Speaker 1: Good morning, Welcome to the Eastman Financial Report. Time Dan Eastman,
Speaker 1: your host, and today is Tuesday, August fourth, twenty twenty six.
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Speaker 2: I'm going to jump into the news here today, and.
Speaker 1: Of course there's a lot of negotiation going on in
Speaker 1: the Iranian situation. Our own Treasury secretary has come out
Speaker 1: and made comments and of course where we're looking, which
Speaker 1: is interesting because usually it's a secretary of State and
Speaker 1: the president bee handle these things.
Speaker 2: But there's a.
Speaker 1: Lot riding on the Middle East, of course, and the
Speaker 1: administration has come forth with offer after offer after offer,
Speaker 1: and of course there are agreements and there are breaches,
Speaker 1: and it's back and forth, and then the shooting starts.
Speaker 2: And throughout all of this, I've been talking about how
Speaker 2: the oil market reacts, because that's the economic component of
Speaker 2: the Middle East.
Speaker 1: There's the political component of the Middle East, where President
Speaker 1: Trump is very carefully trying to sequester and defund the
Speaker 1: terrorism that's been bubbling forth for the last forty eight
Speaker 1: years now, and by shifting oil production to the Western
Speaker 1: Hemisphere and other places, he's effectively defunding the Iranians and
Speaker 1: other naughty players. That will allow a lot less money
Speaker 1: into that region, which will fund a lot less terrorism
Speaker 1: and shifting the economic balance away to the more modern
Speaker 1: world where economics.
Speaker 2: Is more important than a radical, radical religious theory. So
Speaker 2: it's a very important time.
Speaker 1: As I've been talking over the weeks and the months,
Speaker 1: our interest is in the oil component because the oil
Speaker 1: component is a very, very.
Speaker 2: Big part of the global economy.
Speaker 1: And of course, when the shooting started and the more began,
Speaker 1: the oil prices surged up. We had Brent that I
Speaker 1: think one hundred and fourteen dollars a barrel, and we
Speaker 1: had West Texas Intermediate was well, you know, over one
Speaker 1: hundred dollars a barrel, and everybody expected the worst because
Speaker 1: when you think about the Persian Gulf and that that
Speaker 1: comes that drains the basin, the Abian Basin, and the
Speaker 1: water flows through that little twenty one mile wide strip
Speaker 1: of water, the Horn moves straight and out into the
Speaker 1: effectively the Indian Ocean where the Arabic Sea. But the
Speaker 1: point is that is the route that all the oil
Speaker 1: coming out of the golf takes through the hornles. We
Speaker 1: all know this, and when the shooting started, the prices
Speaker 1: went up because nobody was quite sure what the impact
Speaker 1: would be on the supply of crude oil on a
Speaker 1: global basis, they had about twenty percent. Back in the day,
Speaker 1: about twenty percent of the oil was flowing through the
Speaker 1: horror movie. So twenty percent is a material disruption in
Speaker 1: the supply chain. And you'd expect if supply of good
Speaker 1: drops while the demand stays constant, that the quantity and
Speaker 1: the price metrics would shift and lo and be old
Speaker 1: price would go up, and it did in reaction to
Speaker 1: the bellum of the war. But then we've seen the
Speaker 1: prices collapse back down. Well, today the prices are down very, very,
Speaker 1: rather dramatically from even yesterday.
Speaker 2: I'll rattle off the numbers.
Speaker 1: West Texas Intermediate is down to seventy five dollars a barrel,
Speaker 1: and that's getting close to the lift cost for some
Speaker 1: of the latecomer producers. It's not a good price for oil.
Speaker 1: Certainly better than sixty eight dollars a barrel, but seventy
Speaker 1: five is not as good as it was even earlier.
Speaker 1: Earlier in the week at eighty nine, we were thinking
Speaker 1: we see a little bulge. But the point is oil
Speaker 1: prices once again are reacting because there is no constraint
Speaker 1: in the supply system. And keep in mind, I say
Speaker 1: this over and over again, who buy barrels of crude oil.
