Hello everybody. Welcome to another episode of the sense of things and we keep going and going. So on today’s

show, Ron has got some information on US inflation on different products,

geopolitical risks. We’re going to talk about private credit and default rates.

I’ve got a little bit of some economic indicators like leading economic indicators and the jolts numbers that we’ll go over just get a picture of

where the economy is and where the markets are going. So stay tuned. We’ll be right back on in just a second.

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

Good morning. Yep, never a dull moment as usual. I think we’re headed lower.

I’ve been saying that for a couple of weeks now. I don’t believe any rhetoric from any of the politicians. Military

operations are not winding down and I think the the fever pitch is

definitely rising. So risks are to the downside, not to the upside. That doesn’t mean there isn’t opportunities.

Yeah. And I think this is the opportunity when you start to look at where the baby got thrown out with the bathwater. It’s a great time to start

picking up some things. I know we we last week pecked into a couple little areas that I’d been watching. But yeah,

I think it’s still we’re still carrying cash at this point. I’m still looking to snag some stuff on a pullback or something along those lines if things

don’t continue to go. We are we’re closer to the end than the beginning is what I would say just from a military standpoint. But separate conversation to disagree.

Yeah.

Nothing has ever ended quickly in the Middle East ever.

No, nothing. Yeah. Cuz I mean it you’re still going to have the crazy whackadoodles that are still unfortunately the crazy wackadoodles are

still in charge and they keep trying to play the same game that they’ve always played. Oh yeah, we’ll tell you one thing and do the exact opposite. And I I

loved the this morning I saw something the demands that Iran has and okay no more bombing, no more sanctions and you

have to all the US military presence out of the the Middle East and we want to have control of the Straits of Hormuz

and you have to pay us. I know first of all the last one I Iran will die.

Yeah. before they give up the their control over the trader because they know without that they have nothing.

They have none. Yeah.

Even at that. So that’s why I know this is not going to end quickly. And if we bomb their oil refineries, oil is going

to go to 200. So this is not going to end quickly. Military operations are not winding down. It’s going to get worse

before it gets better. I We could disagree. That’s a conversation in a podcast or a different time.

Absolutely. All right. Okay. What’s what happened in history? All right.

All right. We not a lot but a couple of interesting things. Okay.

Uh 1929 Herbert Hoover has telephone installed in Oval Office. Just time for market crash.

Yeah.

A a telephone and a ticker tape that just went Oh, I’m sure the ticker tape was already there. But yeah, but interesting because what you know people started getting the

telephones 101 15 years before you figured they would have been a not necessarily ahead of the curve but at least on timing. Yeah.

1939 first NCAA basketball tournament is held. University of Oregon defeats the the safety school of the Midwest.

You know what? I wanted to see what the score was. The score was probably like 38 to 33 or something. I don’t know.

Yeah, exactly. The way they used to do it with the set shots they were show they were it was unchallenged. It was so funny looking at video back then.

Oh I know. And just the honor point game that and just how slow the game moved.

It was just you watched and it was literally like watching people run through honey.

It’s like watching almost a soccer match evolve. Oh we’re going to be strategic and no there fast break. No such thing.

No alley. No dunking. No dunking. No three-pointers. No, no dunking at all. So,

1953, Dr. Jonas Sulk announces polio vaccine. Nice. I thought it was earlier than that, but that sounds about right.

No, 1950s. Yeah, cuz and there was like a massive kind of outbreak of measles or of polio leading up to that. We were

watching we’re watching something about the history of Mary Berry. If you’re a cook, you understand who she is. But she was down for six, eight months with polio when she was relatively young.

When she was probably in her like early like 18, 19 years old or so.

Yeah. Elvis Presley 1958 is inducted into the US Army and this was fixed. You know that government didn’t like Elvis

Presley and somehow his number came up and he went in and they were disappointed when he didn’t want to be part of their entertainment group. He

wasn’t going to give in. I listen he was only 23 at the time. I give him all the props in the world.

I do too. And he was the uh I’m serving as a soldier. I’m going to be a tanker and that’s it. I thought that was that

impressed the hell out of me because he he was a massive patriot and okay, if I’m going to serve, I’m going to serve like everybody else. But that was fixed by the government.

Okay.

But then he put God blues right afterwards.

Yeah. Godfather opens in theaters in 1972. Yeah. 1979, Eric Clapton marries Patty Boyd.

Who was Patty Boyd married to before Eric Clapton? No idea. George Harrison. George Harrison. Okay.

