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#FinanceDaily: 🚨 UAW strike escalates | Oil surging to $100?
Recorded: Sept. 19, 2023 Duration: 1:09:39Space Recording
Short Summary
The discussion focused on economic indicators, labor strikes, inflation, and the Federal Reserve's potential actions. There was no mention of crypto-related topics such as project launches, token sales, or blockchain innovations.
Full Transcription
All right, just a couple of minutes, and we're going to get started.
A lot to talk about.
Yeah, just reading about the new demands and the Stalanta situation.
Have you guys been keeping up without?
I'm happy to kind of get everybody started on the UAW strike.
So really quickly for everybody that's joining us, if you've been living under a rock,
and you don't know that the united auto worker union has been striking that's okay uh it's
your lucky day we're going to walk through it together uh but uh for the past few weeks they've
been talking about striking you know uPS uh did a strike a few weeks ago we saw the mcgonald
situation um and then ua w officially started strike uh
and asked for the moon and back.
They wanted 300,000 fully loaded over the next four years, I believe.
And what's wild is that GM offered 20% increase, a 20% increase.
And UAW said no.
Stalantis offered a 21% increase in,
with 10% increase in year one.
So an immediate 10% increase, UAW said no.
And as of this morning, UAW will strike at additional US auto plans
if serious progress is not made by noon on Friday.
So according to Sean Fane, who some people love and other people hate,
You know, Marianne Williamson came out, presidential candidate, and she said that he's the real deal, or the words that she said.
You know, the Biden administration has come out and has come in support of UAW.
A bunch of different people on the left have come out in support of labor and support of UAW, which may or may not be the same thing if you look at it from my perspective.
But long story short, it seems as though there is tons of momentum for UAW to continue to do what they're doing.
Right now...
They have already started, had, already had targeted strikes at assembly plants.
So about 12,700 auto workers.
But this is another escalation alongside Uniform, and this is what people don't think about, but Uniform, which is the Canadian...
Union, which extended the deadline from yesterday to tomorrow because of a very good offer from Stalantis, apparently.
Craig, your initial thoughts on the UAW situation.
We haven't had a chance to check in about this UAW situation.
Your thoughts about how it's going.
And, I mean, strikes are always hard to predict how long they're going to go.
But we know that they're going to get at least 20%, if not more.
And that could send ripples down the labor market, right?
Yeah, I mean, this is more of, I think, a generic comment about labor and about collective bargaining and then specific to UAW.
But I think one of the things that the Fed in their analysis of forward inflation, you know, really hasn't modeled is the rise of collective bargaining and the impact that workers...
you know, growing in strength and importance, you know, may have on forward inflation.
I mean, it's been 40 years of,
of profits up, corporates up, wages down, workers down.
And, you know, it seems like we're starting to get, you know,
increased momentum here on the labor front.
And this UAW strike just kind of seems, you know,
like a potential frying pan moment where, you know,
the biggest or one of the most powerful unions in the country
is really, you know, digging in its heels and making a stand
in order to extract, you know, more, you know,
from management and from shareholders.
And so, you know, the question then becomes,
are we at the beginning of,
of a wage price spiral cycle here in the U.S. that the Fed has said, you know, there's no evidence of.
And if you look at this example, if you look at the nurse potential for a nurses strike in the
Pacific Northwest, Kaiser Permanente nurses and medical and healthcare workers are looking at
potential strike at the end of this month.
that's 60,000 workers.
That'd be the largest healthcare strike, I think,
in the country's history.
So another potential, you know, large labor, you know, negotiation.
They're looking for 7% wage growth for the next two years and 6.5% year after that.
You mentioned the double digit, you know, increases that the UAW is looking for.
Even the federal government for next year has announced, you know, 5.2% wage growth.
So these are figures that are very far away from 2%.
And they're very far away from an environment where the U.S. can return to a 2% inflation environment.
So to the extent that labor and wages showed no meaningful deceleration and momentum, it's going to be very difficult for the Fed to kind of announce that there's going to be a mission completed.
on returning inflation back to 2%.
So that's something that I'm particularly concerned about here.
So, Craig, as a question back at that,
I want to hear more from you.
So I love the comments.
I've been saying that I know that some people here disagree with me on this.
So it's nice to have somebody that does finally agree with me, which is nice.
But Craig, one comment, one question I had,
some pushback I have received about this comment is that, look,
Unions represent 11% of American workers.
How does this kind of get past just the unions?
Yeah, look, I mean, these are the types of,
I think these are types of movements that, you know,
pick up momentum,
you know, in the press and in the narrative and in the public psyche a bit, right?
I'm not necessarily calling for some sort of sea change here, but, you know, the more that
Americans see on TV, you know, union workers that are striking, the more they hear from politicians
that, you know, CEOs are making $30 million and they think that's justified and workers are
not getting their fair share, the more that kind of ingrains itself is.
into the psyche and into inflation expectations. And so again, it's a slow moving concept,
but with worker power, you know, basically at the lows, you know, over the last 40 years,
it doesn't really, it doesn't really take a lot.
And so I think in an environment where we have these structural supply demand issues for labor, there will continue to be positive momentum here on the wage front.
And then when you combine that with some of the other factors out there on inflation, particularly energy, which I'm sure you'll get to in a bit.
You know, you have kind of two big drivers, again, that are showing, you know, potential for acceleration, reacceleration or certainly for higher prices again for 2024.
And so when you think about what the Fed is trying to accomplish and how they're going to accomplish it,
you know, there may be more hawkishness coming out of Powell tomorrow and out of the dot plot
and out of, you know, what the Fed is thinking than is currently being priced in by the markets.
And so I think there is a disconnect here.
And something like wages and labor and collective bargaining, these are not things that necessarily are modeled.
But they do kind of seep into inflation expectations.
