Good morning everyone. Welcome to another episode of the sense of things for this week. We’re right in the middle

of February and working our way towards one more week where we’re going to be two months into the year. Today, you know, we’ll have our this week in

history from Ron. He’s got some stuff on earnings growth, Europe and Asia performance. You know, everybody thinks that, oh, it’s amazing. Well, when you

look at the last 20 years, it’s not so amazing. And then forward pees. I’ve got some information again on the econo day

calendar. Some things that have been going on this week is actually a pretty juicy week in economic data. So, you know, for those of us that are economic

nerds, it’s juicy. So, we will see you guys back here right after the intro.

Hey everybody, welcome to the show. It’s Jeff and Ron. Hey Ron, how are you man?

Good. Good. Yep. They’re halfway through the quarter. It’s unbelievable. Earnings have been pretty strong. Economic data has been mixed, but more to the positive

than nothing else. And the market doesn’t give a crap. Just keeps I mean,

it was, you know, the last three days it was down in the f in the futures pre-market and is up. I know we’re down right now, but who knows by the end of the day.

You know, they amazing earnings or or pretty decent earnings, but you know,

they said that there’ll be a little bit more tough in the front end. Well, of course, they always say that.

Well, I was listening to CNBC this morning and they were talking about like this is some kind of revelation. Well,

it seems like many of these companies have been sandbagging their numbers. Well, no crap. Of course they are.

Really?

I mean, unless they’re pumping and dumping and giving crazy numbers in the beginning to get the stock up so they can do insider sales. I I You got to be kidding me.

Yeah. Well, you know, they do that because it’s like, okay, we’re not going to come out and say, “Oh, it’s going to be unbelievable.” And then they come in with terrible numbers and and they get crushed.

Yeah.

So, yeah, it’s been interesting. This been an interesting earning season just watching it though because you know company can have just absolutely amazing

numbers and just get paxed and I mean some like off the charts great numbers and still get paxed because you know god

forbid the little institutional children one little piece of information wasn’t that good and you know they have to drop

it 20% in a day or if they’re not going to talk about their AI spending. Oh well that’s it.

Yeah. And if they spend too much, then you know that’s bad. And if they don’t spend enough, that’s bad. And well, I think if they spend too much,

that won’t come out for another couple years.

Well, I think so. Yeah. And I I think it’s will will you see the the return on investment? Well, of course, they’re going to see the return on investment.

It’s, you know, it’s going to increase productivity. And I personally think this is this is this is one of those inflection points in history. I mean,

this is like industrialization. It’s like the the beginning of the internet age. I mean, it’s a huge productivity thing, but you still have to figure it

out. And there’s a lot of investment in the front end and with with a hope that you’re going to see a return on it in the back end. Yep. All right.

All right. What do we got in history? Some interesting things as usual. 1878, Thomas Edison patents the phonograph.

I thought one of the funny things, I think it was late 1800s, early 1900s,

the patent office came out. Do you remember the infamous saying? No.

Everything that could be invented has been invented.

Yeah. But of course, patent number 200,521.

1885 Washington Monument dedicated. I thought it was earlier, but 85.

Well, they got started earlier and then it took them a while to build the thing.

Yep. Pluto was discovered at the LOL Observatory in Flagstaff, Arizona. In your neck of the woods there yet? Yep.

1945, US Marines invade Eoima.

Actually thought it was a little bit later in the year. So interesting.

Well, you got to remember if it was this week, the the war in Japan was over in August. Yeah. Yeah.

Okay. 1959, Fidel Castro made sure he I should have put that in there. made sure he was sworn in as prime minister of Cuba.

1967,

Oenheimer, the father to the atomic bomb, dies. Dies. 67. Okay. 1965, Malcolm X is assassinated.

And then that was a string of like one after the next after the next.

Yeah. And I thought this was interesting because if you think about it, Yeah. when was it started? 1968.

Honestly, I most a lot of people still had rotary Most people had rotary phones. Yeah. Yeah. It’s an emergency.

Well, at least they made the one real easy.

That’s true. Yeah. So, you just you just had to have the one big round one and zip zip. Those of you, we’re making a call. Hold on.

Hold on. We’re still that listening to this and do not understand what we’re saying, look up rotary phone. Yeah.

