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. Thanks for joining us on this installment of the Market Enthusiasts. With me today, Chris Needs, and as you know by now I’m Noah Brooks. Thanks again. Last time we mentioned what was going on in the market, there seemed to be a discernible shift in sentiment. We had this great quarter and then really the month of April just not so good. And now we flip back the last two weeks. What’s going on?
ON THE MARKET FLIP + FED PIVOT
Chris Needs:
Yeah, it was a rough April. We had yields going back up to levels that we hadn’t seen since October when there was that spike right before we say the beginning of the Fed pivot, obviously the real pivot you would say maybe happened in December, pivot in verbiage in their communication.
Noah Brooks:
It’s so weird. We keep talking about the Fed pivot, but is it the Fed that’s pivoting or is it the market that wants the Fed to pivot?
Chris Needs:
The market was definitely front running a pivot, that’s for sure. If you look at what they were pricing in, in terms of rate cuts all the way back to the post-December meeting.
Noah Brooks:
Jay Powell has essentially said, we are market dependent or data dependent, excuse me. And did they say they were going to do eight or six cuts? No, they said they’ll cut when appropriate. And all of a sudden the market price is in all of these cuts and then we get data that doesn’t support it and they’re going, oh, well maybe there’s going to be a rate hike.
A few weeks ago we were talking rate hikes. Now we had two weeks of relatively good data and good meaning supportive of not a rate hike, and now all of a sudden cuts are back on the table and we’re not talking about a rate hike. How many times can we go back and forth on this?
Chris Needs:
Well, we’ve done it several times it seems like. It’s been going into mid-last year when the market was putting on bets and every single time Chairman Powell had to manage those expectations a little bit, we’ll say with the careful verbiage in their meetings.
Noah Brooks:
I feel like if I was Jay Powell, I would just talk less.
Chris Needs:
The market likes it when he talks.
Noah Brooks:
Sometimes.
Chris Needs:
The market runs up when he is talking and then-
Noah Brooks:
2022, it didn’t like it very much.
Chris Needs:
Yeah, that was a different time.
ON MOTHER’S DAY SPENDING
Noah Brooks:
It wasn’t all that long ago. I feel like he thinks that the market participants are just a bunch of babies that he has to coddle a little bit. So speaking of babies you have to coddle, we’re coming up on Mother’s Day. The National Retailer Association is expecting 33 and a half billion dollars worth of sales on Mother’s Day. Are you going to do anything? Are you going to…
Chris Needs:
Moms are worth it, for sure. Yeah, yeah, definitely going to spend on mom, on my wife for the children as well. So there’ll be some spending done.
Noah Brooks:
Okay. So they’re estimating that the average is $241. Would you say you’re going to spend more or less?
Chris Needs:
I don’t think I’ll meet that level. Sorry, mom.
Noah Brooks:
The one thing I keep thinking about all this is I’m not a great gift giver. Sometimes I pull through, but the majority of the time I think I underwhelm people with my gifts. Couldn’t we do every five years or every other year for Mother’s Day or something.
Chris Needs:
I don’t know. I think they deserve every year.
Noah Brooks:
But don’t you think it would be a little bit more special if it wasn’t every year?
Chris Needs:
Maybe go big every five years, but…
ON THE RECENT JOBS REPORT
Noah Brooks:
All right, go back to the market for a little bit. So I said the sentiment shifted a little bit. The last two weeks seemed to be pretty good, and then this Friday, this past Friday, we get the jobs report. I don’t know that it was underwhelming, but it wasn’t a blowout number. It was less than expectations, 165,000 if I’m not mistaken new jobs created.
And government was, well, you have the exact data. Government underperformed versus the last few months and then off to the races. So Dow Jones had its best day in a month because we didn’t have a blowout jobs number. Where do we go from here?
Chris Needs:
Well, I think it’s off of the tough April that we had. It was a tough April because yields were spiking and it was spiking in part two too. Like you said, some of those talking heads on TV talking about should there be a rate hike, should there be higher for longer? Totally getting rid of rate cuts for this year some people were saying. And with the data that we had, totally makes sense.
So most of April was rough, so all the indices, so S&P was down 4.1. Dow I think was down 4.9. It was a rough month. The bonds didn’t do so well as well like I said. Rising yields will obviously make that so, and then we got the relief in first the non-farm payroll. Well, first the Fed and the non-farm payroll together, and now we have rate cuts back priced in, I think I saw September now it’s back before the election, prior to-
Noah Brooks:
Yeah, but didn’t we say-
Chris Needs:
… December.
Noah Brooks:
… didn’t we say that there was no way that they were going to cut right before the election?
Chris Needs:
We did, yeah. Market’s pricing in that they will. Like you said, maybe they will be completely, I don’t know, agnostic to the election say we’re not political and we’re totally pretending there’s not an election.
Noah Brooks:
And this doesn’t have anything to do with an election.
Chris Needs:
Maybe, yeah.
Noah Brooks:
They’re going to put themselves, Jay Powell and the Fed is going to, either way, no matter what they do, they’re going to like they’re being political whether they wait until November and people go, oh, well you should have waited and you were trying to do something for this person or this candidate, or you should be doing it now and you’re actually trying to steamroll the current guy. I don’t think they can win on this one.
Chris Needs:
Yeah, you’re never going to appease everyone when it comes to a decision of that magnitude.
ON THE BOND MARKET
Noah Brooks:
Yeah. Well, rates were spiking in April. You mentioned that, that’s one of the reasons that the bond market was down last few weeks. It’s coming back a little bit.
Rates coming back down, but the bond ag is still, most investors are negative on their high quality treasuries for the year. Right at the moment, we’re still in a drawdown. We’ve been in a drawdown for almost three years on the bond aggregate and year to date bond ag is down about a quarter of a percent.
Some of the high yield stuff doing reasonable, some mortgage backs, okay, here and there. There’s some outliers. Strategic income, depending on what you’re in might be up a percent or two. But overall it’s this continuation of just bonds really not doing so well.
Chris Needs:
Yeah. And I had a stat on a correlation that I thought was interesting. So right now, if you’re looking at the S&P 500 and the AG Bond Index, right now the correlation is at the highest in history at 0.69. So the previous highs were in 92 and 96, which was 0.64 correlation.
So you’d think, wow, that’s a high correlation for things that normally don’t trade together, but the returns are completely different. So over this, those correlations are over a three-year period.
Over that three year period where we’re at historic highs 0.69, the S&P 500 is up 24% and the Ag is down 8%. So correlation doesn’t pass through to like returns.
Noah Brooks:
My favorite line is correlation is not causation. So let’s talk about the causation of that. 2022, stocks were down, bonds were down. Why? Yields were up.
Yields spike, Federal Reserve raises interest rates. So you have correlation, it’s not going to one, but it’s very, very similar, which doesn’t always happen that way. Normally if the stock market is down, bonds are going to be up because there’s a flight to safety and that’s going to push bond yields down.
The exact thing happened, not that there wasn’t a flight to safety, but the Federal Reserve raising rates.
