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Overnight Oil Spike, Jet Fuel Soars, and Momentum in Tech 3/9/26
00:43:51
Oil prices hit their highest peak since June 2022 before falling back below $100/barrel. Airline stocks take a dip as jet fuel costs surge amid the Iran war. Plus, software beat semis for its best week since April, but can the trade continue this week?
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- [02:13]
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Pippa, a huge reversal is right Kelly, because overnight we did get up to 11984 on WTI for a gain of more than 30%. Now only up 3 and 3/4 of 1%. The G7 energy ministers are meeting tomorrow to discuss an oil reserves release. And sources tell CNBC's Eamon Javers that any coordinated action would occur following that meeting. Now Iraq, Kuwait and the UAE have all cut production with JP Morgan estimating there's now three and a half million barrels per day shut in. Saudi Arabia and the UAE are rerouting some oil via pipelines but that isn't an option for everything. Storage tanks or are quickly filling and with no export capacity we are likely to see more production cuts. Kepler saying stall traffic for another week OR 2 puts $130 oil very much in play. Now the spread between the front month and 6 month on Brent is now above $20. That is the highest in our data going back to 1990 and speaks to the concerns about a near term shortfall. Finally continue to watch refined product prices R. Bob and heating oil just about a little bit higher right now and up more than 35% here on the month. Not only can products not be exported from the Middle east, but if refiners can import Middle Eastern crude, they'll start running out of crude to refine further exasperating an already very tight market.
- [03:32]
C
Kelly all right Pippa, thank you, we appreciate it. Pippa Stevens so why are we seeing such a massive reversal and can it last if it doesn't appear we're any closer to a near term resolution? Joining us now, Denton Cintagrana is chief oil analyst at Opus. Denton, it's great to see you again. And what do you think is going on with the price action? Both driving us to the highs just before midnight and then coming significantly off those highs since.
- [03:55]
A
Yeah. Hi Kelly and thanks again for having me. Yeah, a lot of headlines obviously moving around and it's funny, while we were waiting to start here, I just got a text from a friend of mine in the wholesale gasoline market and said it's hard to believe I'm saying this but gasoline is only up 10 cents today. So you know, when you, when you put that kind of perspective into it, it's been, it's been a while, you know, not even 24 hours but basically 12 and a half hours. But again headlines about the G7 possible LE levers that the, that the administration is looking to pull to help stem the price of gasoline at the retail level. And again diesel, diesels maybe getting some talk but again we could see $5 diesel by the end of the week if something doesn't change real quick.
- [04:39]
C
$5 diesel. Do you think $4 is now a foregone conclusion at the gas pump?
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A
It's going to be pretty close but I think, you know, again unless we see something happen quickly, yeah, all signs point to $4 a gallon. That would obviously be another 50 cents or so higher than where we are right now. But again, prices are been trending higher. Now if something happens and you know, all this ends, I do think retail gasoline prices are going to kind of stay in this area. Will probably plateau or move up a little bit, but again without much change. Yeah, $4 by the end of the week is certainly in the crosshairs.
- [05:14]
C
I think we should also show that price action in 2022 when it was about 12 days for from when Russia attacked Ukraine for us to hit the highs which was then around 130 on WTI. And it took 148 days, as Connor Cunningham points out, he's an airline analyst over at Nilius, 148 days to get back to previous levels. And as we hear about the complications this time with shutting down production in the Gulf, you can restart it and only get to 80 or 95% of previous levels if it goes on for a couple of months time. So you know, the challenges are compounding the longer that the strait effectively stays closed. That said, again, we are almost $30, about 20, $25 off of the highs from last night. Denton, why do you think that is? G7 talk.
- [05:54]
A
I think that's part of it. But also again markets got way high. It could be some, some profit taking. Again there's, there's a lot of things that could be kind of driving this. But one thing is for certain, this is all taking place in really high volume situations. Crude oil trading has been, you know, some of the most active that I've seen in my just over 25 years with Opus. So lot of, a lot of volume moving around. I think between Brent and WTI was routinely over 6 million contracts several days last week. So a lot of moving pieces right now and you know, we're just going to have to keep waiting to see where we shake out.
- [06:31]
C
Perhaps we can show the futures curve. There was talk several days ago about the treasury shorting oil futures as an action to drive prices down. Could something like that be happening now when you. So here's the forward curve. I look at the months there, April 95, May 91, June 86, July 81. So kind of pretty consistent action across the board. Getting into the back half where people are still expecting prices to be lower. But could involvement by the treasury or even just talk of that involvement which they said they're looking at it but there is no near term plan to do. So could that push oil down in the way that we've seen in a trading session like today?
- [07:08]
A
Yeah, the jawboning could certainly be helping, you know, kind of keep prices at bay. But man, I think that's pretty dangerous for the treasury to come in and start shorting oil at $100, 110, 120. You know, considering what the fundamental picture looks like. I mean could you imagine if the U.S. treasury Department got a margin call?