1979. I did not know this. China invades Vietnam. Then they were pushed back after nine days of battle. Bloody days of battle.

Yep.

1985, Ireland, I thought this was interesting, allows the sale of contraceptives. And I had to shorten this up. The Catholic Church prohibited it.

And until 1979, Irish law prohibited the importation of the sale of contraceptives. I think the interesting

thing too is I I want to say it was like only about 15 years ago that it was legal to have a divorce in Ireland.

In Ireland? Yeah.

Yeah. It was crazy. It was like way later than I would have ever thought.

Way later. How about like a century later? G. Yeah. All right. 1996. I remember this.

Spelled it wrong. Chess champion Gary Kasparov beats IBM Deep Blue. And when I when I put this in here, I’m like,

I wonder how he’d do today. Yeah. That was 30 30 years ago. Yeah. Versus AI or something like that.

I don’t know. I don’t know if they’ve had any of those competitions, you know,

with the chess champions versus AI and the computing power today. Yeah.

And that much more history that it could store. I thought it’d be interesting.

All right. 2001. And I remember this obviously 25 years ago. Delhart senior number three died in a crash. Was it the last time the last turn? Right.

Sunday. Sunday the 13th I want to say 2001. I was sitting in a in the Beantown

pub in Boston having lunch when that happened. So I I it is one of those things that I it was like wow I can’t

believe it’s been you know what 15 years or something like that or 25 years.

25. Here’s the interesting thing because Formula 1 and others, you know, they instituted the Hans device, the HS,

which is the head and shoulder system, which prevents the whiplash.

They started to do that in the mid to late 90s. He kept saying, “I don’t feel comfortable with it.” Yeah.

And after that, I think they made it mandatory. I’m not 100%.

I think so, too. Yeah. It’s just Okay. I don’t care if you aren’t comfortable with it. It saves your life, Dofy.

So,

all right, here we go. So, I thought this was interesting, even though we talked about it last week. This is earnings growth revisited. Let’s start with the chart on the left.

I mean, nine% for Q4.

And if you take a look, this was following like five huge quarters in a row coming out of COVID when just

earnings were insane after they were basically near zero. Uh so my point is is that I think it’s interesting when

they come out with the revenue growth and on the right side it breaks it down by sector but basically it’s breaking it

down from where it was anticipated in December until now and if you take a look I mean

look at what the estimates were in December compared to where it is compared what what it was. So when we were talking in the beginning about sandbagging,

I mean come on, how is it this much different? Now you and I always laugh and and kind of get poed at, you know,

these wonderful strategists and analyst and what what you know what rear end are they pulling their numbers out of to come up with because and even in

actuality the company doesn’t know three to six months in advance.

No. So, I just think this is always interesting because like I said, you know, we were always laughing like,

well, if you’re off by X percent, you lose a finger. Which one do you want?

Because remember, if we come back reincarnated, you remember the three things.

I want to come back as a as a weatherman, as a as a stock analyst, or an economist because or an economist because you can be wrong most of the time. Okay.

Yeah. So, here we go. This this is what it is. I mean, the interesting thing was energy, right? Energyy’s been actually a

pretty good sector, but their earnings growth is negative. They’re the only ones that are negative. Yeah.

Well, I think a lot of the oil you look at it from the oil perspective, I mean, when when Trump took office a year ago,

I mean, oil was what, up around 80 or 90 and it’s down into the 60s at this point. I mean, it’s going to affect your revenue growth at that point.

Yeah. But remember, we talked about this. Watch the oil price because I think I think there’s a floor at 5055

because that’s where the average cost to pull a barrel out of the ground.

Yeah, exactly. It just it at that point it becomes unprofitable and you just don’t do it right. Then they then they then they

shut off the derks and the price goes back up. Absolutely.

Here we go. So, I thought this is interesting. Like I love people like oh Europe and the emerging markets are just

taking off in the last year and a half and whatever. I’m like yeah now why don’t you overlay the even an S&P 500 equal weighted index.

It’s blown away these charts because basically for 15 years 14 years they went nowhere. Yeah.

