NY Fed Inflation Expectations, Market Bounces Off Lows as Oil Spikes, Jet Fuel Impact on Travel 3/9/26

High five!

Yeah!

Dave's company just got the five-year price lock guarantee from Comcast Business.

Heck yeah!

That's gig speed internet at a great rate for five years.

Powering five years of savings, powering possibilities, Comcast Business.

Now at the March 29th, switch to Comcast Business and lock in a great rate for five years

on a qualifying internet bundle.

Plus ask how to get a $500 pretty paid car for a limited time only, call today.

Restrictions apply, new customers only.

One-year contract required for guaranteed rate, five-year pricing applies in monthly service

charge excluding tax incentives.

A rich life isn't a straight line to a destination on the horizon.

Sometimes it takes an unexpected turn.

With detours, new possibilities, and even another passenger, who are three.

And with 100 years of navigating ups and downs, you can count on Edward Jones to help

guide you through it all, because life is a winding path made rich by the people you

walk it with.

Let's find your rich together at Rajon's Pember S.I.P.C.

Good Monday morning.

Welcome to Money Movers on Karl Keatonia with Sarah Eisen here at Post 9 of the New York

Stock Exchange.

Watching crew today, as levels at the highest in June of 22, and we're joined by Goldman's

co-head of commodities, research who sees some mounting upside risks.

Plus the airline industry, getting hit hard by surging jet fuel costs, but both have

also trickled down to plane orders and manufacturing.

We'll ask Airbus North America CEO Robin Hayes.

We keep an eye on bonds today.

We're joined by one strategist who says they could signal a shift from an inflation trade

to a recession trade, as some raise their recession odds today.

As for the markets, we are off the session lows, couple sectors have crept into the green

this morning, including information technology and energy.

The vixes below 29 at the moment and the 10 year got close to 42 this morning still holding

steady at 415.

Yeah, strong dollar too.

Getting some breaking news out of the New York Fed right now for that let's get to Steve

Lee Smith.

Morning Steve.

Good morning, Sarah.

Yeah, the New York Fed coming out with this consumer expectations and we get inflation

expectations and the good news is most of this done before the attack on Iran and they

remain steady for the one year, three year and five year time horizons again, the survey

taken between February 2nd and February 28th.

Looking at it, they do remain steady at a somewhat high rate near that 3% for the one year

three year and five year down actually a tick going into this situation with the spike

in oil prices on the one year, but unchanged on the three and the five year expectations

for food prices declined 0.4% and rent was down pretty big 0.9 percentage points and rent

expectations are actually at the lowest level since December 2024.

That might bode well for the housing inflation component of the CPI.

Last price expectations over did increase 1.3 percentage points to 4.1%.

And here's a chart that looks at how closely tied inflation expectations are at the one

year level to gasoline prices.

You can see they follow it pretty closely and you might expect that to go up.

However, when you go look at the three in the five year, less correlation there.

So that's where the Fed will focus, but it will watch these one year inflation expectations

earning growth expectations declined, but better news on the job market where unemployment

expectations also came down along with concern about losing one's job household their assessment

of their current financial situation actually did improve.

Now as for the Fed outlook, you can see here at these charts that the outlook for rate

cuts have come down for the first cut they're down and really now we're looking at a

September first cut and we pretty much guys dialed out that second cut at 47%.

You can still call out the foot of the coin and obviously it's about what you guys have

been talking about all morning.

Tell the economists and the Fed watchers how long this lasts and they'll tell you what

will happen with interest rates and whether there's a huge down drafted jobs and a spike

in inflation.

Steve, how are you gauging the risk of inflation expectations getting unmoored so to speak?

And how does it complicate the Q&A for a wars once he appears before Congress?

Yes, I'm gauging all of that exactly that way, Carl, in the sense that we have to watch

the one three and five, the Fed will make, will follow much more closely the three and

the five that will expect the one year to surge and the question is whether or not it's

losing credibility in the inflation fighting and then it becomes a big deal for wars as

to how they approach this and that big deal Carl is going to be very, very tied to what's

happening in the economy.

If these February job losses continue, I think the Fed is going to be expected to cut

rates no matter who's in charge there, even if you get a surge in inflation.

But if it's a closer call, I'm hearing what I heard last week at the Monetary Policy

Conference in New York was that it's a real weight and sea on the part of many people

on the committee.

Plus, I feel like you can always make the case that the spike in oil prices is temporary.

I mean, it is a shock, but it is not the core of inflation.

So if there's more worries about jobs right now, I think you still can make the, and we

heard it from Stephen Myron here on the show on Friday, you can still make this case too

cut.

Yes, Stephen Myron can make that case, but I'm not sure that other people on the committee

are buying that particular line of thinking right now, Sarah.

Again, if jobs are losing 100,000 a month, that's a different story.

