Good morning folks. Welcome to another episode of the sense of things for this week. And on today’s call, we are going

to discuss because we are in an interest rate raising cycle after Wednesday’s Fed meeting. We’re going to talk a little

bit about money printing by Fed chairman. We’ll talk about CPI today.

We’re going to talk about earnings beats in this current environment and then inflation mentions on earnings calls.

And I’ve got a piece on what the market typically does, the S&P 500 typically does in a an interest rate raise cycle.

So, we’ll take a look at all of that.

We’ll be back in just a second. Hey everybody, welcome to the call.

Ron, how are you doing, my friend?

Two weeks left in Q3. I can’t believe I know.

Yep. And then Q4 is just going to fly through that point. We’ll be at Christmas before it’s too long.

We’ll start seeing Christmas stuff by next month.

I know. We’ll see that. And we’ll finish out the year with our usual. Did we hit our numbers or were we above or below?

So it well it’ll be fun.

One of the interesting things like the market is typically weak September and October. We know that obviously death especially during a midterm year. We got

a nice bounceback day today but I think it’s still digesting you know some of the Fed speak. But we could be flat to lower here over the next four to six

weeks. October is known as the month of bottoms are done and then based on the midterms I think we’ll be higher by the end of the year. But based on the results, it depends on how much higher.

Yeah, absolutely. All right. Do we have some uh this week in history? Yeah, a couple of interesting things.

Not a long list. 1787.

It’s funny, right? So, we’ve been doing this for almost three months since ended July 4th talking about that. And since

then, it took three months for them to get everything signed. Like I was telling you, there’s a good little

mockumentary, not mockumentary, but a a documentary with actors on this on Netflix called The American Experiment. Worth the watch.

Yeah, worth it.

18 1814, Francis Scott Key pens, the star spangled. Interesting.

1858, first transcontinental mail service begins to go to San Francisco.

So just think about that. It’s not even 200 years since we we tried that.

Yeah. And I don’t know if that was via train or if it was I’m assuming by stage coach at that point.

The transcontinental railroad was built mainly right after the Civil War. So this could have been similar timing.

Yeah. No, actually it couldn’t have been.

Civil War was a couple years later. So yeah, it was probably stage coach.

It was all stage coach stuff. Yeah. So, I’m assuming expensive as all get out.

So, not that. Your average Joe didn’t get to send mail to San Francisco. No have telegraph yet either. Nope.

1908, William Durant creates GM Jerome Motors and really what for

60 70 years they were basically America’s engine. No pun intended. Along with Ford, what was good for GM is good

for America. That was the old slogan.

1999. I did not know this. So hope probe reaches the moon. I know about Yuri

Gagarin, right? That was what 6061. But yeah, I had no idea they even had any moon aspirations prior to

they were so far ahead of us and yeah, they were so far ahead of us and then when we put a man when we put the men on the moon, it was like it’s not worth it anymore. We’re not even going to try.

But here it is. That was this is 10 years before we put somebody on the moon.

Sure. probe that went there. I didn’t even Yeah, it was Nick when they put Sputnik about right the first the year Garren

got there I think it was in 60 yeah but Sputnik you’re right was like that was during Eisenhower so that was maybe a year or two before this Yep.

1963 Mary Kay Ash launches her namesake company Mary Kay Cosmetics in Dallas

Texas your future home my future and my former home.

Here we go. 1964. I thought this was the most important one. Pop-Tarts debuted.

Well, if you haven’t had one in a while, I don’t know what your favorite is. Mine is brown sugar frosted cinnamon.

Oh, I can’t eat any. I don’t like sweets really for breakfast. So, it just disgusting.

Not a breakfast. I know they said for it is not a breakfast meal, but the brown sugar, frosted brown sugars, I think

it’s got some street value. I that once again I never could I never I just I hate donuts. I hate anything sweet for

breakfast. So I’ve never been a Pop-Tarts guy. No bear claws for you in Texas. No bear claws, dude. I don’t like them.

No, no Round Rock Donuts, which is the big thing around here.

1970, Jimmy Hedricks is found dead. One of one of definitely the top 10 most in influential guitar

players of all time. Of course, he was found with a pop cart in his hand, but just saying this either Jimmy Carter files a report on UFO sighting.

Yeah, I heard that.

Yeah. Yeah, I do remember this. Yeah, cuz he was I think he may have still been in the Navy at that point.

No, he was already governor of Georgia at this point.

