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Noah Brooks:
Welcome back everybody, to a new edition of the Market Enthusiast podcast. I’m Noah Brooks, and with me is Chris Needs.
Chris Needs:
Hello.
Noah Brooks:
Welcome everybody. I’m going to start today with the jobs report. Talk a little bit about that. Go through, I think we might even touch on TikTok, maybe a little Boeing and a few other things here and there, but let’s start with the jobs report.
So, the report came out on Friday. Guess what? The economy is still creating jobs. 275,000 jobs the government reported on last Friday. We saw gains in healthcare and government, food services, transportation, warehousing, all in all. Pretty good report. What do you think?
Chris Needs:
Yeah, another strong jobs report, certainly. So the unemployment rate did tick up to 3.9, but when you look at it, we’re at 25 months straight below 4% unemployment, which is a very historical streak. You have to go back to the 1960s and then prior to that, I think the early 1950s to get a streak of either jobs or unemployment rate being that low.
Noah Brooks:
So if I remember correctly, the lowest rate, was it like ’64 or ’67 under three?
Chris Needs:
I know that was a very, very strong time because the market started overheating and then the Fed kind of cut a tad early. I think it was late ’66 or ’67 because there was a little market weakness. And then that led to ’67 and ’68 being super strong.
Noah Brooks:
But nonetheless, under 4%. When I started in the late ’90s, the rule of thumb was that if unemployment was under 5%, it was inflationary, right? Because of wage gains. And obviously we went through a significant bout of inflation and we had massive wage gains, but I don’t think it was because of the traditional forces at work. Obviously we’ve touched on that a lot here.
So yeah, healthcare was the biggest gainer with almost 70,000 jobs being reported last week.
And when you look around, so – kind of off subject – I was out at a concert last night. My aunt and uncle got us tickets to a blues guitarist, Kenny Wayne Shepherd. And I’m sitting there, this is a small theater here in the area, and I’m sitting there and I’m looking around and I figured I was the youngest person in the entire place. And it was like a prescription drug. It was like a wholesale warehouse of prescription drug users.
Not the crazy stuff. Like the normal stuff, the things you see advertised on television. It was busy. Everybody was older than me, which was a little bit weird. But I kept thinking to myself, these are the people that are either right at retirement or into retirement and probably need the most healthcare. A little bit off the subject. But you see healthcare jobs being added and I don’t think that’s going to go away in the short term.
Chris Needs:
No, definitely not. Definitely not.
CPI REPORT
Noah Brooks:
So CPI came out, and the headline was a little bit high, 3.2. Can you break it down for us a little bit?
Chris Needs:
So a little bit of the traditional things that we’ve been finding to be sticky lately. So between gas, and, I guess the home rent equivalent, the shelter component, CPI, which is obviously huge, we talked about that. Was it 35% of CPI headline? Those two pieces, gas and shelter, accounted for 60% of the rise.
So the normal suspects, we’ll say, are keeping inflation sticky. If you look at the last couple of months, it seems like our floor may now be 3% maybe.
And we talked about that before. Everything where CPI should come back down fairly quickly. But we talked about after supply issues fade, they’re very likely could be a little bit higher floor than we’re used to. And the Fed has a decision to make at that point where they truly get us down to 2% or they do that average of 2% or what they do from there.
Noah Brooks:
For everybody out there, obviously we know inflation went through the roof during 2022 up to I think a little over 9%, and it’s moderated significantly since then, right? We’re talking about a headline inflation rate of 3.2, but the Federal Reserve has told us they’re looking for a 2% number. That would be their target rate. And I think the conventional wisdom is it’s going to be pretty hard for that last percentage point.
So from nine down to four seemed like it was within a few months. A lot of supply chain things loosened up. Four to three, took another few months. But from three to two, that might be the longest yard.
Chris Needs:
Especially with them communicating cuts as being next rather than any further hikes. Now, if they did hike, if we continue getting hot data, the market would be really offsite and that would hurt.
Noah Brooks:
Well, let’s explore that for a minute. So the headline number 3.2 was a little bit above expectations. Some of that was attributable to a mid-month wholesale gasoline prices. We saw it spike up a little bit and then come back down.
It’s not out of the range of possibilities that inflation could creep back up. There’s nothing that says, “Hey, we have to have this linear move right down to 2%.” We could stay at 3%, we could creep back up to 4% and we still have wage inflation.
There are still a lot of job openings out there that aren’t being filled. And wage inflation is there. Home prices, even though the rate of increase has moderated a little bit, they’re not going down. And the likelihood of them going down, it would take a recession or even a depression for them to actually go down as opposed to the rate of increase falling or standing still.
Chris Needs:
And to your point on wages, so we went through kind of a tough period 2021 to 2023 where we had seen 25 straight months of negative real wage growth. As far as I could see, that was definitely a record in the last 50 years. But then you compare that with the last 10 months, we’ve had positive wage growth. So that’s certainly a good thing for American workers and for the strength of the economy.
Noah Brooks:
Yeah, absolutely. So we talked about the jobs report that came out last week. The market kind of liked that. They didn’t necessarily love the CPI report, but this morning we are up year to date on the S&P, about 8%. So if we were at the end of the year and I said, hey, the market was up 8% for the year, everybody would be like, okay, that’s good. We have nine more months to get through for that to happen.
I hear lots of people talking about up 15, up 18, possibly more, but it seems like the right thing, if you could draw it out on paper, it seems like the right thing to do would be to just kind of grind for a little bit, let stuff work it out.
Chris Needs:
We’ll see where we’re coming from. Obviously we had that hot end to Q4, prior to last week being-
Noah Brooks:
Massive rally in Q4 last year.