- [07:25]
C
Right.
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Or what would happen there?
- [07:28]
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Yeah, we added 10 trillion to the national debt because you know, because oil went to 200. Do you think 150 is still on the table at this point?
- [07:37]
A
Yeah, the longer this goes, I do think those, that 150 level is not out of the question. There's some real desperation out there. It's not just the futures market. You're seeing some fiscal markets really kind of catch up to these moves. I'll give you an example. Alaska North Slope crude out of obviously Alaska yet last week was trading at a premium of $8.30 to the Brent futures contract. About a month ago that was about a dollar over. So some desperation for physical oil is coming in out there. Mars crude out of the Gulf co several dollars over WTI futures. The WTI at the Houston hub for export, about $2 over over the WTI futures market. So yeah, there's a lot of demand for US crude oil and there's going to be a lot of demand for US refined products as well.
- [08:22]
C
I'm glad you said that. And perhaps we can show, I don't know if we have the actual spread between WTI and Brent but one of the interesting things that happened last night when our oil price WTI peaked around 119, it was the same level as Brent. There was a 20 cent SP spread which was the narrowest in years, probably going back to Covid or thereabouts. Usually there's a five or six dollar spread. And some of the analysts in the market say they think this is because when there's literally a physical shortage of Brent, international markets are scrambling to get a wti, a substitute just to get those physical barrels. Do you think that's what's going on here? And B, if so it means that we're now going to pay a premium here in the US because again of the shortages that are being caused by this.
- [08:58]
A
Yeah, no, you're absolutely right, Kelly. And watching the market last night, I'm like, oh my goodness, you know, WTI for April is trading over May Brent right now. It was few pennies here and there, but again, I don't think that's something that's happened in decades, actually went back into history. It happened on one day in 2020, but it was the day that Brent contract was expiring. So you know, kind of throw that out the window. But you know, it was more consistent back in the 2008, 2009 era where WTI was over Brent. But ever since, you know, kind of the shale revolution, Brent has been the clear leader versus wti. So to your point, yes, this is a sign that this is, there's demand for, for US physical crude oil. It's lifting, put it this way, this is a tie that's lifting all boats. So now while US Crude oil supplies are, I don't know if they're exactly comfortable. They're above where they were last year, below the seasonal norm. Gasoline is certainly above the seasonal norm. But everything, again the tide that lifts all boats. So everything is going to take place from a higher price point.
- [09:56]
C
And then finally in terms of this reversal in terms of WTI being back around 95 right now, what has to go right for us to stay at these levels? Because as far as I've heard, this is not because there's suddenly more transit through the Strait of Hormuz. So these issues, these shut in problems remain. It might be because of a globally coordinated SPR release.
- [10:16]
A
Yeah, that seems to make sense to me. Kind of going back to 2022. That's what helped bring prices back down from that $130 type level after Russia invaded. UK release from the coordinated releases from strategic reserves that help start to bring down the price. Maybe the market is kind of front running that a little bit here to see if what happens tomorrow. But again, I think if the US does release from the spro, it's going to be oil that eventually gets exported. I think refiners here in the US are fine and comfortable from a, from a supply standpoint. Over the past 10, 15 years the US has really kind of weaned themselves off of Middle Eastern oil to the point where it's maybe 8 to 10% of weekly inventory, weekly imports. Obviously Canada and, and Mexico are two key suppliers to the United States. And you know, stay tuned. But over the next couple of years you're going to see more Venezuelan crude
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come to the U.S. all right, Denton,
- [11:11]
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we'll leave it there. And thanks so much for your time. Thanks. Extraordinary 24 hours. Denton Cincinnat joining us there from Opus. While the markets appear to be stabilizing somewhat, the situation overseas still isn't and it doesn't appear it will be anytime soon. Iran named Moshtaba Khamenei as its new supreme leader who is expected to further the former ayatollah's hardline approach. And while many on Wall street thought the president would attempt to de escalate the situation on soaring oil prices, that so far doesn't appear to be the case. In a truth social post last night, Trump writing that rising oil prices are a very small price to pay for our security. Let's bring in Jonathan Pannikoff for more. He's director of the Scowcroft Middle East Security Initiative at the Atlantic Council. Jonathan, welcome to you. And so where does this go from here just in term in terms of the president not backing off, but the markets responding with a big sigh of relief. I mean, if you told someone last night when WTI was at 119 that the NASDAQ would be positive right now, it's pretty hard to believe.
