but what's interesting you mentioned about Delta Airlines last week, they came out with an announcement. They talked about how they I don't even know how they did. I was like, what? They're like they're projecting a much better um travel season. They all this stuff is going on, right, with people not wanting to fly due to war. People not want to fly because they don't fly, they don't want to deal with uh the whole line thing going on at the airports right now. And Delta comes out with this really rosy outlook. How does that happen? >> Yeah, that was curious to me as well. >> Seriously, it was quite weird, right? >> Yeah. >> Who's is it still is it Ed Bastion? Is he still in charge of Delta? Is that who it is? >> He is. Yes, he is. And you know, they had been doing Yes. and he he is still in charge there and they had been doing very well. Um they seem to at least you know as of right now still have a very strong outlook for everything which is interesting. Um and that was you know continuing up at least until very recently. It's possible that you their Middle East uh business is pretty much dimminimous. It's you know perhaps that their growth is the long haul flights to Europe and to Asia and places like that as well as a lot of America. So uh and they do rely very heavily as much as they can on the higher priced uh seats in you know the economy plus and the first class and business cabins. So uh I am surprised in some sense by it too and we will be interested to see how that evolves over the next few months. >> Right. So um again we see a lot of K going on right this >> world of many different levels and um you know if you're in one you can only see that if you're in the other you can only see that the markets themselves have been extraordinarily resilient don't you think through all the things that we've seen over the last I don't know six months I'm just going to use six months we can go longer but but but unbelievably resilient and I think a lot of that still is the excess stimulus A lot of people didn't see that the one big beautiful bill act, the OBA, that was that was that was stimulative. >> There was >> It was Yeah. And the expectation was that it was going to be stimulative for this year with um some favorable things like tax uh refunds and that kind of thing. So the expectation was that that was going to come into the um you know uh that that that that was also going to come into play as well. Um so you know we will see how that pans out uh as people start to get tax refunds and if there is any kind of stimulative effect there as well. >> Right. Let's uh switch gears here. Uh let's talk about Powell. He he's basically a lame duck right now. Uh but yet still saying that if Worsh is not uh if Worsh is not going to be confirmed, he'll stay in as a promp and just you know hang around. not sure if he's going to stay in as the on on the committee otherwise and also not going to be giving up any position at all until all the lawsuits are dropped. He came out with a conversation the other day where there was no change in the Fed funds rates and there was a lot of uncertainty. I think the most use of the word uncertainty in a Fed speech in a very long period of time. He also said that the the basically the war with inflation is not over, >> right? >> Which I thought was pretty interesting. They were they were seemingly claiming victory or at least close to victory for a while and now they're not. You got Steven Mirren who's just you know I don't know what is he's just he's just wants rates lower so forget him but there was basically uniformity uh with the others about no increase. I think they're starting to see things that PPI numbers were absurdly high. So >> what's the thinking out there on um the Fed the Fed penciling in a slightly higher inflation look for 2026? >> Yeah. No, it's it's it was very interesting to see that. And what's also interesting the most recent um meeting as well is that you know as you mentioned some of the other governors, Christopher Waller didn't descent in favor of a cut this time either. uh he had dissented back in January and gave a big, you know, his statement through the Fed as as to his reasons on it after supporting rate cuts prior to that. Um but if he's not on board, you know, then we're not getting interest rates lowered anytime soon. And so, you know, and Powell was talking a lot about inflation, the inflation overshoot, um a lot of the upside risks right now. Um and it has been, you know, we've already had inflation that's been high as it is for several years now. And so while there may be some concerns about the labor market that still exists, the labor market seems to be on the softer side, uh the job growth has not been great, and he even said that we've essentially we're at no job growth right now. You're still talking about, you know, a lot of uncertainty around the war and and where things stood, you know, never mind the unclear situation with tariffs, which maybe that by now had been baked in, but uh you can't help but think that, you know, there certainly the Fed is now on hold. the market doesn't see them doing probably doing anything this year. And if they're going to do anything, it's a rate increase by the end of the year. And as you said, producer prices were up, you know, by the most since July. Um, we're at the fastest rate of growth we've been in a year at 3.4% for wholesale prices. It hasn't been as bad in the consumer inflation, but you never know. Uh, and you know, and and and from a consumer's perspective as well, the thing that people of course notice more than anything else is gasoline prices. and um those are just defiantly moving higher not far off of $4 a gallon nationally which is always been kind of a painoint number. So I don't see any way in which you know the Fed officials can really credibly call for more uh rate cuts and obviously they don't as as well >> unless we look through the oil situation and realize it's going to create a lot of pain for individuals and therefore the economy slows down precipitously which is the potential outlook that I'm seeing now. Before I didn't see any rate cuts at all because I thought inflation was there and now you would you would look at me and say, "Well, Andrew, here's the deal. There's gonna be more inflation coming." But that inflation due to the stoppage of maybe fertilizer that's going to slow this planting season and create less yield. And then the other thing about oil that all look well semi- temporary on oil. I'll just I'll I'll put an asterct on that one. But the thing is that that in itself can slow the economy down so dramatically. Uncertainty, war, higher prices that they may actually have to look at other options and think about looking through the inflationary number is what I think eventually once we get to that point and actually cut rates rather than raise rates because I think if they raise rates into that and they do it because the majority of the gains are in energy that would be problematic for everything else. That's just an opinion. >> I understand what you're saying and you may very well be right. Uh it doesn't escape my mind that we are entering into an uncertain period that you've just described where upon energy costs and you know associated costs like agriculture and other things and transportation continue to rise while the relative weakness in the labor market and the uncertainty around that and the higher costs kind of restrained growth. And there's a word for that I've heard. Um but uh >> don't say it. Not one. Don't say it. Yeah. Not going to say it. But still, you can't help but, you know, think that that isn't entirely out of the poss realm of possibility here. >> Yeah, we're entering the 70s again. >> Good grief. Yeah, we're entering the 70s. I can tell you stories about that, but um let's switch and do a do do a little bit of a a right turn, a hard right turn. >> Sure. >> Let's talk about um private credit for a second here. the private credit world. It's interesting because uh I've told this story before. I don't think I've told you. About a year or so ago, I was at a conference down in Miami and I was asked to come to this cocktail party at the end of the conference to meet a bunch of the guys and there's a bunch of people that have been on the show and all that at the conference. So, all right, I'm there. I'll go. So, I went down to the conference, went to the cocktail hour and I get literally swarmed out of nowhere like I don't I don't even know. I'm I'm just like minding my own business, by the way. >> And I get by by people telling me, "Hey, how much private credit's in your portfolios? >> What? You need private credit?" I'm like, "Who are you?" You know? >> Yes. >> And they're telling me private credit, private equity. You got to have it. It's the thing. If everybody's doing it, you got to do it. Let me give you my card. And I was like, by the end of the event, I'm like, uh, there was one, it wasn't event, it was a two drink cocktail hour. That's what it was. I was like, this is ridiculous. So, I immediately started thinking about that. That was about a year or so ago and decided I got to steer clear of this stuff for a lot of reasons. I I always steering clear, but I'm not going to get myself into it. Let's put it that way. >> And and that kind of really resonates with me now at how the the the move to really sucker I use that word seriously and and and I use it unabashedly. um sucker the retail into a non-liquid investment which they said was semi-liquid which is total by the way and they get in them into this and not telling them really you can't you really can't get your money out without taking a major haircut on this and here we are today with 9% I think there's a 9% default rate right now which is higher than ever that we've seen in an in in in a in a vehicle that you can't get your money out of, >> right? >> Defaults would be worse if you could actually get your money out, by the way, because then there would be lack of liquidity. So, you got a liquidity lockup and you have a default thing. Obviously, we never learn