But if jobs are flat up and you have the surge in inflation, I do not think the Fed will

be cutting under that scenario.

That's not my gauge where the center of the committee is.

Myron has been an outlier for quite a while now.

Steve, thanks.

Talking about Steve Leesman this morning.

We're more on the surging oil prices and the outlook for energy and the event of a prolonged

war with Iran.

We're joined this morning at Post 9 by Goldman Sachs co-head of Global Commodities Research

Samantha Dart.

It's great to have you back.

Samantha.

Good to see you.

Were you surprised by last night's price action?

How did that feel to you?

So we saw some escalation over the weekend, right?

So we saw news that some Iran oil facilities were getting hit.

We saw news today that Saudis starting to curtail production.

So this number one does not de-escalate the situation and if you don't have de-escalation,

the market starts to price in not just your regular, gradual adjustment that requires

a little bit of higher prices.

But rather, hey, this massive shock might last longer than we think.

So we need to move into demand destruction right now.

I think this moving price is to above $100.

A barrel signals exactly that.

It's this worry that if this lasts longer, the market needs to have a little bit of a

more aggressive correction in demand as well.

Is this East-West pipeline?

Can that be a sad of some point of some point, even if it's only five of whatever, 20?

Right.

So we expected that pipeline to flow a little bit more than what we can see in the data

so far.

We expected maybe something close to $3 million a day of spare capacity.

The data so far is pointing to something closer to $1 million a day.

And the fact that Saudi is now announcing that they are shutting production down suggests

that they are at a room to put the oil.

And it matters because if they were able to just stockpile it and wait this thing out,

then after the mess is over, they could send production out so it would be a production

delay rather than a production loss.

I think the fact that they are announcing, yeah, we can't do much by the pipeline and on

top of that, we have to start shutting down that sense and signal that, yeah, this is

production loss.

Does President Trump have any options when it comes to fighting the higher oil prices?

So there is some SPR that could be used.

Today, we saw the headline that the G7 are controlling a reserve.

Exactly.

We saw the headline that the G7 are considering maybe releasing some of that, right?

And they talked about three to four hundred million barrels of release being possible.

This is not certain yet, but this would buy us time if you had that type of volume releasing

to the market.

That's worth about 18 days of this disruption.

On other types of commodities that go through the strait, the fertilizers and the sulfuric

acids and the things that feed into crops and industrial goods, is that as big a concern

as oil itself?

Is it growing concern?

For example, if we move to liquefied natural gas in the same way that you have 20% of oil

volumes crossing the strait under normal times, you normally have 20% of global LNG supply

crossing the strait.

And natural gas is a huge component in the production of fertilizer.

So even out in Asia, we're starting to get headlines of producers of fertilizer having

to shut down because they cannot access natural gas.

An option would be to use nata instead of natural gas.

But if you don't have enough oil or if nata is too expensive, you can't do that either.

So yes, it is a growing concern that it's going to impact other markets as well.

So how do you make a forecast on oil prices right now without knowing what the end game

is here?

We have to work with scenarios.

And I think this is, in a way, it's what the market is doing as well, right?

This rally that we saw from last week to your point, like the price action right now has

stepped up.

What does that mean?

It means this increased concern with demand destruction, which also means that if we have

headlines that suggest maybe de-escalation, some of that risk premium might come off.

So the uncertainty about the duration of the disruption is really key here.

Ultimately though, in a year from now, where do you think prices will be?

Well, we think that the prices will be much more normalized, but it's hard to escape

a sort of long-term impact on stocks.

This is such a large disruption that even if it's fixed after four weeks, yeah, we're

likely to start next year with lower oil inventories, then what we would have thought that

is.

So there is a longer-term disruption here going on.

Yes, it's not massive.

It's something that we can compensate for over time.

But it's just that the scale of what's happening now is just so massive.

And if you think about how, for example, US production could offset that US production

can be very prolific.

It's very cheap.

It's short cycle, but even that short cycle is what, nine to twelve months.

It's a few quarters, right?

So it's something that over time can show up and can respond to high prices, but not overnight.

Right.

Which kind of brings us to some of the commentary from Scott Schifffield last week or even

the backwardation that there's a belief this will get better, right?

Among market participants at least?

Absolutely.

Yeah, it's just that because we don't know when, you end up having to pricing a bigger

demand destruction right now, just in case.

Samantha, thank you.

Always good to talk to you.

Samantha, the Dart over at Goldman.

Up next, how to think about oil and commodities as a risk hedge during the current volatility?

Newburger Burman, Polly Newman, Croft has that for us.

How could the move in oil impact airlines?

Could a prolonged spike in jet fuel price slow down?

New production, let's say.

We'll talk to the CEO of Airbus North America when money movers comes right back.

Life's busy.

Don't let banking slow you down.

Whether you're paying bills, setting savings goals, or just splitting the check.