- [12:10]
G
Absolutely. And thanks for having me, Kelly. Look, I think the reality is, as a previous guest said, look, I think the G7 announcement obviously is playing a significant role here. That may change tomorrow if the ultimate decision goes the opposite way. But at least for now, I think it's calm things. The long term problem is there doesn't seem to be a meaningful off ramp. There's no reason to believe that the new supreme leader, Ayatollah Khamenei, the son of Ali Khamenei, is going to be looking for an off ramp. I think the Iranians actually think they have to stay in this for their own long term deterrence and their own long term ability for the regime to survive. It doesn't look like the president is looking for an off ramp. And so we're stuck a little bit until some somebody makes a decision. And that's what the Iranians are counting on. What they want to do is increase pressure on oil producers throughout the Gulf. Hopefully they in their in Tehran's view, they in turn will then pressure President Trump.
- [13:08]
C
The president is also now calling a 5:30pm news conference at Trump National Doral in Miami. Then he mentions he'd go to Speaker Johnson's fundraising event prior to leaving for D.C. he's going to hold a news conference at 5:30pm what might he say so far in interviews and in comments and in truth, social posts. You know, I guess to add some nuance to the boots on the ground idea. He did say in that interview he was asked specifically about uranium and kind of how to get it out of Iran, and he talked about doing so. And then he talked about if there were, you know, if the air bombing continued until they basically had no responses left, maybe boots on the ground could go in to do something like that. So perhaps that's too much nuance. Perhaps it's not. Clearly, the Defense Secretary Hegseth hasn't really ruled it out either. So that goes in a direction where I think people worry about the possibility of a protracted conflict that doesn't have a clear or swift resolution.
- [14:05]
G
Yeah, I mean, I think for good reason. Look, there's kind of two options here. One is that the president looks around at everything that he's accomplished. The destruction of a lot of Iran's naval forces, the fact that the nuclear program, the ballistic missile program, have been meaningfully diminished over the last eight or nine days now, and he says that there's going to be an earlier resolution and declare victory. That doesn't seem to be where he is right now. That could change. The opposite side, though, is if you get to a boots on the ground scenario, it's probably not like Iraq, for instance. We're talking about hundreds of thousands of troops. It's probably a specific mission, but that's not an easy mission. That's an incredibly complex mission to try to secure the uranium. It's not quite clear where it's being held and whether or not it's been moved. It's an incredibly dangerous situation. And of course, the other place that you could do it that would probably be easier, but no less concerning is Carg Island. And to try to create an opening with perhaps Gulf forces, if they were willing to join, to have some sort of operation at Cargill island to take it over. That would be more limited, obviously, and a little bit easier because of the geographic confines and might also be helpful in terms of oil exports from the
- [15:19]
C
Gulf, given Iran's severe reaction across the Gulf, especially on the uae, you know, and I was speaking with someone who was in Dubai last week and he was like, yeah, it was pretty rattling, sending videos and showing, you know, these drones and missiles and the interception happening over the sky. And, you know, everyone thinks if this passes, that's not going to be an existential issue for Dubai. But to watch the response there and across the Gulf, you do wonder, and I'm curious for your take on this could we get something like an Abraham 2 accords to come out of all of this?
- [15:49]
G
I think maybe long term you could get there. The challenge fundamentally is that the day before this conflict started, Gulf states and their leadership and even the people were really, really angry at the Israelis and at the US for even considering this type of operation. They went to bed that night after the first day, really infuriated with the Iranians and I think the focus on the Iranians because they really have been shocked at the fact that the Iranians have fired on them and not just done so minimally, but extensively and really undermine their own economic futures in a way that's just not acceptable, understandably to Abu Dhabi, to Riyadh, to others. The problem is I don't know that the anger on the U. S Israel side will have completely dissipated. I think it's being masked over a little bit. But there will be a meaningful question, look, that at the end of the day, can they work together more fulsomely that even if you don't get an immediate Abraham Accords part two, can you at least start to walk the pathway?
- [16:49]
C
And that's possible or maybe to ask it differently, forget Abraham too and Israel's involvement per se, but could those countries do something together to kind of build a more muscular response and tone now too? In other words, to kind of continue the fight that the US and Israel have started. Have they created in a sense allies against Iran here or.
- [17:13]
G
No, I think that it certainly unified the Gulf. If we think back to right before the conflict, all of the talk was about the massive division between the Saudis and the Emirati and nobody's talking about that right now. So look, it's clearly prompted greater GCC unity. I think the challenge fundamentally though becomes at the end of the day, despite the threats that we've heard from Saudi Arabia, we haven't actually seen a willingness to strike back from the Saudis, from the Emiratis. They're trying to balance this. What they don't want is to be in a position where they actually undermine themselves and accidentally extend this conflict. The Gulf wants this over as soon as possible. So if the Iranians keep firing, and especially if they keep going after civil, civilian infrastructure, energy infrastructure, then it would not be a surprise that eventually, a week, two weeks from now, maybe a little short of the Gulf countries work with the US work even behind the scenes with Israel, to say, look, we're going to have some sort of response and we're going to do something together. But right now I think what they're really hoping is that they can just outlast the Iranians. That's going to be a tall order even from the, frankly, a defensive perspective, the number of interceptors they have. There's a lot more variables and questions here remaining than I think Andrew, answers as we go forward.