our lesson. >> Yeah. >> The reason private credit was born was because the need for need seriously listen everybody should listen carefully. the need for a lack of transparency and hold up and lock up periods after the crap allo that was pulled by the banks back in 2006 through nine, >> right? >> That is no longer allowed. But once you bridge over to private credit, voila, you could do those kind of things. You could do that crazy kind of lending, lower your lending standards, hope for, wish for, you know, and that's what really happened here. And the question is long-winded discussion to now throw back to you. Is there any systemic risk in what's going on? >> You have to wonder, you know, you can't help but say, you know, you know, it it it doesn't repeat itself, but history does rhyme. Um the sector is now a $2 trillion sector and the worries that are coming through are the kinds of worries we've heard before. You know, returns start to flag. People start worrying about their money. Redemptions start getting cut off. You know, they now start saying, "Well, you can't remove your money." Anytime somebody says you can't remove your money, people start to say >> worst thing. >> Now I want my money. You know, that that that's that's uh you know, a little bit more of a concern. the the private credit sector is not as large as the subprime sector was with with regard to um housing. I mean it's 2 trillion I think um the subprime was much larger than that. Uh so in that respect it's not as large but you know there is a heavy amount of retail investment involved. The invest uh uh people said it's somewhere around 16% of investment is retail investment whereas in 2020 was like 5 12%. So you you do have much more skin in the game from retail investment. um private default rates are growing and so you know certainly there could be some ruptions after you've already had you know a couple of those bankruptcies like those auto parts companies you had the blue owl thing and so you do have to worry about that the transmission for all of the problems um if we start to see some real problems with economic growth may not be directly as a result of this. It may be that it it is a side contributor if you know we see an economic slowdown as opposed to subprime housing where it was the absolute culprit and was at the you know center of everything that happened when the when the housing market you know cratered. Um but that doesn't mean that you know the world is you know or the country is out of the woods on it that it shouldn't be paid attention to. It's just going to be yet one other thing that could be a problem for people. This is just again one. But private equity, private credit, >> I could tell you some of the private equity stuff that I've seen cross my desk. I'm I'm See, that's not happening. I mean, literally, that's I could tell you none of it ever happened here. I have never that I'm aware of uh had any clients move into any nothing that we've recommended. >> Nothing that we've said we're doing this. We may have hedge funds and things of that nature and SMAs much different liquid, relatively liquid. Some some some have quarterly distributions, but okay, most of but this stuff where you're literally blind. Private equity, you're blind. You're hoping they're doing what they say they're doing with your money and then they're sending you statements that are extraordinarily difficult for the average person to read >> and then you have capital calls and then capital and then you have distributions that are held back that can be uh utilized once again uh for capital calls in the future. So you have these kind of I'm getting my money but they can give it back to them and a lot of you know strange things that go on inside of all this >> and they have total control of your money >> and and the transparency is not which we call opaque >> and dare I say that the oversight is much different than it is with your liquid investments through regular custodians and brokerages. >> Much different. Yeah. >> So, this this if they don't get their together, to be honest with you, it's going to be a real death blow to this industry. The institutions will still want it, but retailers is going to say, you know, screw that. And by the way, you knew it was going to be a problem as soon as you started hearing them trying to get into the 401k plans. >> That was that was like the oh god, here we go. Trying to rug pull on the 401k is not a good idea. >> Yes. That's always the reason, isn't it? It's always the thing that you start to see is that as soon as you start to see this trickled into things like, you know, um, you know, retirement plans and retail investment, it's kind of, you know, you can't help but feeling it's like the last rung on the ladder here, you know. >> Yep. >> Yeah. >> Um, let's kind of close out with some of the AI discussion. And, you know, anthropic, that's a big thing. It's in the middle of this whole mess with the government. It seems that they don't want to contractually obligate themselves. Well, the government won't allow them to put into the contract that Anthropic can essentially throttle some of the things they're doing in the event that Anthropic feels that it's against uh what their core beliefs are. Is that a summation? Is that a right? Is that correct? >> Yeah, I think so. I mean, yeah, that was the dispute between Anthropic and the Pentagon was over what kind of guard rails it would be, you know, by which it would use its AI tools. And there was this all kinds of you know um you know back and forth over it. You you then start to you know get to the point where then it gets labeled a supply chain risk. Um but it's funny as a result you know we just published a story about uh where we spoke to some Pentagon staffers and other you know former officials say that the military is reluctant to give up on anthropics AI tools because they think they're superior to the alternatives. they they I think tend to think they're, you know, um better, that the Claude model is the best one. Um that the XAI Grock is uh inconsistent and nowhere near as good. Um and so, you know, ripping that out from what the Pentagon uses doesn't seem to be something that's going to happen easily. Of course, you know, the, you know, kind of rhetoric that we've seen from the likes of the administration makes you wonder whether they're going to continue to try to take retaliatory action against anthropic, which um, you know, in there's a but but it has been working with the defense department for a good while and so it's been using their tools and as a result, you know, the you know, the defense department, I think, seems to really value it and that gives you the impression that, you just sort of you know chopping this out and throwing in something new will not be easy and it will make things less productive. Well, also the other thing is that I heard I have some colleagues and and contacts in the industry that knows a lot about this situation is that the biggest concern is if you if the government says no government uh contractor can utilize anthropic and any of the work that they're doing related to the government. That means that the trickle down impact of that where a lot of people are already embedded and ingrained the tentacles of anthroic usage is inside of those companies separate companies private companies public companies >> right >> whereas IBM may be using I'm just picking this as a weird example but IBM may be using anthropic for something to do with something that attaches to this that that by the way has an you know that the government some part of the government may be working with that wouldn't be allowed and then all of a sudden it's going to be like wait I got to rip out the entire usage of this to what and that has to go at what to what degree you follow what I mean it's it's really problematic >> yes I that's you know there's some real questions that I think people have raised about you know this decision and and what it will do as far as productivity um the the undertaking of doing this and then the questions about you know how other companies that had been working with Anthropic will they be able to use it for their non-governmental activities and how do they make sure they maintain that wall as well. Um it feels like a lot of uh you know make work a lot of stuff that's been added in that will make things difficult for more people. >> Yeah. >> Um it's a path of most resistance kind of move is is how I think some people are putting it. >> It's going to be kind of fascinating what falls out of this because there is a a period of time that everybody has to undo this. But my hope is that they can come to an agreement if it is the best product. You know, if it's the best product and there is a desire to have some guardrails on it, I don't see the necessary problem with that. There should be for all of these kinds of products, but who knows? Who knows? David Gaffin, Reuters, make sure to check out Reuters. Read what he has to write and what is going on with the in the business and stock and the world and all that over on Reuters. Thank you so much for joining me as always. I appreciate you. >> Yeah, it's great to be here. It's always good to talk to you. >> Thanks so much. >> Thanks, Andrew. Yep. >> See you. >> Another great show of great information with a great guest. We have some other ones coming on next week. Howard Linden. If you have not heard Howard Linden in the past, you need to tune in next week as he comes on. He is a null holes bard tech giant and marketing guru, social media maven, just a great guy overall. I've known him since uh 2007, I would say. One of the first guests I ever had on this show actually was Howard Linden. And he is just a He's funny. He has great information. I think you're going to really love him. Coming up the week after that, Thomas Thornton from Hedge Fund Telemetry. So, we are lined up. We are locked and loaded. Things are good. Thank you for joining me this week and every week. And I'll see you again real soon. This podcast is intended forformational purposes only and does not constitute personalized investment advice. 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TDI Podcast: Grocery Inflation Bomb (#965)
