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#FinanceDaily: Danish makes bear case | El NΔ«no is here
Recorded: July 5, 2023 Duration: 1:29:01Space Recording
Short Summary
The Japanese stock market is experiencing significant growth, driven by investments from major figures like Warren Buffett and reaching historical highs. Trends in the global economy include persistent inflation, labor unrest, and potential shifts in labor force participation due to policy changes. Environmental factors, such as the onset of El Nino, are also expected to influence economic conditions.
Full Transcription
All right, I'm trying my AirPods.
Is it soft or is it normal?
It's a little soft.
Lord.
God damn it.
I just hate having this in front of my phone.
All right.
It's so fascinating because every single time, like I take like a phone call or have a Zoom,
I use my AirPods, no problems.
But for some reason, I think they're doing some sort of transformation or something on as the audio is getting into spaces.
And I think it messes the whole thing up.
Can you guys hear me now?
Can you hear me?
Cody?
Yeah, it's perfect.
It's just so stupid.
I don't know what they're doing on spaces.
Okay.
I'm about to get a message.
Hold on.
I just talked.
I said something negative about spaces.
So I'm going to get pushback.
Just kidding.
All right.
Give us like a couple of more minutes and we're going to get started.
I still can't believe that.
We're going to be talking about El Nino today.
It'll be so interesting.
Should we talk about Japan?
Japan?
For some reason, everybody's talking about Japan right now.
I think so.
Huh? Cody?
I said, I would vote yes.
I would vote yes.
Or have you been reading about Japan this last week?
Well, I mean, reading about Japan for the last couple of months.
What have you been reading?
Tell me, tell us more, because I've been researching it,
and I don't understand why there's something very specific.
So this will be helpful for me.
What's going on in Japan, man?
Why is everybody talking about it now suddenly?
Well, I think demographics is probably the key thing to look at when it comes to Japan.
A lot of people are trying to relate the U.S. economy to the Japanese economy, especially when it comes to real estate currently.
but they're just not comparable.
You're seeing a huge demographic collapse in Japan.
40% of their population will die by the end of the century.
So just a lot of key factors.
So that's what I thought about Japan as well.
But in the last week or so,
all people have been talking about is how bullish they are in Japan.
So Japan has been continued.
So let me walk you through some data.
So the Niki 225 and the topics have been,
had just broke their 33-year highs in late May.
And Goldman Sachs is saying that Japanese stocks could see a prolonged advance over the medium term.
And all of this is being driven by Warren Buffett.
So in April, Berkshire Hathaway,
bought five Japanese trading houses.
So something that people don't know about Japan, super random.
But the way they work is that they have these trading houses that have little pieces of all the major companies in Japan.
And so they are essentially like buying indexes.
But they're like, imagine Kathy would, but like good.
You know, that's kind of how I think of the trading houses.
But like, you know, instead of just like making stupid predictions,
it's like, you know, they buy like real businesses.
Okay.
So don't get mad at me, Jeff.
I know Tesla is one of our holdings.
But so these five Japanese trading houses and Berkshire Hathaway went real deep on them.
And Buffett.
uh then built this catalyst where suddenly people are like well if warren buffett is getting into japan
what does he know that we don't know and so japanese indexes have been like climbing uh for the last
you know a few weeks after um and even though japan has seen increase in inflation um
Guys, the Tokyo Stock Exchange has never been so hot as it is right now.
And again, I'm just not sure if this is like an actual bubble.
You know, like there's nothing to me.
that signals like, hey, there's been a real change.
But I'm kind of curious to see, is this because of the Bank of Japan changing their stance on quantitative easing?
Is this because of Warren Buffett?
But something's happening in Japan.
It's like, what's the guy for basketball who said something's happening in Utah?
Oh, my God, I should know this.
Brian Winhorst.
You know how Brian Winhorse was like, there's something happening in Utah.
Do you guys remember this?
Is it just me?
Am I the only NBA fan?
Well, I'm just letting you guys know there's something happening in Japan, something really
positive happening in Japan.
And I have no idea what it is.
Jeff, have you heard of this where Japanese stocks are just freaking pumping?
Yeah, I have.
But yeah, it hasn't been clear to me as well in terms of why.
But I've definitely heard and seen the same thing.
And I saw Buffett.
you know, in there.
And I do think there's some continued momentum.
Yeah, it's weird.
If anybody knows why the Japanese stocks are pumping,
please go to the bottom right in the comments.
Give us your thoughts.
Give us your insights.
And then, you know, we'll post them up.
Yeah, Michael, what do you think is going on?
Yeah, well, I don't have anything purely definitive, but I would say one thing from my
own observations is just that Japan had a really tough go at it after they had that massive crash.
And I think a lot of...
A lot of investor capital was scared to touch Japan.
It was something like their stock market hadn't made a new high for like 20 to 30 years.
So I think a lot of people were scared to get involved in that market.
But at the end of the day, Japan's got a lot of very innovative companies there.
Japan's got a really good culture for innovating and trying out new technology.
So I have a feeling over the next couple of years, we're going to see a lot of really good businesses build there.
I think we need to see large institutional investors become more confident.
Yeah.
in the economic path.
But it seems like to me they were doing pretty well right now
compared to how they've done in the past.
So I think it's all just building confidence back in the economy.
And I think it took a lot of people to get over the drought they had
over the past 20 to 30 years.
Yeah, but people were scared of Japan for a reason.
They were scared of Japan because Japan...
has had a really crappy consumer economy.
Their consumers are getting older.
Their dependency ratio,
Cody was kind of referring to this.
For people that don't know,
they have like an actual terminal population.
Like there's not enough people of working age
to even support the elderly right now.
And so their demographics are literally one of the worst in the world.
And so I think the underlying assumption here is,
the demographics, you know, in terms of
actual performance of an economy or destiny.
I do agree with you, Michael.
One thing that people don't realize is the Japanese are far ahead in robotics.
The Japanese are way far ahead in AI.
And so both in the physical and the digital world.
And so it is quite interesting to think about Japan being sort of an early adopter of this technology.
And maybe they're further ahead.
But Mickle, I don't know a single AI company that comes from Japan.
It doesn't mean anything.
I'm just saying like,
Japanese tech is not
you know, I don't know the Cassio of AI in Japan.
You know what I mean?
Yeah, I know.
I would definitely agree with those statements.
I think they probably have people are trying to see potential
and what they have going on there.
But I would definitely agree with what you were saying about the consumer as well.
I think as we go into a more internet-based economy,
we'll probably see more ability for places with those demographics
kind of branch out and reach further out.
But I take your points.
Oh, that's a good point.
That they don't have to sell to themselves.
They can sell to anybody.
That's a good point.
I guess I didn't think through the basics.
All right.
I think we're waiting for a few more people to show up, but let's just get started.
I know that we're expecting factory data as soon as the, as soon as the market's open.
Anything you're looking for, Jeff?
What are the expectations?
Go ahead, Jeff.
I think there's going to be some, I mean, I think there's going to be a little bit of,
you know,
continued weakening with these rates,
you know,
being up where they're at.
I think auto are still going to be,
you know,
fairly strong in the first half.
It'll be interesting to see if there's any kind of forecast
or predictions for the second half.
I'm a little bit more wary.
on that. So
I'd be interesting to see. I don't have the exact
expectations in front of me right now, but
there could be a little bit of weakness we see. Yeah. I think people are
calling victory way too early. I think every single thing that's
going to come out in the next few weeks to months is going to be bearish. That's my
new prediction, by the way. And it's easy to do it.
Being a bull in January would be the easy thing to do
which is what a lot of people did,
and now they're calling victory.
Had they been wrong,
they would have been like,
well, everybody was thinking
that this was going to happen,
and people will just forget.
So it's easy to be the contrarian,
and so now I'm going to be the contrarian.
I'm going to use a tactic for many people's playbooks.
You are hearing it right now.
The rest of the year is going to be awful.
It is going to be awful.
Everybody's wrong.
This is not a bull market.
This is a bare market rally.
This is going to be an awful, awful year.
There's going to be some sort of Black Swan event.
people are going to lose a ton of money is going to be an awful year that is my new prediction and by the way if
i'm wrong you all will forget so it's okay uh i don't agree that it was easy to be a bull in the first half
i mean just saying it is easy right like the point is being a contrarian is super easy because even if
you're wrong nobody will remember like that's my that's my main point i'm just talking about more on the
on how people work now which
which is all you have to do is just say the opposite of what everybody else is saying.
