Hello everybody. Welcome to another week with the sense of things with Jeff and Ron. Today’s show we’ve got a little bit

of everything. We’ve got Ron covering percent of large cap funds over time that have underperformed the indexes.

He’s got some information on retail, on AI cost savings within companies, and then a little bit on mergers and

acquisitions. And I’ll cover what we’ve got coming up economic wise. We had a few reports this week. It was quiet with

the big UN meetings in New York, but next week it’s going to be very busy with a lot of big numbers that probably will move the markets a little bit. 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. And as you know, I like to say as a pre-recording, never a dull moment.

So, little light this week in the history.

We’ll go through that, but certainly gas and diesel prices going up, talk of inflation, all that good stuff. I’ve

been I don’t want to say bombarded, but certainly it’s a near top of mind conversation with clients because they’re always asking, even though many of them are in good shape, they’re

always asking, “Hey, what does this mean? What’s it look like?” So I obviously things need to shake out a little bit, but I think next week we’ll

go through how bankruptcies and delinquencies are on the rise again. Uh and none of those things are a good sign. We don’t know when any of those

things are going to break, but a little ominous until obviously there’s a breakthrough and not just an oou.

There needs to be some finality and I don’t know whether that comes from the midterm elections or something geopolitically. I have a feeling it’s

probably going to be the midterm elections before anything geopolitically. Your thoughts?

Yeah, it’s funny just hearing the they’ve had meetings with the Iranians and then of course the crazies back home

are like these people don’t have any ability to speak for us. It’s like okay so you basically have two entirely different groups running the country at

this point. You have the less crazies and then the really crazies running the country.

Doesn’t matter. Whatever they’re going to agree to, they’re never going to stick with it.

They’re never going to do it. Yeah, it’s a it’s a joke anyway. Some other time.

All right, here we go. So, this week in history, God, only a handful of items. Couple of them are interesting. Ever since July

4th, we’ve talked about a lot about the Declaration of Independence and how our country was formed and everything else.

In 1789, here it is, right? 13 years after we declared our independence and the

declaration was signed three four months later after that.

13 years it took to create the initial bill of rights. I thought that was interesting.

I took a I took a class through Hillsdale College. They offer free classes online. And it was just fascinating that whole time period with

the Federalists and the Anti-Federalists and the big fights that were going on and why we even have a bill of rights at that point because the the Federalists

just thought you just automatically have these rights and and the anti-federal the anti-federalists were like, “Oh, no.

We’re going to spell these out very specifically.” Yeah. No, I hear you. I am sure there will be some changes in the future, too.

So, it’ll be interesting.

1822, French collar, French scholar, my goodness, announces he’s cracked the Rosetta Stone Code looked into this. It

was actually pretty interesting because you’ve heard of Rosetta Stone, and I bet you a lot of people don’t even know what the hell that is, but it is pretty interesting. I don’t know necessarily

what it tells us about our past or future, but it is what it is. It basically opened Egypt, the history of

Egypt, because no modern person knew anything about because there was nobody that utilized the hieroglyphics from

there. But the the common thread was that there was Greek on the because because of the the Greek connection with

through Alexander with with theirs. So they were able to then go, okay, here’s the words, here’s that. So yeah, it’s

really it’s very fascinating. And I got to see it at the British Museum when I was there the last time.

Yeah. I my my handwriting was so bad when I was younger. I remember some teacher said, “I need the Rosetta Stone stone to read your handwriting.” I didn’t know what the hell that meant.

Like I was 10 or 11 or whatever.

[laughter]

Maybe you should instead of complain about my writing, why don’t you actually teach me how to write?

You know what it was? I did I if I slowed down a little bit and even today my handwriting is good, but it’s not awesome penmanship. There are people that their penmanship looks like artwork and I’ll never be at that level.

I I was never at that level. The best thing that ever happened is I started taking drafting and architecture classes in high school where I learned to print and I never went I’ve never gone back.

Yeah, I hear you. So 1915 I did not know this.