- [18:28]
C
Finally, and we appreciate, Jonathan, generous with your time, but for the G7 meeting that is reportedly happening tomorrow, Eamonn Javors has been reporting on this. Possibly a joint SPR release, you know, release of oil reserves that could help kind of blunt the impact and maybe that's why the oil price is front running that today. But what else needs to be on the table here? There were, you know, some of that G7 are pretty upset about this conflict and might, you know, I'm thinking about the Europeans to some extent and I'm curious what else you think might come of this and if even an SPR release, if that is an obvious place where they can all come to agreement. But what else needs to be discussed?
- [19:04]
G
Look, obviously, right, the SPRO is going to be the number one thing and maybe it'll get you a few weeks. The real question though is I think where you're going to have especially the Europeans coming is saying, okay, well, what is the actual long term plan here, President Trump, in other words, what is going to be a satisfactory end goal that's going to allow you to find an off ramp to say that we're going to end the war? And I think the question for them, remember, look, when this started, the E3 basically said we had nothing to do with this. And very quickly, in about 12 hours, as they saw how much the Iranians were striking throughout the region, said, no, no, we're going to have to play some sort of role. They don't want that to be a sustained role. It can't be a sustained role. I think the biggest question is going to be a strategic one about where the off ramp actually is right now, where it goes. And that's gonna be a question for President Trump. Whether or not he has the answer, I'm not totally sure, but we'll find out tomorrow.
- [19:56]
C
All right, Jonathan, really appreciate it. Thanks.
- [19:59]
G
Thanks so much.
- [20:00]
C
Jonathan Pannikoff with the Atlantic Council. Coming up, our economist says don't let stagflation fears overshadow some green shoots in the economy even with what's happening on the oil front. We'll tell you what they are and what it could mean for the consumer. But first, software outperforming semis last week by the widest margin on record and it was software's best week since April, while it was the worst since April for the chip makers. Will that trend continue? Could we see a reversal? The exchange is back after this.
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- [22:44]
H
Yeah, it's been crazy to watch the price of oil and the futures in particular and all the consternation that it caused in the market and then how short lived it was. Right? I mean you saw, what is it, 119 after hours and now we're down sub$95 a barrel. So that tells you that it's happening fast and it's hard to price in quickly. I think short term that's really just made the risk of risk on trade question, right. Are we, are we still in good shape? Are we fundamentally still going in the right direction or is this going to derail us in some fashion? And ultimately statistically it hasn't.
- [23:15]
C
Prior to this the whole question was to what extent kind of the Mag 7 or tech are part of that risk on trade. Obviously anything in the supply chain is, but some questions about like a rotation in leadership. What was your point of view kind of prior to this breaking out?
- [23:28]
H
Yeah, I think we've looked at the large cap tech stocks as kind of a deal now. Most of them. Nvidia in particular, the one trading sideways for six months, you go back six months, it was 38 times forward earnings. Now it's a market multiple 20 times, 21 times trading, you know, earnings growing 60% plus. We think that there's opportunity there. This is the kind of, this is the kind of gut check you get occasionally and you've got a war in this particular instance to exacerbate concerns around the AI slowdown trade. It's a good opportunity.
- [23:57]
C
So the now we'll call it, I guess the Iran war or whatever. This has now increased your conviction in buying Basically, basically the Mag 7 in
- [24:03]
H
videos, especially the tech winners in the AI chain. Nvidia is one, Palantir and software is another. There's a handful of these stocks that should continue to beat expectations, force people to realize what they're really looking at longer term versus the short term shock of what the war is doing with, with consumer sentiment, with the price of oil, you know, and all the pieces that have been negatively affected.
- [24:23]
C
Do you think it's just a coincidence that software bounced back as this was all happening?
- [24:27]
H
Software was really oversold. So I don't think anything was drastically different there. You've got some, you've got some long term franchises there that are not going to zero because of AI. And I think there's some longer term buyers stepping in.
- [24:38]
C
As a tech investor largely, I mean, what would you say to those who are trying to figure out what to do with the space? I mean it's hard to get a lot of clarity on what's going on with some of the private portfolios. But you have to imagine the publicly traded names are maybe some of the better ones of the group. So yeah, yeah, traded down a lot Obviously, but then they've come back a lot in the past four weeks.
- [24:56]
H
Exactly. I think it just tells you what the volatility looks like, which we've been kind of calling since day one. This year you've had three good years of equity returns, particularly in large growth, particularly in technology. Now you're seeing this year starting off with some bounces and that's okay. That's probably pretty normal. I think longer term though, these are opportunity sets for tech. The Russell 1000 Growth Index that we bench against at Sylvan capital is 50% tech. So you've got to kind of get that right. And these are good opportunities long term.