Chris Needs:
Actively raising, yeah.
Noah Brooks:
Actively raising rates, 500 basis points. And now I think we’re just trading on a very similar scenario of correlation where when rates go up, stock market goes down and bond market goes down.
So are we going to see that correlation get worse or do you think there’s a time, and it’s not a one for one correlation 0.65, but do you think that that’s going to continue to be highly correlated or is there going to be a disconnect?
Chris Needs:
In the short term, I think it will stay correlated until we get an ultimate true pivot on rates by the Fed. And then at that point, maybe they’ll start diverging again. Again, so over the last 30, 40 years, we’ve been in a declining interest rate environment and we’re not in that right now.
Now the goal eventually is the Fed to start cutting again, but it’s a different environment than we’ve been dealing with. So recent stats on the market are a little bit different when it comes to fixed income now.
ON BONDS-TO-STOCKS PORTFOLIO RATIO
Noah Brooks:
They certainly are, they certainly are. Going back to what we mentioned a few weeks ago, the 60/40 portfolio is one of those things that’s been with us for, in my career, 25, 28 years.
That’s what you did. You had that 40% of bonds in order to offset the declines in the stock market.
And as we just pointed out, 2022, that didn’t happen. We’re still in a drawdown for the bond market. People are still underwater on a lot of bond funds if they hold bond funds or bond ETFs, and I have clients, I have advisors asking me, Hey, one of these things’ going to break even.
And at least at the moment, it doesn’t seem like the Fed is prepared to cut by two or 300 basis points. I said to you a few weeks ago, what’s the purpose of them cutting? If the economy is okay, if jobs are still being created and there’s a reasonable slowdown in inflation, now we’re not at that 2% level, we’re still three and a half, four depending on what you’re looking at.
But if it’s coming down and we know that there’s a little bit of lag, they’re probably okay maybe to cut it just a little bit or nothing. There’s no real reason that they have to.
There could be some esoteric reason that they’re bringing up that economists are like, well, this is why you have to do it, but here in the short term, employment is in good spot, inflation is reasonably coming down. I don’t know if they’re going to.
And then the question is, well, what about these bonds? Why do I own them if they’re not going to perform at some point, and I think more and more people are starting to question that.
Chris Needs:
Yeah. So I don’t know if it’s going to result in maybe looking at other alternatives or just alternatives as an asset class is a diversifier, because you’re not getting the diversification, at least in recent history with those bonds.
Noah Brooks:
There’s advisors out there that are saying to us, Hey, can I just use money market and stocks? Well, what’s the purpose of using these bonds if there’s a chance that they’re going to go down when historically they’re the ones that saved my butt?
So what about just money market mutual funds and the equity portfolio that we normally have? Is that something we can do? And I think the answer that I’ve been telling people is, well, yeah, you can do that, but at some point bonds are going to start to outperform. And then the question is, well, when?
Chris Needs:
Yeah.
Noah Brooks:
I don’t have the answer-
Chris Needs:
That’s right in line when those money market rates will start getting cut too.
ON ECONOMIC DATA
Noah Brooks:
Yeah. Yeah. So economic data, we have some things to go over. Right at the moment today S&P 500 up about eight and a quarter for the year. Mid caps up well over six. Small caps still underwater.
What do we think? Small caps? Is there going to be a point where small caps outperform? I know there’s a lot of people out there that are pounding the table on small caps, but if we don’t get rate cuts, are our small caps ever going to move?
Chris Needs:
Yeah, small caps had a rough April down 7%, and we’ve been talking about they’re really a yield story it seems like right now. And I think that pressure will remain until we get some easing, which may not happen.
Noah Brooks:
Yeah.
Chris Needs:
Not in the short term.
Noah Brooks:
Yeah.
Chris Needs:
So should everybody get out of small caps? I think it’s late in the game. If you’ve written it down this far, you might as well stick with it. I’m not making a market call, but-
Noah Brooks:
Well, it’s-
Chris Needs:
… there’s light at the end of tunnel I think for small caps.
Noah Brooks:
Yeah.
Chris Needs:
And from a valuation perspective, I think in the next several months would be a decent time to actually get in, but short term, they still have that yield pressure on them.
Noah Brooks:
I personally would love to see interest rates come down a little bit, and I think that little bit of normalization would make everything work, could say perfectly.
Large caps and large cap tech is still, I’ll go out a limb and say overvalued a little bit. I still think, and last Friday we saw Berkshire Hathaway, Warren Buffet’s big dog here. Came out, earnings were up almost 40%.
And so you think to yourself, well, maybe there’s a value switch that’s coming. And a lot of people have been thinking this for a long time, but it doesn’t seem to happen.
It seems to always go back to, at least in the last 18 months, two years, the AI story, the productivity story and the big get bigger and big tech seems to get bigger, but it seems like there might be some cracks in that armor.
Chris Needs:
Yeah. Well, Warren benefited from those insurance premiums we’ve been talking about. They’re kicking back. And actually, he made that. This is new information coming from, I think it was, when did they have their meeting? This weekend? I believe so, they actually lowered their stake.
They still obviously have a huge holding in Apple and the tech exposure that when he originally did was a big surprise. But he’s taken a little bit off the table here and he’s liking his insurance, I guess, and he’s fine with a big cash pile that he has.
Noah Brooks:
What was their cash? Was it a $182 billion?
Chris Needs:
It’s big. I don’t have the exact amount [inaudible 00:15:23] here on my stat sheet, but-
Noah Brooks:
It was a lot. You’re just like, wow, that is a lot of cash. Apple has a lot of cash, but Berkshire and the line that I saw being passed around was that he was comfortable adding to that cash.
Chris Needs:
Yeah, maybe he’s waiting for a buy opportunity. Well, that buy opportunity doesn’t happen when he is gone.
Noah Brooks:
Oh, geez. He did talk about his own mortality though, a little bit.
Chris Needs:
Did he?
Noah Brooks:
Yeah. How can you not?
Chris Needs:
He lost his best buddy.
Noah Brooks:
Yeah, you’re 93, your ride or die is no longer with you and you have to be at the very least cognizant of it. Not that he isn’t, but at some point you’re going to face declining faculties.
And there’s obviously a successor in place with a new guy there that’s been around for a while, but formally in place. And so at some point, Warren Buffett and Berkshire Hathaway are going to be disconnected, let’s say.
Chris Needs:
Yeah. But they’re still doing well right now. So we’re in earning season right now. So obviously we’ve talked about yields a little bit and how that’s high effect on the market, getting a little reprieve by that non-farm payroll and the Fed earning season has been ultimately good though.
It’s been strong earning season. Now, not every reaction has been completely positive, but for the most part, companies are beating their revenue and their earnings for share numbers.
Noah Brooks:
Yeah, I have here that 80% of the S&P 500 is reported as of Friday the, I think the third. And 77% of those companies reported positive earnings surprise, 61% reported positive revenue surprise. And year over year, at least at the moment, earnings growth is 5%, which is actually up from the first quarter of, I think 3.2 last quarter.