Atlantic Union Bank makes managing your money easier.

With helpful people and user friendly tools, we make sure banking with us fits you.

Call, visit us online, or drop into an Atlantic Union bank branch today.

Atlantic Union Bank, anyway, you bank.

Fandool is dropping bonus bets into everyone's account for the tournament.

All you have to do is opt in to claim your bonus.

But don't wait.

These bonus bets are only available for a limited time.

Fandool, play your game.

21 plus in present and select states.

This issued as non-withdrawable bonus bets which expire seven days after receipt.

Max bonus $500 unless otherwise specified.

Restrictions apply.

See terms at sportsbook.fandool.com, gambling problem called 1-800-Gampler.

The ticket, Lady Jennifer of Coons.

Well, many thanks, good sir.

Here is my discover card.

They accept a discover at Renaissance Fairs?

Yeah, they do here.

Discoverers accepted at the places I love to shop.

Get it with the times.

With the times.

You're playing the loot.

Yeah, and it sounds pretty good, right?

Discoverers accepted at 99% of places that take credit cards nationwide.

Based on the February 2025 Nielsen report.

Welcome back.

Stocks out the lows after an early morning pullback on concerns over the Iran war,

the spiking oil prices.

But our next guest says commodities are doing exactly what they're supposed to right now,

providing diversification as traditional assets struggle.

Joining us here at Post 9 Newburger Berman Private Wealth Managing Director

Holly Newman-Crop.

So is it too late to make any kind of moves around what's happening now in commodities and stocks?

I think what's really important for investors to remember is that we've positioned their

portfolios for long-term outperformance into withstand short-term volatility and unexpected

moves.

So you really want to try to not have knee-jerk reactions to the headlines.

Because as we've heard a lot of your guests say, I think the key right now,

is we don't know how long this conflict with Iran is going to go on.

We don't know how long oil prices are going to stay so elevated.

We've seen such a huge spike up over 30% last week, up 12% or so today.

And until there's some clarity making a move that could have a tax consequence or something

else for their portfolio, they need to remember that their asset allocation is a direct reflection

of their risk tolerance.

And that's really the most important thing for any investor.

So this doesn't make you wonder if clients should have less of a risk tolerance than they've

had before.

Because you were pretty optimistic about where we were in the economy and with growth and

with AI and how the year was going to unfold, we didn't factor in necessarily an energy

price shock.

We didn't, but it could be over in a week or two weeks.

This is only, it feels like forever already because it's been dominating the headlines

and everything you hear, but this is only the second week of the conflict is quickly

as it started, it could end.

And there's a lot of international pressure.

I know the G7 meeting today didn't have a resolution, but there's a lot of international

pressure from friends and foes, China and Europe to end this conflict and reopen the

straight and get, you know, oil moving again.

So no big moves.

No big move.

No major reactions.

No, you want to take a 10,000 foot view, look at fundamentals.

We are not as a firm changing our asset allocation outlook yet.

There's nothing really fundamental that we're reflecting in those views.

We continue to be overweight, small in midcaps.

We continue to be overweight, emerging market equity and debt.

We continue to like commodities in client portfolios is a hedge to inflation or concerns

about inflation and we're seeing that play out beautifully in this environment and we're

just going to continue to watch the news, watch the markets and look at the fundamentals.

Is there a point, do you think EM ends the year maintaining its health performance?

I do.

I think EM is so undervalued when you think about, and not EM broadly, I think EM is

an asset class that is not as efficient as the U.S. large cap space.

So I think you have to be thoughtful about which countries you're investing in and which

companies that you're investing is.

As you do really in any asset class or sub asset class, but especially in less efficient

asset classes, there's a real need for active management and fundamental bottoms up analysis

when you're investing.

What are you telling your clients right now about exposure to AI disruption?

The fact that it's been painful if you're in a lot of these software names which were

so popular and dominated the last few years of the tech space.

Well, we've talked about that together a lot.

It's the concentration in the U.S. large cap equity market and how that was really a

risky position.

AI, I'm comparing it to the industrial revolution and it's going to create a lot of disruption,

a lot of change, but also a lot of opportunity.

It is not going to render the software industry bankrupt.

There will be winners and there will be losers.

And like we talked about last time I was here, it's very important to be invested in software

companies that provide holistic solutions is opposed to one solution.

Because if you're one solution provider, AI could replace that need and then your toast,

whereas if you are fully integrated into your client's software needs, replacing one

component of that will not be dire for your overall business plan.

But look, AI is causing a lot of the fear and volatility that we're experiencing along

with geopolitics and oil prices.

It's just a very uncertain time to be an investor.

I was just going to say sort of related to that, these concerns about private credit.

This is not what they need it.

What's happening overseas?

Well, except it's taking the AI software private credit concern off the front page of

the newspaper and maybe moving it to page four or page five.

But yeah, there's a lot of concerns.

