Consumer Sentiment Hits a 70-Year Low — But Earnings Are Soaring | Cents of Things | COT 150

Hey everybody, welcome to another episode of the sense of things with Jeff and Ron. We’ve got another week ahead of

us here where we are covering all kinds of crazy stuff going on today. Of course, we’ll have this day in history.

Ron’s got some great stuff on consumer sentiment, which is actually at its absolute lowest point in over 70 years.

I’m going to cover some economic data once again that may refute that what they say and what they do. We also had

the leading economic indicators come out, which is always one of the things I look at to see where we’re going. 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. Doing well. We survived the SpaceX IPO and it’s down again today. So, we’ll see where we are here

after a year. And we got something signed with Iran, but most people are not happy about it. I read the 14

points. You want to talk about vag ambiguity. Holy crap.

It is. Yeah, it’s not a signed agreement. It’s just anou. So, it’s a it’s basically an agreement to talk about stuff. So, you know,

just as good as taking a lady out on her first date and telling you I love her.

Yeah. Yeah. True. Yeah. It’s true. It’s the nature of this whole thing. And it’s all going to come down to what Iran, not

what they agree to, but what they actually do. And I think that’s going to be the whole thing. What it does seem like is there’s some conditions in there

that say, “Okay, you’ve got to do this before you get any money or we stop blowing the crap out of you.” So

hopefully they’ll be able to negotiate a good deal out of this over the next 60 days. history is any barometer of them

keeping their word. Yeah. No. I have no hope. And it’s not going to happen within 60 days either. So good stuff.

And they definitely left themselves a dead man switch where oh if if the Israelis and the the Hamas Hezbollah

they are fighting then we can just get rid of this whole thing. Okay. They’re going to keep fighting because Hezbollah is not going to stop lobbing rockets

into Israel and Israel has a right to defend itself. So, tough luck. That should have absolutely nothing to do with Iran.

It does not. It does not. And we’ll be talking about this same conversation two months from now. Also, probably for the next 60 days.

All right, here we go. Actually, I got to tell you, when I first started putting the slide together, there wasn’t a lot of interesting things. And then things picked up pretty good. Okay.

1775, US Army is founded. Whoa.

1775, Congress votes to have George Washington lead the Continental Army.

Now that we had an army, we needed somebody to lead it. Of course, 1776, I did not know this.

Delaware declares independence. They succeeded from our 13 colonies.

1892, siblings murder becomes first crime solved with fingerprint evidence in Argentina. I actually did read part

of this article. It was actually very interesting if you think about any level of technology they had back then. Yeah.

1903 Ford Motor Company incorporated.

1917 in the beginning of World War I, the Great War, the US Congress passes the Espionage Act.

Yeah.

1942, because I’m a Beetlemaniac, I had to put it in there. Paul McCartney is born, turning 80.

84.

So my god, it’s been a long time since he’s saying when I’ll be 64. That’s true. Yes.

1947, Bugsy Seagull, organized crime leader is killed. And by the way, I actually am indirectly once twice

removed related to him. Okay.

My my aunt was married to his nephew. So I don’t know how that necessarily works in a broken brain family, but there is a connection.

There is a little bit. She said she met him once. Okay.

Julius and Ethel Rosenberg executed for espionage. We’ve talked about this before. It was proven many years later when it was declassified. Julius

definitely with a couple of other people were passing secrets. The wife had no clue and essentially she was executed. I saw a couple of documentaries on this.

Just the whole thing is super sad.

She was just Yeah. She was just death by association.

100%. And the sons were taken away from their parents. They were adopted, given new names and they were both

interviewed. It was just a super sad thing. I couldn’t imagine.

1972 Watergate burglars arrested and hence every scandal we put gate after it. Yeah.

1967.

Nice. Honorary Pop Fast Festival reaches its climax in the summer of love and then the next year was the basically year of turmoil 68 the year I was born.

So what are you going to do?

1974 going along with the Watergate President’s Men published one of the greatest movies of all time

best written best acted. It was just incredible. And I just thought it was interesting, right? It from the time the

burglars were arrested to the time that Nixon resigned in August of 74, this was

public. Two years. Two years to bring down a presidency. And if it wasn’t for Mark Felt, the second in charge of the

FBI, we would never have known about this. And if because he was I think we talked about this a couple weeks ago. If

he had been made the FBI director director, we’d have probably known nothing about this. So, Exactly. 100%. 100%. 75 being a movie guy.

