This Feels Like the Final Stage | Know Your Risk

Added: 2026-05-27

[00:00:00]I just think reality catches up to you real quick at that point. Um, if it doesn't, this isn't a market I want to be involved in anyway.

[00:00:09]>> The opinions expressed in this program are for generalformational purposes only and are not intended to provide specific advice or recommendations for any individual or on any specific security.

[00:00:16]It is only intended to provide education about the financial industry. To determine which investments may be appropriate for you, consult your financial adviser prior to investing.

[00:00:23]Any past performance discussed during this program is no guarantee of future results. Any indices referenced for comparison are unmanaged and cannot be invested into directly. Any references to performance of securities are thought to be materially accurate and actual performance may differ. As always, please remember investing involves risk and possible loss of principal capital.

[00:00:37]Please seek advice from a licensed professional.

[00:00:40]And we are back with another edition of the daily dots and I am joined as always by the brain trust himself, Mr. Chase Taylor.

[00:00:49]Uh, a lot to a lot to absorb here. Um, yeah.

[00:00:56]Yeah, where to start? Why don't we give the rundown? We're we're 7 minutes before the close here, so let's just start there.

[00:01:01]>> Yep. S&P up about 7. Um Q's up one almost nine. Same for IWM. Uh Max 7's only up.3 interestingly. All world XUS up 2%. Um and that's very interesting because the dollar's up. Dollar's up.14.

[00:01:19]So the rest of the world's uh balling out of control while the dollar goes up. weird. There's a couple weird little like one day uh things which we'll get to another one here in a second. Uh front month oil down 2.8 was down a lot more over the weekend. So that a decent bounceback honestly. Uh here's the other interesting one. Gold's down4%, gold miners are up 3.7%. So two different like correlations that typically hold that were odd today. Uh silver was up about one and a half though. Platinum platium also up, copper up. So, everything but gold was up. So, maybe gold being down a little bit today is just the weird part. Uh, in yields, you had this the 2-year down seven basis points, the 10 down six, the 30-year down about four, but the 30 year still hanging out above five, and the 10 year is still basically right at four and a half. So, yields are not low by any stretch, even though they've come back some. Um, and then V down about 3%.

[00:02:21]Well, if if you own Micron, you're doing good today.

[00:02:23]>> Yeah. And the entire that entire space, like the DRAM ETF's up 15%. And then SMH, the semiconductor ETF's up almost five. So that that's as has been the case really throughout the whole war.

[00:02:36]The only thing working is semis. And >> where is the alltime high on SMH? Where we at on that?

[00:02:40]>> I'm sure it's now or close enough. Let's look. Yeah, today. SMH trades at 603.

[00:02:46]And that's >> Did it make Is that a significant new high? Yeah, I mean it's blasting off.

[00:02:51]Um, you had a little like retracement.

[00:02:55]Let's see. Starting on the 15th of May, you kind of went down a little bit and then you just rocket ship back up again.

[00:03:05]So, basically, if you're not attached to AI Capex, you're not having a good time in equities or or in energy, I guess.

[00:03:12]But, um, almost everything else. It's kind of like the meme with the guy like throwing the kid up in the pool and the other kid's about to drown and then there's like the the skeleton at the bottom. Yeah. Dad's throwing throwing SMH up in the air and everything like half the market's about to drown, half of it to the bottom of the pool.

[00:03:32]>> Yeah, this is this is starting to get this is getting really concerning to me.

[00:03:36]>> And that's and that's global by the way.

[00:03:38]>> Yeah, this is getting this is getting really concerning to me when I see stocks like Micron 21% a day >> on an analyst upgrade. I I shared a chart of emerging markets with and without semiconductors in memory and it's crazy like the average emerging market stock is getting killed but the ones attached to the AI buildout are going straight up and meanwhile the market is still looking past the greatest energy shock in history.

[00:04:03]>> Right.

[00:04:04]It this is getting to the point where look I we always say we're not going to give investment advice. I'll give you some investment advice. Start raising cash and it could take a while for it to hit. I just this is nuts.

[00:04:15]>> Although if you don't own SMH, you have less cash to raise, you know. But if you do own a bunch of like me memory or or semis, like at least at least put a little bit in your pocket.

[00:04:23]>> The mania going into this the chip thing though. Like I'll just call it right now. I'll just say it. It's overdone.

[00:04:28]It's way it's way way way overdone, guys. This is a reflection of spend that cannot and will not continue. And everybody is annualizing it and hockey sticking it out into the future. It's just not right. People are pricing it as if >> this is a new country is no longer so.

[00:04:43]>> Yeah, that's just insane. That's just not the case. It's just not the case.

[00:04:48]Especially when you see what's coming online from China, when you see all the com because remember what guys we and and look, it all looks great on an earnings basis right now. But what that tells you is that it's unsustainable.

[00:05:01]Meaning >> and if it is sustainable, then the hyperscalers should be cut in half.

[00:05:05]>> Yes. Yes. 100%. Because it the market structured the way it currently is with ships doing what they're doing and hyperscalers where they are. One of them has to be >> Yeah. They both win.

[00:05:16]>> Yeah. No. No. That doesn't work. That doesn't work. Okay. And and and and this is where you get into bubble territory in my opinion. Everybody goes, "You can't spot a bubble." You can't. They're hard to spot developing, but you can, right? And the way you can is like we just said, guys, one of these two has to be true. Okay? They could both be not true, which I think at least in the short term as it relates to valuations, I think that's the most likely outcome.

