Recession?

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Welcome to something more with Chris Boyd.

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Chris Boyd is a certified financial planner, practitioner,

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and senior vice president, financial advisor at wealth

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enhancement group.

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One of the nation's largest registered investment advisors.

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We call it something more because we'd like

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to talk not only about those important dollar

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and cents issues, but also the quality of

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life issues that make the money matters matter.

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Here he is your fulfillment facilitator, your partner

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in prosperity, advising clients on Cape Cod and

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across the country.

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Here's your host, Jay, Christopher Boyd.

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Welcome everybody to another podcast of something more.

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I'm here with Jeff Perry and Brian Regan.

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All of us are from the AMR team

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at wealth enhancement group and glad to have

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you with us.

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Uh, today we're going to talk a little

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bit about recession, the topic of recession, the

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concern.

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I find this keeps popping up in conversations

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and, uh, uh, things I'm, uh, hearing, watching,

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you know, people have been more prone to

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talk about this in light of recent topics

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like tariffs and the like there's concerns of

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like, oh, is this going to slow the

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economy to some extent?

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And when people start having those kinds of

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anxieties, we've seen the market have some, uh,

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volatility because of anxieties around, I think, particularly

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related to tariff, uh, uh, policy and, or

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questions of what's policy, you know, that kind

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of thing.

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Um, it, it comes up on people's minds

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of, uh, should I be more defensive?

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Should I be worried?

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Is there something that's going to change?

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And, you know, it wasn't long ago, just,

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uh, the turn of the year, we were

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talking about how earnings were really solid and

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things were really going well, and there's a

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lot of optimism around the prospects of, um,

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extended, uh, tax cuts and things of that

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sort.

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So, um, so I thought this might be

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a topic for us to revisit for people

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to give thought to and understand, uh, what

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is a recession and what defines it?

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What are the signs of it?

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Is this something we should be focused on

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today?

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Or is it something to put off to

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be, you know, mindful of, but maybe not

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imminent.

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So, um, we're going to talk about that

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and, you know, Jeff, one of the things

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that, um, I remember as sort of a

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rule of thumb, it used to be that,

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uh, we talked about a recession as two,

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uh, consecutive quarters of negative GDP.

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You know, the, the growth was declining, you

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know, was negative, uh, judged by, um, the

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GDP, and that was sort of our, our

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standard for expectation of whether we had a

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recession.

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And I remember it wasn't that long ago

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that we actually had that happen.

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It was very slight and barely negative, but

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there was some, uh, I think it was

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around that time.

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I'm trying to remember now when it was,

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but I think it was in COVID and

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then it turned out, oh, there, there, yeah,

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it was 2020.

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There wasn't a deemed a recession by, it

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turns out there's an organization, the national bureau

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of economic research that, uh, is actually, they

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get, they get to rule, they get to

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overrule the definition.

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Well, they, they actually have a more complex,

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I guess, assess, you know, let's face it,

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that's a shorthand, maybe write a rule of

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thumb, but when you look at, um, uh,

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uh, more involved, you know, group of data,

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you might find that, well, some things are

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one thing, but another says something else, right?

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And it's this combination of, is it, is

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it, uh, the, uh, the combination of things,

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the main factors, this was, uh, off of

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the website and so forth.

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Um, the NBER looks at three main factors.

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How deep is the decline?

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How widespread is it?

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And how long is it lasts?

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And of course you can only tell if

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a recession has occurred in hindsight, right, we

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don't know in advance, but there are things

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we can pay attention to.

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And, uh, that's, I think what we want

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to do today is talk to Brian a

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little bit about, before we do, there is

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another definition that we should outline.

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What is that?

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If your neighbor loses their job, it's a

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recession.

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If you lose your job, it's the depression,

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right?

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Right.

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Is it affecting you?

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Yeah, how personally, but that's a good example

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though, with you, you hear about, um, people

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being laid off a lot of government, you

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know, focus on, you know, government workers being

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paid off and that can precipitate sometimes, um,

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that sentiment that, uh, Oh, I know someone

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who is affected by this.

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And therefore you start to think, Oh, well

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maybe my job could be affected too, and

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maybe it affects your behavior and your spending

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behavior.

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And, um, there can be this whole psychology

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that's a self-fulfilling no element to this

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of, does it, uh, does it, you know,

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kind of feed on itself to create some

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of the, uh, concerns that we have.

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And it's all about a word that I

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believe Brian doesn't like.

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So I may as well put it out

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there and get it out of the way.

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Uncertainty, right?

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So nobody likes uncertainty, right?

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Uh, especially as investors, we all want, didn't

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I, uh, didn't I use that word on

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the call and you were tired of the

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word.

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Do you think it's like an overused term

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out there?

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Well, let's bring Brian in.

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Yeah.

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Yeah.

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Thanks guys.

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Thanks for having me.

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Um, enjoy being with you, having these, uh,

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fun conversations, at least to me, they're fun

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stuff from probably, probably to our listeners too,

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if they're, they're this, uh, yeah, I, I,

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you know, I have pet peeves as you

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guys know, and one of them is overused

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terms, um, that try to simplify what's, you

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know, going on or scare people or predict

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things that, you know, aren't really predictable, right.

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And these, a lot of these terms get

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thrown out casually.

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Um, and I guess the, you know, the

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easily, easily brought from the frontal cortex of

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the brain or something, because they seem to

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get repeated over and over and over again.

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And, you know, uncertainty is one of those

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words.

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Um, and of course, you know, uncertainty exists,

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but the reason why I don't like it

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is it exists all the time.

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I mean, the function of being invested in

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the capital markets is having an expectation of

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the future, um, which is uncertain, right.

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We don't have any idea what's going to

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happen in the future.

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We might not even know what's really going

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to happen to us later on this afternoon

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or this evening.

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Right.

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Um, so, you know, there's the reason why

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the main reason I don't like it is

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because it's, it's always uncertain.

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Sometimes there's heightened uncertainty.

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Um, you know, I would say that when

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we have a guessing game on where we're

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going to go with this tariff and trade

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war, sure, you know, there's, there's more uncertainty

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and that creates a more volatility in the

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market.

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Um, but just because there's volatility in the

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market, uh, doesn't necessarily mean, um, we should

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be concerned or feel like things are more

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up in the air than they usually are.

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Um, I think things are, you know, often,

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you know, subject to change.

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We, we know that, uh, many of the

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stocks in the, in the, in the stock

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universe will go bankrupt, right?

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Uh, we know that a very small percentage

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of the stocks drive overall returns over time.

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Um, you know, these are things that are

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innately uncertain.

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So it's not that I necessarily disagree that

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uncertainty is a thing or, um, it's just

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that it's over, it's overused during certain times.

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It's almost like a euphemism for the VIX

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increasing or consumer sentiment or, you know, investor

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sentiment, which, you know, to me are all

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bologna sauce, um, you know, investor sentiment should

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be a fun show.

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It's nonsense, bologna sauce.

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I like that, but it's fun.

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So, um, you know, I was holding back

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that word.

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I thought you guys would enjoy that.

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Um, so investor sentiment to me is just,

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it just tells you what the market has

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done recently, right?

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It's like the definition of recency bias.

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It's not that helpful.

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Consumer sentiment is very political.

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It's done like on a landline phone call.

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It's, it's been incredibly, you know, inconsistent and

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unreliable over time.

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So I don't know why we keep saying

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these things as, as a put stock into

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them.

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Um, you know, I sent you guys some

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charts this morning and the first chart that

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I sent you was just us personal consumption

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over time.

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It goes back all the way to 1950

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and it's an exponential line, um, rising from

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the lower left to the top, right.

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And it's smooth.

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Okay.

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There's basically all I'm saying is that it

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takes a lot for the U S consumer

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to stop spending.

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So if you're looking for certainty in the

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market, I think you could probably hang your

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hat on that.

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Say for two pretty extraordinary situations, the pandemic,

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um, and the financial crisis, which, you know,

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uh, the financial crisis was a credit event.

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And we can talk more about that in

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the pandemic, I think was kind of a

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one-off event.

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Right.

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Um, it was, I hope it was a

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one-off event and, uh, you know, in

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the, in the, in the history books, we

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can kind of discount that as a non

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-economic event, if you will.

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Right.

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And it was a pandemic, but that's also

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a great example of uncertainty, right?

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Was there any time that was more uncertain

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to the March of 2020?

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Um, the reason why I point out March

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of 2020 is because that was the height

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of the pandemic, but it was also the

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bottom of the stock market, the stock market

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fell dramatically.

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And I believe it was March 23rd where

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it, it bottomed.

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Um, there was no, uh, shortage of uncertainty

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and the market, uh, marched on very significantly

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since then.