Jaws. And I got to tell you, it was years since I saw this. I saw it again about four years ago. I loved it. I

probably seen it probably another five or six times since. It’s it doesn’t but when you hadn’t seen it in so long. Uh just what a great movie. And then if you

ever watch the the making of this movie every day should never have been made because the shark didn’t work. I mean they had so many problems.

Bruce had issues. So that’s a large reason why they didn’t really show him that much. That’s the funny part. It the thing that made the movie the best was

the fact that the stupid shark didn’t work and they ended up not really putting him on film a lot. So, it was a lot of stuff without him on the screen

which made the movie created mystery.

Yeah. 76 NBA merges with the ABA. And I tried to have I wanted to have time to try and find it, but there’s actually a

story, I can’t remember which team it was, but they made a deal with the NBA when they merged because they were an ABA team that when they merged,

they made a deal that they would get a percentage of the media rights in perpetuity. Wow.

So, this family collects an unbelievable check every year. And I maybe next time I will I’ll research it. I’ll get it

because and stupidest deals in history.

Yeah, it’s probably the Philadelphia 76ers because you had It wasn’t really surprising.

Yeah, because they were the most powerful team with Dr. J and the whole Well, remember, hold on a second. Dr.

Jay was on the Nets. He became available. The Sixers got him from the Nets. The Nets were in the ABA. Got it.

1994. I remember watching this live. OJ Simpson leaves police, which you got to think about, if this was any other person, they would have

ran this thing off the road a lot earlier than let him go to the house. That was just an insane thing.

Strangest strangest thing I’ve ever seen.

And in 2012, I don’t remember this, Nick Wenda, the flying walks across Niagara Falls on a tight rope. I don’t remember that.

Yep. And he wasn’t the first guy to do it either. There was a French guy back in the early 1900s that had done it. So,

it wasn’t like he was the first guy to ever do it.

Interesting. And lastly, recent history, the submersible Titan implodes on its way to tour the Titanic rad wreckage.

I could not imagine my last moments on that because you would you wouldn’t remember them. That’s for sure.

Everything disintegrated. They went down. They were able to go down and see the wreckage. I don’t think they found any body parts or maybe some clothing.

Yeah, the Yeah, they were crushed by it.

There were still parts of it left, big chunks of it, but the there’s a great documentary on this that Josh Gates did

on Discovery Channel about it because he was they had asked him to go down on this thing and he was they did a little

test dive and he was like, I am not getting on that thing. It’s that’s a death trap. And he was right.

Yeah. And actually, James Cameron came out, too, cuz he’s gone down so many times in in his own submarine, and he said he knew it wasn’t safe. All right.

Anyway, all right. Here we go. So, some interesting things here. Inflation is ticking up. Kevin Walsh had his first press conference yesterday. Sounded

interesting. We’ll see what actually gets done. And I don’t know if it’s so easy to change a hundred years of the way doing things even though things have

been modified. But inflation is ticking up and the market yanked back on a string and

then yo-yoed back up today based on not more rate cuts but one to two rate hikes

before end of the year. And I find that to be incredibly interesting. I don’t know. How do you feel? I think the I think the best part that came out of

yesterday, which I think is what caused the market to flip out, is worse. I guess the best way to explain it was

deal with your own stuff. We’re not going to sit here and be the ones that the world revolves around the Fed and

you need to take your own look at what the economy is doing. And I like that. I like that approach of you know what,

we’re not going to do all this forward thinking. this is what we think interest rates are going to do and all that.

We’re going to take it as it comes, which I don’t the market I think has been has been I guess it’s been just like oh okay whatever the Fed does then

that’s what we decide and I think it flipped everybody out a little bit that we’re going to actually have to do things on our own for a change and think

for ourselves which is you take a look at inflation right forget about postcoid this is almost

average twice as high as the prior 10 years. Oh yeah. Yeah. Not good.

But a lot of that and I would say probably 30 to 40% of that is because of the war and and the price of oil which

has come down 30% in a matter of couple weeks. So it’s not going to be right away. I think inflation’s going to stay

high for the rest of the year. But I think what I read from the very short statement as well as very very short

press conference was we’re not necessarily raising interest rates this year. We’re going to take a look and see

approach. And there for the first time I finally hear a Fed chairman say the obvious thing. Yeah. And gas

prices are up. Oil prices are up. That’s causing a lot of this. We need to see how this comes down as a result of it.

