Program:  Cavuto Coast to Coast

Date:  6/15/2022

Station:  Fox Business News

Time:  12:00PM

NEIL CAVUTO: The administration is great, he said, is seriously considering the possibility of temporarily junking the federal tax on gasoline. It’s 18.3 cents a gallon diesel. It’s even more at 24.3 cents a gallon for diesel taxes here. What we don’t know is exactly how far such a tax holiday would go. We do know that in just the last three weeks, we’ve risen about $0.18 on the average price of a gallon of gas. So whatever tax you take off the market all of a sudden shows up in the underlying price. So damned if you do, damned if you don’t. So where is all of this going? And this day, the Federal Reserve is meeting to see what it can do to sort of curb this appetite for not only gasoline and oil, but pretty much everything that’s now taking grip in our economy. Scott Martin joins us. Ray Wong joins us. Gentlemen. I want to begin with you, Scott, because the administration’s approach to this is anything but for the time being, more domestic production. It’s going to try to urge the oil companies to do just that. But the oil companies come back and say, well, you’ve made it very, very difficult, because whatever reprieves you give us are very short lived and very limited. But the message seems to come from the White House. You guys are gouging Americans and it’s got to stop. What do you think.

SCOTT MARTIN: It does, Neil? And you know, you’re making the oil companies the enemy when in fact, there’s a solution. And oil companies and consumers are not stupid. They know this is government policy tried and true. This was the war that President Biden declared on the energy markets when he took office. And so this is just a follow through from that sentiment. And so instead of being, say, friendly to the oil companies and saying, how can I help? Biden comes out and says, you’re doing this wrong. Change your business or else. And that’s just not going to work. And the great point you made about the federal tax holiday, I mean, in Chicago alone, we’ve got state and local taxes, Neil, that are close to a dollar of gas prices that we see today. There’s all kinds of help that if the government wanted to come out with and give the American consumer just immediate relief, they could do this. But instead they kick this political football down the field and say, well, it’s the oil companies, it’s this, it’s that, it’s Putin, for crying out loud. And so they don’t want to address the real problem here. And until they get to the real solution, which is exactly government policy, we’re going to see prices go up even more.

CAVUTO: In the meantime. Ray Wang It’s really the Federal Reserve and only the Federal Reserve, whether you like the Fed, whether you hate the Fed. The fact of the matter is they’re the only ones right now with the ability to sort of directly deal with this head on. We don’t know exactly how they’re going to deal with it today, but it’s looking like at least a three quarters of a percent hike in the overnight bank lending rate called federal funds, which would bring us up to the round, the one and three quarter percent level with likely a lot more to go from there. What do you think?

RAY WANG: Yeah. I mean, part of it was really to get the demand destruction and we’re starting to see implications. Right. Auto sales are down 3.5%. The National Association of Homebuilders have pretty much said their indexes are continuing to go down in terms of confidence, in terms of production of homes. We’re seeing in retail sales that were up 0.1%. But when inflation is 8.6, you’re really behind eight and a half. So I think the market’s taking care of some of this. The question really is, where is the ceiling? And so if they hit 75 basis points today and then say we’re going to do another 50 in July, I think the market will breathe a sigh of relief and say, okay, good, we think that’s the top. But if they keep moving and move too far, I think there’s going to be pushing us into the edge of a recession. And the economy is in a frail point at this moment.

CAVUTO: You know, Scott, I was sort of factoring things out, you know, pen on a napkin here. If they got aggressive and stayed aggressive right through the end of the year. I know the consensus seems to be and I don’t know where you gentlemen are, Scott, talking to you now that we end the year with the Fed funds, probably around three and one half percent. But there’s another argument to be made. If the Fed really gets aggressive and hikes three quarters of a point at every remaining meeting, which would take you through today, the July meeting, the September meeting, the November meeting, and finally the December 13 and 14 meeting. I added all of those up and if it got 75 basis points with each meeting, I would assume unlikely we’d be up close to 5%. Are we going to go there?

MARTIN: We could. And I think, Neil, the key point, good math, by the way, there, I don’t think I even would have gotten that right and I don’t think the Fed would have either. And that’s a scary thing. I think the sooner they get hawkish and the sooner they get, let’s say, tight, Neal, the better off we’re going to be. I know that sounds crazy, but the market has been crying crazy for the last two weeks now in the ten year benchmark for the ten year rate. I mean, look at the rate. You’re right on the ten.