Stonehenge is sold at an auction. Cecil Chub bought it. Actually, I read the the blurb and the article on it. So he

actually it was known that it was possibly going up for auction. He went to the auction and basically told his

wife, “Look, I just want to get some dining room chairs and everything.” And while he was there, it’s like, “I’ll bid on it.” He wasn’t expecting to go there

to do it. And that’s what he did. Now, I didn’t find out what happened afterwards. I don’t And actually, I didn’t really do a deep dive. I don’t know if it’s still privately owned or

publicly owned. I know you can go visit it, but do you have to pay? I think you have to pay to go see it. We’ve wanted

to go multiple times and we just never have gone when we were there. But yeah, I I don’t I think you have to pay to go visit it and stuff like that. But Okay.

But yeah, you can’t they always show people are walking around inside of it.

That only happens one time per year. You can only walk around the outskirts. Something with at the equinox or something like that. Yeah.

Yeah. The the summer the whatever the vernal summer vernal or the be lights. Let there be lights. Would there be lights popping through here where we used to murder people?

1938. I did not know this. Prank Franklin Roosevelt appeals to Hitler for peace. And this was a year before he invaded Poland. So I thought this was interesting.

And Hitler came back with I want peace.

A little piece of Poland. A little piece of He said that to Russia, too. Yeah.

One of my favorite All I had this model airplane, the B29 Superfort fortress bomber takes flight. Actually, they had

started working on this in the late30s before there was war. And obviously, this changed everything with the amount

of bombs and ordinance it was able to carry and deploy. It was It’s an amazing airplane for its time.

Yeah. Yeah. I remember one of my buddies in high school, his dad was actually his dad was significantly older than his mom

and he had fought during World War II and was a was a mechanic on a B29. one of or he was a what they would call an

engineer on a B29 and he he would always talk about it because he was a little tiny skinny little dude and he’s like yeah the pilots would let them go up and

fly it and he said it was like the hardest plane to fly cuz it literally it was he said it was like wrestling a bull.

Well, you got to remember too flight had only taken place less than 40 years when this was. So my point is that they had

to create engine technology to be able to do this. That’s why actually down in Tucson, two hours south of me, there is

a a graveyard, right? A boneyard for old planes, but there’s also a museum that there’s an SR71 in it. And I still want

to go down and see it. But my point is that they had to create all this stuff.

They didn’t have any they didn’t have any kind of history or anything to go by. They had to create all that technology. So 1949, President Truman

announces that Russia has exploded a nuclear bomb and the Cold War truly begins from basically at that point.

1964 Warren Commission report delivered to President Johnson and for and forever has created controversy.

Yep. Actually, what it’s 74 years since then.

So we’re 62 in. So as long as you No, I’m sorry. 75 years. So, as long as you and I kind of stay relatively healthy

for the next 12 years or so, hopefully I don’t think we’ll ever see the redacted paperwork and probably most of it’s been destroyed, but should be interesting to see what’ll eventually be released.

I was actually at both. This was the last baseball game played at the old Yankee Stadium. But actually I and I’ve

been to both and the old Yankee Stadium and I remember just the amount of concrete and everything that was there.

But actually, it wasn’t really. It was the refurbished old Yankee Stadium because when Steinbrer bought the team

in the early 70s, I think they didn’t play at Yankee Stadium for a year or two while they were completely refurbishing

it because my father-in-law, who grew up a couple of blocks from the Bronx, he said that when people exited the

stadium, people went on the field and out center field. That’s how they left the stadium. Maybe this was the

refurbished old Yankee Stadium that it was last played. The new Yankee Stadium is amazing. It’s basically just for George Steinbrer. I just want to know

when they removed the statue of Babe Ruth or the the whatever it was a gigantic piece of

stone out in the the outfield where you know honoring Babe Ruth and I loved watching the the movie 61 with you know

with Mickey Manel and Roger Roger Maris and they’re talking about yes the the fat f-word out in the out in the outfield all the time.

[laughter]

I will tell you I’m almost You got to remember Memorial Park that was in center field on the field.

Yeah, I know. That’s what I’m saying.

Spot. It used to be in left field. Now it’s I think out in center over the fence, but that’s where they have all Memorial Park. But

but it used to be on the freaking before before they refurbished the stadium. I think there were three plaques. It was Babe Ruth, Lou Garrian.

I don’t know who the third one was. I’ll have to look it up. But the three looks like gravestones. Yeah.