So I I that is the one thing I like.

Yes, I don’t like to see inflation up, but I think it will correct itself with just what we’ve seen. We’re at 74 this

morning on West Texas Intermediate, 78 on Brent at this point. We were at close to 100 just a little over a week and a half ago.

Yeah. 7325. Yeah.

Yeah. It’s not the 60s, but it’s getting there. And hopefully it’ll get down to 5560 when there’s some finality. I think in the meantime, it’s going to be grossly volatile. All right.

And we’ll see if the we’ll see if the Iranians open up the straits tomorrow.

I think the straits will be open. I think it’s more about the fees and the enriched ranium, but that’s a conversation for another time. All

right. So, here we go. Consumer sentiment 70-year low. The University of Michigan has been highly criticized over

the last many years because a lot of people didn’t know this. I heard about this 2010 that they actually released

their numbers to paid subscribers essentially 10 to 15 minutes before it’s released. A lot of people are not aware

of this. When it was all of a sudden these the news networks free and fair markets. This has been around for 20 25 years. How they’re just finding out

about it now I have no idea. But I actually knew about it. Somebody had told me about this in 2010. But anyway, here we are at basically almost a

70-year low in consumer sentiment, which is just amazing. Is that because of high consumer prices across the board

from the prior slide? Because if they’re invested in the market, you would have found some of this to level out. What do you thought?

Yeah, I think and we’ll see a little bit of it when we look at retail sales. It’s just like I said, it’s intriguing to me

that the consumer says one thing and they do something completely different.

Like I’ve said, let’s go back to the stat. 70% of America doesn’t have $400 in the bank account for an emergency purchase. So, how many of them are in stock?

But they got credit cards. They got Oh, they got credit cards.

They’ve got a firm and all the other ones that if they don’t have credit cards, they’ve got a firm where they can buy stuff on payments or on layaway

basically at that point. So yeah, it’s just they say one thing, they do something different. And I think we we

I don’t know how to read the consumer sentiment anymore. It’s almost becoming a contrarian indicator for me at this point.

Usually it is on the extreme top and bottom, but this is a good segue to the next slide. While consumer sentiment is low, freaking earnings are going through the roof.

Yep.

And a lot of this is AIdriven and tech again. Didn’t do isn’t this not what we heard from 96 to 99 where it was all

driven? But the interesting thing was back then this that would have been the revenue chart, not the earnings chart.

That’s precisely correct. This is the mother’s belt of earnings.

Yeah, that’s the difference when people go but it’s just 1999 and 2000. Yeah, but those were companies that they were basing everything on their revenue and

not looking at future revenue. Honestly, these are real earnings. Now, some of this I still think there’s a little bit

of juking and jing going on with some of these earnings and the AI side where they’re doing a lot of these cross things and this I’ll invest in you

because you buy stuff from me and those are that money hasn’t been spent yet.

Yeah. And but the reality is and I see this from our portfolio that I run for

clients. We’re up a lot this year and it’s because we focused on the data centers. And the data centers in if you

focus on not the people that own the data centers, but you focus on the the picks and shovels, those companies are

doing phenomenally well because this is the largest amount of investment in any infrastructure that we’ve seen since the

railroads. So it it is an amazing I would say since the dawn of the internet but then yes then you could go back to the railroads.

Yeah. I would say the other one that was somewhat similar to this in current times was the real buildout of telecom

and the the cell phone networks and all that early 2000s. And we all know how that ended. Most of the people that

owned those networks went out of business or were merged into others because they’d spent all the money and somebody else could buy it super cheap

and then run it. That’s why Verizon’s done extremely well. It’s why T-Mobile’s done extremely well. They ended up buying out the people who built up these

huge networks. So, I think that’s the future. But at least for the near future, I think anything that is a pick

and shovel in this area is going to be an interesting place to have some money invested. All right, let me let me pull up my stuff here. We’re going to whip

through this relatively fast. Once again, I always try and look at some of the weird and unusual things on the

economic calendar. And of course, we had earlier this week, we had Empire State Manufacturing Index. That’s actually the

consensus. The prior was 19.6. six consensus was 12.9 or 12.5 and it was down to 5.7. So

I think part of this is okay we’re trying to absorb some of this into the economy and I think some of

these areas are pulling back a bit. Now you look at Philly Philly Fed was right on where consensus was. It was actually better than the prior. We’ll have to

look at where Richmond and Dallas and some of these other ones come in. But I think it’s intriguing to me to see New

York or Empire State starting to show a little bit of cracks in there. So, it’s something we need to keep an eye on.