Speaker 1: There's only one kind of buyer in the whole world.
Speaker 1: The only people interested in buying crude oil are refiners.
Speaker 1: Nobody else buys it. You don't buy a barrel of
Speaker 1: crude oil and set it out in the garage and
Speaker 1: do I.
Speaker 2: Nobody wants crude oil.
Speaker 1: As a matter of fact, before refiners were invented and
Speaker 1: they had the idea that you could turn this gooey
Speaker 1: stuff into something of value, farmers who were unfortunately not
Speaker 1: blessed in having oil oozing around on their land felt
Speaker 1: that they had been dealt a raw hand by the
Speaker 1: lord because they had been given farmland or purchased farmland
Speaker 1: that was effectively worthless. Is this black, guey liquid was
Speaker 1: oozing around and interfering with their cropping and their production. Well,
Speaker 1: of course that all changed as people began to realize
Speaker 1: the value of distilled oil, but it remains today that
Speaker 1: the only people who buy distill that the only people
Speaker 1: who buy raw crude oil are the refineries. And when
Speaker 1: you see these prices coming down, and of course I'm
Speaker 1: talking the spot price. The spot price is a theoretical
Speaker 1: price of what a barrel of oil would cost right now.
Speaker 1: But if you also look at the NIMEX contracts, which
Speaker 1: are much more sophisticated, and those are for future delivery
Speaker 1: of oil, you just simply see the price is settling
Speaker 1: back down to a level that is fairly close to
Speaker 1: when this war began. Think as a matter of fact,
Speaker 1: I think West Texas Intermediate was trading at about sixty
Speaker 1: eight dollars a barrel or so until the Ranian situation,
Speaker 1: and then the price soared, and of course everybody who
Speaker 1: could pump a barrel of oil out of the ground
Speaker 1: immediately started pumping to capture that price increase.
Speaker 2: And of course now it's settling back.
Speaker 1: And when we see that in the spot prices and
Speaker 1: in the forward contract prices, we know that the people
Speaker 1: who actually buy oil, refine oil, sell oil to gas
Speaker 1: stations are not seeing a supply constraint and therefore they
Speaker 1: have written off psychologically in their minds, the whole Persian
Speaker 1: Gulf because that risk has been analyzed, that risk has
Speaker 1: been quantified, new supply routes have been identified, and effectively
Speaker 1: it doesn't it's not having an effect on their own business.
Speaker 2: Now West Texas is seventy five brent oil that was.
Speaker 1: The oil that was one hundred and fourteen dollars last
Speaker 1: week or the week before when there was a little
Speaker 1: bullet in the action back down to seventy nine, which
Speaker 1: is a very small delta to West Texas.
Speaker 2: And keep in mind Brent.
Speaker 1: They are the ones that have to drill to the
Speaker 1: bottom of the ocean and then pully oil up, and
Speaker 1: then they have to ship it out to Scotland and pipes,
Speaker 1: and then they have to load it up.
Speaker 2: And ship it away.
Speaker 1: It costs a lot more to get Brent out of
Speaker 1: the earth than it does West Texas, and that's why
Speaker 1: there's always a delta, and Brent is more expensive.
Speaker 2: It's just logic.
Speaker 1: It's just more hassle to get the oil out of
Speaker 1: the ground. I do notice that Mexico is at eighty
Speaker 1: and I noticed that our dear friends in Canada who
Speaker 1: have not been sending smoke for the last couple of weeks.
Speaker 1: I guess the smoke signals have ended and there at
Speaker 1: least the wind is shifted. King Charles the Third must
Speaker 1: have gotten the message that his dear cousins to the
Speaker 1: south were displeased being gassed out with smoke. The point
Speaker 1: is they're at sixty seven, which is the very low
Speaker 1: price for Canadian It's cheaper than it was yesterday. But
Speaker 1: the question in my mind is why is Mexican oil
Speaker 1: doing so well in relation to the other three components.
Speaker 1: And keep in mind, in the United States, ninety seven
Speaker 1: percent of the gasoline that we use in our vehicles
Speaker 1: comes from only three countries.
