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Instagram- @jeffdavis_bridgestone
YouTube- JeffDavis_Bridgestone
Twitter- @bridgestonecap
https://www.youtube.com/@ChainReaction-vh7rm
www.bridgestoneinvest.com
Hey everybody, this is Jeff with Chain Reactions. We are going to have a great show today. We're going to look in Germany at the new law passed for German manufacturers as terms of their supply chain. We are going to look at the UK strike at the airport, freight demand being down in the US, freight leaders, Supply chain and logistics leaders, falling down off of their perch, but first I want to look at An analysis by an economist on the PBD podcast. His name is Tom he is very well versed. He has exited number of numerous businesses his take on number one the Fed number two oil, number three, the freight recession, and why we were seeing a lack of demand in the U S for car movement of goods. So I'm going to put this on right now That maybe there will be zero rate cuts in 2024. If you were to give your percentage that there will be zero rate cuts at all in 2024, where are you at with that, percentage wise? Right now, I'm only 50 50 at two rate cuts, and I'm falling. Got it. But where are you at for zero rate cuts? I'm probably 25 percent and coming up. At zero rate cuts. Yep. Because the inflation has been stubborn. We saw unemployment is higher. The government saying that unemployment rate was staying the same. And but we don't see how that's possible with all the layoffs that have been announced. And many states are announcing that jobless claims and, unemployment Checks that you can get for six weeks. Those are up how is it that national stats are more moderate, but the states are seeing it worse? That's in the washington's playing with the stats and when you look at all that means It's even a potential mild recession the second half of this year Mild recession said we did want to announce that obviously, but oh hell no, they will do everything possible Not to say the r word for fourth quarter. Let me go to the second part of this question Which is the oil right u. s. Crude oil falls below 85 dollars as traders discount iran israel war at risk, right? That we have so this is a cnbc story. Let me read this to you So u. s. Crude oil dropped for the third consecutive trading session on wednesday dip in below 85 dollars a barrel as market dismissed the risk Of a wider war between iran and israel that could Disrupt supplies. The West Texas intermediate contract for May delivery declined 46 46 cents or 55 percent to 84 89 a barrel. June brand futures were down 51 cents or 0. 57 percent at 89 51 a barrel and U. S. Oil and Global Benchmark are down just under 1 percent this week. U. S. Prices go about their business of unwin unwinding. Some of the war premium that has been priced in due to the continuing tensions surrounding the Gaza Conflict and the subsequent Iranian missile at least he's a calm down John Evans and analysts at all Wreaking havoc on everything wins him by the way This is another story That kind of goes with it. Direct Iran Israel war could spike oil by 30 to 40 dollars. You know who says? Bank of America says. And they said this yesterday. So Bank of America predicts that a direct war between Iran and Israel could cause oil prices to go up 30 to 40 through 2025 and Brent potentially reaching 100 and 30. dollars and U. S. Crude oil soaring to 1 23. If Iranian crude suppliers are disrupted by up to 1. 5 million barrels per day. Tom, you have inflation. That's one thing. You have interest rates. That's one thing. You have unemployment. That's one thing. You have oil gas prices. That's one thing. What do you think is gonna happen here with oil and gas prices? Okay. All those first things you mentioned is like the flu. So if oil moves like that, it's cancer on the economy. Tell me why. Because oil affects everything. Oil affects fuel, just transporting goods back and forth. And by the way, the U. S. consumer is somewhat in debt right now. We have a freight recession going on for the amount of freight being transported down. So you have that. So if oil goes up, air travel goes up immediately. Energy costs, just basic energy costs for your car goes up. Plastics go up. Plastic starts in a barrel of oil. You have then, of course, I've already mentioned freight goes up. Oil affects everything. It's like the bad domino to fall in an economy. And by the way, they're saying, Oh, it's under 85. The peak a year ago was 93, 95. So we're all the way back up within. 8 of last year's peak where we were panicking and Joe Biden opened the strategic petroleum reserve to take excess oil out there to help the price. We're within shouting distance of this and it's, and that's why when you asked me about, where am I'm 25 percent and rising that there'll be no rate cuts this year that the economy is not nearly as good as it seems. Tom, what do you always say? Numbers people talk, words, talk, numbers, scream. The price of oil right now is about 80 bucks, 85 bucks. What is it right now? Yeah. You're around there. Okay. Historically. What should the price of oil be? 60, 70 bucks in that range. What are your, what's your take? So then he goes into United States oil extraction need about a 60 a barrel to make a buck. So if we go to the national average right now, next one is the U S freight recession keeps getting. Here we go. Deeper. J. P. Hunt, a leading freight company, experiences a significant decline in stock value following disappointing first quarter earnings with profits plummeting by 70. 3 million compared to the previous year and revenue falling short of forecast by 9%, dropping by 2. 94 billion. Weak trucking volume and sluggish demands contribute to J. P. Hunt's struggle reflecting broader challenges in the freight market. And which has been grappling with a prolonged slowdown since the pandemic. Bank of America, senior transportation analyst, Ken Hoekstra noted demand remains weak. Pricing is remaining at really historic low levels. Tom, what's going on here? I'll give you three data points. Our government is telling us the economy is fine. Consumers have 1. 