And so that's where I think we can get a Fed that becomes more concerned
as inflation expectations are to rise again.
So that's what I'm thinking about.
And Craig, you know, I'll go to Cody, Dakota.
But, you know, one of the commentaries that I've had is we've made this mistake before.
We made this mistake in the 70s.
The longer.
inflation, uh, uh, uh, stays high.
the lagging things like wages will start catching up.
And we saw this in the 70s, Dakota.
I want to go to you.
I know you disagree with Craig and myself.
So I want to give you the opportunity to respond.
How does this not lead to wage inflation?
I mean, we've already seen that 20% is on the table, Dakota.
So 20% is already on the table with 10% in year one.
If you see one union do it, I think we all know that other unions will follow suit.
And as unions across the country do this, and if the Fed has not factored this in to their equations, are we not making the same mistake twice?
Yeah. No, I think there's good points there for sure.
You know, I think we're definitely in a different environment than we were in the 70s.
you know, with regards to Craig's point regarding Kaiser, for example, you know, a lot of those wages are already baked into the cake. You know, what, what that,
What the healthcare sector is fighting for is labor stability.
Across the board, you know, travel nurses and, you know, locum's tenants and some of those higher wage, you know, rotating jobs have caused a lot of wage pressure inside of the health care system.
And so these big healthcare systems are now trying to fight for stability across the board.
So increased wages there, again, those numbers are really baked into the cake.
So we're going to see some of that play out for sure.
That narrative will take hold, especially in health care, in order to stabilize that market.
But I think it's more headline than anything.
We're going to hear more of that across the board down the future.
But you're also going to see the layoff side.
I mean, we're seeing it now, you know, across the Midwest
where a majority of the marketplace that we operate in,
you're seeing hospital systems lay off, you know,
anywhere from 100 to 500 people.
every month. It's pretty wild. And now you're starting to see it across the board.
But Dakota, you're still not saying, sorry, I have to push back on anecdotal. We're seeing the
overall numbers and the overall numbers don't support that employment is getting soft.
Like we're seeing very, very little movement in unemployment. How do you kind of square those two?
But you're starting to see it, right? You're seeing it with GM in Kansas laying off 2,000 people.
You're going to start seeing it in Ford plants, you know, in...
in states like Missouri and Columbus and Michigan.
I mean, these talks are already happening as they're raising rages.
You're going to start migrating jobs south into Mexico.
You're going to start laying people off.
These conversations are being added to the corporate level.
I'm just not as convinced.
I know I agree that offshoring is a natural thought process around here,
but I believe that this administration is going to come out and come against that.
And I think that a lot, remember, they're in the middle of collective bargaining.
This is a bargaining chip.
saying, hey, you're hurting your fellow man or woman.
And I think that's part of what's going on right now.
They're saying, hey, if you keep doing this.
Because what's happened in the entire production process,
there are different parts of the production process.
Some of the stampers are still there.
And they're saying, hey, look, we have nothing to stamp.
We're going to have to lay you off.
and they'll hire them right back once this negotiation is done.
I'm not 100% convinced of this.
I think the job market, the labor market is way too tight right now.
And I think they would be, you know, there would be pandemonium for these organizations.
But.
But, you know, as we go further into this situation, how long can they go?
Darren, you know, your initial sense of how protracted is this going to be.
And the longer this goes, how does it affect the market sentiment?
Yeah, thank you, Dinesh.
I think one of the things for me, I'm a paycheck's preferred advisor.
So, you know, one of the data sources that I use is just from paychecks overall,
month over month, wage increases, you know, that has been steadily increasing, you know,
for the last 18 months. We're not seeing that slow up anywhere there. I know that the Fed is
particularly looking at core inflation, you know, X housing, particularly in services, right? And so
that's going to be a measure that
We may see some comments from the Fed come out tomorrow.
And, you know, I just think overall that talking about inflation rarely makes inflation go away, right?
So the more that we talk about it, the more that it becomes embedded in the overall economy.
You know, I was just saying that prices are actually rising faster than my ability to make jokes about it.
So, you know, I think overall...
Whatever data source that you're using right now, whether it's anecdotal, whether it's, you know, from alternative providers like paychecks, whether it's the Fed numbers that they're using, I think we are seeing, you know, inflation overall coming down from its all-time highs.
But the longer term trend, if you look at it from, you know, a 12 or 18 months cycle, we are seeing that start to pick up, which is,
I think overall may mean that inflation is not going away anytime soon.
So, Mish, how does this play out in the markets?
I mean, how are you thinking about inflation now with all these strikes happening?
You know, I have a tweet that I'm going to be sending out, which is calling this the summer of strikes.
You know, we're seeing strikes happen across the board.
We're seeing, as you might already be aware, August was saw 4.1 million labor hours lost in August.
This is the most for a single month since August of 2000.
You know, what are your thoughts about what this means for the broader economy and just in general for the markets?
Well, I think I posted, good morning, Danes.
I think I posted the chart that compared the CPI in the 70s to today.
And it's interesting.
I hadn't thought about this before, but as I was just listening to You talk, I thought about that movie that Spike Lee did, summer of 77.
And so the whole idea that it doesn't necessarily have to look exactly like the 70s, that history doesn't necessarily repeat. It rhymes. I know it's a cliche, but it's coming up a lot. And I know you've said it too. If you just look, whether it's the strikes,
You know, you never exactly know what the catalyst is, just like at the end of 2019, beginning of 2020, when equities was at a hundred year ratio against commodities, right? Commodities were at a hundred year low versus equities.
You knew it wasn't going to be sustainable.
Could we have guessed COVID?
No, but we knew something was going to happen.
And so looking at the present right now, it's the same kind of thing.
And what's so amazing to me was that in 1973, we were sort of recessionary,
especially after the oil embargo and then inflation spiked up in 74.