Were actually out because you got to remember center field at the time was like 440 to center field or something or 460. So it was in deep center field. I

don’t know. Next time we’ll put pictures up on on it. All right, let’s get into it. You know what? Let’s go back to 1987, a film that we’ve all watched, Wall

Street, when Michael Douglas says those infamous words in the locker room as they’re getting dressed. basically

saying x amount of fund managers can’t even beat the S&P 500. Here you go. Here

are the percentage of large cap domestic equity funds that beat the S&P 500. And

I thought this was interesting 9 when we hit a bottom at 666 on the S&P 500. You

still had 48% that beat it. Now, here’s something interesting. In 2007, the market peaked, the S&P peaked in

October of 2007 at 14. It peaked only 45%

actually beat it. I So, I think this is interesting that people want to go into the large cap domestic funds and set it and forget it and pay large fees with

the mutual funds versus going into ETFs and here you go. But here we are, right?

When and when interest rates were zero, you had one year. This is amazing. 87%.

And we had 85 here in 2021 when the you could throw a freaking dart and then the market went up. But I think these are interesting statistics.

I it just amazes me that it’s funny. I’m reading uh I’m reading Undeniable Windfalls right now by She’s brain’s not

working. He’s on Fox Business and it just he talks about this where it’s like basically the the fund managers play to not to lose instead of playing to win.

Yeah. Charles.

Charles Payne. That’s right. Sorry. But but yeah, it’s the fund manager. It’s like they just play to lose or play not to playing to win. They just they don’t

want to take risks and but you know what they get every quarter? They get paid.

They get their fees. All right, moving on.

So, got two charts here on US retail sales. Gasoline, there’s no doubt that obviously is a big issue. And actually,

housing numbers just came out today with mortgage rates over 7%, 71, 712, whatever it may be, right? Building materials are down, but gasoline is up.

And obviously August, this is for August. This is coming out of the summertime. So, this should be interesting to see how this changes. And

then obviously this is credit card spending and you can see how this has changed over the prior week. Look at

department store spending. I will equate a lot of that maybe to back to school even though here in Arizona they go back to school in the beginning of August

sometimes late July. But I consider a lot of that for just but yeah that’s 95. So that’s the the later people because up in New York and

those areas they’re they were just going back right at the beginning of September. And I thought this was interesting here. Look at furniture sales.

Yeah. Why is everybody buying furniture?

You got to figure kids going Yeah. Kids going back to college and they’re buying stuff for their Yeah. But they’re going back to college in August.

Yeah. Some started a little bit later. I was shocked this year because all the kids went back to high schools and all

that and our like our colleges didn’t start going back until beginning of September. Oh,

so I don’t know. Maybe they got to college and they started buying furniture or got maybe it’s the I haven’t looked at

this every year, but maybe it’s the effect of you get the kids out of the house and then you change you change all the furniture around after that so that they don’t they can’t come back.

Yeah. And then of course something that will just be ubiquitous is spending at bars. Just that’s just not going to

stop. Also, we’re we just we’re in the throws of college and pro football, so obviously people are going to bars for that.

Interesting. On home improvement, though. You’re seeing a a pretty good drop in home improvement consistently.

I think a lot of people did their projects over the summer, so that might that that demand might have been pulled forward, but we’ll see how this changes.

Yeah. So the next one is if you’re interview if you’re taking a survey uh from respondents basically saying is AI

right now are there is there measurable cost savings in your business and I thought this was interesting where

people are saying yeah a little bit and only 4% is saying yeah 30% or more. Now, what I’d really like to see is to double

click and do a deep dive to say what businesses, what industries are there?

Because this is way too broadbased to say nobody’s really getting cost savings. I’m like, okay, it’s early, but

who are the businesses? And we already know many businesses are going to benefit more than others, but you can already see that it’s already taken

effect that it is helping businesses out. probably these businesses here were probably just testing it out, right? Let

me just see how it works. They haven’t truly implemented it as a as a business process.

Yeah. Or they haven’t Yeah. It hasn’t been implemented as a business process.

