The Perfect Storm: Powell, Big Tech Earnings & How the Middle East is Driving Up Inflation

本站添加: 2026-05-07

[00:00:00]Yeah. All right. We're we're uh let let's welcome Jim. We are going to be speaking very soon to Jim Biano of Biano Research. Want to talk about the Federal Reserve, of course.

[00:00:11]>> Um but but also Jim, I mean, you have some thoughts on these earnings the other day. Right now, the problem is the street doesn't like when you're going to spend more money on capex.

[00:00:27]Their stock is down 7%. Right now, um, I've got a fast quote on after hours trading that calculates the S&P. The S&P finished today down uh about two points.

[00:00:40]It's now down about 45. So, in total, the market is down about half a percent.

[00:00:46]Now, that's in the minutes after these earnings. You know, by 9:30 Eastern tomorrow, it could be very different.

[00:00:53]But in total, all these earnings are taken poorly. And the meta problem is the Tesla problem. You tell me you're going to spend more on capex and they hit your stock.

[00:01:03]>> That makes sense. Yes. Uh so an increase in 10 billion in in capex. My point, Jim, was just that it it was a smaller increase in percentage terms than kind of what we're used to. And I also say in terms of earnings per share, technically they earned, you know, $1044, which is way above expectations, but that includes like a negative $5 billion adjustment for income taxes, which sometimes happens. So, I'm trying to see just how much they initial. What was what was the metric other than capex that you know, is there a metric other than capex that the market doesn't like?

[00:01:35]>> Well, I could um I haven't gotten a chance to look at it deep deep enough, but I can tell you that um it was down 7%. on the announcement. Yeah. You know, so it didn't in total the market didn't like it, but it seems like the focus has been on the uh increase in the capex spending.

[00:01:50]>> Definitely. And you know, Jim, you said you haven't had time to look into it deeply. Neither have we. Neither has anyone. That's the whole point. We're reacting to it live. That's why people selling stock or buying it. They don't know either. And that's why I said even though you right now the S&P the S&P is down 42 points for the day, you know, it's it's it's it's updating for the after hours trading. Look, that thing could be up 20 points by, you know, 9:30 tomorrow. The market is just having a gut reaction and we'll see how much it lasts and where it kind of goes from there.

[00:02:22]>> Yep. I mean, Bloomberg's reporting as Meta raises outlook for capital spending in 2026, shares slide. I suppose I would say like come on stock market what did you expect like of course man is going to raise his capex of [laughter] you know >> that's just what's been happening every single quarter for every single hyperscaler stock >> right and this is a this is a concern um this is the concern that the market has at 4:15 on Wednesday you know check back at 9:30 a.m. on Thursday and see if it still has that concern.

[00:02:51]>> Yeah, Meta definitely fair fairing the worst of all four of the big mega cap stocks reporting today down 6 and a.5%.

[00:02:59]Google has given back a little bit down 2% but Microsoft as well down and Amazon down. Amazon of the group has been one of the better performers over the last few weeks. Do you have any thoughts on on why Amazon has taken a leadership position over the last few weeks?

[00:03:16]>> No, I really don't. I don't look at Amazon deep enough, but you know, maybe because if between AWS and everything else and they're not playing the LLM game like like the rest of the poor world is and um you know, committing to like the GDP of France in order to uh build their own LLMs that that might be taken as somewhat of a positive for them. By the way, you know, lost in all this is you know who just reported great numbers is Ford. Ford just reported some Buffalo numbers as well too. 66 cents when the estimate was 19. So, it it actually had a pretty decent number as well, which is >> I guess uh getting getting all of the tariff money back is a pretty good business model, huh?

[00:03:53]>> Right. But they're not getting the tariff money back for a couple years. I mean, they're going to get it back, but it's going to take, you know, they still got a thousand lawsuits to work through and and procedures, but they will eventually get it back. But I think the larger issue with that is that's the end of the first quarter. That's telling you that the the the broader economy can transition to the Fed and everything else. The broader economy is doing pretty good. You know, as I like to say, what a lot of people are doing is they're going to the gas station. The price of gas is up about a buck 25 since the war started. So, the average fill up is $25 extra than it was at the end of February. Everybody's got choice four-letter words about what they're paying for gas. and they fill up their car and they do what they were going to do anyway. And that seems to be where the economy is. It's not slowing in any way because of higher gas prices. And I think the Ford numbers kind of um um reflect that.

[00:04:52]So, uh I just want to say but yeah, Amazon their operating income is $23 billion, $24 billion. Nothing to to you know uh um you know, look past at all.

[00:05:03]But then they're also they're they booked other income of 15.6 6 billion for a total you know net income after taxes of 30.2 billion. So like Google, Amazon is booking these massive gains in Anthropic um and other private you know VC private companies that they they own.