Oh, that’s right. Yeah, cuz he saw him over his peanut fields or something like that. I want Yeah, I saw some UFO show about this. I read the first the first

paragraph of the article and I’m like, “Wow, I don’t remember. I was too young, but I don’t remember them ever bringing that up during the whole thing.” Oh,

yeah. You saw a flying saucer during this Yeah. during this recent where they were releasing UFO files and I saw a show where they were talking

about it. And just to go back to your previous one, Jimmyi Hendricks was found dead with a Pop-Tart in his hand. Not saying anything, but

Oh, you know what? I did hear that. I didn’t know if that was It’s completely fake news, but just saying.

All right. And And actually, the other fake news was Mama Cass didn’t really choke on a ham sandwich. It happened to be on the bed.

She didn’t really choke on it.

No, it was the heavy amounts of drugs she had before that.

That didn’t help. 1976, NASA unveils the first space shuttle called Enterprise.

Yes. to boldly go where no man went before except about we remember this very well to to me and

you it’s still recent history 18 years ago Leman Brothers declares bankruptcy and it’s the final nail to begin the

ripple effect because basically it was 11 months before when the market hit a high in October of 2007. So everybody

thinks this is what created it. It did not. In February of 2008 is when Bear Sterns Sterns. Yeah.

And then you then eventually had Lehman and Washington Mutual. There was a cascade effect that accelerated everything after Leman went went through bankruptcy.

And I think it’s still, if I remember correctly, the largest bankruptcy in US history.

Yeah. Before that it was WorldCom. It probably Yeah, you’re you might be right. We’ll have to look that up for next time. Yeah.

So, I thought this was interesting. I actually saw this on TV too and I already swiped the charts. So this is

interesting because if you look at it obviously we had a significant amount of acceleration but this was interesting

here the 90 to 2000 period we had the internet. Yeah.

President Clinton had the benefit of the internet to propel the economy. Why did we need to print so much money? I don’t

because we’re addicted to it. But this is when everything crashed in 01 and 02, right? And carried over a little bit

into 03. So I could understand why it accelerated with Bernaki and Yellen. I don’t know why Bernaki I understand because we got to print a lot of this.

Crisis always creates chaos. Yeah.

So that I don’t know why we continue to still print so much under Yellen.

Obviously threearters of with PAL was all co the free money, the the checks going out.

Yeah. But then he kept printing after that. That’s the thing that just annoys me. It was like it’s like these guys are just addicted to printing money and they just cannot.

But over here they stop. He stopped.

Yeah. But then he’s turned around did it again when the economy’s done extraordinarily well. So it’s you know they printed money into some of the

highest freaking periods of time of inflation which is just insane. But but then if that’s the case and I don’t

understand this war’s been there three months he’s already printed why because we’re addicted to it.

No because of war because we keep paying and sp we paying for our spending. That’s the problem.

That’s what I’m saying. They’re addicted to printing money because we don’t have responsible people that are running the show.

So couple of interesting charts I got here. This is basically the proportion of the S&P 500 500 stocks beating

earnings estimates. Ding dong. 80 almost 88% there of the S&P 500 better than 425

companies out of 500 B earnings estimates. This is pretty amazing. What are your thoughts?

Oh, I think it’s fantastic. It it tells you how it shows you how AI is starting to roll in because it was before just

the top companies, but now you’re starting to see how AI is starting to affect all these companies and increase

productivity, which thus increases the the profitability of these companies. It’s amazing.

If that’s the case, I’m gonna go back to it, not to harp on it.

Yeah. If that’s the case, why are we still printing money and why are we over 40 trillion in debt?

Had once again cut that in half. Yes, I agree.

So, four charts here. So, I thought this first one was interesting. How many companies cited inflation

on their earnings calls? So, recently it was 205. Okay. And which sectors had the most?

industrials, financials, and consumer staples. What are your thoughts here?

Yeah, and then it that’s the area that you’re probably going to see it most because industrials most of them are building they’re building new factories

and things like that. So, they’re experiencing the the cost there. I think from both a materials and a labor standpoint, financials, I don’t know. I

just don’t quite get financials in this world right now. And I love when people talk about, oh, when we see interest

rates go up, then net interest margins for the financials and the banks are going to go up. No, it you’re they’re typically going to see the exact

opposite happened. They’re typically the worst performers going into an interest rate.

Discretionary would have been the top would have been one of the top.

Once again, you see the numbers, the retail numbers yesterday. If everything is so horrible, why are people spending

a crap ton of money still into this? If if interest rates are high, if debt’s so

high, why are why did we have a 1.6 or whatever it was, 1.4% rise in in retail this? Yeah, part of

that’s pricing, of course, there there’s a an inflation component in that, but people are still spending money. So, I

think that discretionary piece, that’s the one where people will spend money regardless. And I think staples, they just get squeezed because they don’t

have super high margins in a lot of cases.