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So, um, I hope that gives you guys,

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uh, an idea of why, you know, I

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think this quote unquote term uncertainty is, uh,

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you know, overused and unreliable.

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And, you know, quite frankly, I'm not sure

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00:10:07,440 --> 00:10:08,380
what you're supposed to do with it.

269
00:10:08,600 --> 00:10:10,940
Um, if it means that the stock market's

270
00:10:10,940 --> 00:10:12,780
going to be more volatile, that's okay.

271
00:10:12,780 --> 00:10:14,220
I think that's probably going to give you

272
00:10:14,220 --> 00:10:17,960
more opportunities than, than, um, you might otherwise

273
00:10:17,960 --> 00:10:18,400
have.

274
00:10:19,460 --> 00:10:22,240
So Brian, um, I thought it might be

275
00:10:22,240 --> 00:10:24,620
helpful to talk about some of the kinds

276
00:10:24,620 --> 00:10:27,260
of things people look at when trying to

277
00:10:27,260 --> 00:10:30,960
assess whether or not, um, a recession may

278
00:10:30,960 --> 00:10:33,400
be, uh, imminent or, you know, we might

279
00:10:33,400 --> 00:10:34,880
be evolving into recession.

280
00:10:35,080 --> 00:10:38,440
You just talked about consumer spending, which is,

281
00:10:38,620 --> 00:10:41,080
we often hear is what, something like 70

282
00:10:41,080 --> 00:10:44,000
% of what drives the U S economy.

283
00:10:44,260 --> 00:10:47,760
So, um, the, the fact that that looks

284
00:10:47,760 --> 00:10:51,300
strong still is, um, a good sign and

285
00:10:51,300 --> 00:10:51,820
encouraging.

286
00:10:52,260 --> 00:10:54,140
And so, uh, all right, we can check

287
00:10:54,140 --> 00:10:55,880
that one off as not really a particular

288
00:10:55,880 --> 00:10:57,100
concern today.

289
00:10:57,280 --> 00:10:57,880
Right.

290
00:10:58,460 --> 00:11:02,240
Uh, another one oftentimes is concerns around employment,

291
00:11:02,240 --> 00:11:03,980
uh, or unemployment.

292
00:11:04,760 --> 00:11:08,620
Um, we're at pretty low levels of, of,

293
00:11:08,740 --> 00:11:12,300
uh, unemployment, uh, you know, historically I'd say

294
00:11:12,300 --> 00:11:15,880
we're still in a really attractive place for

295
00:11:15,880 --> 00:11:18,440
unemployment levels, but we do hear about a

296
00:11:18,440 --> 00:11:20,200
lot of layoffs happening in government.

297
00:11:20,200 --> 00:11:26,340
And, um, perhaps some related, uh, impacted, um,

298
00:11:27,020 --> 00:11:30,380
industries that might, uh, might rely on government

299
00:11:30,380 --> 00:11:30,980
spending.

300
00:11:31,240 --> 00:11:34,760
Uh, how, how's unemployment data looking at this

301
00:11:34,760 --> 00:11:35,040
point?

302
00:11:35,160 --> 00:11:36,760
What's your take on that part of it?

303
00:11:37,540 --> 00:11:37,640
Sure.

304
00:11:37,640 --> 00:11:39,720
So the unemployment rate right now is 4

305
00:11:39,720 --> 00:11:43,160
.1%. The long-term average is 5.56%.

306
00:11:43,700 --> 00:11:45,780
Um, the high during the pandemic was nearly

307
00:11:45,780 --> 00:11:46,480
15%.

308
00:11:46,480 --> 00:11:49,000
So, you know, we're still pretty low.

309
00:11:49,000 --> 00:11:52,660
It's, it's higher off the lows of 3

310
00:11:52,660 --> 00:11:55,340
.4%. Uh, you know, 70 basis points higher.

311
00:11:55,460 --> 00:11:58,560
It's not an insignificant number, but you know,

312
00:11:58,560 --> 00:12:00,480
it's a, it's a very low unemployment rate

313
00:12:00,480 --> 00:12:00,780
still.

314
00:12:00,920 --> 00:12:03,080
It's nothing to be overly concerned about at

315
00:12:03,080 --> 00:12:03,660
the moment.

316
00:12:03,780 --> 00:12:07,540
The prime age labor force ages 25 to

317
00:12:07,540 --> 00:12:10,400
54 is close to all time highs.

318
00:12:10,560 --> 00:12:12,600
So that's also a very good, uh, in

319
00:12:12,600 --> 00:12:15,740
terms of employment, the, the, the number of

320
00:12:15,740 --> 00:12:17,780
people employed in the, or the percentage of

321
00:12:17,780 --> 00:12:20,140
people employed in that demographic, you're saying.

322
00:12:21,020 --> 00:12:23,080
The percentage of people either employed or looking

323
00:12:23,080 --> 00:12:23,540
for work.

324
00:12:23,800 --> 00:12:24,840
That's what the labor force is.

325
00:12:25,280 --> 00:12:27,780
So, um, it, it, the higher, the better,

326
00:12:27,800 --> 00:12:28,000
right?

327
00:12:28,000 --> 00:12:29,040
We want more people working.

328
00:12:29,140 --> 00:12:30,420
We want more people looking for work.

329
00:12:30,520 --> 00:12:32,820
Uh, the labor force as a whole, again,

330
00:12:33,080 --> 00:12:33,960
near all time highs.

331
00:12:34,040 --> 00:12:37,120
So, you know, from that vantage point, things

332
00:12:37,120 --> 00:12:39,160
are, things are pretty good.

333
00:12:39,340 --> 00:12:40,880
Um, we have seen a little bit of

334
00:12:40,880 --> 00:12:43,720
an uptick in initial claims, but nothing too

335
00:12:43,720 --> 00:12:44,180
significant.

336
00:12:44,180 --> 00:12:46,900
Now, this is another opportunity, I think, to

337
00:12:46,900 --> 00:12:50,660
point out another way where I think, um,

338
00:12:52,790 --> 00:12:56,270
you know, market participants, media participants, they, they,

339
00:12:56,790 --> 00:13:00,270
your short-term investors might, uh, overlook some

340
00:13:00,270 --> 00:13:00,950
important things.

341
00:13:01,210 --> 00:13:05,650
So let's think about what the unemployment is

342
00:13:05,650 --> 00:13:06,430
really telling us.

343
00:13:06,450 --> 00:13:08,650
Like the, the, the Bureau of Labor Statistics

344
00:13:08,650 --> 00:13:10,610
at first Friday of every month comes out

345
00:13:10,610 --> 00:13:11,430
with a labor report.

346
00:13:11,430 --> 00:13:11,710
Right.

347
00:13:11,710 --> 00:13:13,950
And there's, there's, there's nonstop coverage of it

348
00:13:13,950 --> 00:13:16,150
on CNBC until the data is released at

349
00:13:16,150 --> 00:13:16,790
8 30 AM.

350
00:13:17,130 --> 00:13:18,570
And then for at least an hour and

351
00:13:18,570 --> 00:13:21,050
a half after that, there's no nonstop chatter

352
00:13:21,050 --> 00:13:23,410
about what it means to be higher or

353
00:13:23,410 --> 00:13:25,630
lower by $10,000, 10,000 jobs from

354
00:13:25,630 --> 00:13:26,010
the estimate.

355
00:13:26,290 --> 00:13:30,630
So there's about 4 million jobs that are

356
00:13:30,630 --> 00:13:33,110
either lost or quit every month.

357
00:13:33,530 --> 00:13:37,090
And there's about 4.1 million jobs because

358
00:13:37,090 --> 00:13:38,930
the unemployment rate is going up by about

359
00:13:38,930 --> 00:13:40,930
a hundred thousand, a hundred thousand jobs a

360
00:13:40,930 --> 00:13:41,130
month.

361
00:13:42,250 --> 00:13:43,650
Um, that are added.

362
00:13:44,050 --> 00:13:47,590
So, you know, this, this, this margin of

363
00:13:47,590 --> 00:13:49,970
a hundred thousand from that vantage point, when

364
00:13:49,970 --> 00:13:52,830
we're talking about 350 million Americans and 180

365
00:13:52,830 --> 00:13:56,230
million people in the labor force almost feels

366
00:13:56,230 --> 00:13:57,090
insignificant, right?

367
00:13:57,110 --> 00:13:58,610
When we're talking about a hundred thousand, a

368
00:13:58,610 --> 00:13:59,750
hundred and 50,000.

369
00:14:00,010 --> 00:14:01,910
Unless as Jeff said, it's your job or,

370
00:14:02,110 --> 00:14:04,510
you know, the next door, but, but yes,

371
00:14:04,570 --> 00:14:07,030
in reality and objectively, right.

372
00:14:07,150 --> 00:14:10,470
This is, this is modest percentage movements.

