COT Episode 17 === [00:00:00] Jeff Kikel: Good day. Sense of things. Audience. It’s Jeff and Ron here. Welcome to another
week of the sense of things. Ron, how you doing, my friend? Good morning, Jeff. Doing
well. How about you two thirds of the summer? Yeah, we’re just melting down here, man. I’m
not saying anything to you in Arizona, but we are melting. Yeah. Yeah. We just set a record Yesterday, 27 straight days, temperature over 110. But
other than a couple of days where the humidity is up, it hasn’t been too bad. We had a storm last night, but for the most part, you know what, it’s not like 110 elsewhere, but doesn’t
matter in the afternoon, like an ant under a [00:01:00] magnifying glass. Yeah, just absolutely absolutely a hot summer. And I think we’re, it’s so funny how it’s
hot here and then it’s like pouring down rain up and in your old neck of the woods. I have
I figured I’d kick us off today with a good Florida man story. I was doing some Florida man research and came up with a good Florida man story actually from a couple of years
ago. So it’s not it’s not fresh news, But I thought it was a p doesn’t matter. All the f eventually
recycle themse I’m not sure if this one but florida man washes as
So I thought this was pretty good. I had some things as I was going through here. First
off, the he startled beach goers as he washed ashore inside a hybrid bubble running wheel
device. He was [00:02:00] planning on going from St. Augustine all the way up to to New
York, via this. So the U. S. Coast Guard found him on the beach.
He was going to run north to the to New York or Bermuda. So apparently it’s not very easy
to steer this device that he was trying to figure. I’m looking at it. How does he steer it? You don’t, you just keep running and it’s like a big hamster wheel and you just keep
going. It’s like a little paddle wheel. Yeah, but with the tide, he was eventually going to get thrown up on shore anyway. Logic
and this does not necessarily, there’s no way you can Yeah, I’m sorry, you’re correct. I’m trying to apply logic. There’s no way you can run on one side of it and turn it.
You’re just going to keep going and hopefully you stay out to sea. This is the, this is my favorite part of the entire article that I truly loved. Out of
this, my goal, when you do something idiotic, you’ve gotta redeem yourself. So he said,
my goal is to not only raise [00:03:00] money for homeless people, raise money for the Coast
Guard, for the police department and the fire department. They’re public service and they do for safety, and they help other people. So when you do
something incredibly stupid, All you need to do is say that you’re raising money. My
whole point was, how many people did he have sponsoring that he was supposed to be raising money? That, yeah that’s, he didn’t really get into that.
There’s not a lot of details on that. But apparently he does have a website. Let’s not
go there and give him any attention. Yeah. He was trying to trying to prepare for this in 2016 as well. And then he did this in I believe 2020. Is when this article was from.
He did survive on protein bars, tuna, seawater purified through a filter, Gatorade, and chewing
gum in this. I just felt that was a very good way to kick our day off. That This guy is sharing, he’s
trying to take, do this for for others.[00:04:00] I don’t know. He was trying to be the Forrest Gump of the ocean. What do you say? That’s
the only thing I can think of. Yeah. It’s Forrest Gump, except yeah. He just didn’t think about the whole okay. How am I going to steer my way across this? I don’t know,
but you’re right. I was trying to apply logic and understand why. And at that point, it’s a futile effort. It really is. Just, and they said he only went
30 miles, which is hilarious. He only made it 30 miles and got washed in shore. I don’t
know, but that must have been a hell of a workout for the 30 miles. No kidding. Yeah. You just ran a, you basically ran a full marathon.
Oh my God. Yeah. But with the water, like I said, it must’ve been a hell of a workout. He must’ve been in pretty good shape. Yeah, it had to have been. What do you think of
Some of the economic stuff in the market action this week with the fed raise of rates yesterday,
a very good GP GDP number today is still going. And we’ll get into some of the other factors where Europe, other parts of the [00:05:00]
world, and most of our economic leading economic indicators are all going and trending down.
Yeah, we’re seeing that. And it’s interesting, talking about GDP, I think that’s the big thing out of today.
If you look at economy today. The prior quarter over quarter was 2%, which I think actually
blew out the consensus. So the consensus was 1. 5%. And the range on this, which I love,
it’s, I want to be a weatherman or an economist, but, the economists were saying the consensus
was going to be between 0. 3 and 2. 2. And it came in at 2. 4. GDP is still blowing and going strong on this, which
When we look at when we look at our leading economic indicators, and I know you’re going to go into that a little bit here, but, leading economic indicators here are Yeah, that’s
actually going to be the chart. I’m going to show. Oh, okay. Yeah. With GDP still going up, it’s postponing that recession
that we’ve been talking about for, I don’t know. I honestly [00:06:00] don’t know at this point. Some of the things just don’t make sense to me when some things are trending
down, others are trending up. And the crazy thing is if you pulled out those top six to eight stocks, yeah, we’re still
up for the year, right? But we’re not up as much as we are in the market. This is insane
and I’ll go into this in a second. The crazy thing with this, we are getting some broad based rallies across some of the laggards that were in the first half this year but
even so just, too many things just don’t make sense. I’ll give you a couple of examples here. Let me know if you got the full screen of the
slide. Yep, you’re good. All right. So this actually comes from black rock. Just looking
at the first half of this year, typically, the it and telecom, right? We know how much
they have pushed, the interesting thing is, this is if employment.
Is that a near all time low, meaning it is just strong, people, the people that want
a job, got a [00:07:00] job, and if you’re looking for a job, that means you’re leaving a job to get a job. So that means people are spending, right? Obviously they’re spending
the prop up the economy, do what they need to do. Why are consumer staples? negative for the first half of the year. Yeah. If a staple
is something that we need every day, every week, every month why are those down for the
year? Because if people have money to spend, obviously the discretionary is up, but the
staples, why are they negative for the year? And why is that not, talked about more? Yeah, this was a bit of a conundrum for me to try
to digest because obviously it’s analysis it’s paralysis by analysis, but the consumer
staples negative for the first half of the year with a hot employment market makes no sense. What do you think? Yeah I look at that.
I also look, it’s interesting even with health care, we’ve got an aging population. Yeah, good [00:08:00] Lord. We still are, I think, feeling the effects of. Of cobit and things
like that, with some of this long cobit stuff and all that and health care. Has been down, I, it was a call and I admit I made a bad call.
On health care early on in the year, because I figured, I think I made a bad call, both on staples and health care in my sector sleeves, because. Logically, I would say is we’re struggling
and going into the year, but even just normal consumer staples should be up just not as
much as everything else. And I look at telecom services that 1 that is a big conundrum for me. Because yes, I
agree. We’re switching to the 5G world. Not. That’s massive amounts of spending and capital
investment. And I don’t understand why it’s taking off so much now, like I said, there’s,
look, the infamous expression. We’ve said it before the market, the markets could stay [00:09:00] irrational longer than
you could stay solvent. And I think a lot of your conservative, you’re okay. You’re not getting a lot of the upside, but we’ll get into some of the numbers here. They just
don’t make sense. Yeah. And I guess I look at. What’s going on right now on the AI side of things, as much as I love AI, I listened to
three conference calls this week, three earnings calls this week. And I, if it had been a drinking
game to say, take a drink every time they said AI on the calls, I would have been plastered
within 15 minutes. Absolutely. Everything is AI. They’re saying what they will, they’re saying what they know
they need, that people need to hear. Yep. To look at the future of their stock. That’s
correct. They, to look beyond the money, the massive amount of money we’re spending on it, the words not making anything right now.
To go that direction. It’s intriguing to me. I see that. There’s going to be a reckoning
point at some point there. I just don’t [00:10:00] know when it’s going to happen at this point. I honestly, I’ve been saying September, October as the beginning of it. Yeah, typically before
every precipitous fall, you usually have a blow off top. I wonder if that’s what we saw in the last month. It’s just this blow off top. The Dow
is, I believe is going to set a record. I don’t hold me either a hundred years or 120
years of a consecutive days going up. Now I am not a Dow proponent. I follow the S and
P 500, even though that’s a, that’s a bit vexing with the way they do their market cap
waiting, but the Dow’s even worse being price weighted, but even so 100, 120 years of not
so many day of this many days, consecutive days being up. Yeah. Hey, look, what goes up comes down. There’s gotta be some mean reversion at some
point. Sure. Yeah, I can believe it. Yeah, I can absolutely believe it. All right. So
a couple of other things here. So coming from our friends at the conference board where you were just at, [00:11:00] this is really interesting in many different ways.
Just starting out with the leading credit index, kind of showing the six month ending in June on its own. So obviously what we’re seeing here is the numbers are getting or
trending better for the month of June compared to the six months, but even non financial
components. This is the big one to me, the ISM orders. We talked about this last podcast. This is the manufacturing. If you just take a look
at this, it’s sad and pathetic. Here are the new orders. Point oh two. It hasn’t gone anywhere.
Manufacturing’s been flat. Yeah. Which means we’re bringing everything in from internationally.
Correct. Internationally, many of those countries and continents are either teetering or they’re
in a recession. Makes no sense. Yeah. And you figure from a Balance of trade. We’ve got a massive balance
of trade with China, in their favor and even [00:12:00] they’re showing signs of slowing
like crazy. So I’m just talking about economic stimulus. You only offer stimulus. In bad,
horrible, potentially crisis conditions. And you’re already propping your economy up by building basically empty cities, those
ghost towns, little ghost towns, just so that, you can bring people in from the agrarian
areas and make them work in your factories or whatever. But, once again, it’s all right.
So you’re just propping your economy up by building other things, taking money that you’re making from the U S and turning it around and building cities.
Ghost cities. It’s amazing to me. And where the breaking point is, I don’t know. I just
I don’t see it yet. And I keep pushing my feeling of recession back farther because
I just don’t see, I see stuff coming apart, but I don’t see enough of it coming apart. The interesting thing is it’s depending on how we define a recession, right?
Yeah. [00:13:00] And, parts of the country have been in a recession for, six months to a year as it is. Yeah. But, obviously we need to see a break in the employment as far as
going to the upside. But right now, many industries are still incredibly and as long as they stay
hot and they’re still hiring and you don’t see a tremendous amount of retrenchment in, in that employment space.
The consumer’s powering two thirds of three quarters of the economy. It’s going to continue. Here was the chart that you just had up showing with the GDP. Obviously it doesn’t include
the number today, but even the LEI number is a leading indicator to real GDP. And we’ve
seen that, this is going back 23 years and we’ve seen every time there’s a yank back
in the LEI. The GDP, the economy, the bond market, the stock market follow in kind. I think the biggest
thing that I see, I, and I call myself [00:14:00] on it. I, I am, I’m a big follower of LEI
and I pretty well predicted that we were already in a recession at this point, if you look at, if you look at.
The GDP, which is the gray line there, it’s reversed and it, we don’t really ever go into
a recession until you start to see it dip off and really hit that 0% line. That’s usually
right at the point where we start to go into recession. And it’s the last couple months have reversed that direction.
We’re going upward again. That the LEI. The leading economic indicators are in the negative
and they’re at a big negative from where we typically see this, but we’re just not seeing
it out of the GDP, which is intriguing to me. Why that’s continuing to go up.
Yeah. I’ve always called the economy of bulimic economy, right? Everything is about binging
and purging. So we see these cycles where. Stimulus goes in, people spend [00:15:00]
money they reduce fed rates. That means more money is being injected to borrow and expand and hire and all the other stuff. And then all of a sudden, they’re headed, they’re over
their skis too far ahead. And then we need a, a purging. And that’s what the LEI typically is. It’s purging, it’s
showing the numbers, it’s purging all of all the stimulus and all of the hot economy. And
we’re fine. We’re following behind. This is another interesting one with the LEI six month growth rate by percentage.
And then you got the warning signal and then he cut the recession signal. And every single
time we’ve gone below, triggers. Yeah. Yeah. So the problem is, I think a lot of people
have gone broke trying to actually pick the exact window when we’re going to be in a recession,
because, typically the market, even though when you see a lot of the LEI and you got the two and 10 spread with the treasury invert, even when you see [00:16:00] that it takes
time for things to unwind themselves and the fed rate.
Also is, I think based on a lot of what I heard yesterday being data dependent. Guess
what? They didn’t have the GDP when they announced yesterday, the GDP number when they announced yesterday, they have two more employment numbers to go. And two more CPI and PCE numbers to
go before that September meeting, meaning that if things remain hot, they’re going to
raise again, at least a quarter of a point, it’s got to happen. And they’ve already said. There’s no way they’re going to lower rates for the end. No, there’s
not. Yeah. No, the fact that somebody would even ask that question should lose their job. Yeah. Yeah. There’s not a chance on the earth that they’re going to reduce rates. And I
could clearly see it most of next year. I could clearly see them not doing a whole lot. I could see them just leaving it stable
or even possibly a couple more raises at that [00:17:00] point, if we still continue to see the strong employment numbers. I think you’ve just got a lot of factors that are
unusual this time. There was a massive amount of stimulus. I never realized I started really digging into
the amount of stimulus that was jammed into this market over the last couple of years.
And yeah it’s to the point where I don’t think the Fed has any control over it. All they can do is just keep. Trying to put the brakes on it, but you just can’t absorb that much
into the economy. And, Hey, we’ve got to keep people employed. Okay. Are we keeping people employed? Are
we propping companies up that shouldn’t be propped up? Are we backstopping a lot of companies so that they don’t lay off? I don’t know. It’s a pain forward. Yeah. I hear what you’re
saying. You’re right. It’s a pay it forward because we showed the U. S. debt chart in one of our
podcasts. All that stimulus, there’s no way [00:18:00] in the next 10 or 20 years or this
next generation, that’s going to be cut in half. Yeah. We’re adding to our debt every
day. We’re not reducing it. We’re not getting rid of it. So our interest payments for this debt. is insane. We’re gonna
have to print more money just to pay for the interest payments for the interest. I heard this morning, anything to get to contract that number. Yeah, I was driving in this morning,
I was listening to somebody talking on the, on one of the news shows this morning and he said, I mean we’re at where interest rates are today are where we were at.
I think he said in like 2002, 2003, something like that. And he said at that time, our debt
to G D P ratio was 75%. Today we’re at the same thing and our debt to GDP is 150%. Working
our way up to 250%, somewhere by [00:19:00] 2050, I think is what they say. I remember
30, 35 years ago when Japan seemed like they were taking over the world and buying everything
and they were laughing at Japan. I remember two people talking about this, about how high their debt to their GDP. I
think they were in the two or 300%. Yeah. And all those chickens came home to roost.
And after 30 years, the Nikkei index, which is like our S and P, their Nikkei index. Finally,
just hit an alt a 30 year high. They just surpassed their index from 30 years ago.
Obviously the makeup of the companies have changed just like our indexes. But what does that tell you? I’m not saying there’s a direct correlation to their debt to GDP ratio. 30
plus years ago to their market, to our market, but maybe there is, who knows? You look at
it too. You’ve got, if you look at the popula, yeah, there was a whole [00:20:00] bunch of issues that affected that too, because you had this massive jet debt to G D P that had
to get absorbed out. It’s I just see this happening again. We, the Japanese have a thing
called tsu, which is they basically, Companies prop up other companies to keep them, basically
keep them alive. So you don’t lose face that your company failed, went out subsidies. Yeah. And so the government
provided a lot of subsidies. The these groups of companies would prop up other companies. So you have these zombie companies and I’m like, Okay that’s what we’re doing right now.
And we’re jacking up our jet to GDP. And we’ve got a massively aging population, which is
what happened in Japan as well. You had a massively aging population. And so it took
a while for that to work its way through. So it was a lot of things. And I’m like, we’re it’s like the game plan. Of Japan back then we’re trying to play the same game again,
by saying we’re not going to let any of [00:21:00] these companies fail. Okay. Some of them are going to have to fail to keep moving forward. No, I agree. But here
is the last slide. So conference board does this CEO survey. Yeah. I really thought this
was interesting. So looking over here, what are CEOs expecting a brief and shallow recession
better than 85%. And this goes back to the last three quarters. Q4, Q1, Q2, they’re still expecting a pullback
in the economy. And only less than 10% don’t anticipate a recession at all. But those are
probably the ones in the tech companies. But we don’t know exactly the breakout of it, but if you take a look at companies, yeah, tech companies don’t use any logic at all.
As far as how they go up or down. It’s just, it’s all based on what the future is going to happen. And you’re trying to figure out what the future of it is. Yeah. And I guess
I’m in that camp a little bit that I think it’s going to be shallower than we [00:22:00] think this is probably the most anticipated recession in history because I’ve heard people
talking about it. We’ve been talking about it. All this year as we’ve been doing these shows and we were
talking about it a year ago it reminds me of the days when we talked about when interest
rates were going to go up, and we went probably eight years of predicting interest rates going up before they actually went up.
Yep. And, and then the chart on the right is the CEO confidence. Yeah. It ticked down.
You could just see it’s not above 50% on this. And that means that. Are the CEOs tightening?
Are they doing CapEx spending? Are they hiring? Because the CapEx spending and the hiring
is how these companies expand. And obviously if their confidence is low, they’re not going to be borrowing. They’re
not going to be expanding. Now the job market has slowed down. I know I didn’t see the last Joltz number, but even [00:23:00] so we’re going to get another number next Friday. The,
as far as the unemployment number, we’ll see where that’s at. If that ticks down again, I think there’s gotta be a 70 to 80% chance we’re gonna get
a fed rate hike in September. I and the CEO o survey is, you could see the accuracy on that for the last 23 years as far as when they’re losing confidence and going, either
we’re ticking towards a recession or at least some kind of a retrenchment in the economy. I like these surveys. You can’t get into there’s no real meat of the bones of this. It’s yeah,
but it’s a nice indicator. But I think I look at it from the point of a CEO, if you’ve got,
all right, we don’t, we’ve got a lot of guys, literally it’s every day it’s new government regulation, so you can’t really predict.
Basically we’re going to be living in mud huts with, with pots of water, boiling over a, a fireplace, which would probably cause some kind of global issue if we did that too.
So we’re just going to have to watch. In [00:24:00] cold water. It’s literally every single appliance in the house.
There’s going to be regulation on you’ve got, you don’t know where interest rates are going to be. I see it from a CEO’s confidence point of view. It’s dude, I can’t predict anything.
So I’m going to pull back. My confidence is not there to make long term decisions right now.
So I get it. From that perspective of, okay, I just can’t predict something. So I think,
you’ll see confidence pick up if at least the fed gets to the point where they’re like, okay, we think we’re good at this point. We’re going to, we’re going to stay stable. I can
live with high rates if I know that they’re not going to get higher, cause most loans,
if they’re going to borrow at a bank, it’s a floating loan and it might be, two years,
three years, five years, it’s a floating loan. So I don’t know if you’re going to keep raising rates or rates are going to stay high. I can’t
really predict what my future is going to be like, but at least if I know, okay, we’re there and we’re not going up. Okay. Now I can actually predict and I can make a decision
that [00:25:00] says, okay. I think my cost of capital is going to be here for the next 5 years. Okay. I can predict
and figure out if that’s worth me making the investment. Yeah, no, I hear you. And, maybe
some of these CEOs, are in manufacturing in some capacity. And that’s why the ISM number,
is negative. The new order numbers, maybe because they’re looking out not just 3, 6 months, but 6 to
12 months for the book to bill ratio. So they can have some type of, Predictability with
their cash flow. And maybe that’s another reason why their confidence is lower. They
know it’s right in front of them, in the, as for the, they can’t really see or predict
beyond the horizon line right now. Yeah. They just don’t have that much more uncertainty. Yeah. They just don’t have that
visibility three years, three or five years out at this point to be able to make those. And like I said, we were talking about that with the, Richmond fed, the New York fed,
the Philly fed. All those manufacturing surveys were [00:26:00] showing negative, so I agree.
I think it’s just that point where there’s so much uncertainty that I think a lot of these guys are just pulling back a little bit. Guys and gals are pulling back a little
bit and saying, okay I’m just going to, I’m going to focus on what I can see, and I’m not going to focus on, trying to predict the future because I can’t accurately predict
it right now. I’ll give you, I’ll give you one last point with that. And that is, semiconductors, chips
aren’t everything. The interesting thing is the two biggest companies out there that are, let’s just call it that are not only the leaders in the semiconductor, but, obviously they’re
bellwethers as far as indicating actually let’s go to three Taiwan, semi Intel and Nvidia
is still flying mainly because of their AI chip, right? The rest of their orders for their other chips are okay at best. Yeah, Intel’s chart looks
terrible. Yeah. They’re not doing well. And Taiwan semiconductor. Just had a negative
profit growth quarter. And they’re [00:27:00] the largest semiconductors on the block. Yeah.