Speaker 2: Number one the Canadians, and they're.
Speaker 1: Selling it cheap at sixty seven. Number two the great
Speaker 1: United States of America from the Dakotas and the Permian
Speaker 1: and that is seventy five, not to the chagrin of
Speaker 1: my dear friends in Midland and Odessa, but to the
Speaker 1: great joy of the rest of US pumping gas. And then,
Speaker 1: of course the third country is Mexico. But the Mexican
Speaker 1: prices are holding. And the question that I ask, because
Speaker 1: this is a critical thinking program and I do my research,
Speaker 1: is why is that.
Speaker 2: Why are the.
Speaker 1: Mexicans seeming to be benefiting when everybody else's market share,
Speaker 1: market price is declining.
Speaker 2: What's keeping Mexican oil up?
Speaker 1: Well, it's an interesting problem because Mexico is of course
Speaker 1: their oil industry is owned by the federal Mexican government,
Speaker 1: which is never an efficient model. When the government owns anything.
Speaker 1: The problem is that Mexico export's about thirty eight percent
Speaker 1: of its output to other countries and they keep the
Speaker 1: rest of it to make gasoline for the Mexican people,
Speaker 1: and there is a constraint. It's dropping below thirty eight percent.
Speaker 1: It's getting to be closer to thirty five percent export,
Speaker 1: which means their exports are declining at the very same
Speaker 1: time that their heavy sour grade oil is in great demand.
Speaker 1: That's why we buy most of the Mexican We import
Speaker 1: most of Mexico's out export because of the grade of oil. Well,
Speaker 1: other people like that too, other refineries around the world.
Speaker 1: You know, if they look at the price of oil
Speaker 1: and the cost of ship and the transport, they are
Speaker 1: in a bidding war for Mexican oil and the Mexicans
Speaker 1: right now or the beneficiaries, which is probably good for
Speaker 1: the Mexican treasury.
Speaker 2: But when you think about it.
Speaker 1: As the United States, we have the ability to shift
Speaker 1: rather rapidly from Permian to Canadian and Mexican, and we
Speaker 1: input about three percent of our oil for refining for specialty.
Speaker 2: Lubricns and things like that.
Speaker 1: So that's why we're not seeing a dramatic increase in
Speaker 1: American gasoline prices that are driven by the Mexican situation.
Speaker 2: Well, I think I have to take a break. Care
Speaker 2: my screen is a bit off, Todavid. Let's take a break.
Speaker 1: I'll come back and I want to talk about some
Speaker 1: of the economic information happening in the US.
Speaker 2: I'll be right Bath. Thanks.
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Speaker 1: Okay, I'm back and I've got my screen adjusted. I'm
Speaker 1: now flying from the right the freight right control panel.
Speaker 1: See I have my When you see me talking and
Speaker 1: I tend to look up, I'm looking at the clock
Speaker 1: that's timing my program. This is a relatively homemade operation
Speaker 1: as far as my part of the contribution. But this
Speaker 1: is this is how this is how I roll. And
Speaker 1: it's nice to be able to talk into the camera
Speaker 1: and at the same time get feedback coming back. So
Speaker 1: I'm back, and anyway, I want to shift gears from
Speaker 1: oil because this was becoming the Eastman Petroleum Report of late.
Speaker 2: But I will talk about other things.
Speaker 1: And one big number that has come out that is
Speaker 1: important for the American economy, of course, is the JOLTS
Speaker 1: number today. And of course the JOLTS number JOLTS. JOLTS
Speaker 1: stands for Job Opening and Labor Turnover Survey, and this
Speaker 1: is a survey that the federal government Department of Labor,
Speaker 1: Bureau of Labor Statistics cranks out. They put out these
Speaker 1: public metrics and have been doing this for decades. I mean,
Speaker 1: this is something when you're in the dismal place of
Speaker 1: economic graduate school where you're studying diligently the dismal sciences.