It came crashing down by 1976.
Right.
And people thought inflation was over.
We had a new administration coming in at that point.
It was Jimmy Carter.
And more flexibility in terms of the interest rates because he wanted to stimulate the economy,
sounding a little familiar.
And then, of course, we had that huge spike back up in inflation,
taking out the highs of inflation that we saw in 74 peak, going even higher up in by the time we got to 1980.
So...
If we're looking at what's happening right now, the narratives of why, whether it strikes,
obviously what's going on with oil is somewhat similar.
We've seen pressures with particularly some of the soft commodities.
You know, coffee's been going up.
Now orange juice, new all-time highs, sugar obviously at 12-year highs, et cetera, et cetera.
And then we look at the Fed policy right now and that idea we talked about last week of normalization where core and interest rates are relatively in sync with each other, which is why you're hearing people say soft landing.
Again, it feels unspeated.
sustainable. So, you know, plug in the reason, but here we are basically rhyming with, now we've
come down to this 3.1, now up to 3.6 in the core, all right, I should say in the CPI. And we've got
all these factors. To me, I'm, you know, I'm in the same camp I've been all year. I may have been
early.
But I've been warning people.
And then the last thing I said to y'all on, I think it was last Thursday, was watch the gold miners.
They've been so underperforming.
But when they start to move up and outperform the precious metals, that's a very inflationary indicator.
And of course, we can see.
that the gold miners have taken a run.
They're up a little bit here in the pre-market.
And this is all ahead of the Fed with a stronger dollar and stronger rates.
And of course, that's giving a little bit of a bid to the precious metals, which is exactly what happens.
And we could see the second round of inflation coming in.
It won't hit every single commodity, but it will certainly hit the commodities that people feel that they need to hoard.
And that's part of the social unrest as well.
So that's kind of how I feel.
So yeah, this strike is definitely making me feel bolder in that call.
And it's also, I couldn't have guessed necessarily this was going to be the catalyst.
But we know it can be because this has a domino effect.
100%.
I will say that Craig's initial point is,
kind of scares me a little, which is the Fed has not factored this in.
Absolutely. I wanted to say, and I'm glad you mentioned his name again, Craig, because I didn't
pay attention to the name. Yes, I everything he said to start off, or at least when I came on,
was right on 100%. I even gave it 100%. So yes, he'd his warning.
Yeah, because I don't know where David just dropped. But, you know, I think that
As we look ahead, oh, there he is, as we look ahead, I think the Fed may be making an error, David, welcome back.
I was going to say the Fed may be making an error, David, by not factoring into,
fact factoring this wage inflation that is occurring across the board.
I know that some people are even thinking interest rate cuts next year.
I'm just not seeing it.
Wanted to get the other point of view.
Go ahead, David.
We'd love to hear from me.
Yeah.
So I think it's really, really early to go ahead and, you know,
draw parallels to the 70s.
I mean, from 70 through 81,
we averaged 8% inflation per year for a decade plus.
We are so not near that type of span of time.
And I really don't believe we're going to get there.
But even for those that do believe that the period of time that we're currently looking at
to go ahead and draw the parallels is way too short currently.
And in terms of this strike, I mean, I get it.
I mean, I understand the reason that this strike is important, right?
It's unprecedented in a way that the strike is happening against all big three at the same time.
In addition, the fact that the big three now have a...
A foil in terms of Tesla is very important, in terms of another automotive company that arguably is more successful and is paying workers differently and paying workers or rewarding workers differently and paying them less hourly.
And then in terms of the size clearly of what the UAW is looking for, right?
We now know we're talking about somewhere between 20 and 40% in terms of the increase in wages over the next four years.
That's big.
Yeah.
right um and also in terms of the tactics being used we've never seen um you know this type of tactic
there was there was a play last night in one of the monday night football games that was totally
you know unprecedented in terms of person ran i forget which game it was someone ran you know from
way on the sidelines go ahead and block a punt and
And, you know, the announcers were totally like flabbergasted.
They were like, that was a brilliant move.
And we'll probably see that more often.
You know, same thing with the UAW here in terms of these rolling kind of walkouts or rolling strikes.
We have yet to see whether they're going to be effective at the end of the day, right?
If the automakers can go ahead and pretty much work around this,
Yeah, there's a little bit of an element of surprise, but that being said, you know, it's a lot more pressure, you know, if all hundred plus thousand workers walk out as opposed to, you know, having a couple of plants at a time.
We'll see if this works.
I just, I, I, I'm not ready yet to go ahead and say that this is a paradigm shift.
vis-a-vis the success of the unions,
in terms of asking for higher wages.
We have to see how this goes ahead and plays out,
and if, in fact, the unions are seen in the court of public opinion,
this is the most important court for purposes of the results of this,
in terms of asking for a raise.
Sorry, do we lose, David?
Go ahead, David.
Sorry, I can hear you again.
Go ahead.
Oh, I'm sorry.
In terms of asking for a raise, right?
I mean, people would not have thought
to go ahead and walk into their boss's office and ask for a 30 plus percent raise.
But if the UAW is successful, maybe people will be emboldened to go ahead and do that.
And then yes, Donish, I go ahead and, you know, tip my cap to your point about, you know,
wage inflation trickling through the entire economy and becoming a problem for the Fed.
But I think we really need to see how this rolls on, how it unfolds, who seems to go ahead and win, and whether there is a lesson to be learned for other industries.
It's a really important point in time. Don't get me wrong. But I think the jury's out still in terms of what the result of this is.
Because I do believe that there is still a lot of uncertainty about whether it's,
the automakers are actually going to lose this.
Yeah, I mean, I'm trying to come up with a catchy word for this,
but, you know, days idle due to worker stoppages are, again,
the highest they've been since August of 2000.