Is AI going to replace the need for software and how much exposure do these private credit

funds have to these software companies that are at risk of becoming extinct?

So that's the question.

And as always, I would say it is critical to invest in top tier private equity and private

debt managers who have real risk metrics and due diligence into each of their underlying

securities.

And I think that we need to know that your clients are asking around tax changes just

with the new, the one big beautiful bill, the midterm elections coming up.

I think there's still a lot of uncertainty, uncertainty and duration, I think are the

theme today.

The market is wrought with uncertainty and I think the duration of this conflict is front

and center.

The midterm elections, we still have a bunch of time affordability is going to be key.

The higher prices that the pump is going to factor into that affordability, you think

about a $10 increase in oil equates to a 25 cent increase at the pump.

So consumers going to fill up their cars, they're going to feel that industries that are

dependent on oil and gas, travel, cruise ship operators, they're going to be suffering

right now.

But like I said, it could end as soon as it starts and we just don't know.

Hang tight.

Hang tight, have faith in your asset allocation, watch the news, and I don't know, I think in

times of uncertainty is when your viewers and my clients listen the most.

We're lucky to have you then at this time.

As always, Holly, thank you.

Thank you.

Thank you.

Thank you.

Thank you.

Prop of Newburger.

Still to come this hour.

How the war in Iran might impact airlines and plane production.

Jetfield prices might have a ripple effect through the industry.

The head of Airbus North America is going to join us next.

Plus, the market trend one strategist says could signal a shift from an inflation trade

to a recession trade.

We're back in a moment with that.

Freight rail does more than move goods.

It drives America's economy.

Every dollar invested generates another $2.50 in economic activity spurring growth from

farms to factories.

And here's the best part.

Freight railroads fund their own infrastructure, saving taxpayers billions while powering

the economy forward, from reducing highway congestion to delivering goods safely and

efficiently.

Freight rail keeps America moving.

Learn more at AARC.org slash America's engine.

Bringing your business dreams to life takes heart and about a thousand decisions a day.

That's why Atlantic Union Bank's knowledgeable bankers are here for you.

With the right guidance and customized solutions to help you reach your business goals, so

whether you're planning your next move, upgrading your space, or scaling to meet demand,

we make sure your business is ready for what's ahead.

Because we're big enough to support you, yet small enough to know you, Atlantic Union

Bank.

Anyway, you bank.

This tournament time, and this March, Banana Sports Book has ten times the rewards.

Starting round one, we're giving you ten profit boost every single tournament game day.

It's over one hundred chances to level up your winnings.

Plus, you'll learn fan cash on your bets, which you can use on anything in fanatics.

We're talking team gear, tickets, collectibles, and a whole lot more.

The tournament hits different at Fanatic Sports Book.

Must be 21 plus, gambling problem called 1-800 gambler.

Offer not available in all states, terms apply, see Fanatic Sports Book app.

Welcome back Airbus with plans to expand its US production footprint, but this war in

Iran and a surge in jet fuel prices could impact that.

Our Phil LaBose and San Diego with more on that story.

Hey Phil.

Good morning, Carl.

Robin Hayes, CEO of Airbus North America joining us here at the I-Stat Conference

in San Diego.

There we are.

We'll talk about production for Airbus and North America in just a little bit.

But first, let's talk about the Middle East.

This conflict, what we're seeing with jet fuel prices.

How worried are you about the surge in prices we're seeing right now?

Well, Phil, we've seen this before.

Airlines are incredibly resilient.

They go through many, many shocks, many geopolitical shocks.

Oil prices is a normal, higher oil prices is a normal rear currents to that.

We saw that with the, when the Russia Ukraine war started a few years ago.

And right now, airlines will be very much focused on their networks, their people, making

sure they're safe, their assets are safe, and also mitigating in the short term what

they can do about higher oil.

When you ran jet blue, you went through more than a few prices like this, where jet fuel

prices would spike.

At what point do the airlines have to make a decision about potentially grounding aircraft?

Is it really about demand at this point?

Give us some perspective at what an airline executive committee is looking at right now.

Well, it's true that you go through this type of event a lot, but every event is a little

bit different.

And I think coming into this, we've seen pretty low oil prices for a while.

We've seen a lot of new supply come on.

We've seen more supply out of Venezuela as late as well.

So I think the fundamentals are point to a continuous sort of moderation of oil prices.

So that will definitely be in the back of airline's mind.

So it then becomes, how long are we going to be in this elevated situation for?

And when do we need to start taking some action around that?

If airlines think it's going to be a short, sharp event, they'll probably look to sort

of just, if you like, get through it.

If they think, oh, how oil is here to stay, you're going to start seeing things like potentially

higher prices, some capacity, but it's coming out, but it's too early at this point.

Still too early.

Still too early.

We're eight days, nine days into this event.

For Airbus North America, you are in the midst of expanding your production.