So if something’s happening, we’re moving in the right direction in that respect. Couple highlights. You had Google come out and initiate a dividend on a huge beat. Talk about companies with big cash files. I think they had 107 billion sitting in cash versus only 13 billion in long-term debt. It’s a big cash pile.
They’re huge cash generating, firm killing it right now. Market jumped on that dividend initiation. You had Netflix who had record revenue, but they got hit because they announced that they’re going to stop forecasting or giving guidance on subscriber numbers in 2025.
So the market didn’t like that. The market likes transparency obviously, and I think I saw the reaction was minus 9% on that less transparent move that they’re going to make in the future. Apple had the largest buyback ever, 110 billion authorized by their board.
Well, they have to make up a little bit for what Berkshire’s selling. We were talking about that it seemed like there was such a floor under their stock for so long. It was either the indices buying shares, because they were the largest component, uncle Warren buying or the buyback and well, I guess Uncle Warren isn’t adding anymore, so they just increase their share buyback amount, so the company’s going to buy back more shares.
Chris Needs:
Yeah, that’s a big buyback. A 110 billion.
Noah Brooks:
Yeah.
Chris Needs:
That’s a big buyback. It’s nutty.
ON THE MOST RECENT JOLTS
Noah Brooks:
A little bit more on economic data. We had JOLTS come out last week with the job numbers. There’s still 8.5 million jobs being advertised out there or available.
So I think the Federal Reserve, that’s one of those data points that the Fed would like to see decline because the more job openings they are, the more job switching or job quitting there is.
So the quit rate did come down a little bit. Year over year, it’s down about 400,000, which quit rate generally essentially is I’m quitting for another job and not always, but I would imagine if you’re quitting your job, you’re going to be quitting to go to something that’s paying a higher rate, higher wage, which is inflationary through wage inflation, which is always going to be there to some degree.
But the less, it’s a supply and demand from a worker standpoint, the less number of workers available, the less that you have to pay somebody to move.
If there’s eight and a half million or 10 and a half million people available to take those jobs, well, you really, it’s one of those things where the companies have to pay to bring somebody over.
Chris Needs:
On that point, employer cost index or employment cost index was up 4.2% year over year. That was the 10th of percent above expectation. But that’s down from, I think it was like 5.2 or 5.3 in 2022. So it’s coming down. It’s trending down slowly, but still just a tad above expectation.
ON BOEING CONSPIRACIES
Noah Brooks:
Yeah. So one thing I said to myself, I’m going to start with this, but I didn’t. We started with the Mother’s Day thing. I saw this come out last week and I just thought, man, I have to bring it up. I don’t know where it’s going to go.
So a few weeks ago we talked about Boeing. We mentioned that there was a whistleblower. We mentioned that the whistleblower happened to die of, I don’t know if it was a mysterious death, but it looked like a suicide. The CEO wound up stepping down to bringing someone in by the end of the year.
Well, last week, a second whistleblower was found dead. Now, this wasn’t a suicide, but it is very curious to see two whistleblowers within a month of the same company-
Chris Needs:
Expire.
Noah Brooks:
… expire. So Joshua Dean, who was a quality auditor at Boeing for their Spirit AeroSystems, which is a company that makes those 787s that they spun off years ago.
And I guess he reported, he reported some similar things on their planes last year in 2023, and he was fired in April of 23. So just about a year ago.
And he died Tuesday morning in Kansas after being hospitalized for a sudden infection. Now, they didn’t report the infection. It could have been a million things. It could have been MRSA.
Chris Needs:
What I saw was he had gotten roughed out of pneumonia, which at this time of year is strange. I don’t know. It can happen. But then while in the hospital got in an antibiotic resistant, MRSA.
Noah Brooks:
Yeah, I don’t know. My dad always used to say there’s no such thing as coincidence. He was a strange guy too. But I don’t know, it just seems really odd that the two Boeing whistleblowers would, as you said, expire in the last month.
Chris Needs:
I saw a funny meme. It’s that one meme, I don’t know the guy’s name. He is in a few things, but it was like, is two a lot? Well, it depends on the context. Is two dead whistleblowers? Yes. Two planes falling out of the sky? Also, yes.
Noah Brooks:
Yeah, a little bit strange there.
Chris Needs:
Yeah.
Noah Brooks:
So I’m going to keep on the plane train of thought here. I read that Qantas is about to, well, 2025, they have a Project Sunrise, they’re about to come out with the longest nonstop route ever.
There’s actually two of them that are going to be the longest in 2025. One is JFK to Sydney, and the second one is London to Sydney. The JFK to Sydney is 19 hours. The London to Sydney is 20 hours, and apparently they’re going to be using the new the A350 planes, not a Boeing, an Airbus.
And instead of having 360, 370 people on the plane, they’re only going to have a 100 less, 260, 275, and they’re going to have a dedicated space for movement.
So we’re calling it a wellness lounge, if you will, something like that. I do a fair amount of flying. I think to myself, I don’t know that I could do 20 hours on a plane. I don’t care what level of service I was in.
Chris Needs:
My mind goes to trying to keep children on that plane.
Noah Brooks:
Oh geez.
Chris Needs:
In a seat for 20 hours. It sounds like a nightmare.
ON SCREEN TIME FOR CHILDREN
Noah Brooks:
You would have to have a screen in front of a kid the entire time.
Chris Needs:
Let’s not talk about screen time with kids.
Noah Brooks:
Why? What’s-
Chris Needs:
Oh, my boy is screen addicted and we’re dealing with the repercussions right now, but I don’t want to get my blood pressure up so we won’t talk about it.
Noah Brooks:
Okay. All right, we’ll pass on that. One of the other things that comes up, I’ve been looking at trying to travel to Japan, not right at the moment, but in general, it’s one of those places that I would love to go, which is also a very long flight.
You can do JFK to Tokyo and I think it’s 16 hours, 15 and a half, something like that. And now seems to be one of the best times to go simply because the Japanese yen is down significantly against the dollar. So why didn’t you have a stat there regarding the yen?
ON THE YEN VALUE
Chris Needs:
Yeah, so the yen went to 34 year lows. We talked previously about how the market was at 34 year highs. Well, the yen is at 34 year lows to the dollar. It went briefly above I think 157 or 158 to the dollar. And then there was a little bit of intervention from the Bank of Japan.
Now, they don’t announce the exact numbers of their plan, at least they haven’t yet. But based on Bank of Japan official data, we can assume approximately that they spent on Monday, 5.5 trillion yen, a lot of money.
So that’s 35 billion of American dollars on Monday when it was spiking last Monday at the end of April. And then on the Wednesday that they spent another 3.6 trillion yen, which comes out to about 23.6 billion to defend the currency.
And if you’re just looking long-term, defending a currency, especially with that amount of expenditure, generally doesn’t work out in the long term. It’s like a fruitless endeavor.
So they really have to hope the dollar starts easing up a little bit on, because they can’t be outlaying that kind of intervention on a periodic basis for a long term.
