Prof G Markets - What $4 Gas Would Do to the Economy

Episode Date: March 12, 2026

Ed Elson speaks with Mark Zandi about the February inflation report and how the Iran war will impact prices going forward. Then he discusses what Oracle’s earnings mean for the AI industry with Jackson Ader. Finally, Ed gives his take on why there’s a financial incentive for the strikes in Iran.  Mark Zandi is the Chief Economist at Moody’s Analytics. Jackson Ader is the Managing Director of Software Equity Research at KeyBanc Capital Markets.  Check out our latest Prof G Markets newsletter Follow Prof G Markets on Instagram Follow Ed on Instagram, X and Substack Follow Scott on InstagramSend us your questions or comments by emailing [e-mail] Learn more about your ad choices. Visit podcastchoices.com/adchoices

Today's number, 2 million. That's how many dollars the Department of Defense spent on Alaskan King Crab in the month of September. That's in addition to the 7 million they spent on lobster tails, and the 15 million they spent on Ribai. More evidence that Republicans are the fiscally responsible party. Money markets met. If money is evil, then that building is held. Show those up! Welcome to Profitey Markets. I'm Ed Elson. It is March 12th. Let's check in on yesterday's Market Vitals.

The S&P and the NASDAQ were flat and the Dow declined. Oil crept higher even after the International Energy Agency approved its largest ever reserve distribution. And finally, Treasury yields rose as hopes for rate cuts this year waned following the CPI report. We'll get into that right now. Okay, what's happening? Inflation was sticky in February as expected. The consumer price index, including food and energy, rose 0.3% from January and 2.4% from a year earlier. That annual rate is higher than the Fed's 2% target and unchanged from January. Inflation in the coming months, though, is likely to get worse. The war with Iran has already driven up the cost of oil, airfare, and fertilizer, and prices at the

pump have increased by 20% since the strikes began, which complicates the inflation picture. So here to help us break it down, we're speaking with our friend Mark Zandi, chief economist at Moody's Analytics. Mark, thank you for joining us. I want to get right into it. 2.4%. What do you make of this inflation print? It's, you know, once you count for all the moving parts here and the measurement issues,

it feels like to me inflation is closer to 3%. than two, and three percent is on the high side of anything that you'd feel comfortable with. I mean, as you pointed out, the Fed's target is lower. It's about 2%. So, you know, it's better than 4%, but 3% is still too high. And as you pointed out, we are going to see inflation to pick up here because of what's going on in the Middle East and the fallout from that. So I don't know. It's okay, but it's not great, and certainly the trendlines here are disconcerting. Yeah, my reaction seeing this report was, again, I can't tell how much it even matters because, one, there's the point that you've been making, which is when you account for the other factors, the number is actually higher, it's closer to 3%.

And then, two, we've got a war going on, which is absolutely skyrocketing the price of oil. So does this even matter anymore? I guess that is the real question. Does it matter? It's in a rearview mirror, for sure. So it's certainly not helpful in trying to understand where we're headed and what it means for, you know, people's purchasing power standard of living,

what it means for markets, what it means for the Federal Reserve. So, you know, the markets really didn't respond to this because it just really doesn't matter because it's history and it doesn't reflect on where we're headed here in the future. We're going to get another read on inflation on Friday, the consumer expenditure deflator. That's the measure the Fed actually uses to gauge inflation and set monetary policy. That's where the 2% target is. And that's going to be on the hot side, and that's going to be 3% on the nose.

And I think that's where we are. And I think that's what people are going to be focused on and nervous about thinking about how all this translates to future inflation. So does it matter? Not really. I mean, it's more academic at this point than anything else. Where are we on gas prices? I've seen that gas prices have increased 20%. That's what I've read since the strikes began.

But oil is moving so quickly up and down. I can't tell how much of a handle we actually have on the price of gas in America. What is it looking like at this point? And what do you think it will look like in the coming weeks? Well, you know, we get AAA. AAA canvases, gas prices across the country, they're a little over $3.50 a gallon. That's up over 50 cents a gallon from where it was a week ago.