Speaker 1: I think it was John Maynard Keynes called it the
Speaker 1: dismal science. In the dismal confines of a graduate program,
Speaker 1: you depend not only for your academic success, but perhaps
Speaker 1: for your future career success on the numbers of the
Speaker 1: federal government put out. And these are supposed to be
Speaker 1: economic benefit. And that's part of our forty trillion dollars
Speaker 1: in national debt and our two and a half trillion
Speaker 1: dollars an annual deficit. When they're borrowing and spending money,
Speaker 1: part of that money is to pay for these government statistics.
Speaker 1: And of course the Bureau of Labor Statistics has been
Speaker 1: around a long time. They really came out of the
Speaker 1: labor movement. As labor became a thing after World War Two,
Speaker 1: when the United States changed so very dramatically into the
Speaker 1: modern state that we have today, good or bad government
Speaker 1: statistics became a really important thing. And that's why we've
Speaker 1: been looking at the labor market as a component of
Speaker 1: the American economy for a very long time. And of course,
Speaker 1: we created the Federal Reserve in nineteen thirteen with the
Speaker 1: idea that they would be the lender of last resort.
Speaker 1: We needed a central bank that would shovel money in
Speaker 1: the back door of a failing bank, so Jimmy Stewart
Speaker 1: could hand the money out over the counter and everybody
Speaker 1: would calm down and go home and the bank crisis
Speaker 1: would be avoided. Was the original impetus for creating the
Speaker 1: Federal Reserve. Well, as time went on, monetary policy became
Speaker 1: a more important thing because it was quite obvious if
Speaker 1: you have an entity, the Federal Reserve that can create
Speaker 1: money out of thin air, not to the you know,
Speaker 1: to the amazing chagrin of mister Elon Musk who found
Speaker 1: the computers that actually did it.
Speaker 2: Get they create money out of thin air.
Speaker 1: It's just you just they just you know, type some
Speaker 1: keys and poof money shows up. And of course the
Speaker 1: money gets trickled through the banking system and then into
Speaker 1: the greater economy. And also some of that money is
Speaker 1: used to buy federal bonds in the bond marketplace. This
Speaker 1: is open market activities to keep the interest rates where
Speaker 1: the Federal Reserve wants them. So the Federal Reserve has
Speaker 1: a monetary policy component, which evolved into the dual mandate.
Speaker 1: We want to make sure that unemployment stays low or
Speaker 1: national employment stays high. We don't want a lot of
Speaker 1: unemployed people. And at the same time, when you do
Speaker 1: that by speeding up and slowing down the economy to
Speaker 1: keep people, you know working and the top unemployment can't
Speaker 1: go above five percent. If you keep it below five percent,
Speaker 1: we have a full employment situation even though there's four
Speaker 1: point two percent of Americans who are looking for work.
Speaker 1: That is a full that's effectively full full employment. And
Speaker 1: then the other half of the dual mandate is while
Speaker 1: you're doing that, while you're fiddling around the economy to
Speaker 1: keep people working, don't let inflation go above two percent. Well,
Speaker 1: we know that our employment numbers are low. Four point
Speaker 1: two percent unemployment is effectively full employment. There's always transitional
Speaker 1: people that are between jobs. And we also know that
Speaker 1: our inflation is above two percent. We've seen that what
Speaker 1: I think it's core of CPI core was what two
Speaker 1: point six percent, which is six tensive percent of But
Speaker 1: if we look at headline, we're at three percent. And
Speaker 1: if you look at the PCE, which is what the
Speaker 1: Fed looks at, you realize that we're somewhere around three percent.
Speaker 1: So wet one point higher in inflation we should be
Speaker 1: and that's what people were thinking about. Maybe we should
Speaker 1: raise interest rates to slow the economy down and squeeze
Speaker 1: that inflation out of the economy. And of course when
Speaker 1: you slow the economy down, the unemployment number goes up,
Speaker 1: and the Federal Reserve is looking at well, you've got
Speaker 1: you know, four point two percent.
Speaker 2: That's not five.
Speaker 1: We could go, you know, a couple more tents of
Speaker 1: a percent and you know, not hit five.