And Eric Clapton and George Harrison refer to themselves as husbands-in-law.

And actually, the reason why Patty Boyd left George Harrison was because his depression and drug use. Why did she

leave Eric Clapton? Because of his depression and her depression and drinks. Yeah. They’re basically the same guy, just two

different bands, basically. And what movie did she make a cameo appearance in?

No clue. I couldn’t even tell you who she is.

Oh, 1964, Hard Days Night. That’s how she met George Harrison. Of course.

1983, first heart transplant patient dies. His name was Barney Clark after 112 days.

1998. The FDA approves Viagra. I remember that.

remember I remember hearing about it and I’m like had I just thought to invest in in because I forget who’s Yeah. Fizer.

If I have thought to just throw some money in Fizer at that point, life would have been great. Yeah.

What can I tell you there there’s a lot more to say.

2008 Heaven’s Gate. I remember this very well. Y cult members found dead outside of S of San Diego by Marshall Appleite.

And if you take look at pictures of this guy, if the this guy this Jim Jones looked like a cult leader, this guy

looked like a psychopath. He was a whackadoo. But yeah, it’s just amazing how lost people will just follow just about anybody.

Look at David Car. Same thing.

He was look like a hippie. He didn’t really look like a cult leader, but he Jim Jones definitely looked like a cult leader. He had that. Yeah.

Yeah. That was in Caresh was in Waco. That was near you somewhere, right? Yep. Between us and Dallas in between.

So, here we go. So, just obviously these things be will become out of date pretty soon. But you ask by US inflation by product type.

Beef and ve I got to tell you, I’m not a huge steak eater anymore, but I like a good steak barbecue. Holy crap. I could not believe the price just even of

hamburger meat. It was insane. Car maintenance and repair. I didn’t see that. I didn’t see that much with home insurance. Not a tobacco person. Sugar

and sweets. I’m not a sugar and sweet person, but a lot of the other hospital services that things like that, I haven’t seen it in my municipality trash

yet. But on the bottom, I obviously this was before the war started. Gas has obviously gone up. Eggs, I don’t know. I

I do, but I don’t really see a huge difference there. Telephone service I could see going down. I don’t understand

why women’s apparel goes down. Women will buy clothes 10 to one over men. You figure that would go up. Men’s clothes would go down and IT hardware and

services. I really haven’t seen that too. What are your thoughts?

Yeah, I think just with the IT hardware and all that, there’s just it’s moving so fast that the existing stuff just

keeps going down in price. The new stuff is up significantly. Yeah. I look at beef. The beef one is probably the one

that I notice most because we do like a nice steak on the weekends. And man, I have to think twice about it when we’re

buying something now because it’s holy crap, a decent steak. We’ll buy ours at Costco because we can get them for a lot less. But man, you go to the grocery

store and try and buy a steak and it’s 25 bucks for a freaking steak, you know?

I just I’m sorry. I’m not going to do it. It’s a fish eater, too. Salmon,

other stuff. It’s relatively held, but yeah,

the beef. Yeah, that’s brewing and that’s been going up for a while. This isn’t just recently.

That that’s an issue that that’s really more of a a a supply issue than anything. It’s just we got behind over the last five yearsish.

they got behind was you had a lot of a lot of drought and stuff like that and it just okay they can’t raise the cows

or they can’t raise as many of them and that just hits us across the board. I don’t see that going down anytime soon at this point and of course with diesel

fuel up that costs money across the board and everything else. So I think I I would venture to say food costs are

going to go up a little bit with this with this conflict going on over that.

No, no doubt about it. No, they’re talking about that because of wheat shortages and other things. Okay.

Yeah. The largest wheat producer in the world is Ukraine.

We’ve dealt with that for four years as it is.

Yeah. So, here we go. BUA did a survey of fund managers. Biggest geopolitical risk. Look, I know this is pretty freaking obvious, but geopolitical

conflict is now off the charts. I don’t know how it wasn’t higher earlier.

Inflation obviously is an issue. I can’t believe that they’re actually potentially talking about a Fed rate hike. I don’t know why we would

necessarily need to lower rates at the moment, but to raise them, that would be interesting. It would be insane.

Yeah. And I have another chart here on private credit, so we’ll have to talk about that. What are your thoughts?

Yeah, and I think honestly I think the private credit side is becoming a bigger and bigger risk at this point. Hang on.

private credit. I’m still trying to understand it.