373
00:14:10,650 --> 00:14:11,130
Yeah.

374
00:14:11,130 --> 00:14:12,050
It's kind of interesting, right?

375
00:14:12,090 --> 00:14:13,450
Like if you were to define the economy,

376
00:14:13,590 --> 00:14:15,290
I think of the economy as the goods

377
00:14:15,290 --> 00:14:16,470
that you could think about it from your

378
00:14:16,470 --> 00:14:18,450
own personal economy, the goods and services that

379
00:14:18,450 --> 00:14:22,170
you provide and consume, and the overall economy

380
00:14:22,170 --> 00:14:23,950
is the goods and services that all the

381
00:14:23,950 --> 00:14:25,470
people provide and consume.

382
00:14:25,690 --> 00:14:25,870
Right.

383
00:14:25,990 --> 00:14:27,530
And that's my simple definition.

384
00:14:27,730 --> 00:14:28,790
Now, you know, somebody wants to ask me

385
00:14:28,790 --> 00:14:30,810
and I, I said that off the top

386
00:14:30,810 --> 00:14:31,090
of my head.

387
00:14:31,130 --> 00:14:31,930
I think it was pretty good.

388
00:14:31,970 --> 00:14:33,230
So I've been sticking with it.

389
00:14:33,230 --> 00:14:35,450
Um, you know, it works pretty good, pretty

390
00:14:35,450 --> 00:14:35,730
well.

391
00:14:37,430 --> 00:14:38,970
Um, so where was it going that, so,

392
00:14:39,130 --> 00:14:40,830
you know, you could make the argument that

393
00:14:40,830 --> 00:14:43,130
we overreact to the unemployment report every single

394
00:14:43,130 --> 00:14:43,410
month.

395
00:14:43,530 --> 00:14:45,570
I mean, four or five hours of coverage

396
00:14:45,570 --> 00:14:47,330
on it, you know, every day on, on

397
00:14:47,330 --> 00:14:49,890
CNBC, um, might be too much, you know,

398
00:14:49,890 --> 00:14:52,550
the stock market moving 1% because we

399
00:14:52,550 --> 00:14:55,310
missed the jobs report by 30,000 or,

400
00:14:55,390 --> 00:14:58,390
or, or beat it by 30,000 might

401
00:14:58,390 --> 00:15:00,350
be overdone to changes in interest rates might

402
00:15:00,350 --> 00:15:01,590
be overdone when you put it in from

403
00:15:01,590 --> 00:15:02,350
that lens, right?

404
00:15:02,970 --> 00:15:04,650
What you really want to look for is

405
00:15:04,650 --> 00:15:06,590
violent changes in the trend.

406
00:15:06,590 --> 00:15:08,990
Um, and one data point does not make

407
00:15:08,990 --> 00:15:09,410
a trend.

408
00:15:09,810 --> 00:15:11,050
Multiple data points make a trend.

409
00:15:11,570 --> 00:15:13,610
Uh, you know, Chris started off the show

410
00:15:13,610 --> 00:15:16,710
by talking about the NEBR or NBER, the

411
00:15:16,710 --> 00:15:18,170
national bureau of economic research.

412
00:15:18,170 --> 00:15:20,470
They don't look at, you know, one month,

413
00:15:20,630 --> 00:15:22,490
two months, three months, they're looking at a

414
00:15:22,490 --> 00:15:25,170
series of data points to determine whether there

415
00:15:25,170 --> 00:15:27,870
is a severity in depth necessary to call

416
00:15:27,870 --> 00:15:28,370
a recession.

417
00:15:28,890 --> 00:15:30,590
I mean, that makes sense to me, right?

418
00:15:30,630 --> 00:15:33,090
So we want to look for dramatic changes.

419
00:15:33,090 --> 00:15:34,650
We want to see if it's going to

420
00:15:34,650 --> 00:15:37,650
be, is that negative a hundred thousand, um,

421
00:15:37,790 --> 00:15:39,870
jobs lost is that at the start of

422
00:15:39,870 --> 00:15:41,470
a new trend, are we, are we going

423
00:15:41,470 --> 00:15:43,330
to go to one 50, 200 the next

424
00:15:43,330 --> 00:15:44,890
month, or are we going to revert positive?

425
00:15:45,090 --> 00:15:47,350
Um, I think all that makes a big

426
00:15:47,350 --> 00:15:50,250
difference, which is why, you know, we emphasize

427
00:15:50,250 --> 00:15:52,450
as a group, as a team, uh, that

428
00:15:52,450 --> 00:15:54,730
we want long-term investors that will find

429
00:15:54,730 --> 00:15:57,050
the risk profile that fits for them, um,

430
00:15:57,050 --> 00:15:59,650
and stick with it because, uh, this short

431
00:15:59,650 --> 00:16:01,930
-term game is unpredictable.

432
00:16:01,950 --> 00:16:03,470
The data is almost too fast.

433
00:16:03,590 --> 00:16:05,350
It would be great if everybody slowed down,

434
00:16:05,350 --> 00:16:07,650
um, and started to look at things that

435
00:16:07,650 --> 00:16:10,590
were, uh, you know, maybe more important than,

436
00:16:11,090 --> 00:16:13,030
uh, what it might seem like on any

437
00:16:13,030 --> 00:16:13,510
given day.

438
00:16:13,870 --> 00:16:15,030
We've a good point.

439
00:16:15,110 --> 00:16:16,370
We've talked about this.

440
00:16:16,430 --> 00:16:17,870
I think, uh, I don't know if it's

441
00:16:17,870 --> 00:16:19,750
been on the show or just, um, in

442
00:16:19,750 --> 00:16:24,190
our own conversations, but the, uh, the percentage

443
00:16:24,190 --> 00:16:27,510
of, uh, people that work for the federal

444
00:16:27,510 --> 00:16:29,850
government and, you know, how that fits into

445
00:16:29,850 --> 00:16:32,930
perspective and whether or not that shows up

446
00:16:32,930 --> 00:16:36,030
in data, um, is that something you can,

447
00:16:36,030 --> 00:16:37,970
uh, just share a little bit with the

448
00:16:37,970 --> 00:16:40,810
audience about, uh, as we talk about this,

449
00:16:40,890 --> 00:16:42,030
uh, you know, if so a little, uh,

450
00:16:42,030 --> 00:16:44,350
I framed some of the unemployment with this

451
00:16:44,350 --> 00:16:47,290
whole notion of, uh, people getting laid off.

452
00:16:47,310 --> 00:16:49,070
Uh, we see in the news when it

453
00:16:49,070 --> 00:16:53,230
comes to, um, uh, government workers and, and

454
00:16:53,230 --> 00:16:57,130
sometimes, you know, ancillary, uh, contractors and things

455
00:16:57,130 --> 00:16:58,590
like that being affected by that.

456
00:16:59,090 --> 00:17:01,110
Uh, is this going to show up in

457
00:17:01,110 --> 00:17:01,570
the data?

458
00:17:01,610 --> 00:17:03,089
And is it something that you think is

459
00:17:03,089 --> 00:17:05,150
going to move that needle in any way

460
00:17:05,150 --> 00:17:07,270
that's significant?

461
00:17:08,069 --> 00:17:09,410
Well, it's definitely going to show up in

462
00:17:09,410 --> 00:17:09,710
the data.

463
00:17:10,470 --> 00:17:14,930
Um, so whether it's people just leaving their

464
00:17:14,930 --> 00:17:17,770
government job, uh, at beginning ahead of possibly

465
00:17:17,770 --> 00:17:20,609
being fired or actually being fired, or, you

466
00:17:20,609 --> 00:17:21,690
know, we're going to have this back and

467
00:17:21,690 --> 00:17:23,650
forth where judges are forcing them to rehire

468
00:17:23,650 --> 00:17:25,250
them or they realize they need to re

469
00:17:25,250 --> 00:17:26,650
there's going to be noise in the data

470
00:17:26,650 --> 00:17:27,650
over the next couple of months.

471
00:17:28,350 --> 00:17:30,690
Um, and whether you want to take that

472
00:17:30,690 --> 00:17:32,770
seriously or not is entirely up to you

473
00:17:32,770 --> 00:17:34,270
as an investor, but I would stand by

474
00:17:34,270 --> 00:17:34,970
what I just said.

475
00:17:35,390 --> 00:17:36,750
Um, we know this noise is going to

476
00:17:36,750 --> 00:17:37,310
be in there.

477
00:17:37,770 --> 00:17:39,730
Uh, consider it when you're looking at the,

478
00:17:39,830 --> 00:17:41,630
a possible change in trend.

479
00:17:41,970 --> 00:17:44,230
Um, and consider what, what it really means

480
00:17:44,230 --> 00:17:46,430
now, Chris, I asked you this question for

481
00:17:46,430 --> 00:17:47,810
a few weeks ago, so please don't answer

482
00:17:47,810 --> 00:17:47,910
it.