Speaker 2: So we let's try it.
Speaker 1: It didn't happen politically, but we did have three of
Speaker 1: those of twelve of the committee members voting to raise rates.
Speaker 1: So you know, usually they always vote unanimously. It's a
Speaker 1: good you know, camaraderie. But this time there was a
Speaker 1: signal that there may be a rate increase to slow
Speaker 1: down the economy because of the inflation. Because unemployment is
Speaker 1: at four point two percent, you know, we can absorb
Speaker 1: a little more unemployment. Well, the Jewelt's number is a
Speaker 1: different report. It's a report that tells how many job
Speaker 1: openings there are right now in the United States, and amazingly,
Speaker 1: the number or it doesn't it doesn't really matter.
Speaker 2: If it goes up or if it goes down. Effectively,
Speaker 2: it went down just a little bit.
Speaker 1: But we have seven point three five nine, or let's
Speaker 1: say seven point four million jobs. There are seven point
Speaker 1: four million jobs available in the United States right now.
Speaker 1: So if you're looking for a job, there are seven
Speaker 1: point four million jobs available according to the Bureau of
Speaker 1: Labor Statistics in the United States. They may not be
Speaker 1: all in your neighborhood. They may be scattered around, which
Speaker 1: I'm sure they are. But the point is we have
Speaker 1: seven point four million job openings right now in the
Speaker 1: United States. So the question becomes, if you've got four
Speaker 1: point two percent of unemployed people in the economy, and
Speaker 1: you have seven point four million jobs, why don't those
Speaker 1: two merge and we have nobody unemployed and we still
Speaker 1: have some extra jobs left over, and then we can
Speaker 1: start thinking about thinking about perhaps allowing immigration to fill
Speaker 1: those extra jobs. Well, it doesn't quite work that way
Speaker 1: way because obviously it's the geographic problem. You can have
Speaker 1: a high unemployment enclay when a factory closes, and you
Speaker 1: can have plenty of jobs and plentiful jobs three states away,
Speaker 1: but the people who live in the unemployment zone don't
Speaker 1: want to move to the other area. So there's always
Speaker 1: this this dichotomy in the labor numbers. But the good
Speaker 1: news is there's still four point seven point four million
Speaker 1: job openings in the United States and that is considered
Speaker 1: to be a positive because the smaller that number gets,
Speaker 1: the fewer jobs that are available, the tighter the labor
Speaker 1: market becomes, and of course, the higher the unemployment numbers go.
Speaker 1: And keep in mind last week this is Tuesday, but
Speaker 1: last week Thursday, I was talking about the unemployment claims
Speaker 1: number and it was the lowest that's been in a
Speaker 1: very very long time. And what this suggests is we
Speaker 1: have a healthy labor economy in the United States. Now
Speaker 1: that begs the question everybody has a job and nobody's
Speaker 1: making enough money, and that becomes another economic issue that
Speaker 1: also crosses over into the political side. As you know,
Speaker 1: this is not a political show. Normally, this is a
Speaker 1: show that talks about economics. But this is where policy
Speaker 1: and economics touch. And that's why when you think about
Speaker 1: the average American, where the average American take home pay,
Speaker 1: looking at higher automobile prices, higher housing prices, mortgage prices,
Speaker 1: food prices, clothing prices, medical insurance prices are crazy and
Speaker 1: just continue.
Speaker 2: To go up.
Speaker 1: Without any relationship to the market whatsoever. All of that
Speaker 1: is squeezing the American consumer and it's dangerous to be
Speaker 1: doing that as we.
Speaker 2: Go into a midterm election.
Speaker 1: So that's why from an economics perspective, as an economist,
Speaker 1: we watch this because it's not a good indicator. There
Speaker 1: was a second indicator that came out today. US core
Speaker 1: factory orders were down last month. A little bit headline.
Speaker 1: We're actually up a little last month.
Speaker 2: But what we're.