Industrial production was actually down as well. So, once again, I don’t know.

Business equipment spending is part of AI. Um, I don’t know exactly where all this falls. It’s something we need to

keep an eye on, but it’s once again we’re seeing some cracks in something that had been just rocking along pretty well in a lot of these cases.

Manufacturing and housing has just been struggling period.

Yeah. And it’s struggling even more at this point.

Look, I look, we’ve been saying it for a while. Until the 30 year not only gets under six, but really sub five5, this is going to be a stagnant industry.

Yep. and and stays there. When I talk to my realtor friends and people are just petrified to make a decision at this

point, they’re they’re it’s I have to move, but I’m not going to make the move right now because I or I want to move,

but I’m not going to make the move because I’m worried about interest rates or I’m worried about the economy or I’m worried about my job and everything

else. So, I think that’s part of that consumer sentiment is is trickling out into some of these other areas where the big purchases are happening.

But but here here’s here’s the converse to that. You would think, okay, people aren’t selling their house, they’re going to put money into their own house.

Home Depot, Home Depot and Lowe’s are basically in a negative trend. But that you got to remember back too, you go

back in time to to early pandemic, people put a lot of money into their

houses and you had to know that was going to be, okay, my house is fixed up.

I don’t really need to do anything. So, you had that huge bunch. If you look at during the pandemic, that huge bunch up

of Home Depot, Lowe’s, any of those home type companies. Yeah. they were phenomenally doing well. Now they’re not

because you had that cycle of people doing that. And if people aren’t moving, then there’s no reason to fix up the new house that you’re moving into.

But you know what, Jeff? You own a house. I own a house. The house is a money pit. It never ends. You keep doing stuff.

I know. I know. But people will put it off. I think right now they’re not doing the major big purchases and they’re not

moving. So it’s interesting. Yes, I agree. Mine is a money pit as well. So, I hear you. Every house I’ve ever owned has been a money pit. All right. Pending home sales.

Interestingly enough, they actually popped up month over month, 3.8%. I’m not sure if I totally believe this.

And it was way above consensus. And I’m not so sure I totally believe this, but maybe it’s a sign that we’re starting to

come out of the doldrums a little bit here. Last but not least, leading back to our conversation about consumer

sentiment, retail sales month over month was supposed to be 0.5, it was at 0.9.

So way on the top end of the consensus range, a big surprise today. And once again, what they say and what they do.

Now, part of retail sales here could very well be that goods prices are up.

And that’s it’s not necessarily people are buying more. It’s just they’re having to pay more for what it is. And I think that’s part of this big popup

here, especially with the inflation numbers we’ve seen over the last couple weeks. And last, but not go back. Go back. Yeah. Yeah.

So, the problem with the retail sales, right, typically the summer is a little bit slower, right? Because people are vacationing. They’re not going out. But

retail sales, if you just take a look at consumer staples, the sector, flat to negative over the last year.

Yeah. So people are spending but they’re spending on vacations and hotels are doing unbelievable. They’re not spending

on goods unless the only thing I could think of this is sales not profits. So are their margins being I don’t know what the deal is here.

You can see in the little consensus outlook here spending looks robust with support from rising goods prices. Okay.

So people are having to pay more. It doesn’t mean that they’re necessarily buying more. They’re paying more for those goods. So okay. Yes, retail sales

is up, but that’s because they have to pay more. And so they’re measuring retail sales as a dollar amount, not

necessarily as a percentage of increase in actual good purchases. So, you know,

you you read it however you want, but it’s not declining, but it’s at least, let’s say, holding its own. It’s not declining.

Last little piece of the pie. One of the ones that I follow on a regular basis is leading economic indicators. It yes,

it’s been on a big decline here. We’re still on a trend upward. If you look at the trend part, we’re still way above

where we were back before the first or the previous big recession that we had.