And if oil prices stay right where they are today, you know, they're somewhere between $85, $90 a barrel, depending on WTI or Brent. If it stays there, then we're going to see prices go to $3.75 here in the next week or so. So obviously if oil prices go higher than that, then, you know, we're looking at $4 and above. But right now we're at $3.50 headed to $3.75, I think, pretty likely. The one thing I will say that has struck me is how quickly the events in the Middle East and the run-up in oil prices have translated through in the form of higher gasoline prices. I mean, you know, there's this old adage. Prices rise like a rocket, fall like a lot. a feather. But this time it was a rocket on steroids. I mean, I was very surprised at how quickly it all translates through. And maybe that's because of the nature of why prices are up. It goes to

the conflict in the war. And the energy companies are, you know, taking that in and in those pushing prices through very, very quickly. But yeah, they're up pretty meaningfully. And obviously for the American consumer, this is a real hardship, particularly if you're lower middle income, because, you know, you have to make a tough choice in many cases, do I fill my gasoline tank or, you know, if I put my hard-earned money in my gasoline tank, what else can I spend my money on, or do I not pay my credit card bill on time, that kind of thing? And so, you know, we're going to start to see more of that as we go forward here. Let's say the price of gas increased to $4, increased above $4, maybe even like $4.50. What happens then? Like, how bad is that for the

overall economy, what kind of impact does that have on overall inflation? And what does that mean, say, for the Fed, who has a mandate to keep prices down, or at least keep inflation down, as much as they can? Yeah, if we're closing in on $4 for a gallon of regular-on-leaded, that means that oil prices that are $100. That's kind of a good benchmark. That would mean that the if that were sustained for a year, that would cost,

just the run-up and gasoline prices by itself would cost the American consumer about $200 billion annually. That kind of gives you order of magnitude. That doesn't include the effects on other prices like diesel,

which affects food prices, and we package you get from Amazon at your doorstep will be higher in cost because of the higher diesel price. It doesn't account for the jet fuel, higher jet fuel prices and the impact that has on airline tickets. But just gasoline, that kind of gives you order of magnitude, a couple hundred billion. And if you do the arithmetic per household, this is the back of the envelope calculation, I'd so I might not have it exactly right.

But that would probably add about $1,000 to the typical household spill, you know, in a year. You know, not next week, not next quarter, but over a period of a year, about a thousand bucks. So, you know, that's not a big deal for folks that are doing well, kind of the top part of the income distribution. But if you're in the middle or the lower parts of the distribution, that's real money. And you've got to make some tough choices if that's the situation. So that feels at this point like an outside, downside scenario. It wouldn't be my baseline, but that kind of gives you order of magnitude. Yeah.

And considering the fact that the affordability crisis is already top of mind, I mean, add this on top. It seems that there are a ton of implications there, including in politics, which I'm sure everyone is aware of. So what is, as we wrap here, what is your base case at this point? It sounds like you don't think it's going to be hitting those prices over a year. What would you, if you had to predict and have the probability, what do you think the next year will look like? Well, in fact, Ed, I do that for a living, so I have to predict. And obviously, talking to the right guy. Yeah, yeah, yeah, yeah.

Given the uncertainty, the way to approach this is through different scenarios. So I think the way you asked the questions make a lot of sense. But, you know, my kind of working assumption here is that the president is going to find a way to stand down if, you know, if this continues for very much longer. Because as you point out, the political implications of this are pretty significant. I mean, there's nothing that resonates more with the American people than the cost of a gallon or regular unleaded. Right. They're focused on light on that like a lot. laser beam when they think about their own financial situation and how they're going to vote.

So I just don't think the president's going to push this for very long. Now, you know, one scenario is that things are now spiraling out of his control. That's something we need to be worried about. But if I think if he stands down in the next week or two or three, then, you know, oil prices will start to come back in. We get back down to 60 bucks. Gasoline goes back down to $3 a gallon. And we go on, you know, to the next thing that, you know, the president decides he wants to do. But that would be my baseline. Just because that is kind of the way the president seems to have been operating here in his first year as president, you know, he's very focused on the stock market. He's focused on mortgage rates.