Noah Brooks:
I’d love to see it go higher. Well, depending on how you look at it, lower against the dollar, because I’d love to go there. I’d eat my way through Japan in a heartbeat.
Chris Needs:
200 yen to the dollar. You’re booking your flight and going to get some food.
Noah Brooks:
Hey, a few years ago, well more than a few, I think it was 2008, we went to England, visited some people there, and it cost 212 US to buy one pound. And when you think, you’re like, oh, it’s not that big a deal.
But then you get there and a breakfast is 20 pounds and you’re spending like 44 bucks on a breakfast and you’re like, oh jeez. And that was obviously 2008.
So Tokyo historically has been one of those very, very expensive places. So man, I’m excited. I don’t know-
Chris Needs:
… planning it out.
Noah Brooks:
I don’t know when, but I would love to. And my thing, I’ll get tickets and then all of a sudden the yen-
Chris Needs:
It’ll reverse.
Noah Brooks:
Yeah, it’ll reverse and it’ll be like the most expensive error ever. Anyway. All right, so what do we say on wrapping up here? Any thoughts for the good of the order?
ON PELETON
Chris Needs:
Just touch real quick on some COVID darlings. I know you have a Peloton.
Noah Brooks:
Oh yeah, yeah.
Chris Needs:
So Peloton-
Noah Brooks:
I did a half hour yesterday.
Chris Needs:
Yeah, yeah. Everything I’ve heard about Pelotons from you and other people include is that customer satisfaction is very high with them. The people love them, but the business is broken right now.
They just lost a CEO, he just resigned. They’re down 98% from their COVID highs from I think it was like $167 a share down to a little above three right now. You also have Zoom, obviously that was a huge COVID play.
Noah Brooks:
Oh, yeah.
Chris Needs:
Everyone still uses it in the office, but they’re down 90% from their highs and they just reported highest revenue ever, but they’re below their IPO price.
Noah Brooks:
Wow.
Chris Needs:
So some COVID darlings still getting hit.
Noah Brooks:
I’m riding, I’m trying to do my part, but how many can you buy?
Chris Needs:
Exactly.
Noah Brooks:
I don’t think. So they need to get significant subscriber growth in order to make that happen. If subscriber growth stops, it’s like a Netflix or something.
If subscriber growth stops, you’re left with those subscribers paying that price, and that ultimately means that there’s no growth. And so you could only grow earnings by cutting expenses, which certainly works depending on what you’re doing. But there’s a limit to that.
Chris Needs:
Yeah, they’re former CEO, for Peloton. He tried to cut costs as drastically as he could. I think he tried to outsource a lot of the production to save them some money.
And he was big on the subscriber growth, trying to get some entertainment on there that people could subscribe to. And it was just an uphill battle, I guess. He was just dealt some rough cards coming into it, because I think he was only there for two years and reducing head count again and he just decided to step down.
ON BEING BACK TO OLD CABLE + SUBSCRIPTIONS
Noah Brooks:
Yeah. So speaking of these weren’t, well, I guess they were darlings during COVID, but some of the streaming services are now offering live events. I actually watched one or two of them over the last two weeks, a week ago, over the weekend was, someone described it to me as the country Coachella, which was Stagecoach.
And we wound up, my wife and I wound up watching it for a few hours. We watched some Willie Nelson and a bunch of other people out there, but you couldn’t fast-forward it and you couldn’t pause it, you couldn’t rewind it. So it’s dead live. It’s almost like live used to be back in the day.
Chris Needs:
We’re back to cable.
Noah Brooks:
Yeah, back to cable. But I guess the point is that they’re looking for other ways to get subscriber growth. And then last night was the Tom Brady roast. I don’t know if anybody else out there watched it. I don’t know. I don’t go hard for those roasts, but they were pretty funny.
They were definitely dirty, expletive-filled. It was nonstop, which you’re not going to get away with on regular broadcast television. I don’t know if it’s going to bring subscribers or additional subscribers.
I don’t know how much leverage that will offer, but it’s interesting to see them trying to do it. And I keep saying we’re living in the golden age of television. Anything you ever wanted and now they’re going to do live specials, I guess.
Chris Needs:
Yeah. This is a side note here, but I know you’re an F1 fan.
ON F1 FOOD + DRINK COSTS
Noah Brooks:
Yeah.
Chris Needs:
Did you see the prices of the food at the F1 event? It’s-
Noah Brooks:
I saw that floating around on X.
Chris Needs:
I guess we do need some more rate hikes if these are indicative of where we’re at, $190 nachos.
Noah Brooks:
Yeah, I did see that. So for a bucket of Miller lights, it was I think 65 bucks for five, for five, which-
Chris Needs:
At an event, okay.
Noah Brooks:
… not too bad. But the nachos, now this is the thing that they didn’t say. So I saw the menu being flashed around on X. They didn’t say, was this a giant portion of tacos for 10 people or something?
Or was it just a personal, because if it’s for one or two people, a $190 for some nachos, that’s way out of line. That’s crazy. If it’s nachos for a group of 10 or even a larger group. Okay, so be it. Not a big deal, but I saw there were champagne, $3,600 a bottle of champagne and-
Chris Needs:
Wild, wild.
Noah Brooks:
Did you watch it?
Chris Needs:
I did not watch it, but those prices jumped out to me. I was like, oh boy.
Noah Brooks:
I enjoy watching it. I’m not going to go to Miami and pay a $190 for nachos.
Chris Needs:
I was thinking, worst case scenario, I think about the nachos you get from a baseball game. It’s just plain chips with poured-out Bobby cheese. And I’m like, if they did that for $190, they should be sued.
Noah Brooks:
Just whiz out of a can and a few scallions. I do like nachos though.
Chris Needs:
Yeah.
Noah Brooks:
All right. All right. Well listen, everybody coming up this week is Mother’s Day, so don’t forget, pay your respects to your mom, your partner, whoever that is your motherly figure in there.
And then wrapping up, we have what appears to be a pretty good earning season and we expect that the next week will still be a little bit volatile. You actually had some may insights, didn’t you? Before we go, did you have any stats on-
ON MAY INSIGHTS SO FAR
Chris Needs:
I know we have CPI coming out Tuesday the 15th. That’ll certainly be to catalyst to look out for. Everyone has heard the euphemism sell in May and go away, which if you look at the stats, may not be a super good strategy.
Over the last 10 years there’s only been one negative May. Now, granted sell may go away is a multi-month thing, but 2019 we were down 6.6% on the S&P 500 in May. Besides that, we’ve been positive.
Noah Brooks:
Yeah. I think it’s a better rhyme than it is strategy.
Chris Needs:
Yeah. Yeah. So the median return over the last 10 years is 1.1% in May alone, which is a very good percentage return-
Noah Brooks:
Hey, you do that every month.
Chris Needs:
Yeah, you’d be happy.
Noah Brooks:
All right. Don’t forget your moms this week, everybody. For the Market Enthusiast Podcast. I’m Noah Brooks, and Chris Needs. Thanks so much for your time.