- [25:23]
C
Getting that right includes some of the high flyers like Micron and those names
- [25:27]
H
or no, we haven't done the memory names. We think they're extended. But we do own ASML in a semicap equipment as a lithography player and a big supporter of all those increased capacity at all those companies.
- [25:37]
C
And there's momentum and some. We've talked to these companies on the show. Would that be kind of make your cut or.
- [25:42]
H
No, that's more of a mid cap growth strategy which we also have, but not in large cap.
- [25:45]
C
Okay, understood. Away from tech, you still own Eli Lilly. That obviously is an amazing. It looks like a tech stock. If you just look at the multiples and kind of the margins. Margins. I'm sorry, the margins and the growth rate. Just why is that in here? And are there any others from other sectors that you know, you kind of move up the list as well?
- [26:03]
H
Yeah, we, we've liked Lilly for a few years now on 2021 when we bought it in the focus growth strategy and it is on the GLP1 and weight loss process therein. Novo has struggled and you've seen it in the stock price, you've seen it in their results stock by stock. So we think that's still the best positioned player. I think in April you'll see. Or for Glipron, which is Eli Lilly's oral for Zepbound, that should really take some market share, really set a pricing floor and probably expand nicely into Medicare under a government dime, which we think makes the market quite a bit larger.
- [26:36]
C
And finally on the oil price shock, then you're viewing I saw your thoughts there a moment ago is kind of a serious but ultimately passing thing for the economy.
- [26:44]
H
Yeah, very serious. Deadly serious. War serious. So it's just, it's really a matter of, of how long, how severe in our mind what's the messaging? The administration has to get the messaging Right. If it keeps bouncing back and forth, it's risk off.
- [26:56]
C
Interesting. You really think it goes that so even the comments this afternoon, the comments
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H
in the next couple of days, all the comments matter.
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Yeah.
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Yeah.
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I'd say it's so true, isn't it?
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Yeah.
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Michael, thanks. Appreciate it.
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H
Great to see you, Kelly.
- [27:08]
C
Michael San Satara with Sylvan Capital Management. Coming up, the depreciation dilemma facing Silicon Valley financing. The buildout has taken a toll on Oracle's debt load. The shares are riding a five month losing streak, down 50% from their record highs. We'll look at what it means ahead as we head to break. Here's a look at some of the names falling to new multi year lows and that includes builders First Source, Brown, Forman Pool, Lennar and bxp, formerly Boston Properties. More of the biggest movers when we come back.
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Welcome back to the Exchange. We're not at session highs or lows, but we are still down across the board today in response to the big shock in oil prices last night. Dow down 472 at this hour. Nasdaq down a quarter percent a half point drop 6700 on the nose for the S and P right now. Remember, we peaked just over 7,000 at the all time highs in late January. And here are some of the movers this hour. Jefferies getting a downgrade from overweight to equal weight. Over at Morgan Stanley, they slashed the price target to 49 from 78. They're citing an increase in uncertainty around credit. Of course, that's been dogging Jefferies around credit risk and legal risk. After some of the bankruptcies that we saw last year, there's been a little bit of exposure there. The shares are nearly 50% off their recent highs, though. And the firm does acknowledge a lot of this could now be priced in the cosmetics names. Also getting hit today, a triple whammy of higher input costs, shipping expenses, lower consumer demand that's weighing on shares of the likes of Ulta, Coty and Elf. And CF Industries is hitting another all time high amid the uncertainty around traffic in the Strait of Hormuz. That region accounts for half of the world's urea exports and a third of global ammonia exports. And shares of this fertilizer name are up 20% or so in the past week. To Julia Boorstin now for the CNBC news update. Hi, Julia.
- [30:22]
I
Hi, Kelly. Officials in Kenya say the death toll from floods over the weekend has climbed to at least 42. Intense rains washed away vehicles across the capital of Nairobi and disrupted traffic at the country's largest airport. The government ordered relief food from its national strategic reserve for affected families. Search and rescue operations are still underway. Viktor Orban says he sent a letter to EU President Ursula von der Leyen urging the opening of Russian oil to the contin. The Hungarian leader who is friendly to Russia said the war in the Middle east and the Ukrainian blockade of Russian oil has caused prices to, quote, rise explosively. The Iran war pushed oil prices above $120 per barrel briefly as Gulf states cut back production. And 23 players, including Brazilian star Hulk were ejected from a Brazilian soccer match yesterday after a massive brawl. The fight occurred with with just about 30 seconds remaining. The record for the most injections in a match is 36, according to the BBC. Back over to you.