Summary
PPI just exploded higher. Florida Freeze about to hit our wallets. The Fed is on hold but not happy. And the War carry’s on…Transcript
This episode is sponsored by Interactive Brokers. And where could quantum computing take your portfolio? Investment themes from Interactive Brokers. Well, it helps you find out. Start with a trend like quantum computing or even clean energy and instantly see what companies are most connected based on revenue, strategic focus, and product relevance. You could explore competitors, global exposure and business relationships across more than five, yes 500 themes built with AI powered insights from reflexivity. Investment themes turns complexity into clarity and helps you move from trend to trade with speed. Available now across IBKR desktop, mobile and trader workstation. You know the best informed investors choose interactive brokers member SIPC. Check it out at ibkr.com/themes. >> The disciplined investor is all about you, your money, and the markets. Sit back and get ready for this edition of the disciplined investor podcast. This episode of The Disciplined Investor is sponsored by Horowits & Company. If you're looking for a portfolio manager, look no further. Horowits & Company. From seed through harvest, cultivating financial success. >> PPI just exploded higher. Florida freeze about to hit our wallets. The Feds on hold but not happy. And the war carries on. Our guest today is David Gaffin, breaking news editor at Reuters. All this and much more on episode number 965 of the Disciplined Investor podcast and welcome to birthday headquarters. It's my birthday this weekend. Well, not the whole weekend. You know, my kids, they have like birthday months. My wife has birthdays that just go on and on, right? One right into the next holiday into the next. I have a day, maybe two. Going to go out to some great dinners uh over the next couple of days with my family and enjoy the time together and spend time together because what's more important than family? And you are my family, too. So, I hope that you are celebrating as well. This is Andrew Horowitz. I am the host and the birthday boy of the discipline investor podcast, the co-host of DH Unplugged. We got a bit of an update on DH Unplugged. I spoke with John C. D'vorak uh about two day uh two or three days ago. Two days ago, he was actually sounding pretty good. You know, he had a heart situation. He was in the hospital. He had a double bypass. Everybody knows that. And I've been working with his son, John S. D'vorak for DH unplugged and we've had a lot of fun. He's really good with AI. As a matter of fact, the last episode he brought a Google uh canvas that he put together to estimate not only the unemployment rate but oil pricing, what would happen under certain circumstances that he put together with Gemini? Very cool. I mean, I was like, "Wow, how do you do that?" That was awesome. So, uh, we talked about that. We talked about AI. We talked about the jobs. We talked about oil. We talked about what's going on around the world. Lots of great information. Uh much different vibe than it is with John C. D'Vorak, who you know and love probably, but uh check it out. dhplugged.com is where you'll find the information. Also on YouTube, Amazon Music, uh Spotify, Apple Podcasts, wherever that you get your podcast, you get DH Unplugged and the disciplined investor as well. And in fact, if you're on one of your particular podcast apps right now, click the share button and send it out to a couple of friends that you're listening to this right now because we're going to get down and deep into what's going on with PPI that came out last week or this last, you know, few days ago and uh it was pretty ugly. The Bureau of Labor Statistics, the BLS, told us that inflation was well above expectations. This came out the same morning as Powell talked. That was Wednesday. And he talked about how he's not really happy with where inflation is right now. Markets didn't respond very well to that notion, even though they know that he's kind of a at this point kind of a lame duck, right? He's, you know, as soon as Walsh is confirmed, he's out. And in fact, maybe some time due to the lawsuits that are going on, but but Powell was gracious enough to say that, you know, if in fact it takes a while for wars to come in and get confirmed, he will maintain that proemp position just as long as it needs to be. So that was nice. I guess he's uh standing up to the ridicule, the lawsuits, the constant pounding about being too late, etc. for a while. He is talking about some of this and looking at the inflation numbers x the war which we're going to get into in a second but the PPI number just to be clear well above is an understatement shocking what happened the headline final demand PPI came in at.7% on a month-over-month basis which is more than double the consensus that came in at plus.3 03 now core PPI which excluded the food and energy. That's kind of what a lot of people look like look at to see okay uh even though we do eat and we utilize energy but those are volatile numbers what did the rest come in at? Well came in pretty bad too plus.5% which was ahead of the.3% expected number and on a year-over-year basis it was 3.4% versus about 3% expected. We're going to have a couple of I think we're going to put a couple of charts up on the show notes for episode number 965. You can go to the disciplinedinvestor.com. If you haven't gone there, by the way, you should you should make a special trip right now as we're talking, as you're listening, as we're spending time together. Go over to the disciplinedinvestor.com. There's plenty on there to see all the past podcasts, some of the strategies, how we work, what we do. But in the show notes, I'll embed a couple of these tables and charts that we have here. Um, now the surprise that was here's what was so interesting and why I wanted to bring this up and talk about this and get through uh some of the ideas of what's happening because the surprise in this particular PPI number was this strength that we saw and it was it was goods and services and a few key categories really was like what are you kidding? fresh vegetables, travel accommodations are how much up? So, we're talking about hotels, we're talking about um you know uh uh air you know the whole vacationing travels it was like wow and you know gains in food and energy other services and more than half the overall rise came from services. Well, check this out. Foods alone were about 40% of the goods increase. Yeah, 40% of the goods increase. Here's the problem. There was about a 48.9% month-over-month surge in the PPI subcategory for fresh and dried vegetables, and that was a huge component of this whole thing. It accounted for 20% of the overall rise in the final demand goods prices. And energy was 2.3% month-over-month change. um travel accommodations 5.7% which is about 20% of the service advance. So this was a problem. Florida was the problem right here in my own backyard. We knew that the beginning part of this year, the first couple of three months, we saw uh you know a good amount of cold weather come through, right? But we had those freezes. But here's the thing. The country, United States, in the PPI, what we spend our money on in terms of the vegetables and fruits we rely on during this time of the year, Florida and the late January and early February freezes were absolutely brutal. You remember we had these multiple rounds of this unusually cold weather that hit through here. We had, in fact, there was record-breaking cold record-breaking lows in some spots. And what it do? It obliterated, hammered, took apart the crops all across the state. And it was especially tough on vegetables. Melons got just smoked. Reports from the Florida Department of Agriculture, I I dug into this. I wanted to see what was going on. Showed that the preliminary estimates of total agricultural losses exceeded about $3.1 billion with some estimates as hard um as about 3.17. Vegetables were among the hardest hit in the the produce category. Now, it it was it was concentrated in South and um central area. The growers got the worst of it all for the key staples. We're looking at things like tomatoes. Listen to this. There was about an 80% production loss on the remaining crop, wiping out roughly $164 million of total, you know, revenue cost from selling or or or revenue from selling. Sweet corn got devastated up to 100% loss in some cases in many fields around the Florida leading to about $255 million in damage. Bell peppers 80% hit, $108 million. squash. That's uh they do a lot of that in the in down south as well. Um in in um Homestead and south of Homestead, but also all around the all around the uh the state losses as high as listen 90%. We're not talking about little bit ah you know there's a couple of one out of eight. No, we're talking about you know seven out of eight squash were frozen lost about 24 and a half million. other veggies like potatoes about a 75% loss. Cabbage around a 40% loss and uh that was a lot. Now it wasn't just the fields getting wiped out completely either. That wasn't the only thing. Other you know on the stuff that survived it's reported that yields dropped sharply because you have all this cold and if it didn't get wiped out it was having problem growing right it was stymied. Shelf life was shortened. Shipments got messed up right through the February harvesting and shipping window. All of this rounded out to this incredible which you're going to see show up by the way in cost factors. If you haven't seen it already at the grocery store, you're going to see it. And that was looking back. What's coming is a whole different animal. Why? You say to me, Andrew, what? It's not going to get colder. What are we worrying about here? The next phase. The next phase. what could come from this ura and fertilizer shortages tied to the straight of Hormuz. Uh, it's not