Good morning, folks. Welcome to another week of the sense of things with Jeff and Ron. This week’s show, we’ve got this week in history that Ron does.

We’re going to be talking a little bit about business survival rates. Uh Ron’s got some great stuff on earnings, S&P

earnings and S&P net margins. I’m going to cover a little bit in the some of the things that have come out this week

economic wise. We’re going to cover a little bit on jobless claims which came in this morning, the ADP employment report which came out yesterday and then

a little bit about one that people really haven’t talked much about the I or ISM manufacturing index. So stay

tuned. We’ll be right back on in just one second.

Hey everybody, welcome to the show. Ron, how are you my friend?

Good morning. It’s the the big golf tournament here this weekend, the Phoenix Open. It’s the running of the

dudes. This is the one where hole 16 gets all crazy. They had some guy last year, he wasn’t a streaker, but he was

basically just had a speedo on. goes and does a somersault in a sand trap and does a snow angel in a sand trap. Okay.

That was last year or it’s two years ago. Two years ago. Yeah. I’m going on Sunday to check it out. But it’s pretty busy here. I think this is like the first major tournament of the season.

Okay. Yeah. I don’t think you’d be streaking and diving into the sand there if it was the summertime.

It’s 81 82 degrees here the last few days in the afternoon. And by the way,

people that are doing that don’t really care what the weather is.

That’s probably true. Yes. I have to check. We usually do a little update on the hairy man festival here in in Cedar

Park. I don’t know exactly when that’s coming up, but we do have the world’s hairiest men here in the hairy man thing. So, love it.

All right. What What happened this week in history? All right. Here we go. So,

actually some interesting things. It started out slow and then it added up quite a few other good things. 18 1468 Gutenberg died. He’s the one that

invented the printing press and printed the Bible first.

There you go. 1789 George Washington unanous was unanimously elected president of the United States rejects

king as his title. And this is what I thought was interesting. the government of the United States officially began

right too long after he was unanimously elected. So if you think about it, this was 13 years

after the American Revolution started that essentially our government was effectively in what began in place.

Yeah. Yeah. It was 13 years of just absolute doom and destruction during that time period because all the states wanted to be basically their own

individual little worlds and it was a mess. Actually, when I was reading it, I mean,

it was like a deep dive into this stuff and it was just very interesting on how some states didn’t want they wanted to be their own country. They didn’t want to be a part of it, but I think they

were all browbeating into it. Like it was pretty interesting.

Yeah. The interesting part of that March 4th that actually it wasn’t it wasn’t that he was elected president and then

he became president immediately. Now we have the November election and by January they have the electoral college.

The president didn’t actually take seat until March 4th at that time because it took so long for the electoral college

to get together and get all their stuff done.

And it was interesting. Do you know how many electoral votes? I can’t remember the exact number but I know what it was about. You know how many elect I think don’t hold me it was plus or minus 70.

Yeah.

Now it’s 270 and he was the last president ever unanimously elected president. So yeah it was good. All right. Samuel

Clemens in 1863 begins reporting as and it was an interesting story how he

came up with name because he was a fisherman and he would mark the twain something with the in the fish in the water. I don’t know. That’s how he came up with the name. 1870.

Actually, he was a steamboat captain. Yep.

Oh, is that right? Okay. Oh, that’s right. That’s right. Yeah. Okay. The 15th Amendment was ratified in 1870,

guaranteeing the right to vote no matter their race except for women. Except women.

And that didn’t happen for another 50 years.

It just 1913 the 16th amendment was ratified granting the Congress the authority to

levy income taxes and I believe there we talked about this last time was when the

central bank was established 1913 again Grand Central Terminal opens in New York

City. Most people refer to it as Grand Central Station. It is not. It is Grand Central Terminal because that’s where it

ends. And I don’t know if you’ve ever been there. I’ve been there many times in and out of New York.

By far one of the most beautiful buildings architecture-wise.

It is an amazing place. People will just go there for lunch. I’ve done that with somebody, too. And it’s a happening, I got to tell you. So, people on the West

Coast Central, if you’ve never been, you got to go.

Yeah, I’ve seen it. I just have never had the opportunity to go there. You know what? Current Yeah.

You go on to PBS, they got some documentaries on it about the some of the things that have happened there. It’s pretty amazing. Yeah.