CAVUTO: You’re absolutely.

MARTIN: Right. Yeah. It’s telling the market. It’s telling the Fed, rather. Neal, I think you’ve got to go 100 basis points today. 75 is just the baseline. If they do 100, I got a prediction. The market rallies, the equities rally because they’re like, okay, the Fed is now taking a line in the sand. They’re putting the stake in the ground and saying, no more of this screwing around. We’re not going to do 50 basis points anymore. We’re going to get serious. And the sooner they do that, Neil, the sooner the recession comes and or is over and the sooner to my friend that they can actually start cutting if they need to, to get the market or get the economy back on its footing.

CAVUTO: That’s interesting. You know, Ray, it’s sort of like the rip the damn Band-Aid off approach. It’s going to hurt like heck, but better that than just to sort of slowly do it, which would still be painful. Just painful a little longer. If the Fed were to do something like that, forget about a full percentage point cut today. That could happen. I’ve heard that. But to to raise rates to the point that by the end of the year, we’re close to 5%. If you think about it, we have an inflation rate that’s well north of eight and a half percent. So they’d still be under that. And normally that’s what history says is you’re sort of guideline. Your benchmark, whatever the inflation rate is, is where your Fed funds rate should be. I just wonder, like if you get up to those kind of levels, aren’t all bets off.

WANG: All bets would be off. But most definitely this is just one side of the problem. I think your earlier point really around energy prices, which is driving the inflation piece that’s got to be addressed. This war on American energy is ridiculous. I mean, we need a transition to ESG, but it’s got to be a pragmatic transition that doesn’t bankrupt everyone in the process. If you want to drive down inflation right now, pump oil, drive down energy, open sources. It’s not just the leases. It’s about also making sure the regulations are available, the permitting is available, and the fact that the pipelines, the transit and all those other regulations are removed. But that just means people aren’t serious about driving down inflation if they’re not addressing the energy issue.

CAVUTO: I’m just wondering and very, very quickly, my produce is going to kill me. But you guys are so good. I did want to pick your brains on this. I know you’ll be back a little bit later in the show. Scott, if the Federal Reserve were to signal that an aggressive rate hike, a series of them, a minimum of 75 basis points were in the cards. You argue the administration, the markets would respond favorably and maybe start turning things around. There are many who said even at these levels, the markets are still rich, though. Do you think the markets remain toppy? Even with the 20% plus decline we’ve seen in the major averages?

MARTIN: Short term, they may be a little toppy just because of the valuations that you’re referring to, Neil, and the fact that earnings are going to come down in the next couple of quarters, because we do have that slowdown in consumer spending. But for even the shorter term, which is like two or three days, I think the market loves it. I think anything short of something hawkish or something serious from the Fed today, which is basically 50 basis points or less, to jump back to Edward Lawrence’s amazing reference point to Nancy Kerrigan earlier, that’s your Tonya Harding today, 50 basis points or less. It’s going to whack the market in the knees because the Fed is not serious about getting their handle around things if they go higher. I think that’s where the market actually bounces here because yes, valuations are high, but they’re short term, not to high enough to where the market can rally.

CAVUTO: Now, I left out just looking at the Nasdaq and technology stocks. All right. They’re off, many of them 50%. The average itself. Well well, north of 28%. So you could say that’s overkill. But others are saying it is still rich. Do you?

WANG: You know, I don’t as well. I think the floor and the Nasdaq’s going to hit around ten. I mean, if you’re looking at 15 X on P as kind of like the low point, that’s probably where we’re going to sit somewhere between 14 and 15. I think what we’re going to realize in the Nasdaq is the tech companies are still doing good. The earnings are amazing. You saw what happened with Oracle a few days back. The the real question is really where is the dollar going to be? And, of course, what’s going to happen in the B to C market in terms of consumer sentiment and if that’s going to slow folks down. But tech companies are still growing 20 to 30%, especially the big cap ones.

CAVUTO: Gentlemen, don’t wander too far. I want to pick those fine brains and take your quotes to be my quote. So they were my ideas. But thank you very much, guys.

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