Cents of Things Episode 19 ===
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
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
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.
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
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
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
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
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.