We're talking about millions and millions of hours.
Right.
you know, 4.1 million days lost this year in August alone.
This is a worker days, which is insane, David.
And, you know, we can see how if you have tons of demand with reduced production,
that leads to inflation on its own, right?
I mean, supply of labor becomes a big issue.
Right.
I'm very interested in your. Yes. Yes, but on the other hand, remember, most automotive purchases are financed, right? And interest rates are going up. And so therefore, the demand side of the equation, I don't think is as robust as it once was. And so therefore, we may not have the same inflation.
And on top of that, they still have to compete with Tesla, which is still running in the same labor model that it has been.
And frankly, they've been able to cut prices in order to go ahead and gain market share.
So I don't really know how the dynamics of this are going to play out at the end of the day for purposes of the sticker price of the car.
That's what we're talking about here.
Agreed.
I don't know if that's going to work out the way we think.
By the way.
If these guys end up getting $300,000 for a four-day work week, I am long housing in Detroit.
That is just a mind-blowing number, right?
In terms of, I mean, it would be crazy and in the fly in the face of everything else going on with wages, you know, throughout this country.
Well, I have a feeling a lot of doctors will quit and join the assembly line if you're making $300,000 for a four-day work week.
I was going to say that breaking news, housing start data just came in, and it is a doozy.
U.S. Housing Start number was $1.283 million compared to a forecasted $1.439 million.
Big, big change month over a month.
Housing start change month over month was actually down 11.3% guys as compared to the forecast of negative.9%.
I'm confused about why...
permitting has gone up, but housing starts have gone down.
U.S. building permits went up by 6.9% compared to a forecast at negative 0.2%.
Who the hell is forecasting these numbers?
They're off by, you know, orders of magnitude.
I am very confused.
And the reason why this really matters is right now, if you heard the prevailing theories,
The belief is that inventory is tight.
Well, permits are up by a lot of it.
They're up by 6.9% compared to a forecast at negative.2%.
That means that building permits are up.
but on a month over a month basis,
but housing starts are down by negative 11.3%
as compared to a forecast at negative 0.9%.
Dakota, this is your area of expertise.
What do you think this tells us?
Yeah.
Yeah.
It gets confusing in there, right?
You know, Amy, you know, if she was up here, she could comment on this as well.
And this is something we've talked about in past spaces.
I think this has a lot to do with these aggregate funds that are, you know, going and applying for permits,
on a for build to rent properties you know single family build the rent BTRs as individuals are called
you know the funds will go and apply they'll aggregate the fund and then they just are stopping
they're not building um mostly in the southeast we're seeing it across you know Florida you know
the Sunbelt Texas
That's where a lot of this is happening.
And those are the markets that are getting hit across the board.
You know, we've been seeing this unfold for, you know, four months, five months now.
So I think that's kind of what's happening here is the drop off and the actual funding of these building developments.
Yeah, very confusing data.
I have to say, Darren or Craig, any thoughts on this data from housing starts?
Again, for everybody, housing starts month over month were actually negative 11.3% compared to a forecasted negative 0.9%.
And the building permits change month over month was actually 6.9% versus a forecasted negative 0.2%.
Any thoughts on these numbers?
Yeah, Danish
I would just
emphasize
meaning and lagging
economic indicators, right?
Darren, you're cutting in and out a lot.
Your audio is kind of
kind of difficult here okay yeah can can you hear me better now oh way better go ahead yep yeah so you know
i would just differentiate between leading and lagging economic indicators right so building permits is a
leading economic indicator that's going to have you know some month over month noise i think you know on the
back end of this employment is a lagging indicator you know meaning it
it tends to change after the economy as a whole has already began to shift, right?
So as we look at, you know, total economic jobs and wages, they tend to be the last warning sign.
of an economy turning rather than, you know, a first warning sign. And so we have seen
construction manufacturing take a bulk of the growth in wages over the last 12 months. If we do,
if this is a, you know, a trend that's continuing, if we see a real, you know, sharp
demand drop in these leading economic indicators, you know, that could be a signal of a, of an economy
that could be trending down that would then, you know, have ramifications to employment as a
lagging indicator later. So, you know, I just say it's really hard to predict these things in the
future, right? This is maybe just one month, right? But overall, um,
you know understanding that that lag between you know both indicators i think is helpful to
maintain perspective here yeah it looks like and uh david i'll go to you and then gary would love to
get your thoughts as well david your your initial thoughts on these numbers because it looks like
inventory is coming that's what it looks like to me but i wanted to get your thoughts
Look, I think that the builders understand that they are the only source of inventory in this market, and they will be the only source of inventory for a pretty long time to come.
If we all believe, you know, it's higher for longer, it is going to make it next to impossible.
Right.
for people to go ahead and make money on selling homes and getting into a new home with a mortgage.
And so if I'm plotting my business as a builder, I'm saying the field is wide open.
I'm going to go out there and secure as many permits as I possibly can.
you know, and plan appropriately, uh, in order to go ahead and for the next while,
take advantage of an incredibly imbalanced market. Um, but let's go back for a second, you know,
to employment and inflation, by the way. The house, the,
The home building sector is way bigger than automotive manufacturing.
And I'm concerned about all the people that are out of work in housing.
I have a brother that's a roofer.
So I kind of know the business decently well anecdotally
in terms of repairs versus, you know, new builds.
And you're talking about everything from supplies to actual building
to also mortgage specialists and mortgage brokers that are in a bind here.
I mean, we're talking about a lot more jobs
and a lot more cuts than whatever could go ahead
and be on the other side of the scale
vis-a-vis the automotive industry.
So, you know, we may get some balancing out here
and we should, just like we're watching auto closely,
we should continue to watch construction closely.
And I don't need to tell you, you know, commercial has,
you know, especially in big cities, has gone to hell.
