Cents of Things Episode 19 ===

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Jeff Kikel: Good morning, Sense of Things. It’s Jeff and Ron here for another weekly

update on what’s going on in the world. Ron, how are you doing,

Ron Lang: buddy? I’m doing well. Good morning. You can’t say there’s a dull moment in the

world or in the market. That’s

Jeff Kikel: for sure. Absolutely not. It just keeps going and going at this point and it’s

supposed to be the slow time of the year, but it’s, there’s a lot of

Ron Lang: information coming out.

Ron Lang: As long as we’re not dealing with some kind of crazy geopolitical event, everything

else we could take in stride. Yeah.

Jeff Kikel: Y’all and that’s it. And, I think it’s there, the new cycle, I think it’s been

a little bit busier for an August. Than I’ve seen in a long time. The markets have been

a little all over the fence this last couple weeks.

Jeff Kikel: Very re very reactive to news is what

Ron Lang: I’m seeing. [00:01:00] Yeah, I think we’ve seen the highs for the year though.

Technically without getting too wonky, we’ll show some charts in a little bit. I think

we’ve hit the high for the year. We’ll have to see how things pan out. Obviously today

was a good day with the C P I data, but, look we’re getting into the tough part of the year,

August and September and October are usually slower, tougher months.

Ron Lang: But we’ll see what happens here. One day does not a trend make we’ll see, I

think tomorrow’s the PCE data and and we’ll see how things progress into September.

Jeff Kikel: Yeah, exactly. I wanted to kick off today. Usually we do some kind of fun

fact, but I, having grown up my early years in Hawaii I’m just really, I want to put my

heart out to the people of Maui specifically the people of Lahaina because they’ve just

been devastated.

Jeff Kikel: And so I wanted to share a little bit about that. And, of course, right now,

then all the people are jumping out there that, oh, this is climate change. And, oh,

this is, and I’m not saying I’m not a climate [00:02:00] denier, but what I’m saying is.

It’s the perfect storm in this world and you need to understand that a little bit and I’ll

talk a little bit about the microclimates and Hawaii.

Jeff Kikel: Yeah, because it is now. He’s a very unique place. Let me share my screen

here a little bit. Because I wanted to share what the devastation is it’s insane right

now. So this is this is so if you want to know where that is. Can you see my screen

by the way?

Jeff Kikel: Yep. Okay. If you want to know where that is, let me show you. So this is

the island of Maui. If you see the chain of Maui, this is Oahu here. This is Kauai, the

farthest out island, and then the island, the big island of Hawaii. So Maui is in the

middle of the chain. It’s dominated by two dormant volcanoes, one on this end, one on

this end.

Jeff Kikel: So it’s like a little wasp shape. And where these fires are is right in this

area. It’s on the west coast of Maui. It’s the really dry temperate zone. [00:03:00]

And we’ll get back to that in a minute, but I wanted to share just, this is what downtown

Lahaina look like. It’s an old whaling village.

Jeff Kikel: So on this part of the town, this is where the harbor is. And this part of the

town is the oldest part of town. In fact, this building right here is the oldest building

in Hawaii. It was basically their customs office. And this is where, when the whaling

ships would come in, this is where they would go.

Jeff Kikel: And this big ginormous tree is 150 year old banyan tree. That’s been there,

it’s the largest tree in the state of Hawaii anywhere. And it’s massive and it takes up

a whole square block. All of these buildings, this whole area along here, most of those

buildings were built in the probably late 1800s, early 1900s era.

Jeff Kikel: They’ve been updated and all that, but, it’s all pretty much old wooden structures

and things like that. If you look at it today, this is what it looks [00:04:00] like. It’s

just insane. It has just been completely decimated. Every single structure is flattened. The banyan

tree was where it was green, it’s been burned and they don’t even know if that will survive.

Jeff Kikel: So it’s just. Absolutely horrible. For the people there, I wanted to show what,

if you look at that area and this I’m trying to find the screen where I had this. Okay.