MARKET PERFORMANCE AND OUTLOOK
Chris Needs:
Prior to last week being negative. And this is on S&P terms, it was barely negative, less than a quarter of a point on the week. So we were positive 16 of 18 weeks. That’s a historic run, I think for the first time in the last 50 years. And then if we had made it to 17 of 19, that’s even more historic. I think you’re going back to the early ’60s or the ’50s.
So we were so close to having that 17 out of 19, but look where we’re coming from, it’s been a big run. It would make sense to digest some of those gains and muddle around here until we get a little bit more information on what will happen with the election and what have you. Generally, markets tend to run up at the end of the year when there’s an election.
Noah Brooks:
The other thing that markets generally do is they move quickly. So everything is priced in if you believe in an efficient market. And so my feeling would be that a healthy market needs to digest that massive run. It can’t just keep running straight up like that. It doesn’t make sense. The data isn’t there for that to continue to move so fast. If we could just see a few months of nothing really happening, I think that would be healthy for the internals of the market.
Chris Needs:
And we have seen breadth pick up a little bit, which is something we were waiting on for all last year. Obviously everyone talks about the magnificent seven and what they did. Our expectation coming into this year was that they would kind of calm down a little bit, digest some of those big gains from last year. And if you’re looking at, say, a month’s time frame, only NVIDIA and Meta are beating the S&P 500.
Noah Brooks:
You know the worst two performers in the S&P year to date?
Chris Needs:
Tesla and?
Noah Brooks:
Boeing.
Chris Needs:
Boeing.
Noah Brooks:
Oh, yeah. So it’s the Mag 6. I think Tesla has been removed.
Chris Needs:
Apple’s been in the struggle bus too. The strength of the year to date, I think, you still have Microsoft and Amazon in there with Meta and NVIDIA outperforming. But all in all, we’ve seen breadth spread out a little bit, which is a good thing for sustaining that rally.
And then we have equal weight S&P 500 all time highs. So talking about that breadth spreading out, that’s good for the market.
TIKTOK AND NATIONAL SECURITY
Noah Brooks:
Yeah, not just those seven or now six stocks with Tesla. You mentioned Apple, the struggle bus. I like that. A lot of that has to do with China and them kind of getting their fingers slapped or their knuckles slapped a little bit and being told essentially that they can’t sell exactly what they want to sell over here. And so we see China in the news this week with TikTok right now. I’m not a Tiktoker people said-
Chris Needs:
Nor am I.
Noah Brooks:
Yeah, people send me stuff that is a link to TikTok. I’m more of an X guy myself. But this is kind of interesting. You have the scenario where you have one of the world’s leading social media companies that is on the precipice of being banned, the ownership being banned. So TikTok is the company, and it’s owned in its entirety by ByteDance, if I’m not mistaken, which is a solely owned Chinese company.
And so the guys that you see down at the Senate hearing floor, the CEO of TikTok, he is the face that they want to portray as the CEO of TikTok, but really it’s ByteDance, which has very, very close connections with the Chinese government.
And so we’re at this position where we’re giving our data to China. And not me, of course, but tons and tons of people, millions and millions of people are giving their data to China.
I don’t give my data, I pay my data. I have this ring on here that tracks everything I do, so I don’t need TikTok for that. So from a national defense standpoint, I personally don’t know that it’s critical, but the people down in Washington think it’s critical enough to possibly ban it or to make the forced ownership change.
Chris Needs:
The divestiture or ban is sort of what they’re facing right now. If the Senate goes through and signs it, I think Biden said he’d already signed off on it. So you have two out of three there, depending on what the Senate does. And I think the main things there are, A, they control the algorithm. They have different algorithms that they send out to different areas. Like our algorithm is different from theirs. And that-
Noah Brooks:
In China.
Chris Needs:
In China. And they could do some nefarious stuff there, I guess. But then additionally, it just comes down to do we want the servers and the data there or here? And I guess that’s where they want them to spin off and divest and to bring those. They might already have, they do work with Oracle, so I don’t know if they already have our databases here, but again, the algorithm’s controlled by China.
Noah Brooks:
Yeah, it seems like data is a commodity, a tradable commodity. And I don’t mean necessarily that it’s been commoditized, but that it’s valuable to some degree. And everybody using, I have an Android phone, you have an Apple, I think. And we’re obviously giving the data to those providers and to the app creators and things like that.
But with TikTok, it’s going right to China. Everything we do, if you use it, is going right there. All the data is being shipped there. That’s where it’s contained.
I don’t know how I feel about it. It seems like, well, what are they going to do with it? In the short term, nothing. But in the long term, they can really craft a unique composition of the American public and the American, I think psyche.
And I think that’s what the people in Washington DC are a little bit worried about. Not that they can’t go online and look at a bunch of other stuff, but if they have the data and they’re collecting the data themselves, AI, put that into a data machine.
Chris Needs:
And I guess the other debates around it are that they’re getting dangerously close to forcing private companies what to do with their ownership. That’s a red flag to people.
Other people are saying it’s an infringement on free speech. They’re arguing that they’re not infringing or banning it. They’re just forcing a divestiture. And then I guess the last one would be maybe vague or loose wording where this could be applied to other companies that aren’t necessarily even owned by a foreign interest, just an interest that they don’t want.
So I don’t know if you know this guy, Elon Musk has become pretty controversial, and he owns a social media platform. And maybe some people decide they don’t like Elon Musk anymore and then they ban X or former Twitter.
Noah Brooks:
Well, to your point, hypothetically, you find out that Elon is actually a Chinese spy and he owns Twitter or X, excuse me. Does that mean that you can then force the sale? That’s your point?
Chris Needs:
Essentially. Yeah. Or they could accuse him of being a Chinese spy.
