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And hi, everybody, and welcome to the show today. And as always, every month, it is a pleasure to get the chance to speak with Warden Emeritus Professor Jeremy Siegel, who is also Senior Advisor at WisdomTree. Jeremy, great to talk to you again, as always, and lots to discuss. I guess we'll start out with where we are kind of globally at the moment.
There's a pause in what we're seeing between the U.S. and Iran, but this conflict has continued, and obviously, it's having impacts in various elements of economies around the globe right now. Yeah, absolutely. I mean, it's my feeling, just to give you a benchmark, that if we did get the Strait of Hormuz open, and it's far from open, but if we did, that would be a big positive for the stock market.
I would actually expect maybe another 5 or 10 percent. So we had a big drop today, but oil going back into the 90s, as it had last week, and gasoline prices rising instead of falling, that's a negative. It's not a recessionary negative, a crisis negative, but it is a drag. So, you know, let's hope this pause turns into something more.
But that certainly has been a yo-yo over the last two months. Well, and I think it's interesting because, you know, there are obviously, and it's been written about, other products that come out of the Strait of Hormuz, but realistically, the be-all, end-all is oil, and we all know how important that is to so many aspects of the global economy.
Yeah, yeah, absolutely. And we know about fertilizer particular being, you know, very important there. I mean, again, the good news for the United States, natural gas, right now, February gas, I look at that because that's the biggest heating month in the United States, and it's the most important, is, believe it or not, 10% lower in price than it was on the eve of the Iran war, way back in February.
So, really, and that is a major source of certainly heating, it's the only source of heating, and actually now a major source more important than oil for the production of electricity and a lot of other energies. I mean, oil is still for transportation, of diesel, some of those refined products, to be sure, and they're important, but, you know, we have moved towards renewables, and particularly we've moved towards natural gas, and we are, therefore, really, you know, insulated much greater than ever before from, you know, oil going up.
So, where that balance is, kind of between oil and gas, where do you think that's going to end up? I mean, are we in a significant shift, you know, that will probably continue on for years in terms of the importance of natural gas compared to oil products? Yeah, I think that shift is going to continue.
I mean, traders, I mean, everyone overestimated how this supply would impact prices, and all thought it was higher. You know, the Economist magazine, which is, you know, certainly one of the most learned of all magazines that had an op-ed, we was wrong, as they predicted 150 and more. It's trading heavy.
Well, not only it is that people have reserves, they're finding substitutes, there are workarounds on the Gulf. No one really knows for certain, you know, China coming out of the market was a big deal. They were buying, you know, four to five million barrels a day, and now they're taking it from the reserve and other sources.
How long that continues, I think no one but, you know, the Chinese know. So, you know, there are those uncertainties there, and, you know, if this thing flares up and some of these sources of reserves dry up, you know, you're going to see much bigger impact. But until then, you know, we're getting through, and, you know, the market has muted its reaction towards the oil situation and moved on to AI and the Fed as movers of the market.
And I wanted to talk to you about both of those. I guess I'll start with the Fed because I guess September seems to be the next kind of, you know, question point as to whether or not the Federal Reserve is going to consider raising rates at this point. Yeah, yeah. I think there won't be a raise increase, you know, this week, but there might be some descents.
But it all depends, I think, on oil a lot. I mean, if oil goes back down to the 70s, WTI, excuse me, into the 60s, that went to the high 60s. I don't know, worse is not going to be increasing. But on the other side, if it doesn't, you know, as you know, I look at the money supply increases, deposits, and M2, and that has definitely been growing faster than is consistent with the Fed's goal.
I mean, since the Iran war began, M2 money supply and deposits have been growing 8 to 9 percent a year, which is considerably faster. Nothing, again, like what we saw in the explosion of the money supply during the COVID pandemic, but nonetheless enough to keep that inflation well above target. And the only way to really reduce it is to raise rates.