Yet at the same time, you have issues with the supply of engines coming from Pratt and

Whitney.

How much is that slowing down what you plan to produce or is it a case of production increases

or going through, you're just going to have potentially to perk a few aircraft before

you can deliver them?

Well, we're still growing significantly.

I mean, in the last year alone in the US, we've added about 20% to our employee base.

That's our new 350 composite fuselage facility in North Carolina, Kingston, North Carolina.

And the third line in Mobile, which Phil, you were there to say it.

So we're growing.

We are still growing.

We'll be producing more airplanes this year than we did last year.

There was some moderation in that outlook for next year because of challenges we are.

We've had with getting Pratt and Whitney engines and that's something we continue to work

through with Pratt.

Is that one of those existential long-term challenges that you're looking at or do you

feel more confident as you deal with Pratt and you guys have regular conversations about

their ability to ramp up production?

Well, the supply chain has been a challenge really since COVID.

And it went from a very broad base set of issues to a couple of issues.

We've also seen some issues with interior cabin equipment too.

But I think the issue is very focused.

So of course, a lot of ongoing issues, conversations with Pratt and Whitney, they obviously still

have a lot of airplanes around the world that are grounded with airline customers that

don't have engines, so a lot of issues that they're working through.

But we have tremendous demand for our product.

We have a record long-term order book that we want to fulfill.

Our customers want us to fulfill it.

So we need to work through this issue with Pratt.

Last question.

Does 26 still become one of those breakthrough years for the industry that people were expecting

back in January or is it now maybe on pause?

No.

I think if you're referring to what we're seeing at the moment in the Middle East, let's

see what sort of long-term impact that has.

I think if it's a pretty short event, I think the trends that we're seeing in the industry.

Look, the added-geness industry, Phil, as you know, for many decades is the industry doubles

every 20 years.

And so there is no reason why we're not going to continue to see that.

Robin Hays, CEO of Airbus North America.

Ready to go talk to everybody on stage?

Let's go Phil.

All right, we're headed inside, guys.

We'll send it back to you.

OK, thank you, Phil.

Phil Obo.

Time now for a news update.

Pepper Stevens has it for us.

Pepper.

Hey, Sarah.

New York Police Commissioner Jessica Tish said this morning that two improvised explosive

devices deployed during a protest outside Mayor Zoran Mamdani's residence at Gracie Mansion

on Saturday were an ISIS-inspired act of terrorism.

Two arrests were made and a criminal complaints are expected later today.

Bomb technicians rendered both devices safe and no injuries were reported.

Shots were fired outside the home of Popstar Rihanna in Los Angeles Sunday.

No one was injured, but LAPD says a woman drove up to the house Rihanna shares with ASAP

Rocky, then fired seven to nine shots from an assault rifle with at least four bullets

hitting the house.

According to police, Rihanna was home at the time.

The suspect was taken into custody.

And several Democratic senators set to introduce a bill on Capitol Hill today to extend the

amount of time prosecutors have to file foreign bribery charges from five years to 10.

The senators say the bill is a response to a justice department decision to pair back

enforcement of the Foreign Corrupt Practices Act, a 1977 law that outlaws companies in

the U.S. from bybribing foreign officials.

Carl?

Oh, Pippa, thanks.

Pippa Stevens.

When we come back, the market trend that might signal fears are turning from inflation

to recession as we're assessing a session highs here back above 6,700, back in a minute.

Think of back to money movers, our next guest warning quote, once Bond start rallying

with oil, you'll know it's turning from an inflation trade to a recession trade.

Joining us this morning is the co-founder of 314 Research, Warren Pies.

Warren, great to have you as always.

Thanks for the time today.

He's for having me on.

So we haven't really gotten to that pivot yet, have we?

No, I mean, I think the initial stages of this crisis, there's been a bit of this belief

in the markets.

I think I mean, it's probably rational, but everything is basically priced for a quick pivot

period.

And that includes the bond market.

So I think that the initial lead was that old inflation from the Iran wars going to boost

oil prices a little bit, which lowers the scope of the Fed to companies.

But I mean, oil is my background, and if we run this experiment out, if we don't have

a response here, which I think we will, so I don't want to engend the panic.

But if we get in, a million barrels a day missing, you need to have prices go to a level

that starts to kill the man in raft and that's recessionary.

If we get to that point, I think the first tell that we're getting to that point in the

economy will be yield starting to come down.

Bons Valley is one place to hide, and it's no longer a read that the Fed can't cut as

much.

It's more of how much will the Fed have to cut to come to rescue and what's happening

in the economy?

Right.

You do think that there will be that we'll reach some pain threshold.

I don't know if it's in the markets or what, but that the administration will lean to

some efforts.

I mean, SPR, G7's not there yet.

Do you think we get there?

Yeah, I think that truthfully, I heard things over the weekend.