And quite frankly, most of them couldn’t even tell you what savings they have because they’re not really tracking it at this point. That that’s one of the

things that I implemented in my business. I created a separate AI employee that basically just analyzes

cost savings and kind of the KPIs and everything for me. I’m just now starting to see after implementing what I’ve

done, I’m now starting to be able to put some numbers to paper to say this at that point. Yeah.

And for me, I’m in that I’m in that 4% crowd. I savings for me has been well over 30%.

Yeah. Listen, I used to be much more of a technical geek like you. I just don’t have the time. But you Yeah, you certainly have done it. You’ve had some

phenomenal slides that you’ve put together that are very graphical and everything else. Real cool stuff that literally takes 15 minutes to put together.

Yeah. But it also took you about 8 to 10 hours to create and set it up. Now you got cost savings. Yep. Exactly.

So, here we are. I love to look at this every now and then. And probably we should try and get this stuff every quarter because when you see a lot of

M&A activity, number one, it always pushes up the market, right, where companies are trying to truly build out

either eat a competitor or diversify in their companies. And right now, we’ve seen a little bit of a dip with the

overall M&A activity. But I thought this was interesting down here where the deal activity itself has now surpassed last

year August. But I thought it was interesting commercial services, industrial services. I would have figured there would have been more of a

tick up in technology, finance, you’re always going to get the banks, the big banks eating the the medium banks and the medium banks eating the little

banks. So this is always going to happen. Yeah, you’re no you’re seeing tons of huge rollups in the kind of what

I would call the metal benders out there. These these bigger companies are just swallowing up these small companies. Main reason is you’ve got a

lot of these commercial services companies, HVAC, plumbing, things like that are run by baby boomers that are

way they’re up in their they’re working longer than they thought they would be working at this point. this and you’re not getting the the younger

people that are wanting to come in and maybe either a family member or a key employee wanting to take over the

company or having the capability. So, a lot of these things are just getting rolled up into much bigger companies and you’re seeing that in the M&A world with

even private equity going out and buying a lot of these things up. So, it’s I think it’s an interesting time from an exit planning standpoint, which for a

lot of these guys, I think they’re actually getting way more money out of it than they had anticipated they would.

Oh, I agree. And you know what? When the market is flying, they can get a premium for it. So, why not get absolutely why not a 3x or a 4x for it?

Yeah. Market is flying and and at a time when there’s such a great such a need for it, I think it’s just a really interesting time. And I good on you,

man. Those are the guys that I those are the ones I love to work with as a business owner and as a as an adviser.

That’s my favorite business owners to work with because they’re you know what?

They’ve worked hard their entire lives and they they’ve earned the right to to get a premium for their businesses. So I look and look at our last quick point.

Look at our business, the RAIA business.

You got these quote unquote aggregators that are coming in buying up small and medium-sized firms and just rolling them

up to save on administration and everything else. And they’re paying a healthy premium to depending on your type of business.

Yeah. I get probably two to three calls a month from these guys. Oh, we’d love to talk to you. No, I’m not ready to

give up my independence to to be part of a bigger organization. there commitment for 6 to9 years and yeah and there’s no benefit to me. I I

just don’t see a benefit to it. But I think for for some of these plumbing companies and things like that, hey, it is from a cost savings material-wise and

just the ability to get an exit strategy for that owner. There’ll always be exit strategies on our business because yeah,

it’s it’s revenue constantly coming in with very little cost to it.

Okay. Um well let’s cover a little bit of this week. There really wasn’t much economic news as all this week. Couple things that came out today. Initial

jobless claims had been expected up around 200,000 that came in at 197 which of course the

markets or the the news is oh my god it’s 3,000. It’s not that big of a deal.

And it’s been in line with where it’s been for the last several several of these reports that have come out.

Continuing claims right in line a little bit lower on 1.719 versus 1.730.

So that is something better. New home sales came in a little hotter than what expect what was expected which is

surprising with the way interest rates have been. But a lot of these new home builders are giving all kinds of

incentives and things like that. They’re buying down rates and everything else to get people in. Tomorrow we’ve got durable goods, which I think will be

interesting, but I don’t think it’s going to be anything big. Next week though is really the big week for us.

When we take a look at what we’ve got coming up on Wednesday, especially, we’ve got the ADP report, personal

income, personal spending, PCE prices, GDP’s third read. So that’ll be kind of

the indicator for what GDP looks like for this quarter. Chicago PMI doesn’t really make a whole lot of difference.

