Chapter 1: How is military conflict affecting cargo transportation?
I'm just going to go ahead and say that risk is still macroeconomic worry number one. From American Public Media, this is Marketplace. In Los Angeles, I'm Kyle Rizzo. It is Tuesday. Today, this one is the 3rd of March. Good as always to have you along, everybody.
We are four days into things in the Middle East, and the only thing that is clear is that there are a whole lot of things that aren't clear. So we're going to talk about that and what that means economy-wise. Greg Ip is at The Wall Street Journal. He also joins us on the occasional Friday.
Chapter 2: What economic factors are influencing risk tolerance in the current market?
Hey, Greg. Hey, Kyle. How are you? I'm all right, thanks. Test my premise, risk. What is your assessment of the risk tolerance, the risk atmosphere out there? Well, you wake up to a new war in the Middle East and obviously people are worried and that adds to the risk in the whole geopolitical economic situation.
And this comes at a time when people are already kind of on edge about like the AI bubble bursting or maybe everybody losing their jobs to AI, still some inflation pressure out there. So it kind of adds to an overall mix of anxiety out there. Now, all that said, I would say that the reaction in the two days of trading we've had since the war began has been muted.
Chapter 3: How do geopolitical tensions impact oil prices and stock markets?
On Monday, oil rose, but it didn't rise as much as a lot of analysts had expected. Stocks fell off, sold off, but at the end of the day, mostly unchanged. Tuesday, we wake up and it's almost like a delayed reaction. It's just, oh, wait a minute, there's a war going on. Oil goes up some more and stocks fell. But even so, you know, I've been through a lot of these things over the years.
Right now, it still feels like a muted reaction by the markets to what's going on in Iran. Talk to me about the dollar and bonds, would you? Because the dollar has been rallying. Bond yields are going up, which means people are selling bonds.
Chapter 4: What trends are emerging in air cargo demand due to global conflicts?
Explain all that. Sure thing. So let's talk about the bonds part. That's a little bit easier to explain. So when people worry about inflation, for example, because oil prices are going up, they worry that the Federal Reserve will not be able to lower interest rates as much if interest rates aren't going to go down. That means bond yields are probably supposed to be higher than they already are.
When bond yields go up, prices go down. And that is exactly what we've seen happen in the last couple of days. A small decline in bond prices, a small increase in bond yields. So if you were hoping for some relief last week, mortgage rates dropped below 6%.
Chapter 5: How are retailers responding to shifts in consumer behavior this holiday season?
Don't expect them to go much lower. Maybe they go a little bit higher the next day or two. The issue with the dollar is an interesting one, Kai, because the dollar did go up, which is sort of what is supposed to happen when there's a war because the dollar is a safe haven. But it's been a break from the prior year when you had all this geopolitical conflict and the dollar was going down.
And what that, I think, told us was that the U.S., at least for most of the past year, was now being – seen as the source of instability because of trade wars and stuff like that, not the place you go to escape instability. The last two days are a little bit of a break from that.
The the caveats of this next question, of course, is that you're a business economics guy and not a geopolitics guy. But what what do you imagine the market? Hmm.
Chapter 6: What factors are affecting vehicle sales in the current economic climate?
How to phrase this. What do you imagine the president's pain point to be vis-a-vis the markets? Is he looking at stocks? Is he looking at bond yields? Do you think there's a thing that's going to make him go, you know what, let's get out of this in a hurry? You know, I think all those things are going to like bear on that, Kai.
I think the president goes into this war on the premise that within four to six weeks, he can achieve most of his aims, which is really basically the capitulation of the regime in Iran to his key demands, stopping nuclear enrichment, stopping ballistic missile development, stopping support for proxies. And so I suppose I would assume that he steeled himself there.
for some pain over that four to five weeks. I think the thing is, if the four or five weeks elapse and he's not getting closer to his goals and the pain continues to build, that presents him with some really tough choices.
Chapter 7: How is the real estate market evolving with new listing strategies?
Because this is, as you say, a president that cares a lot about the stock market. He's been urging the Federal Reserve to cut interest rates, claiming inflation is not a problem. So if the war does not quickly start delivering the goals that he has set out for himself in the next few weeks, it does start to really elevate his pain points.
30 seconds on this next answer, Greg, and then we've got to go. Four to six weeks sounds like a very long time as we sit here on day four. It really does, and a lot can happen. Now, on the one hand, you might say, well, the Iranians, they have a lot of missiles. They have a lot of drones. They can hold out for a long time.
Chapter 8: What implications do exclusive listings have for home buyers and sellers?
This conflict has been going on at one level or another for 50 years. They can certainly hold out a little bit longer. Yeah. On the other hand, a lot of things are going against them. Their population is angry at them. Their defenses have been shown to be very weak and so forth.
I think the president is hoping that he maybe ends up in a Venezuela-like situation where the regime stays in place, but basically agrees to start behaving in a less confrontational way. Will that happen? I don't know. As you said, these are geopolitics. Nobody should be too confident. Absolutely not. Greg Yip of The Wall Street Journal, occasionally with us on a Friday. Thanks, Greg.
Thanks for having me. Wall Street today, not as bad as it could have been, as Greg was alluding to, but all needs to be said. We'll have the details when we do the numbers. Commercial aviation is in the news today in part because that's really the only way for people who want to get out of the Middle East to get out.
Also, though, because the airspace in that region is obviously perilous, which is hampering air cargo. Yes, most of what moves around the world does travel by ocean freight, but air cargo demand hit a record high last year. That's according to the International Air Transport Association. Marketplace's Kristen Schwab looks at demand and disruption in air freight.
Most of the goods traveling through the Middle East are there for a layover, a pit stop to refuel on the way to Europe from Asia. Brandon Freed, executive director of the Air Forwarders Association, says 13 percent of air freight passes through the Gulf.
A lot of it transfers through that area because the Gulf carriers, the Middle Eastern carriers, have tremendously significant air cargo programs. In part because of their tremendously significant commercial flight programs. About half of the goods that travel by air fly under the belly of commercial flights. The other half goes on dedicated air cargo planes.
Usually companies that make goods that are expensive or expire quickly will pick air overseas. We're talking pharmaceuticals, electronics, fresh-cut flowers. So it's much easier. It's a lot shorter transit time. Granted, the cost is more significant. Freed says shipping by air costs anywhere from five to ten times the amount of shipping by water.
Still, companies have become increasingly willing to cough up the extra cash. Martin Dresner, a professor of supply chain management at the University of Maryland, says one reason has been fear about global conflicts. You know, there's issues in transiting through the Suez Canal because of some hostilities, you know, with the rebel groups in Yemen. Previous to that, there's been pirates.
If conflict happens, it's much easier and less time intensive to reroute cargo in the air than it is to, say, force a ship the long way around Africa. Plus, it's a safer option than ocean shipping. But no method is perfect. Limited airspace means limited cargo capacity. And Brian Burke, chief commercial officer at Seco Logistics, says carriers are already dealing with messy routes.
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