They went nowhere. you you made no money. And if you overlaid the S&P 500,

even equal weight, you’re here. And certainly if you were just the regular weighted with even with the top 10, you’re off the screen.

Well, and I mean it’s interesting. You you just look at the charts together. Okay. They follow us. So, okay. Yeah.

Our market’s been rocketing up. Okay.

So, they’re coming up a little bit. Big freaking deal. Yeah.

At this point. Yeah. I mean, you know, I have a few individual international companies, but you know, as far as a

specific position in international, I haven’t had one in a portfolio in probably stay in the US. Yeah. Long term, stay in the US.

It’s it Yeah. Yeah. You’re going to have years where you underperform, but I’d rather underperform for one year than underperform for a decade or more.

And there’s a lot of fodder out there,

and it’s been for years. you should have exposure to international 15 20 25%. And to me they just sound like human robo

advisors because these aren’t portfolio managers like you and I. They’re just following some script right with a

silver tongue. They can explain anything but at the end of the day right if long term maybe maybe this is a blip on the radar

and they come back to the medium. So I I just US is the best place to have been and to be moving forward. Even if we

have a flat to a negative there this year and or next year in the end this is always going to be spring coiled forward because even

international companies are listing on the US exchanges.

Yeah. Yeah. Yeah, I mean if they’re anybody is anybody, they’re going to be in a an ADR here at that point. And you know, okay, you’re

you’re you’re still then they’re forced to to per or conform to our e or our accounting standards and Yeah. GAP. Yep.

Yeah.

All right. And my last one I thought was interesting. So we talk about pees,

multiple expansion and forward pees. And yeah, I think this is just like super interesting because this really breaks

down and chops up, you know, the S&P companies. So, obviously the pinker mauve, you know, depending if you’re

colorb blind or not, whatever you’re looking at, is just the top seven stocks. Yeah. And you can see where their peak was.

It’s come down. It’s jumped back up.

This was, you know, the tariff tantrum in here. But even at 26 times on average,

it’s not overpriced. It’s not out of control.

No. And I mean that Mag 7, a lot of them are are accelerating at, you know,

upwards of 30 40% per year on these very big companies,

right? And here’s the S&P 500, the red line. The S&P 500 large cap growth. So look at pretty much the top 100 stocks

150 200 at most. I mean even that at just under 22 times is not you know out of control. And then of course when

you’re looking at the small and the midcap I mean they they look they’ve been underpriced for quite some time. Uh and obviously it’s done very well in the

last year or invested in it you know because we think long term small caps will do well especially as they come out and go into the S&P 500. What are your thoughts here?

Well, and I think you know the the small and midcaps, those guys are the ones that typically have to use more debt financing than the the general market.

You know, the the big guys can go to the market and get, you know, they can get equity investment and all that. The small to mids not as much. So, you know,

any any movement in long-term interest rates coming down, you know, if we can start to see long-term interest rates coming down, that’s going to really rock

it up the the small to midcaps. You know, I think they’re a wonderful value right now. I mean, they they have their moments where they go up and they have

their moments where they go down, but I think they’re a huge value right now,

but I don’t personally think the markets are anywhere near overvalued, you know,

at this point. You know, you look back to like 2000. Well, yeah, in comparison to 2000, I’m like, yeah, in comparison

to 2000, these companies are making wildly huge gains in profitability in comparison to where it was back in 2000.

Yeah. Oh, yeah. I mean, you’re talking about companies with real earnings growth and you know, look, they they talked about the, you know, the Russell 2000, which was always typically the

benchmark that 40% of those companies aren’t even making money. But again, you know, when you’re a small cap and you’re growing fast, you’re borrowing a lot. So when interest rates are high, right,

during 2022 in 23 and into 24, it was always going to be bad. But they bottomed out. You know, if you just even put money here, longterm, you’re going

to do well. Are you going to do well with the large cap growth long term? No.

Large cap will always outperform small cap. But again, if you’re looking for diversification, you know, certainly that’s that’s going to be an option for you.

Yeah. Well, and I mean, you also look at it from the point of view of, okay, that that small to midcap, I mean, it’s basically the same PE we were at in the

2000s. So, it really hasn’t gone up. We haven’t seen it go crazily up at that point. So, yeah, I’m I totally am all in

when it comes to that. All right, let me let me share my screen here real quick.