- [31:23]
C
All righty. Thank you, Julia. Coming up, stagflation is the word of the day on Wall street, but Roth's Michael Darda says don't underestimate the macro positives in this economy. He'll tell us what those are next. And as we head to break, check out paramount Skydance down 6%, 7% today. Now the worst name in the S and P after Wells resumed coverage of the stock with an underweight and a $10 price target firm. Not a fan of its high leverage at a time when NFL rights are being bid on and companies need to invest around AI Peace Guy shares are down 17% now in the past week. Stay with us. Welcome back to the Exchange. While some firms are raising the prospect of stagflation or even a recession now as a result of the recent oil price spike, Mike, my next guest says there are some important macro positives that can help cushion any blow to the economy. Let's bring in Michael Darda. He's the chief economist and macro strategist at Roth Capital Partners. Mike, it's great to see you again. And first of all, I just want to know if you think these positives are still strong enough to offset what we've seen over the past 24 hours.
- [32:27]
F
Thanks for having me on, Kelly. I think so. I mean, look, it's going to depend how long this goes on because the longer it goes on, the more disruptive it is. So I don't want to discount that and seem like a complete Pollyanna here. All of that said, the US Economy in particular, I think is pretty well positioned here, and we went into this shock with pretty strong economic momentum. That payroll report obviously was a shocker to the downside, but it really contradicted a lot of other data that was much stronger. You still have tracking estimates for the first quarter, underlying real final sales growth running at 2%, some of the weekly data that can proxy for GDP growth up to 2 1/2 percent. And let's not forget, at least since 2018, that previous inverse relationship between oil prices and GDP has actually vanished. The US has been a net exporter of oil and refined products since 2018. So we're more insulated here than what we see in Europe and Asia. So that's all positive. And it seems like we've got a bit of a productivity boomlet underway, trend productivity, or at least if you just take the average for this cycle so far we're running at about 2.3%. So that's 7, 10, almost a full percentage point higher than the average of the last business cycle. And that's really the dominant force over any longer period of time in terms of lifting real income per capita per household.
- [33:58]
C
I'm glad you highlighted it because it's kind of that has definitely been flying under the radar. But it's so we have basically we have better productivity, lower share of the wallet going to energy. We're a net exporter in petroleum and energy now, so we benefit in that sense. So there's two kind of big risks I see. I'm curious what you would say about each one of these. One is just that consumer confidence seems to me like attracts the oil price. In 2022 that was certainly true. Curious if we get this big spike now, if people will react negatively either in sentiment or in spending and then the other is around the Fed. Fed really, really curious how they might respond when CPI admitted it's not their preferred gauge. Goes up by a point, you know in the 10 years where it is. So both on the consumer and the Fed response, what are your thoughts?
- [34:43]
F
Well on the consumer, I mean the sentiment figures have been in the doldrums for some time so they could certainly get worse. But that's, that's not really new. I think where the risk would be probably is more on the high end consumer. I mean that's the dominant force in terms of total consumer spending. And so far, I mean the s and P500 it's certainly been down a bunch of days in a row but it's really not down that much in percentage terms from all time highs. And I think that speaks to the economic resilience. So if that starts to change, you know, then that's more concerning as it relates to the Fed. I mean if we think back to the oil price crises of the 1970s and 80s, even going into the 1990 or 2000 recession, the Fed was jamming short term interest rates up 4 to 10 percentage points above the inflation rate which is not happening now. The Fed's actually been trying to support the business cycle through some of these previous shocks in particular with the, you know, the tariffs last year. So you know I think a really important underlying aspect of what's happening here is bond market inflation expectations are pretty steady. A little upward pressure at the shorter Horizons but the 10 year horizon barely budging in terms of inflation expectations. That was not the case in the 70s and you had NGDP growth going berserk in the 70s at a double digit pace also not happening now. So the Fed's in a very good position here to support the business cycle if they need to, or at least not to overreact and tighten policy inappropriately and then throw us into a recession for no reason.
- [36:17]
C
So, so maybe we can see you know, continued cuts or trims in the in interest rate and Nancy Lazarm at this point too that core inflation declined during the Gulf crisis even when like the headline went up because at some point, you know, you only have so much purchasing power. So you've made some strategic kind of market recommendations. And I thought one of them was energy kind of coming into this year. Do you stick with that sector now? What are kind of your thoughts about the, you know, the investment implications?
- [36:44]
F
Yeah, absolutely. I mean, so I think energy still belongs in the portfolio, but this is not the time to be chasing energy. You're getting super aggressive in buying energy in my opinion. I would look at some of the areas that have sold off sharply with this crisis. So you know, one old economy sector that was doing quite well until last week was the basic material sector fell 7 plus percent last week is down again day. So that's one that you know, that we've been recommending if you're, you know, you know, have a stiff upper lip. I think the transports, they've obviously been hurt by this. So you know, that's a higher risk sector. Including the airlines fell 10 plus percent last week. So for, you know, for those, I think it needs to be a small part of the portfolio and you need to be able to, to weather some pain. But the payoffs could be big as well if, you know, investors are patient
- [37:36]
C
there and the technology front that's leading the way. But do you think that's a kind of one off response, almost like a flight to safety thing because of the conflict or is that going to be longer lasting?