1941, my father was born. He just turned 85 on Tuesday, so I figured I’d give him a little shout out. Yeah.

1950, Truman announces the Hbomb development.

Probably one of the most commas demeanor presidents we’ve ever had. dropped two big ones and then an hbomb. So 1959, the day the music died, buddy.

Holly, Richie Valins, and the big popper died in a plane crash.

And what was the famous song and who was it by? Don Mlan, the day the music died.

There you go. 1974, Patty Hurst kidnapped by the SLA. The symbian some made up liberation army BS.

Yes. 1974 Blazing Saddles premieres this week, which could never today.

No, not even remotely close. But the thing the thing that people just don’t understand about Mel Brooks is he was an equal opportunity offender.

Yep. Same with Don Don Rickles. Here’s the interesting thing.

Mel Brooks turns 100 this year. I think it’s I think it’s in the second half of the year he turns 100. But the amazing thing

about Blazing Saddles is the the studio didn’t even want to send this thing through. It was just everything that was

in there. They were cutting it up. They wanted him to take things out. But like I said, it could never be made today.

Now, it’s been on TV twice in the last couple of months. I haven’t seen it from beginning to end. I saw it in two different parts and I’m like, “Oh god,

there’s no way this would ever make it.” Anyway,

and even on TV, they’re cutting out parts of it.

Absolutely. Okay. So, if there were 100 businesses born a year, how many would

survive? Now, there’s been a lot of statistics behind this, a lot of a lot of studies. And you can see just like

even in the first year, one don’t even survive in the first year. By the time you get to year five, basically half are gone.

By the time you get to year 10,

twothirds are gone. And this is for a variety of things. I think number one,

not everybody is built to be an entrepreneur. And number two, everybody thinks the grass is greener. I’m just going to keep showing up to do what I

was doing before, but I own the business now. They have no idea what happens behind the scenes administratively,

legally, liability, making payroll.

Nobody just think it’s interesting. What are your thoughts? No, I I can completely tell you that from running a co-working space for the last 10 years,

I can completely tell you watching people, you know, it it usually is I would say the year two, they show a bunch of them dipping off after year

one, but I would say year two is where you really see the bulk of them because year one, it’s like you you’re still it’s still fun. You’re not making any

money, but it’s still fun because you’re controlling your world. Year two, it starts to just suck. And it’s what I call the suck about halfway through that

second year where I see a ton of people just bail out because now it’s hard and I’m not making any money.

And that stat on year five, I heard that 20 years ago, 50% of the businesses fail within five years. So that stat really hasn’t changed much.

No. And I don’t foresee that changing anytime soon. No, not at all. All right, getting into some data. So,

we’ve had a lot of earnings coming out. Most of it good. The sell-off, I think,

is profit taken. We were talking about that before. Yep.

But here’s the net margin. So, if you take a look on the left, Q4 2025,

the highest the highest in the last five years, margin expansion. So, it’s not like they’re making money.

That’s one of the reasons why it’s going up. Profits are the money the the mother’s milk of of why these stocks have the values that they do. Many of them.

Yeah. And it’s it I think the important part there is profit margin not just profits increasing profits but margins

are increasing and they have been really for the last I would say year and a half they’ve been consistently increasing that’s why I was telling you I was

looking at AMD because I’ve got clients in AMD and their profit margin went and this is a big ass company went from 45

to 58 in one quarter and ju they’re just getting punished.

So yeah, the you got to look past what the market’s doing and look at what these companies are doing and it’s really fantastic.

Yeah. And look at the buy sector. I got to tell you,

I fig I knew you knew tech was going to be there. I didn’t understand why real estate had such a high margin because prices have been coming down. Now, I

know in the higher end, the luxury oriented homes, they always have margin,

but that’s surprised me a little bit year-over-year that it’s down a little bit year-over-year, but it’s still the highest one out of all the sectors.

But is that real estate per se?

Commercial? I would think that’s more commercial real estate. This would be RES. I think it’s the whole industry. Yeah. Yeah.

Not only that, too, but we’ve been talking about this for a while. Consumer discretionary. Look at the far right with the consumer staples. Their margins

are contracting. Tariffs are affecting them. Input costs are affecting them.