So the interesting thing though, is everybody’s oh, it’s climate and climate. What you need

to realize is.

Jeff Kikel: In Maui, there are 17 different micro climates in Maui, there is everything

from literally desert, which is on that West Coast to tropical rainforest, which is on

the East Coast, and this whole island is less than 35 miles across. Within that you can

drive 10 miles and this, there’s a coast road that runs from the airport and Kahului.

Jeff Kikel: All the way along the coast here and [00:05:00] driving that you drive through,

I think, 9 different micro climates. Driving along that coast and you go from, basically

10 to 20 inches of rain per year up to almost 200 inches of rain per year and less than

a 20 miles piece. So it’s crazy when you’re doing that, when you’re making that drive,

it is just absolutely insane how it just massively changes as you go.

Jeff Kikel: Well, Lahaina is in the absolute driest part of the state. So they get zero

to 10 inches per rain of rain per year, which I think is even less than what Phoenix gets.

I think so too. Yeah. This whole part of the island, because of the mountains, they block

a lot of the weather that comes through and they, it sticks in the middle.

Jeff Kikel: This is like an arid desert. You think it’s a tropical island and it’s a, it’s

an arid desert basically on that side of the island. So it was. It was primed for if there

was a fire and a big ginormous hurricane came across. It’s [00:06:00] it was exactly the

worst possible thing that could happen because the hurricane came from this direction and

the winds whipped up, but it didn’t bring any rain.

Jeff Kikel: It was too far out to bring any rain. And so it was just literally all wind

in a very dry area and, that caused the devastation. So I just feel for all the people. I think

there’s been 36 people that have died in this and basically everybody lost their homes.

In that part of the world, so I just want to say.

Jeff Kikel: Hearts out to you guys praying for you.

Jeff Kikel: All right. So that said now the horribles out of the way, let’s talk a little

bit about the markets and what’s going on there. What do you have for us today, Ron?

Ron Lang: Got some news and some charts and always some good conversation fodder. Let

me bring this up here. So I thought this was interesting about China and deflation.

Ron Lang: Now we’ve, people have known for decades,[00:07:00] can you really trust any

of the economic numbers that are coming out of China? Who would really invest in China?

And really, I think it’s more traders than investors would be invested or that, putting

money into China stocks or the China economy, whatever it may be.

Ron Lang: And the interesting thing is this. They have tried to control their people, the

population, their culture. That’s what they’re trying to do and their economy is suffering.

And if it wasn’t for Europe and the United States, they’d still be in the dark ages economically.

So the problem is what does deflation in China?

Ron Lang: Mean to our economy. And I think some of that’ll start to pan out here over

the next three to six months, because that would affect us as far as manufacturing, it

would affect us as far as, remember a lot of the U S companies are multinationals and

they rely on China, not forgetting goods to sell them goods.

Ron Lang: So if deflation is happening and they’re trying to sell them goods [00:08:00]

and or services that’s not good for the U S multinationals. So I, I don’t know how many

people are really aware of this. How many people, the average investor really follows

what’s going on in China, but there definitely is a ripple and a trickle down effect as far

as, what happens.

Ron Lang: The infamous expression was when the U S sneezes, everybody else gets a cold.

China’s economy is pretty darn important. To the rest of the world. Maybe not as important

as the U. S. economy, but certainly either for supply chain or for Walmart, many luxury

brands, so on and so forth have a pretty significant stake in in that country.

Ron Lang: So we’ll have to see how it pans out here. But I don’t know if this is the

canary in the coal mine for anything, but certainly I wanted to pique some interest.

I

Jeff Kikel: think, the other interesting thing too, along the lines of China, I don’t know

if you saw the stories this week about Italy, Italy had signed on against our will signed

on with with China with the belt and [00:09:00] road initiative.

Jeff Kikel: And so for people that don’t know what that is, China has been doing this for

about the last 10 years under Xi Jinping. They wanted to effectively recreate the Silk

Road around the world, and the Silk Road was a trade road that went from China to Europe

through all the countries, back 2, 3, 400 years ago.