I get what it is, but private credit versus the banks. A lot of tri people are like, “Oh, no. Is this another financial crisis?” Again,

different, but it smells the same.

It smells similar just because of the overall credit risk. And well, I think and the redemptions, remember with the redemptions,

it’s not liquid.

No. No. And it’s not. and people can start to demand it and that’s where these are not regulated in a lot of

cases. It’s a shadow banking system that’s out there and these things a lot of times are set to higher interest

rates and stuff like that. So as companies struggle a little bit, I think the biggest area that really has gotten hurt is the software area because of the

threat of AI and I yes it’s a threat of like these software companies aren’t going to figure out how to use AI but I

think it’s another case of throw the baby out with the bathwater which then starts to affect downhill the private credit side. I think the good part about

all of this is our banks are very healthy. Part of the issue with private credit is we tightened up the bank so

much that they weren’t able to lend and so you had this kind of shadow banking world show up. I remember both getting

things from the Bureau of Labor Statistics and things like that. Somehow got into this group where they surveyed

me as a business owner and so I’d have to answer those surveys and stuff like that. And then my former business

partner was on a board with the Fed as a financial adviser. He was on a board with the Fed and he was pretty well

known in the industry. And that was their biggest concern was this the Fed was trying to get their hands around

what this whole private credit industry and shadow banking world look like a few years back.

Sometimes it takes a while, but the one I’ve been talking about for a while is the weakening dollar. We’ll have to see.

Yeah. Although it’s the dollar strengthened here over the last several months, so it’s not weakened as much as you would think.

It’s a safety tree. But here we go. We all know where gas prices are. Here are the averages for the month by month since over the last four years. We’re at

388. I know gas is a lot cheaper in Texas than it is in Arizona and California, but 388. This is definitely

going to cut into the lower and the middle class socioeconomics.

No, it is. Yeah. seen a dollar rise in a month. So, this is a major factor and it is going to have a and if they’re going to have a major

effect I Yeah, I think what you’re going to cover next, it’s definitely going to talk a little bit about the defaults and stuff

like that too is man all of a sudden you see that much of a move in fuel prices. It’s a big deal.

Yeah. So, the private credit risk here the following. So, we’ve seen where it is and things, it’s that infamous things, things happen slowly than

quickly. All you need is a couple of things to break. Fear sets in. The computers take over and things get

pushed down. It’s already happened to a lot of the companies that have been exposed to the private credit. But what is the ripple effect to it? We’ll have to see.

Not wishing for a damn thing. But the other thing too is this is where the big money is. This is where the

institutional money is. If this thing breaks, the average person can’t do anything about it. And I don’t know what the government’s going to come in and do as a backs stop or a safety net.

Yeah. Because the Fed can’t really step in these cases with private credit. And I mean,

well, they can, but there’ll be some major political push back. Yeah. And you’re This is the bear stern.

And I’m not saying we’re in that. This is the Bear Sterns, Lehman, Bank of America kind of situations where that stuff comes unglued really fast and then

the government has to step in. But I I don’t think it’s that bad this time.

However, the problem is we just don’t know where it is because this stuff is not really reported. You find out about it later and you don’t know at the time.

Yep. All right. What do you got?

All right. Let me let me jump in here. I don’t have a ton of stuff, but bleeding on the geopolitical piece of it that we

were talking about there. Let me bring this sucker up here. There we go.

Hang on. I’m trying to find where which screen this thing is on. That’s not the one I want.

Okay, let me get out of here for a second. come back into it because for some weird reason it’s not bringing up the screen that I want it to bring up here.

Ah, here we go. Okay, here we go.

All right, cool. I think with the geopolitical risk, what does that really mean? Yes, wars go on. Yes, this could

go on for a long time, but what’s the reality of kind of how did the stock

market perform as a result of that? If you look at everything from World War II through the Afghanistan war, 3 months

before, in a lot of cases, interestingly enough, we were seeing the market pull back a little bit early on in February,

even before we got involved in this. The market had started off the year good and then stumbled a little bit. So,

interestingly enough, follows the history, especially in modern war. The Gulf War was interesting because three months before it was actually up pretty

significantly and then got whacked at the beginning of the war and then afterwards things mellowed out. But typically what happens 3 months after

the start, you look at modern time periods, Gulf War, we were up 18%. Iraq

war 13%, Afghanistan war 10.4. I I think I although we disagree on when the

conflict ends, I don’t necessarily believe that we are at the high point and we’re going lower. I think we’re

meandering around where the low point is going to be and I think there’s opportunity on the upside. That’s person that personally in my point of view,

it’s why I’ve been keeping some cash on the sidelines because I’m starting to go shopping for things that have really gotten whacked during this time period

that I like. Definitely things selling at a discount. Not a steep discount, but a discount.