483
00:17:47,910 --> 00:17:52,370
I'm going to ask Jeff, uh, Jeff, how

484
00:17:52,370 --> 00:17:54,970
many workers do you think the federal government

485
00:17:54,970 --> 00:17:58,190
employs versus how many workers do you think

486
00:17:58,190 --> 00:17:59,930
that state and local government employs?

487
00:18:01,270 --> 00:18:03,310
Well, I don't know the numbers, but I

488
00:18:03,310 --> 00:18:05,470
would guess a state and local government far

489
00:18:05,470 --> 00:18:07,070
surpasses the federal number.

490
00:18:07,290 --> 00:18:08,250
Well, you're right.

491
00:18:08,370 --> 00:18:10,410
Um, you know, I think, I think me

492
00:18:10,410 --> 00:18:14,450
and Chris were a little, um, a little

493
00:18:14,450 --> 00:18:16,130
bit more surprised about the, the new I

494
00:18:16,130 --> 00:18:18,010
worked in, I worked in local and state

495
00:18:18,010 --> 00:18:18,410
government.

496
00:18:20,310 --> 00:18:22,190
So, uh, you know, when we talk about

497
00:18:22,190 --> 00:18:24,610
doge and, and, and, and cuts and things

498
00:18:24,610 --> 00:18:26,470
of that nature, you know, there's 3 million

499
00:18:26,470 --> 00:18:28,410
people that work in the federal government that

500
00:18:28,410 --> 00:18:29,570
does not include contractors.

501
00:18:29,570 --> 00:18:31,430
And there's about 20 million people that work

502
00:18:31,430 --> 00:18:32,510
in state and local government.

503
00:18:32,910 --> 00:18:34,230
Um, I'm doing that from memory.

504
00:18:34,270 --> 00:18:36,050
So, uh, you know, if I'm off by

505
00:18:36,050 --> 00:18:37,930
a million here or there, give me a

506
00:18:37,930 --> 00:18:38,130
break.

507
00:18:38,390 --> 00:18:41,950
Um, so my point is in an economy

508
00:18:41,950 --> 00:18:44,810
that has about 180 million workers.

509
00:18:45,870 --> 00:18:49,010
It, we might be overreacting to a five,

510
00:18:49,090 --> 00:18:50,570
10,000 jobs here or there.

511
00:18:50,810 --> 00:18:52,910
And, uh, but that doesn't mean that that

512
00:18:52,910 --> 00:18:55,390
five, $10,000 isn't, uh, I keep saying

513
00:18:55,390 --> 00:18:58,530
dollars jobs isn't going to, uh, show up

514
00:18:58,530 --> 00:19:01,150
in that unemployment, uh, report, uh, that the

515
00:19:01,150 --> 00:19:03,810
BLS shows shows every, every month.

516
00:19:03,990 --> 00:19:05,970
So, um, there's going to be noise and

517
00:19:05,970 --> 00:19:07,350
it's up to you as an investor, what

518
00:19:07,350 --> 00:19:08,230
do you want to keep your eye on

519
00:19:08,230 --> 00:19:10,490
the longterm or react to, um, you know,

520
00:19:10,490 --> 00:19:13,490
short-term, uh, noise, I guess.

521
00:19:13,830 --> 00:19:14,830
Sensitive to that.

522
00:19:14,830 --> 00:19:17,010
I mean, it's, it's certainly, again, we're, you

523
00:19:17,010 --> 00:19:18,510
know, to bring it to the personal level,

524
00:19:18,810 --> 00:19:20,850
um, you know, if you're one of those

525
00:19:20,850 --> 00:19:22,930
5,000 or whatever it happens to be,

526
00:19:22,970 --> 00:19:25,270
uh, you know, it's certainly relevant and, you

527
00:19:25,270 --> 00:19:27,410
know, we're not insensitive to that, we're just

528
00:19:27,410 --> 00:19:29,330
simply trying to point this out from a.

529
00:19:29,850 --> 00:19:31,090
A macro view.

530
00:19:31,250 --> 00:19:33,850
How, how big a move is this impacting

531
00:19:33,850 --> 00:19:37,310
the economy and therefore how investors might think

532
00:19:37,310 --> 00:19:37,890
about it.

533
00:19:38,190 --> 00:19:39,630
Part of the problem when we talk about

534
00:19:39,630 --> 00:19:41,230
the macro economy in general is it sounds

535
00:19:41,230 --> 00:19:41,930
so insensitive.

536
00:19:42,570 --> 00:19:43,570
Yeah, exactly.

537
00:19:44,570 --> 00:19:44,690
Yeah.

538
00:19:44,730 --> 00:19:45,930
It's generally a problem.

539
00:19:46,470 --> 00:19:48,290
Um, lots of politicians have gotten in trouble

540
00:19:48,290 --> 00:19:50,770
about talking about the macro economy, right?

541
00:19:51,010 --> 00:19:51,530
Yeah.

542
00:19:51,730 --> 00:19:52,030
Yeah.

543
00:19:52,430 --> 00:19:55,370
Well, let's, let's talk about another component that

544
00:19:55,370 --> 00:19:57,330
sometimes people want to look at when thinking

545
00:19:57,330 --> 00:20:00,130
about is a recession on the horizon.

546
00:20:00,130 --> 00:20:02,610
So, so far it sounds like we've had

547
00:20:02,610 --> 00:20:05,910
strong consumer spending, unemployment's pretty low.

548
00:20:06,250 --> 00:20:07,850
How's business investment?

549
00:20:08,410 --> 00:20:11,370
Is there any data that's indicating anything really

550
00:20:11,370 --> 00:20:14,410
changing when it comes to business investment?

551
00:20:14,930 --> 00:20:16,850
I haven't seen, I haven't seen anything of

552
00:20:16,850 --> 00:20:17,290
significance.

553
00:20:17,290 --> 00:20:18,750
Now I sent you guys a chart this

554
00:20:18,750 --> 00:20:22,070
morning about durable, durable goods orders, and I

555
00:20:22,070 --> 00:20:23,470
had two points that I wanted to make

556
00:20:23,470 --> 00:20:25,990
about durable goods orders, um, when it comes

557
00:20:25,990 --> 00:20:27,730
to, you know, uh, I think, I, I

558
00:20:27,730 --> 00:20:29,710
think I said your durable goods orders and

559
00:20:29,710 --> 00:20:31,410
I said your durable goods orders X defense

560
00:20:31,970 --> 00:20:34,550
because X defense is, you know, obviously a

561
00:20:34,550 --> 00:20:36,170
big portion of the durable goods that are

562
00:20:36,170 --> 00:20:37,210
going to happen in the economy.

563
00:20:37,210 --> 00:20:40,650
Some people, um, take out transportation in general.

564
00:20:40,970 --> 00:20:42,550
Um, I don't really like to do that

565
00:20:42,550 --> 00:20:44,150
because I think cars are important.

566
00:20:44,430 --> 00:20:47,450
Um, but airplanes take up a huge portion

567
00:20:47,450 --> 00:20:49,610
of that, uh, of that situation.

568
00:20:49,610 --> 00:20:51,150
So that's why people do that.

569
00:20:51,190 --> 00:20:53,230
But by, I had two points, one, it's

570
00:20:53,230 --> 00:20:53,870
very cyclical.

571
00:20:54,370 --> 00:20:57,210
So when consumer spending is not cyclical business

572
00:20:57,210 --> 00:20:59,990
spending on durable goods, consumer spending on durable

573
00:20:59,990 --> 00:21:01,570
goods does seem to be cyclical.

574
00:21:01,570 --> 00:21:04,650
So, um, you should expect less capital expenditures

575
00:21:04,650 --> 00:21:07,210
in a, in a recession.

576
00:21:07,210 --> 00:21:07,610
Right.

577
00:21:07,690 --> 00:21:12,550
Um, but two, the numbers in, as a

578
00:21:12,550 --> 00:21:15,450
percentage of the total economy are almost a

579
00:21:15,450 --> 00:21:15,890
footnote.

580
00:21:16,130 --> 00:21:18,950
Um, you know, they're, they're in the couple

581
00:21:18,950 --> 00:21:21,310
hundred billion when the economy is measured in

582
00:21:21,310 --> 00:21:23,850
trillions, especially on a nominal basis, we're well

583
00:21:23,850 --> 00:21:26,510
over 30 trillion, um, on an annual GDP

584
00:21:26,510 --> 00:21:27,030
basis.

585
00:21:27,030 --> 00:21:29,950
So, uh, yeah, there's going to be a

586
00:21:29,950 --> 00:21:31,210
lot to be made of that.