Give me a second. A little smattering of economic data. This week was kind of a big week on just little bits and pieces

of economic data. Let me get this thing down to where I can see it and let me bring it into view. Can you see that, Ron?

Yeah. Bump it up one more and you’re good. Perfect. Perfect. Might need to scroll down a little bit,

but you’re all right. Yep. Fair. Good. Yep. Good.

All right. International trade and goods. So there’s a there was a couple of reports that came out. We’re still because of the government shutdown.

We’re still getting this data late, but you know, it’s interesting taking a look at it. The trend over the summer had

been, you know, of course during the whole tariff issue and all that imports versus exports, we were seeing that move

in what I would consider the right direction. We were, you know, we’re bringing in imports, but we were increasing our exports. this month kind

of changed a little bit and the balance dropped. So we, you know, we had more going out than coming in in those instances. You know, I I’ve never

understood. Oh, so this is month over month. This is our balance at this point. So month over month, it was kind of a little bit less coming into

December. We have a couple different views of this and this is because of the government shutdown. The previous one, which is the advanced number, was be,

you know, we’re we’re not getting that.

So we’re kind of showing where that was at. And then the actual one that came in, you know, 70 billion. The expectation had been -61 to -50.

Consensus was55. We came in at -70. So moving in the wrong direction when it comes to international trades and goods

and services. I still think some of this is because of kind of the huge, you

know, rush to get goods brought into the country right before, you know, when the the tariff issues were all happening.

So, I I don’t think that’s a clear-cut picture yet, but it’s just something to keep an eye on that I’ll be watching.

Here’s some good stuff. So, we got our November number for housing starts and permits, you know, and and one of the

things that’s holding prices today up on homes is we’re just not building enough

homes and we haven’t been. So, the November number, which was, you know, because of the government shutdown,

we’re getting that one late, came in right around where everybody expected, little bit higher than the prior one.

That’s been trending up slightly.

nothing to to write home about. We did get housing starts also for December that was significantly higher than the

consensus range. So, we’re starting to see more movement, more, you know, housing starts. We’ll get a little bit later on today. So, I’ll share this next week.

We’ll get existing home sales. And if that’s trending up, that’s a really good sign that there’s more inventory out there. Now, more inventory also means

that prices will go down. So, those of us that own homes, we may see prices come down a little bit more as inventory increases, but you know, we we’ve got to

get homes in a in a price zone where people can actually get out there and buy them.

Durable goods orders came in. They were down a little bit. So, prior, you know, 5.3% they were down a little bit. Largely,

this was due to a Boeing aircraft order issue. there was just some drop in Boeing aircraft orders and they are a

massive part of the durable goods orders index. So it kind of came in right about where it was expected maybe a little bit

less. So you know one thing keep an eye on that. You know that can change pretty dramatically though from month to month. So we just want to keep an eye on it.

Industrial production though so you know starting to look at some of those little green shoots throughout the industry.

industrial produ production month over month up 7% versus point4 prior and the consensus was point4. So you know once

again we’re moving there manufacturing output up capacity utilization is hanging in there it was 75 up to 76.2 2 the consensus was 76.5.

So, you know, we’re we’re getting production out which, you know, that’s those beginnings of green shoots which lead to jobs which lead to, you know,

the the pin action with other companies around a lot of these industrials.

Philadelphia Fed manufacturing index. I usually watch the New York one because it it always has an interesting trend, but I just happened to catch Philly Fed.

The consensus had been 7.7.

The range was five to 12, which I think is just ridiculous. The actual came in at 16.3.

So, you know, when you combine that with industrial production, that says that we’re starting to see that manufacturing

renaissance begin. It’s not there yet and it’s got a long way to go, but we’re starting to see those What month is that for?

That’s for February. This actually a current one. So yeah, it’s not because it’s Philly Fed, so they they’re keeping up with, you know, they weren’t shut

down during the government shutdown, so we have current numbers. So great news,

you know, from that perspective. Last but not least, jobless claims. And we discussed this last week. I mean, this this is all over the fence, but, you

know, had been expected to come in at 225, which we were at like 229 the week before and came in at 206. So, you know,

we’re not seeing huge spikes in joblessness,

not massive changes. The four work or four-week moving average is about 219.