Yeah. Yeah. And there’s some areas really that have gotten whacked hard that I like to invest in that I’m just holding off for right now, but I will

start to dip my toe back into them. We start to look at economics. The really the economics there wasn’t anything

interesting this week. No big announcements, anything like that on the econo day. We get consumer sentiment tomorrow. when we go into this next

phase here. We had this discussion last week when I when we were talking about consumer sentiment and that it’s been

negative and all this. It’s intriguing to me when it comes to consumer sentiment.

Although the markets have kept going up,

the economies kept going up, consumer sentiment, if you look at it right now in the leading economic indicators,

consumer expectations for business conditions have been negative for 6 months. Quite frankly, they’ve been negative for since 2021.

So if you look at the leading economic indicators, they peaked right after we came out of COVID and peaked and they’ve been just on this continual downtrend.

Ron and I have had this discussion about LEI and said it usually is an indicator of a potential recession and all that.

It’s been dominated by this consumer expectations. And quite frankly, I just think the world is very negative and I

blame the press largely for this because of their just incessant need to constantly badger and talk about

everything so poorly. Nothing is ever good. It’s always bad. And I think people are just responding to that.

Between social media and the media,

they’re responding to it and they’re negative, but they still go out and spend money. They still do all this stuff. So, as we look at the LEI that

came in, it was there was a decline once again for this month. If you look into that a little bit, the index, the

leading credit index was up, which is good. The stock market was up. Now I think this for if you look at January and February this is going to be

negative coming in. So we’ll see that affected a little bit which means we’ll probably see a negative LEI. Interest rate spreads were up slightly once again

and they have been for the last 6 months. Once again average consumer expectations negative again have continually been negative here. ISM new

orders actually were up a little bit which is interesting. They’ve been a big drag on the index for a while. Building

permits were down, which we’ve already we talked about last week. Average weekly hours are up, you know, and they’ve been consistent there. New orders, manufacturing were down,

manufacturing, new orders, consumer goods, and then non-defense capital goods were both down. Average weekly initial claims on our unemployment

insurance up slightly, nothing big, you know, and we’ve really not seen much of a change beyond that normal kind of

200,000 number. If you look at the index, the recession signals,

we haven’t really seen anything since August that even signaled a potential recession. It popped back up right after that. So, you know,

what’s amazing is hovering. It’s hovering.

Yeah. It just can’t It keeps going around that time period, but it’s really not done much when it comes to that. And

it interesting to see we’re at that same level we were at right before the pandemic hit and the world’s shortest

recession. But we’re just but we were on our way to a recession out of 29 2019 within a couple of years.

We didn’t hit it because of all the we didn’t hit it in 2022 2023 because of all the money flooding the market. They

kept the economy going but we’re hovering. Notice it’s not trending up.

Yep. Yeah. But it’s trending like it usually does. It just meanders around. Although we’re just at that,

but it’s not trending up as far as showing consistent growth rate. Whether it’s meandering or not, it’s meandering around. We got Z there there’s the leading indicators are going nowhere.

Yeah. Yeah. Like I said, I I think part of it is this issue.

I don’t know if the waiting of this issue is causing it to not give us good signals or whatever, but yeah, it is

what it is. It’s the number that we have to work with. Jolts numbers, job openings and labor turnover survey. This

is one we follow on a somewhat regular basis when we remember to. It peaked way back here in the midst at the top end of

the the pandemic. And this is that time period. I always say this was the open jobs everywhere. You had signs on every

building saying jobs open and nobody wanted to go back to work because they were getting paid by the government to not work. And the job openings have just

continued to meander downward. I think part of this is a little bit of cautiousness from companies out there.

But quite frankly, if you look at history, we’re at 6946 right now. pretty

much that’s 2017 to 2018 numbers. It’s we’re at about the normal that we are.