Jeff Kikel: And what they, what Xi Jinping has been wanting to do is basically rebuild

that Silk Road by improving transportation and all this. So China has been investing

in all these countries in Africa. It’s been trying to get some inroads into Europe and

Italy kind of a few years ago, signed on with with belt and road to say, hey, we’ll come

in and do some.

Jeff Kikel: Do some, infrastructure projects in our country and all this, and then we’ll

develop trade and all that and they. They got snookered by the Chinese because as the

prime minister put it, [00:10:00] we sent them we sent them a million dollars worth

of oranges from Italy, and then we. Ended up taking, or I think we sent them a billion

dollars of produce and they got 30 million dollars of trade back their direction, Chinese

products into our country.

Jeff Kikel: That’s not fair and so they’re actually pivoting away from belt and road

at this point. So there’s some cracks in that belt and road initiative where. It’s, Hey,

we’re, if you’re a poor African country, Hey, if anybody’s going to invest in your country

with infrastructure and you need to bring goods in, okay, we’ll just do whatever we

have to do.

Jeff Kikel: But when you’ve got a, an economy like Italy, that’s Hey, we’re a manufacturing

economy. There’s gotta be some quid pro quo.

Ron Lang: Yeah listen China is an important country out there regarding the global economy.

So we’ll have to see what happens. But let me go on here. So I got two charts here.

Ron Lang: It’s this [00:11:00] chart and I had one more thing. And so what I wanted to

show people here. Is this is going back almost 10 years, nine years. So I just want to explain

what this is. So basically what you have is the main blue line here is the spy. That’s

the S and P 500. The FXI is the China stock market.

Ron Lang: Okay. The purple is IEV. Which is a more or less the European market and RSP.

And the reason why I like RSP SPY, as is very heavily weighted to the top eight stocks.

RSP is an equal weighted index. So what I wanted to show people here is. Look where

China is, right? China. They’ve been saying they’ve been in and out of recession for many

years.

Ron Lang: You can see where they were here back in 2020 and they peak with everybody

else coming out of the COVID, but they’ve been in a straight line down. The European

countries overall, their markets really haven’t recovered all that much, even if you look

prior to [00:12:00] COVID, they’re up a little bit, but certainly not growing.

Ron Lang: And then you take a look at the two U S. Main indexes, right? The spy and

the equal weighted S and P and how much of that number one is inflation, how much of

that is AI, how much of that, it’s tough to say why are we expanding and excelling more

so than other countries, especially since many of these other countries were not, I

would say there were more aggressive with their lockdowns and things like that.

Ron Lang: And it looks they had a bump of recovery, but they’re all suffering Europe,

Germany is in a recession and some other countries are teetering on a recession in Europe. So

where’s that going to go? But the reason why I wanted to bring this up as an indicator

is I do not recommend oil as an investment to clients.

Ron Lang: I think. If you could tell me, everything is supposed to be based on supply and demand.

Can you tell me how much, supply there is in the world? [00:13:00] Nobody can. No. Same

thing with gold. People love gold. Oh, it looks pretty, but can you tell me how much

supply there is in the world? No.

Ron Lang: So where I’m going with this is that if I can’t truly measure supply. How

am I going to have fundamentals on what to invest in? The reason why I bring this up

is that if you take a look at oil, typically oil rises in a better economy, or look where

oil is gone. It’s been completely divergent and oil is this mauve or purple line or dark

purple line compared to our economy.

Ron Lang: Now, oil has ticked up. I know many of the energy stocks have ticked up over the

last couple of weeks, but just look at the divergence here and you can see that oil has

not been truly increasing with better economies. And I think 1 of the reasons why oil is not

over 100 hours a barrel. Is because of China and because of Europe and because of their

depressed economies, they can’t handle higher [00:14:00] prices.

Ron Lang: I know we joked about in a podcast several months ago, we were all like yelling,

bitching and complaining about, the average gas, the average price of gasoline is like

over. Four and a half to five bucks a gallon. I know it’s cheap in Texas, Arizona and California

and Washington are the three highest States with gasoline.