Yeah. But with consumer discretionary, if they don’t raise prices and inflation goes up, then their margins get squeezed also.

Yeah. But they’ve been able to raise prices. That’s the thing. Yeah. They’ve had the ability to continue to raise prices. the Staples typically. This is

the Staples is where you get all the people complaining and the of course the news reports about this and this price and that price and the cost of toilet

paper is going up and everything else, but they don’t talk about the cost of watches or the cost of even vacations.

They just gloss over that.

And then again, breaking it down here, we go over here. This is just a different way of looking at it, but this

is just citing inflation on earnings calls versus quarterly. And you could just see the spike here of where of

where we are. I just think that and look, we just did a look, a quarter of a percent rate rate hike does nothing. So,

they’re raising it once or twice before the end of the year. They’re saying they’re going to raise it all the way through maybe Q1 2028. Uh, wow. That’s all I can say.

So, we’ll have to see. Does the correlation between companies citing earnings inflation and earnings calls

correlate with them continuing to raise interest rates?

Yeah, and I think it’s going to continue and I don’t think it’s anything related to interest rates. I think it’s going to be the biggest thing is diesel fuel with

diesel fuel over $6 now that’s going to start coming into play and I think it’s going to be the factor that really

pushes it up. So no matter what the Fed does, I think you know me, I’ve said this all along. I think it’s absolutely

idiotic to raise interest rates right now because we’re in an artificial in inflation environment right now because

of fuel costs and the combination of what’s going on overseas with our

ability not to refine enough diesel fuel. So you really have got Russia that’s the primary provider of diesel

fuel to the world. That’s the largest one that generates diesel fuel and we’re just not getting enough out of there.

And then the Ukrainians, which God for Yeah, God love them. They should be doing this. They’re starting to hurt Russia by bombing their oil fields and

their pipelines and everything else, which is going to have an effect on Russia that way, but it has a massive

effect on the world. So this is not just because of what we’re doing in Iran.

We’re putting as much oil almost from before. The other I was just listening to Chris Wright yesterday and we put 18

million barrels through the straight of Hormuz yesterday or I think it was on Tuesday or Monday of this week and the

average for seven days has been 11 million which is pretty damn close to where it was pre-war.

But the problem is the refining capacity. We just don’t have enough refining capacity to be able to get the to counteract anything coming out of Russia at this point.

By the way, you may be over $6 in taxes for diesel who spotted in California at $8.99.

That’s their own fault. Once again, that that’s their own dumb fault for putting a massive amount of taxes on it. So, I don’t even use California in there. So,

I hear you. And then looking at just CPI changes over the last 15 years. I thought this was interesting because if

you see it right, what’s the food and energy? So you got the food as the the light blue line. You got energy as the

dark blue. I thought this was interesting here that energy has been a negative effect on CPI throughout certain quarters.

And then you have everything. Yeah, we were above the average it looks like last year, which I thought was pretty interesting. But here

we are with the CPI. It’s come down a little bit, but obviously not enough.

They wanted around here, right around 2%. And that’s what they announced yesterday. Your thoughts?

Yeah, it is where it is. We’ve got to get it down at this point. But you look at how long it’s been elevated up there.

And like I said, we’re oil and energy is not helping. And I think it’s going to get worse before it gets better at this

point. And once again, raising interest rates and being super tightening is really not going to have necessarily an

effect on the goods inflation side of things because it’s going to get counteracted by elevated diesel prices.

Yeah.

That until we can get that under control. And I’m not necessarily sure that at this point I just at this point

the the oil market’s got to get out of their head that everything is still horrible at this point when they’re actually getting the same amount of oil

out of there if not more. Once again, this is the perception of, oh my god, the Iranians are blowing the living tar

out of ships. They’re really not at this point. And this week it’s been the Houthies doing whatever they need to do.

This is the part of oil that annoys me because it’s so manipulated. It drives me crazy. There is no logic to it. All

right, let me Not very much information this week or what’s left this week for what’s going on with inflation and

everything else. Not much more from economic numbers. So, let’s talk a little bit about and this is the question I’ve been getting this week is

what happens after a Fed rate raise. If you look at the average, all right, so this I don’t think is going to be the

average, but if you look at the average, usually the first six weeks, and I think this goes to your point specifically,

Ron, before, for the next six weeks, we’re likely to see the market kind of pull back a little bit. And on average,

that has been about a 4% pullback over that six-w week period after the first rate hike. But typically the market kind

of heals itself and about 6 months later once again on average the market’s up

about 4% and 9 to 10% a year later. So 12 months later and the market just kind

of has to adjust to what’s going on. Now here’s the big catch. In 2022 we saw a really heavy tightening cycle.