[00:05:20]So uh yeah owning an surprise surprise owning anthropic and owning SpaceX when we're in a giant bull market in in these private companies is a is a is a way to book some some profits. So again I would I would say that these numbers are fantastic but people when they look at the net income they should be aware that they are booking gains in stocks that is you know cannot be relied upon for sustainable um you know income like they can in the future like you know in two years there there's going to be a very recurring nature of a lot of these these business revenues but um they should be aware that there's a certain non-recurring nature of that as well.

[00:05:58]Speaking of booking um um or uh booking profits from Enthropic, did you see the story yesterday that there's a house for sale in Mil Valley, California that's been underpriced, but there's one at $5 million, but there's one catch. You have to pay for it with anthropic stock.

[00:06:15]>> Yes, I did see that. It's pretty crazy.

[00:06:17]I think it was a $5 million $5 million house. Hard to believe. I think a threebedroom house would be underpriced at 5 million, but they want anthropic shares for it. Yep. Um, >> and they're willing to take them. Um, you know, you could you could sell it to them at at full value, too.

[00:06:33]>> Well, the interesting thing with that is I believe anthropic shares are not transferable. Like, they're not liquid.

[00:06:39]Um, >> yeah, they're right. They're not public, but I don't know. Are they transferable?

[00:06:42]Are are private shares transferable?

[00:06:45]>> That that's >> Well, it depends. So, it it's in the terms of whoever the owner is, right?

[00:06:49]Like so when you buy the shares, when you make the investment, certain private companies might have restrictions on your on your ability to to sell them in the secondary market. And my understanding is that Anthropic has pretty um pretty tight restrictions on your ability to actually like sell the shares. So you could have say like if you had an SPV where you had the anthropic shares, you could sell your stake in the SPV, but you can't actually transfer ownership of the shares.

[00:07:20]>> Got to want that house real bad.

[00:07:23]>> Yes. Yes. Exactly. They they they're going to have to find some way and and it's it's too right of refusal. So Anthropic might approve the Anthropic might approve the transfer of the shares.

[00:07:36]>> We'll see. Maybe maybe somebody from Enthropic wants the house.

[00:07:40]>> Yeah. Well, what about the Fed, Jim? I know that that's probably we're we're still waiting on a lot of uh a lot of the market's reaction for these mega cap tech names. We've had a little bit more time to to process what happened with JPAL. You've been getting a lot of flack today uh because you believe that JPAL staying is a mistake. Why do you think that's a mistake?

[00:07:59]>> Because of the reason he's staying. The reason he is staying on with the Fed is because he believes that he doesn't trust the administration to properly investigate the overruns in the building contract uh in the buildings uh or renovations of the Federal Reserve buildings. Okay, fine. So, you're going to stay on and you're going to hold the institution hostage in order to get an effective outcome that you want. And I thought his outcome was pretty clear. The Fed's an independent institution. No one is allowed to ask any questions. If they want to build if they want to build a marble edifice to themselves that's going to run billions over cost, don't ask any questions. You're not allowed to ask any questions about how they do monetary policy or anything else. Marin Eckles is the only other Fed chairman who stayed on as a governor. In the 1940s, he stayed on because the end of World War II, we had Breton Woods, we had with Brettton Woods, the World Bank, the IMF, and he recognized that there was a period of epic change coming. And he wanted to shepherd the world into this new era. Seems like what we got 80 years later is another time of epic change. And J Paul wants to stand in the doorway and prevent that change. You're not allowed to ask questions. you're not allow. He said he wants the institution to remain the traditional way it's maintained. I think that the institution is changing. I've welcomed those in those changes. I think those changes are good. And he just announced he's not going to um he's not going to stand in the way of those changes. He wants to stand in the way of those changes. And this is going to cause a lot of grief at the Federal Reserve. I think at the end of the day, they're not going to like what's going to happen next. And I'm not just talking about what Trump is going to do. Let me just go off one other thing. One of the changes. What about the independence of the Fed? I've been arguing now for months. The independence of the Fed, and I'll say it bluntly, is largely solved. It is solved because we now have 12 independent voters. Today's vote was an 84 vote. The last time we had four descents was October of 1992, 34 years ago. This is the world we live in now. Everybody is going to vote independently. I've been arguing actually for years that the group think at the Fed and everybody waits for the chairman to tell them what to do and we all parse every word that the chairman says has produced more problems than it is than than issues that it has solved.

[00:10:41]We are getting away from that right now.

[00:10:44]Now, Chairman Pal says he doesn't like that and he wants to see the Fed be more in independent. He said he's going to be in the background and he doesn't want to be disruptive. So, here's my question for you. We're already at 84. That's not that far from 66. What happens if we get to 66 or 75 and Chairman Pal gets to decide by himself on policy and he's already said, "I'm not there because I think I can bring something to monetary policy." That's not what he said. He said, "I'm there to prevent change and to protect the institution from Donald Trump." So, he is making an overtly political statement by staying in the manner he's staying. In the early part of this, it's the last thing I'll say on this. I could understand what he was doing, but then Tom Tillis, senator from North Carolina, took up the cause and put a block on uh Kevin Walsh's nomination.