So, you know, if oil doesn't go back down, yeah, September and that rate of increase in the money supply keeps up, September will be the rate. And of course, I think a big signal will be to look at the 10-year. As you know, the 10-year and the two-year are predictors. And if they start moving upward again and breach the highs that they had before, you know, Bush will have no choice.
And it will be certainly difficult that his first move as the chairman picked by Donald Trump would have to be up rather than down. But it wouldn't be more than a quarter point, would it? No, it wouldn't be more than a quarter point. But, you know, quarter point start with one. Yeah. And then the move and the term structure even right now in money supply, I think really justify over the next few months too.
But again, if oil moves back down and gasoline moves back down, we're going to get some good CPI ratings and then he's going to be hard put. It's almost a political question. You know, well, we look at CPI is showing stability. How are you going to raise rates? So he would tend to wait under that so that, you know, that war situation is going to be important in the worst decision.
You mentioned AI as one of the other things that Wall Street is watching right now. And part of that focus is just the capex spend that all of these companies that are involved in the infrastructure build out for AI and the data centers, et cetera. Those numbers keep growing and growing. And now you're starting to see companies looking to find ways to raise capital to cover those those funds as well.
And so that has to be a concern. Well, yeah. And yeah, I mean, not right now. I mean, you know, the word capex is toxic. Yeah. I mean, we saw what happened with Google and we saw what happened with Tesla last week. I mean, it was you know, I mean, everything else was quite good. And yet, oh, no, we're spending our capex and bang, you know, they're worried.
They're worried that, you know, I mean, you know, that is, you know, there could be breakthroughs that all of a sudden we don't need that build out. The chips will do it for us, which is good for a lot of things, but not good for the builders of the infrastructure. I mean, yeah, we've seen swings between the semiconductors and the and the AI producers and the chips like like never before.
We've seen swing swings between value stocks and growth stocks like I've never really seen before. Really, a lot of intramarket volatility, not so much, you know, the level of the market, but the sectors and subsectors within the market show how much uncertainty is really being generated now. What are your thoughts on the latest tariff run here that President Trump is going to put in?
Yeah, the bottom line, for those who looked at it, is that it's not going to result in a big difference. I mean, you know, a few basis points here or there, a couple countries higher and lower. Of course, I would prefer no tariffs. I don't like tariffs. I've voiced that on your program for a year and a half at least.
You know, it's the so-called liberation day a year ago, April. But, you know, the truth of the matter is that the final tariffs coming out of this are really not significantly different than what the tariffs were during that 90 day period where after the ruling of the Supreme Court. So it's sort of taken as a given.
Now, he has threatened big tariffs again on on certain things when he gets upset with a country or whatever. Those are not good. But but, you know, if we take a cue from the past, very rarely have any of those ever really been realized. So that's the way the market is taking it today. One of the things I'll finish up with this was an article that I saw that ran in the Wall Street Journal today about how bigger cities are struggling with keeping younger individuals who have families in cities.
And it's kind of the the structure of what we're seeing in cities right now. You know, are cities following the right path that they should? Give me your thoughts in terms of from an economic perspective, what you think we're seeing in some of these cities. My thought, and I just had a quick chance to look it over, is it's mainly due to schooling.
Schooling in the big cities is not good and not getting better. And so if we have young kids, you know, going to private school is so expensive, they leave. The truth of it is, cities themselves are actually gaining population. But the younger groups are moving to the suburbs where they're getting better schooling.
But the you know, those those who already have made a decision for private school or don't have any children, you know, young adults and everything, they still want to be in the city. Right. And, you know, there's still that big movement from rural areas and exurbs to areas where, you know, toward the city.
So I think schooling is a major a major factor there. But overhanging all of this is is the big decline in fertility, not only taking place in the United States, but around the world, which has some very important longer term impact beyond the scope of our interview today. But, you know, very important, you know, long term implications for for the world economy.
Jeremy, always great to get in touch with you and talk for a few minutes about what's going on in the world. Thank you, sir. Thank you very much, Tom. You got it. Warden Emeritus Professor Jeremy Siegel.
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