Noah Brooks:
I don’t think he’s a Chinese spy, but you never know these days. You never know. It’s a very tricky thing. I think the Senate is going to vote on it this week, and the next time we get back here, we’ll probably have, they’ll either kick the can down the road or the next time we get back here, we’ll be talking about what happened with it.
Something else in the news that’s going on. I don’t know if you’ve seen this Boeing whistleblower. I’ve done a fair amount of flying this year, and I’m not necessarily tracking who I’m flying on, but I think I’m maybe a little bit more cognizant of what’s going on since that door blew out of the 737 Max 900, 800.
So we flew last week and it was an Airbus. I was like, thank goodness.
Chris Needs:
A320.
Noah Brooks:
A320. Nice. So there’s this whistleblower that came out in 2000–I think it was 2016. He had some significant concerns about the 787 line in Charleston. I think maybe that’s where the team put them together.
Chris Needs:
Yeah, that’s where the court case was, and that’s where-
Noah Brooks:
The assembly plant, obviously Boeing is Everett, Washington. But what he was saying was that really, they were taking inspectors off the line. And I had a quote here somewhere from him.
He said, “Boeing’s culture is all about speed and production and getting airplanes out the door. Any issues, any concerns that you bring up are going to slow them down.”
And that’s like all manufacturing, whether it’s cars, whether it’s widgets, it doesn’t necessarily matter. But cars and airplanes, they’re deadly. They certainly can be.
And so the CEO Dave Calhoun, he’s been around since 2020. I don’t know how much longer he has at Boeing if he can’t really wrap this up. But going back to the whistleblower, it was very convenient. He happened to be-
Chris Needs:
In the midst of testifying.
Noah Brooks:
In the midst of testifying this week, he turned up dead to what was an apparent self-inflicted wound.
Chris Needs:
It seems like the plot of a Netflix TV show or something like that. A lot of red flags there, I don’t know. I don’t want to be a conspiracy theorist.
Noah Brooks:
I don’t think we’re being conspiracy theorists. I think you have somebody who’s in the middle of testifying in Senate hearings as a whistleblower and he turns up dead.
Chris Needs:
If he was testifying against the mob, everybody would be in agreement that, oh, this is what happened to him.
Noah Brooks:
Yeah, well, Boeing’s kind of the mob in a sense that they’re a duopoly in the world. You have Boeing and you have Airbus. And there’s obviously other manufacturers, but the majority of planes built and flying today, commercial planes are one of those two companies.
So that’s a little bit strange, but I think the CEO of Boeing may be short lipped. If there’s another thing that comes out in the short term, I don’t know.
The news this week reported that on the day that the door popped out on the Alaska flight, there were supposed to be safety checks on that plane. I don’t know specifically on that door, but on that plane.
And now this is an Alaska Airlines problem. But they didn’t happen. The FAA is looking at the 737 900s apparently, and out of 91 safety checks, they failed 37 of them.
Chris Needs:
I’ll be looking at what I’m flying on in the near future as well.
Noah Brooks:
Well, from a stock price standpoint, they are significantly lower than they were prior to COVID. They were somewhere in the 400 range. They were high-flying pre-COVID. I think they got all the way down to 100 from 400 during the covid meltdown in March. And then I think maybe 220 was the high and intermediate term high. And well under 200. And it doesn’t seem great.
Chris Needs:
Far removed from the days of, what was it like 2013, 2014, 2015, where it was like Boeing and Apple, the only thing financial media would report on because they were just huge. It was the biggest component in the Dow at the time.
FOUR-YEAR ANNIVERSARY OF LOCKDOWN
Noah Brooks:
Yeah, well, I think there’s a lot more people flying today than there was two or three years ago. Which brings me to another point that I had here, which was today or yesterday, marked the four-year anniversary of the lockdown.
So here in Pennsylvania, our last day working at the office was Friday the 13th, March, Friday, the 13th, 2020, a little bit ominous there. So the next Monday morning we were working from home, which was pretty strange at that time period.
So yeah, this is four years today or yesterday, four years since that lockdown. And it was two weeks to slow the spread. You remember that?
Chris Needs:
Two weeks?
Noah Brooks:
Two weeks. We don’t need to go into all those details, but I will tell you, like I said earlier, last night I was at this blues show. It was mobbed, it was packed. We’ve talked about people getting back to doing things.
I don’t know when it’s going to stop, which is great. I think everybody was, I don’t want to say locked down, but they were doing a lot less than normal. If somebody goes out for dinner three times a month and they didn’t do it for two years, how many times do they need to do it to get it out of their system?
If you go to music events or live theater regularly and that’s your thing, and you don’t do it for two or three years, how many times do you do it before you get it out of your system? I haven’t gotten it out of my system.
Chris Needs:
It becomes habitual. Yeah, you want to go out, have a good time, and have entertainment. And think about how crazy it was. So as long as you didn’t lose your job, which there was a lot, I think unemployment was at 3.5%.
Noah Brooks:
As long as you didn’t lose your job.
Chris Needs:
Unemployment was at 3.5% prior to that. And it jumped up. I think the high might’ve been 14.7%. So if you were lucky enough not to lose your job, they had the $2 trillion Cares Act that they literally gave checks out, gave money out to everyone.
And if you didn’t lose your job, you were just stuck at home with your money piling up, forced to save it, something us Americans don’t do very well. And so what happened? You spend money on goods. And goods shot up in inflation when people couldn’t work and everybody got new TVs, computers.
Noah Brooks:
Yeah. Well, I think at this point, we’re four years into it. So last night, this is my reference point, I didn’t see a single person wearing a mask. We flew last week. I didn’t see a single person wearing a mask on the plane.