587
00:21:31,210 --> 00:21:34,070
Um, but in the end, it, it, it

588
00:21:34,070 --> 00:21:36,890
might be fairly benign.

589
00:21:37,170 --> 00:21:39,110
Um, I think the things that are cut

590
00:21:39,110 --> 00:21:42,630
first when businesses get in trouble or not

591
00:21:42,630 --> 00:21:44,350
really, I think it's been, my experience has

592
00:21:44,350 --> 00:21:49,230
seen this is, uh, sales, advertising, marketing, um,

593
00:21:49,530 --> 00:21:53,170
your SGA expenses, your cost centers, your HR,

594
00:21:53,390 --> 00:21:55,770
your accounting, um, those are the things that

595
00:21:55,770 --> 00:21:56,310
go first.

596
00:21:56,310 --> 00:22:00,730
So, uh, you know, that's, that's something you

597
00:22:00,730 --> 00:22:01,930
might want to keep on an eye on,

598
00:22:02,150 --> 00:22:04,390
on, on, um, on income statements.

599
00:22:04,390 --> 00:22:06,810
You know, companies generally try to reduce that

600
00:22:06,810 --> 00:22:08,170
to increase their operating leverage.

601
00:22:08,170 --> 00:22:10,090
So there's kind of a natural progression of

602
00:22:10,090 --> 00:22:12,610
trying to increase margins and increase operating leverage.

603
00:22:12,950 --> 00:22:14,990
Um, but then there could be the abrupt,

604
00:22:15,410 --> 00:22:17,590
you know, we need to make changes because

605
00:22:17,590 --> 00:22:18,730
revenue is slowing down.

606
00:22:19,270 --> 00:22:21,810
Um, and you know, those are, might be

607
00:22:21,810 --> 00:22:22,970
things you want to look for on the

608
00:22:22,970 --> 00:22:23,630
business level.

609
00:22:23,630 --> 00:22:26,470
Um, but, uh, you know, I'll point to

610
00:22:26,470 --> 00:22:29,690
Darden restaurants, for example, Darden restaurants, it might

611
00:22:29,690 --> 00:22:33,010
be the ultimate consumer discretionary, uh, consumer spending

612
00:22:33,010 --> 00:22:33,390
company.

613
00:22:33,610 --> 00:22:35,770
And, you know, they're not really seeing much

614
00:22:35,770 --> 00:22:37,430
slowdown in consumer spending.

615
00:22:37,990 --> 00:22:40,250
Um, you know, that could be one bellwether

616
00:22:40,250 --> 00:22:40,810
for you.

617
00:22:41,110 --> 00:22:43,230
And, you know, when I hear things like

618
00:22:43,230 --> 00:22:46,070
that, uh, I shrug my shoulders.

619
00:22:46,110 --> 00:22:47,370
I'm just feeling the U S consumer is

620
00:22:47,370 --> 00:22:48,050
going to consume.

621
00:22:48,150 --> 00:22:48,910
That's what they do.

622
00:22:48,910 --> 00:22:51,790
And then you hear something like Delta, who

623
00:22:51,790 --> 00:22:53,250
says they're seeing a slowdown in growth?

624
00:22:53,650 --> 00:22:55,850
They're not saying they're expecting a recession from

625
00:22:55,850 --> 00:22:58,790
growth, but what you might be seeing there

626
00:22:58,790 --> 00:23:00,770
is the business travel or slowing down a

627
00:23:00,770 --> 00:23:01,070
little bit.

628
00:23:01,330 --> 00:23:05,530
Uh, which I think, you know, that's cultural,

629
00:23:05,910 --> 00:23:06,090
right?

630
00:23:06,930 --> 00:23:09,390
It might be a reaction to the boom

631
00:23:09,390 --> 00:23:10,630
that we had after the pandemic.

632
00:23:10,630 --> 00:23:14,330
It might be, uh, companies reigning in based

633
00:23:14,330 --> 00:23:16,430
on a slowdown that they're seeing, seeing in

634
00:23:16,430 --> 00:23:19,650
revenue, but a slowdown isn't necessarily recessionary.

635
00:23:19,950 --> 00:23:21,730
My point is, there's a lot of noise.

636
00:23:21,730 --> 00:23:24,670
Um, and what we want to concentrate on

637
00:23:24,670 --> 00:23:27,810
are the things that are important, which can

638
00:23:27,810 --> 00:23:30,330
really be tough to dial down.

639
00:23:30,330 --> 00:23:30,610
Right.

640
00:23:30,690 --> 00:23:34,110
And sometimes you need to like clear your

641
00:23:34,110 --> 00:23:36,330
head, shut it off and think, right.

642
00:23:36,330 --> 00:23:37,490
Just think through what's important.

643
00:23:37,530 --> 00:23:39,410
Think through reality, think through real life.

644
00:23:39,550 --> 00:23:41,870
Um, I think that that can be, especially

645
00:23:41,870 --> 00:23:43,650
now in the social media age, there can

646
00:23:43,650 --> 00:23:45,810
be an overwhelming amount of information thrown at

647
00:23:45,810 --> 00:23:48,370
you and it can all seem important and,

648
00:23:48,970 --> 00:23:51,250
uh, it's not necessarily all important, you know,

649
00:23:51,250 --> 00:23:53,510
we, we have an, uh, individual stock portfolio

650
00:23:53,510 --> 00:23:55,570
and we concentrate on consistency and growth.

651
00:23:56,510 --> 00:23:58,110
And the reason why we do that is

652
00:23:58,110 --> 00:24:00,470
because I understand there's an enormous amount of

653
00:24:00,470 --> 00:24:02,970
uncertainty, even in, even when you concentrate on

654
00:24:02,970 --> 00:24:05,950
things like consistency and growth, inevitably, there's going

655
00:24:05,950 --> 00:24:07,830
to be things that don't go the way

656
00:24:07,830 --> 00:24:10,150
you expected or that business expected.

657
00:24:10,430 --> 00:24:12,590
Um, but, uh, in a, in a world

658
00:24:12,590 --> 00:24:15,010
of enormous amounts of uncertainty, if you can

659
00:24:15,010 --> 00:24:18,430
do a good job of maximizing that consistency,

660
00:24:18,450 --> 00:24:20,530
uh, you know, you're probably going to be

661
00:24:20,530 --> 00:24:21,670
in good shape over the long run.

662
00:24:22,810 --> 00:24:23,530
Good point.

663
00:24:23,970 --> 00:24:26,530
You know, Brian, during, uh, the COVID time,

664
00:24:26,530 --> 00:24:28,730
we talked a lot about government spending and

665
00:24:28,730 --> 00:24:30,490
what it was doing to inflation at the

666
00:24:30,490 --> 00:24:30,690
moment.

667
00:24:30,690 --> 00:24:30,970
Right.

668
00:24:31,170 --> 00:24:34,550
We talked that government spending is a stimulus

669
00:24:34,550 --> 00:24:37,770
to the economy and reducing government spending is

670
00:24:37,770 --> 00:24:38,290
restrictive.

671
00:24:39,050 --> 00:24:41,010
So this is something else that we haven't

672
00:24:41,010 --> 00:24:43,970
seen yet, including in the recent six month,

673
00:24:44,050 --> 00:24:46,850
uh, budget deal that was passed, there was

674
00:24:46,850 --> 00:24:48,570
no reduction in government spending.

675
00:24:48,570 --> 00:24:53,010
Um, how much is government spending really impacting

676
00:24:53,010 --> 00:24:56,050
our GDP and our, you know, our economic

677
00:24:56,050 --> 00:24:57,670
cycles here.

678
00:24:57,770 --> 00:25:03,290
And if, if, if Congress actually restrains government

679
00:25:03,290 --> 00:25:06,770
spending and DOJ is successful at their efforts

680
00:25:06,770 --> 00:25:08,610
to really get rid of some agencies and

681
00:25:08,610 --> 00:25:11,890
really reduce the federal workforce, is that something

682
00:25:11,890 --> 00:25:14,410
that you would think could really impact the

683
00:25:14,410 --> 00:25:16,150
economy in a slowing way?

684
00:25:17,370 --> 00:25:17,730
Yes.

685
00:25:17,730 --> 00:25:21,350
I think, uh, deficit spending is stimulative, like

686
00:25:21,350 --> 00:25:23,970
deficit reduction or surpluses are restrictive.

687
00:25:24,510 --> 00:25:28,270
Um, you know, John Maynard Keynes, a famous

688
00:25:28,270 --> 00:25:32,690
economist, uh, he put forth and I ascribed

689
00:25:32,690 --> 00:25:35,750
to this idea that, uh, during a troughing

690
00:25:35,750 --> 00:25:39,330
economy, uh, you need, uh, and, and, uh,

691
00:25:39,530 --> 00:25:42,610
to stimulate demand, stimulate aggregate demand.