We’re usually in that between 6,500 and 7,000 range and we’re normal there. So,

it’s not anything that I would look at and go, “Oh my god, this is something different.” It’s the trend we’ve been on

is that like I said 6,500 to 7,000 number when it comes to that and maybe this is where we kind of settle in and

just putt along like we’ve been putting along. I don’t think I don’t personally think there’s a lot of job growth that

is going to happen for a while because if we have more job growth in the manufacturing sector or anything like

that that’s years down the road because we got to build the factories and we’ve got to build that ecosystem. The job growth right now I think is going to be

in the construction fields and things along those lines. I would foresee a little bit less job growth in the let’s

say technology spaces because of AI. I think those jobs are changing and they will be changing for a few years. So I

could see it just hovering where it’s at. So we’re getting to that homeostasis at this point.

Yeah. Look, for as long as I could remember in my adult life, anything

around 5% unemployment was called full employment.

So we we’re hovering under that. If it ticks up to six or seven, okay, that that’s recessionary conditions potentially, maybe 8%. But yes, 5%

there is no anybody that pretty much wants or is able to have a job has a job could get. Yeah, look, there’s a ton of lazy people.

There’s a lot of people sucking off the government teeth. There’s there’s a ton of people there. There is some legitimate, okay,

jobs in the coding area and stuff like that are being replaced. You’ve got to upskill or change your skill sets at that point. Yeah, a lot of these

companies are laying people off and then saying, “Okay, now you know, we’re going to give you time to find a different job doing something different inside of our

company.” Not just laying them off and get getting rid of them. The problem is,

look, we all know that labor costs are the number one input cost into running a business. And if you could do more with

less, you’re going to do it to increase the bottom line. Sure, that’s just simple math. But the other part to that,

too, is there’s a lot of people not running businesses. There’s a lot of people that are cogs in the wheel and they’re happy checking in and they’re happy clocking out at the end of the

day. Those are the ones that are the most vulnerable. And it’s not the business’s fault if they find productivity. And we could talk about this for hours. Look, that’s what

happened in the auto industry. Yes. It was a lot better, safer, and faster to use machines than 10 people to put a wheel on or whatever it was.

Yes. Exactly. Yeah.

Yeah. And somebody going like this on a wheel from 12 to three with a wrench, we have a machine and do that now. Yeah. Yeah.

And we could one people don’t get hurt when we use machines to do a lot of the heavy lifting and things like that.

I think a lot of the yeah this kind of belief which I think is somewhat this belief I think from the working

folks and I think our president sometimes you know that we’re going to have all these jobs created by manufacturing. Yeah, there’s going to be more manufacturing.

I don’t necessarily know if there’s going to be more jobs as a result of that because if I’m building a factory today, I sure as crap I’m not going to

build a factory where it’s mostly humans doing the work. I’m going to build a factory where I can be as efficient as possible. I can have machines do it. And

quite frankly, I think we’re probably about 10 to 20 years away from a large a large portion of our manufacturing done by robots.

Absolutely. Look, it’s great that you want to bring back manufacturing here,

but we all know that it’s the input cost on why they left in the first place. Yep.

Number one, and to get into it, but the unions were at fault with a lot of that,

but but not and it wasn’t necessarily the inefficiency of the business. It’s the input costs, the labor costs are the most expensive. So, you could bring back

manufacturing. If they’re going to be more efficient, they’re not going to need as many people as they did when they left.

Absolutely. Like I said, you watch I was watching a video the other day with one of Elon’s robots and good lord, you’ve

seen those ones from Japan where they’re just stumbling around and all that. This one was doing a dance and did a backflip and everything else and I’m like that.

Yeah, they’re getting to the point where they’re pretty amazing. Elon’s building an entire another factory here in Austin

just for computer chips because he can’t get enough of them from everywhere else in typical Elon fashion. Crap. But if I can’t get them, I’ll just build them myself then at this point.

Well, the problem is when will they be cost effective enough to be like a computer in every home? Who knows?

Yeah. It’s going to be an industry first. the days of us being the Jetsons and having Rosie the the robot take care of it. That’s a few years down the road,

but I can clearly see you see it with Amazon with their robotics program. The majority of those jobs were humans were

actually grabbing things, walking them over, putting them on a thing. None of that happens in these Amazon plant

Amazon facilities anymore. It’s all done by robots. the humans are only at the end to check it and make sure that it’s

the right stuff going out, which I’m not even sure that’s as efficient as it could be. Agreed. All right.

All right. Thanks everybody for joining us once again. Hopefully you enjoyed this. Let us know. Give us a comment and subscribe to the channel so we can we

can take good care of you and give you all these things every week. So, thanks a lot and we’ll see you guys back here the very next time.