He's focused on gasoline prices. He's focused on bond yields. All those things are screaming. Bring this thing to an end as fast as possible. And so that would be my baseline scenario. But again, we should consider all the scenarios here because this could take on a life of its own and outside the control of anyone, including the president of the United States. All right. Mark Zandi, chief economist at Moody's Analytics. Mark, always appreciate it. Thank you very much. Thanks, Ed.

After the break, a look at Oracle's earnings. And for even more, Markets insights, you can subscribe to my weekly newsletter, simply put at simply put.com. Support for the show comes from LinkedIn. It's a shame when the best B2B marketing gets wasted on the wrong audience. Like, imagine running an ad for cataract surgery on Saturday morning cartoons or running a promo for this show on a video about Roblox or something. No offense to our Gen Alpha listeners, but that would be a waste of anyone's ad budget. So, when you want to reach the right professionals, you can use LinkedIn ads. LinkedIn has grown to a network of over 1 billion professionals and 130 million decision makers according to their data. That's where it stands apart from other ad buys.

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Game begins in three, two, one. Ready or not two, here I come. Only in theaters, March 20th. After surviving one deadly game, Grace and her sister Faith must now face off against four rival families in a fresh round of blood in games, filled with more action, scares, laughs, and combustions. Starring Samara Weaving, Catherine Newton, Sarah Michelle Geller, and Elijah Wood.

Ready or not two, here I come, only in theaters March 20th. Get tickets now. We're back with Profi Markets. Oracle just proved that the AI spending boom is far from over. The company reported earnings Tuesday night that beat analyst expectations by a large margin. Cloud revenue increased 44% year over year, and cloud infrastructure revenue increased 84%. Oracle also revealed a backlog of over $550 billion in remaining performance obligations,

an increase of 325% from this time last year. Meanwhile, Cappex was about $4 billion higher than expected, and the company now has more than $100 billion in debt. The stock closed up 9% yesterday. Here to unpack these Oracle earnings with us. We're speaking with Jackson Ader, analyst at Key Bank Capital Markets. Jackson, thank you for joining us.

Let's dig into these Oracle earnings here. pretty good. They said it was their best quarter in over 15 years. What do you make of it? Yeah, thanks for having me, Ad. I think that it was a good quarter. Best quarter in 15 years, not so sure about that. I think maybe a couple of quarters ago when they first announced that gigantic Open AI, the $300 billion-plus dollar contract that sent, you know, the stock up to over $300 in the wake of that. That probably would rank a little higher in my book. But no, it was a solid quarter. And I think what was important is that they showed upside to numbers in period, in the quarter, actually produced some upside to revenue and also produce some upside to the

future numbers, that remaining performance obligation number that you mentioned. It sounds like the reason that is a big deal for Oracle is that they were saying beforehand, we're going to make money later, and you're saying that this quarter, they said, no, no, we're making money right now, which perhaps puts to rest some of the AI bubble fears, or what does that mean? Yeah, I think it's just, what it really does is show that the company can also execute on delivering some of that capacity in the near term. So if we think about software companies and the business of software, remaining performance obligation and its revenue. and it's it's matriculation from you know backlog into revenue for most software is just the passage of time you know you sign a three year deal and after three years you know the the revenue gets recognized but in this case remaining performance obligation is dependent on delivering you know real estate assets right like hard assets that need to be placed into uh you know plugged in and

and placed into production. That's just really different from a traditional software company. And so I think it was really nice and kind of showed some investors that it's like, all right, it's one thing to sign these gigantic contracts. It's another thing to deliver. I think, you know, it was 400 megawatts of capacity in a single quarter. We say, okay, that's great. We can start to see the path from remaining performance obligation off the income statement

into revenue on the income statement. The big concern in that incredible quarter that they reported a few quarters ago, I mean, first it was, oh my gosh, we have all of this money in the pipeline, remaining performance obligations, hooray. But then we start to learn that, I mean, most of it is Open AI,

and then there start to be concerns about does Open AI even have the money to pay for this and look at how many other contracts they're signing up for, and are they going to pay Oracle first, or are they going to pay Microsoft first? Who are they going to pay? Those were the questions of the concerns. Did we learn that OpenAI is indeed paying Oracle right now?