Ron Lang: And we were laughing because in Europe, it’s eight, nine bucks a gallon.

Jeff Kikel: So it’s eight or nine bucks a liter.

Ron Lang: They’re all leader. Okay. All right. My bad. I’m sorry. The metric system always,

it’s even worse

Jeff Kikel: than that. Yeah. It’s $16 a gallon.

Ron Lang: So I think truly that’s one of the reasons why oil is not over a hundred dollars.

Ron Lang: Yeah. Is because the OPEC countries and May and Russia and whatever, they realize

that. Maybe the US can afford it, but Europe can’t and China can’t. And those are two obviously

major drivers in the global economy. So I think this is something to look out for. If

oil does turn up, is that a good sign or a bad sign?

Ron Lang: It could be a [00:15:00] good sign of Europe and China pop back up again. But

it could be an ominous sign. If they’re trying to squeeze more juice out of the orange, as

far as pricing, because if oil ticks up while the economies are going down, that will drastically

affect the buying power of an average citizen in any country.

Ron Lang: What are your thoughts on that? Before

Jeff Kikel: I go to earning? Yeah. And I think there’s two, the U S dollar has been weakening

and everything else, which has an effect on that, there’s a pressure on it. As well. Yeah

I just think, OPEX, they just announced a cut what last week, another cut in production.

Jeff Kikel: I think they’re just trying to keep the stabilized up in the 80s. At this

point, they know if it goes up into the hundreds, then demand is going to go down drastically.

So they’re trying to manage that demand a little bit and keep the prices elevated because

it’s actually more expensive now to get it out of the desert than it used to be.

Jeff Kikel: At this point, because their reserves and Saudi Arabia, especially have gone down

drastically. And it’s, it’s, they’ve got a lot of [00:16:00] reserves, but it’s harder

and harder to get. And it’s not as high a quality as West Texas Intermediate or even

even Brent Sea Crude.

Ron Lang: I saw a stat a few years ago.

Ron Lang: They were caught, they were going through the what the cost is to pull out a

gallon of oil out of the ground Saudi Arabia and many of those middle Eastern countries,

the average cost is like 20 to 30 bucks a barrel in the United States. Because of a

lot of the rigs that came online in the last 20 to 30 years, the average cost is over 50

bucks a barrel.

Ron Lang: Yeah but that’s telling you right there. They’re trying to measure, what the

not just what the demand could be, but what the right price

Jeff Kikel: is. Yeah, the difference is though you’re talking light sweet crude versus some

of the garbage that comes out of the desert. And it’s the refining side of it.

Jeff Kikel: That’s more costly when you’ve got that kind of junk oil. Yeah. Especially

like Russia. They’ve got just junk oil that they’re coming out. It’s [00:17:00] dirtier.

It requires more refining, ours, if we would just drill it, God forbid ours is, it’s easier

to refine it’s light, sweet crude, so it’s actually very clean as much as you can make

it clean to refine.

Jeff Kikel: In the overall scheme of things, it ends up being, I think a little bit more

profitable and I think it protects us. From these massive price swings constantly. If

we were, if we God forbid drilled here in our, in the United States.

Ron Lang: Yeah, so I think oil prices is definitely something to look at and seeing where the

European nations and China correlates to the oil.

Ron Lang: But I

Jeff Kikel: thought, this was, yeah, diesel’s been on a massive rise again. It’s going up

at a higher clip. It’s way more expensive than, than regular gas. And that affects the

entire economy across the board.

Ron Lang: And this this comes from fact set, which is always chock full of good data.

Ron Lang: And if you take a look at this with EPS, which is the mother’s [00:18:00] milk

of driving, stock prices up and, company forecast and where things are going to be this is fairly

ominous. We could see an earnings pullback here over the last couple of quarters, and

now we’re looking at Q3 as a negative print.