And then, like right now, I would say everybody thinks that we're in a bull market,
which is bullshit anyway.
It's not going to be a bull market.
It's going to be sideways.
But if you say the contrarian bet and you're wrong, literally no one will remember.
That's my point.
It's like...
People have been so wrong about so many things,
but then yet people move on and act like they,
you know, they're just waiting for their next point.
So, sure, it would be the contrarian bet in January
to say that we were going to have a bull market.
If you were right, now you can take your victory lap and feel really good about it.
If you're wrong, nobody remembers.
That's my point, Jeff.
It's more about just like Twitter mentality.
That's people are...
it's easier to be a contrarian that that's sort of my point uh oh yeah so factory data is coming
out this morning we're gonna we're gonna give it to you guys live the thing that we're looking
for on the factory data is is exactly like jeff said the outlook look ultimately any good um
any good steward of their money especially in the manufacturing business is is realizing that
weakness is coming in terms of goods so i don't think that goods are going to be uh
are going to be a have positive earnings outlook right now.
I think services obviously is harder to predict.
I think even that in general, what we're going to see as we enter earnings season in the next
few months is that people are going to give negative outlook so they can beat it.
So don't be surprised if people are giving you poor outlook.
Cody, Michael, are you guys looking for anything on the factory data?
Again, it'll come out right as the market opens.
Yeah, nothing in particular.
I mean, on the ground, you know, all the manufacturing partners that we work with are still
backlogged, you know, six months.
So it would be interesting to see what comes out.
Yeah, I'd agree with that.
Probably nothing besides the obvious indication of what this indicates for rate hikes or
recession possibilities, but probably just taking them at surface value and then analyzing
based on what I see there.
Yeah, I think the other big thing to keep in mind is both of you guys are in health care,
and health care is very recession-proof.
So, you know, when we're looking at consumer and consumer discretionary,
I think that's where it's going to tell us about the markets.
All right.
Did you guys see the story on the Canadian ports?
So let me pull it up real quick, and I have a tweet sort of lined up.
So as is customer in Canada...
Port workers are unhappy.
And sorry, that was a Canadian joke.
But port workers in Western Canada have been striking since Saturday
as they failed to agree on a new contract with BCMEA,
so the British Columbia Maritime Employers Association.
There's no deal in sight.
The reason why this is so important, just so everybody knows,
is this is going to have crazy effects on the supply chain.
All right?
Remember how all that supply chain shit was happening a few years ago?
During the pandemic,
this is going to have significant impact.
And I'll walk you through the numbers.
So, and interest, I'll also tell you about the news of it.
It'll be the news cycle and how this is being portrayed.
Hold on, sorry.
You just want to make sure.
Yeah.
So right now, the British Columbia Maritime Employers Association is in negotiations with the International Longshore and Warehouse Union.
Why does it matter?
Why do you care?
Well, the ports are currently paused.
until this is fixed.
And an estimated $19 billion in trade is stranded at the ports of Vancouver and Prince Rupert.
This is like an actual, in my opinion, it's going to have a real impact, especially if as this strike continues.
So what Vessel value, which is sort of this place where you can track Vessel Transit is
So you can see, you know, how much does this slow down the supply chain?
And Jeff, I'd love to get your thoughts on that port and those ports and their impact.
But the turnaround, they are estimating that turnaround times are set to increase
and congestion looks to be mounting outside of Vancouver.
And it's, again, you know, this is already in day four.
People are estimating this might be multiple weeks.
you know, what the government, the, sorry, ILWU statement said that the government gave a 7% increase in minimum wage, recognizing the crazy cost of living.
And by the way, on our stages, we've been talking about the cost of living issues in Canada right now.
They don't make...
American money, but they pay way more in housing and shelter than we do.
And so the Canadians are really struggling and they got a 7% increase and they're not happy.
And so, you know, Jeff, are you hearing rumblings around this Canadian port?
It's all over the news, obviously.
But, you know, one, how impactful is it for the U.S. or for global supply chains?
Yeah.
Yeah, a lot of this depends on inventory levels, both at, you know, warehousing and at retail and what these, you know, what this product is that's potentially stranded.
I mean, it's never a good thing.
But you have to kind of look at, you know, when we were hand to mouth during COVID, you know, we had inventory drying up.
and you had this port build up.
And you couple those two together.
That's when you have kind of that cataclysmic event.
But if you look at inventory levels now and you look at warehousing,
I know in the U.S., you know, inventories, you know, are in, you know,
not only, you know, if you call it good shape,
but, I mean, there's significant inventories in some locations.
So you have to look at those two together to understand like the lag effects
and when this will start being a real...
a real issue. So I don't know that data right now on these two ports and then in terms of what they're feeding.
But I'll look in the background. But you really have to look at kind of like existing inventory levels.
But this whole thing of like, you know, pending strikes. I mean, there's a big one with UPS pending. And that
That could be obviously huge.
And then there's the United Auto Workers that, you know, there's rumblings that something could go down in the fall time.
So I think we're going to be talking about this for a bit.
I think a lot of these labor unions are going to be kind of going after, you know, better terms for their employees, especially, you know, there's an opportunity.
There's any kind of slowdown.
But right, I mean, right now is important.
Lacken leverage.
As if inflation actually affects things.
Like, you know, regular workers.
So I'll talk about that in a little bit.
But I wanted to, you know, some of the numbers.
So the Vancouver and Prince Rupert ports collectively process almost 20% of U.S. trade.
20% of U.S. trade comes through those two ports.
according to CNBC.
And so this is pretty significant.
And I venture, now I need to figure out what specific sectors are going to be more affected.
If Caleb, Mickle, or Cody are aware of what specific sectors are going to be affected by this,
I'm raising the red flag that this is going to be something that people are going to be talking quite a lot about over the next few weeks and that there's going to be significant lag effects of this.
If we truly believe that we're not in a crazy recessionary period and that we're not going into a crazy recessionary period, which by the way it means that there is no demand destruction or significant demand destruction right now and 20% of trade is affected, clearly it should increase prices.
and will make inflation worse.
Am I missing something?
Does somebody have a different hypothesis on whether this is going to have zero impact?
I'm willing to be corrected.
I mean, Caleb, you've been talking about disinflation quite a lot.
Does this go into your disinflation hypothesis?
You know, the fact that a port is now closed for four days and likely will be closed represents 20% of U.S. trade.
Does that make you worried about the stickiness of inflation?
No, I had never even heard of this until I jumped on two minutes ago.
Look at the Jewry World Container Index, down 79% year over year, down 3% week over week.
I'm more concerned about international dynamics rather than one Canadian port.
hopefully they get that together but this certainly does not impact my overall outlook for disinflation
um by by any uh by any you know metric at all so for me this is a non factor um it wouldn't have even
been on my radar had it not been for this space so those are my kind of two cents yeah no it's it's fair go ahead cody
Yeah, I was going to say, so, I mean, we kind of went through a similar thing here in the U.S., right, 2020 and then 22.
They extended it in 2020 and then, you know, resumed in negotiations.
I think it was May of last year, maybe Jeff knows better.
But, you know, this was something that was on my radar then, and it became a nothing burger.
I imagine that the Canadians will also figure this out, you know.
also be a nothing to happen. Let me just let me just say one more thing here as well. You know,
the, the New York Fed publishes something called the global supply chain pressures index.
And I think the last time this was updated was for the month of May. So, you know,
clearly it's lagging, you know, by a slight degree.
But, you know, what they measure here is a standard deviation versus an average value from a historical standpoint.
And this metric right now is trading at negative 1.7 standard deviations from the average,
meaning that supply chains are historically loose.
There's no supply chain bottlenecks right now.
There are no issues with supply chains as of the end of May.
So I can see that this is lagging data.
But...
I just want to point out, right?
We have to take this with a grain of salt and on a relative basis that even if supply chains tighten slightly,
we are in historically easy, loose supply chain conditions right now and have been, by the way,
we've been below, you know, we've been in a negative standard deviation environment since February of this year.
So, right, we're, you know.
five months essentially, well, actually because this is as a May data, it's only three months,
but we've had three months of extremely loose and easy supply chain conditions.
Yeah, it's fascinating.
Yeah, it's what you got to look at the inventory data.
And a lot of people, I mean, you talk about recession, you know, recession happening in pockets.
A lot of experts are calling like the current freight conditions recessionary.
And, you know, freight recessions can last...
a couple of years.