You know, I one, we’re not seeing huge amounts there. We’re seeing a little bit more hiring going on. So, what does that tell me? I think some of this stuff as

we see the manufacturing index and things like that once again we might not see the huge growth in let’s say white collar jobs but I think we’re starting

to see that blueco collar revolution or renaissance begin where we’re not seeing as many people being

laid off and we’re seeing more you know more growth in the job sector. What’s your thoughts Ron? I mean,

look, manufacturing, I mean, it’s great that it’s coming back to the United States and everything, but we know all know at the end of the day, the labor

cost is the number one input and why they left in the first place. So, labor costs are not going down. So, the only thing that they could do is either put

in more automation, robots, or something like that to work with the humans to keep to keep the cost here because this is what’s going to happen. They’re

making all the investments to appease the current administration to bring it here and then in 5 to 10 years they’re

going to leave again. So I don’t know I don’t know what it is. But I will say this I’ve had some interesting conversations the last two days about

labor. You know, I kind of came out of the tech world too, software,

programming, things like that. And I was talking to somebody yesterday because I had heard that basically AI is doing

near all or all of the code for programs. And they said, you know, and for years a lot of these programmers

were making big bucks because they didn’t have products like this. So that middle

group that was making really good money in programming, that’s the group I think that’ll be that will go first.

You’re still going to need people to review, but they said that the quality control and everything is much much higher than human coding, which makes

sense obviously and they can do it in literally a fraction of the time. So in that manner, yes. But at the end of the

day, you know, you’re not going to get AI to do your landscaping to trim your trees. Maybe you’ll get a robot robotics to do it.

Yeah. I I don’t know.

But my point is I I know we talked about this what was the last time or two podcasts ago that I think the true threat to labor is at least 5 to 10 years out.

Oh yeah. But again, when it comes to coding and doing certain automations,

scheduling and and like we have we have a notetaker. I think you’re using one too. When you’re sitting in meetings or a I mean that thing is fantastic. I got to tell you very impressive. But again,

it’s not like I was paying somebody to sit there and scribe it anyway.

So there are efficiencies there. But I think we’re five to 10 years away before it makes a serious dent in in labor. But

you know I yes we talk about well we could you know yeah they these these companies could be appeasing you know

the president and bringing all this here and building fac I mean you don’t build a multi-billion dollar factory and then close it you know 10 year the next

administration that comes in but I think you know the the belief that oh well we’re going to have this you know bluecollar you know or we’re going to

have all these manufacturing jobs I’m like no I I wouldn’t say that I would say we are going to have jobs in manufacturing, but those jobs are going to be a much more,

you know, they’re going to be there to support the robotics. They’re, you know,

they’re going to be and and you see companies like Amazon, I mean, they don’t hire people to carry boxes across the floor anymore. They hire people that

they can train then to fix the robots and maintain that and run that those systems. So, I think it’s going to be a

much more it won’t be just the person doing the repetitive task over and over and over again. It’s going to be that it’ll definitely be streamlined.

Yeah. It’s going to be that person. The the thing that AI and robotics can’t do is it doesn’t have the creativity of the

human mind. And I I don’t know if it ever will. I I just don’t sure will.

Yeah. Yes. And no. I mean, it tends to always what I found with AI is it tends to always go towards the the easiest

answer in a lot of cases, which can be the most boring. Not not, you know, so maybe it’ll learn. Who knows? But what I’m saying is I think that there’s going

to be more jobs in that support level where more automation and robotics are coming in. And we just haven’t built plants like that here in the United

States. I mean, you see them over in Europe a lot. and they have way higher labor costs over there and there’s still a lot of manufacturing because they just

decided years ago, okay, we’ve got to go this robotics way if we’re going to be able to afford, you know, to continue to to manufacture in these countries.

Okay. No, I hear you. To be determined.

Hopefully, we’re still doing podcasts when all that happens.

Absolutely. We’ll keep talking about it every week for at least. Well, folks, thank you for joining us. As always,

make sure that you subscribe to the channel because we want to make sure that we are bringing this stuff out to you every single week. So, thanks a lot

and we will see you guys back here the very next time.