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. Thanks for joining us on this installment of the Market Enthusiasts. With me today, Chris Needs, and as you know by now I’m Noah Brooks. Thanks again. Last time we mentioned what was going on in the market, there seemed to be a discernible shift in sentiment. We had this great quarter and then really the month of April just not so good. And now we flip back the last two weeks. What’s going on?
Table of Contents
ON THE MARKET FLIP + FED PIVOT
Chris Needs:
Yeah, it was a rough April. We had yields going back up to levels that we hadn’t seen since October when there was that spike right before we say the beginning of the Fed pivot, obviously the real pivot you would say maybe happened in December, pivot in verbiage in their communication.
Noah Brooks:
It’s so weird. We keep talking about the Fed pivot, but is it the Fed that’s pivoting or is it the market that wants the Fed to pivot?
Chris Needs:
The market was definitely front running a pivot, that’s for sure. If you look at what they were pricing in, in terms of rate cuts all the way back to the post-December meeting.
Noah Brooks:
Jay Powell has essentially said, we are market dependent or data dependent, excuse me. And did they say they were going to do eight or six cuts? No, they said they’ll cut when appropriate. And all of a sudden the market price is in all of these cuts and then we get data that doesn’t support it and they’re going, oh, well maybe there’s going to be a rate hike.
A few weeks ago we were talking rate hikes. Now we had two weeks of relatively good data and good meaning supportive of not a rate hike, and now all of a sudden cuts are back on the table and we’re not talking about a rate hike. How many times can we go back and forth on this?
Chris Needs:
Well, we’ve done it several times it seems like. It’s been going into mid-last year when the market was putting on bets and every single time Chairman Powell had to manage those expectations a little bit, we’ll say with the careful verbiage in their meetings.
Noah Brooks:
I feel like if I was Jay Powell, I would just talk less.
Chris Needs:
The market likes it when he talks.
Noah Brooks:
Sometimes.
Chris Needs:
The market runs up when he is talking and then-
Noah Brooks:
2022, it didn’t like it very much.
Chris Needs:
Yeah, that was a different time.
ON MOTHER’S DAY SPENDING
Noah Brooks:
It wasn’t all that long ago. I feel like he thinks that the market participants are just a bunch of babies that he has to coddle a little bit. So speaking of babies you have to coddle, we’re coming up on Mother’s Day. The National Retailer Association is expecting 33 and a half billion dollars worth of sales on Mother’s Day. Are you going to do anything? Are you going to…
Chris Needs:
Moms are worth it, for sure. Yeah, yeah, definitely going to spend on mom, on my wife for the children as well. So there’ll be some spending done.
Noah Brooks:
Okay. So they’re estimating that the average is $241. Would you say you’re going to spend more or less?
Chris Needs:
I don’t think I’ll meet that level. Sorry, mom.
Noah Brooks:
The one thing I keep thinking about all this is I’m not a great gift giver. Sometimes I pull through, but the majority of the time I think I underwhelm people with my gifts. Couldn’t we do every five years or every other year for Mother’s Day or something.
Chris Needs:
I don’t know. I think they deserve every year.
Noah Brooks:
But don’t you think it would be a little bit more special if it wasn’t every year?
Chris Needs:
Maybe go big every five years, but…
ON THE RECENT JOBS REPORT
Noah Brooks:
All right, go back to the market for a little bit. So I said the sentiment shifted a little bit. The last two weeks seemed to be pretty good, and then this Friday, this past Friday, we get the jobs report. I don’t know that it was underwhelming, but it wasn’t a blowout number. It was less than expectations, 165,000 if I’m not mistaken new jobs created.
And government was, well, you have the exact data. Government underperformed versus the last few months and then off to the races. So Dow Jones had its best day in a month because we didn’t have a blowout jobs number. Where do we go from here?
Chris Needs:
Well, I think it’s off of the tough April that we had. It was a tough April because yields were spiking and it was spiking in part two too. Like you said, some of those talking heads on TV talking about should there be a rate hike, should there be higher for longer? Totally getting rid of rate cuts for this year some people were saying. And with the data that we had, totally makes sense.
So most of April was rough, so all the indices, so S&P was down 4.1. Dow I think was down 4.9. It was a rough month. The bonds didn’t do so well as well like I said. Rising yields will obviously make that so, and then we got the relief in first the non-farm payroll. Well, first the Fed and the non-farm payroll together, and now we have rate cuts back priced in, I think I saw September now it’s back before the election, prior to-
Noah Brooks:
Yeah, but didn’t we say-
Chris Needs:
… December.
Noah Brooks:
… didn’t we say that there was no way that they were going to cut right before the election?
Chris Needs:
We did, yeah. Market’s pricing in that they will. Like you said, maybe they will be completely, I don’t know, agnostic to the election say we’re not political and we’re totally pretending there’s not an election.
Noah Brooks:
And this doesn’t have anything to do with an election.
Chris Needs:
Maybe, yeah.
Noah Brooks:
They’re going to put themselves, Jay Powell and the Fed is going to, either way, no matter what they do, they’re going to like they’re being political whether they wait until November and people go, oh, well you should have waited and you were trying to do something for this person or this candidate, or you should be doing it now and you’re actually trying to steamroll the current guy. I don’t think they can win on this one.
Chris Needs:
Yeah, you’re never going to appease everyone when it comes to a decision of that magnitude.
ON THE BOND MARKET
Noah Brooks:
Yeah. Well, rates were spiking in April. You mentioned that, that’s one of the reasons that the bond market was down last few weeks. It’s coming back a little bit.
Rates coming back down, but the bond ag is still, most investors are negative on their high quality treasuries for the year. Right at the moment, we’re still in a drawdown. We’ve been in a drawdown for almost three years on the bond aggregate and year to date bond ag is down about a quarter of a percent.
Some of the high yield stuff doing reasonable, some mortgage backs, okay, here and there. There’s some outliers. Strategic income, depending on what you’re in might be up a percent or two. But overall it’s this continuation of just bonds really not doing so well.
Chris Needs:
Yeah. And I had a stat on a correlation that I thought was interesting. So right now, if you’re looking at the S&P 500 and the AG Bond Index, right now the correlation is at the highest in history at 0.69. So the previous highs were in 92 and 96, which was 0.64 correlation.
So you’d think, wow, that’s a high correlation for things that normally don’t trade together, but the returns are completely different. So over this, those correlations are over a three-year period.
Over that three year period where we’re at historic highs 0.69, the S&P 500 is up 24% and the Ag is down 8%. So correlation doesn’t pass through to like returns.
Noah Brooks:
My favorite line is correlation is not causation. So let’s talk about the causation of that. 2022, stocks were down, bonds were down. Why? Yields were up.
Yields spike, Federal Reserve raises interest rates. So you have correlation, it’s not going to one, but it’s very, very similar, which doesn’t always happen that way. Normally if the stock market is down, bonds are going to be up because there’s a flight to safety and that’s going to push bond yields down.
The exact thing happened, not that there wasn’t a flight to safety, but the Federal Reserve raising rates.