692
00:25:42,610 --> 00:25:43,710
And part of the way that you do

693
00:25:43,710 --> 00:25:45,210
that is through government spending.

694
00:25:45,210 --> 00:25:46,810
And we saw this during the great depression.

695
00:25:47,310 --> 00:25:50,270
Uh, the, the new deal, uh, certainly helped

696
00:25:50,270 --> 00:25:53,430
increase aggregate demand in hindsight and world war

697
00:25:53,430 --> 00:25:55,590
II and the, the, the abundance of spending

698
00:25:55,590 --> 00:25:57,630
that we had there, uh, really got us

699
00:25:57,630 --> 00:25:58,470
out of the great depression.

700
00:25:59,030 --> 00:26:01,210
Um, but he also said that when the

701
00:26:01,210 --> 00:26:03,290
economy is humming along that the government should

702
00:26:03,290 --> 00:26:05,930
cut back, uh, so not to overstimulate the

703
00:26:05,930 --> 00:26:08,790
economy and cause, you know, an inflationary problem.

704
00:26:09,070 --> 00:26:11,350
So, um, there is that balance.

705
00:26:11,350 --> 00:26:15,670
Uh, we ran extra deficits during a booming

706
00:26:15,670 --> 00:26:17,310
economy, which was a mistake.

707
00:26:17,310 --> 00:26:19,830
And we had, you know, uh, inflation, the

708
00:26:19,830 --> 00:26:22,610
government did not get that balance right, uh,

709
00:26:22,650 --> 00:26:24,990
between, you know, 21 and 23.

710
00:26:25,350 --> 00:26:28,190
Um, you know, eventually it seems like the

711
00:26:28,190 --> 00:26:30,630
supply side of things caught up to the

712
00:26:30,630 --> 00:26:31,490
demand side of things.

713
00:26:32,010 --> 00:26:35,770
Um, but you know, naturally what we should

714
00:26:35,770 --> 00:26:37,930
have been doing is cutting back on government

715
00:26:37,930 --> 00:26:39,770
spending, uh, during those times.

716
00:26:39,770 --> 00:26:44,790
Uh, and so we, so we have firepower

717
00:26:44,790 --> 00:26:46,550
for, for the next trough.

718
00:26:46,770 --> 00:26:48,630
Um, that's not what we've done.

719
00:26:48,790 --> 00:26:51,950
Um, but inevitably, yes, uh, we, it will

720
00:26:51,950 --> 00:26:53,250
be depressive in my opinion.

721
00:26:53,870 --> 00:26:54,350
Okay.

722
00:26:55,090 --> 00:26:57,930
Um, doesn't mean recession too.

723
00:26:58,070 --> 00:26:58,950
It could be a slowdown.

724
00:26:59,130 --> 00:27:01,050
So, you know, I think people think there's

725
00:27:01,050 --> 00:27:03,370
like a binary situation here, but we were

726
00:27:03,370 --> 00:27:05,310
growing at 5% GDP for a long

727
00:27:05,310 --> 00:27:07,190
time, which is well, be well above potential.

728
00:27:07,190 --> 00:27:09,130
You know, it could just go down a

729
00:27:09,130 --> 00:27:10,830
half percent or 1% or something like

730
00:27:10,830 --> 00:27:11,710
that, stay there for a while.

731
00:27:12,270 --> 00:27:12,770
Sorry, Chris.

732
00:27:12,910 --> 00:27:13,870
Oh, that's a good point.

733
00:27:14,670 --> 00:27:17,090
Um, so one other thing to look at

734
00:27:17,090 --> 00:27:19,650
sometimes when thinking about the concern of whether

735
00:27:19,650 --> 00:27:22,210
there's a recession coming or not, is to

736
00:27:22,210 --> 00:27:23,910
look at manufacturing output.

737
00:27:24,510 --> 00:27:28,310
Um, is there, has there been any material

738
00:27:28,310 --> 00:27:30,290
developments with regard to that?

739
00:27:31,430 --> 00:27:32,750
I actually disagree.

740
00:27:32,850 --> 00:27:33,690
I don't think it's that important.

741
00:27:33,690 --> 00:27:35,870
So the reason why I don't think it's

742
00:27:35,870 --> 00:27:40,330
that important is because we are more of

743
00:27:40,330 --> 00:27:41,990
a services economy than a goods economy.

744
00:27:42,270 --> 00:27:44,590
Um, and it's not even really close.

745
00:27:44,670 --> 00:27:46,730
I sent the chart to you guys, uh,

746
00:27:46,730 --> 00:27:49,110
again, that, that showed the differences between personal

747
00:27:49,110 --> 00:27:52,250
consumption expenditures on services and personal consumption expenditures

748
00:27:52,250 --> 00:27:57,270
on, um, manufacturing, it's not even close.

749
00:27:57,310 --> 00:27:59,790
So, uh, you know, if we have a

750
00:27:59,790 --> 00:28:03,610
blip in the manufacturing surveys, I, you know,

751
00:28:03,730 --> 00:28:06,330
again, it's important, but not that important.

752
00:28:06,590 --> 00:28:08,950
What I think, what I think is what

753
00:28:08,950 --> 00:28:11,290
I think people struggle with sometimes is, you

754
00:28:11,290 --> 00:28:13,670
know, everybody reads, uh, their economics textbooks and

755
00:28:13,670 --> 00:28:15,710
all of it's based on the past, right.

756
00:28:15,990 --> 00:28:18,070
Um, for, for, for good reason.

757
00:28:18,070 --> 00:28:19,610
You know, I, when I was in school,

758
00:28:19,610 --> 00:28:23,050
I learned about inventory cycles and how inventory

759
00:28:23,050 --> 00:28:26,510
cycles can cause the business cycle to, um,

760
00:28:26,550 --> 00:28:29,070
you know, be in flux and sometimes cause

761
00:28:29,070 --> 00:28:31,270
a recession based on the ideas you have

762
00:28:31,270 --> 00:28:32,870
too much inventory, you have to discount your

763
00:28:32,870 --> 00:28:35,210
inventory, uh, if you discount your inventory, your

764
00:28:35,210 --> 00:28:36,350
margins go down and you have to fire

765
00:28:36,350 --> 00:28:39,050
people, if you fire people, they can't spend

766
00:28:39,050 --> 00:28:41,030
as much, you have to discount some more,

767
00:28:41,370 --> 00:28:43,330
you can't buy a new inventory and this

768
00:28:43,330 --> 00:28:45,910
cycle kind of perpetuates itself until, you know,

769
00:28:45,950 --> 00:28:48,130
interest rates come down and the government spends,

770
00:28:48,450 --> 00:28:51,530
um, you know, out of a recession, since

771
00:28:51,530 --> 00:28:53,350
we're mostly a services economy, there's not really

772
00:28:53,350 --> 00:28:54,790
an inventory cycle anymore.

773
00:28:55,510 --> 00:28:57,830
Um, so, you know, we don't really have

774
00:28:57,830 --> 00:29:01,850
that great of a manufacturing, um, cycle, uh,

775
00:29:01,850 --> 00:29:03,090
to, to create this inventory.

776
00:29:04,650 --> 00:29:06,930
Uh, basically if we want it, we can

777
00:29:06,930 --> 00:29:07,530
get it.

778
00:29:07,530 --> 00:29:10,030
Uh, and that's how it's been for the

779
00:29:10,030 --> 00:29:12,690
vast majority of the last 25 years, save

780
00:29:12,690 --> 00:29:13,330
for the pandemic.

781
00:29:13,610 --> 00:29:15,990
Uh, and so, you know, for that reason,

782
00:29:15,990 --> 00:29:17,610
I discounted a little bit.

783
00:29:17,650 --> 00:29:19,830
I mean, China has been a huge slowdown

784
00:29:19,830 --> 00:29:21,250
and we get a lot of our manufacturing

785
00:29:21,250 --> 00:29:22,170
power from there.

786
00:29:22,370 --> 00:29:24,950
And it has not stopped anybody from getting

787
00:29:24,950 --> 00:29:28,750
anything from, you know, or Amazon or any

788
00:29:28,750 --> 00:29:32,010
of those, uh, any of those retailers or

789
00:29:32,010 --> 00:29:32,910
Walmart, for example.

790
00:29:32,930 --> 00:29:35,090
So, um, yeah, I discount that a little

791
00:29:35,090 --> 00:29:35,390
bit.

792
00:29:35,390 --> 00:29:37,830
Again, it's both like, what's, what's important to

793
00:29:37,830 --> 00:29:39,190
concentrate on and what's not.

794
00:29:39,210 --> 00:29:40,890
And, you know, you guys can disagree with

795
00:29:40,890 --> 00:29:41,310
me on that.