- [37:45]
F
Yeah, very interesting. I mean the infotech sector has been holding up the market over the past week, right? I mean it outperformed the S&P 500 last week. It had been a drag on the market and it's almost what, 30% plus of total S&P 500 market cap. So that's actually been quite helpful. You know, we came into the summer when we started to recommend the rotation into some of the old economy cyclicals. Infotech forward P E multiples were above 31. Now they're at 23. You know, so, so much for the tech bubble, right? I mean in 1999 we peaked at a 55 forward multiple. So strong earnings estimates, growth and then the previous pullback in the infotech index and share prices have really lowered those valuations. So I would not throw infotech out of the portfolio whatsoever. I think it belongs in the portfolio and has been helping the Overall S&P 500 here, which is a good thing.
- [38:40]
C
Much more supportive view even with this oil price spike of the economy and the markets too. Michael, thanks, appreciate it today.
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F
Thank you.
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C
Michael Darda with Roth Capital Partners coming up airlines are lower, as Mike just mentioned, as oil tops $100 a barrel. It's below those levels now, but we still see United down two and a half percent. It's the worst performer in industrials today. We'll talk to the Cell CEO of Air Lease, the world's second largest plane lessor. Talk to him about what he's seeing in the Middle east and with rising jet fuel prices. We'll be right back. Welcome back. Thousands of flights have been canceled, jet fuel soaring. Ticket prices have spiked since the Iran war began and obviously the danger level has picked up. My next guest has a unique look into how this upheaval could play out across the airline space. He's the CEO of Airlift, the world's second largest aircraft leasing company, whose clients include Delta, American, Virgin Atlantic and Emirates. Here for a CNBC exclusive interview is Jon Kluger along with our very own Phil LeBeau.
- [39:41]
B
Phil Kelly, thank you very much, John. She set us up perfectly.
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J
She did.
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B
You've got about 500 aircraft in service around the world. We'll talk about those that are in the Middle East. But let's talk first off, with the surge in jet fuel prices.
- [39:53]
H
Of course, of course.
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B
We've been here before.
- [39:54]
J
We have. We have. Unfortunately. We have. Yes.
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B
And so from your perspective, how worried should investors be, especially those who look at the airline stocks?
- [40:03]
J
Yeah. Well, to your point, we have been there before. We're pretty early on in this conflict, a little too hard to tell from the consumer perspective for sure. For sure. We will expect to see higher airfares, airfares nudging up to cover this increase in fuel prices. But, you know, it was this kind of a fuel price surgeon that spiked the new generation of aircraft with a new generation of engines. Those are out there and flying all over the place. Forward bookings from what we can see across the airlines have not been impacted yet.
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B
And let's talk about that because when I talk with other executives at this ISTAT conference in San Diego, I've yet to hear anybody say, oh, this is a repeat of what we've seen during past jet fuel prices.
- [40:44]
J
Yeah, no, I think it's a little premature to say that. And so, you know, the forward bookings are continuing. Airplanes are not being parked en masse for any reason. They're all still flying. So I think we just have to wait and see how this plans out. The airline industry has learned to deal with high fuel prices and the question is how long will it be? So far, I think it's a little premature to raise super big alarm bells.
- [41:08]
B
So you've got about 8% of your fleet are with carriers in the Middle East. And a lot of people have heard about Dubai's airport roughly shut down. Others are not really at full capacity right now. What's happening with most of those planes? Are they parked, are they just flying in other areas? What are they, what, what are your customers doing with their aircraft there?
- [41:28]
J
Mostly they're keeping them ready for flying. They're not parked in what's called long term storage, meaning that they, they plan to continue to fly all those aircraft. And leisure traffic will certainly book away from the Middle east right now. They'll go to Asia, the Americas. Like, like that has always happened. Anytime there's a regional conflict, business traffic, we'll, we'll have to see how that, how that plays out. But again, it's so early to tell. But one thing I can tell you for sure is this industry has proven time and time again it is very resilient. The airlines will work through this. The consumer is going to have to pay some cost and ticket prices. But a little premature to, to really sound the red flags.
- [42:04]
B
We were going into this year expecting record profits for the airline industry in 26. What's your outlook now?
- [42:11]
J
I think that'll be dampered a little bit. It just, again, it's a function of how long does this last and how long will oil prices stay at this spike? It's really, really hard to tell at this point.
- [42:21]
B
Your customers, we were talking before we went on the air. Yes, narrow bodies have long been a big focus, but increasingly they're looking for wider body airborne.