funny. Now, what what is this doing? It's like it's like pouring salt onto an already open wound for the growers specifically and and especially down in here in Florida. Now, ura prices have already shot up sharply. key markets have been seeing since about February lots of volatility right when the northern hemisphere is going to start their spring plantings. It's going to kick into high gear into the March through May here, you know, in the United States for veggies, corn, and all the rest. And some reports are showing that New Orleans barge prices, New Orleans, New Orleans, Nolan's barge barge prices, they're jumping somewhere in the 17 to 30% range is what we're seeing. That was the initial surge with others even steeper prices that are increasing for all of this. This is what, you know, moves things back and forth. uh and particularly the the nitrogen based and other fertilizers about 25 to 35% because this whole thing is related to the street of hormuz why well there's all this about 40% of the ura that passes through is related to the straight of hormuz and what are we seeing just like oil you have a stoppage of this well what happens your prices are jumping They've climbed about 35% in the past month. Southeast Asia has seen some big moves as well, up about 40% on their pricing over there. Now, US farmers who rely on imports to up to half the ura in certain areas are starting to really feel this shortage. There's been reports from the uh fertilizer institute and other areas other other reports that come out that shows that we're about 25% short on the usual spring supplies needed for planting. So now we have looking back the freeze and the frost where we relied on Florida for a lot of these things for the vegetables and other uh fruits and now we're working ourselves into the March through May area where there's all of a sudden a supply shortage on the fertilizer that is required for the planting so that we can grow these vegetables and reach decent yields. Now, this initial hit wasn't bad enough that we saw it's now layering on the higher input costs and potential supply issues right when we're replanting. The spring season is here. We're in the end of March. So, that in in itself is a big problem. So, here's what we're thinking. Here's what we think we can expect. Consumers, you, me, everyday shoppers at grocery stores, restaurant goers, families, all the people that have to eat, kids, adults, everybody. We're going to see the biggest pinch from these higher fresh vegetables and food prices coming soon. The Florida freeze damage and the URA fertilizer shortages probably will drive up costs and get passed straight from farmers to the checkout line and the restaurant menus right now. that spring season as we're that that that planting growing ramps up feels like we're going to be just kicking farmers right in the teeth when they're already down. Now, there's some things you could do. You could buy some of these, you know, agricultural ETSs. We own actually CF Industries, which is probably the largest producer of variety of fertilizers here in the United States. We own that for clients, um, as full disclosure, by the way. Uh but that's something to to think about and to look into if you are of the same mindset that the potential higher costs are coming. Not to mention what is going to do for inflation. Whole different topic. We're going to talk about that with our guest and we're going to get to that in just a short second. Before we do so, I want to mention IB, IBKR, Interactive Brokers once again and ask you what's driving your portfolio's performance. Do you know? Well, you can ask IBKR. Ask IBKR is a breakthrough AI powered tool from Interactive Brokers that lets you interact with your portfolio using plain English. Ask a question and you know you're going to get an instant datadriven answer about positions, risk, and returns. It's it's actually built right into the IBKR platform. I want you to check it out. Go to ibkr.comask because the best informed investors choose interactive brokers. Now, with all that, we got to talk about oil. We're going to talk about weather effects and in information about what's going on with inflation, and we're going to talk about what's going on about the economic growth in the country. All of that with David Gaffin. He's the US breaking news uh company's editor at Reuters, where he's worked for almost two decades. He also did stints at the US energy uh as a US energy editor, US deputy markets editor, and been as a business journalist for more than 20 years. During that time, he's covered the 2008 financial crisis, the oil markets meltdown in 2020, and was nominated for a lab um a LEAB award for a series of articles on the growth of stock buybacks in 2015. Let's welcome right now. So, David Gaffin, how are you? It's been a while, my friend. >> It's been a while. Uh I'm doing well. Uh it's better that I can say for the rest of the world, I suppose, in a way, but I'm doing pretty well. Um it's certainly interesting. It's a very very busy time as you can imagine. >> Yeah, it is. I mean, last time we talked the world was round. Now it's kind of pear-shaped. >> Yeah. You know, >> seems to be the direction we're going, isn't it? >> And and the idea of no wars, no foreign wars. And then, uh, of course, the wars now are played more like the movie Enders Game, uh, where we have people just on joysticks, it seems, shooting things at random areas that they have no connection to. So boots on the ground. We don't see any kind of horrible. We see building destruction. We don't see any kind of human destruction, right? I mean, have you seen any signs of I mean, we see numbers of kill, but you know, you don't see any of those like people coming back with their heads wrapped up and bleeding and all that. That's kind of like not part of the new age war, I guess. >> Yeah, we're not seeing a lot of those images. Obviously, we're doing a lot to try to tell the stories of people who are caught up in this, which is, you know, not an easy thing to do. because it involves putting our assets on the ground, our reporters to to deal with those kinds of things. And it's, you know, not easy. Of course, there's not a lot of visibility in Iran by any means. And and there's been a lot of destruction obviously in Lebanon. We've got a lot of, you know, burned up buildings and, you know, rubble and that kind of thing. Uh, but it's um, you know, it's it's obviously, you know, engulfing a lot of the world here, uh, the entire region. And it's gotten very grim very quick, I think, for a lot of people. So, as a journalist in the in the media of today, and you've been doing this for a long time, how do you deal with trying to report? I'm not even talking about taking a position. I'm talking about just reporting facts where that can be characterized as against the current administration and the backlash would be great. Is that something that you guys are dealing with on a regular basis? >> Yeah. So reporters deal with this kind of thing on a on a regular basis. And certainly we deal with it right now. Um, and I would say that uh it's less me because I'm in New York and doing a lot of editing and scrambling a lot of business related coverage than it is, you know, a lot of my um really smart colleagues in Washington DC and of course in Jerusalem and uh Beirut and all over the Middle East where uh reporting is even more fraught because you're dodging you know explosive devices and things like that and weapons uh in addition to you know the eyeire of the administration. And you know, you do have to just sort of stick to the principles that we have on reporting accurately, on making sure that there's time for fair comment and when you can't get it, you know, at least trying to represent the viewpoint of, you know, the administration in this case, uh, as much as you possibly can in, you know, based on things they've said previously or things they've said publicly. Um and obviously uh it's hard not to avoid um feeling like there that people are going to accuse you of taking a position. There's always going to be people who say that you're taking a view that you have a bias and I suppose there's bias inherent in everything. But we try to use as neutral language as possible. But you know there are things that are hard to escape um and things like energy prices which don't lie. Uh and you know uh casualties which don't lie and uh from that respect you know it's a very complicated situation. Uh uh war is unpredictable and then there are a lot of things that people don't know and a lot of people want to run with you know certain information without really making it clear where their information is coming from. So, we're constantly sifting through facts, um, sifting through opinions to try to present things as accurately as possible. Um, but it's not easy. Uh, and and you know, it is, as they say, first draft of history. And I will say that we've had a number of big scoops about what's going on, about, you know, the potential for ground troops that, you know, was discussed um, excuse me, that, you know, we got a scoop on that the other day or excuse me, yesterday. um you know the uh amount of uh impairment there is at the big uh natural gas field in Qatar. Uh so we've been really all over the place and and it's you know obviously a big moment for for journalists as much as possible because people do want that information somehow you know. >> Yeah. They want the Well, that's an interesting thing. That's why I mean to be not just telling you this, but seriously, Reuters is one of my go-to places because I find it to be uh as neutral from a political standpoint and as clean from a news standpoint and from a factual standpoint that you could find. And there's only probably I would say that I am aware of uh I'm just going under five and I'm going to go with the number three by the way. uh places that I can actually go to that I feel comfortable that the information that I'm getting whether it's on world news um whether it's on business whether it's on uh breaking right you know something is is going to