Like,
it's like they don't,
they don't turn on and off like a light switch.
so yeah,
everything I'm,
we got to look at the relative inventory levels.
Yeah.
And just to see, I mean, this is like not a great time for labor unions to be striking at ports in terms of leverage on their part.
But let's see, let's see how, first off, let's see how far apart they are in negotiations.
And let's see where the inventory levels are.
We can all talk about what's happening on the trends.
But this represents, again, these little Canadian ports represent 20% of U.S. trade.
So, according to CNBC, so it's not like they're not going to have any effect.
And what I'm actually thinking more about and the narrative that I think is more interesting,
and I'll go to you, Dave in a second, is that this is going to continue.
People often don't think about the second and third order effect of what happens when inflation is high.
This is going to happen across labor unions.
You expect strikes over and over and over again as inflation remains sticky.
We're going to see strikes because businesses are struggling.
I'm actually not convinced UPS today also...
is dealing with strikes.
Expect this to be a trend that continues.
You all can keep talking about disinflation and deflation,
but no one has a crystal ball.
And proof inflation data has been wrong over and over again.
It gives you a good understanding of the short term
and maybe some long-term trends,
but it's not a panacea.
So I'm actually not convinced
that we have seen the end of inflation yet,
and that's okay, we can all disagree.
But I think that we do expect, you know,
as the Maxis would always say, zoom out,
zoom out a little bit,
and start thinking about the fact that every single time
inflation has been high, the first...
Real big domino is unions.
And so I'm very interested to see, are you all noticing how unions are striking sort of all at once?
I actually am not convinced that this is a bad time.
I think this is a great time for unions to strike.
And I'll explain that in second, but I want to go to Dave.
Dave, thanks for joining us, my man.
Yeah, hey, Dr. Donish.
Good to be here.
Hey, everyone.
I just wanted to say this is three weeks lagging.
Actually, if you remember before the little submersible Titan thing,
the west coast of the u.s was going through this exact thing with thick longshore workers
um and i put a little uh video a youtube video from a guy that's got a great channel he's got tons of
experience in shipping and knows all this stuff he he he was predicting a cataclysmic
results for the u.s west coast which is more than just 20 percent of u.s trade um but it looks
like they got that that ironed out in time so this is
already part of a trend. So
in your
you're zooming out,
we've noticed this already on the West Coast
of the U.S. And they've got an
agreement tentatively in place. Let's see if they can
get it signed off. Yeah, it's going to
be very interesting. I'm actually, and I
think that what we're going to see is these
negotiations last for longer
because of what
Sort of what Caleb was saying, which is, or no, not Caleb.
I can't remember who said this, so I don't want to say that somebody said it.
But, you know, that this is not the best time to negotiate.
That's what the other side will say, well, look, inventories are high.
We don't have to worry as much.
They both sides actually have the ability to make the case that, hey, we're in good shape right now.
And I can tell you that...
What's happening in Canada is unsustainable.
You know, Matt, thanks for joining us.
You know, you had mentioned how housing and shelter is way higher
and wages have not caught up.
I'm not surprised that people are striking.
Matt, what are you guys talking about in Canada right now
with what's happening in Vancouver?
Yeah.
Yeah, it's funny. We were just talking with this the other week about the amortization schedule that we've been putting in place here in Canada.
For the listeners who maybe not have been around for that conversation, we have been extending the terms.
And when I say the terms, I'm talking about the amortization terms of our mortgages from 20 to 25 to 30, sometimes even 30 plus years.
and it's creating just this elongated time horizon for when people think they can be paying their mortgages back.
But what they're forgetting is that mortgages reset every five years.
And so for people who locked in at those low ZERP rates of like 1.5, maybe 2%,
fixed, you know, they're coming up upon their renewals in 24 and 25. All will come up for sure in 25.
And then after that, who knows? And that's going to really screw a lot of people over, causing a huge glut of supply to come back on the market because people can't sustain themselves and they're going to be hitting their trigger rates very quickly.
The news coverage...
of these strikes is actually not that significant here in Canada, to be honest with you.
It's a little bit more on the West Coast, but we've been suffering from so many other things.
We had 2,000 flights canceled or delayed yesterday or over the long weekend from our largest air carrier air Canada, causing huge disruptions.
We had massive tornadoes that hit Calgary, Alberta.
which took out a huge amount of, you know, land and property,
largest tornado on ground since 1987.
So there's just been a huge amount of news to cover.
And the port's news has not covered a lot of news.
One, because it's the summertime here,
and I just don't think a lot of negotiations are going to be happening.
And two, most of the ports, I believe in BC, there's Columbia,
are not as responsible for what a lot of people,
the ports are in like Los Angeles or San Diego or for,
but more for like natural gas exporting.
There's a huge amount of natural gas, LNG,
liquefied natural gas exporting that happens at a BC.
So I'm not seeing a lot of coverage here on like, you know,
in the Toronto or eastern side of Canada.
That's fascinating because, again,
when I looked at the numbers, Matt, before you came on,
20% of U.S. trade comes from those two ports.
It's an insane number, and that's according to CNBC, and I'm happy to put the article in there.
And so...
If this was happening in the wintertime, too, it would be much worse.
Obviously, we import a ton of our groceries and products from California during our winter seasons.
But during the summer seasons, we're quite self-sustainable.
Yeah, it's fascinating.
And also, you know, I do wonder if because of all the news that's occurring...
whether the union bosses are saying, hey, we're going to make this strike last for longer.
The reason why I'm bringing this up is because we're seeing a flurry of strikes happening together.
The UPS strike that Jeff was referring to is another big story.
People don't realize what that would do to the local and global supply chain.
Since UPS is such a big player, Jeff, what are you hearing about this UPS strike?
And is that concerning at all?
Yeah, no, I'm still going through the details of it, but it is concerning.
I don't know how far apart they are right now, but it's definitely made the radar of a lot of different news outlets, and we'll have to see how it plays out.
Yeah, people often forget, again, this is my opinion, but inflation has been so high overall, and maybe we are seeing some disinflation.
Obviously, we are, given the data.
And disinflation data that we're using, a lot of people use, especially the Fed, is lagging.
So we don't know what disinflation looks like right now.
I think nobody that's listening right now is sitting to themselves and saying, you know,
I have noticed that things of the grocery store are cheaper.
They're just not, right?
I don't think the average consumer in America is feeling the difference at the grocery store.
It's not feeling the difference at their day to day.
Jeff, unless you have, I don't know where you live and you don't have to.
disclose that but you know i live in the midwest and i can tell you that we're not disinflation
uh like actively uh at the grocery store at the checkout lane at uh at the gas stations
you're not seeing disinflation at all right now well that would be deflation not disinflation
right yeah yeah careful don i'm just saying we're probably neighbors
Or probably neighborism in the Midwest, too.
No, I'm not seeing it as much either, but just back to the UPS stuff, I just look, they said about an hour ago, the Teamsters are accusing UPS of walking away from negotiation.
So two days ago, they said they were getting close.
The two days, two days ago, both sides said they were getting closer.
And I guess now there was a little bit of a ball this morning.
Jeff, do you think that the UPS is being so,
so I don't want to say callous, but so willing to walk away
because of what people were saying in terms of inventory,
or what you were saying in terms of inventories,
the fact that maybe there isn't as much pressure to get things done immediately.
What do you think is, because, I mean, it seems like an aggressive move.
Or that's at least what the team serves.
There's a number of factors that go into these things.
So, I mean, that's certainly one of them, like, what's going on macro, right?
And then, so I'm just reading through this right now.
It looks like UPS is kind of said that we've given like our best hand.
But I don't know. I mean, these these sides are just going back and forth. It's got a lot of coverage in news right now. But yeah, you know, right now it looks like they're a little bit of a stalemate. So I mean, this would be obviously a huge impact in the U.S.,
Yeah.
Hey, Donish, I want to come back to this grocery inflation conversation for a second.
I've been seeing this come up a lot lately, especially in Canada.
We have this grocery rebate that's coming out to families this week.
It's around $200 to $400 depending on the size of your family and stuff.
But people keep targeting sort of like the retailers as saying they're gouging customers
and the spread at which their profits are going up are insane compared to where they used to be.
And we need to put in this mandatory regulation on how much.
grocers can charge customers and things like that.
You know, the hard thing for people to wrap their head around is that it's not the
retailers that are actually performing well here and are gouging customers.
It's the supply chain.