[00:11:42]There was an agreement last week. The inspector general of the Federal Reserve will investigate the building. If the inspector general of the Federal Reserve finds any wrongdoing, then the inspector general could put could recommend criminal charges to the Justice Department. It's not good enough for B uh for J. Paul. He wants no investigation. It seems like, oh, but the Justice Department said they could bring charges later or have an investigation later on. They can do that to anybody for any reason at any time.

[00:12:14]That is not a statement. That is not a threat that there will be a future investigation. Um and he is going to hold the institution hostage so that they don't investigate. That is a giant mistake for the institution.

[00:12:28]>> Don't investigate the construction projects.

[00:12:29]>> Yes. the the the construction projects because you know he he is that's what he's basically that's what this is all about is about the the overrun the overcost overrun which could run north of a couple of billion dollars depending on how you measure it over several years and he doesn't want any you're not allowed to ask about that marble building that they're building they're just building it and it's none of your business how much it costs effectively what I heard him say >> you might not like Trump you might not like Trump and I understand it and I got man do I have issues with Trump but this doesn't make it right. This makes it worse what Tapal is doing.

[00:13:10]Jim, are you saying that the administration's investigation into the Federal Reserve was 100% legitimately concerned with the issues at m in other words spending billions of dollars and they were worried about the taxpayer and that it wasn't politically motivated because Powell and the Federal Reserve wasn't cutting rates that the president wanted to. Is is that what you're saying?

[00:13:31]>> No, I'm saying it was. I'm saying it was. And that's why I said prior to last week's agreement, I understood Paul's position, but last week's agreement was that investigation is closed. That is no more. Now, the inspector general of the Federal Reserve is going to investigate the building cost overruns. And if the inspector general of the Federal Reserve says that there's shady dealings, they might recommend to the Justice Department a criminal investigation. And Paul said, "Still not good enough.

[00:14:04]You're looking at the building." That's what I heard him say. And he seems to be saying, "No one's allowed to ask any questions about this building." If he, if I'm wrong, I'd like to hear what what narrow path he's trying to argue with this.

[00:14:18]>> Jim, I listened to Powell say that and I was listening to you just now, of course, but can you just repeat that again? So the administration the investigation is officially over but they're kind of retaining some right to look into and ask questions and that's what PAL doesn't like. Can you just explain that for audience and meet?

[00:14:34]>> Yeah. Yeah. They closed the investigation, the criminal investigation into the overruns of the buildings and they said that the Federal Reserve has its own inspector general.

[00:14:42]They can investigate it. Okay. That was good enough for Tom Tillis to lift the hold that he had on Kevin Walsh's nomination and he voted to advance Kevin Walsh earlier today. But that's not good enough for J Paul is what he seems to be saying. Now the Justice Department said, "Well, we could open another investigation later on if we decide to."

[00:15:07]Yes, they could. And they could do that to anybody for any reason at any time.

[00:15:12]That is a constant for every justice department always. That is a statement that is a it's kind of a statement of the obvious. They can always do that.

[00:15:22]And so if your answer is we might get investigated somewhere in the future. So I'm going to hold the Federal Reserve hostage so no one ever looks into us.

[00:15:33]That is a problem. I think that is a problem. If he doesn't like it, I'm sorry. Donald Trump won the election.

[00:15:40]Maybe you like it. Maybe you don't. He gets to, you know, put the Justice Department in that he wants just like Joe Biden got to put the Justice Department in that he wanted um in part investigated Donald Trump. And just like in 2029 when we have a new president, they could put in the Justice Department that they want for whatever reason.

[00:15:59]That's the way the system works. You don't get to hold the Federal Reserve hostage because you're you don't like what they the Justice Department may or may not do. That's all I'm trying to say. And that's why I think it's an intensely political decision on Paul. It is not an economic decision on Paul. And in an era where we're already at an 84 descent, Paul could be the swing vote in as early as the June meeting, he could be the swing vote whether he likes it or not.

[00:16:32]And he's already said he's there for political reasons.

[00:16:37]My understanding with the 84 vote was it was on the language about easing bias.

[00:16:42]So it wasn't that we had a dissent on the the decision to raise or lower interest rates. It was on this language being in the statement. And I think that is very different than a than a dissent on the actual policy decision.

[00:16:55]>> Right. Right. We there's one descent as we kind of always have had for series of months of my Governor Myron who I've interviewed on monetary matters wanting to cut interest rates. Uh, so that was a descent on rates, but you're absolutely right, Max, that the other three were descents, not on the fact that hold rates steady. They just wanted to remove the easing bias language. Jim, explain what that easing bias language is and why it's significant.

[00:17:17]>> It's significant because what it is is that it's part of the Fed's forward guidance. Forward guidance is, you know, fancy way of saying we're going to tell you what we're thinking about doing in the future. And what those three said is, look, we shouldn't be cutting rates.