Still hanging in there. It’s just being where it’s at. Interestingly enough, you look at the numbers for the month of May, and really the only thing that

drove anything on leading economic indicators was the stock market’s just been off to a major run here. If you

look into the non-financial components, basically everything is flat to nothing at this point. Nothing’s moving any

direction, which is of course not having any major effect on any of the last six months numbers here. average consumer

expectations for business conditions still negative. And I think this goes in with what Ron talked about when it came to the consumer sentiment on that side.

It’s just people are very negative about what’s going on and they’re going to continue to be negative at this point.

And the stock market just keeps on chugging largely. It my my hero in the investment business was always Peter Lynch and Peter said it the best.

earnings always or prices always follow earnings. So if earnings are going to continue to be up, prices are going to be up in the stock market at that point.

It’s the Yeah. Go back to the first chart.

The So when we brought this up in the past, whether I did it or you did it, I’m sorry. The first LEI chart on the top. Oh, okay. I’m sorry. Yeah.

Yeah. So the interesting part here is the the royal blue line.

Yep. Yep. is the what I’m trying what I’m trying to say is that it’s still negative and it’s

been negative since mid 20 early mid2021 when essentially the market peaked. So

we’re still the now they always said when typically it crosses down over the black line we should have a recession

within what 12 to 18 months. We didn’t have necessarily a recession. So, I always hated the expression they’ve been

talking about the quote unquote K economy. What does that look like to you? That looks like a K. Yep.

And the K line is lowering consumer indicator. I don’t care where the stock market is. We are just seeing basically

sentiment and negative consumer indic indicators. Eventually, we’ve been I look, I’ve been saying it with you. We’ve been doing this over three years.

We never had a three-year anniversary party, my man. But we’ve been doing it three years and we’ve been saying this is just another cinder block on cracked

ice. So think about it. Take out AI for the last three years. Where would we have been? Yeah.

With the market. Pull that out. Pull that out. Where where would we be?

Forget about a recession. It’s just a matter of a pullback in the market. We would be 10 10 15 maybe 20% less than

where we are right now. Not good. And I inside the I didn’t pull up the unemployment numbers today because they

were Yeah, they were right about where expectations were. I think they said 225 and it was 226. But one of the things I

heard on the news on the way in as that number was hitting the tape was that 79,000 of those jobs were direct affect

by kind of positions being eliminated because of AI. Where does that continue?

I think AI is going to be something that is going to revolutionize the industry or revolutionize the

country and the world, but there’s going to be some pain that happens as a result of it. Think back to

it’s a bad explanation, but think back to people that work for buggy whip manufacturers back in the early 1900s

when cars were coming in. Yeah. you still kept doing it, but at some point there was really no need for the massive

amount of buggy whips or people that made wagons and the things that whatever the old things pulled around by horses, it things change. People lose jobs.

People have to change what they’re doing. And once again, I I’ve said it and I’ve beat a dead horse, but if you

are in a job today and you are not on your own, not because your employer says to do it, but on your own exploring

things around AI, you may end up becoming somebody who’s just not going to have a job, unfortunately.

Very quickly, and we’ll wrap up with this. I am not as smart as Jensen Wong, but I did read an article and I saved it

that he agreed with me. I don’t think he heard the podcast that AI will eventually create net jobs, not necessarily being negative.

Totally agree. Yeah, I totally agree.

But listening, yeah, it’s going to take people that it’s going to take companies to say, “All right, we’re going to retrain our

workforce in this as we integrate it in.” It is going to eliminate repetitive jobs. I think at some point in the very

very near future, especially if gez Elon Musk has anything to do with it, robots are going to eliminate a lot of

repetitive jobs. I could see I’ve seen what if you’ve not seen it, just go Elon

Musk robots on YouTube or something like that and see how good those things really are.

Listen, I will I will buy a robot tomorrow if it’ll clean my house. Mop the floors, do the kitchens, do the bathrooms. I will do it tomorrow.

I already have my iroot. It’s out there doing the My floor has never been cleaner except when it gets stuck under

the wine rack or it runs out of juice halfway across. Maybe it was thirsty.

I know. And it runs out of juice halfway across the floor and it’s just sitting in the middle of the floor dead when I come home. So, other than that, it works

amazingly well. And I will at some point want to afford an Elon Musk robot to clean my house for me. I’m right there with you.

I hear you. Until next week, my man.

All right, brother. Thank you. And folks, make sure that you hit the subscribe button and make sure that you give us an upvote. And we’ll see you guys back here the very next time.