Oil spikes on Hormuz; M&A lights the only green.

Transcript

Tom Oil is spiking, the Strait's still shut — but somehow Warren Buffett is betting big on airlines, and a massive utility merger could reshape the power map. It's a wild weekend, and we're breaking it all down.

Marie Welcome to Investment Flash, Weekend Edition, Saturday May 16th. I'm Marie, joined by Tom and Gerald. Today, oil's choking global markets, but underneath there's a fascinating rotation taking shape.

Tom So Gerald, the Strait of Hormuz is still effectively closed. Trump's China visit didn't open it. Oil's up another three point seven percent today, and the United States Oil Fund is up one hundred fifteen percent year to date. Is there any end in sight?

Gerald Honestly, no. The Nikkei report on Japanese wholesalers doing ship-to-ship transfers — that's real-world logistics fraying. It's brutal for supply chains.

Marie And it's cascading. Japan automakers are seeing profits cut in half, per the same Nikkei. That's a structural economic shock, not just a blip.

Tom Wait, profits cut in half? Toyota and Honda? That's huge. I mean, Gerald, your sell call on Japan equities yesterday — prescient. Toyota's already down twelve and a half percent year to date.

Gerald Alright, to be fair, that call came from linking the Strait to auto margins. The war disruption is going to keep hitting every quarter. No quick fix.

Marie Hold on — I'm going to push back here on oil. The United States Oil Fund is just two percent from its fifty-two-week high, and up one hundred twenty-five percent from its low. The market has already priced a catastrophic supply scenario. If we get any diplomatic breakthrough, crude could crash hard.

Tom Fair point, but the path of least resistance is still up. It's a physical chokepoint, and right now it's choked. Even ship-to-ship transfers are inefficient.

Gerald The thing is, any negotiation progress would reverse a chunk of that. But until we see tanks moving, the risk premium stays put. And that's the nightmare — oil above one-forty through June crunches consumer wallets, and Q2 guidance hasn't priced it.

Marie That's exactly the demand-side story the press is ignoring. If oil stays high, the next wave of pre-announcements could surprise to the downside, and it's not in the numbers yet.

Tom Yeah, so oil is the only chart that matters today. But let's talk about a bright spot — utilities. NextEra Energy in talks to acquire Dominion Energy in a mostly stock deal that could create a giant over four hundred billion in market value.

Gerald Look, I love a big merger, but the market is skeptical. NextEra down two point four percent, Dominion down two. Regulatory hurdles are massive, and execution risk is real.

Marie But the strategic rationale is strong. Surging data center power demand from AI is driving utilities to consolidate. This is a story-driven exception in a risk-off tape.

Tom Exactly. The deal synergies could be worth it. If the AI buildout keeps going, utilities become the next hot sector. I'd be a buyer on this dip.

Gerald Alright, but remember when everyone said the same about 5G infrastructure plays? Not every data-center story prints. Still, I'll grant you this one's interesting if they clear the regulators.

Marie Speaking of big bets — Warren Buffett's Berkshire Hathaway amassed a two point six billion dollar stake in Delta Air Lines. That's a massive pivot after selling all airline stocks in 2020.

Tom Buffett swore off airlines, called them a mistake — and now he's back. That's a redemption arc I did not see coming. Delta is now the fourteenth-largest holding!

Gerald Redemption arc? Or just a very expensive U-turn. Fuel costs are the primary concern for airlines, and with oil where it is, margins get squeezed. Profitable until the next quarter.

Marie Here's the contradiction — Appaloosa Management just dumped its entire stakes in Delta, American, and United while loading up on Amazon and Uber. A hedge fund running for the exit as Berkshire buys.

Tom Classic market split.

Gerald Exactly.

Marie Right. So we have a macro bet — Buffett sees durable air travel demand, Appaloosa sees fuel cost headwinds and pivots to tech-enabled mobility. Uber's up half a percent today, interestingly.

Tom Uber as a mobility play with less fuel exposure — that's clever. And Amazon, down one point two percent today but up about seventeen percent year to date, with AI and e-commerce resilience.