[00:17:33]And now there are three and there was you know eight that had no problem with that policy including Powell. Um I would assume yeah including Powell because he wasn't one of the denters. And so really the Fed is and if you read the minutes of the Fed, it is very clear that if you were to sit around the room and ask people where they think policy is and then you look at where they vote, they're not totally in agreement with each other because they're in this process of becoming more independent.

[00:18:06]The the banks are becoming much more independent. that is the Federal Reserve banks are because all the denters were from the um from the regional banks. The governors are starting to become more independent. We've seen um Governor Bowman and Governor Waller descent in the past. We've seen Governor Mirren descent in the past. So really this is about where they want to signal policy is going to go in the future. Yes, the market has been pricing a zero probability effectively that the Fed was going to change rates at this meeting for months. really those descents were about what should you expect for the rest of the year and that's you know we had three of them say we should not be leading people on thinking that we're going to cut rates for the rest of the year now eight of them did but we didn't have any of that at the last meeting and if I was to transition a little bit here if we wind up seeing more inflation and J Paulal said at the meeting that their estimate and by the way their estimate is going to be spot on that year-over-year year PCE inflation is already at three and a half% way above target. That and it could potentially go higher. Look at we just went over $120 on June Brent crude oil today. So it could go way higher. You could go from no denters on an easing policy to three at this meeting to six or seven at the next meeting. you could go that fast uh on it if if the price of crude oil continues to go up and if the inflation pressure on this economy continues to grow and I use six or seven as my example because it might be five or six because that sixth vote might be J Paul and so he's going to stay in the background but now every vote matters it's no longer what the chairman wants the chairman gets and so that's why It It's concerning. He said, "I'm going to be political. I'm going to stay here."

[00:20:05]Is basically what he said. He He did say, "I'm going to stay here." He He said he'll be, you know, quiet in the background, not trying to make a scene, not trying to rock the boat. Um, so say he was political, but you're making that point.

[00:20:20]>> Yeah. What does that mean? I understand what that means in one respect. He's not going to give a speech. That's the last time we're going to see him in public for several months. um give a public presentation for several months. But if the world was still 1211 votes and he could just stay there and agree with the consensus, then that's one thing. But that's not the world we're moving into.

[00:20:42]We're moving into a world of independent voting. And he's an independent voter now. And he has told us that his decision to stay is not because of economics or monetary policy. It's about change is coming to the institution and he doesn't want it and he doesn't want he wants to be a block on the administration and trying to force that change on the institution. Now, you know, I have lots of problems with with what Donald Trump has done with this institution, but I also thought that the decision last week cleared this up for him to potentially move on from his policy. But apparently um Paul wants to stay. And the last thing I'll say about this, all of this is going to come to a head in the next six weeks because in the next six weeks, the Supreme Court is going to vote on whether or not President Trump has the ability to fire Fed Governor Lisa Cook for cause. Quick background for everybody on this. Um there's two types uh there's two types of jobs you can have on Washington. At will and for cause. Um you know at will is a fancy way of saying you serve at the pleasure of the president. He could fire you at any time. You know cabinet members are at will. He can fire you at any time for any reason or no reason.

[00:22:07]For cause means that you get this job but if you do something that causes me rises to a certain level that causes me to fire you then I could fire you. Now, President Trump has been arguing that Lisa Cook filled out some mortgage applications incorrectly and it resulted in her potentially getting a lower mortgage rate than she should have. She had said a second home was her primary home and that's how she wound up getting a lower mortgage rate. And he said that that's a for cause reason to fire her.

[00:22:37]The Supreme Court heard oral arguments in January about it. The Supreme Court should rule before the end of its term by the middle of June. So that's only in the next six or seven weeks. If the Supreme Court rules he can't fire her for for a cause, well, that's one thing.

[00:22:54]But if the Supreme Court gives President Trump an opening to fire Lisa Cook, he'll probably fire J. Pal that same day. And uh and then we'll see an epic change in the in in the in the court anyway. I mean, in the U in the Federal Reserve anyway. So there's more upheaval coming to the Fed. It seems like one way or the other.

[00:23:14]>> Yeah. I I mean, you're characterizing this um this divide between the the voting members of the FOMC as being a sign of of independence. Is it reasonable to say that it's more a sign of the uncertainty that we have about inflation? Right? There's so much uncertainty as as Pal said, they're still not even sure about tariff inflation and that they're that's where they're at. we have they haven't even gotten as an organization to the war inflation yet. Um and and as much as as the the descents I mean to characterize as 84 we had three people actually showing a a hawkish bias wanting to remove the easing easing comments and then you had Mirin on the other side. So it's really more like 13 uh one 138 than it is 84.

[00:24:05]>> Yeah, it it is. And by the way, um, what's happening with all these votes is not unusual for central banks. Last year, the Bank of England voted to cut interest rates 25 basis points and the they have nine voters. The vote was 441.

[00:24:22]The one was for 50. So they wound up cutting 25 because that's half of half of 50. But that's where they are. 441.