It's the distribution channels.
You know, the largest CPG companies in the world, the largest farming industrial companies
in the world, they're the ones controlling all the, you know, the cost rises, you know,
the cost of logistics, the cost of packaging, the cost of human labor.
So when people say they're like food prices over CPI,
are much higher or the highest levels they've ever been. The problem is a lot of the stuff
in food prices is a part of CPI, like the cost of oil for shipping, the cost of human labor,
the cost of all these different things that go into the cost of food is the problem. And the only way to solve
the food price, you know, gouging that we're talking about because it's not even the word gouging.
Like there's a gentleman who wrote about how $100 billion in sales for the top largest Canadian grocery chains had only $3 billion of profits.
3% margins.
Yeah.
Now, yes, it's $3 billion in profits and $100 billion in sales, but that's still not great.
It's not like software businesses.
Yeah, I mean, but grocers have never been like software businesses.
And I will say, you know, when I was talking about grocery prices, what I was saying is I don't, no one's no one's seeing a slowdown.
Like gas prices are still skyrocketing.
at the no maybe not at the and that's the point they're not skyrocketing at the same speed but
this weekend again it's july fourth so you have to be a little bit thoughtful but i paid over
four dollars a gallon right and so it was at three something and now it was back up for uh above four
again for me uh again july fourth uh has a little bit of an effect there uh you know i feel like grocery
prices are skyrocketing still.
And it's hard sometimes
of the consumer to really recognize
disinflation in your day-to-day.
You know, I wouldn't expect prices to come down,
but I would expect them to slow down.
But, Matt, to your point,
grocers are making 3%.
I'm not saying people are price gouging.
I think that is a,
a really nice narrative of left-leaning folks.
I don't think that anybody, at least on our stage,
truly believes that there's price gouging going on.
But I think...
It's a pass-through business.
It is a pass-through business.
And remember, they have to hire labor,
and labor has been crazy sticky.
Like, Matt, isn't labor still very expensive in Canada?
Yeah.
Oh, it's insane. And I grew up in the produce business. My father and mother ran a small produce store in Toronto, Canada, for 25 years. So I saw it firsthand. I used to go down and negotiate with farmers and wholesalers to buy bananas and strawberries.
You know, I've seen how the supply chain is inefficient. There's a company in Toronto that's solving this problem called Flash Food, which is basically helping people purchase food.
ready to expire produce or goods days before and instantly come and pick it up or deliver it to their house.
See, the problem with the produce business and all those is the waste.
One in four bags go to the food garbage bin after you walk out of the grocery store.
If we can fix the waste, the distribution, and the supply chains, then you'll have price reduction instantly.
Man, spaces.
Jesus.
It didn't let me unmute.
That's funny.
I feel like Caleb didn't want me to unmute.
Just kidding.
Sorry.
It's just funny.
But, you know,
So we have, I want to, today, I wanted to be able to talk through the bearish case.
Since I think on our stages, we tend to be very bullish.
Might just be because we're young and wild and free and feeling good about life.
And, you know, Caleb is so young that he doesn't have all those, you know, creaky bones.
And, you know, he doesn't wake up with his knees hurting like I do.
So, you know, everything seems bad.
beautiful and gorgeous and all the colors have you know and he's in uh...
Caleb where are you today? Which country are you in today?
I'm still in Istanbul.
I mean, come on.
You know, think about life.
Wouldn't you be optimistic?
But let me give the bearish case.
I'm just kidding, Caleb.
By the way, I enjoy this banter with Caleb because he's obviously much more articulate than I am.
So I was going to say that, you know, the bearish case here is that we haven't actually seen the early signs of what happens in a hyperinflationary period where inventories are high.
like we haven't seen that play out through the the system yet um and that you know there's actually a bunch of
other things that are on the horizon obviously people saw what happened with blackstone the reason
i'm not covering it is because it's it's all over the news and mainstream media and corporate media
are talking about it blackstone is selling a bunch of his commercial real estate it is super scary
if you're in the commercial real estate business i am sorry uh you are getting killed right now um
You know, and so Blackstone is, they have a bunch of people they're trying to get their money back.
As they try to get their money back, Blackstone has to liquidate something.
They're going to liquidate their weakest assets.
Everybody here knows that commercial real estate is in the shitter.
It's going to continue to be like that.
And it's going to be a pretty bad situation moving forward.
Unless Cody, you suddenly disagree.
The commercial real estate is not going to be bad.
Cody, I'm going to give you the chance to, if you have a bull case of commercial real estate, first of all, you are alone in that, my friend, but I let you, since you're the real estate person, can you give us a sense of, is there a bull case for commercial real estate? If not, I'll keep moving.
Okay.
Well, I mean, I think we can all agree that there's some fracturing happening in commercial real estate.
But, you know, industrials seem to be strong.
You know, class A properties seem to be strong.
You know, and at the end of the day, the...
this is disinflationary, right?
As home prices stabilize and remain high,
you know, commercial real estate having some fracturing across the sector
is going to bring runs down across the board.
So this will be good for your corporates.
We'll see. I don't know.
Every single commercial real estate person that I know is telling me that
big,
big employers are moving out of office and commercial,
at levels that they've never seen before because of this hybrid workforce stuff.
That's one from the work from home,
part of this.
And then the second big part is right now,
as people are looking to cut costs,
in what they presume,
presume will be a tough,
environment. So by the way, when labor markets are tight, people are willing to do anything to hire.
And so some of the things that they're doing is they're saying, oh, you can just work from home
and barely work. And so, you know, there's, there's a lot of other factors here when it comes to
office and then commercial, you know, just broadly, you're right, industrial. What are you going to do
with industrial people that are building things have to come into the location, into, into the office?
But it's going to be, it's going to be interesting.
mickle i'm gonna let you jump in on commercial but i'm i'm trying to build a bear bear case today
since everybody uh everybody's so bullish all the time
Yeah, I don't think I'm going to help too much with that.
I do take your points that there's definitely issues in commercial real estate.
One thing that stuck with me, though, and I really learned on this space was when Robert Wolf came on,
and he was essentially saying, yeah, there's a lot of issues.
But in terms of a Black Swan scenario or something that's going to be really, really bad for the economy,
the fact that we're all talking about this and the fact that it's pretty widely reported,
on probably means it's going to have to be something else that breaks, that is the
Black Swan scenario.
This is an idea that I've really always subscribed to.
I mean, I don't think the masses are typically able to pick up on something that's going
to lead to an ultimate collapse.
So I completely agree with you.
I think things aren't necessarily in a good place.
And I think it likely could be a drag on the economy going forward.
I think Dakota made some great points on it being deflationary.
For me, I just don't think it's going to be the thing that breaks the camel's back, kind of like Robert Wolfe was saying, just because we already see a lot of people understand what's going on.
All right.
I agree with you.
Commercial real estate may not be what we think it is.
All right.
I agree.
But that's part of the case.
My big case for today is going to be that we are going to see.
more demand destruction than we think we are.
I know some people here believe that we're going to get to 2%.
I don't think we're going to get to 2%.
In fact, I think we're going to see it bounce back up.
And that's my case.
And it's going to be related to a bunch of other things like supply chain and labor.
So everybody here, so whenever you look back,
you know, hindsight's 2020, but you always think back to, well, what was the Black Swan event?
And it's usually the thing that people say was a good thing. That is actually the bad thing.
And this is like, it's a new thesis that I'm working on, which is in every cycle, it's the thing that people always, and again, it's hard for some people who are not here, but my family and a bunch of other families lost complete net worth.
during the 2008, 2007, 2009 cycle.
Like literally lost everything, families, you know, got annihilated in America all over.
And, you know, we didn't have much to begin with.
So I guess that's a positive in some senses.
But, you know, when you don't have much, it's fine.
But, you know, a lot of people lost a lot of money in that cycle.
And again, I want to put people who were there back in those, back in 2007.
And maybe 2006.
If in 2006, people could point to anything that was strong, what would that be?
Because broadly, you know, if you actually look at equities, it was not that great.
But what were people putting money in?
Do people remember in 2006, 2007?
What was the strongest thing that everybody was like, you know what?
This is where your money is safe.
Structured products and real estate.
Right here in Texas, people were starting to put money in real estate.
They were becoming doubling down on the leverage that they saw the rest of corporate
America having.
We saw real estate be the thing that everybody was like, this is the safe haven.
Everybody was betting that real estate was going to stay strong.