And then of course initial claims once again that’s a weekly thing that we see.

We get to see the ISM manufacturing index which has been running pretty dang hot and then we’ve got non-farm payrolls

and everything else. So it is going to be a big week of numbers coming out. I think at this point everybody expects an

interest rate raise by the end of the year. So, I don’t think there’s going to be anything shocking unless these

numbers really come in way lower than what’s expected. And I would definitely say around GDP and PCE, if if they come

in way lower, it’s going to be interesting to see what ends up what the market kind of reads into this since the

Fed’s not really giving us a an example of, hey, this is what we’re looking at and this is what we plan to do this year. thoughts.

Ne next next week is going to be interesting because Friday is going to be the employment number. When is GDP coming out? Forget about the SD, but GDP

will come out for the third quarter when sometime in October, right?

So, they’ll do the final reads mid Octoberish.

And this is why September and October are the weakest months, especially in a midterm year, because all those big numbers come out. So you can just get

literally bombarded by both sides for their political whims and spinning it every every day they want. We’ll be able

to smooth out those edges. The Jolts opening is the one that usually I like to look at. I don’t you know what I actually learned a little bit about how

that’s calculated. It’s more art than science, which I’m not really crazy about. But I if if they’re able to get

good accurate information, I think that should be a better gauge than unemployment because remember with unemployment, you have the under and

overmployed. You have the people that stop looking and they’re not counted in the number anymore, but they’re not but they’re unemployed. So that number just

really I don’t know. Thank god I was never a true economist because you you’re going to sit there and create models that don’t work.

Yeah, that’s what just makes me laugh.

That is the one thing I really feel out of anything else. Kevin Walsh, I think, is gonna come in and massively

revitalize how we get this data because I know I’ve listened to interviews with him and how frustrated he’s been for so

many years of we have all of this technology available to us and we’re still literally using fax machines to

gather information which is just absolutely insane. But I also think in a way they don’t trust the technology

because hacking and everything. But who knows? That’s a conversation for another time.

Yeah. Once again, once again, the government’s got more money and more tech available to them. And there’s tons of technology that’s available out there

off the shelf. I guess the the one thing that I will say that I’ve been very appreciative of, no matter what your politics are, this group of folks that

came in with President Trump, it’s like they’re looking at least outside of we don’t have to develop everything inside of the government. It’s when I spent

time with one of the largest financial firms in the country and it used to frustrate us because they wanted to develop everything internally and it’s

like we’re not a tech company. Stop doing that. We’re not a tech, the government is not a tech company. They suck at it, quite frankly. So, you know

what? We’ve got wonderful, amazing tech companies in this country that we can hire to come in and revitalize this

stuff and make it work better. The as as always, the the definition of insanity

is doing the same thing over and over again. It’s time to stop the insanity as a very famous person when we were

growing up said and let’s just get this. Yeah. Let’s utilize the technology that we are far ahead of the rest of the world in at this point.

I hear you. We won’t have the unemployment number for our next podcast. But certainly we have a hell of a lot of them by that time. [laughter] Yeah. But leading into the last month of

the election, it’s going to get more interesting. And all I could just tell people as a last thought, ignore the noise. Both sides. Ignore the noise.

Live your life and just move on.

Live your life. I know pretty much my portfolios have been a little bit more conservative going into all this because I just knew we were going to be all over

the fence. And I think back two days ago it was like, oh, oil’s down massively and then boom, it’s right back up. And

with nothing really changing in the world, which is amazing to me, but I hear you.

Yeah, it manipulated as hell. And I think honestly the interest rate markets are manipulated as hell too at this point.

Of course they are. The bond market is by far the bond market and the precious metal market and the oil market are the most manipulated markets in the world.

Period. Yep.

Forget about currency. I’m giving those three are the most manipulated are the most. Yep.

All right folks. Thanks for joining us once again. Ron and I will be back here next week and we’ll have tons of information to share with you. So we

look forward to seeing you then. Have a great week and welcome to October next Friday or next actually our next show

will be in October which is amazing which Texas we may actually be below 100 degrees by that point. It’ll be wonderful.