[00:24:30]We've seen 54 votes out of the Bank of Japan. The ECB does not disclose their votes, but it's understood that if they were disclosing their votes, there'd be wide disagreement within the ECB about what they should be doing as well. By the way, Steven Mirren's out because Paul's not leaving right now. He he will step down on May 15th so that um um Kevin Walsh can have his spot in order to be the Fed chairman. So, he's done at the Fed for now. um maybe Trump if Trump gets an open seat he might consider him for that but that's if there's an open seat and if he wants to take him or somebody else um then at that point so I do think that what you're starting to see is you're seeing these these central banks becoming more independent and if that's exactly for your reason is that inflation is uncertain. We are six years past COVID Fed's nowhere near their 2% target. In fact, we're going to be at three and a half right now. Pal dismissed it as a series of neverending one-off shocks, starting with the supply chain shock after COVID all the way through to the tariff shock and now this shock. In other words, we're perfect.

[00:25:43]I'm I'm being critical of the Fed here.

[00:25:45]We're perfect. It's just circumstances constantly get in the way. Well, that's kind of your job is to deal with circumstances. And I think that maybe the best way to deal with that is to allow more independent voting. Now, the Fed is doing that and I think that we should probably see more of it. But I would remind you no one dissented for getting rid of the easing policy at the last meeting. Now we got three. And you know, if inflation stays sticky and infl and oil prices go up, I could easily see that growing in terms of the descents for the easing policy. By the way, the market is not um you know waiting around for it. It has already priced out all the hikes for 2026. So it's already there assuming that they're even though they're holding an ease box out all the cuts.

[00:26:35]>> I'm sorry. All the cuts. I'm sorry. All the cuts. It's priced out all the cuts for 2026. It's already assuming they're there even though they officially have it moved in that direction. So coming soon is that the Fed will probably validate where the market is.

[00:26:50]Jim, thanks. I got tons more questions on the the Fed. Just want to step back, give a shout out to our our viewers here on uh MTS. Looks like we've got uh 8,400 uh of of people. Ragav says he loves the show. Someone else says good segment.

[00:27:06]And B says mortgage fraud, the worst kind of fraud. Uh, I would like to clarify for B that I believe the mortgage activity from Lisa Cook specified was is not the type of thing um, you know, uh, where they like get a loan on a foreclosed property or or something you know such as in the Sopranos um, if if people have watched that show. I, you know, obviously very popular show. Jim, just want to also step back and just review some of the earnings and, you know, if we can share the screens here with, you know, the the aggregators on on X. I'm just looking at these earnings per share that they reported, you know, Meta and Amazon, Google in terms of their they reported versus expectations and they it was such a beat that I think probably the estimates that that Wall Street had probably didn't account fully just how big these gap profits that they would book from Anthropic and and uh SpaceX and all these private companies like, you know, Meta's earnings per share of of $10.40 40 versus $6.82. Again, I think there was some tax thing that the analysts obviously the analysts are very smart, but they're not up to date on every little thing in the in the spreadsheets of the accountants going there. So, um I you know, it's possible that Meta did a true 40% beat, but um I I kind of doubt it. And you know, again, we're recording >> Jack live. If I could jump in real quick, you know, I tell you about where the S&P is trading after hours. And when we started 20 minutes ago, I said it was down 40, you know, would have been the equivalent of the S&P being down 40 points. It's now up one. And that's that's not unusual when you get these earnings because remember after hours 400 or 450 of the S&P stocks are not trading. It's only a handful of stocks that are trading and it's those that have a reason to trade like those that have released their earnings. So now the market has reassessed it the other way and it's come all the way back to unchanged right now. And so that's not unusual for the way the market reacts to earnings, >> right? And someone who's paying a lot of attention to the valuations of private companies is Vlad Tennv, CEO of Robin Hood at 5:15 p.m. Eastern, so 2:15 p.m.

[00:29:14]Central uh Pacific time. Max and I will be speaking to Vlad, so people should stay tuned for that. Jim, go going back to the Fed, what is the Fed's philosophy, the overall central bank philosophy of how to react to an oil shock such as the one we're having right now, Brent crude oil trading over $120?

[00:29:33]What today from Jay Powell's press release and conference did you glean on how he and the rest of the institution is thinking just about how what their interest rate policy should be in the face of this massive supply disruption.

[00:29:49]probably the biggest energy shock in terms of barrels of oil per day that we've ever seen in the world.