We're going to sell futures to try to manipulate the price.

My response to all that from last week when we were talking to clients and all through

the weekend is that this is a physical problem.

You can't solve a physical market problem with a paper solution.

And so it's really pretty simple.

There are three, I'd say three ways you can not solve, but you can extend the timeline.

It's the timeline that's working against us right now.

Number one would be, I think, a coordinated release of Global SPR.

Number two, I think you'd need to see, you know, a true ceasefire would be another

thing.

And then the third way to delay this, and I don't think it's really politically valuable

is to have military exports through the straight-up or moves to make sure that we put these

flows back.

And so I think there's two temporary solutions, which is adding SPR to the market and military

exports.

Then there's one permanent.

That's that we declare that we have a peace agreement and move away from this conflict.

I will just note, as the markets come back, oil prices have come well off the highs as

well.

Crude oil now is up six, only six percent.

I'm brand only six and a half percent.

It was up double that amount earlier this morning, Warren and Treasuries are now rallying

a little bit.

I guess the point that the, the target to figure out is, given we came into this year at a pretty

solid economic footing, expecting these tax refunds, and also lower gas prices, at what

point does the calculus change where it really becomes a problem for the consumer and for

the overall economy?

Because we had a lot of tailwinds going in.

Yeah, I mean, it's, if you told me how long we caught, this was going to last, then I

could give you like an answer of how everything should be priced, but that's what we're all

trying to balance right now.

Everyone's, like, it's oddly familiar to similar to last year, the tariff drama and

liberation day.

And I think there are a lot of people who learn this lesson, like, hey, don't sell the

whole panic.

I'm just going to have your back now.

I still think that's probably the way out here.

But if this thing goes two weeks, I'd say, without a, I'd say here, I'll put even more

to find a point on it.

If we get to the end of this, and there isn't a signal that the administration and the

globally, governments globally aren't really worried about trying to get those back to

this, then you're going to see, in my opinion, outright panic in the criminal market.

And so that will be a, a pretty quick test of that investor resolve.

I think by the end of this week, you need to know what's to mean, policy makers, this

pond.

And then there's people talking about this, there's no way the economy will make it through

that.

I think that the most you could have is if you do complications, those solutions, I laid

out, SCR releases, some kind of military intervention in the straight.

The next thing you know, you could have four weeks, three to four weeks to solve this,

the rap to conflict up.

But that's it.

You know, after that, I think we start talking about killing the consumer, all those

good things you're talking about coming into the year, they're not going to be able to

fight against what if we had like $7, $8 gas in the pond for $10 decent, which is where

you'd probably need to go in order to kill.

Until we get to that point, Warren, that's why the market's treating it as an inflationary

event, not an economic event where it's higher treasure yields, more inflation risk, fewer

fed cuts.

Yeah, absolutely.

So like $100, $120 oil, like truthfully, we can live with it.

It does take away some of the consumer surplus that we've been living with and the oil dividend

and things like that.

And yeah, the fed might not be able to cut as much.

So, but I think you can live with that, but that's not where we're going if this problem

isn't resolved.

And that's why I think there's a big disconnect between people who understand the oil market

and then generalists right now, because if you understand the oil market, you understand

all these things take time.

You shut in production in the Middle East.

If you decide to release barrels from the SPR, especially in the United States, these

things take time.

And so we're up against the clock here.

And if we don't hit the window that's open to start having pulling some of those policy

levers, then what's going to have to happen is prices go to levels that ration demand.

So right now, yeah, we're worried about inflation and worry about the fed.

Next thing you know, we're talking about global, global export bands and things like that

to try to save in cash and energy at each country is to get ugly quickly, so that's

the next step.

Yeah.

And on a retail gas level, really quick, Warren, the price that you think would destroy

that kind of demand, our prices per gallon that we don't really see in this country at

least.

Yeah, 10% of global demand, that's 10 million barrels a day is what we, the flow that's been

cut off.

And so that's where prices have to go to kill that and it's kind of a ridiculous thing,

but yeah, like $8 gasoline, $10 diesel fuel, that's what we're doing.

And it's like the equivalent of $350 to $400 crude oil or per barrel of those refined

products.

I mean, crude oil could be trading that, I don't know, $200 or $150, it doesn't matter,

but those refined products, that's what's going to kill the man because that's what the

economy runs off of.

Now, that's not my base case.

I would sure think that it's political suicide going into a midterm year to let this thing

run and be that cavalier about the prices.

But if we run the math and we say we need to kill 10% of global demand, that's where it

has to go.

That's why it's sooner rather than later, it would be better for the markets.

Yeah.

Warren, appreciate it as always.

Good to chat.

Warren Pies.

Still ahead, McKinsey, look with a new look at how CEOs are handling geopolitical turmoil.

We'll get into that with the head of McKinsey in two minutes.