This started with the a lot of us called it the Santa Claus tightening or whatever really getting major tightening

right before the 2022 Christmas season and things like that. When the Fed is doing a lot of inflation fighting

tightening like this, we’re going to typically see the market not do as well.

And that 2022, it was 12 months later and we were still down after that point. This is the more

of the inflation fighting type of Fed hike. Plus, we’ve got oil prices and we’ve got the longer term curve of

interest rates. That somewhat concerns me. So, I think you need to be this is not a panic time. You don’t sell and go,

“Oh my god, the market’s not going to be there.” You just have to be a little bit more patient with the market. Now, the two

areas, as I was doing some research on this, historically, the two areas that perform the best in an environment like

this are energy, which we’re seeing oil prices up and energy stocks are already

up. So, this could put an additional kind of bid under them. And in information technology, interestingly

enough, which is funny because every time interest rates go up, it seems like all the information technology stocks go down, but they typically are the best

performers. Worst performers are consumer discretionary and the financial market, which is what I was saying

earlier. Everybody has this assumption that net interest margins go up because interest rates are there. What happens

is then loan volume goes down and the banks don’t make as much money. I think this is a a different time period

because I think the Fed is bound and determined to get inflation down to 2% and I think it was pretty hawkish

listening to the chairman, you know, chairman Walsh Dors talk, but I think it’s a reality point and I think this is

going to be a little bit of a different animal because of the Fed’s decision to say, hey, we’re not just going to tell you what we’re going to do. You’re going

to have to make your own decisions based on the data that you’re seeing, not on what we’re seeing and then what we say we’re going to do. Thoughts?

Typically, I remember this from a couple of years ago when they were starting to lower rates that they said that when the

Fed either increases or decreases the interest rate, typically the effect to the economy isn’t for 9 months or at least they see effects from it.

So, if they do, let’s say, one more rate hike before the end of the year, what that’s saying is we’re really not going to see the effect of this until next summer.

Yeah. Next summer. Yeah. Next summer to mid early fall, basically this time next year.

From a behavioral science perspective, yeah, it has an immediate effect, but the true effects in the economy is nine

months out. So, yeah, the market doesn’t know this.

Yeah. And the average the the stock market tends to think about six months ahead. So it makes sense that okay, you

get that initial shock and then it’s okay. Yeah, here’s but here’s what we’re seeing down the road or here’s what we’re betting is going to happen down

the road at that point. So it it would not surprise me. I honestly still think we’re going to have a pretty damn good

fourth quarter this year just with the the earnings we’re seeing out of these companies. you were showing that it I still think we’re going to have a pretty

damn solid Q4 regardless of interest rates are going up.

It’s going to be a combination of the interest rates and the elections.

I truly believe and I’m not going to get into it on this podcast right now, but depending on which way it may swing, there will be an effect on the market.

There’s no doubt.

Yeah. Like I said, if I try not to predict what the and honestly, it doesn’t matter who’s in what office or whatever. The market does what the

market does. Yes, they’ll bet based on stuff, but once again, if let’s say one the Republicans lose one of the houses,

then nothing gets done. And quite frankly, the market typically does better in that group where Washington can’t get in people’s faces. I I just

think there’s some things going on right now that are just plain politics with the Clarity Act this week. Okay, guys.

That area is such a wild west. We need to get the Clarity Act done so that you there’s at least some kind of rules in

place and some people regulating it and it’s all about politics right now, which is just frustrating because it just needs to get done. Should have been done

over a year ago at this point, but it’s just ridiculous.

I hear you. So, we just got to get our popcorn ready here over the next six weeks.

Yeah, it’s going to be a it’s going to be a bruiser, I think, going to the last six or the last two months before the election. It’s going to be a bruiser

going in here. For those of us that enjoy watching politics, I enjoy watching the bruising going on. It’ll be entertaining to say

I hate it all. I I like it after the election because my feeds and my phone don’t blow up.

Yeah, I can get rid of the text hitting me every 15 minutes. both sides.

Apparently, both sides of the house think I’m on their side because I’m getting texts from both sides of the house and I’m like, “Please stop. Just stop.” Yeah. But they keep selling your information to another service bureau.

So, they’re just they’re just it doesn’t matter. They’re they may be stopping, but it’s going to keep going. It’s a daisy point.

They just keep hopping numbers. It’s the same ones and they just keep hopping numbers to something else. All right, folks. Thank you for joining us. It’ll be wild and woolly for the next six

weeks and we’ll be here every week to make sure that you’re kept up on that.

So, make sure that you subscribe to the channel, keep an eye out for the emails that we send, and we will see you guys back here the next time.