Whereas a year ago, we were still seeing shows a year ago and we’re still flying a year ago. There was a fair amount of masks out there. So either the people that were really concerned or had health issues, they’ve either gotten past that concern, they’ve dealt with their health issues-
Chris Needs:
Or they don’t travel.
Noah Brooks:
Or they don’t travel.
Chris Needs:
They don’t have fun anymore.
Noah Brooks:
They don’t have fun anymore. But I suspect the majority of the people that were wearing a mask last year, unless there’s a really significant health issue, I suspect that those people are not masking at the moment. And if they’re not masking, that means that they’re back to normal. It means they’re out and about. They’re doing the things that they were doing prior COVID, and I would say that we are back to normal.
The question a lot of people want to know, is that going to end? Are people going to stop going out? I don’t personally think so. At least not in 2024. I can’t see in the future, but I think we are at a good spot where the American economy is humming, jobs are still being created and it feels right.
And maybe it’s just that today’s a spring day. I came in, it was like 70 degrees outside in Pennsylvania and it felt wonderful. So that always puts a smile on your face. If tomorrow is pouring and cold, maybe I won’t feel that way.
15-YEAR ANNIVERSARY OF GLOBAL FINANCIAL CRISIS LOW
Chris Needs:
Another significant anniversary though. Talking about the great financial crisis, the March 9th lows.
Noah Brooks:
Yeah, last Saturday was the 15-year low of the global financial crisis. So everybody that’s listening probably remembers that. The market topped out in October of 2007. S&P 500 went into a climb down approximately 50% or half. Bottom was March 9th, 2009.
Even though that for the year of 2009, the market was up pretty significantly. But for the first three months it was pretty bad. And I always remember this, but the Dow Jones, I think either closed or had a load that day of 6,666 and S&P 500 was 666. Pretty ominous on that day.
But I’ve mentioned Rumpelstiltskin on this podcast before. If you had done nothing and you’d fallen asleep for the last 15 years, you’d wake up and you’d be like, oh, that’s great. Right? So you have some return numbers for us?
Chris Needs:
And this is obviously the worst case scenario. If you had bought at the tip-top of October 2007 and at the very high right before everything fell apart, really, you’d realize on the S&P 500, a 9.7% total return counting capital gains and dividends based on the price of 9.7%.
If you held through it, never sold, just dealt with the pain. So that’s a good return. And then if you bought at the lows, you’d be realizing it’s over almost 17% annualized.
Noah Brooks:
Annualized. So buying at the lows without dividends will get you a return or would’ve gotten you a return, right? You can’t do it again. Would’ve gotten you a return of around 650%. Buying at the top would’ve gotten you a return of around 230%. Even buying at the top October-
Chris Needs:
Without dividends.
Noah Brooks:
Without dividends, buying at the top October of 2007, you still did better than doubling your money every 10 years. And you just think about it. It’s like how is that possible? There are so many things in the short term that make you want to sell. There’s so many reasons in the short term to make you want to sell. In the long term, I don’t think you can bet against the American economy. It doesn’t seem right to do it. It doesn’t seem right.
SHORT-TERM VOLATILITY VS. LONG-TERM OUTLOOK
Chris Needs:
But that’s the behavioral part. It is so hard to hold on. I’ve heard you say many times, we didn’t know that there’s going to be money in the ATMs. We didn’t know if the banks would open. That’s how bad it was. We were literally facing down the barrel of a failed financial system. And credit to everyone involved. Big banks had a great hand in helping out the government.
You think of Hank Paulson at the Treasury. One of my favorite movies to watch is Too Big to Fail.It’s not your normal date night movie. It’s a little drier, a little darker, but not darker I should say. But it doesn’t make you feel good watching it. And I just remember thinking, how did he make it through there alive? It was all hours of the day and everything really came back to him and Ben Bernanke keeping it together.
And I mentioned this to you the other day, they casted James Woods as the CEO Dick Fuld of-
Noah Brooks:
Lehman.
Chris Needs:
Lehman Brothers, and what a great character cast. And he is just always the angry guy, the bad guy. And he was getting cocky, thinking about the market… The government had already bailed out Bear Stearns and negotiated a deal with JP Morgan. And then a month later or so, I think Lehman Brothers started to fail. And someone offered him minuscule amounts of cents on the dollar for their stock. And he says, heck no. Government’s going to bail us out. And two days later, the government didn’t bail them out.
Noah Brooks:
That’s it. Yeah, that was an old company. Stoic company, if you will, that is no longer around. So there you have it. We have a few anniversaries that we’re celebrating. I don’t know if they’re good, bad, they just happen to be there.
Four years since the lockdown started March of 2020, and then 15 years since the low of the global financial crisis. I’m going to wrap up with this here. I would tell you that in the short term, there’s a laundry list of reasons to sell. Every time you turn on the news, and today is like no other day or is like every other day, there’s a lot of bad news out there.
There’s always a reason to sell. The market is truly, truly volatile in the short term. In the long term. Don’t bend against the American economy, just don’t do it. That’s it.
Chris Needs:
Good words to live by.
Noah Brooks:
Absolutely. We’re going to wrap up. Thanks for enjoying this installment of the Market Enthusiast here at Good Life Companies. I’m Noah Brooks, and with me is Chris Needs. Thanks so much for listening.
Disclaimer
The opinions voiced in this podcast are for general information only and are not intended to provide specific advice or recommendations for any individual to determine which strategies or investments may be suitable for you. Consult the appropriate qualified professional prior to making a decision. The economic forecast set forth may not develop as predicted, and there can be no guarantee that the strategies promoted will be successful. All performance referenced as historical and is no guarantee of future results. All indices are unmanaged and may not be invested into directly.
Good Life’s Investment team keeps you up-to-date with timely market insights and updates to help you navigate the investment landscape.