Speaker 1: Seeing is factory orders are increasing at about seven percent
Speaker 1: per year if you look at year over year factory orders,
Speaker 1: which is good because factory order is usually need a
Speaker 1: labor attached to take the raw materials. The labor and
Speaker 1: makes the stuff and sells it.
Speaker 2: But what we're.
Speaker 1: Seeing is that the economy is flat. It's not booming,
Speaker 1: it's not accelerating. It's effectively holding. And I think that's
Speaker 1: where a lot of the political pressure is coming from,
Speaker 1: because you're hearing it more and more that people are
Speaker 1: really struggling. You see it in restaurant numbers of tables turning.
Speaker 1: If you look at the restaurant statistics, you see that
Speaker 1: the number of Americans that are dining out is dropping
Speaker 1: rather significantly because people are basically doing triage with their paycheck.
Speaker 1: You know, we need to pay the mortgage, we need
Speaker 1: to pay the car payment, buy some gasoline. Gasoline prices
Speaker 1: are up. You have to pay your insurance. You've got
Speaker 1: maybe a home insurance, you've got auto insurance for sure,
Speaker 1: and you've got health insurance, which is astoundingly expensive. And
Speaker 1: all of that puts pressure on a payroll that has
Speaker 1: been effectively flat for decades. If you look at the
Speaker 1: increase in inflation over time and you look at the
Speaker 1: increase metric for take on pay, the take on pay
Speaker 1: is almost a flat line, but costs continue to go
Speaker 1: and that's the pressure we're feeling in our economy.
Speaker 2: The last thing I wanted to talk about is I
Speaker 2: was you know, we were talking about.
Speaker 1: Data centers earlier, earlier, yesterday and last week, and one
Speaker 1: of the stories that caught my eye is that the federal.
Speaker 2: Government is preventing.
Speaker 1: Chinese components from being used in data centers because they
Speaker 1: don't want the Chinese to be able to use these
Speaker 1: components to read the output of the compute that is
Speaker 1: happening inside of the data center. And it's a really
Speaker 1: big national security thing. You don't want the Chinese reading
Speaker 1: what's going on in the data centers. It'd be spying,
Speaker 1: of course, So there's a push to get that problem
Speaker 1: solved by banning Chinese made components and only allowing components
Speaker 1: in these technically sophisticated systems that are US made and
Speaker 1: of course controlled and unspy onible. I guess which is
Speaker 1: sad because when you look at how we conduct our
Speaker 1: elections in the United States, those same rules may be
Speaker 1: written down by the federal government but are not taken seriously.
Speaker 1: And I think that's a real political problem because if
Speaker 1: you're going to have a free and fair economy that
Speaker 1: is able to generate wealth for all in a fair system,
Speaker 1: with laws that apply fairly to all, in a legal
Speaker 1: system and an economics system, then you have to have
Speaker 1: fair elections in order to do that, And if the
Speaker 1: elections are suspect for any reason, it becomes a real
Speaker 1: national security issue.
Speaker 2: But while the federal government is very concerned about protecting the.
Speaker 1: Data that comes out of these data centers so the
Speaker 1: Chinese don't get a hold of it, we have to
Speaker 1: ask the same question, what about our election systems and
Speaker 1: why is not not held to a higher standard. I mean,
Speaker 1: isn't the key to democracy the ability to cast a
Speaker 1: ballot should be protected as a national treasure rather than
Speaker 1: just run as an administrative exercise on systems that perhaps
Speaker 1: can be penetrated. And I think that's a question for
Speaker 1: our political leaders to deal with over the next short
Speaker 1: period of time. Anyway, AM out of time for today.
Speaker 2: Thank you so much.
Speaker 1: I apologize for the technical problems, but we got it
Speaker 1: fixed and I would look forward to addressing you again
Speaker 1: tomorrow afternoon. Please go to a worldviewoundation and make a donation,
Speaker 1: and please please subscribe to the Vault so it'll be
Speaker 1: the best thing you've done all week, is if you subscribe.
Speaker 2: To our vault. Anyway, have a great afternoon. I'll talk
Speaker 2: to you tomorrow. Bye.