[00:29:53]>> Right? U so two things he he used a term that inflation is misbehaving and then he was asked about well it might be misbehaving and this is true the American public doesn't think we the American public doesn't think that the economy is doing well at all. It doesn't understand why the S&P is near its all-time highs. uh and he was asked about what do you tell people that are worried about cost of living and have seen major cost of living rises in order you know since co you know the the CPI is up 30% since co uh and I took his comments and this is not new he's been saying this somewhat dismissive well you know it's I understand it but don't worry we're committed to getting the inflation rate down to 2% even though it's going to three and a half right now and uh not to worry about it. And then later on he took great soloulless in saying the market meaning inflation break even rates from the tips market is agreeing that there isn't a long-term inflation problem. What he means is the I'll get a little wonky here. The 5-year 5-year TIPS break even rate. What that is is the Fed likes that measure. They look at the 10-year TIPS break even rate. They look at the fiveyear tips break even rate and they figure out what the five-year average is going to be in five years. and that number has hardly moved. And so the Fed is saying, so that's validation that they've got the right policy. And I'm like, that makes me very uneasy when he says that inflation's misbehaving, gaslights the public about what they're seeing at the grocery store and says that a bunch of Wall Street bond traders are telling us that in 2031 there won't be any inflation till 2036.

[00:31:41]And so therefore, we've got the right policy. I think that there's there's a fundamental problem with the way that he explained that. And and to be fair to Powell, he's that that's not new today, you know, and a lot of other people at the Fed have said that, and I've been critical of this for a long time in the way that they've been looking at um inflation. Inflation is an expectations thing. The Fed talks about it's an expectations thing. And my my bewilderment is the polling says political polling says the majority of Americans think we've got an affordability problem and the Fed says no we don't and because the tips market because 10 bond traders said we don't have an affordability problem. that seems to I mean I'm kind of exaggerating on the 10 bond traders but that seems to be the argument that they're going down right now and it's a very very dangerous road that the Fed is going down on this part and in fairness to Paul I think Worsh is going to say something similar to that when he becomes Fed chairman um as well and I think that's a big mistake if the American public thinks that in that affordability is a problem it's a problem full stop and if you want to stand on your head and say what you see you don't and it doesn't exist, that's the wrong approach. If they think affordability is a problem, then bring it down. That's what you need to do. You need to to bring policy to bring it down. Instead, the Fed wants to say it's not a problem. We want an ease bias. We want to be cutting rates later this year is what they is what they're saying right now.

[00:33:20]>> Right. So, interest rates from the Fed are at 3.6%. They they didn't change them today at all. Sounds like if the incoming Fed chair was a Jim Biano, interest rates would be heading up to maybe a little four, maybe a little 4.5%.

[00:33:34]Instead of Jim Biano, incoming Fed chair, it is incoming Fed chair Kevin Wars. He is even more dovish, so even more a fan of a lower rates in this environment than than Jay Palen and the current Fed. And in his uh confirmation hearing, he said that he thinks this current environment because of AI is going to be deflationary. So, he's indicating that he is prefers a little bit of a lower rates. Obviously, he didn't he didn't give any explicit guidance, but you can kind of read the tea leaves. Meanwhile, he's very hawkish on the balance sheet. Uh, at the same time, he promised to the Senate that he's not going to do what Trump wants and cut rates just because President Trump, who appointed him or recommended him, uh, nominated him, is is is going to that's what he wants. So Jim, how what do you think the Fed is going to look like under Kevin Worsh? Leaving aside the the palace intrigue of how many descents they're going to be just just what is going to be the outlook of the Fed with regards to if you know interest rates? Is it going to be more doubbish than the Powell Fed that we have now?

[00:34:37]>> So to answer the first part of your question, yes, I would be I would be a much more hawkish and I would be probably leaning towards the idea of hiking rates if I was going into the Fed. And I will say I wouldn't be alone because if you read the speeches of Dallas Fed President Lori Logan or Cleveland Fed President Beth Hammock, both of which were dissenters and voters, they're largely in agreement with my statement that maybe we should be looking at raising rates before the end of the year. So there's there are people at the Fed Neil Kashkari might be there too and a couple of other Fed voter a couple other Fed members who are currently not voters this year might also be in that camp as well. So that is not a unique position. It's not a majority position but to think about maybe raising rates before the end of the year it's not a unique position. And the last thing I'll mention on that is there's large expectations that the Bank of Japan who's been raising rates will continue to raise rates and the Bank of ECB will probably raise rates before the end of the year. So there's not like if the Fed were to raise rates they would be an outlier. They're actually an outlier by not raising rates because most of them are either raising rates or they're considering raising rates um right now. So I think that that's where they are. Now, as far as Worsh goes, I think Worsh is going to come in and he's going to make the arguments that AI, and by the way, if you would ask me, just as a quick tangent, why is the stock market ignoring $441 on the 10-year note? Why is the stock market ignoring $120 on crude oil? I would argue to you that the stock market believes the single biggest story today is AI. And it believes in the power that AI is going to be transformative for the US economy. and that is driving it more than whatever's happening in the straight of Hormuse.

[00:36:22]Whether that's right or wrong remains to be seen, but right now that's really the story that we've got going with um um with the stock market. But he's going to make the case that AI is deflationary and he will try and make that case. But I will to come back to the descents because I've argued that Fed watching today is not parse through Kevin Walsh's words because he's only one of 12 voters. Kevin Walsh will stake out a position. The question is, are there six other members of the vote? Are there six other voters that agree with him on that position? That is what remains to be seen as to whether or not he can get to seven votes cuz that's the way the Fed is working right now. You know, I if you want me to give you an illustration, there was some talk about should they get rid of the dot plot? Should they change their forward guidance? I know you know a little bit about forward guidance, Jack. You had a podcast called that in the past. And I would say yes.