Noah Brooks:
Welcome back everybody, to a new edition of the Market Enthusiast podcast. I’m Noah Brooks, and with me is Chris Needs.
Chris Needs:
Hello.
Noah Brooks:
Welcome everybody. I’m going to start today with the jobs report. Talk a little bit about that. Go through, I think we might even touch on TikTok, maybe a little Boeing and a few other things here and there, but let’s start with the jobs report.
So, the report came out on Friday. Guess what? The economy is still creating jobs. 275,000 jobs the government reported on last Friday. We saw gains in healthcare and government, food services, transportation, warehousing, all in all. Pretty good report. What do you think?
Chris Needs:
Yeah, another strong jobs report, certainly. So the unemployment rate did tick up to 3.9, but when you look at it, we’re at 25 months straight below 4% unemployment, which is a very historical streak. You have to go back to the 1960s and then prior to that, I think the early 1950s to get a streak of either jobs or unemployment rate being that low.
Noah Brooks:
So if I remember correctly, the lowest rate, was it like ’64 or ’67 under three?
Chris Needs:
I know that was a very, very strong time because the market started overheating and then the Fed kind of cut a tad early. I think it was late ’66 or ’67 because there was a little market weakness. And then that led to ’67 and ’68 being super strong.
Noah Brooks:
But nonetheless, under 4%. When I started in the late ’90s, the rule of thumb was that if unemployment was under 5%, it was inflationary, right? Because of wage gains. And obviously we went through a significant bout of inflation and we had massive wage gains, but I don’t think it was because of the traditional forces at work. Obviously we’ve touched on that a lot here.
So yeah, healthcare was the biggest gainer with almost 70,000 jobs being reported last week.
And when you look around, so – kind of off subject – I was out at a concert last night. My aunt and uncle got us tickets to a blues guitarist, Kenny Wayne Shepherd. And I’m sitting there, this is a small theater here in the area, and I’m sitting there and I’m looking around and I figured I was the youngest person in the entire place. And it was like a prescription drug. It was like a wholesale warehouse of prescription drug users.
Not the crazy stuff. Like the normal stuff, the things you see advertised on television. It was busy. Everybody was older than me, which was a little bit weird. But I kept thinking to myself, these are the people that are either right at retirement or into retirement and probably need the most healthcare. A little bit off the subject. But you see healthcare jobs being added and I don’t think that’s going to go away in the short term.
Chris Needs:
No, definitely not. Definitely not.
Table of Contents
CPI REPORT
Noah Brooks:
So CPI came out, and the headline was a little bit high, 3.2. Can you break it down for us a little bit?
Chris Needs:
So a little bit of the traditional things that we’ve been finding to be sticky lately. So between gas, and, I guess the home rent equivalent, the shelter component, CPI, which is obviously huge, we talked about that. Was it 35% of CPI headline? Those two pieces, gas and shelter, accounted for 60% of the rise.
So the normal suspects, we’ll say, are keeping inflation sticky. If you look at the last couple of months, it seems like our floor may now be 3% maybe.
And we talked about that before. Everything where CPI should come back down fairly quickly. But we talked about after supply issues fade, they’re very likely could be a little bit higher floor than we’re used to. And the Fed has a decision to make at that point where they truly get us down to 2% or they do that average of 2% or what they do from there.
Noah Brooks:
For everybody out there, obviously we know inflation went through the roof during 2022 up to I think a little over 9%, and it’s moderated significantly since then, right? We’re talking about a headline inflation rate of 3.2, but the Federal Reserve has told us they’re looking for a 2% number. That would be their target rate. And I think the conventional wisdom is it’s going to be pretty hard for that last percentage point.
So from nine down to four seemed like it was within a few months. A lot of supply chain things loosened up. Four to three, took another few months. But from three to two, that might be the longest yard.
Chris Needs:
Especially with them communicating cuts as being next rather than any further hikes. Now, if they did hike, if we continue getting hot data, the market would be really offsite and that would hurt.
Noah Brooks:
Well, let’s explore that for a minute. So the headline number 3.2 was a little bit above expectations. Some of that was attributable to a mid-month wholesale gasoline prices. We saw it spike up a little bit and then come back down.
It’s not out of the range of possibilities that inflation could creep back up. There’s nothing that says, “Hey, we have to have this linear move right down to 2%.” We could stay at 3%, we could creep back up to 4% and we still have wage inflation.
There are still a lot of job openings out there that aren’t being filled. And wage inflation is there. Home prices, even though the rate of increase has moderated a little bit, they’re not going down. And the likelihood of them going down, it would take a recession or even a depression for them to actually go down as opposed to the rate of increase falling or standing still.
Chris Needs:
And to your point on wages, so we went through kind of a tough period 2021 to 2023 where we had seen 25 straight months of negative real wage growth. As far as I could see, that was definitely a record in the last 50 years. But then you compare that with the last 10 months, we’ve had positive wage growth. So that’s certainly a good thing for American workers and for the strength of the economy.
Noah Brooks:
Yeah, absolutely. So we talked about the jobs report that came out last week. The market kind of liked that. They didn’t necessarily love the CPI report, but this morning we are up year to date on the S&P, about 8%. So if we were at the end of the year and I said, hey, the market was up 8% for the year, everybody would be like, okay, that’s good. We have nine more months to get through for that to happen.
I hear lots of people talking about up 15, up 18, possibly more, but it seems like the right thing, if you could draw it out on paper, it seems like the right thing to do would be to just kind of grind for a little bit, let stuff work it out.
Chris Needs:
We’ll see where we’re coming from. Obviously we had that hot end to Q4, prior to last week being-
Noah Brooks:
Massive rally in Q4 last year.