Chris Needs:
Actively raising, yeah.
Noah Brooks:
Actively raising rates, 500 basis points. And now I think we’re just trading on a very similar scenario of correlation where when rates go up, stock market goes down and bond market goes down.
So are we going to see that correlation get worse or do you think there’s a time, and it’s not a one for one correlation 0.65, but do you think that that’s going to continue to be highly correlated or is there going to be a disconnect?
Chris Needs:
In the short term, I think it will stay correlated until we get an ultimate true pivot on rates by the Fed. And then at that point, maybe they’ll start diverging again. Again, so over the last 30, 40 years, we’ve been in a declining interest rate environment and we’re not in that right now.
Now the goal eventually is the Fed to start cutting again, but it’s a different environment than we’ve been dealing with. So recent stats on the market are a little bit different when it comes to fixed income now.
ON BONDS-TO-STOCKS PORTFOLIO RATIO
Noah Brooks:
They certainly are, they certainly are. Going back to what we mentioned a few weeks ago, the 60/40 portfolio is one of those things that’s been with us for, in my career, 25, 28 years.
That’s what you did. You had that 40% of bonds in order to offset the declines in the stock market.
And as we just pointed out, 2022, that didn’t happen. We’re still in a drawdown for the bond market. People are still underwater on a lot of bond funds if they hold bond funds or bond ETFs, and I have clients, I have advisors asking me, Hey, one of these things’ going to break even.
And at least at the moment, it doesn’t seem like the Fed is prepared to cut by two or 300 basis points. I said to you a few weeks ago, what’s the purpose of them cutting? If the economy is okay, if jobs are still being created and there’s a reasonable slowdown in inflation, now we’re not at that 2% level, we’re still three and a half, four depending on what you’re looking at.
But if it’s coming down and we know that there’s a little bit of lag, they’re probably okay maybe to cut it just a little bit or nothing. There’s no real reason that they have to.
There could be some esoteric reason that they’re bringing up that economists are like, well, this is why you have to do it, but here in the short term, employment is in good spot, inflation is reasonably coming down. I don’t know if they’re going to.
And then the question is, well, what about these bonds? Why do I own them if they’re not going to perform at some point, and I think more and more people are starting to question that.
Chris Needs:
Yeah. So I don’t know if it’s going to result in maybe looking at other alternatives or just alternatives as an asset class is a diversifier, because you’re not getting the diversification, at least in recent history with those bonds.
Noah Brooks:
There’s advisors out there that are saying to us, Hey, can I just use money market and stocks? Well, what’s the purpose of using these bonds if there’s a chance that they’re going to go down when historically they’re the ones that saved my butt?
So what about just money market mutual funds and the equity portfolio that we normally have? Is that something we can do? And I think the answer that I’ve been telling people is, well, yeah, you can do that, but at some point bonds are going to start to outperform. And then the question is, well, when?
Chris Needs:
Yeah.
Noah Brooks:
I don’t have the answer-
Chris Needs:
That’s right in line when those money market rates will start getting cut too.
ON ECONOMIC DATA
Noah Brooks:
Yeah. Yeah. So economic data, we have some things to go over. Right at the moment today S&P 500 up about eight and a quarter for the year. Mid caps up well over six. Small caps still underwater.
What do we think? Small caps? Is there going to be a point where small caps outperform? I know there’s a lot of people out there that are pounding the table on small caps, but if we don’t get rate cuts, are our small caps ever going to move?
Chris Needs:
Yeah, small caps had a rough April down 7%, and we’ve been talking about they’re really a yield story it seems like right now. And I think that pressure will remain until we get some easing, which may not happen.
Noah Brooks:
Yeah.
Chris Needs:
Not in the short term.
Noah Brooks:
Yeah.
Chris Needs:
So should everybody get out of small caps? I think it’s late in the game. If you’ve written it down this far, you might as well stick with it. I’m not making a market call, but-
Noah Brooks:
Well, it’s-
Chris Needs:
… there’s light at the end of tunnel I think for small caps.
Noah Brooks:
Yeah.
Chris Needs:
And from a valuation perspective, I think in the next several months would be a decent time to actually get in, but short term, they still have that yield pressure on them.
Noah Brooks:
I personally would love to see interest rates come down a little bit, and I think that little bit of normalization would make everything work, could say perfectly.
Large caps and large cap tech is still, I’ll go out a limb and say overvalued a little bit. I still think, and last Friday we saw Berkshire Hathaway, Warren Buffet’s big dog here. Came out, earnings were up almost 40%.
And so you think to yourself, well, maybe there’s a value switch that’s coming. And a lot of people have been thinking this for a long time, but it doesn’t seem to happen.
It seems to always go back to, at least in the last 18 months, two years, the AI story, the productivity story and the big get bigger and big tech seems to get bigger, but it seems like there might be some cracks in that armor.
Chris Needs:
Yeah. Well, Warren benefited from those insurance premiums we’ve been talking about. They’re kicking back. And actually, he made that. This is new information coming from, I think it was, when did they have their meeting? This weekend? I believe so, they actually lowered their stake.
They still obviously have a huge holding in Apple and the tech exposure that when he originally did was a big surprise. But he’s taken a little bit off the table here and he’s liking his insurance, I guess, and he’s fine with a big cash pile that he has.
Noah Brooks:
What was their cash? Was it a $182 billion?
Chris Needs:
It’s big. I don’t have the exact amount [inaudible 00:15:23] here on my stat sheet, but-
Noah Brooks:
It was a lot. You’re just like, wow, that is a lot of cash. Apple has a lot of cash, but Berkshire and the line that I saw being passed around was that he was comfortable adding to that cash.
Chris Needs:
Yeah, maybe he’s waiting for a buy opportunity. Well, that buy opportunity doesn’t happen when he is gone.
Noah Brooks:
Oh, geez. He did talk about his own mortality though, a little bit.
Chris Needs:
Did he?
Noah Brooks:
Yeah. How can you not?
Chris Needs:
He lost his best buddy.
Noah Brooks:
Yeah, you’re 93, your ride or die is no longer with you and you have to be at the very least cognizant of it. Not that he isn’t, but at some point you’re going to face declining faculties.
And there’s obviously a successor in place with a new guy there that’s been around for a while, but formally in place. And so at some point, Warren Buffett and Berkshire Hathaway are going to be disconnected, let’s say.
Chris Needs:
Yeah. But they’re still doing well right now. So we’re in earning season right now. So obviously we’ve talked about yields a little bit and how that’s high effect on the market, getting a little reprieve by that non-farm payroll and the Fed earning season has been ultimately good though.
It’s been strong earning season. Now, not every reaction has been completely positive, but for the most part, companies are beating their revenue and their earnings for share numbers.
Noah Brooks:
Yeah, I have here that 80% of the S&P 500 is reported as of Friday the, I think the third. And 77% of those companies reported positive earnings surprise, 61% reported positive revenue surprise. And year over year, at least at the moment, earnings growth is 5%, which is actually up from the first quarter of, I think 3.2 last quarter.