And the argument that I'm going to make today is that everybody is betting that the employer,
that, hey, David, there's a lot of background there's.
I feel like that's the music that I put next to my bed to go to sleep.
So I want to be careful, David.
So I don't know what beach you're at, David, but it sounds great.
But I was going to say that, you know, the point that I'm making is that in 2006, 2007,
if you grab somebody and you said, hey, where is your money safe?
Remember, this is post.com crash.
So people didn't believe in equities or tech as,
as much. This is post
a bunch of other sort of hits
to the system. We were
you know
people, people already
by the, you know, to Michael's point, people were talking
about auto. Auto is so bad. Again, I
remember this because some of you all may not.
But I remember how people are like, oh, the auto industry is so bad right now.
Things are going so poorly. Everybody was talking about
this is funny, but people were talking about Toyota and how Toyota was ruining
American car company. It was like a whole thing at that time.
I was like looking back at news, by the way.
I would recommend going to the way back machine and going in and looking at like CNBC in 2006.
It is crazy.
You have to, when you look at it, you're going to be like in 2008 or 2007, people were saying how there was a bull market rally.
You guys need to go Google this.
It is the craziest thing how people were like, this is a great market.
Everything is going great.
We are doing great.
By the way, there was also interest rate increases, but we're not going to go into all of that.
All right.
So we saw that, but do you know what everybody bet on?
It was real estate.
People bet that real estate was going to be strong.
So a bunch of people like my family were like, hey, we were renting and we were like, you know what?
We're going to buy a home because that's where our money is safe.
So everybody saved up a bunch of money.
You know, my dad didn't have that much money, which is fine.
But he took all of his money and he put it in real estate.
And man, oh man, did our family get screwed, right?
And so what I'm saying is if you listen to anybody...
If you listen to the pundits, and by the way, I love Robert Wolf.
I let him kind of talk us into some of these things.
And then, like, you know, I had a long weekend to think about it.
And I was like, no, no, no, no, Robert.
You're not going to get me.
I'm not going to fall for it.
I'm going to give the counter narrative.
And the reason why I remember Robert...
you know, while being incredibly bright and very, very good, is also messaging for the president.
He does not represent the administration, but he wants the administration to win.
So you have to keep that into account.
All biases on the table, right?
So he was an advisor to Obama.
He is close to the Biden administration.
He might as well be the NEC spokesperson.
All right.
So I just want to be honest also about his leanings, right?
And so I do want to speak to that.
My point is that there are a few things that people are not looking at.
Number one...
We have more weather events occurring this year.
That's why I put the El Nino story and we're going to talk about that.
And I brought up supply chains.
I brought up unions.
I brought up labor.
I think labor is going to break everybody.
Everybody's betting that labor is going to be strong.
And the thing that we think is strong is going to be the thing that breaks us.
That is actually my β because imagine right now.
Close your eyes, young ones. I'm an old man right now. Close your eyes. Think back to or think about where we are right now and visualize with me. Imagine unemployment was at 6%. Right now, would you say that the economy is strong at 6% or 5%? Could it be, like Mikkel said, that none of us are seeing this coming and there's something really big coming?
And it might be driven by weather events, supply chain.
People are saying inventories are high, just like Jeff said.
People are saying that labor is strong and consumer is strong.
you know, maybe that's where the weakness truly is.
Maybe this is a fake consumer.
Maybe this is a fake labor market.
Maybe this is a fake supply chain market.
It is possible that the thing that's propping up the entire economy is where the
black swan occurs.
It is just a hypothesis.
And like I said, Caleb and Michael and everybody that joined us, you know, a couple
of minutes behind, my point is there has to be.
something that we're all missing, just like Robert Wolf says, which is, you know,
and so I'm looking around trying to find where that weakness is.
And the beautiful thing about being a contrarian is I don't have to be right.
I just have to be right one time.
And I'll sound like a freaking genius.
So I'm throwing shit at the wall and seeing what's going to stick.
And now this is a recorded space.
So when I am right, I get to post it up and say, look, I was right.
It's beautiful.
It is like the most...
I love being a contrarian now.
If you say the sky is blue, I will always say it's red now.
It is the way to go.
It is the beauty of Twitter.
You won't remember.
None of us will remember.
We all have attention spans of little flies.
And so it's perfect.
It's wonderful.
All right.
I'm going to let you guys tear me apart.
But I am giving this case.
My case is that we think that inventories are high...
and supply chains are smooth right now,
we also think that the labor is strong,
that we have a sticky employment market
and that that will lead to a strong consumer
I think this is all a mirage.
I think we are in deep trouble because I think that that's where our strength is our weakness.
That is my underlying.
Both of those are weaker than people think.
And I think that as the unions go and fight, what's happening with UPS, walking away from the table,
what's happening in Canada with the Vancouver ports, we're going to start seeing more and more of these events.
And this coupled with...
the supply chain issues and again UN saying El Nino is here.
Last time they said that was 2016 which was an awful awful year for a bunch of weather
events and so maybe that there are some events there.
I'm gonna go to Dave first then I'm gonna go to Caleb then Mickle because I have a
feeling that Dave may agree with me so I want to go to people that agree with me
first I'm just kidding go ahead Dave.
Well I took the challenge then
Here's anecdotally, which is the best kind of data, right?
You guys can't refute it.
Just kidding.
I think he knows that I used to be a financial advisor for 10 years and did it for five years before and after the financial crisis.
So my memory is pretty good on this.
I just happened to be helping a friend I know casually from recreational sports and sat down with him and his wife and...
I'll just say that the degree to which other people may have inherited money and spent down savings to handle the last few years of financial turmoil,
that's not going to be reflected very much in the data.
But I think there's a lot that's coming from savings that used to be going to savings, but now inflation is eating it.
And the more that takes a whole...
starts to destroy people's retirement plans.
So I'm with you.
We don't see through the fog everything.
Exactly.
All right, Caleb.
Let's hear it.
Yeah.
Well, so I don't necessarily disagree with anything that you said.
My only pushback is I don't think that's a contrarian view.
People have been calling for the demise of the labor market for the past 15 plus months, and it just hasn't happened.
And that's why I think there's a lot of holes in the labor market, which is why I've basically refused to call it strong.
But I've been very vocal about calling it resilient and dynamic.
It's held up extremely well relative to more of the broader economic data, all the ISM manufacturing data, the PMIs, whatever you want to pick.
Look at the real estate data, right?
In that sense, the labor market has been extremely dynamic and resilient.
People have been pounding the table, especially over the past several months now,
about initial unemployment claims skyrocketing 263, $264,000 in a week in initial claims for like multiple consecutive weeks.
So I think that's kind of the base case in people's expectations.
That was really my only pushback, you know, because...
I, you know, I've been calling as well for weakness in the labor market and it just has not
materialized. It has not come, right? And, you know, at least on a relative basis. And even when we
have seen it, it's been quite brief. Right. So even, you know, last week we had a massive drop in
initial unemployment claims relative to that 260K print. And so I don't know. It's just it's, um,
I lean more towards that being kind of the consensus perspective.
People are bearish.
on the stock market right now because they think earnings estimates are going to be too high
and they think that the Fed is going to break something and that we're headed into this recession
going most likely to be caused by weakness in the unemployment or excuse me weakness in the labor market
and so that I think is the base case for a lot of people's bearishness and that seems in my opinion
to kind of be the consensus dude I don't know what you've been listening to Caleb and might be
because you've been making the bull case
recently, so you always hear the pushback or whatever.
But trust me,
A lot of people are saying, oh, there's going to be a soft landing.
Oh, this is going great.
Oh, you know, like you said, they're saying, hey, the consumer is resilient.
Oh, it's going to be just fine.
I am hearing bulls.
And it might be because I've been making the bear case.
So I only hear the opposite side.
But I am hearing quite a lot that.
that the market is bullish.
I especially recently, even on corporate media,
if you watch CNBC or whatever,
you are hearing a lot of people saying,
hmm, maybe we've turned a corner,
maybe it's over.
I don't know, I'm hearing that quite a lot.
So I do want to,
want to say that there,
I think there's significant disagreement.
Mickle, I'll come to you.
I wanted to bring Michael into the conversation,
then we'll go to Mickle.
Michael, you had your hand up and then you put it down.
So did you have a comment?
Michael, you got to unmute, bottom left.
We should also bring up TXMC.
He's a really good macro analyst, and I know he would love to chime in on this.
I see him waving his hand down there.