Or what did we find out on the Open AI and Oracle front? I don't think we necessarily found anything out on the, on the, like, is OpenAI paying them right now? They're an existing customer. So, you know, I guess the factual answer is yes, they are paying them. But in terms of that gigantic, you know, the 300 billion, the four and a half gigawatts, that just hasn't kicked in yet. That's more of a 27, 28, 29, and beyond type of contract. I think, though, that, you know, Oracle's management was explicit about saying, you know, that recent kind of funding and financing activity from very

large customers is, you know, also gives them some relief and some line of sight into these contracts, being executed as as planned. You know, it was funny last, it was last Friday, there was that article that came out on, you know, from Bloomberg that said that the companies were scrapping this expanded footprint at the Abilene Data Center site, that one of the Stargate sites. And that sparked a big worry. It's like, oh my God, you know, what's, should we be worried about kind of this AI demand. But the important thing is, is that, yeah, that was an expansion of that particular site, but it had nothing to do. They're still moving ahead with the four and a half gigawatts that are currently on the books. So, I mean, we didn't necessarily learn a ton about Open AI last night,

but we have been, just from their financing raises and their IPO plans and a lot of media of attention, we've learned that they are, they do have the ability to raise a ton of money and Oracle is obviously a strategic vendor is going to be, if not first in line, very close. Yeah. Their remaining performance obligations now, it's up to $553 billion, up from $523 billion last quarter. How confident are investors in that number at this point? It sounds like they used to be confident, then less confident, but the stock is up, 9% after these earnings, Is this a number that investors believe is actually going to materialize?

I think there are two things there. One is, I mean, in order for a dollar to be included in remaining performance obligation, it has to be contracted. You can't have any kind of cancellation clauses. You can't have any outs, let's say. Now, contracts can always be rewritten, right? Every marriage, when it starts, has the hope, you know, it's like that it is going to see itself through, right? We can always rewrite contracts.

Timelines can always change in a bilateral way. But, you know, again, just to be included in that backlog, it's not like, oh, this might happen, this might not happen. It is truly contracted. So that's where we have to start. Whether people believe that it is going to happen or not. I think most of the investors that I speak with, there is an assumption that, sure, maybe the total dollar amount is not necessarily at risk, but maybe the timing. You know, that's what we don't know. Of that $550 plus billion, you know, 120 of it is expected to be recognized more than five years from now.

Right? So we're talking about long timeframes here and timeframes that easily could shift over a five, seven, ten year timeframe that are on these contracts. But I think what why investors are willing to reward, let's say, the build in the RPO last night or today versus versus before is that the assumption is that the build and the remaining performance obligation is coming from customers that are, you know, not named OpenAI. Yeah. And so that customer concentration risk is lessened by the fact that they keep building RPO, and it's not coming on the heels of some major announcement from a singular customer. And then the other thing that was really nice is that they talked about some of the contract structures that they're now signing, prepayments from some certain customers or customers bringing their own chips, which means that Oracle doesn't have to scrounge up the money and go pay for

the chips ahead of time, right? These ease the financing needs. And so not all RPO dollars are created equal. And, you know, this quarter, the RPO build was really well received, I think, for a few of those reasons. It does seem like management is taking the investor's risks and concerns very seriously. They're trying to show, no, this is real. We are sort of shoring the whole operation up. Stock's up 9% yesterday, but it's still down 15%-ish on the year, a little more than 15% year-to-date. Everyone was very concerned about this company, or at least has been for the past few months, like that it was a genuine structural risk to the AI story. As we wrap up here, where do you land on that? I mean, just as far as the stock is concerned and the company is concerned,

we still really like it. And the nice thing about Oracle is that, yes, it does have this business. It's Oracle Cloud Infrastructure. You know, the OCI business is absolutely levered to AI spend and AI infrastructure spend. We can't, we're not going to throw that away. But we also need to recognize that Oracle also has a gigantic application software business in a gigantic database business on top of the cloud business. And so if you put those businesses together,

