00:00Is this an economy that's being run hot in the US?
00:02The US economy is in good shape. It comes in in good shape.
00:05First of all, it is a net exporter of oil and gas.
00:08It has plenty of oil and gas, although consumers will pay more at the pump.
00:12And as you pointed out, the national average right now is approaching $4.5 a gallon
00:17and over $6 a gallon for the first time in California,
00:21the highest rate at the pump that we've seen.
00:25And so that's going to take a little bit out of discretionary spending for consumers.
00:29But the economy is doing well, 2% growth in the first quarter.
00:34We have the big, beautiful bill, which has all these tax incentives in.
00:39Now, to an earlier point, it's going to drive deficits higher.
00:42And it's essentially deficit spending by giving all these tax incentives
00:47for anyone that puts CapEx, brings industrialization and manufacturing back to the United States.
00:53And there's a lot of that.
00:54There's big data center spend, which is hundreds of billions a year.
01:00You know, it's a $31 trillion economy of the US economy.
01:03So 2% growth is around $600 billion per year.
01:06You may have $2, $3 to $500 billion a year in just data center spending,
01:13in addition to the spending that happens from bringing the supply chain back to the United States.
01:18And so the US economy is driven by the consumer.
01:21It's 65% to 75% consumer consumption.
01:24And that looks rock solid to me because employment is running full, in relative terms, 4%, low 4%.
01:32And so I think the US economy is in fine shape.
01:36But oil prices is the key.
01:39And it's not a spike in oil to $120 for a day or a week.
01:44That doesn't bother me at all, although that's unsettling.
01:47It's duration.
01:48You keep it there for a year, and I believe it takes about a percent off of growth.
01:53And you have higher inflation.
01:55And that looks like stagflation as opposed to 2% growth.
01:58Maybe you have one, and you have a 3% to 4% inflation rate.
02:02You take oil prices to $140, and it's within shouting distance, $140, and you keep that there for a year.
02:10That's when we're talking about a much different scenario in terms of potential for a recession.
02:15That's a potential worst-case scenario, $140.
02:16I'm not so sure it's a worst-case scenario right now with the trade close.
02:20What's the worst-case scenario?
02:20Well, look at 2008.
02:22In 2008, oil prices in, I believe it was July 11th, hit $147 a barrel, Brent and WTI.
02:30But the good news is, five months later, in December of the same year, five months later, it hit $32
02:39a barrel, $147 to $32.
02:43Venezuela is coming on board.
02:45The OPEC is, with UAE deciding to take a different vantage point on their participation.
02:55With Iran coming on, potentially, if we can get this trade open, and we can bring Iran back into the
03:04economy of exports, there's going to be an overabundance of oil and gas.
03:08So I see the backside of this much lower than the short-term spike.
03:14I'm hopeful, but if we keep oil prices high, and look, there's nine weeks in, and there's about 10 to
03:2212 weeks of supply.
03:24As you take supply, the reserves, and you exhaust it all, that's when you get your spike.
03:30And so we haven't seen the real spike that could happen yet if the trade stays closed for the next
03:36four to eight weeks.
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