be the facts ma'am just please the facts that that's my opinion >> yeah that's our kind of goal we try to be pretty much straight up the middle on everything to pre present things in as unadorned a way as possible to just present the facts to without you know, taking a point of view without, you know, really taking an editorial stance. And and in a lot of ways, there's always an editorial stance everywhere. Um I think that the idea that some others present, you know, bias is a bit overstated at times. Um sometimes people just don't like, you know, the truth and what they're hearing. But, you know, you can't really help that. um you know but uh we do have a reputation for being very much a straight arrow in a lot of this and our reputation around the world especially in conflict zones and in complicated markets like energy is very very strong and it's one that I think we want to keep and uh that we've done very well with um and for that reason you know it's moments like this that I think we tend to do well and I don't mean to just be you know just tooting our own horn And I know that's not the primary reason I'm here, but it's a we're in a bit of a a crazy time. And so that's how I do feel about it. I will say that much. So when it comes to what's going on right now, there seems to be this interesting variance that is appearing with regard to the idea that and and I think well I'm not going to put words in your mouth, but I think for what I think is is this this proverbial carrot that keeps on putting us in in front of us that this is going to be a short-lived war that we're going to get all of our things that we want done, which we're still unclear. I think most of us are unclear exactly what we want done. We think we know that maybe we're rooting out evil and the issues with regard to uh you know the potential for nuclear armament of a adversary and you know we're all okay with this kind of thing but then Iran is like hey you know what go screw they start who would have thought did you think that this kind of thing would lead to Iran bombing Qatar UAE I do you think Iran was going to do that >> was that ever was that in anybody's playbook >> you know I I I feel like it should have been in somebody's playbook and maybe and I don't want to you know characterize what the administration is has done and you know not try not to play pundit but you know uh the Trump administration managed to remove Nicholas Maduro with no real relative problems uh it was relatively you know as these things go and I don't know the nature of the exact bits of the operation it went in that respect smoothly a you know his vice you know president became the president or acting president if you like and you know is clearly much more pliant as these things go >> and it's possible they want >> well he knows he needs to be >> yeah vice president if not we can come and kill you it's up to you >> right that's kind of what she may be dealing with um but Iran has you know is a large uh place that is essentially a fortress in terms of its terrain because it's all mountains on every single border um And when it became clear by way of these attacks and statements from the president that their goal and then immediately by killing the Ayatollah was regime change. That is no longer a negotiating position for the Iranians. They, you know, prior to this with the original bombing campaigns last year to try to destroy the nuclear facilities, you know, the Iranians could at least look at it and say, "Well, this is a limited goal you have. whether you're successful or not will be one thing. But they responded in turn and that they responded with their own bombing campaign. But the idea of this sort of, you know, mutually assured destruction, not quite the same in this case that the US and the Soviets always used to have, but the idea was we both know we're going to be restrained on this because you have the thing you're going to try to do and we're going to anomally try to stop you. But they would not say to themselves, well, why would we risk everything, you know, if your goal is this one thing? But once you decide to sort of try to say we're going to decapitate the leadership and then kill every subsequent person who might be a leader, well then why would you know Iran not necessarily just decide to go scorched earth, which is what they have done literally gone scorched earth. David, the other problem is that it isn't just a simple res regime change from a political standpoint. This is a government is ingrained with religion handinand. It is it is the the the Ayatollah was not only a political leader but to a degree he was a religious leader. Right. >> That's correct. >> So there therefore you're now you're messing with God. >> Well, right. So now now now the Zealots come out and now everybody doesn't mind that you know what this is now a much more than just a war over land. It's a world it's a it's a war over God and that is a bloody war. >> That's a war that people don't go to the mat for. >> Yeah. Right. And it's clear that they've decided to go to the mat with you know targeted attacks on energy infrastructure in Saudi Arabia Qatar Bahrain. they've just hit the refinery in Israel. Uh and so that's, you know, a signal that they feel that their existence is one that is not, you know, guaranteed. That is a very different war than you have this facility we don't like, so we're going to try to blow it up. Um this is a fundamental different change here. And in some ways, you know, if you were to say compare the two militaries, and by two I mean the United States and Iran against each other, of course, it's no contest. The United States is much better prepared and much more well equipped. But in a lot of ways, I think that what some people are realizing is that Iran in a sense can win by not losing. And by not losing, I mean drawing this out, you know, doing what it is doing to energy infrastructure around the entire region, which is so crucial. um keeping the straight of hormuz completely impaired where nobody wants to go through it. And whether there were people who I'm sure there were people who thought this through, it does not seem clear that those people were the ones who had the ear of the president of the United States. >> So there is a there's a difference. There is a chasm between the beltway and Wall Street. The How do you balance this? What's going on? Is this like I said when I started this discussion about the carrot the the beltway the the the pundits the everybody in Washington this is going to be quick it's going to be no big deal and and then and then everything goes back to normal by the way that's that's the that's the I think that's the way they're trying to you know couch this whole thing right and but but Wall Street's starting to be like wait a second and I'll tell you my own opinion is and I and I talked to a few clients about this today this thing just stops today tomorrow next week maybe two weeks Uh, okay. You got I'll use the word transitory for inflation with regard to energy. Um, and and but you have other problems. You know, you saw that piece I wrote this week about PPI and agricultural prices that Straits of Hormuz blockade uh on not only on oil but on ura and and and and fertilizers. That's going to be long lasting. That's going to be inflationary. How where is this difference that you're sensing from reporting on the political side of this from oh yeah we're you know we can get through this quickly and we're we're America we're strong to Wall Street saying wait a second we need to gear up for this. >> It's funny because in in the initial way of thinking the way the markets were reacting it was something of the reverse. Um and and one of the very smart analysts from RBC said something along those lines a week ago where you know she said that there's she was struck by the fact that many Washington-based security analysts anyway who probably operate a little bit you know behind the scenes were working with much more of a longer duration timeline than you know people in market. It seems like the market is at least waking up to that now. Certainly in the energy markets and in the bond markets, which is kind of your first real signs of real concern here, that those markets are, you know, starting to get frightened. You know, we have mortgage rates back at a 3-month high. We have, you know, short-term bond yields are going up on the expectation that the Fed is now kind of in a box, that they are not going to lower rates. Um, so, you know, the market is, I think, finally waking up to it. And while there are the pundits out there who are saying, you know, yes, this could only take this amount of time or that amount of time, I think the market's reaction to the idea that Qatar's uh LNG terminals and you know, production has been impaired now, as they said, as they told us for 3 to 5 years really matters. And it's a slow creep that's kind of kind of growing through the rest of the energy market. These things as you say they they ripple and they ripple into places like a agriculture and and that's the part where you go from the idea of the transitory inflation as you know the Fed officials and Janet Yellen like to say uh four years ago after Russia invaded Ukraine to something that is not transitory as we saw it took a long time for inflation to even come down to roughly the 3% level which was still higher than optimal for the Fed and that trend lower has now been once again completely interrupted and now we're going the other direction. >> And then you have things like diesel fuel prices through the roof. And let let's kind of just say the obvious. >> Who uses diesel fuel? Well, a lot of places, but truckers, >> trucks use diesel fuel. And what do truckers do? They transport my widget from Florida to New York so you can get it and buy it there, right? You know what I'm saying? And that means that the widget price is going to go up. This is no longer a hey companies can absorb for so long like you've been probably hearing about this right what companies have been saying we're going to absorb these