Labor is affecting them. And that’s why my Oreo cookies keep getting smaller with less with less vanilla on the

inside. That’s what happens. The Reese’s Peanut Butter Cups are getting smaller, too. I’m very frustrated. I love the I love the bags of chips. Oh,

you have the party size. And I’m like,

that’s what the other that’s what used to be the normal size. Oh, no. But open up that party size. It’s twothirds error.

Yeah, of course. [laughter]

So, I thought this was interesting. And then what we’re going to do is look at earnings growth. And obviously 2024 into 2025 were just

big big earnings growth years. But now look on the right side for earnings growth. You have tech number one and by far.

But now look at real estate where they are for earnings growth. They’re in the back half.

Yeah. So, how are they growing but have the highest net margin? This was the divergent [clears throat]

I just didn’t make much sense out of.

Yeah, it’s interesting on the industrials too. I’m seeing that just because we you remember we had that sleeve this year that were industrials

and natural resources and industrials are just off to the freaking races right now. And I mean if you look in behind

the scenes of industrials because there’s god I want to say 20 different industries or 20 different components to that industrials and across the board I

I can’t remember one being down right now. So we are off to the races and this will dovetail into what we’ll talk about

here in a few minutes about the economic side of it too. Yeah. And with the industrials too,

that’s not sustainable for earnings growth at some point. That will be in the middle to the second half. No doubt about it. All right, what do you got?

Let’s let’s take a look here real quick because we’ve gotten a lot of,

you know, data this week. And I think starting yesterday, one of the big ones was the ADP report. And we’ve talked

about ADP before. And I’m not sure how much credence I put into ADP at this point. It’s been it’s been good, but

it’s been also not so great. Prior week was revised down or prior month was revised down from 37,000

or 237,000 from 41. The consensus this month was 45. It came in at 22

yesterday. And so that spooked the market, which I still don’t understand because the market’s been worried that

the Fed isn’t going to drop interest rates. This is employment is one of the big things. So the market shouldn’t be shocked. They should be happy about

this. But yeah, Jeff, do me a favor. Make your screen like three to five times bigger. Better. Yeah.

Okay. All right. Cool. All right. So,

that was one. Then today, what shocked the market a little bit was jobless claims. So you know we’ve been talking

about joblessness and it’s been running around 200 to 210 somewhere around there. Consensus was 212. It came in at

231. So that of course shocked the market again this morning which once again if you are a believer that the

data the Fed is data dependent. This should be a good thing in your eyes and the market shouldn’t be crazy. But the market’s crazy right now. Yeah,

here’s the interesting one that I saw earlier this week and this is one that it it’s been not great and I think this dovetales into your industrials piece.

ISM manufacturing index has been pretty much below 50 for going on almost a year and a half 18 months at this point.

Yeah, that’s contraction.

Yeah, came in at 52.6 six, which if you look at the actual report, which this is available, I’ll put the link to this in

the show notes. This is the actual report off of ISM. And here’s the interesting thing. So, the index up five at 52.6. There’s several components. So,

you can see back to 2024, it really hasn’t gotten above 50. There was one little peak above it, but it’s pretty

much stayed below 50. 50 is the point where we go into growth. Anything below that is contraction. If you look at the

individual components, manufacturing is up, new orders are up a lot, and these came out of contraction. Production is

up, employment is down, which kind of dovetales into what we’re seeing. I think part of this is this employment

figure being in a contraction is I think there’s a lot of AI that’s being brought into a lot of these businesses

especially in manufacturing and robotics that you’re just not getting the big boost in in employment there

and really pretty much across the board inven customer inventories are down a little bit in contraction everything

else was pretty much up and above the the December number and into January. here. What’s your thoughts?

I got to tell you, I’m going to push back on the AI replacing jobs as like a major factor.

I still think that is three to five plus years away, probably five years away. I just think it’s just

contraction in the marketplace. I think people, we all know people overhired in COVID. And I think as companies grew,

they’re realizing, hey, we’re going to cherrypick the good ones. let’s get rid of others or dri there’s been a ton of M&A too. So I’m not saying AI hasn’t had

some impact on it but a significant impact. I’ve been pushing back on that for a while.

Yeah, I think I think there’s as far as the in the manufacturing space I think robotics are more in the manufacturing

space I can see robotics being more than the AI side. I would say the AI effect on employment is going to be that middle management of people that are in there.