I don't know if it's possible to bring me.
I think the team, yeah, Romy, if you can bring him up.
Go ahead, Michael.
If you're there, otherwise, Mickle, go ahead.
Go ahead, Michael.
Yeah, I was just going to make the point that you and Caleb just addressed. I mean, I've been kind of questioning what even is the contrarian view anymore. I mean, whenever I turn on CNBC and it's funny how we look at this from completely different perspectives, I see a bunch of
analyst capitulating into the rally, essentially trying to save face and saying, oh, yeah,
this is a good time, but we're not going to see new highs.
Oh, we're going to go back down.
Oh, there's going to be some event that takes it back down.
I mean, for my view, almost everything I have seen, and I pull my followers a decent amount
on this, is that a lot of people think that we're going to make new lows and go to new lows.
I think the harder case to make right now and what gets the most pushback is saying that we're
going to be able to navigate a lot of the issues we have right now.
So I think it's kind of interesting to see that.
we're both looking at a lot of the same stuff
and both think we're bringing the contrarian view.
But I do really kind of wonder
what would the contrarian view be?
And it might be interesting
to pull the people listening to this space
and see what they think the contrarian view is.
Oh, it's fascinating.
That's a good point.
So for the people there are listening,
I want you to go to the bottom right
and tell me what you think.
And maybe one of the speakers can put a poll in there
and we can see what people think.
But I am curious to see whether people think that,
you know, because again, our listeners
are not only the smartest listeners
and the best-looking listeners,
but they're actually the most vocal listeners.
And so please do go in to the bottom right and tell us
what you think the contrarian bet is right now,
is the market,
what are you hearing across the board,
not just with us,
because again,
we speak,
differently than corporate, give us a sense of what you're hearing.
What is the contrarian bet?
Is everybody thinking that, you know, we have a bull run coming?
Is everyone thinking that this is not sustainable to what Mikkel was saying?
It is interesting because I do think we are in the Twitter bubble.
And all we do is argue on Twitter.
But interestingly, we haven't been doing any of that today.
I don't know if it's because everybody got a lot of sleep during the vacation.
But for some reason, people are being extra nice today.
But I love it.
I do love it.
TXMC, thank you for joining us.
And then we're going to go to David.
You know, you send me a DM saying, you want to make the bear case.
And I love it.
Let me know, TXMC.
What is the bear case?
Yeah, sure.
Yeah.
So I think that the bear case is a little misunderstood by the people who tried to make the bear case last year.
And I just think that if those folks had taken a certain perspective, the one that I have, that they would just see that they were too early in making that assessment.
Like clearly right now, the market is bullish.
Those things are undeniable.
And maybe we avoid a recession.
But a lot of what I look at says that we're right on track for one.
And everyone who thought that it should have already been here were earlier than all historical examples of it happening.
Right.
So the window that I see for weakness really began now this summer and extends through next summer in terms of when we have
the sweet spot of historical examples of downturns based on where we are today and the things
that have already happened. And so one of the places we could look at as an anchor for what the
economy does before and after an event that leads into recessions, let's take the yield curve as like an
anchor, right? The three months 10 year inverted in Q4 of last year in October. And if you look at non-farm payrolls,
from the point of yield curve inversion, and you look at all prior recessions going back to 1960,
the non-farm payrolls stay strong for a year to 15 months after the inversion of the yield curve.
So we've got people that are looking for labor market weakness,
and we don't have any examples of it manifesting this early in the downturn process.
And so I can put a chart in the nest,
and I'll throw it up real quick,
and you can take it down if you want to take it down,
but it's just a visual of what I'm explaining.
And you see, and it's an arc.
It's an arc with two lines.
And this is not my original chart,
but I recreated it.
And the light gray line is a fractal
of all prior recessions,
the last eight or nine of them
since the three months, 10 year inverted,
and it's showing non-farm payrolls
relative to the first month of inversion.
And you can see it goes up, up, up,
up, up, up, and then about month 12 to 15, on average, historically, the median outcome,
payrolls start to get weak, about a year, year, and change after the inversion.
And if you look at the black line, it's us today.
We're seven months in.
Payrolls are going straight up, and what do you know they are following the historical fractal
perfectly?
But,
But then if you look at some other things, if you look at other parts of the economy that are not the last thing to go, which is what labor is.
And, you know, Danish, I think you're right.
Danish, Danish, I'm sorry if I'm mispronouncing your name.
I think you're right that, like, labor is very strong.
And everyone's pointing at it being the strong thing.
And maybe it's the thing that turns weak.
Maybe that's true.
I don't know.
My focus is not on trying to identify what the surprise will be.
because I think that we don't need a surprise.
I think it could be a death of a thousand cuts.
And when you look at it through the lens that I'm looking at,
it seems that we're getting paper cut to shit right now.
And so if you take the same exact perspective of the chart that I put in the nest,
of non-farm payrolls,
but you start looking at multiple other measures of the economy.
Let's take things that the NBER finds important for judging recessions, right?
Well, if you look at things like real personal income,
From the lens of the yield curve inversion, we are trailing below every prior historical era.
The entire series, real personal income growth in 2023, is below all other eras of the yield curve being inverted.
If you look at things like real retail sales, real manufacturing and trade sales, industrial production,
these are the cyclical aspects that lead us into recession are the things that get weak first.
Well, all three of those are down from their peaks.
They have been for the last few months.
And all three of them are at or near the bottom of the historical series of all prior yield curve inversions, pre-recessionary periods.
So I think we've got a lot of strength.
I think it's driven in a huge part by nominal income growth, by wage growth, which is still at four to five percent annually, no matter how you slice it.
And that is driving consumption.
And unfortunately, the things that people, I believe,
that things people are focused on,
which are labor and consumption broadly,
Those are the last things to go.
If you look at all of the measures of the NBR's importance, the ones that I listed, employment, consumption, real incomes, the labor and consumption are the last ones to fall off, right?
Those are the things that really turn down when the economy is giving way.
And you can see some leading aspects.
People look at temporary help.
People look at overtime hours, things like that.
You can see hints of softness.
claims are up from their lows, but they're not at recessionary levels.
And I really think if I'm just going to sum up my whole point, I can sum it up with the chart I put in the nest, which is that people that thought we should have a recession last year were just too early.
And there were no historical examples of it having been here yet.
And if we consider when recessions start,
then from the point of the yield curve inversion,
it's usually 10 to 15 months later, right?
So that puts us at the end of this year
for us to be in the realistic window for it to happen.
That doesn't mean it has to, right?
We don't have to follow these patterns.
But if we're just trying to talk about historical significance
and cyclicality,
I think that there's a lot of reason to remain measured for the rest of this year.
And we won't be out of the woods.
We won't be able to say that this time is different.
until we get deeper into this window and we begin to see some of the things that I said are
in contraction or following the fractals those things then begin to need to go back into expansion
we need to have the yield curve re-sleepen and all those other measures of the cyclicality of
the economy begin expanding again and look more like 1966 but we won't know that for a few
yeah it's fascinating you know like that's what I was kind of trying to say which is if you start zooming out and
And you start looking at the broader indicators.
It's as if we've been here before.
You know, and then you come in and you...
We've been here many times before.
Many times before.
So again, you know, most of our listeners, for people that are not aware, some of you all
are traders, but most of our listeners are not traders or they're not good at it because
most traders fail.
So remember that, you know, day trading and even, you know, short-term trading and swing
trading, all of these things are not what our listeners.
Our listeners are trying to understand what is going to happen to my house.
What?
what's going to happen to my job?
What is going to happen to my 401K, right?
And so I do want to be thoughtful about the fact that TXMC is right,
that ultimately, you know, as you start mapping out,
and that's why I was thinking about it this weekend,
I was like, one second, I'm getting fooled.
And then I, again, I would recommend for everybody that's listening to use the Wayback Machine, they are not one of our sponsors.
Don't worry.
It's more just, it's an easy website to use.
You can go to the Wayback Machine, and I want you to go to CNBC.
in 2007, I want you to go to CNBC, like choose a random date in 2007, a random date in 2006,
and a random date in 2008, and a random date in 2009.
And you will see what I'm talking about, that this, we've been here before.
Like TXMC, he said, we've been here many times, and TXMC, awesome job.
I would love to have you on as much as you can.
All right, we're going to go to Mike, Michael Williams.
Go ahead.
Hey, Dr. Dinesh, thank you for your take.