So, you know, we're not getting any construction there.
So there's got to be a lot of folks that are nervously, you know, sitting around and at some point going to throw in the towel and say, hey, you know, I need to go ahead and find another job for a while because my industry is essentially in the daldrums.
Yeah, Gary, what do you think about this housing starts data?
I'll be putting it up in a second.
You know, your initial thoughts on permits up by, you know, a crazy amount.
Month over a month was 6.9% but forecast it was negative 0.2%.
And year over year was 1.543 million versus a forecasted 1.44 million.
Clearly people are putting in permits.
Does that mean that inventory is coming?
Dude, I have no idea.
Like, I think this is the most insane market I've ever seen in my life.
You cannot possibly have three auto dealers go from 120 grand to 300 grand salaries.
It's not sustainable.
I'm stunned the markets.
Clearly, no human beings are trading this market anymore because you don't have this kind of news come out and that.
The car companies go up one or two percent.
Or even just down one or two percent.
I don't.
If I was a big builder, I may be taking options on land or options on permits, but do I go
along, build a ton of inventory, hoping that.
somebody's never had 300 grand is going to go buy a $600,000 house.
I'd like to know what the average home is if they're permitting, right?
The math does not add up.
I mean, you've got G-Wagon sitting in inventory at 200 grand.
They're worth 125 on a great day.
I don't understand the market, man.
I was in a mall in Tampa this weekend,
and I have never seen so many people in a mall in my life,
and they were spending money.
I mean, they weren't shopping.
Okay, they were just looking.
They were shopping, buying, standing in line for credit cards, parking lots fucking full.
I mean, just jam packed.
And I'm just profounded by where is the money coming from?
Lemons cost a dollar team.
Gary, great statistic.
We've hit the highest average monthly mortgage payment in the history of the United States.
The average mortgage payment in this country is now at $3,500 a month.
because of rates.
Are these new mortgages, David?
No, no.
Are these...
No, existing.
No, existing.
The rates are catching up.
See, you're starting to now have this lag effect of the increase, the bounce on the rates.
It's showing up in the flex.
So...
Sounds like, actually, Gary, what you explained kind of seems like what's happening, which is people are taking call options on land.
It's actually a really good example of how, you know, a very simple way for.
for a simple-minded person like me to understand what you're saying,
which is you're essentially betting that, hey, look, land is always going to be decently well-priced.
I might as well put a permit on land and hold it and see how this all shakes out because it's so much uncertainty.
But we've got a Fed that's sitting around thinking that wages are not going to go up when we have clear proof that they are going up right in front of our eyes.
So I'm very confused about sort of this broader, I think interest rates need to go up even higher.
And I wanted to go to Nancy.
Nancy, I saw your...
I saw that you were on CNBC the other day.
And you thought that rates were not going to go higher,
obviously in September,
but possibly even in November or later,
at least that was my understanding of what you said.
I wanted to make sure to get your thoughts on that.
Shouldn't,
shouldn't the,
the Fed take into account everything that's going on in the wage market,
Nancy?
And maybe at least do a decent amount of hiking,
in November, maybe a 25 basis point hike in November,
or do you think that this is not really going to play out the way that we think it is?
Hey, Dr. Danes, thanks for having me up.
Yeah, I put my interview in my feed yesterday for those that want to see
Gunlack from Double Line was on for me and he thinks the Fed is done and not going to be hiking again.
I actually took the over and I do think the Fed will be hiking again.
Oh, perfect.
Probably not this meeting, not this week in September.
I think...
Powell is probably going to jawbone the market.
He's going to not hike and he's going to sound just like when he was Rick Flair at Jackson Hole, not this last one, but the one prior to that when he was like, whoo, inflation.
He's going to be talking really hawkishly, but he's not going to do any action.
And I think my big point is I do think the Fed is doing...
We have inflation. I think it's not being priced in. I think it's one of these opportunities, you know, investment-wise that is really attractive because everybody is so complacent that the feds got this and that inflation's not going to be a problem. And I don't see that. I agree with you. I think inflation is a...
really attractive, mispriced market right now because everybody is so complacent that there isn't going to be inflation in the future.
The yield curve is more inverted now than it was in the late 80s.
Real yields are at their highs from the last 10 years, meaning inflation protected bonds are really attractive.
with Silicon Valley Bank created a new lending facility to save the regional banking system.
So instead of putting on the big boy pants and letting companies fail, which is normal, right?
Some companies do fail, but for whatever reason, this isn't even retail money.
It was corporate money.
They bailed out Silicon Valley Bank injecting more liquidity into the system.
So the Fed's rate hikes are just kind of hurting, I'd say, regular people, especially people who don't own homes already.
They can't get into the market.
The people aren't moving, the labor, these jobs that are impacted, as we talked about, whether it's a mortgage broker or a construction worker, everything is slowing because there is a lag with rate hikes.
And the Fed is just kind of foolish because they're...
It's monetary policies, right?
They don't have just one policy.
They have an $8 trillion balance sheet that they just expanded in March to save, you know, a bunch of corporates in California.
They really should be doing more with their balance sheet unwind.
And so I'm hoping...
You know, I'm trying to stand on my soapbox and say the obvious thing.
And, you know, hopefully someone takes notice there because the rate hikes alone,
I don't think are going to be as impactful as they were in prior history because of this balance sheet expansion.
Do you guys...
But Nancy, sorry, one pushback, one about SVB, you know, that they really bail out?
Because SVB obviously went...
away, they bailed out the depositors.
I think that was probably a good idea, right?
To protect the, otherwise we would have bank runs across the country, wouldn't we?
You know, we don't have to debate it.
That's what they did.
But what they did was create another term financing, the bank term financing, which
increased the balance sheet even more.