So if something’s happening, we’re moving in the right direction in that respect. Couple highlights. You had Google come out and initiate a dividend on a huge beat. Talk about companies with big cash files. I think they had 107 billion sitting in cash versus only 13 billion in long-term debt. It’s a big cash pile.
They’re huge cash generating, firm killing it right now. Market jumped on that dividend initiation. You had Netflix who had record revenue, but they got hit because they announced that they’re going to stop forecasting or giving guidance on subscriber numbers in 2025.
So the market didn’t like that. The market likes transparency obviously, and I think I saw the reaction was minus 9% on that less transparent move that they’re going to make in the future. Apple had the largest buyback ever, 110 billion authorized by their board.
Well, they have to make up a little bit for what Berkshire’s selling. We were talking about that it seemed like there was such a floor under their stock for so long. It was either the indices buying shares, because they were the largest component, uncle Warren buying or the buyback and well, I guess Uncle Warren isn’t adding anymore, so they just increase their share buyback amount, so the company’s going to buy back more shares.
Chris Needs:
Yeah, that’s a big buyback. A 110 billion.
Noah Brooks:
Yeah.
Chris Needs:
That’s a big buyback. It’s nutty.
ON THE MOST RECENT JOLTS
Noah Brooks:
A little bit more on economic data. We had JOLTS come out last week with the job numbers. There’s still 8.5 million jobs being advertised out there or available.
So I think the Federal Reserve, that’s one of those data points that the Fed would like to see decline because the more job openings they are, the more job switching or job quitting there is.
So the quit rate did come down a little bit. Year over year, it’s down about 400,000, which quit rate generally essentially is I’m quitting for another job and not always, but I would imagine if you’re quitting your job, you’re going to be quitting to go to something that’s paying a higher rate, higher wage, which is inflationary through wage inflation, which is always going to be there to some degree.
But the less, it’s a supply and demand from a worker standpoint, the less number of workers available, the less that you have to pay somebody to move.
If there’s eight and a half million or 10 and a half million people available to take those jobs, well, you really, it’s one of those things where the companies have to pay to bring somebody over.
Chris Needs:
On that point, employer cost index or employment cost index was up 4.2% year over year. That was the 10th of percent above expectation. But that’s down from, I think it was like 5.2 or 5.3 in 2022. So it’s coming down. It’s trending down slowly, but still just a tad above expectation.
ON BOEING CONSPIRACIES
Noah Brooks:
Yeah. So one thing I said to myself, I’m going to start with this, but I didn’t. We started with the Mother’s Day thing. I saw this come out last week and I just thought, man, I have to bring it up. I don’t know where it’s going to go.
So a few weeks ago we talked about Boeing. We mentioned that there was a whistleblower. We mentioned that the whistleblower happened to die of, I don’t know if it was a mysterious death, but it looked like a suicide. The CEO wound up stepping down to bringing someone in by the end of the year.
Well, last week, a second whistleblower was found dead. Now, this wasn’t a suicide, but it is very curious to see two whistleblowers within a month of the same company-
Chris Needs:
Expire.
Noah Brooks:
… expire. So Joshua Dean, who was a quality auditor at Boeing for their Spirit AeroSystems, which is a company that makes those 787s that they spun off years ago.
And I guess he reported, he reported some similar things on their planes last year in 2023, and he was fired in April of 23. So just about a year ago.
And he died Tuesday morning in Kansas after being hospitalized for a sudden infection. Now, they didn’t report the infection. It could have been a million things. It could have been MRSA.
Chris Needs:
What I saw was he had gotten roughed out of pneumonia, which at this time of year is strange. I don’t know. It can happen. But then while in the hospital got in an antibiotic resistant, MRSA.
Noah Brooks:
Yeah, I don’t know. My dad always used to say there’s no such thing as coincidence. He was a strange guy too. But I don’t know, it just seems really odd that the two Boeing whistleblowers would, as you said, expire in the last month.
Chris Needs:
I saw a funny meme. It’s that one meme, I don’t know the guy’s name. He is in a few things, but it was like, is two a lot? Well, it depends on the context. Is two dead whistleblowers? Yes. Two planes falling out of the sky? Also, yes.
Noah Brooks:
Yeah, a little bit strange there.
Chris Needs:
Yeah.
Noah Brooks:
So I’m going to keep on the plane train of thought here. I read that Qantas is about to, well, 2025, they have a Project Sunrise, they’re about to come out with the longest nonstop route ever.
There’s actually two of them that are going to be the longest in 2025. One is JFK to Sydney, and the second one is London to Sydney. The JFK to Sydney is 19 hours. The London to Sydney is 20 hours, and apparently they’re going to be using the new the A350 planes, not a Boeing, an Airbus.
And instead of having 360, 370 people on the plane, they’re only going to have a 100 less, 260, 275, and they’re going to have a dedicated space for movement.
So we’re calling it a wellness lounge, if you will, something like that. I do a fair amount of flying. I think to myself, I don’t know that I could do 20 hours on a plane. I don’t care what level of service I was in.
Chris Needs:
My mind goes to trying to keep children on that plane.
Noah Brooks:
Oh geez.
Chris Needs:
In a seat for 20 hours. It sounds like a nightmare.
ON SCREEN TIME FOR CHILDREN
Noah Brooks:
You would have to have a screen in front of a kid the entire time.
Chris Needs:
Let’s not talk about screen time with kids.
Noah Brooks:
Why? What’s-
Chris Needs:
Oh, my boy is screen addicted and we’re dealing with the repercussions right now, but I don’t want to get my blood pressure up so we won’t talk about it.
Noah Brooks:
Okay. All right, we’ll pass on that. One of the other things that comes up, I’ve been looking at trying to travel to Japan, not right at the moment, but in general, it’s one of those places that I would love to go, which is also a very long flight.
You can do JFK to Tokyo and I think it’s 16 hours, 15 and a half, something like that. And now seems to be one of the best times to go simply because the Japanese yen is down significantly against the dollar. So why didn’t you have a stat there regarding the yen?
ON THE YEN VALUE
Chris Needs:
Yeah, so the yen went to 34 year lows. We talked previously about how the market was at 34 year highs. Well, the yen is at 34 year lows to the dollar. It went briefly above I think 157 or 158 to the dollar. And then there was a little bit of intervention from the Bank of Japan.
Now, they don’t announce the exact numbers of their plan, at least they haven’t yet. But based on Bank of Japan official data, we can assume approximately that they spent on Monday, 5.5 trillion yen, a lot of money.
So that’s 35 billion of American dollars on Monday when it was spiking last Monday at the end of April. And then on the Wednesday that they spent another 3.6 trillion yen, which comes out to about 23.6 billion to defend the currency.
And if you’re just looking long-term, defending a currency, especially with that amount of expenditure, generally doesn’t work out in the long term. It’s like a fruitless endeavor.
So they really have to hope the dollar starts easing up a little bit on, because they can’t be outlaying that kind of intervention on a periodic basis for a long term.