Ron Lang: And the last time we had a negative print was when the market just flew following

COVID back in Q1, 2022. Look, I know we, I know we both feel, we know where the market’s

going here over the next six to nine months. And I just can’t see how somebody says there’s

no landing for a potential recession.

Ron Lang: Too many smart people smarter than both of you and I combined are looking at

the numbers like can’t ignore fax people, but. Earnings is a tremendous driver into

upward momentum of the markets. Even if there’s a lot of froth and PE ratios and things like

that earnings is earnings, earnings goes to the bottom line.

Ron Lang: It expands things like that. We can have a whole nother conversation about,

what UPS. [00:19:00] Had to give up in their union contract. And then now you take a look

at some of the demands from the United auto workers and what they want. They want a 50%

increase in a reduction in hours.

Jeff Kikel: I want to work. I want to make 50% more and I want to work 32 hours a week.

Jeff Kikel: Okay.

Ron Lang: If that, if they’re going to even get even close to those demands, price is

going to go through the roof and quality is going to continue to go down. Yeah. There,

there’s no other way to look at that.

Jeff Kikel: Somebody, it was interesting. Somebody put it. I was listening to the financial

news on my way home the other day and somebody put it just bluntly.

Jeff Kikel: They’re like, Do you think UPS is really going to be hiring a lot of new

people now with this new contract? Do you think they’re going to be hiring a lot of

new people at 32 an hour or whatever the,

Ron Lang: whatever they’re paying the drivers over 150, 000 a year. [00:20:00] You and I

are in the wrong business.

Jeff Kikel: Yeah. Do you think they’re really going to hire a lot more new people or are

they just going to make the ones that are there work a hell of a lot harder for that

money at this point? So did you really get That much out of it. And it’s going to just,

it’s going to raise the cost of packing or, packaging and sending and everything else.

Jeff Kikel: And unfortunately, they had the cave because the, they couldn’t shut down

UPS for, on a strike. With the amount of what’s going on out in the, in the world out here,

but yeah, you got it, United auto workers, same thing. You’ve got this point now where

a lot of the unions are trying to push hard for higher wages and more benefits and everything

else, and it’s just going to affect.

Jeff Kikel: The things that they need to sell drastically. And, like you said, cars are

massively expensive, even for a crappy car, you’re going to spend 25 or 30 grand right

now.

Ron Lang: What it really comes down to is the following. Everybody should be paid a

fair wage and [00:21:00] certainly a large company should offer good benefits where I

don’t think you and I are denying that.

Ron Lang: Absolutely not. But at the end of it, but at the end of the day, the unions

could say, and I hear what they’re saying, Hey, these company made billions of dollars,

but they reinvested a lot of money too, into operations, improvements, things like that.

But what happens in a recession?

Ron Lang: These companies, even the United auto workers, these companies build cars that

they ship overseas. UPS is obviously a global company. What happens in a recession when.

Their revenue goes down 30 to 40% and their profits go down 30 to 40%. Cost labor costs

aren’t going to go down. Yeah,

Jeff Kikel: they’re not there.

Jeff Kikel: Yeah. You guys aren’t sharing in the downside risk.

Ron Lang: There’s no risk for the employees other than they could go somewhere else and

get another job. That’s there. I hear you. It’s just like with the fast food, eventually

we’re going to pay 10 for a Big Mac. Yes. This is what’s going to happen.

Jeff Kikel: Or [00:22:00] what’s, I think, what’s happening. I saw this. Probably 4 to

5 years ago when I went into a Panera Bread and they had the little kiosk and, even to

this point, even to this day, I don’t care if there’s nobody in line. I’ll still walk

in there and use the kiosk because all I have to do is just put in my number.

Jeff Kikel: It’s got all my information. It’s got my credit card in there. I don’t have

to interact with humans. So life is good for me. Doing that, even if there’s somebody standing

at the counter that could help me right away there. I’m just like, I’m good with that.

Ron Lang: Jeff, I’m old school, but I know you are.

Ron Lang: I like going up because if I have a very specific to the order, they could put

it in for me. And it’s not that I’m a technophobe. I’m far from it, but you know what? I’m a

people person.