Gerald To be fair, American Airlines is down over twenty percent year to date, United nearly eighteen. The hedge fund's exit reinforces that fuel cost pain. But I'll note Berkshire is a longer-term player — maybe they can stomach near-term turbulence.

Marie But here's the structural question — if oil stays high, do airline buybacks and free cash flow evaporate? The bear case is real.

Tom Fair enough, but Delta is only up one point seven percent year to date — it hasn't really priced in any recovery. If Buffett sees demand holding up, maybe there's upside when oil eventually stabilizes.

Gerald And that 'eventually' is doing a lot of work. But I'll grant you, it's not a consensus long.

Tom Alright, let's shift to something I get genuinely excited about — AI memory. The Roundhill Memory ETF hit ten billion dollars in assets at the fastest pace ever. Memory chips are the biggest bottleneck in the AI buildup.

Gerald Memory is the bottleneck.

Marie Absolutely.

Gerald Alright, I'll give you that. But the ETF's P-E ratio is probably stratospheric. And it's down five percent today, so it's not a one-way bet.

Tom Come on, it's up eighty-four percent year to date! Micron alone is up one hundred thirty percent. This dip is an entry.

Marie Structural demand is real. AI data centers need memory, and here's the most original take of the day — Nikkei reports Amazon is buying copper directly from a U.S. mine. This is raw-materials scramble mode, and it signals a commodity super-cycle.

Tom Whoa, Amazon bypassing middlemen? That's like when automakers started buying lithium directly. This is huge for materials.

Gerald Copper is the new oil. And with Hormuz already choking the physical flow of crude, we're seeing real strain in raw materials. That's not priced into a lot of equities yet.

Marie But let's not get carried away. The macro beat is still hawkish. Kevin Warsh, incoming Fed chair, is expected to face a divided committee and likely remove dovish guidance. Bonds are selling off relentlessly — TLT at a fifty-two-week low, down two point two percent this week.

Gerald Yeah look, three members dissented in April. Rate cuts are off the table. That's a higher-for-longer regime that keeps upward pressure on the dollar. The dollar index is up one point four percent this week.

Tom But equities are holding up okay — the S&P 500 ETF is down just one point two percent today, only one percent from its high. Bonds are taking the brunt.

Marie And that divergence might not last if yields keep climbing. But I'll note the crowded short: TLT at its low is on every screen. When consensus is that one-sided, a reversal sparked by a dovish Warsh comment could be ferocious.

Gerald Oh, that's the contrarian counter-case. I hear you. But until we see that, long-duration bonds are dead money in stagflation. I'd rather be in long energy.

Marie And speaking of crowded, India just tightened silver import rules to defend the rupee. Silver's down eight point six percent today, and the ETF SLV is thirty-seven percent below its fifty-two-week high.

Tom Wait, silver? I haven't gotten there yet. Oh, that's brutal.

Gerald It's all connected — dollar strength, oil costs, emerging market stress. I had that sell call on India equities yesterday, and the rupee restrictions are just another sign of trouble.

Marie Physical demand for silver is weakening globally with these curbs. It reinforces the negative momentum. But here's the big picture: the pair trade of the day isn't a single name — it's long energy, which is up thirty percent year to date but still six percent below its high, versus short long-duration bonds.

Tom That's a clever expression.

Gerald Sharp.

Marie Good trade. It captures the macro tilt without requiring a geopolitical crystal ball. But the counter-case on oil exhaustion remains: USO just two percent from its high. A diplomatic headline could reverse it.

Tom True, but the physical choke is real. I still think supply beats sentiment here.

Gerald And the demand destruction is the slow burn. If oil stays above one-forty, auto sales, airline profits, and consumer spending get cut — that's the next wave.

Marie Alright, as always none of this is investment advice. We're just looking at how the market is digesting these signals.

Tom And if you're just finding us, hit follow on Spotify, or check investmentflash.com for the full digest with charts and sources.

Marie We're back tomorrow for Weekend Edition at ten a.m. London time. See you then.

Gerald And keep an eye on that Strait — it's the only chart that matters.