tariffs we don't know how long they're going to be on now we're maybe getting a refund now they're being hit again how are companies reacting to this >> yeah they are so I mean the first areas you start to see things are the obvious ones the energy companies and then airlines and people that are immediately affected by the likes of rising jet prices jet fuel that is They are now starting to talk about whether they have to cut flights. They are talking about having to absorb a higher, you know, bill uh from from jet fuel, but that hasn't even really sunk in and kind of fanned out into the rest of the world just yet. We're only starting to see the first trickles. I mean, CH Robinson, the logistics company, spoke about it last week. Honeywell uh a few days ago said that it is going to see you know some sort of uh revenue uh related um hit as a result of you know its operations in the Middle East being completely impaired. And then you brought up diesel and you brought up truckers and you know and and agriculture. I mean they use diesel for their machinery. They use it for fertilizer production of which of course that has also been hit by what's happened in the Middle East. And it kind of all then flows through back into groceries, back into you know um making gigantic things like steel and aluminum and all that stuff. It it you know continues here and we are you know into a bit of a worrying economic uh situation that you know seemed like we were finally receding from the combination of you know years of higher energy costs and of course the you know shock from tariffs uh from 2025 that had finally started to recede as well. So, you know, it's interesting because I, you know, the word I'm going to use is hand ringing for a while. Uh, I was looking at this like, okay, you know what? Oil's going to go up. Of course, uh, straight horm. The straight of hormuz in my opinion, not a problem. That will eventually open up and that will get things rolling again. It is these attacks on we'll call it the manufacturer of oil in the refiners or in any other production. Those that you all of us, think about this. I mean, if you're listening, think about this. The oil is stuck in ships on this within the uh in the vessels that are floating along sea can't get through the straight of Hormus and then pass and get to its final destination. Okay, fine. The oil is there. It's there. So eventually it will get to where it needs to go and you take that till its fullest completed thought. I would think okay, stays elevated for a while because of supply constraints and then it drops off. You cut off oil production, right? You you cut off LNG, natural gas. You cut that all off. That's a whole different discussion. Especially because it's not like, okay, start the boat and drive through. You're talking about the facility is down and how long does it take to rebuild it? Isn't that what's happening? Yes, that's what's happening. I mean, Qatar has already said it's going to be 3 to 5 years before it can get its capacity online. That's an enormous amount of capacity, 17% of its capacity. and they're one of the biggest natural gas producers in the world. Most of which obviously they export because they are very very small country. So they are there for export power. Um you know and and the other big ones of course are Australia and the United States and we've seen it with that and with other attacks and it's not clear that those attacks are going to stop right now. Those things really do complicate things and I would say that it's clear that a prolonged shutting of the straight of hormones which we are continually in continually which we are in you know right now may ultimately ripple into other markets that we are perhaps in the United States not seeing as much because the international benchmarks are doing worse than US crude in terms of the rise. Um but certainly that feeds through to uh big importers u in Asia like Japan and like uh South Korea and you know China and the rest of those and and so what matters is having the supply that you have on hand and what may be sort of limiting the oil price rise is that it appears that you know quite a few countries did have a good deal of supply and storage as we do as you know some of the EU nations do but you know that's why there's this sort of you know weird sort liinal space where what you're talking about could very well be true in that the supply that's out there in storage in floating storage in various caverns and things like that may be enough to hold over this market for a little bit if Hormuse can get open again. If it doesn't then that is not quite as bad as destruction of of supply but it certainly isn't good either. It's not not close as you said destruction of of oil fields of refineries. I mean that is you know like you know people have said the absolute you know nightmare when it comes to uh the energy world. Uh and the only way you you know offset that is through demand destruction. It's through prices that go so high as to people that they stop using it. And of course, the places they'll stop using energy will be in emerging markets and in parts of Asia and places that depend on those imports from the Middle East. >> You know, it's interesting. You look at a country like South Korea and you would wonder, well, wait a minute. Why is South Korea getting hit so hard in their stock market due to the fact which is, you know, a lot of technology there, but but with this whole thing, they do not, and they're not the only ones, but they do not have any production of oil or energy at the country at all. They're fully reliant >> on outside sources and the closest place to it was, you know, the Middle East, etc. And that's why their stock markets were moving like what, 8, 10, 12% in a day. >> Yep. >> Which is unbelievable. Now, mind you, the dollar came up a bit, then it came down a bit. Um, then it came back up again. that hurt a little bit from uh you know the South Korean Juan and uh but the main culprit was the fear that the energy was not there especially to run their data centers. How are they gonna how are they gonna do that, right? If not running through the LG, liquid, you know, LG and and and oil related. Um they have some um renewables, but not enough. >> Not enough, >> right? >> Pretty amazing. That's something to watch. EWY is the symbol, by the way, on the South Korean Cosby ETF. And that one is a real mover. A lot of fun to watch >> to see what's going on. >> But I'll tell you this, too. If in my opinion, if in fact there is a significant break in the oil prices, you'll see that jump pretty hard >> probably. >> I see that happening. >> So, let's talk about um the economy itself. Things that you're seeing here about um you know, we see we talk about this K-shaped recovery or this cave-shaped it's not a recovery anymore. There's an economy where >> the the halves the po people in the markets those in the top 1% 2% 5% are doing really well. Everybody else >> is not. The people that are reliant on a fixed paycheck are getting hurt by not this is before gas prices went up. Let's forget that. Let's forget about this last three weeks. Before that, the people on fixed income, those that were reliant on hourly wage, were seeing a much different picture over the last number of years, but especially over the last year when it comes to the economy. Can you explain that? >> Yeah, that's correct. And and so what had been happening for a while uh um about four or five years ago as we came out of the pandemic is that the folks on the lower end of the income ladder in terms of wages were actually seeing a little bit of catchup. that was, you know, notable for a year or two um in part due to some fiscal policy and then just part um labor related issues and that's disappeared and of late you know the income gains are widening once again both not just between you know the top and the bottom but also between the top and the middle and what's resulted is that much of the consumer spending in this country in fact almost half of it comes from the top 10% of earners in America uh That is the thing that increasingly drives economic activity and you can see it through the various announcements and pronouncements that come from publicly traded companies who talk about you know their efforts. You see numerous up until recently numerous airlines all talking about wanting to go up market and I don't just mean the likes of Delta which has always been in that area but you know the likes of Frontier and Southwest and and companies that were you know more uh inclined to serve the sort of broader mass market you know and you have the same thing you know one of the best performing stocks over the last something like 10 years or so has outdone most of the tech names is Walmart. Why? because Walmart has found through online uh its online memberships that it can serve, you know, the plus 100,000 uh a year earners even more who are, you know, flocking to it. Um and and that's become sort of the main stay of things. And so sometimes I ask the question and I don't have a good answer for it is that you see the you know weakness in consumer sentiment surveys. You see that when those surveys go up, it's largely because the upper echelon earners when asked are happy about their stock portfolios. Um, but you see the reasonably okay consumer spending figures that continue at least until recently to chug along in the United States. If we were in a recession, would we even know or is is 70% of the country in recession and everybody else and the rest are the ones that are just kind of carrying this thing along? And maybe that's, you know, not much different from 10 years ago or something, but it can't it's certainly not the way the economy always was. And so I can't help but think about that sometimes. And I don't know the answer. >> Well, it's like it's like a company that does very well in their earnings, but yet multiple divisions are not doing well. Same thing, >> right? >> You know, but what's interesting you mentioned about Delta Airlines last week, they came out with an announcement. They