And TXMC really do appreciate what you said.
It's very interesting.
I actually had a follow-up question for you all.
You know, a lot of employers now or employees are trying to tie raises to inflation.
And, you know, as you mentioned, the job market is still incredibly strong.
And I agree.
I don't think it's necessarily a contrarian view.
I guess my question for you guys would be, are we going to continue to see the Fed raise rates if,
the labor market strong
if employers are tying
you know raises to
interest rate increases and how does that play
into this narrative from your side?
Yeah, the XMC you want to take that?
I'm happy to take it as well.
Sure, I'll give you a brief thought
and then I'd like to hear what you have to say.
You know, as I mentioned in my
kind of soapbox there, you know, if you look at
annualized wage growth, nominal wage growth, forget real incomes.
Nominally, wage growth is four to five percent, and historically that and various
measures of CPI are pretty closely related. So I think it might be difficult in a full employment
situation to see...
various measures of inflation comfortably down at 2% or lower while we still have that kind of wage growth.
And when you look at our demographic situation, particularly after COVID, I don't know where we're
going to get a new supply of workers from. So we may just be stuck.
in this environment until the economy doesn't have that demand for labor.
So I think that the Fed is going to be kind of left at the altar looking for signals that will give them the all clear to begin cutting rates,
which is what I think people think is going to happen when we get to 2% inflation.
They're just going to start cutting very pragmatically when they're going to have no history of that.
So I think they're in a really tough situation and it's driven by unfortunately long-term demographic trends that were accelerated by COVID.
I think one of the things that Neely, who joins our stage often mentioned, is that Medicaid is going to be pulling back and we're going to see a rush of people enter the employees, you know, people that were sitting on the sidelines.
Labor participation while being higher in the last few years is actually low historically.
And so we are going to see maybe more people participating in the labor force because they don't have access to Medicaid anymore, which is.
kind of, you have to ask yourself the question, like, is that a good thing or a bad thing?
I don't know.
It depends where your morals sit.
But, you know, we are going to see more labor force participation.
And by the way, you do actually see more labor force participation during recessions,
which is another really interesting sort of random fact.
People don't know this.
But usually during the max labor participation for labor force participation rates are actually in the heart of a recession.
And so, which again means that people don't have a bunch of money to sit on.
So it's kind of, it's, in fact, when labor force participation peaks is another early indicator.
David, I want to go to you.
You know, you've been waiting very patiently.
Go ahead, David.
Thanks, Donish.
I appreciate it.
I'm playing this a little bit differently.
Okay.
in terms of setting up
a portfolio
I'd say for a moderate
period of time here not trading
you know on a daily basis
you know my background early in my career
I was a bankruptcy and restructuring attorney and then
I traded to stress that for a bunch of years at Credit Suisse
and then I'm a hedge fund
and now I run a crypto fund
and I was
at Credit Suisse in 2008
when everything came
crashing on down
and I
I would say, you know, it's important to be mindful that certainly, you know, history repeats itself on the one hand.
On the other hand, there is, you know, there are elements here that are quite different.
I think we've pointed out.
you know the low unemployment rate the very high inflation here and same time and to go back to the question that was just asked
I think the Fed stays on its course no matter what come what may I think Powell is going to go ahead and have blinders on and continue to raise rates I think we're higher for longer for much much longer frankly years I'm talking about
And so the way I've positioned my portfolios, look, I could be, you know, the beers could be incredibly wrong here, right?
There may not be a straw that breaks the camel's back.
And, you know, we don't go ahead and slip into some Dr. Doom scenario where things come undone.
In that case, you know, I want to be long tech.
I want to be long crypto.
I want to be on the side of the highest risk on...
gainers to the extent that we continue to be in a risk on environment. And frankly, thus far,
the institutional investors have been wrong. Let's be frank. I think, you know, hedge funds have
incredibly underperform, long short, equity has been awful. People have been calling for, you know,
a crash, a reversal, a,
a downtrend, you know, for quite a while now,
and they've been awfully wrong.
And retail has actually been on the right side of things.
On the other hand, you know,
if I'm going to go ahead and, you know, side with the bears,
I think the most overvalued sector right now is housing.
It has not been hurt at all.
And if we see, you know, look, housing could get hurt,
even if we're in, you know, a good place vis-a-vis the economy,
If rates go higher and frankly unemployment ticks up a little bit, you know, that housing market is certainly going to get hurt.
And I think it's been one of the areas that has been impenetrable with respect to a downtrend.
And I think we're, you know,
it's high time for a pullback in housing.
And so therefore, that's where I see kind of my hedge lying or my shorts being placed.
And that's kind of where I'm generally positioned,
at least for part of my portfolio for the next couple months.
It's interesting.
David, how do you short housing?
Just I'm curious.
So it's not, I think it's less,
simple as a retail investor just because of the things that you might have, you know,
access to.
It's like reads or something.
You're short a reed or something like that.
Is that how you do?
I practically speak.
That would be the simplest way, right?
You could also be short builders, frankly.
Right.
And, you know, if the niche is right with respect to the clogs at the ports and the supply chain and so forth, you know, we'll also see input costs go up, everything other than labor.
In the UK, I know that's a really interesting point. Like in the UK, and I know it's a totally different dynamic, right?
UK is kind of screwed up on many, many phrases, but I watch the UK in the US score a lot. In the UK, the house builders have been demolished, right, over the last year. Persimmon...
like, what is it, 60, 70, 80%,
and yet they're still selling houses.
It's just all about future demand, right?
It's just people are making a call on the fact that,
you know, are they going to sell all these houses that they're building?
We've held up really well in the United States in terms of the builders.
Inventories continue to be low.
Nobody can afford to move in the secondary housing market
because they can't go ahead and borrow a triple the amount
that their previous mortgage was at.
And at some point,
that log jam is going to break.
There is going to need to be,
you know,
some sell down,
some,
you know,
forced selling,
rents are going to get way, way too high, which they are in some cities.
And by the way, urban areas are far and away the worst in this country, right?
Because you've got not only, you know, the housing numbers that we, you know, the fundamentals
of housing, but on the other hand, you've also got, you know, incredibly left-leaning regimes
in those cities, along with super high taxes, along with, you know,
you know, flight along with crime spiking to levels and people being afraid. So I believe,
you know, the major metropolitan cities, certainly the super luxury end is a different story.
But I think anything below that is certainly at risk.
And there's been a lot of talk around housing inventories.
I'm going to be doing a thread later today where I'm going to post the housing inventory data that people aren't looking at, which is the inventory data from Fred.
The St. Louis Fed actually has done a ton of work on this.
guess what y'all you everybody's been talking about how oh housing market so tight oh we we you know
there's no inventories well in the last few months inventories are rising go on zillow in your
this is based on realtor dot com data that the fed put together but um and i will share i
I just haven't finished all the research yet.
Just want to make sure that there's no artifacts.
So even what I'm saying right now,
take it with a grain of salt until I finish the research.
But one thing that we're going to be talking a lot about
is that there's a false narrative around inventories.
the inventories are low.
Inventories are rising at some of the fastest rates ever.
And again, we try to talk about things that corporate media is not talking about yet.
But, you know, I was tipped off to this by people that have come up on our stage
and have been sharing the housing inventories.
This is residential inventories are rising at very rapid rates this summer.
One more point.
And so we expect a bunch of flooding.
One more point, Denise.
I'll go back to your commercial real estate point.
I think major metropolitan areas are,
I don't think people understand
how absolutely decimated
those values are going to get.
In terms of rates,
in terms of vacancy and occupancy,
in terms of crime,
it is going to be an,
it's a slow moving train wreck,
but it's going to be an absolute shit show
for the next five to six years.
Sounds like you're describing San Francisco, David, verbatim.
I live in New York, but you can apply.
San Francisco looks like the apocalypse.
So, you know, Wizard, did you have your hand up?
I just want to make sure if you wanted to weigh in on the, on housing before we move on.
I wanted to make, you know, kind of share a little bit about El Nino before we finish up.
There is.
something big happening and I wanted to
depends on where you sit I guess
now apparently we have to worry about where people sit on
on political aisles but you know
the facts are the fact but it's okay
wizard did you have a comment before we move on
where do you sit
Yeah, so just regarding the housing thing, you know, one of the things I think, I think you mentioned about the supply.
So like one of the reasons housing market got kind of, you know, had this kind of, you could say like kind of a squeeze or kind of holding kind of stable.
