Iuorio: How High Oil Prices Can be Disinflationary

0:00Do you want to welcome in our next guest though take a more broad look at the markets I have a feeling we're going to talk about oil which Alex just mentioned is not a part of the pharmaceutical conversation. But Jim I imagine oil is going to come up in our top Jim Uriel managing director of TJM institutional services. We've seen a nice recovery in oil today off of the swing we saw yesterday and then the move to the downside. It's a bit of a roller coaster ride here not just for oil but in the markets overall. I came in I saw the open we're entirely in the green very different picture from yesterday. You know what are some of your thoughts on what we're seeing and not just oil prices but in the market reaction. This is going to be the understatement of the century but there's a lot going on right now Marley. I'll start with the stock part of it too. So the statistics are this if three years of averaging 20% gains in the broader market the fourth year tends to be very difficult averaging 6% well under the 9% average midterm years very volatile average less than the broader market usually does over time as well. So those things we were delusional if we thought we're going to have a free ride and

1:01there was not going to be any volatility now you throw in crude now crude was my pit to click at the beginning of the year my number one bullish trade but it wasn't based on the level of this disruption in the Middle East it was based on a domestic economy that I thought was going to gather steam and was way more resilient than it had been priced in over the last few years. Now this throws a huge wrench into it now what's really really odd and not odd necessarily but something that needs to be discussed is that as crude went higher inflation expectations followed it in lockstep as did expectations for what the Fed is going to do I don't agree with that I don't think really elevated oil prices I think they're inflationary in the short term oils and input for everything but it's also somewhat of a tax hike in that it takes money out of people's pockets at the pump and already stretch consumer at least the bottom 60% are. So the notion of stagflation I'm not subscribing to yet I do think in the short term higher oil is going to mean lower stocks but I think stocks were stretched going into this does

2:02any of that makes sense Marley. It does I want to dive into one thing though because I feel like you were alluding to that you may view that higher oil could actually be dysflationary in some ways and that's certainly a counter argument to many of the conversations that I've had as we've watched these oil prices run up so take us through that that thesis Jim if I if I understood your point there yes you did understand my point and I am very lonely in this position if oil went to $90 a barrel and gas prices went up a buck and they stayed there for a firm amount of time and it wasn't just temporary or transitory I know we don't use that word anymore and it wasn't just temporary I believe that that would already strain the consumer who's who's reeling from higher prices and everything else and I think it could cause aggregate demand to fall off historically the Fed tends to not ease or tighten in the face of oil prices when they shoot higher and historically they tend to be wrong in doing that and only have to ease a lot down the road and I think that could happen here too I think it's very very reactionary to just simply say that oil going higher is inflationary

3:05because it might not be. All right and so let's talk about the Fed in this component because obviously we talk about rising inflation we have to get to the dual mandate but we also got the surprising employment data on Friday and we saw the unemployment rate took up to 4.4% we saw that unexpected loss in jobs we saw several downward revisions I think we're now down three of the last five months in terms of the labor market I'm having so many conversations about inflation fewer about the softening labor market what does this do to the Fed outlook because when I was checking the Fed watch tool earlier today we're pretty much pricing in one cut. The Fed might as well throw a dart at that dart board behind me for two reasons because the labor market is indeed softening they don't know if it's because the economy is weakening or because what I think AI is one causing companies to not hire people because they think because it's it's helping their business and become more productive or two just the hopes that that will happen which may or may not come to fruition so we are not hiring right now and I think AI is a outsized factor in that and I think it's a big deal so the Fed

4:11doesn't the Fed may be easing into a broadening and resilient economy and then comes the oil prices we don't know where oil prices are going to be a week for a week yesterday oil prices were $120 a barrel I will add that that to me reflected a gigantic short squeeze for three years the trade has been to be short oil because the narrative was oversupply the narrative was a slowing global economy now all of a sudden the US economy may not be slowing it actually is extremely resilient the GDP now numbers are pretty darn good and then you throw in this so oil goes screaming higher shorts have to cover and that's probably what that 120 print was 119 I'm being a little dramatic but so we don't know where oil is going and we don't know where the labor market's going well we know where the labor market's going we just don't know where the general economy is I think the Fed is going to ease and I think it's going to be good for risk assets but it has to work through this kind of stretched valuations that have that have brought it to this point I think that'll be the first six months of 2026 and Jim I want to dial in to this AI conversation as it relates to the labor market and the employment market because we got this announcement from block when they when they put up their earnings I was covering them live on my

5:15other show on market on close and I remember seeing they're laying off close to 50% of their work force to basically replace them with AI because they now have those efficiencies now and we saw the move to the upside I mean the street liked it they liked that concept of replacing those human workers with AI as an efficiency play now we got Oracle announcing their layoffs maybe not the same reception there but also planning to use AI in a similar way you know do you think that these moves that we're seeing and these these large announcements of tens of thousands of jobs now and not small cuts where they're actually calling out AI here are going to start influencing other businesses particularly block because I mean I think the move was 20 plus percent to the upside it's hard to ignore that when you're looking at or thinking about a concept like that as a company and seeing how it's received by the markets absolutely it's such a competitive environment and everyone has to think whatever their competitors are doing I better get on board with that or I'm going to be made obsolete so that is absolutely happening but I will underscore one thing I said

6:16before is that there is one thing to be using AI to dramatically revamp your workforce there's another thing to just cross your fingers and hope that that's going to be the case now a lot of that might not be realized I think the human element is being priced out a little too enthusiastically right now and I think that pendulum will swing back around which by the way so everybody says that you know when a new disruptive technology comes in it ends up being great for everybody that doesn't mean though that it doesn't disrupt the labor market on the short and almost into the medium term the labor market needs to be totally reworked if it's going to get in sync yet yes the technology destroys and the technology creates but the create part of it might not be till it's still down the road so we I'm actually kind of a little bit scared of this technology and what it could do on the short term all right well you raised some really good points there jib it's always such a pleasure talking to you on the show thanks for being with us today jim your real managing director at tjm institutional services