So let's just take a big step back in 2020 during the depths of, you know, the pandemic.
The Fed did more QE, which is, you know, when the New York Fed goes out into the market in weeks.
Sorry, I can't hear you.
Oh, you're back.
Oh, they did nine in the nine weeks after the start of the COVID pandemic in the U.S.
and March, around March 2020, in nine weeks, they did more balance sheet expansion than they did in the nine prior years since the financial crisis.
So the balance sheet just blew up during COVID and they haven't reduced it.
And that's a problem.
That's why these rate hikes are, you know, killing the economy, but not actually reducing inflation.
And that's why I think they're doing.
I have warms going up.
I have a meeting that I have to run to, but I am.
That's okay.
One point, Nancy, I just wanted to talk about QT for a second.
I mean, we know that QT is occurring currently, right?
Like, outside of what happens.
We have continued to track down.
I mean, in terms of billions of dollars, right?
You know, since 2022, we have gone, we're now at, what, $800 billion in QT?
Since then, I know they should be doing it faster.
I actually said that myself the other day.
I feel like we haven't been fast enough.
But we have been doing QT over the last year and a half, no?
Yeah, they've done actually a trillion dollars of the Soma Holdings, so that's a piece of the Fed's balance sheet that the New York Fed actually goes out and buys in the market.
Exactly.
So they are reducing TUT, but they have caps in place.
So the caps are very small relative to the size.
So if you look at the sum of holdings, the peak was around $8.4 trillion.
Now it's about $7.38 trillion, call it.
So it's down about a trillion dollars.
But the balance sheet is higher because of this BTFP.
That's a facility that they created when Silicon Bank, the Silicon Valley Bank was in trouble.
So the BTFP,
P has increased the overall balance sheet.
So they're reduced, it's like, it's just like the UK, right?
You have one side doing QE, one side doing QT.
They're taking down the Soma Holdings, which is a piece of the Fed's balance sheet,
but they're increasing another part of the balance sheet, which is this bank term.
lending the swap program that they put in place, which blew up the balance sheet again.
So it's kind of like give a little here.
It's like a name only.
They're not really impacting the market.
And I think the rate hikes do have a lagging effect.
And they were really, really, you know, 5% in about a 12 month period is a lot.
And I think using the balance sheet more and giving, especially the mortgage market, some time to breathe and time to normalize would be a better course of action in my opinion.
But what the Fed will do is often entirely different than what they should do.
So I guess we'll see, you know, who's going to be the adult in the room.
But there's, you know, I think the other thing, not to scare anyone, but the total debt is,
you know, out there, we have a ton of bills that are going to be maturing.
So if you look at the treasury, they have to refinance about a third of the entire debt in the next year.
Which is insane.
Yeah, it's crazy.
So in the next 12 months, that's $8 trillion that's going to be refinanced.
And you have certain countries who are reducing holdings...
of treasuries probably to defend their currency.
And so it's a really tricky time out there for markets.
But I think the big point I would take away is that inflation expectations,
which is where the market is pricing inflation in the future,
I think are really mispriced.
I don't think I'm shocked that nobody's reacting more
to what's going on with the strikes,
with the price of oil, with the price of gasoline,
It does seem like everybody thinks there's going to be no problem.
Inflation is under control.
And I do not agree with that.
And we agree on that 100%.
This is super helpful because, again, if you just look at the Selma Holdings, I agree with you.
And I even have that up there in the nest.
It looks like we're doing tons of QT.
I...
I personally did not take into account the BTFP.
And I think if you, I will, I'll try to get those numbers, Nancy, and put out of a tweet today, a post today to, to share a little bit more about that.
Because I think that that's incredible insight.
And that alongside, that's a great transition to oil.
What's happening in oil right now.
It is insanity.
We saw a.
I'm very confused about how people are not freaking out about oil right now.
And...
oil surge past 90, which is one resistance level.
We're now seeing it go up.
Yesterday, one of Saudi ministers who was involved in this decision-making
supported his decision-making and the Saudi government's decision-making.
But is this not the worst possible time for cuts from OPEC?
What are they seeing that we're not seeing?
Are they seeing global demand shrink?
before everybody else's because we're not seeing that in terms of the data, are we?
Mish wanted to get your thoughts on oil and do you think that it's going to go past 100?
Do you think it's going to cross that crazy number that, you know, we thought we weren't going to see for a while?
Well, I have sort of mixed feelings on where the price of oil is going. I mean, definitely, we've been all over. There's oil going up for months already, and we still have a position in oil. I just as a natural sort of.
when everybody's running into the same trade, no, at some point, it can get too saturated.
And so that's my only real concern in terms of the technicals.
However, as we've seen, every correction has been so shallow that there are buyers there
and their buyers persist.
And it's also very likely that I'm wrong about the saturation that we haven't really even
seen people piling into the oil market as much...
as they should be because they kind of figured,
eh, I would stop at 90,
and now we're over 90.
So yeah, I think the potential for this to run as a commodity
and as one who traded in NYMEX for many, many years
and saw how parabolic,
emotional trades can be as in oil, especially when you have the fundamentals to support it.
There's no doubt this can go to 100.
It can go to 120 or 130 even that may not necessarily sustain.
That would be the technical frenzy that can happen in commodities where they overshoot and then
they come down.
You know, in terms of the fundamentals, it's possible.
You know, and again, we've also talked about this on the show.
is what is the best way to have a rivalry with the U.S.
And it's not necessarily rockets and missiles,
but it's through the pockets.
And so I'm always looking at the underlying sentiment of what's happening.
So, you know, we've talked about bricks, even though people have poo-puted.
It's more the idea of the East versus West.
And a great way to really press the U.S., which whose economy is still stronger than everybody else's,
is to keep the drive on these oil prices, not so much worried about the ramifications.