You’re seeing that with Amazon. Amazon’s looking at their middle management and they’re eliminating a lot of that middle management because a lot of that can be

replaced by AI. I think it’s cherrypicked throughout. I really think quite frankly in the employment side on manufacturing, it’s going to be more

from the robotic standpoint. And you got to think these a lot of these new factories that are being built and everything,

you got to imagine that a lot of that is going to be built with newer technologies and robotics and all that.

I don’t necessarily see this major boost in manufacturing necessarily creating a lot more manufacturing jobs, per se.

Yeah, I get it. And look, and robotics that’s been replacing people for 60 years, 70 years, and that’s only going to continue. That’s just going to get bigger and bigger.

Well, you just look at an Amazon deliver the Amazon delivery centers now. Really,

the only humans are there just to make sure the robots don’t break down, but a vast majority of the moving stuff around

and getting it to the packing areas is all done by robots.

Yeah. Pick, pick, pack, pick, pack, and ship.

Pick and pack. That’s it. They’re doing all that work and they you don’t hurt people doing that. You have the humans where they need to be. And I the funny

part is watching I I had to drop off something at Amazon at close to one of their warehouses. And I’m laughing because there was just this line of

those Amazon blue vans. Literally a mile long line of those Amazon blue vans wrapping around this building. And you

go around the backside and it’s literally they pull up. They have this little rack that they just take and jam

into the truck and that one’s off and the next one comes up and it’s just this never ending group of those Amazon vans

going through there. So that’s where the humans are until they figure out how to have self-driving self-dely vans. I think there’s going to be humans involved in that part.

Have in Austin, have you guys got Whimo there yet? Because it’s been here for a while. I know Austin was one of their

test cities. Yeah, it was this was the test city for them and they were having all kinds of issues because apparently

the AI in them Yeah, I get what it was doing. The AI in them when a school bus would come up, they have that little thing that pops out of the side with a stop sign.

Yeah.

So the Whimos were coming up, they would stop and then they’re like, “Oh, okay.

It’s a regular stop sign.” And then they would go before the thing went down.

So they’re like, “We got to reprogram that a little bit.” If it’s a bus and it has a stop sign, you need to stay stopped. Yeah. Because they were the

kids would get off the bus and then the dang car would go and take off. So,

yeah. I had a friend in from the East Coast with his family over the over the Christmas break and they were he was visiting his dad and we were I took them a couple places and they were like,

“What is that?”

I’m like, “That’s Whimo.” They all took out their cameras to take pictures and videos of it cuz they don’t have it back in Philadelphia. They had so many weird

little issues with them when they were here. I remember when they first came out and were testing them,

there was a whole bunch of Whimos that were close to the UT game and somehow like when the UT game let out, there was all these people walking

around and all the Whimos just got stuck on this street and they just wouldn’t move at all. So they were blocking up the whole street and everything. So they’ve gotten better. It’s the future,

but I don’t think it’s there yet. Tesla’s testing theirs here in Austin.

I’m just going to say it is huge here and it’s getting bigger and I got to tell you a lot of people are using it over Uber and Lyft. I’m a Lift guy, but

all I can say is getting a lot of traction.

After having a conversation with one of my guys that works out of my space that does drivers testing and he does it for a lot of people that are new immigrants to the country, he was like, “Yeah,

Uber. Yeah, he’s got I’ve got I talked to these guys because they’ll drive up here in their car to take their driver’s test and I’m like, you can’t really do

that, but they’re driving for Uber using somebody else’s driver’s license. And I’m like, what?

Until Yeah, until they get their driver’s license, they’re driving for Uber. And so I’m like, I’m okay with the self-driving thing.

Wait, how can they even do that? Because you need to submit a valid driver’s license, pictures of your cars in order to be in order to be an Uber driver. are submitting an a valid driver’s license,

somebody else’s valid driver’s license.

Look, I’m okay with this whole self-driving car thing. I know what I’m getting there. I know that I’m not getting somebody who’s not even licensed to drive at this point. So,

oh my goodness.

Yeah, it’s crazy. Yeah. All right, let’s let’s tell everybody to make sure you subscribe to the channel and make sure

that you update. Give us an up vote if you like what you’re hearing and we will see you guys back here the very next time.