[00:37:24]And I would say here's what the Fed should do in the future. They should get rid of the dot plot. They should get rid of this uh summary of economic pro projections. They should then um do something akin to what the ECB does.

[00:37:39]They vote. They have a vote and then all 12 voters go to the press conference and the chairman runs the press conference.

[00:37:47]But cuz I actually think that today well today was a little unique because it was more about Paul staying. But normally if if it wasn't about Paul staying, I would say it's the wrong person. I want to talk to Logan. I want to talk to Hammock. I want to talk to Cash Curry. I want them to explain it to Saints because that mattered more today on policy than what the chairman said about policy. That's where we're going. And the forward guidance in the future is going to be the descents 84 vote or if you want to call it 83 with mirin out is it that didn't have any any descents the last meeting is telling you or ease des um tightening descents they had the mir with the east descent is telling you that that's the forward guidance that's the way they're moving towards being more hawkish and that's what you want to flush out at the press conference not asking the chairman and question after question after question cuz he's only one of 12 voters.

[00:38:50]>> Well, I think the market clearly did flesh that out. I'm just looking at Fed watch pricing and Jack, maybe you can pull this up on your screen. Um, and I think what's interesting is I'm looking out at it at April of 27. So, next year, a year from now, what do we have in terms of the change of pricing? And if you look at a day ago on April 28th, we had a 73% 74% chance if you round up of rates staying within their current range and actually about uh 20 a little over uh 17% chance of of cuts of one or two cuts. And if you go to today staying in the current range has gone to 55% and we actually have over 40% chance of hikes priced in one year from now. So, we had a pretty decidedly um pretty decided flip from Dovish to hawkish as a result of this. What do you attribute that to mostly? Is it those descents or is it pal sticking around? No, I think it's more about the economics of what we're about to face. And I think that the, you know, one of the things, and I'm I'm going to now pivot to the war. And I'll give you my my my bottom line up front.

[00:39:59]Uh, and I'll be happy to explain it, but we don't have a solution for the Straight of Hormuz. We don't know what to do. We being the US military, and it's going to stay closed for an [snorts] extended period of time. And oil prices are going to stay. That's why oil prices are going up and they're going to stay elevated for an extended period of time. The consensus view since the first week in the war was it'll end by next week or in 10 days. And we're still saying it's going to end by next week or 10 days. Today was supposed to be the day Donald Trump said that all of the wells in Iraq were supposed to explode because on Sunday he said in three days they're going to run out of storage and then their wells explode.

[00:40:38]I'm still waiting to hear if any wells exploded here today. I doubt any of them have. It's not that's not the way it works. And that we're we're under this narrative now that we're going to put enormous in economic pressure on the Iranians. They're going to cave. They're going to run to the table and say whatever you want. We just got to get the oil flowing. We got to get the money flowing because people need to be able to buy bread. I will argue to you the Iranians don't care about that. They just don't care. They're not digging.

[00:41:08]they're digging in and they the amount of pain that they're willing to take even if the blockade is successful.

[00:41:14]We're underestimating and that this blockade and this inability to move oil or goods of any kind through the straight of Hormuse is going to be with us for a longer period of time. Now, where do I see that in markets? I would argue that I see it in markets in two places. Look at the December 2026 um Brent F oil futures contract. It made a new all-time high. The June contract today made it highest level since June of 2022. So almost a four-year high right there. But the December contract, which is seven months out, is still in an uptrend. It's still making new highs.

[00:41:53]So for all the talk, well, this is going to be temporary and then everything's going to go down. The December contract, you've got it there. It's almost $90 right now. It's telling you we're going to be at above n we're going to have well average way above $90 on crude oil for the bulk of this year right now. And if you look at that chart that's on the screen, it's still in its uptrend. It's closing high was today. That market is not pricing in an imminent end to the war and that prices will then deflate anytime soon. So that's one thing. The other thing I would argue, and I'll get a little wonky on you here, is if you look at the defense stocks, the prime defense stocks, the Boeings, the General Dynamics, the Loheed Martins, the Rathons, RTX, um, and the like, um, and there's a chart of it, and if you look at it since the end of February, um, if you want to put that on a six-month, you could probably see it a little bit better. Uh, but if you look at it at the end, since the end of February, those stocks have been going down. That is unusual for these stocks to be going down that typically when we are in a war, especially a shooting war, defense stocks do good because if nothing else, you got to buy more tomahawk missiles from Rathon and, you know, we got to replace broken equipment and used up equipment that we need. We need to buy a thousand more, you know, THADs and um, you know, and and and Patriots and the like, but they're underperforming. and so are the European defense contractors underperforming. The narrative that I subscribe to is we are finding from Ukraine and the straight of Hormuz that 21st century war is vastly different than 20th century war. And these big expensive platforms that we use like F-35s and uh aircraft carriers and the like are good for some things but they're not good for other things.