- [42:30]
J
I think a couple of things, Phil. Number one, there is some concern yet about when will a 777X be certified. Number two, you have to remember across the lessor spectrum and we lessor supply about half the world's aircraft. Far fewer lessors supply widebody aircraft. So the lessors themselves are less of a source of widebody aircraft than they are single aisle. And so we are, are seeing tremendous demand on wide bodies. We're seeing airlines that have lease expertise on widebodies in 20, 30, 31, 32 coming to us saying we'd like to extend our leases.
- [43:04]
B
Now, finally you mentioned the triple 7x.
- [43:07]
J
Yes.
- [43:07]
B
You've seen a lot in terms of Boeing production. How do you feel about where they are in terms of increasing production?
- [43:14]
J
I think they're doing a good job. I think they're on track to increase production. I can tell you they have been on time on all of our max deliveries and our 787 delivery deliveries this year, the quality has been much better and they do have this ramp up path to increase rates and I think so far they seem confident and from what we see in receiving aircraft and talking with them, I'm optimistic.
- [43:34]
B
John Pueger, CEO of Air Lease. Phil, always good to talk with you, my friend.
- [43:38]
J
Good to talk with you as well.
- [43:39]
B
We're going to send it back to you. Kelly here from the I Stack conference in San Diego.
- [43:42]
C
I'm struck by how all the executives, they're like, yep, here we go again. No one's that surprised even there like, yep, we, we know we spikes come
- [43:49]
B
and look, Kelly, relative to past jet fuel spikes in pricing. We're not at a point yet where people are going, oh my God, the sky is falling. I mean it's worth watching, not dismissing it, but it's not like it has been in previous in situations.
- [44:06]
C
No, it's fascinating. Great timing for you to be out there with them, John. Thanks for your time, Phil. Appreciate it. Our fill a bow with John Pueger there. Coming up, up tech might be holding up the market, as you heard Michael Darda say just now, but Oracle shares are still struggling, down today and down 24% this year. And a key shift in the chips industry could now add to their headaches. We'll have those details next. Open Air reportedly will not be expanding its data center deal with Oracle that has shares down 3% today. Deirdre Bosa has more in today's tech check. Deirdre.
- [44:51]
D
Hey Kelly. So OpenAI executives, they're saying that they're instead choosing to put additional capacity into other locations because it turns out the chip cycle moves faster than datacenter concrete dries. And Oracle is finding that out the hard way. A Source familiar with OpenAI thinking tells me that the calculus was straightforward. The company can pursue larger sites elsewhere and double down on Nvidia's next generation chips and bigger clusters. It couldn't do that at this particular site in Texas, so it chose to go somewhere else. Now think about what that means for Oracle. The company committed the debt, secured the site, ordered the hardware and now the customer is saying by the time that you're actually ready, your chips are dated and I'd rather go somewhere else. Tough position to be in. Again, Oracle cannot afford that. It does not have the cushion the other Mega Caps have and its leverage does not leave room for its biggest customer to move on. On top of that, the pitch to a replacement, it's not great. Something like come lease the chips that our Last customer didn't want for the trade at large. Kelly, this raises a key question. Can the megadeals that are underpinning the entire build out, can they survive this tension? Data centers, they don't move at chip speed. And Oracle maybe the canary in the infrastructure coal mine.
- [46:04]
C
Look, I apologize for having a rudimentary grasp of this, but I don't understand Oracle. Okay, if there's a chip technology issue, what does that have to do with Oracle?
- [46:15]
D
So Oracle is building these data centers with the Last generation Nvidia GPUs, black walls, right? By the time they actually connect power, the next version, Vera Rubin is out. And if you're a lab like OpenAI, whose whole reason for being is to stay at the frontier and you want to use the most recent technology, the Most recent Nvidia GPUs, right. It's just not good enough.
- [46:39]
C
Building a data center, in other words, it's just like kind of the go between, or put it clumsily. But why doesn't this issue crop up for others in the data center business, of which now everybody is in?
- [46:49]
D
I'm not sure that it won't. It's just going to show up and be more consequential for Oracle because. Because it has been funding its build out with so much leverage. The other sort of hyperscalers and Metta can absorb some of this, right? They can go on and it doesn't. It's not kind of like a huge event for them because their balance sheets look a lot better and they're funding it with free cash flow. So this shows up first.
- [47:12]
C
You're right. And for those, for others who are in this game, this goes back to the credit markets and where some of these risks are. If you're financing this, it's a problem for you as well because. Because it's going to move so swiftly. I know we have to go, but. Deirdre, thank you. That's a very important report. We'll have more to come, I'm sure. Deirdre Bosa in San Francisco. That's it for us here on the Exchange. I'll go join Brian Sullivan for a busy power lunch right after this break. Stay with us. You've been listening to the Exchange. Make sure you're subscribed to get each episode every day, same time, same place.
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