Yeah. And they’re an AI and so is Intel and whatever NVIDIA is a leader there. But if Taiwan semiconductor and Intel, which are bigger companies by overall manufacturing
than NVIDIA. And they’re trending down. What is that telling you about, let’s just say
the forecasting of the next six to 12 months, as far as the demand for goods, because, and
almost any, anything electronics got a chip in it. And it’s not just, yeah, you figure every single device today. Has got chips in it.
Yeah, it’s, your dishwasher, your stove, your anything, everything relies on that. Yeah.
And if we’re not seeing that coming across the market, what are they predicting or whether they see it in their future?
And I, once again I see what’s short term. I see some clarity that things are continuing
to do well, but that over the horizon, I just can’t predict at this [00:28:00] point. Look,
we talked about it. What two, three weeks ago, July is historically a very good month in the market. August is very mixed and August vacation month.
So it could be just an end of the July push to say bye bye I’m on vacation. And we’ll
see what happens again. This could be the blow off top prior to either stable pricing
or a pullback. Again, I don’t wish for it. Everybody’s happy with their accounts, it
should be interesting to see at least what the employment number is next Friday for July, and we’ll have another podcast before then, but we’ll see what happens during that month
of August and going right after labor day. Yeah, I think it’s interesting going into this, because once again, I, as I’ve said
before, though, when we grew up in the industry, it was literally New York just vacated to
the, to Long Island and the Hamptons to the Hamptons and, okay, there was just low volume,
you had a lot of volatility, [00:29:00] but so much. Trading today is done electronically by computers. Yeah, I don’t know if we really have that
anymore. I think the difference is. There’s a propensity, I think, for a little bit more
volatility in. August, because the computers tend to be very reactionary. And it requires,
I think what happens during the normal part of the year is the rational people, which
is. Yeah, it’s an oxymoron. But the rational people soften that out a little bit because they
look for opportunities to trade in there. But I, I don’t know. I it’s been a perplexing
thing the last few summers watching it because, volumes have stayed pretty high and I think
a lot of it’s just because the AI, the AI background or the bots that are trading, keep
trading when everybody else is sitting in the Hamptons. They’re estimating two thirds of three quarters of the trading volume, are the computers are
algorithms, [00:30:00] whether they’re, scalpers, just scraping off fractional, sense, or, the
ones that are just creating a market two thirds of three quarters is a lot, which is why they had to put in a lot of those safeguards in there for 10% up and down in in prices.
Yeah because they read off of Twitter headlines and everything else and just react and the other ones react on top of it and they can pile on pretty fast though. It’s it, yeah
we want to contain that volatility a little bit. We could do a whole podcast just on high frequency trading at some point.
Oh, good Lord. Yes. So 1 of the things I’m going to do here and just for the audience, I’ve got a friend of mine that is in the college loan space that I’m going to do an interview
with here pretty quick. Really talking about, some of these governmental programs that are available and things along those lines.
For the for the federal student loan debt there was an announcement. I think it was
earlier this week that the Department of Education is going to be changing up some of [00:31:00] their rules and crediting people for have I haven’t figured this out crediting people
for having paid loans, even though they didn’t pay loans. So just a lot of stuff. Going on. And so we’ll we’ll do a quick interview on that just to,
to give everybody an update of what’s going on in that college loan space. Cause we’ve
talked about it, that’s all coming on board or coming online in a month from now, basically
a month and a half from now, that’s all coming online again, and that could have some pretty dramatic effect on the market.
Some of this, yeah. Some of this consumer spending that we’re seeing could could dry up pretty quickly as people have to write checks for four or 500 that they haven’t had
to for the last three years. We shall see until next week. Till the next one. All right,
man. Thanks a lot for your stuff today, Ron. Folks, as always, thank you for being on here. Please share this with folks. Also give us
a comment. You guys have been really good [00:32:00] about that. And I thank you because it’s helped us to make some switches and changes to the overall format that we’re doing. Hopefully
you enjoy the Florida man stories. We’ll keep doing those because it’s just funny. It’s enjoyable to talk about endless content
there. It is. Yeah, you could just do Florida man stories for the rest of your life and you’d be fine. We’ll see y’all back here the very next time. See you next week.