talked about how they I don't even know how they did. I was like, what? They're like they're projecting a much better um travel season. They all this stuff is going on, right, with people not wanting to fly due to war. People not want to fly because they don't fly, they don't want to deal with uh the whole line thing going on at the airports right now. And Delta comes out with this really rosy outlook. How does that happen? >> Yeah, that was curious to me as well. >> Seriously, it was quite weird, right? >> Yeah. >> Who's is it still is it Ed Bastion? Is he still in charge of Delta? Is that who it is? >> He is. Yes, he is. And you know, they had been doing Yes. and he he is still in charge there and they had been doing very well. Um they seem to at least you know as of right now still have a very strong outlook for everything which is interesting. Um and that was you know continuing up at least until very recently. It's possible that you their Middle East uh business is pretty much dimminimous. It's you know perhaps that their growth is the long haul flights to Europe and to Asia and places like that as well as a lot of America. So uh and they do rely very heavily as much as they can on the higher priced uh seats in you know the economy plus and the first class and business cabins. So uh I am surprised in some sense by it too and we will be interested to see how that evolves over the next few months. >> Right. So um again we see a lot of K going on right this >> world of many different levels and um you know if you're in one you can only see that if you're in the other you can only see that the markets themselves have been extraordinarily resilient don't you think through all the things that we've seen over the last I don't know six months I'm just going to use six months we can go longer but but but unbelievably resilient and I think a lot of that still is the excess stimulus A lot of people didn't see that the one big beautiful bill act, the OBA, that was that was that was stimulative. >> There was >> It was Yeah. And the expectation was that it was going to be stimulative for this year with um some favorable things like tax uh refunds and that kind of thing. So the expectation was that that was going to come into the um you know uh that that that that was also going to come into play as well. Um so you know we will see how that pans out uh as people start to get tax refunds and if there is any kind of stimulative effect there as well. >> Right. Let's uh switch gears here. Uh let's talk about Powell. He he's basically a lame duck right now. Uh but yet still saying that if Worsh is not uh if Worsh is not going to be confirmed, he'll stay in as a promp and just you know hang around. not sure if he's going to stay in as the on on the committee otherwise and also not going to be giving up any position at all until all the lawsuits are dropped. He came out with a conversation the other day where there was no change in the Fed funds rates and there was a lot of uncertainty. I think the most use of the word uncertainty in a Fed speech in a very long period of time. He also said that the the basically the war with inflation is not over, >> right? >> Which I thought was pretty interesting. They were they were seemingly claiming victory or at least close to victory for a while and now they're not. You got Steven Mirren who's just you know I don't know what is he's just he's just wants rates lower so forget him but there was basically uniformity uh with the others about no increase. I think they're starting to see things that PPI numbers were absurdly high. So >> what's the thinking out there on um the Fed the Fed penciling in a slightly higher inflation look for 2026? >> Yeah. No, it's it's it was very interesting to see that. And what's also interesting the most recent um meeting as well is that you know as you mentioned some of the other governors, Christopher Waller didn't descent in favor of a cut this time either. uh he had dissented back in January and gave a big, you know, his statement through the Fed as as to his reasons on it after supporting rate cuts prior to that. Um but if he's not on board, you know, then we're not getting interest rates lowered anytime soon. And so, you know, and Powell was talking a lot about inflation, the inflation overshoot, um a lot of the upside risks right now. Um and it has been, you know, we've already had inflation that's been high as it is for several years now. And so while there may be some concerns about the labor market that still exists, the labor market seems to be on the softer side, uh the job growth has not been great, and he even said that we've essentially we're at no job growth right now. You're still talking about, you know, a lot of uncertainty around the war and and where things stood, you know, never mind the unclear situation with tariffs, which maybe that by now had been baked in, but uh you can't help but think that, you know, there certainly the Fed is now on hold. the market doesn't see them doing probably doing anything this year. And if they're going to do anything, it's a rate increase by the end of the year. And as you said, producer prices were up, you know, by the most since July. Um, we're at the fastest rate of growth we've been in a year at 3.4% for wholesale prices. It hasn't been as bad in the consumer inflation, but you never know. Uh, and you know, and and and from a consumer's perspective as well, the thing that people of course notice more than anything else is gasoline prices. and um those are just defiantly moving higher not far off of $4 a gallon nationally which is always been kind of a painoint number. So I don't see any way in which you know the Fed officials can really credibly call for more uh rate cuts and obviously they don't as as well >> unless we look through the oil situation and realize it's going to create a lot of pain for individuals and therefore the economy slows down precipitously which is the potential outlook that I'm seeing now. Before I didn't see any rate cuts at all because I thought inflation was there and now you would you would look at me and say, "Well, Andrew, here's the deal. There's gonna be more inflation coming." But that inflation due to the stoppage of maybe fertilizer that's going to slow this planting season and create less yield. And then the other thing about oil that all look well semi- temporary on oil. I'll just I'll I'll put an asterct on that one. But the thing is that that in itself can slow the economy down so dramatically. Uncertainty, war, higher prices that they may actually have to look at other options and think about looking through the inflationary number is what I think eventually once we get to that point and actually cut rates rather than raise rates because I think if they raise rates into that and they do it because the majority of the gains are in energy that would be problematic for everything else. That's just an opinion. >> I understand what you're saying and you may very well be right. Uh it doesn't escape my mind that we are entering into an uncertain period that you've just described where upon energy costs and you know associated costs like agriculture and other things and transportation continue to rise while the relative weakness in the labor market and the uncertainty around that and the higher costs kind of restrained growth. And there's a word for that I've heard. Um but uh >> don't say it. Not one. Don't say it. Yeah. Not going to say it. But still, you can't help but, you know, think that that isn't entirely out of the poss realm of possibility here. >> Yeah, we're entering the 70s again. >> Good grief. Yeah, we're entering the 70s. I can tell you stories about that, but um let's switch and do a do do a little bit of a a right turn, a hard right turn. >> Sure. >> Let's talk about um private credit for a second here. the private credit world. It's interesting because uh I've told this story before. I don't think I've told you. About a year or so ago, I was at a conference down in Miami and I was asked to come to this cocktail party at the end of the conference to meet a bunch of the guys and there's a bunch of people that have been on the show and all that at the conference. So, all right, I'm there. I'll go. So, I went down to the conference, went to the cocktail hour and I get literally swarmed out of nowhere like I don't I don't even know. I'm I'm just like minding my own business, by the way. >> And I get by by people telling me, "Hey, how much private credit's in your portfolios? >> What? You need private credit?" I'm like, "Who are you?" You know? >> Yes. >> And they're telling me private credit, private equity. You got to have it. It's the thing. If everybody's doing it, you got to do it. Let me give you my card. And I was like, by the end of the event, I'm like, uh, there was one, it wasn't event, it was a two drink cocktail hour. That's what it was. I was like, this is ridiculous. So, I immediately started thinking about that. That was about a year or so ago and decided I got to steer clear of this stuff for a lot of reasons. I I always steering clear, but I'm not going to get myself into it. Let's put it that way. >> And and that kind of really resonates with me now at how the the the move to really sucker I use that word seriously and and and I use it unabashedly. um sucker the retail into a non-liquid investment which they said was semi-liquid which is total by the way and they get in them into this and not telling them really you can't you really can't get your money out without taking a major haircut on this and here we are today with 9% I think there's a 9% default rate right now which is higher than ever that we've seen in an in in in a in a vehicle that you can't get your money out of, >> right? >> Defaults would be worse if you could actually get your money out, by the way, because then there would be lack of liquidity. So, you got a liquidity lockup and you have a default thing. Obviously, we never learn our lesson. >> Yeah. >> The reason private credit was born was because the need for need seriously listen