They did have a little dip a few months ago, but they've kind of reverted.
I mean, it's a mix of average hourly earnings, obviously staying steady, corporate earnings, you know, moving higher and not really dropping as they should.
But the biggest...
thing is that there's a big
you know sort of supply shock because
in as inflation was picking up
since like say 20 2020
2021 a lot of the real
the large real money managers like pimco
black rock and so on they brought like you know
massive amounts of supply of single family
homes as an inflation hedge on their portfolios
so until that supply starts
coming out onto the market
I don't see a big you know dump but
that supply will come onto the market when you see inflation actually go lower.
So if inflation starts moving lower as, you know,
rates stay longer,
the real money managers are going to start dumping a lot of their supply,
like single family homes and so on.
So I think that's when you see the real move in the housing market.
So I feel like that supply shock is still there.
You're seeing a little bit of supply come up, but it's really negligible compared to what you'll see as inflation starts trending lower.
Like as core starts trending lower over the next six to eight months, because usually it has a nine-month lag.
But yeah, that's kind of my doubt in the housing.
It'll be very interesting.
I think we have a lot to pay attention to.
And again, I'll be putting a threat out about housing.
I'm actually, I will say that I disagree on the negligible commentary.
I think there's a lot going on that people are not aware of.
We're going to see a bunch of single family homes.
Again, I would recommend everybody that's listening that's in the U.S.
to go on Zillow, put in your zip code, and see...
Again, you can do way back machine.
I'm not even kidding.
And look at it three months ago and you can look at it now.
Now there is a cyclicality to it.
So I do want to be thoughtful about the fact that we are in July.
But inventory is flooding the markets right now.
It is flooding.
Right.
You're going to start seeing.
And the best sign of that is see how many of the houses are quote-unquote coming soon.
There's a ton of houses that are coming soon.
And it's something that's very interesting.
And this is not financial advice, by the way.
But if you can wait, if you can wait, I'd wait one season.
Next year might be an opportunity.
That is all I'm going to say.
I know Cody disagrees.
It's okay, Cody.
Talk your book.
I'm just kidding.
You mean wait to buy, right?
Yes, wait to buy.
I think if you can wait to buy, I would wait to buy because there's going to be very good pickings next year.
That is my, or even 2025, but possibly next year as well.
Cal, did you have a follow-up?
No, no, no, no, it's good.
I mean, I mean, generally on the, I know you're moving on,
but generally the whole, you know,
I just love the macro analysts that you have on.
TXMC was just,
Phenomenal, right?
So I, and I'm not an, but what I tend to look at is just from my own expertise, which is watching corporates and watching corporate behavior and watching corporate executives behaving in their own share purchases, sales, but also their management decisions, and then watching employees like how employees behave inside large companies.
That I understand, right?
And I watch that and I different places, I go to forums, evenings.
You know, I have this like monthly dinner with CFOs and CEOs here in Oxford, you know, from around the world.
They actually fly in, it's kind of interesting.
But what's interesting in those little kind of private chats and a lot of those chats are kind of private and like, you know, it's kind of like, but what, but so I can't attribute things.
But the CFOs are starting to figure out budgets for next year, right?
Proper budgets next year and the year after, but next year.
And they're getting pretty conservative, right?
So, like, for example, travel budgets, they're getting cut.
I know everyone's excited about forums and conferences and, I mean, restaurants and flights are just so expensive to get right now.
That's because this whole corporate travel, right?
Corporate travel came back with a vengeance.
People were thinking that, you know, some of the corporate travel and the business class travel won't come back.
Well, these CFOs are like going, you know, hang on, this is the first place that's got to go.
We got to get our people traveling in economy, you know, if it's international or whatever it is.
But and then we've got to like really think through the hotel costs because it's all like starting to come up into the cost space, the SG&A or etc.
And so they're thinking about budgets next year and it's not looking good.
Now that's the last time I saw this kind of like talk and I was actually in a large company.
working through all the issues.
And we were like looking at a 20% reduction in sales like in 2008, 2007, the last big recession.
And, and you know, this is consumer electronics.
Like we were like, we were looking at it.
And you're starting to see those kind of, that kind of language being used for budgets next year, etc.
I don't know. I don't know if it's going to translate to the macro thing, but, you know,
markets are markets and how people inside companies behave is.
So I, you know, unfortunately I have to agree with you, like your contrarian view or your
whichever way you want to look at it. It's going to look a little dire next year based on what I'm
seeing, right? But then again, I'm not a trader. And I, and obviously I could get a lot of
these things wrong. But it's the CFOs are not very bullish.
Yeah.
Yeah, and Cal, we don't have to be right.
That's the beauty of this.
Because if we are right, if we are right, if we are right,
we just put out the right tape. We can take the clip and say,
look, I said it last year. If we're wrong, we just keep moving on with our lives and nobody notices.
This is the beauty of the social media world that we're in that people can just do that.
Sorry, I just, that's more of a commentary on where we are as society than it is about finance.
So I did want to end with.
El Nino.
And, you know,
That name,
holy moly is definitely hyperbolic.
But,
El Nino is here. What El Nino represents, the UN is saying, they're warning they were expecting a spike in global temperatures. And again, El Nino is a short-term phenomenon. So, you know, the warmest year ever recorded was in 2016. And it started off with a powerful El Nino event that helped to boost global temperatures. And if you guys can go back again to 2016, you will see that we had.
a ton of weather events that affected supply chains,
that affected our ability to get goods at a cheap price.
And so, you know, we...
El Nino, while it may seem, again, depending, apparently now we have to worry about where people sit on political aisles when it comes to weather events.
I don't care what caused this.
I mean, I do care personally.
I believe that climate change is real.
But, you know, the point that I'm making is it doesn't, from a practical perspective, it does not matter what's causing El Nino.
Yeah.
But El Nino is here.
And again, if we're looking at different things that are going to affect the global markets.
If you are, like Cal said, a CFO, you have to take into account.
You've got to go hire someone like Jeff and figure out what to do with your supply chains.
Worst case, right?
That if you suddenly have multiple weather events all over the world.
And I think, you know, we're going to, it's funny that Jeff Harted that.
Jeff's like, yeah, please do hire me.
No, I'm just kidding, Jeff.
But for real, though, Jeff is an expert.
But I was going to say that, you know, we are seeing people,
even thinking about their supply chains in a different way.
I, you know, I will say right now there's a competing space
with Bloomberg opinion talking about like,
what's going on with Elon Musk and Twitter and all of this other stuff?
And we can talk about that in a different space.
But, yeah.
with the fact that Instagram's coming out with a competitor.
And I think that that's a very bearish situation for meta.
That's my opinion.
Not a financial opinion, but more of a personal opinion.
But, you know, the one thing that Musk is doing, which is really smart at Tesla, is that
By making distributed production, you're suddenly making it easier where, you know, you don't have to ship things across the world.
You can make them in that local market and ship them locally.
Of course, the raw materials have to come from across the world, but you are reducing your challenges.
I think we're going to see more of that as these weather events continue to grow.
And again...
if you think that this is a natural thing, that's fine.
You can think that, but the number of weather events are increasing.
So if you're a good CFO, if you're a good leader, you're starting to take that into
account in terms of your supply chain strategy.
I think it makes sense to now start saying, okay, well, if UN is correct, which, again,
they're using historical data and they were right in 2016, so, you know, you can take that
for what that means.
But, you know.
El Nino is here.
We are going to see more weather events.
They're being predicted.
I hope we don't see weather events, but there is a world in which we do.
And how do we even prepare for that?
So now, again, back to my bear case.
So my bear case is more weather events, disrupted supply chains.
We're going to see something happened in the residential real estate market.
that again is going to be connected to the commercial real estate market maybe maybe not connected to
Airbnb maybe maybe not we're going to see where all of that kind of shakes out but everything that
you think is strong it's just it seems strong because it's the things that break at the end so you're
it seems relatively strong because the thing that breaks in the end has not broken
Yeah, you know, TXMC kind of laid that out.
Look at the chart, zoom out.
And what he did was he literally laid, overlaid all the different recessions that we've seen
and where we are in that process.
And it always looks like you're going up until you come crashing down.
So, you know, just something to keep in mind.
On that, wonderfully exciting and happy note.
Yeah.
I will bid you guys a dude.
Thank you again.
And we will see you first thing tomorrow, 8 a.m. Eastern.
That's first thing for me, at least.
Thanks, everybody.
Have a wonderful day.