MARKET PERFORMANCE AND OUTLOOK
Chris Needs:
Prior to last week being negative. And this is on S&P terms, it was barely negative, less than a quarter of a point on the week. So we were positive 16 of 18 weeks. That’s a historic run, I think for the first time in the last 50 years. And then if we had made it to 17 of 19, that’s even more historic. I think you’re going back to the early ’60s or the ’50s.
So we were so close to having that 17 out of 19, but look where we’re coming from, it’s been a big run. It would make sense to digest some of those gains and muddle around here until we get a little bit more information on what will happen with the election and what have you. Generally, markets tend to run up at the end of the year when there’s an election.
Noah Brooks:
The other thing that markets generally do is they move quickly. So everything is priced in if you believe in an efficient market. And so my feeling would be that a healthy market needs to digest that massive run. It can’t just keep running straight up like that. It doesn’t make sense. The data isn’t there for that to continue to move so fast. If we could just see a few months of nothing really happening, I think that would be healthy for the internals of the market.
Chris Needs:
And we have seen breadth pick up a little bit, which is something we were waiting on for all last year. Obviously everyone talks about the magnificent seven and what they did. Our expectation coming into this year was that they would kind of calm down a little bit, digest some of those big gains from last year. And if you’re looking at, say, a month’s time frame, only NVIDIA and Meta are beating the S&P 500.
Noah Brooks:
You know the worst two performers in the S&P year to date?
Chris Needs:
Tesla and?
Noah Brooks:
Boeing.
Chris Needs:
Boeing.
Noah Brooks:
Oh, yeah. So it’s the Mag 6. I think Tesla has been removed.
Chris Needs:
Apple’s been in the struggle bus too. The strength of the year to date, I think, you still have Microsoft and Amazon in there with Meta and NVIDIA outperforming. But all in all, we’ve seen breadth spread out a little bit, which is a good thing for sustaining that rally.
And then we have equal weight S&P 500 all time highs. So talking about that breadth spreading out, that’s good for the market.
TIKTOK AND NATIONAL SECURITY
Noah Brooks:
Yeah, not just those seven or now six stocks with Tesla. You mentioned Apple, the struggle bus. I like that. A lot of that has to do with China and them kind of getting their fingers slapped or their knuckles slapped a little bit and being told essentially that they can’t sell exactly what they want to sell over here. And so we see China in the news this week with TikTok right now. I’m not a Tiktoker people said-
Chris Needs:
Nor am I.
Noah Brooks:
Yeah, people send me stuff that is a link to TikTok. I’m more of an X guy myself. But this is kind of interesting. You have the scenario where you have one of the world’s leading social media companies that is on the precipice of being banned, the ownership being banned. So TikTok is the company, and it’s owned in its entirety by ByteDance, if I’m not mistaken, which is a solely owned Chinese company.
And so the guys that you see down at the Senate hearing floor, the CEO of TikTok, he is the face that they want to portray as the CEO of TikTok, but really it’s ByteDance, which has very, very close connections with the Chinese government.
And so we’re at this position where we’re giving our data to China. And not me, of course, but tons and tons of people, millions and millions of people are giving their data to China.
I don’t give my data, I pay my data. I have this ring on here that tracks everything I do, so I don’t need TikTok for that. So from a national defense standpoint, I personally don’t know that it’s critical, but the people down in Washington think it’s critical enough to possibly ban it or to make the forced ownership change.
Chris Needs:
The divestiture or ban is sort of what they’re facing right now. If the Senate goes through and signs it, I think Biden said he’d already signed off on it. So you have two out of three there, depending on what the Senate does. And I think the main things there are, A, they control the algorithm. They have different algorithms that they send out to different areas. Like our algorithm is different from theirs. And that-
Noah Brooks:
In China.
Chris Needs:
In China. And they could do some nefarious stuff there, I guess. But then additionally, it just comes down to do we want the servers and the data there or here? And I guess that’s where they want them to spin off and divest and to bring those. They might already have, they do work with Oracle, so I don’t know if they already have our databases here, but again, the algorithm’s controlled by China.
Noah Brooks:
Yeah, it seems like data is a commodity, a tradable commodity. And I don’t mean necessarily that it’s been commoditized, but that it’s valuable to some degree. And everybody using, I have an Android phone, you have an Apple, I think. And we’re obviously giving the data to those providers and to the app creators and things like that.
But with TikTok, it’s going right to China. Everything we do, if you use it, is going right there. All the data is being shipped there. That’s where it’s contained.
I don’t know how I feel about it. It seems like, well, what are they going to do with it? In the short term, nothing. But in the long term, they can really craft a unique composition of the American public and the American, I think psyche.
And I think that’s what the people in Washington DC are a little bit worried about. Not that they can’t go online and look at a bunch of other stuff, but if they have the data and they’re collecting the data themselves, AI, put that into a data machine.
Chris Needs:
And I guess the other debates around it are that they’re getting dangerously close to forcing private companies what to do with their ownership. That’s a red flag to people.
Other people are saying it’s an infringement on free speech. They’re arguing that they’re not infringing or banning it. They’re just forcing a divestiture. And then I guess the last one would be maybe vague or loose wording where this could be applied to other companies that aren’t necessarily even owned by a foreign interest, just an interest that they don’t want.
So I don’t know if you know this guy, Elon Musk has become pretty controversial, and he owns a social media platform. And maybe some people decide they don’t like Elon Musk anymore and then they ban X or former Twitter.
Noah Brooks:
Well, to your point, hypothetically, you find out that Elon is actually a Chinese spy and he owns Twitter or X, excuse me. Does that mean that you can then force the sale? That’s your point?
Chris Needs:
Essentially. Yeah. Or they could accuse him of being a Chinese spy.