Because we know at some point there will be a demand destruction, but we're not there yet.
And so do they think that there will be some kind of a slowdown in demand? Yeah, well, of course they have to think that at some point that's going to happen. That's just the cycle, the cyclical nature of all commodities. But, you know, again, underlying, it's like we talk about the strike and we talk and I thought it was an interesting point about the housing workers. You know, once you unleash the
the monster of people want more and they're fed up and tired.
This is really where I think the danger zone we're starting to see.
It's not so much about the stats.
We can talk stats till we're blue in the face,
but it's more like what you can see under the stats,
what's happening in terms of public.
And people are getting more and more and more upset about the Fed,
about the interest rates, even though they're not even that high relative to history.
They're much higher and they went up so fast.
About the housing situation and also about wages.
So yeah, all this ties into oil and then you've got this, I call it a rivalry.
That's such a sweet word, really, although it wasn't so sweet.
I happened to watch the Colorado game.
They were killing each other in the rivalry sentiment.
But yeah, this is all part of it.
And this is the way you kind of hurt the U.S.
and make them force them to step up.
So it'll be interesting to see what happened.
But I wouldn't be short oil.
Let's put it that way.
And of course, I've also been talking about natural gas
because I think this will have a trickle effect into natural gas.
That should start to rise as well after months of basing out if you look at a chart.
Yeah, David, wanted to get your thoughts on Mish's comments.
Yeah, so I think as some people on this space know, I'm the CEO of a publicly traded oil and gas company.
So I've been in kind of the trenches on oil for a bunch of years now.
And, you know, as opposed to a lot of other commodities where we don't necessarily wage war, with respect to oil, there are a lot of levers that Joe Biden and company can go ahead and pull.
And frankly, I don't believe that there is a chance in hell that he lets an election season start.
And the top, you know, the top story on the front page of the paper is the fact that,
oil and gasoline prices are out of control.
He will do what he needs to.
And there are lots of funny tricks
that they play in terms of who we
align our interests with all of a sudden
we're now friends with Venezuela.
and we're going to go ahead and, you know, get inventories out of there. And even just the rumor of that story, you know, we'll go ahead and push prices downward. So I really don't believe that there is a chance that we get on an oil runaway train here. And, you know, I think that OPEC plus,
you know, does what it does. I don't think 100, I made this point before and I'll say it again. I don't think 100 means what it did mean the last time we were there, which is roughly three-ish years ago because of inflation.
I just don't think
I mean there's always
you know sticker shock
but at the same time
in terms of what it means to the bottom line
I don't think it means as much to the bottom line
anymore you know we're probably talking
more like 120 120
140 in terms of
when we start to hit demand destruction
and people really start to hurt
we're in a season where it's not high driving season so you know that part of the the effect of a high gasoline price you know isn't there
And I just don't believe that. I mean, clearly the trajectory is not good. I'll agree. And, you know, there is, you know, this is a point of skirmish between a bunch of important nations here. But in terms of this being, you know, a real emergency, I think we're far from there at this point. It could quickly escalate, but I think we're far from there.
Yeah, I mean, it seems like we have two camps here, Craig.
The camp that feels like it's too early and the other camp that thinks it's baked in.
What do you think?
Yeah, just a couple other points on oil.
I think, you know, part of the story in oil is that Aramco is looking to raise $50 billion between now and the end of the year.
And so, you know, clearly has had incentive to kind of see the...
see the rise in oil prices here, you know, over the fall.
So, and then secondly, I think it is interesting.
Sorry, Craig.
Just want to make sure that our listeners know the context here.
Sorry.
Aramco is Saudi-owned oil company.
Sorry, Greg.
Just want to make sure that Saudi Arabia has an incentive if they are looking to raise
money for Iran's profits, which then helps the sovereign nation.
So sorry, I just want to make sure.
Yes, yeah, sorry, I should have been more clear about that.
And I know we've talked about the geopolitical and the weaponization and the BRICS meeting, but it is interesting that oil is up 20% since the BRICS meeting happened.
And, you know, I think...
there there's been more in the way of weaponization of resources and of oil,
you know, coming out of that meeting and OPEC plus kind of all being together and,
you know, certain countries being added to bricks. And so it seems like maybe to Mish's point,
this is, you know, part of the story here where there is a pushback against, you know,
the dollar or the U.S. kind of, you know, view of the world. And clearly it's less about
maybe the impact to the U.S. right now, but certainly it's hurting, you know, folks in Europe,
in the U.K., in Japan, which are major energy importing countries.
That, you know, that's where I'd be looking for, you know, some strain, right?
These are, these are countries that are, you know, heavily, you know, reliant on importing energy.
They're big dollar credit, U.S. Treasury creditors.
And so you have a situation where they are needing to,
sell U.S. treasuries in order to, you know, generate the dollars necessary to pay up for oil.
So there's a bit of this reflexive concept, whereas oil keeps running the dollars rallying, interest rates keep moving higher.
And it looks today like...
in Europe, I mean, particularly in the long end, you know, European yields are blowing out, you know, to multi, you know, multi month in some cases, you know, year highs in Italy and in Germany and kind of, you know, cross the board there.
So I'd keep an eye on, you know, what what these higher oil prices mean for our, you know, some of our allies.
And then just another point about this morning, you mentioned, you know,
You mentioned a bit about the housing numbers, but also this morning, Canada, inflation
numbers came out at 830. And there was a very significant reacceleration of inflation in Canada
this past month, both in headline and in core. And so you think about the proximity to,
you know, to the U.S. and to the Fed meeting tomorrow, you know, it could add some, you know,
some more flavor to, you know, this bond market sell-off that we're seeing. And I think, you know,
just broadly speaking, inflation
you know, doesn't appear to have a, you know, strong enough momentum to the downside for the Fed to come in and announce mission completed.