Welcome back to Money Movers.

The McKinsey Global Institute out with a new report today, diving into America's competitive

edge.

One area of focus there is, of course, energy.

The report says, quote, reliable and affordable energy has been an enduring source of strategic

advantage for the United States, the developments in the Middle East and the massive move in the

price of oil, of course, calling into question, America's growth out.

Well, as CEOs try to make sense of what the geopolitical turmoil means for business.

Joining us here at Post 9 McKinsey Company, senior partner and chair of North America,

Eric Kutcher.

Eric, welcome.

Thank you for having me.

It's great to be here.

So you do advisory services and consulting on all sorts of issues, geopolitics, one

of them.

What are you telling CEOs and what are you hearing from them at this moment?

I think our CEOs are more resilient than they've ever been.

They've lived through over the last five or six years.

I would argue event after event after event.

And as a result, what they have learned to do is manage through the moment as opposed

to the moment.

And so I see very few CEOs that get too ruffled by what they see in the headlines as to what

it's going to do today.

What they look out and they say, where do I have to get to over the next three, four,

five years?

And how do I make sure I'm still kind of aiming the ship towards that?

So pun intended.

And so the geopolitics of this particular moment, I'm not seeing any more than what I've

seen over the last several years.

And I think that's going to continue to be the way.

And then from the report, the fact that US produces such a major producer of oil and energy,

it does change the game.

Yeah.

I mean, we're self-sufficient if we need to be, right?

Which is not where we were pre-2019.

And so I do think we have the energy independence if that's what we need.

And I think that does make a difference to how people think about it.

But obviously, you know, everything we're talking about is a very global market.

And so the price does have impact.

I am curious what's happening with your own business because there's been a pretty

strong narrative around the AI disruption trade, softwares in the firing line.

I mean, every day it's something different.

I know McKinsey's not a public company, but there are, you know, there are those out there

that say a lot of what you do, the consulting services are going to be able to be done

by AI.

Yeah.

We're optimistic about the next 10 years and I've been in a very long time.

I think the AI moment, which I continue to refer to as the reimagine moment, is an opportunity

where every organization has to think about how would I build an AI first version of myself

and really disrupt myself.

And in that moment, more and more of them come to us.

And so I have more conversations with CEOs about this moment.

I have more conversations that are leading towards opportunities to how do I transform?

One of the things we talk about is this is a 80% business transformation in 20% tech.

And in that world, that's what we do and we spent the last 10 or 15 years really pivoting

what we do away from what I would call insight into actual impact.

And so what's an example of that?

We partner with a client to figure out how to drive a billion two of incremental sales

over the course of the next 18 months.

And we don't work with them just on where do you set the strategy, but how do you actually

do all the change management that gets you there?

And we ultimately get paid based on whether or not they're successful, not based on whether

we deliver a report.

And in this moment, that is perfect for whatever one of these organizations is going through.

So the trend is more to outcome based?

For sure, work for sure.

I mean, I think it's now, you know, it's more than a third of what we do.

One thing that was written this morning was sort of like, we mentioned the oil markets

that there's been like this lack of humility in the last few years.

You didn't think oil could go negative, it did.

You didn't think Russia would be an unreliable partner, it was.

Now you thought the straight was too important to block, it wasn't.

And I wonder if you're writing more tail-risk reports, a wider spectrum of possibilities,

that kind of thing.

For sure.

We have a sizable geopolitical practice and a big part of this is to think about what

are those things that you don't see?

It's somewhat easy to figure out what you do for the things that you know are possible.

It's the things that you don't know that are possible, right?

I don't think anyone could have imagined COVID actually happening.

And so you start to think about how do I manage through those moments, but as I said earlier,

most executives are pretty, I would say, battle-tested, right, and so they've kind of learned

how to deal with these things.

That's one argument that some make to say that the current generation of CEOs, maybe

the best ever, because they've lived through so much.

So much.

And it used to be, you never thought you could live through more than one crisis or manage

the one more.

And any given day, you might have two or three that you're dealing with.

And these executives have learned how to manage that.

I like the report because I think it's a good, strong bullish case for America.

It's optimistic.

It's really optimistic.

We have the best firms and the biggest firms and the most productive firms.

I guess the question, Eric, do you compare it with China?

I mean, what are, as you think about American competitiveness going forward, where are

the biggest threats and the biggest competition?

Yeah, I think it's hard to bet against the United States, right?

Time and time again, as people have done that, I don't think that has been a good bet.

I think Warren Buffett has said that on the US all day long, and I think that's a little

bit what this report says.

And it's not the first time we faced, if you will, competition and significant competition

go back to the race to the moon.

I mean, we've had these moments in the past.

I think in this particular case, we have all the endowments, right?

And we have, I think, the most innovation.

We have nearly the greatest scale, and I say nearly because China is actually larger on

some dimensions.