Noah Brooks:
I don’t think he’s a Chinese spy, but you never know these days. You never know. It’s a very tricky thing. I think the Senate is going to vote on it this week, and the next time we get back here, we’ll probably have, they’ll either kick the can down the road or the next time we get back here, we’ll be talking about what happened with it.
Something else in the news that’s going on. I don’t know if you’ve seen this Boeing whistleblower. I’ve done a fair amount of flying this year, and I’m not necessarily tracking who I’m flying on, but I think I’m maybe a little bit more cognizant of what’s going on since that door blew out of the 737 Max 900, 800.
So we flew last week and it was an Airbus. I was like, thank goodness.
Chris Needs:
A320.
Noah Brooks:
A320. Nice. So there’s this whistleblower that came out in 2000–I think it was 2016. He had some significant concerns about the 787 line in Charleston. I think maybe that’s where the team put them together.
Chris Needs:
Yeah, that’s where the court case was, and that’s where-
Noah Brooks:
The assembly plant, obviously Boeing is Everett, Washington. But what he was saying was that really, they were taking inspectors off the line. And I had a quote here somewhere from him.
He said, “Boeing’s culture is all about speed and production and getting airplanes out the door. Any issues, any concerns that you bring up are going to slow them down.”
And that’s like all manufacturing, whether it’s cars, whether it’s widgets, it doesn’t necessarily matter. But cars and airplanes, they’re deadly. They certainly can be.
And so the CEO Dave Calhoun, he’s been around since 2020. I don’t know how much longer he has at Boeing if he can’t really wrap this up. But going back to the whistleblower, it was very convenient. He happened to be-
Chris Needs:
In the midst of testifying.
Noah Brooks:
In the midst of testifying this week, he turned up dead to what was an apparent self-inflicted wound.
Chris Needs:
It seems like the plot of a Netflix TV show or something like that. A lot of red flags there, I don’t know. I don’t want to be a conspiracy theorist.
Noah Brooks:
I don’t think we’re being conspiracy theorists. I think you have somebody who’s in the middle of testifying in Senate hearings as a whistleblower and he turns up dead.
Chris Needs:
If he was testifying against the mob, everybody would be in agreement that, oh, this is what happened to him.
Noah Brooks:
Yeah, well, Boeing’s kind of the mob in a sense that they’re a duopoly in the world. You have Boeing and you have Airbus. And there’s obviously other manufacturers, but the majority of planes built and flying today, commercial planes are one of those two companies.
So that’s a little bit strange, but I think the CEO of Boeing may be short lipped. If there’s another thing that comes out in the short term, I don’t know.
The news this week reported that on the day that the door popped out on the Alaska flight, there were supposed to be safety checks on that plane. I don’t know specifically on that door, but on that plane.
And now this is an Alaska Airlines problem. But they didn’t happen. The FAA is looking at the 737 900s apparently, and out of 91 safety checks, they failed 37 of them.
Chris Needs:
I’ll be looking at what I’m flying on in the near future as well.
Noah Brooks:
Well, from a stock price standpoint, they are significantly lower than they were prior to COVID. They were somewhere in the 400 range. They were high-flying pre-COVID. I think they got all the way down to 100 from 400 during the covid meltdown in March. And then I think maybe 220 was the high and intermediate term high. And well under 200. And it doesn’t seem great.
Chris Needs:
Far removed from the days of, what was it like 2013, 2014, 2015, where it was like Boeing and Apple, the only thing financial media would report on because they were just huge. It was the biggest component in the Dow at the time.
FOUR-YEAR ANNIVERSARY OF LOCKDOWN
Noah Brooks:
Yeah, well, I think there’s a lot more people flying today than there was two or three years ago. Which brings me to another point that I had here, which was today or yesterday, marked the four-year anniversary of the lockdown.
So here in Pennsylvania, our last day working at the office was Friday the 13th, March, Friday, the 13th, 2020, a little bit ominous there. So the next Monday morning we were working from home, which was pretty strange at that time period.
So yeah, this is four years today or yesterday, four years since that lockdown. And it was two weeks to slow the spread. You remember that?
Chris Needs:
Two weeks?
Noah Brooks:
Two weeks. We don’t need to go into all those details, but I will tell you, like I said earlier, last night I was at this blues show. It was mobbed, it was packed. We’ve talked about people getting back to doing things.
I don’t know when it’s going to stop, which is great. I think everybody was, I don’t want to say locked down, but they were doing a lot less than normal. If somebody goes out for dinner three times a month and they didn’t do it for two years, how many times do they need to do it to get it out of their system?
If you go to music events or live theater regularly and that’s your thing, and you don’t do it for two or three years, how many times do you do it before you get it out of your system? I haven’t gotten it out of my system.
Chris Needs:
It becomes habitual. Yeah, you want to go out, have a good time, and have entertainment. And think about how crazy it was. So as long as you didn’t lose your job, which there was a lot, I think unemployment was at 3.5%.
Noah Brooks:
As long as you didn’t lose your job.
Chris Needs:
Unemployment was at 3.5% prior to that. And it jumped up. I think the high might’ve been 14.7%. So if you were lucky enough not to lose your job, they had the $2 trillion Cares Act that they literally gave checks out, gave money out to everyone.
And if you didn’t lose your job, you were just stuck at home with your money piling up, forced to save it, something us Americans don’t do very well. And so what happened? You spend money on goods. And goods shot up in inflation when people couldn’t work and everybody got new TVs, computers.
Noah Brooks:
Yeah. Well, I think at this point, we’re four years into it. So last night, this is my reference point, I didn’t see a single person wearing a mask. We flew last week. I didn’t see a single person wearing a mask on the plane.