And I think that what is being priced into markets, particularly in equities, but even into into forward rate markets, is an environment where the Fed is going to be cutting rates four times next year and another five times in 2025.
And it just seems like that in this context of what we've been talking about this morning with respect to labor, with respect to housing shortages, with respect to energy.
It just seems like very difficult to embrace that kind of cutting cycle at this point.
So I think what we're going to see from the Fed tomorrow is significant movement in the dot plot that removes more of those cuts, both for 24 and for 25.
We also get a look at the 26 dots for the first time.
And so I think we're going to be looking at an environment where the Fed is,
is kind of forecasting a more elevated rate environment than is currently being priced.
And I think that is something that, you know, folks need to be, you know, wary of with respect to risk taking as it comes into, you know, what is typically a very seasonally weak period for risk assets.
Yeah.
What do we think is going to happen tomorrow?
Obviously, no hike.
By the way, we will be covering it live tomorrow at 8 a.m. Eastern.
But no hikes tomorrow, I'm assuming, Greg, right?
Even though I think people are going to be surprised overall.
Do you think that no hikes tomorrow, obviously, right?
I don't think you're saying.
No, I'm not saying that.
You know, there's basically no chance for a hike tomorrow.
It does seem like a missed opportunity, but, you know.
Agreed.
I agree with you 100% on this.
Yeah.
It's not just a missed opportunity.
It could be a grave mistake.
Yeah.
And as far as hikes for the rest of the year, I mean, the markets are pricing in, say,
you know, 30, 40% chance of a hike either in, you know,
in November or December.
I think we will get a majority of Fed members
that are looking for a hike again
for the rest of this year.
I think they want to keep that optionality open.
I think the more important story
will be what 2024 looks like.
Currently, the Fed dot plot suggests for
rate cuts, markets are kind of pricing in, you know, basically, you know,
between closer to four rate cuts for next year.
I think it's likely that that's going to move to three and maybe even move to two.
And so, Craig, I don't think there will be rate cuts next year.
What's making you think that they'll be rate?
You think we're going to get into a recession?
You think that that is actually going to happen?
Yeah, look, I think there is a, there's enough folks of the Fed that believe that
this tightening activity that they've done will keep driving down inflation.
And so if they don't bring in cuts, then we're getting incrementally more restrictive.
But so I think the preponderance of Fed members will, we'll show, you know, a couple hikes for next year.
But I don't think it'll be as large as what they were previously thinking in June.
And so, yeah, look, even someone like Boston.
Sorry, did we lose Craig again?
Can anybody else hear, Craig, and I can't?
Just want to make sure the spaces aren't glitching.
Okay, we can't hear Craig.
Mish had to leave.
She's speaking on Yahoo Finance, so please do follow her and see what she's got to say.
I think Yahoo Finance is going to hear about it an hour after we did, so I'm kind of excited
that we get to beat them.
Craig, you're back.
Craig, you're back.
Sorry, and I was just, you know, finishing up there.
I think that.
The cuts will be priced out tomorrow maybe as little as two cuts.
So, and I think that will be important.
Two-year yields would move materially higher.
You know, yields throughout the curve will move higher.
And, you know, volatility should come back in that environment.
Yeah, I mean, as I look at tomorrow, I think the people are going to be more interested in the press conference than the actual FOMC meeting itself.
I think people will be more interested in the dot plots than the actual, you know, pause tomorrow or skip tomorrow.
I just want to remind people that a pause is not a pivot.
A pause is exactly that.
It's just a pause.
And what they're trying to do is that there are still some folks, men, some of them are up on the stage, that believe that there is a lag effect of interest rates.
They believe that we need to wait and see how interest rates go through the markets.
And if inventory, as we saw in Housing Starts data today, is truly coming,
then maybe they have a point.
I would say that inflation's lag effect is on wages, not on housing.
I don't think housing is going to move as quickly as we hope it will.
I think by the time wages go back up, housing will get tight again,
and we're going to see this whole cycle spiral out of control.
And so I think tomorrow we're going to see a pause, which upsets me, but it's okay.
This is not about my feelings.
This is about what they're going to do.
And then it'll be followed by a bunch of hawkish commentary, like Nancy said, and some changes to Raeush.
Donish, Donish, you're wearing the turtleneck.
The turtle neck? Again? That's funny. That's David's commentary around my audio.
So, but I was going to say that, you know, what we're going to see tomorrow are likely, is likely a pause.
And again, remember, this is not financial advice.
We're just a show that kind of talks through what we think is going to happen in the markets.
And you are allowed to make your own decision from there.
But, you know, we're seeing rate hikes happen.
across the last year or two,
this is another one of those pauses,
but as I mentioned,
a pause is not a pivot.
We don't know where they're going to go.
The only pivot that I do expect is what Craig is saying,
which is I think they're going to push interest rate cuts
later into the year or,
And to me, that's a signal that maybe in 2024, there are no rate cuts.
I think that inflation is going to last longer.
I think we're going to start seeing that.
And I think that it's going to be a higher for longer environment.
So again, as a reminder, I don't think tomorrow is the first show with sponsors, but we are going to start bringing sponsors in.
If you do know sponsors, please do reach out to Mario and his team.
And tomorrow at 8 a.m. Eastern, we will be covering the Fed's decision live.
If you want us to cover the press conference.
shoot Mario a DM and let him know.
And maybe we just might do a live stream of the conference itself, since it is the most important one in a long time.
So again, if you're looking to sponsor the show, please reach out.
Know that it's, you know, that I'm not going to accept a bunch of crypto folks.
But if you have something real to offer, happy to look at it.
Thanks, everybody.
Have a wonderful day.
And we'll see you tomorrow at 8 a.m. Eastern for FOMC Live.
Thanks again.