796
00:29:41,350 --> 00:29:43,890
It's, uh, you know, perfectly up for discussion

797
00:29:43,890 --> 00:29:45,150
as far as I I'm concerned.

798
00:29:45,210 --> 00:29:47,770
I just think something has to be dramatic

799
00:29:47,770 --> 00:29:53,470
enough to slow down the $20 trillion consumer.

800
00:29:54,010 --> 00:29:55,950
I guess that leaves us with the question

801
00:29:55,950 --> 00:29:57,490
of the day is tariffs.

802
00:29:58,010 --> 00:30:01,770
If enacted as suggested, you know, broad-based

803
00:30:01,770 --> 00:30:03,770
tariffs, 25% here and there.

804
00:30:04,210 --> 00:30:07,510
Is that enough to really slow the economy

805
00:30:07,510 --> 00:30:07,790
down?

806
00:30:09,190 --> 00:30:11,830
Uh, I think it's certainly enough to slow

807
00:30:11,830 --> 00:30:12,650
the economy down.

808
00:30:12,690 --> 00:30:14,630
Um, whether it's enough to bring down tariff,

809
00:30:14,890 --> 00:30:17,190
bring down, um, that is the question, right?

810
00:30:17,250 --> 00:30:18,590
Bring down the, the economy.

811
00:30:18,630 --> 00:30:22,410
I do, I do not think I'll say

812
00:30:22,410 --> 00:30:22,550
that.

813
00:30:22,550 --> 00:30:24,010
Not static, right?

814
00:30:24,130 --> 00:30:26,590
It's, um, well, is there a retaliation?

815
00:30:26,810 --> 00:30:27,370
Is that correct?

816
00:30:28,370 --> 00:30:28,770
Yeah.

817
00:30:30,070 --> 00:30:32,190
Ultimately I think that's the bigger problem, right?

818
00:30:32,290 --> 00:30:35,010
Our, our imaginations can run wild with how

819
00:30:35,010 --> 00:30:36,530
big these tariffs are going to be.

820
00:30:36,570 --> 00:30:39,650
And I think that's the uncertainty, Jeff, you're

821
00:30:39,650 --> 00:30:40,290
relating to.

822
00:30:40,390 --> 00:30:40,550
Yeah.

823
00:30:40,690 --> 00:30:43,090
So, um, you know, I did some math

824
00:30:43,090 --> 00:30:45,790
on this subject, uh, and we just pull

825
00:30:45,790 --> 00:30:46,150
it up.

826
00:30:47,330 --> 00:30:48,970
While you're pulling that up, I'm just going

827
00:30:48,970 --> 00:30:50,390
to point out two other things that I

828
00:30:50,390 --> 00:30:52,490
think are, uh, things that we may want

829
00:30:52,490 --> 00:30:55,310
to just weave into our comments that are

830
00:30:55,310 --> 00:30:59,170
sometimes also things people think about when trying

831
00:30:59,170 --> 00:31:01,290
to evaluate, oh, is there a recession happening

832
00:31:01,290 --> 00:31:04,270
is what's happening with investor sentiment in terms

833
00:31:04,270 --> 00:31:07,690
of the stock market and, and secondly, with

834
00:31:07,690 --> 00:31:08,810
housing, right?

835
00:31:08,930 --> 00:31:11,810
You know, uh, uh, what's happening with home

836
00:31:11,810 --> 00:31:13,170
prices and things of that sort.

837
00:31:13,350 --> 00:31:15,390
So in any case, if it would complete

838
00:31:15,390 --> 00:31:16,970
your comment, but we might want to tie

839
00:31:16,970 --> 00:31:17,910
those things into.

840
00:31:19,050 --> 00:31:19,570
Yeah.

841
00:31:19,570 --> 00:31:22,770
So I, uh, the, this is all subject

842
00:31:22,770 --> 00:31:23,650
to change of course.

843
00:31:23,650 --> 00:31:25,370
And none of these have actually been enacted.

844
00:31:25,370 --> 00:31:26,530
I don't believe.

845
00:31:26,550 --> 00:31:28,530
And, uh, we're waiting on April 2nd to

846
00:31:28,530 --> 00:31:31,230
get more numbers when it comes to, uh,

847
00:31:31,410 --> 00:31:33,370
Europe and whether or not these Canada and

848
00:31:33,370 --> 00:31:35,330
Mexico tariffs are going to keep up.

849
00:31:35,610 --> 00:31:38,310
But I have 45% on China, 25

850
00:31:38,310 --> 00:31:40,770
% on Canada, 25% on Mexico.

851
00:31:41,110 --> 00:31:44,030
Um, and to me that the, that will

852
00:31:44,030 --> 00:31:47,690
increase taxes by about $470 billion on the

853
00:31:47,690 --> 00:31:48,050
economy.

854
00:31:48,050 --> 00:31:51,390
Now, if, if spending habits didn't change, right.

855
00:31:51,410 --> 00:31:52,870
If everything was constant, right.

856
00:31:53,330 --> 00:31:53,770
Yeah.

857
00:31:53,790 --> 00:31:55,070
So that's about a one and a half

858
00:31:55,070 --> 00:31:55,850
percent tax.

859
00:31:56,190 --> 00:31:59,570
Uh, and I think that number in China

860
00:31:59,570 --> 00:32:00,530
is definitely in flux.

861
00:32:00,590 --> 00:32:01,830
So this is kind of a problem, right?

862
00:32:01,910 --> 00:32:03,850
We, a one and a half percent tax

863
00:32:03,850 --> 00:32:04,730
is significant, right?

864
00:32:04,750 --> 00:32:08,350
We have inflation of, uh, you know, two,

865
00:32:08,490 --> 00:32:09,290
let's just call it two and a half

866
00:32:09,290 --> 00:32:11,690
percent, um, or that's around where the trend

867
00:32:11,690 --> 00:32:12,030
is.

868
00:32:12,110 --> 00:32:13,210
If you increase it by one and a

869
00:32:13,210 --> 00:32:14,710
half percent, we're closer to four again.

870
00:32:14,950 --> 00:32:17,110
Right now that's assuming nothing changes.

871
00:32:17,110 --> 00:32:19,850
We don't have a slow of what I'm

872
00:32:19,850 --> 00:32:20,110
sorry.

873
00:32:20,190 --> 00:32:20,550
I didn't follow.

874
00:32:20,690 --> 00:32:23,170
If they go up 25%, that's a 25

875
00:32:23,170 --> 00:32:24,450
% tax, isn't it?

876
00:32:25,590 --> 00:32:26,530
It is.

877
00:32:26,830 --> 00:32:31,750
So for example, we, uh, we import $413

878
00:32:31,750 --> 00:32:35,450
billion worth of goods from Canada at a

879
00:32:35,450 --> 00:32:38,210
25% tax, that would be 103 billion,

880
00:32:38,410 --> 00:32:42,430
uh, in taxes per year against, uh, an

881
00:32:42,430 --> 00:32:46,790
economy that is, uh, uh, let's call it,

882
00:32:46,910 --> 00:32:48,190
call it 30 trillion.

883
00:32:48,610 --> 00:32:50,690
Um, you know, that when you add up

884
00:32:50,690 --> 00:32:52,770
all those, it ends up being one and

885
00:32:52,770 --> 00:32:55,370
a half percent increase the economy you're saying

886
00:32:55,370 --> 00:32:56,130
of the economy.

887
00:32:56,130 --> 00:32:59,290
So of all prices, I would expect prices

888
00:32:59,290 --> 00:33:00,630
to increase one and a half percent.

889
00:33:00,730 --> 00:33:03,330
If the, if the tariffs go in, as,

890
00:33:03,490 --> 00:33:06,830
as, as mentioned, if they stay for in

891
00:33:06,830 --> 00:33:09,130
perpetuity, um, those are, those are a lot

892
00:33:09,130 --> 00:33:11,690
of ifs to, to, to, um, point.

893
00:33:11,990 --> 00:33:12,510
Yeah.

894
00:33:12,510 --> 00:33:15,470
Now the question is like, okay, let's say

895
00:33:15,470 --> 00:33:16,370
that happens, right?

896
00:33:16,370 --> 00:33:17,650
Let's say that's our baseline.

897
00:33:18,090 --> 00:33:19,150
What do you, what do you think will

898
00:33:19,150 --> 00:33:19,710
happen to earnings?

899
00:33:19,770 --> 00:33:21,150
Well, I think earnings will go down to

900
00:33:21,150 --> 00:33:23,810
$259 and 50 cents, but I'm not going

901
00:33:23,810 --> 00:33:24,950
to get into the math on how I

902
00:33:24,950 --> 00:33:27,210
got there, but you know, that's my rough

903
00:33:27,210 --> 00:33:31,170
estimate, um, for 2025.