Whereas a year ago, we were still seeing shows a year ago and we’re still flying a year ago. There was a fair amount of masks out there. So either the people that were really concerned or had health issues, they’ve either gotten past that concern, they’ve dealt with their health issues-
Chris Needs:
Or they don’t travel.
Noah Brooks:
Or they don’t travel.
Chris Needs:
They don’t have fun anymore.
Noah Brooks:
They don’t have fun anymore. But I suspect the majority of the people that were wearing a mask last year, unless there’s a really significant health issue, I suspect that those people are not masking at the moment. And if they’re not masking, that means that they’re back to normal. It means they’re out and about. They’re doing the things that they were doing prior COVID, and I would say that we are back to normal.
The question a lot of people want to know, is that going to end? Are people going to stop going out? I don’t personally think so. At least not in 2024. I can’t see in the future, but I think we are at a good spot where the American economy is humming, jobs are still being created and it feels right.
And maybe it’s just that today’s a spring day. I came in, it was like 70 degrees outside in Pennsylvania and it felt wonderful. So that always puts a smile on your face. If tomorrow is pouring and cold, maybe I won’t feel that way.
15-YEAR ANNIVERSARY OF GLOBAL FINANCIAL CRISIS LOW
Chris Needs:
Another significant anniversary though. Talking about the great financial crisis, the March 9th lows.
Noah Brooks:
Yeah, last Saturday was the 15-year low of the global financial crisis. So everybody that’s listening probably remembers that. The market topped out in October of 2007. S&P 500 went into a climb down approximately 50% or half. Bottom was March 9th, 2009.
Even though that for the year of 2009, the market was up pretty significantly. But for the first three months it was pretty bad. And I always remember this, but the Dow Jones, I think either closed or had a load that day of 6,666 and S&P 500 was 666. Pretty ominous on that day.
But I’ve mentioned Rumpelstiltskin on this podcast before. If you had done nothing and you’d fallen asleep for the last 15 years, you’d wake up and you’d be like, oh, that’s great. Right? So you have some return numbers for us?
Chris Needs:
And this is obviously the worst case scenario. If you had bought at the tip-top of October 2007 and at the very high right before everything fell apart, really, you’d realize on the S&P 500, a 9.7% total return counting capital gains and dividends based on the price of 9.7%.
If you held through it, never sold, just dealt with the pain. So that’s a good return. And then if you bought at the lows, you’d be realizing it’s over almost 17% annualized.
Noah Brooks:
Annualized. So buying at the lows without dividends will get you a return or would’ve gotten you a return, right? You can’t do it again. Would’ve gotten you a return of around 650%. Buying at the top would’ve gotten you a return of around 230%. Even buying at the top October-
Chris Needs:
Without dividends.
Noah Brooks:
Without dividends, buying at the top October of 2007, you still did better than doubling your money every 10 years. And you just think about it. It’s like how is that possible? There are so many things in the short term that make you want to sell. There’s so many reasons in the short term to make you want to sell. In the long term, I don’t think you can bet against the American economy. It doesn’t seem right to do it. It doesn’t seem right.
SHORT-TERM VOLATILITY VS. LONG-TERM OUTLOOK
Chris Needs:
But that’s the behavioral part. It is so hard to hold on. I’ve heard you say many times, we didn’t know that there’s going to be money in the ATMs. We didn’t know if the banks would open. That’s how bad it was. We were literally facing down the barrel of a failed financial system. And credit to everyone involved. Big banks had a great hand in helping out the government.
You think of Hank Paulson at the Treasury. One of my favorite movies to watch is Too Big to Fail.It’s not your normal date night movie. It’s a little drier, a little darker, but not darker I should say. But it doesn’t make you feel good watching it. And I just remember thinking, how did he make it through there alive? It was all hours of the day and everything really came back to him and Ben Bernanke keeping it together.
And I mentioned this to you the other day, they casted James Woods as the CEO Dick Fuld of-
Noah Brooks:
Lehman.
Chris Needs:
Lehman Brothers, and what a great character cast. And he is just always the angry guy, the bad guy. And he was getting cocky, thinking about the market… The government had already bailed out Bear Stearns and negotiated a deal with JP Morgan. And then a month later or so, I think Lehman Brothers started to fail. And someone offered him minuscule amounts of cents on the dollar for their stock. And he says, heck no. Government’s going to bail us out. And two days later, the government didn’t bail them out.
Noah Brooks:
That’s it. Yeah, that was an old company. Stoic company, if you will, that is no longer around. So there you have it. We have a few anniversaries that we’re celebrating. I don’t know if they’re good, bad, they just happen to be there.
Four years since the lockdown started March of 2020, and then 15 years since the low of the global financial crisis. I’m going to wrap up with this here. I would tell you that in the short term, there’s a laundry list of reasons to sell. Every time you turn on the news, and today is like no other day or is like every other day, there’s a lot of bad news out there.
There’s always a reason to sell. The market is truly, truly volatile in the short term. In the long term. Don’t bend against the American economy, just don’t do it. That’s it.
Chris Needs:
Good words to live by.
Noah Brooks:
Absolutely. We’re going to wrap up. Thanks for enjoying this installment of the Market Enthusiast here at Good Life Companies. I’m Noah Brooks, and with me is Chris Needs. Thanks so much for listening.
Disclaimer
The opinions voiced in this podcast are for general information only and are not intended to provide specific advice or recommendations for any individual to determine which strategies or investments may be suitable for you. Consult the appropriate qualified professional prior to making a decision. The economic forecast set forth may not develop as predicted, and there can be no guarantee that the strategies promoted will be successful. All performance referenced as historical and is no guarantee of future results. All indices are unmanaged and may not be invested into directly.
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