1 trillion in credit card debt. The economy is fine. Buy now, pay later. They're delinquent on buy now, pay later. The consumer is fine. So guess what? The consumer is not buying. Consumer purchases are dropping, and therefore there's a lack of demand for freight services to truck all that stuff around. And so now you've got freight at historic lows. So what's happening to the income of those truck drivers? It's dropping this is bad. So the freight recession is basically telling us That there's not demand to be transporting stuff around the united states. Let's translate that Because the consumer is more tapped out the economy is fine and look at the jobs report Oh wait, those are a bunch of part time jobs people are getting because for every Job that was on the job report. We lost 1. 2 full time jobs. So The freight recession is you saying I'm fine. I'm fine. I'm fine. And your mom puts a thermometer in your mouth and says you have a fever, 103 shouldn't go to school. Let me that's what's going on to give it a little personal finance context. I'm befuddled by the way. I'm just completely befuddled. This is egregious. Adam, go ahead. No. Next one. I want to get into is Iran, Israel. Okay. So great way to end that is, is The US consumer is tapped out. Okay. There is no more money just being produced and everything that's being produced right now, they just keep tackling us. Yeah. So then they get overtaxed, which is going to affect costs of goods. And they talked about the J. B. Hunt let's get back into that freight recession, And then we're going to get into the Germany, Act, Supply Chain Act, and we'll get into the UK airport strikes. Look, so that podcast was about a week or two old. And then here we go. This is all the way back in March. So that podcast is current. This is, from Echo Global Logistics, a major 3PL. And he's saying recession, but there is a recession. Maybe it ends by 2024 based on what I don't know. He says it's bottomed out. The number of trucks is declining. Oh, so it's not that. Anything's going to change other than so capacity will reduce and then capacity going to be back in line with demand. On the domestic side, demand is not going to increase. Yeah, unforeseen weather events and global disruptions, which always happen. Supply keeps coming out, balance market. So what he's saying is, to echo, pun intended, what we just heard, the truck drivers are getting less money and there's less freight. One clip of that podcast I did not play was that they have a client who generates 40 million a year in transportation. If it's a transportation, it's a trucking company, they're down 70%. That's huge, right? So from 40 million they're doing 10 right now. That bleeds capacity. So this is all going to affect it. Now, a big player, like an echo or a Robinson, they're going to be able to survive once the capacity matches the demand, which demand is down. And we see these ebbs and these flows. So X out of here, X out of here. Speaking of Robinson, um, they've always been a massive player the biggest and the baddest based on this article, they are at 70 I don't know. What does echo at echo global probably a big competitor at the global Stock price at a market cap of 1. 2 a billion to their private Oh yeah, NASAC. So they're in the, about 48. Interesting. So they're at 70. They're beating out Echo in terms of international. They're not beating out Expeditors. Expeditors has them by about double. I think the Expeditor's at 130. So the investors are asking tough questions. Here's the kicker right is they've got some big players leaving, and I don't know who they are, but the overall discussion about this is that for many years ch Robinson used its network. Of carriers feeding into its database as leverage in the market. And now with Silicon Valley, and they had all these startups over the past 10 years that have really cut into its profit margins and became huge competitors. They ate away at its competitive advantage. And so then with COVID. COVID came, there was this explosion of demand, where it was able to cover up a lot of issues, but now we are, now it's uncovering all those issues. You've got trucking companies going out of business, you've got freight companies that are Declaring bankruptcy. Robinson is now having to realize that they're just not as competitive because everybody's got technology, Robinson's not the only one. And they got big salespeople leaving and Reuters, Germany. So they passed the Germany supply chain act and what the businesses are saying. I will say this, the supply chain act is not without merit. I don't disagree with it. It's to try and fight against forced labor, child labor, and environmental wrongs environmental effects. Anything that's coming out of China, Africa, or South America, it's gotta go through. some due diligence. So if you've got more than a thousand people, then you have to do this due diligence. That, that means we have to prove it to you, Mr. Government agency, and that takes paperwork. And then you've got to go to that supplier base and the U. S. has a similar, the U. S. has a similar act, but the cost and burden, that's an entire team. That they have to hire. It's cannot be cheap. Germany employees are not cheap. So they are struggling. And so they're speaking out. This is supposed to foster responsible corporate behavior, of course. But, you're using a hammer approach. Perhaps it could be a little more. Surgical And that's, we're going to see that all over as this ESG as these ESG policies get enacted. Germany is one of the more progressive states that we see out there. I imagine in the U. S. is not far behind it and its current regime. Plenty in South America claim to be. They're probably going to fight. Some sort of ESG or is going to get bribed real easy. The UK order, the, they had claimed they're going to strike at the airport. I think this has been called off. So, the strikes are always. a disruption. London Heathrow is a major gateway for global trade going into and out of India, into out of Dubai, into and out of the U. S. This is a major effect that it could potentially have, although the strike that was being identified was going to be relatively small. I think London Heathrow has its fair share of delays already, so they could have just, I can do without it. That's for sure. So that's all I'm going to cover today. Let's sync up maybe tomorrow or the next day and see what kind of new news there is. I'm very curious what we're going to see with ocean contract pricing. I got to give an update on that. The carriers really came down very hard. Last week saying they were not going to extend their contracts past may one and that the spot rate was going to jump by a thousand dollars. Let's see tomorrow's may one. We will find out how their position took hold. And so we'll look forward to that tomorrow.