And the question is whether or not we can overcome some things that have historically

been these endowments that are now deficits, right?

You could look at the amount of debt that we have today and say, is that a problem as we

look at the ability to attract the investment that we have going forward?

You could look at our infrastructure, which was absolutely world-class, is now really

fallen behind.

If the latest data I saw, it says 7 trillion is what you need to believe you could spend

to really get our infrastructure back.

And in this particular moment where you could argue we're moving to an economy that is

based on purely electrons, when you think about this AI moment, do we have the energy

that we need?

Do we have the grids that we need?

And how do we get there and do we believe we can?

And I would argue other things that we have to overcome is education system, simple math,

right?

China literally graduates 10 times the number of engineers that we do.

Right, how do we overcome those in a world where these are all challenges?

These are all real challenges, but I am pretty optimistic that we can and we will.

Yeah, or the job disruption, too.

We had Gina Romando on talking about how that's something that they're going to have to

figure out that comes with AI.

Yeah, I am more bullish that we're not going to see that disruption.

I know this comes up and I know it certainly comes up in the context of last week's

job report.

I don't think that had anything to do with AI.

I really don't think that there's not a single CEO that I have seen so far that will

tell you they have gotten real productivity out of AI.

And more and more of them think about the productivity, more in the terms of what can

I do from a growth?

How do I start to think about reallocation of resource?

And so you can think about the productivity on two dimensions.

I can think about cost, or I can think about growth.

But very few get excited about the cost.

The cost side of it most struck to think about, what am I going to do?

And I had one CEO say to me last week, I wish I could go get another thousand sales reps.

Right?

And if I now have the ability to afford myself to do that, I will grow my way into that.

And so it's just an interesting view that I think I see a lot from that.

Yeah, that's a pro pushback on some of the doomsday.

I am much less doomsday.

No, Eric, it's great to have you.

Thank you for having me.

It's good to have you in town, Eric.

I'm Eric from McKinsey.

When we come back how AI companies are valuing the lifespans of their chips, Oracle and

Nvidia at the center of that story, the impact on the broader AI trade when we come right

back.

Shares of Oracle down about 2% today after reports that open AI won't be expanding its

data center deal with the company, open AI executives posting that they're instead choosing

to put additional capacity into other locations.

Our dear Debosa has more on that in today's tech check.

Hey, Dee.

Hey, good morning, Carl.

This is a lot of back and forth over the weekend, but the takeaway is this.

The chip cycle is moving so fast that even the biggest infrastructure deals can't keep

up.

And Oracle is where that is hitting hardest.

Now the information reports that open AI walked away from expanding that flagship Stargate

data center in Texas because power won't be ready for at least year.

And by then, open AI does not want the current generation blackwall chips because Nvidia's

next gen, their Ruben, will be available.

So this suggests that they'd rather build a new site with newer hardware.

Now think about what that means for Oracle.

It committed the debt.

It secured the site.

It ordered the hardware.

And now the customer is saying, by the time you're ready, your chips are dated and I'd

rather go somewhere else.

Now Oracle cannot afford that.

It doesn't have the cushion that the other mega caps have.

Google Amazon, Microsoft, they're also spending big on AI, but they're funding it with

cash from enormous profitable businesses.

If a site goes sideways, they can absorb it.

But Oracle is sitting on more than $100 billion in debt on the books.

Free cash flow has already gone negative.

And they've reportedly cutting 30,000 jobs just to free up some more cash.

So its leverage does not leave room for its biggest customer to move on.

And the pitch to a replacement isn't great either.

Come least the chips our last customer didn't want.

Now for the AI trade at large, the environment is becoming even more difficult.

The borrowing costs are rising, markets are volatile of course, and Oracle's own financing

partner, Blue Owl, is pulling back.

Now one of the mega deals, this whole build out depends on just cracked in public because

the technology is moving faster than the deals that were built around it.

So guys, Oracle may be the canary in the coal mine.

We knew that, but this is another really important piece of data.

The company reports tomorrow night and that will certainly be required listening for investors.

The other thing, D, this piece this morning about soft banks, CDS, it's all tied together.

What Massa might be thinking at this moment?

Yeah, and all of it sort of sums up to pressure on this AI build as something that the markets

have been looking at for months now, but we're starting to get more and more concrete evidence

of that.

Okay, Deirdre, thank you, Deirdre, so we'll look for those Oracle earnings in the meantime.

I mean, it has been a pretty nice comeback for the market.

Well, certainly well off the highs, it's still sharply higher this morning, but we're

back below $100 a barrel, both on Brent and WTI, treasuries have turned around too.

They're sort of unchanged right now, but look at the S&P 500 down half a percent and

the down down of only a tenth of one percent.

We've got groups like Staples popping into the green, joining energy and technology.

Some of the AI names, like a Broadcom, working today.

Yeah.

Just getting started.