Moneybeat - Oil diplomacy

MARY REICHARD, HOST: Next up on The World and Everything in It: the Monday Moneybeat.

NICK EICHER, HOST: Time now for our weekly conversation on business, markets, and the economy with financial analyst and adviser David Bahnsen. He is on the line now. Good morning.

DAVID BAHNSEN, GUEST: Good morning, Nick. Good to be with you.

EICHER: I’d like a quick reaction on the May jobs report that came out last week: The headline in the financial press emphasized that despite continued growth in jobs, the retail sector cut 60,000 jobs in the month of May. Is that of particular significance?

BAHNSEN: No, the jobs number was so strong that some of the inner details were a little bit mixed. So you're always going to have that. On a weak jobs report, you should have something that sticks out to the strong side. The retail number had been quite high, and as far as what the lumpiness is going into summer, and so forth, we'll see where that plays out. But the number was quite a bit above expectations. And this continues to reinforce why rolling averages—three months is what we use at my firm—rolling averages of the jobs report is the best way to get concrete data.

EICHER: We received word of a trip on the presidential itinerary for July in Saudi Arabia, so you’ll have the top two oil producers in the world in the same room. Do you expect that visit will have economic ramifications?

BAHNSEN: Yeah, they still have not confirmed that President Biden will be meeting with MBS of Saudi Arabia, Mohammed bin Salman. I believe he will, and reports continue to be that he is going to meet with MBS. And that White House is not denying that, so I will assume it is happening.

I don't think that there's an economic ramification—other than the apparent objective would be to go beg Saudi Arabia to produce more oil. But there is definitely a geopolitical ramification because I think that relations between Saudi and the US are at an all-time low. I think that Biden coming in a year ago, and just basically really shunning the idea of doing anything to improve those relations, and now seemingly turning around on that, it seems to indicate to me, without further information, that they're deciding the politics of shaking hands with someone who committed murder a couple of years ago of a reporter is better than the politics of $110 oil.

Certainly the environmental inconsistency doesn't seem to matter to anybody: that it's too bad for the environment for Oklahoma to produce oil, but it's okay for the environment for Saudi to produce more oil. That glaring inconsistency doesn't seem to bother anybody.

But that's really what I think is behind this meeting. And we'll see if what comes out of it is some gesture of more U.S. friendly action from Saudi, which would probably be very bad for China.

EICHER: And before we go, you’ve been calling our particular attention to the markets. How’d you see last week?

BAHNSEN: Yeah, it was another pretty volatile week in the markets, except for the overall market is basically back to where it was a month ago: it's up over 2000 points from where it had bottomed a couple of weeks ago. The reason I bring up market volatility is that I'm increasingly of the view, that a significant amount of people that were heavily, heavily, heavily into technology investments are newer investors - that in other words, they began their investing life at some point in the last 10 years. And so the reason why I'm increasingly of the view that the pain in the technology sector could last longer, is that every time there has been a dip in these types of companies, without exception for 10 years, they've rallied and recovered and they haven't had to fully ever reprice. Now they're clearly repricing. And I think a lot of the investors in the space have never seen this before. And so I think that's an important dynamic right now to be watching in the markets. And then if bond yields really did hit a high a few weeks ago, we don't know that yet. But the 10 year Treasury got up to 3.3%. It came back all the way down to 2.8. And now it stayed in the high twos for the last couple of weeks. And I just wonder if bond yields have seen they're high, in which case, I think that that's going to be very profound in what it means for this cycle of Fed tightening - that the market just simply doesn't believe the Fed is going to last with this. And so there's a number of things we're watching, Nick, but overall, the market’s a little bit better off, technology still doesn't look great. And that's the story.

EICHER: All right. David Bahnsen, financial analyst and advisor. David is head of the financial planning firm The Bahnsen group. He writes daily at DividendCafe.com. You can visit that site and there sign up to receive David's daily email newsletter, The DC Today. David, thanks so much. We'll see you next week

BAHNSEN: Thanks so much, Nick.

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