and in a lot of ways, you know, the company and management is talking about their strategy of selling kind of one Oracle, right? You can get, it can be a one-stop shop. There are things that are valuable within this company that don't have to do with, are we just going to be sprinting as fast as we can toward this AGI race and GPU rentals and capacity constraints and memory prices and energy, right? that there are things within the company that are not just related to that. And so for a while there, I think, yeah, the stock was trading as basically a proxy for the broader AI infrastructure trade. And I think if they can show some, again, some execution here in the short run from things that are not just signing these huge GPU contracts, I think people will say, okay, this is still a really solid company on a bunch of fronts. and, you know, we think that it's undervalued. All right. Jackson, Ada, analyst at Key Bank Capital Markets.

Jackson, thank you very much for joining us. Thanks, then. Well, there are plenty of angles from which we can dissect what is happening in Iran, and we have explored many of them. But one angle that we haven't really explored is the growing body of evidence that there is a financial incentive to strike. Iran, and more importantly, a financial incentive for the Trump family to strike Iran. We could start, for example, with the fact that Eric Trump and Donald Trump Jr. are the new

backers of a tactical drone company called Powerus. What does Poweris do? They, quote, build and scale autonomous drone systems for military use in high-risk environments, and their number one customer is, indeed, the Pentagon. And so this company, which the Trump brothers are planning to help take public, now that they have already invested, this company is going to be a direct beneficiary of the war in Iran. In fact, it already is. And this is also a running theme for Eric and Don Jr.,

who are also responsible for the New America Acquisition Corp, an investment vehicle whose goal is to find companies that are, quote, well-positioned to benefit from federal or state-level incentives, such as grants, tax credits, government contracts, or preferential procurement programs. In other words, these guys are monetizing their relationship to the president, or more specifically, their relationship to dad. We've seen other red flags in relation to Iran as well.

For example, Trump told us this week that the reason he believed Iran was a threat was because Jared Kushner told him so. Yes, Jared Kushner, who has no. formal position in the White House, but he is Trump's son-in-law, and, more importantly, his portfolio is almost entirely dependent on his relationships with and his vision for the Middle East. His investment firm, Affinity Partners, is almost entirely funded by many of the Gulf states, and his number one investment thesis is to connect those nations economically with businesses in Israel. For example, he is a significant investor in Shlomo Group, which is an Israeli conglomerate with

large holdings in Yes, defense. He's also a large investor in Phoenix Holdings, one of Israel's largest asset management companies. So Jared Kushner's portfolio and essentially his financial future is almost entirely dependent on how things play out geopolitically in the Middle East. And at the same time, he is also the guy who, according to Trump, was a significant influence in our decision to go to war with Iran, which begs a very concerning question. Are we doing what we're doing because it could make Jared Kushner rich? Are we doing what we're doing because it could make Trump's family rich? And then you consider the fact that half a billion dollars were traded on prediction markets

on the timing of these strikes, and the fact that one account made more than half a million dollars on these strikes. And the fact that that account's first trade was placed one hour before the news broke publicly, meaning whoever this person was,

they definitely knew something. And then you have to ask yourself, is this someone within the administration? Is this someone related to Trump? We don't know. But these are increasingly legitimate questions. So perhaps we will dig into this question a little more deeply another time. But for now, we should at least acknowledge what is happening and the questions that it raises.

Let's acknowledge the possibility that the reason we are bombing Iran and the reason we are at war isn't to pursue peace or to pursue democracy or even power. Let's acknowledge the possibility that what this is really all about is once again, money. Okay, that's it for today. This episode is produced by Claire Miller and Alison Weiss, edited by Joel Patterson and engineered by Benjamin Spencer. Our video editor is Brad Williams. Our research team is Dan Shalahn,

Isabella Kinsel, Chris Nodonoghue, and Mia Silverio, and our social producer is Jake McPherson. Thanks for listening to ProfiMarkets from Profit Media. If you liked what you heard, give us a follow. I'm Ed Elson. Tune in tomorrow for our conversation with Torsten Sloc.