Noah Brooks:
I’d love to see it go higher. Well, depending on how you look at it, lower against the dollar, because I’d love to go there. I’d eat my way through Japan in a heartbeat.
Chris Needs:
200 yen to the dollar. You’re booking your flight and going to get some food.
Noah Brooks:
Hey, a few years ago, well more than a few, I think it was 2008, we went to England, visited some people there, and it cost 212 US to buy one pound. And when you think, you’re like, oh, it’s not that big a deal.
But then you get there and a breakfast is 20 pounds and you’re spending like 44 bucks on a breakfast and you’re like, oh jeez. And that was obviously 2008.
So Tokyo historically has been one of those very, very expensive places. So man, I’m excited. I don’t know-
Chris Needs:
… planning it out.
Noah Brooks:
I don’t know when, but I would love to. And my thing, I’ll get tickets and then all of a sudden the yen-
Chris Needs:
It’ll reverse.
Noah Brooks:
Yeah, it’ll reverse and it’ll be like the most expensive error ever. Anyway. All right, so what do we say on wrapping up here? Any thoughts for the good of the order?
ON PELETON
Chris Needs:
Just touch real quick on some COVID darlings. I know you have a Peloton.
Noah Brooks:
Oh yeah, yeah.
Chris Needs:
So Peloton-
Noah Brooks:
I did a half hour yesterday.
Chris Needs:
Yeah, yeah. Everything I’ve heard about Pelotons from you and other people include is that customer satisfaction is very high with them. The people love them, but the business is broken right now.
They just lost a CEO, he just resigned. They’re down 98% from their COVID highs from I think it was like $167 a share down to a little above three right now. You also have Zoom, obviously that was a huge COVID play.
Noah Brooks:
Oh, yeah.
Chris Needs:
Everyone still uses it in the office, but they’re down 90% from their highs and they just reported highest revenue ever, but they’re below their IPO price.
Noah Brooks:
Wow.
Chris Needs:
So some COVID darlings still getting hit.
Noah Brooks:
I’m riding, I’m trying to do my part, but how many can you buy?
Chris Needs:
Exactly.
Noah Brooks:
I don’t think. So they need to get significant subscriber growth in order to make that happen. If subscriber growth stops, it’s like a Netflix or something.
If subscriber growth stops, you’re left with those subscribers paying that price, and that ultimately means that there’s no growth. And so you could only grow earnings by cutting expenses, which certainly works depending on what you’re doing. But there’s a limit to that.
Chris Needs:
Yeah, they’re former CEO, for Peloton. He tried to cut costs as drastically as he could. I think he tried to outsource a lot of the production to save them some money.
And he was big on the subscriber growth, trying to get some entertainment on there that people could subscribe to. And it was just an uphill battle, I guess. He was just dealt some rough cards coming into it, because I think he was only there for two years and reducing head count again and he just decided to step down.
ON BEING BACK TO OLD CABLE + SUBSCRIPTIONS
Noah Brooks:
Yeah. So speaking of these weren’t, well, I guess they were darlings during COVID, but some of the streaming services are now offering live events. I actually watched one or two of them over the last two weeks, a week ago, over the weekend was, someone described it to me as the country Coachella, which was Stagecoach.
And we wound up, my wife and I wound up watching it for a few hours. We watched some Willie Nelson and a bunch of other people out there, but you couldn’t fast-forward it and you couldn’t pause it, you couldn’t rewind it. So it’s dead live. It’s almost like live used to be back in the day.
Chris Needs:
We’re back to cable.
Noah Brooks:
Yeah, back to cable. But I guess the point is that they’re looking for other ways to get subscriber growth. And then last night was the Tom Brady roast. I don’t know if anybody else out there watched it. I don’t know. I don’t go hard for those roasts, but they were pretty funny.
They were definitely dirty, expletive-filled. It was nonstop, which you’re not going to get away with on regular broadcast television. I don’t know if it’s going to bring subscribers or additional subscribers.
I don’t know how much leverage that will offer, but it’s interesting to see them trying to do it. And I keep saying we’re living in the golden age of television. Anything you ever wanted and now they’re going to do live specials, I guess.
Chris Needs:
Yeah. This is a side note here, but I know you’re an F1 fan.
ON F1 FOOD + DRINK COSTS
Noah Brooks:
Yeah.
Chris Needs:
Did you see the prices of the food at the F1 event? It’s-
Noah Brooks:
I saw that floating around on X.
Chris Needs:
I guess we do need some more rate hikes if these are indicative of where we’re at, $190 nachos.
Noah Brooks:
Yeah, I did see that. So for a bucket of Miller lights, it was I think 65 bucks for five, for five, which-
Chris Needs:
At an event, okay.
Noah Brooks:
… not too bad. But the nachos, now this is the thing that they didn’t say. So I saw the menu being flashed around on X. They didn’t say, was this a giant portion of tacos for 10 people or something?
Or was it just a personal, because if it’s for one or two people, a $190 for some nachos, that’s way out of line. That’s crazy. If it’s nachos for a group of 10 or even a larger group. Okay, so be it. Not a big deal, but I saw there were champagne, $3,600 a bottle of champagne and-
Chris Needs:
Wild, wild.
Noah Brooks:
Did you watch it?
Chris Needs:
I did not watch it, but those prices jumped out to me. I was like, oh boy.
Noah Brooks:
I enjoy watching it. I’m not going to go to Miami and pay a $190 for nachos.
Chris Needs:
I was thinking, worst case scenario, I think about the nachos you get from a baseball game. It’s just plain chips with poured-out Bobby cheese. And I’m like, if they did that for $190, they should be sued.
Noah Brooks:
Just whiz out of a can and a few scallions. I do like nachos though.
Chris Needs:
Yeah.
Noah Brooks:
All right. All right. Well listen, everybody coming up this week is Mother’s Day, so don’t forget, pay your respects to your mom, your partner, whoever that is your motherly figure in there.
And then wrapping up, we have what appears to be a pretty good earning season and we expect that the next week will still be a little bit volatile. You actually had some may insights, didn’t you? Before we go, did you have any stats on-
ON MAY INSIGHTS SO FAR
Chris Needs:
I know we have CPI coming out Tuesday the 15th. That’ll certainly be to catalyst to look out for. Everyone has heard the euphemism sell in May and go away, which if you look at the stats, may not be a super good strategy.
Over the last 10 years there’s only been one negative May. Now, granted sell may go away is a multi-month thing, but 2019 we were down 6.6% on the S&P 500 in May. Besides that, we’ve been positive.
Noah Brooks:
Yeah. I think it’s a better rhyme than it is strategy.
Chris Needs:
Yeah. Yeah. So the median return over the last 10 years is 1.1% in May alone, which is a very good percentage return-
Noah Brooks:
Hey, you do that every month.
Chris Needs:
Yeah, you’d be happy.
Noah Brooks:
All right. Don’t forget your moms this week, everybody. For the Market Enthusiast Podcast. I’m Noah Brooks, and Chris Needs. Thanks so much for your time.
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.
Categories:
Tags: