Hello and welcome to the newsletter, a grab bag of daily content from the Odd Lots universe. Sometimes it's us, Joe Weisenthal and Tracy Alloway, bringing you our thoughts on the most recent developments in markets, finance and the economy. And sometimes it's contributions from our network of expert guests and sources. Whatever it is, we promise it will always be interesting.
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What Joe is thinking about today
Will the oil price surge be inflationary or disinflationary?
You've almost certainly seen this debate plenty already. The inflationary potential is obvious, because not only do people consume various petroleum products directly, but oil is also an input into all kinds of goods. But then on the flipside, higher oil prices dampen economic activity, which could be deflationary.
I think this debate, frankly, isn't all that interesting. It's basically the same debate as last year with the tariffs, and it kind of misses the main story, which is that, all else equal, higher oil (like high tariffs) raises the cost of doing business all around the world. That's clearly an economic negative, regardless of whether it shows up in terms of higher consumer prices or a recession with widespread layoffs.
It's a cliche at this point, but lowering rates isn't going to get oil flowing through the Strait of Hormuz again. And neither will hiking rates. Much like with Covid, and much like with Russia's invasion of Ukraine, we're talking about economic conditions for which monetary policy can only do so much. And so, the inflation/deflation debate can only tell us so much.
TBPN co-host John Coogan has a good piece out today titled "Why Is No One Talking About Oil?" and at first I thought he was being facetious, because from where I sit oil is all that anyone is talking about. But he makes the point that in AI-land, there may be a temptation to view oil prices as kind of irrelevant because they're an issue for the old economy. Except, we know that part of what makes AI unusual is that it's very much linked to the old economy, thanks to the physical requirements of the AI buildout. (In fact, there's a great story from last week by our Blomberg colleagues Joe Lovinger, Brooke Sutherland, and Riley Griffin, talking about the Texas "man camps" that have sprung up to house data center construction workers, and really, it sounds a lot like the temporary housing facilities that have been set up for workers in the oil patch).
Whether interest rates go up or down (and since the start of the war, they've been going straight up), these datacenter projects are going to get squeezed even more in terms of cost. And of course, the same economics will get replicated across the economy the longer the war goes on.
Another thing we've been talking about is that one of the conditions of the dynamics of the global economy over the last several years is that every country is incentivized to hoard natural resources. From Covid to the trade war to AI to multiple real wars, we're in a period in which countries are under immense pressure to retain their sovereignty.
That takes the form of increasing domestic manufacturing. It takes the form of increasing defense spending. It takes the form of increasing domestic energy investments.
Earlier today, we recorded an episode with past Odd Lots guest Rory Johnston, who writes the excellent Commodity Context newsletter. It'll be out tomorrow, so I'm not going to go through the whole thing. But one of his main points is that while crisis in the Strait of Hormuz will result in higher prices for American consumers, elsewhere in the world -- particularly in poorer countries -- the crisis will eventually result in outright shortages.
Of course, this is inevitable. There is literally going to be less oil available. And so this will only increase the amount of commodity hoarding going on, which will continue to make commerce (and every day life) more costly.
On the podcast
We're rapidly entering a world where everyone is going to be able to trade everything anytime they want through a wide variety of instruments from traditional equity to tokens to prediction markets. More than any other company, Robinhood has been leading the charge in this direction. On this episode, we're rejoined by by Vlad Tenev, Robinhood's co-founder and CEO. We talk about where things stand with the company's efforts to tokenize equity in private companies, who will in the prediction markets industry, as well as the company's new publicly traded VC fund.
Listen: Apple / Spotify
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