904
00:33:31,410 --> 00:33:34,170
Now that the initial earnings estimate coming into

905
00:33:34,170 --> 00:33:35,610
the year was $278.

906
00:33:35,890 --> 00:33:38,030
So that's a pretty big slowdown, right?

907
00:33:38,030 --> 00:33:40,910
That's that I'd say that cuts the, uh,

908
00:33:40,930 --> 00:33:43,790
earnings growth by about half of, of what

909
00:33:43,790 --> 00:33:46,530
we expect in an economy, which isn't great,

910
00:33:46,970 --> 00:33:49,350
therefore maybe that justifies the notion that, Oh,

911
00:33:49,590 --> 00:33:52,090
uh, Mark stark market prices have come down

912
00:33:52,090 --> 00:33:53,690
some, you know, that kind of like, Oh,

913
00:33:53,730 --> 00:33:56,450
if we're going to have an effect on

914
00:33:56,450 --> 00:33:56,890
earnings.

915
00:33:57,090 --> 00:33:59,050
So if we had earnings growth go down

916
00:33:59,050 --> 00:34:01,650
by half in a vacuum, then absolutely like

917
00:34:01,650 --> 00:34:02,930
stock prices to come down.

918
00:34:03,130 --> 00:34:05,230
The beautiful thing is none of this happens

919
00:34:05,230 --> 00:34:06,150
in a vacuum, right?

920
00:34:06,150 --> 00:34:09,050
Um, if that were to happen, what we

921
00:34:09,050 --> 00:34:11,469
have seen is growth expectations have come down

922
00:34:11,469 --> 00:34:14,110
and the 10 year treasury has come down,

923
00:34:14,150 --> 00:34:15,790
um, in relation to that.

924
00:34:16,050 --> 00:34:17,909
So, you know, when we had a 5

925
00:34:17,909 --> 00:34:20,030
% 10 year treasury, it should be a

926
00:34:20,030 --> 00:34:22,770
higher discount on stocks than when we have

927
00:34:22,770 --> 00:34:25,250
a 4.3, 4.4% 10 year

928
00:34:25,250 --> 00:34:27,510
treasury, which is around what we have today.

929
00:34:28,090 --> 00:34:29,949
Um, and when you put those two things

930
00:34:29,949 --> 00:34:32,889
together, you know, the stock market probably corrected

931
00:34:32,889 --> 00:34:33,949
too much in my opinion.

932
00:34:33,949 --> 00:34:35,570
You know, the, what the stock market is

933
00:34:35,570 --> 00:34:38,449
saying is we're, we're handicapping things we don't

934
00:34:38,449 --> 00:34:38,830
know.

935
00:34:39,190 --> 00:34:41,650
So if we just have a kind of

936
00:34:41,650 --> 00:34:43,810
a benign April 2nd, when the Trump administration

937
00:34:43,810 --> 00:34:46,250
comes out and says, it's not going to

938
00:34:46,250 --> 00:34:48,510
be, you know, as bad as we said,

939
00:34:48,710 --> 00:34:50,489
the, these countries kind of worked with us,

940
00:34:50,489 --> 00:34:51,989
then I think you'd see the stock market

941
00:34:51,989 --> 00:34:52,230
react.

942
00:34:52,230 --> 00:34:53,350
I don't think we're going to have any

943
00:34:53,350 --> 00:34:54,670
benign days actually.

944
00:34:56,010 --> 00:34:58,130
Well, what I think what we've seen is

945
00:34:58,130 --> 00:35:00,250
we've had a combination of benign days and

946
00:35:00,250 --> 00:35:02,570
crazy days, and you know, that causes the

947
00:35:02,570 --> 00:35:03,790
relative volatility.

948
00:35:04,610 --> 00:35:04,710
Right.

949
00:35:04,910 --> 00:35:06,550
But if, again, if we want to take

950
00:35:06,550 --> 00:35:07,770
a sober look and not think about it

951
00:35:07,770 --> 00:35:08,710
day to day, and you want to think

952
00:35:08,710 --> 00:35:11,430
about the longer term, is there an opportunity

953
00:35:11,430 --> 00:35:13,910
here that today's price is to take advantage

954
00:35:13,910 --> 00:35:16,850
of opportunities that being a longterm, you know,

955
00:35:16,910 --> 00:35:18,010
of course there's no guarantee.

956
00:35:18,210 --> 00:35:20,150
I mean, they, they, they could make the

957
00:35:20,150 --> 00:35:22,690
tariffs way worse than we expect, but based

958
00:35:22,690 --> 00:35:24,950
on what they've proposed and enacted so far,

959
00:35:24,950 --> 00:35:26,770
I think there could be a bit of

960
00:35:26,770 --> 00:35:28,770
an opportunity here, which is why, you know,

961
00:35:28,790 --> 00:35:30,850
I've, I've mentioned to our clients in that

962
00:35:30,850 --> 00:35:31,870
call we had a couple of weeks ago

963
00:35:31,870 --> 00:35:34,490
that all things equal today, I would want

964
00:35:34,490 --> 00:35:35,490
to take more risk.

965
00:35:35,750 --> 00:35:37,530
Um, the beautiful thing is, you know, April

966
00:35:37,530 --> 00:35:38,850
2nd, we're not going to be making any

967
00:35:38,850 --> 00:35:40,050
changes for another couple of weeks.

968
00:35:40,050 --> 00:35:41,750
So we're going to be able to, um,

969
00:35:42,290 --> 00:35:44,350
you know, input that information into our analysis

970
00:35:44,350 --> 00:35:46,650
to, to make decisions on asset allocation.

971
00:35:47,110 --> 00:35:48,730
That sounds like we've, we've kind of run

972
00:35:48,730 --> 00:35:49,270
the course.

973
00:35:49,370 --> 00:35:51,430
I think, uh, listen, if, if you've been

974
00:35:51,430 --> 00:35:54,130
enjoying this conversation, you, you need to be

975
00:35:54,130 --> 00:35:55,170
sharing it with others.

976
00:35:55,170 --> 00:35:57,690
This is the kind of stuff that, uh,

977
00:35:57,710 --> 00:35:58,790
people are worried about.

978
00:35:58,790 --> 00:36:00,470
And, uh, we tried to give you some

979
00:36:00,470 --> 00:36:03,230
substantive way to think about this and understand

980
00:36:03,230 --> 00:36:06,230
how it is that you can approach this

981
00:36:06,230 --> 00:36:09,250
topic as you think about your portfolio and

982
00:36:09,250 --> 00:36:09,670
investing.

983
00:36:09,670 --> 00:36:11,090
But along the way, if you need a

984
00:36:11,090 --> 00:36:13,350
little bit of helping hand, uh, don't hesitate

985
00:36:13,350 --> 00:36:14,950
to reach out to us.

986
00:36:15,010 --> 00:36:16,710
We're happy to be a resource to you

987
00:36:16,710 --> 00:36:20,630
and assist you in your, uh, portfolio management

988
00:36:20,630 --> 00:36:22,070
or financial planning.

989
00:36:22,710 --> 00:36:23,690
Hope we can be that.

990
00:36:23,830 --> 00:36:24,390
Thanks everybody.

991
00:36:24,390 --> 00:36:27,350
Until next time keeps driving for something more.

992
00:36:28,670 --> 00:36:31,050
Thank you for listening to something more with

993
00:36:31,050 --> 00:36:31,770
Chris Boyd.

994
00:36:32,030 --> 00:36:34,190
Call us for help, whether it's for financial

995
00:36:34,190 --> 00:36:38,130
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996
00:36:38,130 --> 00:36:40,170
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997
00:36:40,170 --> 00:36:41,270
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998
00:36:41,590 --> 00:36:42,630
Whatever's on your mind.

999
00:36:42,730 --> 00:36:45,470
Visit us at something more with chrisboyd.com

1000
00:36:45,470 --> 00:36:47,990
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1001
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1003
00:36:55,150 --> 00:36:57,530
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1004
00:36:57,750 --> 00:36:59,710
You're listening to something more with Chris Boyd,

1005
00:36:59,730 --> 00:37:02,330
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1006
00:37:02,330 --> 00:37:04,470
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1007
00:37:04,470 --> 00:37:07,030
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1008
00:37:07,030 --> 00:37:08,810
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1009
00:37:08,810 --> 00:37:09,370
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1010
00:37:09,690 --> 00:37:11,430
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1011
00:37:11,430 --> 00:37:13,470
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1012
00:37:13,470 --> 00:37:15,090
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1013
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00:37:19,230 --> 00:37:20,370
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1016
00:37:20,370 --> 00:37:22,710
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00:37:22,710 --> 00:37:24,810
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1018
00:37:24,810 --> 00:37:25,570
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