[00:43:49]And that is asymmetric decentralized war. That's a fancy word for saying they shoot, you know, cheap drones at us. And Trump dismisses them as toys and paper airplanes. But the problem is they shoot hundreds of them at you. And they're betting they've got more drones than you've got the ability to shoot them down. And even if you're 100% at the end of the day, they own you than when your magazine is empty. And that is being exposed. and that's why the defense stocks are going down. As a validation, we should have a different kind of mentality about this war and a different type of way to fight this war. And the last thing I'll say about that is somebody does. It ain't the Israelis.

[00:44:32]They might be worse than us when it comes to understanding 21st century war.

[00:44:36]They almost had an helicopter blown up by a drone two days ago and it was clear they're not actually taking the drone that seriously. But it's the Ukrainians.

[00:44:45]Ukraine has 700,000 Russian troops in their country and the Ukraine's through their advancement with drones and defensive shields with drones is basically fighting Russia to a standstill and might even actually be turning the tide in their favor. And that's what Trump talked about today that Putin might be open to a ceasefire.

[00:45:06]Reason he's open to a ceasefire is he's on the verge of losing that war. and he's on the verge of losing that war because 21st century war with drones and everything else is vastly different.

[00:45:16]They have the answer. We don't. That's why Zalinsky is in every country around the world. Germany last week, India a couple days ago, the Gulf States before that cutting security deals because the world is starting to say when I need to get the most advanced tech when it comes to defense and weaponry to protect my interests in my country. The answer might be Ukraine. It's no longer the United States or Europe. It might be Ukraine right now. Doesn't mean we can't catch up, but it does mean that we are behind the eight-ball. And while Ukraine is able to neutralize Russia in Ukraine, we don't know what to do about the straight of Hormus. So all the ships sit there. We talk about a blockade hoping that we import we put so much economic pressure on them that we get them to the table. we don't have a military solution to opening the straight. If we're wrong that their ability to take the pain of the blockade is a lot more. This goes on and on and on and that's what I think you're seeing in the December contract when it comes to uh Rudolph. So Jim, that's a really interesting point about you're basically saying, you know, tanks, schmanks, and that a lot of conventional warfare tools that we have right now. It's kind of like, you know, using horses in World War I or World War II, it's it's a little bit antiquated, and especially these new drones can take out a a lot of stuff that are really really easy to to make. Uh Jim, you know, I I unfortunately we we've got to go shortly. We're going to take a little bit of a break before we go to Vlad Tennov at at 5:15. So in 14 minutes but my final question for you uh Jim is what is the trade in this environment that we have now if you're right that unfortunately you know the war is going to continue and that the straight of Hormuz will continue uh uh to be closed.

[00:47:05]You mentioned December crude oil. I I you know have to say I actually happen to be long like exactly that that contract of of December crude oil. you know, I hope it goes down because the war is over, but um just just you know, when you scan the universe of bonds, stocks, uh gold, oil, what is the trade that you're seeing? You know, I perhaps the first answer you you might be tempted to say is your ETF WTBN. Okay, but you can't say that. What [laughter] the entire macro things? What's the trade, Jim?

[00:47:29]>> Well, you said it for me. Yes, WTBN Wisdom Tree is my partner. But actually, I think that the answer is is that what I just was, you know, riffing on a second ago. I think that this war is going to be protracted. I think that oil is going to stay elevated. I look, I want to be wrong about this. I, you know, but I'm trying to be realistic. I do want to be wrong on this. I don't want this war to last last, but I'm afraid it will. Oil will stay elevated.

[00:47:53]Inflation will go up. Interest rates will continue to trend higher. By the way, in the last five minutes, the 30-year bond just touched 5% for the first time since July of 2025.

[00:48:04]Um, and so I think that we're going to continue to see interest rates move up.

[00:48:10]Now the question I'll have for you is so long oil long DBC which is I'm long that in my PA my personal account which is the Deutsche Bank commodity index ETF um or some or something like USO I'm not long that or something like that. I also think interest rates might continue to head higher. We are positioned for that in WTBN to some degree um right now. Uh, but then the question becomes, what does that mean for the stock market? That I'll defer on, that I'll punt because you're going to have everybody talking about AI changing the world against higher inflation and higher interest rates. And those two mega forces are going to meet. I'm not exactly sure which force is going to win in the stock market. So, I'll punt on that one, but I'll say higher commodities, higher oil, and driftingly higher interest rates will continue to be the order of the day.

[00:49:03]>> Thank you, Jim. People can follow you on X at Biano Research and you they should check out your your your research that you do. I've I've read it. It is excellent. We are going to be back in just over 10 minutes with CEO of Robin Hood, Vlad Tenniv. Thanks for watching.

[00:49:18]See you everyone in 10 minutes.