everybody should listen carefully. the need for a lack of transparency and hold up and lock up periods after the crap allo that was pulled by the banks back in 2006 through nine, >> right? >> That is no longer allowed. But once you bridge over to private credit, voila, you could do those kind of things. You could do that crazy kind of lending, lower your lending standards, hope for, wish for, you know, and that's what really happened here. And the question is long-winded discussion to now throw back to you. Is there any systemic risk in what's going on? >> You have to wonder, you know, you can't help but say, you know, you know, it it it doesn't repeat itself, but history does rhyme. Um the sector is now a $2 trillion sector and the worries that are coming through are the kinds of worries we've heard before. You know, returns start to flag. People start worrying about their money. Redemptions start getting cut off. You know, they now start saying, "Well, you can't remove your money." Anytime somebody says you can't remove your money, people start to say >> worst thing. >> Now I want my money. You know, that that that's that's uh you know, a little bit more of a concern. the the private credit sector is not as large as the subprime sector was with with regard to um housing. I mean it's 2 trillion I think um the subprime was much larger than that. Uh so in that respect it's not as large but you know there is a heavy amount of retail investment involved. The invest uh uh people said it's somewhere around 16% of investment is retail investment whereas in 2020 was like 5 12%. So you you do have much more skin in the game from retail investment. um private default rates are growing and so you know certainly there could be some ruptions after you've already had you know a couple of those bankruptcies like those auto parts companies you had the blue owl thing and so you do have to worry about that the transmission for all of the problems um if we start to see some real problems with economic growth may not be directly as a result of this. It may be that it it is a side contributor if you know we see an economic slowdown as opposed to subprime housing where it was the absolute culprit and was at the you know center of everything that happened when the when the housing market you know cratered. Um but that doesn't mean that you know the world is you know or the country is out of the woods on it that it shouldn't be paid attention to. It's just going to be yet one other thing that could be a problem for people. This is just again one. But private equity, private credit, >> I could tell you some of the private equity stuff that I've seen cross my desk. I'm I'm See, that's not happening. I mean, literally, that's I could tell you none of it ever happened here. I have never that I'm aware of uh had any clients move into any nothing that we've recommended. >> Nothing that we've said we're doing this. We may have hedge funds and things of that nature and SMAs much different liquid, relatively liquid. Some some some have quarterly distributions, but okay, most of but this stuff where you're literally blind. Private equity, you're blind. You're hoping they're doing what they say they're doing with your money and then they're sending you statements that are extraordinarily difficult for the average person to read >> and then you have capital calls and then capital and then you have distributions that are held back that can be uh utilized once again uh for capital calls in the future. So you have these kind of I'm getting my money but they can give it back to them and a lot of you know strange things that go on inside of all this >> and they have total control of your money >> and and the transparency is not which we call opaque >> and dare I say that the oversight is much different than it is with your liquid investments through regular custodians and brokerages. >> Much different. Yeah. >> So, this this if they don't get their together, to be honest with you, it's going to be a real death blow to this industry. The institutions will still want it, but retailers is going to say, you know, screw that. And by the way, you knew it was going to be a problem as soon as you started hearing them trying to get into the 401k plans. >> That was that was like the oh god, here we go. Trying to rug pull on the 401k is not a good idea. >> Yes. That's always the reason, isn't it? It's always the thing that you start to see is that as soon as you start to see this trickled into things like, you know, um, you know, retirement plans and retail investment, it's kind of, you know, you can't help but feeling it's like the last rung on the ladder here, you know. >> Yep. >> Yeah. >> Um, let's kind of close out with some of the AI discussion. And, you know, anthropic, that's a big thing. It's in the middle of this whole mess with the government. It seems that they don't want to contractually obligate themselves. Well, the government won't allow them to put into the contract that Anthropic can essentially throttle some of the things they're doing in the event that Anthropic feels that it's against uh what their core beliefs are. Is that a summation? Is that a right? Is that correct? >> Yeah, I think so. I mean, yeah, that was the dispute between Anthropic and the Pentagon was over what kind of guard rails it would be, you know, by which it would use its AI tools. And there was this all kinds of you know um you know back and forth over it. You you then start to you know get to the point where then it gets labeled a supply chain risk. Um but it's funny as a result you know we just published a story about uh where we spoke to some Pentagon staffers and other you know former officials say that the military is reluctant to give up on anthropics AI tools because they think they're superior to the alternatives. they they I think tend to think they're, you know, um better, that the Claude model is the best one. Um that the XAI Grock is uh inconsistent and nowhere near as good. Um and so, you know, ripping that out from what the Pentagon uses doesn't seem to be something that's going to happen easily. Of course, you know, the, you know, kind of rhetoric that we've seen from the likes of the administration makes you wonder whether they're going to continue to try to take retaliatory action against anthropic, which um, you know, in there's a but but it has been working with the defense department for a good while and so it's been using their tools and as a result, you know, the you know, the defense department, I think, seems to really value it and that gives you the impression that, you just sort of you know chopping this out and throwing in something new will not be easy and it will make things less productive. Well, also the other thing is that I heard I have some colleagues and and contacts in the industry that knows a lot about this situation is that the biggest concern is if you if the government says no government uh contractor can utilize anthropic and any of the work that they're doing related to the government. That means that the trickle down impact of that where a lot of people are already embedded and ingrained the tentacles of anthroic usage is inside of those companies separate companies private companies public companies >> right >> whereas IBM may be using I'm just picking this as a weird example but IBM may be using anthropic for something to do with something that attaches to this that that by the way has an you know that the government some part of the government may be working with that wouldn't be allowed and then all of a sudden it's going to be like wait I got to rip out the entire usage of this to what and that has to go at what to what degree you follow what I mean it's it's really problematic >> yes I that's you know there's some real questions that I think people have raised about you know this decision and and what it will do as far as productivity um the the undertaking of doing this and then the questions about you know how other companies that had been working with Anthropic will they be able to use it for their non-governmental activities and how do they make sure they maintain that wall as well. Um it feels like a lot of uh you know make work a lot of stuff that's been added in that will make things difficult for more people. >> Yeah. >> Um it's a path of most resistance kind of move is is how I think some people are putting it. >> It's going to be kind of fascinating what falls out of this because there is a a period of time that everybody has to undo this. But my hope is that they can come to an agreement if it is the best product. You know, if it's the best product and there is a desire to have some guardrails on it, I don't see the necessary problem with that. There should be for all of these kinds of products, but who knows? Who knows? David Gaffin, Reuters, make sure to check out Reuters. Read what he has to write and what is going on with the in the business and stock and the world and all that over on Reuters. Thank you so much for joining me as always. I appreciate you. >> Yeah, it's great to be here. It's always good to talk to you. >> Thanks so much. >> Thanks, Andrew. Yep. >> See you. >> Another great show of great information with a great guest. We have some other ones coming on next week. Howard Linden. If you have not heard Howard Linden in the past, you need to tune in next week as he comes on. He is a null holes bard tech giant and marketing guru, social media maven, just a great guy overall. I've known him since uh 2007, I would say. One of the first guests I ever had on this show actually was Howard Linden. And he is just a He's funny. He has great information. I think you're going to really love him. Coming up the week after that, Thomas Thornton from Hedge Fund Telemetry. So, we are lined up. We are locked and loaded. Things are good. Thank you for joining me this week and every week. And I'll see you again real soon. This podcast is intended forformational purposes only and does not constitute personalized investment advice. 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