[00:05:44]But the that that's what's getting scary because as topheavy as this market is, everybody will go, "Well, it's not just topheavy." You go, "Yeah, it is. It's even worse now because these are dependent on the spending of the topheavy companies." Right.

[00:05:58]>> Right. Meaning now it's all become one giant trade. So now what? 60% of the market cap waiting of the S&P is now tech communication and semis.

[00:06:08]That's what it is.

[00:06:10]Like 60% of the market cap >> a lot 20% is just just semis probably 21 today >> and and and people are like well they're getting more important. Yes, they are guys, but they're but they're commodities like there's nothing special about Micron has not developed some new >> especially memory because memory is not act like semi like regular GPUs are so complex. It's so difficult to make >> but like a lot of this memory stuff is like pretty commoditized like it it truly isn't. It's like Legos, man. It's this is not >> Well, and that's what I'm trying to explain to people is you guys are bidding this >> that will get filled with supply. a year, that's fine. But >> those those margins will retrace like crazy, right? Like, and that's that's the cra that that's the crazy part to me is all this is going like Nvidia is the one where you look at it and go, "Okay, those margins can't hold either, but I understand where you're at.

[00:07:06]>> They have a way bigger mo than memory."

[00:07:07]Yes, granted, memory is cheaper, but >> memory is flat out a commodity, guys.

[00:07:11]And these guys what what you are seeing right now is people repricing companies based on a shortage of the good they goods they sell right but knowing that that shortage will not last. Micron did not come out with some new product that everybody's dying to have.

[00:07:28]>> Did not come out with some new product everybody's dying to have. It's like when when oil gets really expensive, like yes, the producers go up because they should because they're going to have a great two, three years of earnings, but they usually don't go up 15% a day because everyone knows Yeah.

[00:07:41]Well, just wait. Eventually, they're going to make too much of it and they're going to get smashed.

[00:07:45]>> Yeah. Yeah. And and memory is a lot more like oil than a semiconductor.

[00:07:49]>> Yeah. I this that you're just what what what is starting to happen or it appears now it could recorrect itself really quickly. Um, but what it's starting to happen is that fear I had where is if you keep going here and the momentum keeps rolling. I think you are looking at a blowoff top because I I honestly think unless you get a complete capitulating blowoff top, I just I don't think you can keep this market moving forward unless something structurally changes. The opinions expressed in this program are for generalformational purposes only and are not intended to provide specific advice or recommendations for any individual or on any specific security. Any references to performance of securities are thought to be materially accurate and actual performance may differ. This gets me to thinking back toward conversations about straight hormones. One of the things I've learned through processes like this, and we'll get into like the the particulars about news and what's changed and all that kind of stuff. Um, but one of the things that I've learned to keep an eye out is to not get too focused on the situation at hand. You know, like drunken motor talks about keeping making sure you're looking out down the road, right? You're looking at what's coming, not just what's in front of you right now. And I think one of the things that is easy to do in moments like these, like the straight armor moves, when you have a conflict like this or an energy, you know, any kind of issue like this on a geopolitical level, I think it's really easy to put a heavier handicapping on the bad outcomes and the negative parts of it and not think about, okay, when this gets resolved, what kind of what kind of positive win could benefit from that, right? Like what kind of what kind of improvement could all of a sudden flip when this is resolved to a go from a headwind to a tailwind? So, I spent a significant amount of time this weekend examining that and kind of going through that and looking at that. And I guess here's the point about the troubling part I have about all this. When you look up when you look at what's gone on in energy markets and around the world globally and all that kind of stuff, I think I think and and and the way that this has played out that plays a serious role in it, too. But I think what makes this unique is when this issue is over, quote unquote over, I think that what you get as a reward are more issues, right? Meaning the world is already pricing in lower than actual physical oil. So in a weird way, the crisis is also providing you the respit from the reality, right? And so I think one of the things that you're going to see happen is when a deal gets announced, there's going to be this knee-jerk positive reaction. And I think it's just the opposite. I think when the deal gets announced, the Goldilocks type of environment that we've been in that's been pushing go oil down and getting people more and more focused on semis and all that kind of stuff. I just think reality catches up to you real quick at that point. Um, if it doesn't, this isn't a market I want to be involved in anyway. And and the reason I say that is if that doesn't if that reality doesn't catch up, then I think you're in a straight up blowoff top and then everybody's on their own. Meaning you you pick you pick how how much fun you want to have to to the apex, which is in inevitably going to fold over, or you pick how miserable you want to be on your way up to the apex. But it's one or one or the other. Um just because this it this feels dangerously like a market that is prepared to completely detach and just take off. And I and I think you can see parts of it that have and what I was saying is what what I would if this market works typical the minute you get a deal announced that may have a short term that may have a short-term fix for your breath problems.

[00:11:27]But then you got to look at reality and what is reality? Reality is consumer prices over the next six to eight months if not longer are going way higher.

[00:11:34]>> Right?

[00:11:35]>> Way higher. interest rates probably have to follow and they already are following but >> energy costs way higher. So no, pardon me. I'm not going to get all excited because some idiot analyst tripled their price target on a memory creator when I know when I know that the demand that they're that is currently driving their margins, right? Think everybody needs to think about that. The what thinking rerating Micron on this would be like rerating Chevron on on the same type. No one's gonna do that because it's oil and not technology, but it's the same thing, >> right?

[00:12:08]>> You you're you're literally gonna repric them on what is a shortterm demand spike to their margins. That's completely unsustainable.

[00:12:16]>> Well, even if it is a long-term demand spike, you know, the >> It can't be.

[00:12:21]>> Well, I don't know. Like, we're going to build a lot of data centers from that.

[00:12:23]>> No, we are. But but but when you're cranking out those kinds of margins, here's the one thing I can promise everybody.

[00:12:28]>> Supply response from non-micron players is going to huge too. That's bingo.

[00:12:33]Yeah. No, he's not the only game in town.

[00:12:34]>> Yeah. You're going to see play out in in you're going to see play out in chip markets what you don't currently see playing out in oil markets, right?

[00:12:43]>> If if China can catch up on semis, which it seems like they're doing, oh, they can make lots of memory.

[00:12:48]>> Oh my god.

[00:12:48]>> And they will.

[00:12:49]>> Yeah. I just >> And they will sell it for cheap.

[00:12:53]>> Yeah. This this this just I I just don't like this market right now at all. I think at the very >> and and the even though the market is so thin if you think about it because the index is doing well that brings in all the systematic y stuff.

[00:13:11]>> Y >> so you can kind of look at it like well semi and memory tricked the machines into buying the index.

[00:13:17]>> Yep.

[00:13:17]>> So if the index has a problem now everyone's on one side of the boat again. They have to sell. So I think the next negative gamma event we get we'll we'll have a you know 10% pullback something like that for sure at least.

[00:13:30]Um, >> God, you're just setting up the this I >> and then all of a sudden if oil's going up and then you get in a negative gamma environment where people have to sell and then the machines have to sell, then all of a sudden people look at the rates and attach it to the stocks going down, even if it's not the reason they're going down and they'll spook people.

[00:13:50]I don't think any of that's going to work. I I think that you got to hit a brick wall. I think you're at a point now where you got ahead of it. Just feels to me something's changed where where >> the market is still up what 9% on the year 10%.

[00:14:01]>> Well, yeah, but considering the environment, dude, >> again, you know, all world XUS today was up more than more than the key.

[00:14:08]>> Yeah, probably driven by semiconductors.

[00:14:09]>> You're right. My bad.

[00:14:10]>> I mean, you go >> VU is a little less I should look at again than like EM, which is just it's a tech fund at this point.

[00:14:19]>> Yeah. I the the again >> Oh, look at that. And now I'm curious.

[00:14:23]I'm not telling anybody to short >> because like Korea's Korea's weight in exus just keeps ripping.

[00:14:30]>> And here and here's the issue, man. You You know what I see everywhere I look and and I know look I understand how this is market heresy and all that other kind of stuff. I don't care. All I see is just wrong pricing all over the place. And that scares me. That's what you see happen in bubbles. Meaning we we when bubbles really get going, they there's two functions to them. And I think people forget it's it's not just these things go up. It's also these things go down, right? People are selling off the value and you see that happening right now. You see it happening in full force. I there just feels like there's this investor capitulation into momentum that is just like we are willing to look past all, you know, all bad signs, right? We are willing to put on gold or or rosecolored glasses.

[00:15:15]>> There's nothing bad to look past. Oil's 95 bucks, >> right? Right. When I when I see that right now, the one price that I know is wrong is that I just know that that's wrong. Right.

[00:15:26]>> Yes.

[00:15:27]>> And what I see that creating that people sleepwalking through this thing. Um no resolutions over the weekend. We can get into that. It's it's really incredible to say for a variety of different reasons. But even we thought, okay, this is constructively heading somewhere. And it does appear that it is. the jawboning and the misinformation that is still out there is just unbelievable.

[00:15:52]>> Yeah. I gave up I literally gave up this weekend on on trying to read the chicken bones.

[00:15:57]>> Yeah. And I don't look I I don't want to sound and I know that I do to a certain degree right now, but I do not want to sound nor do I want to be the guy that is screaming at people to get off his front lawn freaking out all you know be because you know like we were talking about this morning so rarely do do worst case scenarios play out. What scares me about this scenario, and we talked about it a lot, is that look, and I'm not trying, and I'm not saying it's going to play out. I don't think I I hope and don't think it will, but when you take 10 steps back right now and look at this whole situation, if you if this was going to culminate in a massive crash of some kind, a massive global economic event, and a humanitarian crisis, this is exactly what it would look like.

[00:16:46]Meaning you're getting the impetus to run asset prices the opposite direction of where they should in a period of time that's also getting everybody to look past the core problem. No one's really paying attention and they're also not paying attention to the to the to to to effectively like the the geopolitical and political traffic jam you have.

[00:17:09]Right. And that's the other thing because the longer this traffic jam lasts and when I say that the issue in Iran right the longer this lasts by definition the worse it gets and yet the longer oil keeps ticking down and equities keep going up the better everybody feels about it. Right? So you you're lit I mean you could and that's what's freaking me out that >> it is the recipe for a financial crisis.

[00:17:34]>> It is 100% the recipe for how you get there. Right? I if you go back and look at a lot of the worst events in markets often times it comes from a sudden rip in in oil inflation and rates right that's that's often found at the scene of the crime of of big financial problems to include08 like oil hit 150 bucks in08 and that and that tipped like it tipped over all the other problems that were there right it started the fire of all the dried wood that piled up so everyone focused on housing and rightfully so that's where all the craziness was but if oil was 50 bucks it probably wouldn't have lit on fire, but when it ripped to 150, well, fire. And I So, I think people got to keep in the back of your mind, and don't get me wrong, oil is less important than it was back then or in the 70s, 80s, whatever it is, like full stop. But >> it's still really important.

[00:18:22]>> It's less important if you don't need it >> as a percentage of GDP, as a percentage of consumption, you name it. It's it's less important.

[00:18:30]>> Yep. It is. It is. But >> if you don't eat it, >> it still creates a whole bunch of inflation and it still that inflation still brings rates with it. And again, it's not just oil chemicals and food and and fertilizer are all part of this and they also create inflation.

[00:18:44]>> Yeah. And we and we live in this world where you've got, you know, GLP1s and statins and all you got all these crazy drugs, right?

[00:18:51]>> It would be like assuming the antibiotics aren't important. They're not as important. They're not as groundbreaking as important as they were, but if you don't have them and you need them, that's still a big problem. I think oil is very much the same way, right?

[00:19:04]>> And we all need it.

[00:19:05]>> Yeah. It's not as important as it isn't as important as it was.

[00:19:07]>> Almost everything you buy got moved with oil, which means we all need it.

[00:19:11]>> Virtually everything you're wearing, everything you put on, like right everything. It's in everything.

[00:19:17]So, you know, and that's kind of the thing that scares me about the financialization of the world because you can sit back and put your philosophers hat on and go, what is one of the problems with financialization?

[00:19:26]One of the problems with financialization is that all we end up caring about is price and we forget about the underlying realities.

[00:19:33]>> Exactly.

[00:19:34]>> That's what we're looking at right now, right? While everybody's having a party and chasing DRAM everywhere, therefore not realizing that we may not have food in four months. Now, that's hyperaric.

[00:19:44]That's hyperbolic. And I and I >> some people won't though to be too clear.

[00:19:47]>> Yeah. Yeah. But then the idea that the US is completely insulated. Hey guys, we produce 13.5 million barrels and we use 22 million a day. Okay. So like will we run out of oil? No. Mostly thankful thanks to Canada, right? And some other places we get it. But I still, you know, I look at this setup.

[00:20:09]If this does not end up hitting $140, $150 oil at some point, I will be blown away. Blown away.

[00:20:17]>> Yeah. I the phrase I used with with you earlier was like we should be buying runway here and but instead we're burning it. Meaning like because we're because we're messing with the price signal and not just us like you know there and the the demand signal like there are pe plenty of places around the world doing subsidies and price controls and stuff that keeps demand up. We're job owning the price way lower which keeps demand up. All that means your runway is shorter like you are you have less time until the D-Day of of you know oil supply. Um and that it just yeah the the incentive to just over consume is is heavy. The incentive to not worry about the price because it's lower than it should be is obviously very heavy. And like the way I've viewed this too is like if you as a policy maker decide to get the price of oil down through a bunch of headlines which totally works for the reasons we stated like levered players have to respect that and get out of the way. Um, >> just so everybody knows too, I and I think that that's I got some questions on social media today and I was just like, look guys, if and and I understand what we're saying here and please don't forget what you're going to say, but just >> I will, but go on.

[00:21:28]>> I'm sorry. I just want to inject this.

[00:21:30]We we we when it is important you realize that there is the price you're seeing, you just got to take our word for it. Price you're seeing for oil is not real. Okay? You just have to accept that that that happens sometimes.

[00:21:41]>> Go look at all the big red candles and see what happened with the news on those days. Yeah, just it's it's simple.

[00:21:45]>> It it is there because of jawboning reasons and people getting wrecked in the futures markets and nobody that manages a P&L can afford career-wise to step in front of that right now because he knows that fundamentals are not driving the market. So you have to understand mechanistically.

[00:22:02]>> I don't know where the price is. I don't know what the actual price is. I'm not saying that. What I'm telling you is that what you are seeing in oil markets is not a function of supply and demand.

[00:22:14]Not at all.

[00:22:15]>> It is a function of people being scared to death to get long in futures markets.

[00:22:18]At >> the end of the day, the the way oil prices go up is with more and more speculators going long crude futures.

[00:22:27]That's it. That's what makes the price go up, >> right?

[00:22:29]>> And you're not >> especially out on the curve.

[00:22:30]>> You're not in an environment where you can afford to do that. And to explain to people like the way futures work is you you it's like a mortgage basically like you put a little down payment in called margin and then the rest is like credit.

[00:22:44]So you might put $10 in and they're like cool you can go trade $80 of oil now just as a you know a toy model here. But if 80 goes to from 80 to 60, you didn't lose 10. You know, you didn't lose the $10. You lost, right?

[00:22:58]>> So, you know, we've had several days of oil being down 10%. Because of headlines.

[00:23:04]>> So, if you're in there and you're levered up, that's not 10% to you, right? It is more than 10% to you because it's levered. And they took the margin requirements that that down payment and they raised it. So some big some of these big shops that swing big in these things, you know, maybe normal for them is to trade a block of of 30,000 crude futures or something. Well, now now their block is 15 because you doubled the margin requirement there.

[00:23:29]There's another part in it too where look, it doesn't even matter who's doing it. Okay? It doesn't matter who's doing it. when those big shops also see time and time again, like three, four times in a row, that some unnamed dude out there was dropping $500 million bets, going short 15 minutes before the announcements come in. That's how you clear out a futures market. Because what those guys say is they go, "Okay, so I'm playing a game where I don't know sucker at the table.

[00:23:57]>> Yeah, I got to I got to leave." Right.

[00:23:59]Right. And you will see that reaction in futures markets way quicker than you'll even see it in equity markets. Why?

[00:24:05]Because professionals, way higher level of professionals and professionals because they've been around longer are way quicker to throw in the towel and they answer to a daily P&L, right? They just can't take those hits.

[00:24:16]>> And and V's high. Like when V's high, you you bring your position size down because that's just how you get through all the value at risk models, right?

[00:24:23]>> 100%. That's that's what you do. That's how >> for multiple reasons oil positioning hasn't really expanded much. Yep.

[00:24:29]>> Broadly or just the longs since the war began. Like so you >> this has got to be best like like right or wrong you say whatever you want about it brilliant they they've done it masterfully they've done it masterfully whatever where I was going with this is like I >> to the point where I even think they could do it this long >> to to me like if you did that for two weeks and you knew and decided in your head like >> we're telling everyone that it's this is the clock here's what time it is but but we are we are keeping our eye on Grinwich Mean time like we know the real time even though we're showing you the bad clock but I think we're looking at the bad clock and believing it ourselves from a policy perspective. It's one thing to do this for two, three weeks or whatever. It's another thing to do it for two or three months and kind of believe the hype of your own false time, false price. And I think that's where we're at. And that's that's just dangerous. Very dangerous.

[00:25:17]>> Yep. And and I think that um I I think that one of the things that's happening here is that one of the things keeping demand in check and this is another thing we were talking about this morning is that this belief no no I'm not going to be the sucker and load up on $100 crude. I'm going to wait till the thing is this is over or our our storage is going to get a little bit light. The the reason that's the problem here is because what I hear over and over and over is people asking about the price. Everybody's still looking at the price and assuming well you guys have said that but you know price is reality and here we are still and so now they believe it right and so they're not order like that it again and 90 to nine times out of 100 it is the right thing to do to disrespect price.

[00:26:05]>> Yep. Yeah.

[00:26:06]>> At least 99 times out of 100. But every once in a while something comes along where you go, "Oh, nope.

[00:26:11]>> The price is wrong.

[00:26:12]>> I can count still. I know the price is wrong."

[00:26:14]>> Yeah. Like I'd put oil similar. Now, don't get all fired up and I'm not telling anybody to go to go lever up or anything like that. But but I think that what you see the last time I saw and I was thinking about this over the weekend. Last time I saw anything like this last anywhere near this long, we talked about COVID, but that only took like a month for the market to get their head around that. Um, and this is weird because there, like we've talked about before, there was just so much more unknown about COVID. For instance, we didn't have like COVID inventory data.

[00:26:44]You know what I mean? We >> Oh, we had hospitalizations. I've looked at them every day.

[00:26:47]>> Yeah, we did. But what I'm saying is like we Nobody knew, you know, we like we we have ways of tracking this and we have ways of calculating the impact and all that kind of stuff. The only thing I've ever seen last like this is like the disconnect between mortgage bonds and housing and credit default swaps and stuff and in 0809 >> where the price was just wrong for a while.

[00:27:10]>> It was just really wrong >> for like months. Yeah, >> it was just wrong. And it >> manipulated is you know >> Yeah. It doesn't happen very often, but but when when you see all the things that are happening around the world and you see storage and inventory data doing what it's doing and you also understand that when this quote unquote ends, you're still drawing for at least I mean what's the number now? Probably 3 to 4 months. And and that's and here's the crazy part. When you and I say that 3 to four month number, we are on the really really constructive conservative end of that estimate. There's a lot of guys already out there talking about global collapse.

[00:27:47]>> Yeah, we're talking about how long it takes to get all the way back to being like flat from like a, you know, just pure supply and demand. If if we're assuming we have a 10 roughly 10 million barrel a day hole right now, >> I can't get over >> how long it takes to get all the way back to flat. It >> 3 months, four months, like we're talking about that might end up being very very low.

[00:28:06]>> Yeah. And and that >> even if it's not and it's two, that's still a giant problem. That's still >> well even if you >> many hundreds of millions of barrels of oil.

[00:28:15]>> Okay. So then let's let's get well let's get into what we saw over the weekend and where we're at.

[00:28:20]>> Um I still think that we're in the final stages of this and I think that we are in I don't know what stage you would call this but my reading of the quote unquote tea leaves from the outside leads me to believe that you're at a point where Trump clearly thinks a lot of his quote unquote negotiation prowess.

[00:28:44]Um, what it appears to me like is that, and again, we don't have the details, so we don't know, but what it appears to me based on the back and forth you see and everything is I kind of feel like Trump's going, "Okay, th that those were the positions you started at initially.

[00:29:00]Now, let's get down to brass tax. I'm prepared to give you what are you going to give on?" And I feel like Iran's like, "No, we're not giving anything.

[00:29:08]Give us all this stuff. right will come down on on this stuff in a big way if you come back and take it. And >> other than that, >> and he's getting mad and he's getting frustrated and he's threatening to blow him up like he has been for five straight time. And if I'm a ran at this standpoint or at this point in the process, if I'm them, um cuz it kind of felt like they were doing some of the delaying and misinformation this weekend, right? And what I was saying to you, I have no idea if this is true, but if I'm at this point with Iran, if I'm Iran, excuse me, at this point, I'm just going to let oil do my my bidding for me. You know what I mean? Like meaning you're far enough I like if I was them, and I think this is a really smart strategy on their part. I don't know if it was, but it kind of seems to me like it was that we're going to wait right up until the point where they start feeling urgency and pressure. And the minute they start see feeling urgency and pressure, then we're going to be like, "Well, hold on. Let's not let's not let's not expedite this too quick. Let's let's take a week. Let's take a month, right? we'll negotiate some of these finer points and kind of lay it out and let the other side get more desperate and start giving things, right? Because then you can sit there and go, "Whoa, whoa, wait, hold on. We're negotiating."

[00:30:28]>> Oh, now you're saying we're not negotiating fast enough. Do you know what I mean?

[00:30:31]>> Right. And let's say let's say they do strike the deal.

[00:30:35]The onepage. That's That's >> I mean, they were mining this straight yesterday.

[00:30:39]>> That's what we said. So like or today, whatever it was yesterday. Yeah. Um, so this is for a onepage, which are usually not a minim of understanding, are usually not worth what they're printed on in any any walk of life, but a one-page document that outlines the conditions for talks to like actually figure this stuff out.

[00:31:03]>> So, we're not even talking about a full deal. We're just talking about like a one-page document on how we'll come to the deal.

[00:31:08]>> Moou is a phone number. It ain't a It ain't an engagement ring. That's well well said. You know what I mean? I've been involved in a lot of them with the government. They're usually >> anou. No, you know why you sign anou?

[00:31:20]You sign anou to try to keep oil under wraps. That's why you sign anou >> and in in that framework that we have heard reportedly anyways is like yeah they'll open the straight mostly right.

[00:31:30]Yeah.

[00:31:32]>> But also supposed to be in this is like that everything shuts down in Lebanon.

[00:31:37]Well, now the IDS going in on the ground more in Lebanon and bombing stuff in Lebanon. So, like it would be so easy for Iran to be like, "Oh, yeah. Well, we were going to open the straight, but like I don't know. They're still bombing Lebanon, so we're not, you know, if you guys want to talk about the nuclear stuff here, yeah, that's fine. But like we're not opening that." And and we've been and we've been pretty I think we've been pretty non like uh alarmist about this whole thing. But to be fair, like in case you're not listening to these other people, now listen, the the reason I don't think the reason I don't take this extreme outlook is I have a lot of faith in markets when they're disconnected to fill in gaps.

[00:32:17]They're very, very good.

[00:32:18]>> The world has more than enough oil. They will figure out a way to get oil to people relatively quickly.

[00:32:23]>> Yes. Um, that being said, there's some really intelligent, serious people out there that really know energy markets and really know oil that have a much more dow outlook and it is impossible to say that they're incorrect. I think like as in with most times that point of view will look too extreme eventually. But when you understand what what is what is really happening and I know it's hard for people because they like you guys been saying this for two and a half months. I get it. I get it. But just remember the price of oil is acting inversely as it should. It is it it is being and you can do this for a while. It is being mechanistically controlled and managed, right? Like meaning I'm not saying someone's in there pushing by and sell. But what I'm saying is the reason it's No, it's the reason it's low is for net mechan mechanistic reasons, not for >> not because supply and demand.

[00:33:21]>> Yeah. Not economics.

[00:33:22]>> Not because like everyone was left to their own devices to price supply and demand in the futures market. They were not.

[00:33:27]>> Right. So um when you look at the price action of oil drifting lower over the last month, >> that that's how you know it's wrong.

[00:33:37]>> Right. Right. Now the one way now some of the people that are arguing trying to make arguments for the price is still accurate or whatever I I could get there if their argument was spot. What I can't get there is something that you pointed out today that coming into the year December oil.

[00:33:56]>> So front month oil well on the day the war started >> and guys I'm going to tee this up. You need to hear what he's saying here when we're looking at a market trying to figure out is this price real here in my opinion this is the smoking gun that tells you all you need to know.

[00:34:11]>> Yeah. So the day the war started front month oil like the current contract was $67 when this all popped off.

[00:34:20]Today, the December contract for dece for 2026 is 80, which would mean from the day the war started until December, you would actualize a $13 gain in oil for losing what?

[00:34:34]>> One and a half to two billion barrels, >> right? And that's that's dumb. Now, the December contract was less than 67 to be clear when when the war started because it was out a little ways. But still, what matters to me is where is it in December? But at the moment it's 80, which is only 13 more than where front month was when we started.

[00:34:52]>> So what the curve is telling you, the curve is telling you that if the curve is right, it believes that the exact same pricing dynamics exist today that existed when coming into the year and that we're allowing for a potential problem, right? Like that's that's what it's telling you. It's it's saying, "Hey, we think the price dynamics are the same." And that as soon as this we would call that I think the space between where we came into the year on the on on December oil and where we're at now I think you could call that war premium right like generally speaking at the be like at the beginning if you told me okay that's war premium if nothing changes on the underlying dynamics and the conflict ends that war premium get goes away and you should drift back to the same dynamic price the ads set or the same dynamics and the same price that you were showing at the beginning of the year that's what the curve is telling you Okay, we know that that's not the case. For instance, what do we know? We know that oil demand because of the need to build back inventories and supplies is going to be significantly higher over the next year and a half, year to year and a half than it was predicted coming into the beginning of the year.

[00:36:05]>> I mean, dramatically dramat it has to be. It's just I mean, this is just math.

[00:36:09]People thought we were going to have like a 2 to 4 million barrel a day surplus this year and >> the last 3 months we've been in 10 10 million barrel a day deficit roughly >> and the curve >> it's a 14 million barrel a day delta >> and again the curve is telling you that this is not a real problem. This is just a threat like >> it's worth 13 bucks.

[00:36:27]>> Yeah, 13 13 15 bucks somewhere in there.

[00:36:30]and then what it would imply to you. And again, that's the kind of pop usually you see like when a conflict jumps up and and it's not like super serious.

[00:36:38]Usually that wartime premium kind of usually ends up somewhere between 10 and 15%. So depending on the issue, it can be a little higher, a little lower, a geopolitical thing pops up, you're usually expecting to see a 10 to 15% bid into. So the so the market is telling you, yeah, this is just business as usual >> pretty much. Close enough. Yeah.

[00:36:57]>> And it's just not. and and and that's where the molecules come in because we're able to sit there and go, "Okay, numerically speaking, this is not a normal issue. This is the biggest energy disruption in history. This is the biggest withdraw of oil off the market in history." And looking at the curve going, "Yeah, that ain't right. That just ain't right." And remember when you're going to be drawing inventory drawing inventories for at least three to four months after the at least >> with the first month of that still being dramatic draws.

[00:37:32]>> Yeah. The other thing to think about too is they were mining the straight more.

[00:37:37]One of the things that we were thinking about is it they may be building a chute meaning directing all the traffic through the straight. The other thing is is that when this is over, it may not be over. Meaning Iran said over and over that that they're not planning on just resuming the way it was origin. I thought it was kind of funny, >> right? You still got to do the paperwork and get the approval from them and pay the the environmental fee. Now they're >> Yeah. Over the weekend, they go, "Okay, we're not going to charge a toll. We're going to charge an environmental fee."

[00:38:08]>> How can Europe say no to that?

[00:38:10]>> No, I would have I would have called it a carbon tax. They would have loved it.

[00:38:14]Europe would have been all over that.

[00:38:15]They'd have signed up in a second.

[00:38:17]>> Yeah.

[00:38:17]>> Oh, a carbon. By all means, double it.

[00:38:20]We got to save the world. Um, but I I just it I I again, it's it's really hard to um if if you asked me what this market is pricing right now, I think that'd be the hardest thing to answer. I I I don't I can't tell you. I will say it's interesting to me that I still feel like rates have kind of kind of p kept pricing this stuff for us even with oil not fully pricing where it should be. Like the fact that rate the 30 years at five like it's that's just that's really high man. like that is >> I'm kind of surprised that I mean look I know nothing goes in a straight line but in my opinion I think you're right at the point of this crisis where if things were working normally I would think that you would just see a I mean again normally is a tough word to define. Um, if things were moving according to supply and demand, I think you're at a point where you should I'm not saying crazy, but I think you should see every day you're closed, you should see rates and oil moving higher. I mean, bottom line.

[00:39:28]>> Yeah. I I mean, we looked at a house this weekend, so we looked at mortgage rates. They aren't cute.

[00:39:32]>> No, no, they're not cute. And and I don't see a way in which they're not going higher. Like I said, I I I'm interested to see what happens when a deal gets >> six months after this is all over. Sure.

[00:39:42]But >> now, the one interesting thing that I have seen that has gotten a little bit interesting to me is um the one part about this that fundamentally makes some sense to me is that with each successive jaw boning you're watching less and less reaction from the market which that actually >> less and less longs to to chase. Yeah.

[00:40:03]>> Right. And I I actually think that that is the one thing that is telling a fundamental story because if you look at what's going on with inventories at the very least that should be happening right that that should be happening. the job owning should be working less and less because I you're looking at a market right now that in my opinion isn't pricing any war premium. I don't I think you're looking at a market that's not even pricing basic supply and demand.

[00:40:25]>> It is definitely not in my opinion.

[00:40:26]>> No, there's no war premium >> to me by the tune of like I don't know at least 40%. But >> yeah, I I would agree. I mean it just it I mean it's when you look at the dynamics when you look at inventories when you look at the need for this stuff and dist you go go just go through it all you're like this just doesn't this just >> and it makes it for it sets up such a counterintuitive trade where you lose the jawbone master once it's over but you don't lose the supply and demand count. So like then all of a sudden the speculator is allowed to go back in and get really long and push prices higher without someone coming to coming to get them to say, "Oh yeah, but there's a deal coming." Like, "Well, no, you already signed the deal. What are you talking about?"

[00:41:07]>> Yeah.

[00:41:07]>> Um Yeah. Maybe they'll invent a cool way to still keep people from speculating on I don't know. But >> I don't know if they can at that point.

[00:41:14]>> That's tough. Yeah. It sets up for a uh for a really counterintuitive trade of like and and we talked about a little bit already, but like and and for like a bit of a political headache to be like, hey, as soon as it's over, gas will get really cheap and then for, you know, two months after gas to be the same or higher to create some frustration, especially, you know, we the the midterms are like five months away now.

[00:41:36]>> Yeah. The one other tip I'll throw in there, too, is this. Um, I think you have to be extraordinarily careful in environments like these.

[00:41:47]And and the reason I say that is because when price is wrong or when you have a feeling that price is wrong or when you have a belief that price is wrong like we do now on something that's as pivotal as oil, if we are correct, and I think it'd be of I mean, I feel very confident in that call, but always have to leave room for being wrong. Um don't see how but gotta leave gota leave room. Always leave room.

[00:42:11]>> Um the I think that I think that you are in a moment right now where when you like I was saying when you see a major price like that being wrong you have to make an assumption that a lot of prices are wrong.

[00:42:24]>> Right. That's in and things that we like that we haven't even thought about being you know >> especially especially oil.

[00:42:33]>> Right. Cuz I know >> the price of oil is wrong. price.

[00:42:35]Everything's wrong.

[00:42:35]>> A lot of things are wrong. And the reason that is scary is because price is 98% of the time a wonderful indicator that we should look at and those two 2% of the time when it's not they're very dangerous because they end up usually costing you a lot of money. And I think if you want to come out of this scenario right and I this is like anti like antithesis of trading like theology or philosophy but I think if you want to come out of this right I think you've got to not really worry too much about your P&L in relation or relative to the rest of the market in the short term.

[00:43:13]>> There's times where you got to hit mute on that and this is one of them. that I agree and I really not forever but I hate saying it and that's hey and I'll be right out there open guys that's that's a guy that sat back and watched >> what 19% of alpha get torched over the last two and a half months. So like I'm not sitting here saying I've perfectly navigated this. I wished I would have hopped on the in the biggest energy crisis of my lifetime. I wished I would have sold my oil and bought semis too if I'd have known they were doing this. And that's with us being heavy in oil and oil outperforming the market and then we still gave a bunch away because it's that difficult of a well mostly because we're not levered up on SMH because that's that's what you had to be. But >> yeah, that was the that was the one trick >> because I guarantee this is brutalizing every fund in the world that isn't hard in that stuff and they've all chased it.

[00:44:04]You can see in the hedge fund data like all the hedge funds have just gotten wildly long that stuff. So you have retail wildly long it hedge fund like everyone's doing it because like it's just the new closet index that the other reason they did is because they didn't come into the year loaded up on oil meaning right all of a sudden the reality started hitting the ground S&P was down 8% on the year they had to jump on whatever ship was leaving the harbor at that point and it happened to be SMH and the semis and that's what >> you get to a point where that stuff starts to fall just for no other reason than it just happens to be falling falling and then something like oil or whatever repricing becomes another reason to sell and then all of a sudden wildly overlevered retail and institutions have to just start clubbing the the sell button and probably some of it will go too far the other way honestly >> here's the other thing it's the IPO game you see coming on when I see companies that are doing $18.5 billion losing 5 billion a year getting ready to IPO at 2 trillion when I see a Cberus or whatever you call you know race to 100 billion in market cap the same day at IPOs. Like just for those of you that weren't around in 99 and 2000, this is not normal. And and this is not and and and this is not normal even for this market.

[00:45:20]Meaning we've seen a lot of overpriced times in this market. You didn't see this stuff. You always had like one or two things that weren't right. You get back >> like 2021 was dumb with all the spaxs, but those were like $3 billion spaxs or whatever.

[00:45:33]>> Yeah. And and and what didn't we see? We didn't see a marathon of new IPOs coming out at nosebleleed type level. It wasn't trillion dollar companies.

[00:45:40]>> Yeah. Yeah. You also saw one of the greatest year-over-year earnings inflections in the market, too, because of the off and on of the economy and all that kind of stuff. So, but what you're seeing now is you're watch just all of the elements of what would make up a bubble. Now, the flip side is we also know that when you get into bubble territory, it usually goes much higher than people think.

[00:45:58]>> I just know we're getting to a point in all this that um you know, early on in that stuff, like we held Micron not long enough, but But, uh, you're I I just you're at a point for me where I'm just sitting there going, if that market wants to keep moving away from me, that's fine. I I just I can't play in that sandbox. I also can't play and I know this is hard when you watch price moving against you.

[00:46:21]I know what fundamentally is happening in energy markets. I know what fundamentally is happening in commodity markets. And I know if I keep my nose to my knitting and I stay there, I feel a high level of conviction that I will like where I'm at a year from now. Uh, conversely, if I jump on the train that's currently everybody's on, I don't feel a high level of conviction I'm going to like where I'm at 40 days from now. Um, and and what's funny is the the move you see in these semis and DRAM and all this other kind of stuff, it would be more understandable if there weren't these wonderful fundamental opportunities out there, you know, just cuz you watch like when you're getting serious growth in a sector where no growth doesn't exist anywhere else in the economy, you kind of allow for it to go a little bit hotter. But when you look at the options you've got out there right now, that's where I just go, no, you know what? It it sucks giving up that much outperformance in the in such a short period of time, but you know, we're still up 12, 13, 14% on the year. Still got a decent lead on the market. We're going to stick to our nitting and hold the stuff that we're going to own. I'm not chasing this stuff.

[00:47:27]>> Absolutely.

[00:47:28]>> You got anything else?

[00:47:28]>> Nope.

[00:47:29]>> All right, that does it for us, guys.

[00:47:31]Anyway, uh, as always, you can follow us on social media. I'm at KYR Radio. Chase is at Pine Cone Macro. You can get the video feed on YouTube. Just search Know Your Risk Podcast.

[00:47:42]Stay frosty, guys. This is going to get wilder, I think, before it subsides. And that's saying a lot. So, anyway, we'll see you tomorrow. You're listening to the Know Your Risk podcast. Download and subscribe at knowyourispodcast.com.

[00:47:52]>> Investment advice cannot be given without a client service agreement. Zack Abraham is an investment adviser representative of Trek Financial, an SEC registered investment adviser. Boward Capital Management is a marketing name only and does not carry a separate registration.