Jeff Kikel: I’m an off the rack guy, dude. I don’t get like dress shirts, tailored to

me and stuff like that. I’m off the rack, man.

Ron Lang: I hear you. I hear you. I hear you. So what happens next week? We’ll see where

the the digestion [00:23:00] of the CPI and the PC data tomorrow. So by the time we get

together next week it should be interesting to see how some of the dust settles with this,

and maybe we’ll go over some technical levels in the market that we’ll look at, even though

I know people might be more Focused on the fundamentals, which is fine.

Ron Lang: They, if they’re important too, at this time of the year, during August and

September the computers take over, it’s Skynet all over with Terminator and the markets will

get pushed

Jeff Kikel: around. I figure, we’ve probably got about another two weeks at least up, in

the major financial centers, they probably got another two weeks before their kids get

ready to go back to school.

Jeff Kikel: They’re actually, actually kids are already

Ron Lang: back to school here. Really? They started last week and many of them this week

yeah, this, they end this upcoming week is ours will go back. Actually, they like to

turn the air conditioning units off here in June.

Jeff Kikel: Yeah, and don’t turn ’em on until late August or mid August.

Jeff Kikel: Yeah, we’re

Ron Lang: probably late july early august to prep for this. The kids coming in.

Jeff Kikel: Yeah we’re in the same boat. All of our kids start going back [00:24:00] this

week. Upcoming? No,

Ron Lang: back in the day when I was growing up in the Northeast, it was standard the Wednesday

after Labor Day was the first day of

Jeff Kikel: school.

Jeff Kikel: It used to be that way in Texas too. And then all of a sudden, oh, is that

right? Somewhere it changed where they, they made the summer short, shorter in the school

year longer. But we’ve got a bunch of school districts down here that want to go to a four

day week. So it’s okay, you’re learning less.

Jeff Kikel: So just longer days, like an extra hour per day. So it’s not like it’s a drastic

amount. It’s not filling that Friday. And most of it’s a Friday. And I thought the funniest

excuse for this was it gives the kids more time on Friday to get their homework done.

Oh, I’m sure they’re going to be doing their homework on Friday.

Jeff Kikel: On the long weekend and then what is what do the parents do, because all right,

I’ve got to go to work and my kids off. And, do I have to get a babysitter and all that?

Yeah, it’s just, it’s goofy and it’s be interesting to see.

Ron Lang: [00:25:00] I don’t know if that’s truly for cost savings or it’s part of the

union contract, because at the end of the day, what’s going to happen 5, 10 years from

now, Hey, let’s go to a three day work with a three day week.

Ron Lang: That’s

Jeff Kikel: exactly right. And the problem is the rest of the world is going, Hey we

need to stay in school all, all year long so that we can learn and the opposite direction

of our kids are so stressed. They have to go to school for whole days.

Ron Lang: Yeah, I hear you.

Ron Lang: We’ll see what happens.

Jeff Kikel: I agree. We’ll we’ll cover what I was going to cover next week about the 401k

hardships because I think that, yeah, that’ll be a good topic. It’ll be a good topic to

have a discussion about because that is that is a crack that I see coming, and this is

cracks behind the scenes and as a real estate investor, I look at it as this is a big crack

that, that we need to be cognizant of at this point.

Ron Lang: Yeah. You know what? And we’ll talk about it next week, but I think it’d be interesting

to correlate the rise in hardship loans [00:26:00] to the spike in bankruptcies too. Yeah,

Jeff Kikel: absolutely. All right, guys. Thank you for joining us, Ron. Thank you for being

on my friend as always. And folks, we do these once a week on Thursdays.

Jeff Kikel: So make sure that you hit that subscribe button and please give us an up

vote on on YouTube to just say, Hey, we’re out there and let us know that you’re out

there. And if you are, if you’re willing, certainly give us a comment, if you like what

we’re talking about, or if you want to learn some other things.

Jeff Kikel: So thanks a lot. And we will see you guys back here next week.