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Why is Goldman Sachs predicting a huge S&P downturn? · The Financial Exchange Show

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Speaker 2: Chuck, Mike and Tucker with you, kicking off another week
1:17
here on the Financial Exchange and getting into the heat
1:23
of earning season as we do the economic data side
1:26
of things. Quite honestly, there's just not that much this week.
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Speaker 3: Good.
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Speaker 2: We've got existing home sales data on Wednesday at ten
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am Eastern. It's fine, fascinating stuff. Yep, not really going
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to move the needle either way. We've got jobbles claims
1:43
on Thursday. Been interesting to watch in the aftermath of
1:48
the hurricanes that went through the Southeast, trying to figure out, hey,
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is this rising jobbles claims that we've seen due to
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the hurricanes or due to something else, and thus far
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it looks like it's the hurricanes. Also get new home
2:00
sales data on Thursday as well. At ten am Friday,
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we get durable goods orders. Who else gets really excited
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about durable goods orders? Mark Fandetti And that's about it.
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Speaker 3: Come on, he's not even here to offend himself.
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Speaker 2: What do you need to defend himself? That as a compliment, Yeah,
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that's fair. I didn't say that judgmentally, just like no
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one else gets excited about it, he does. And that's like,
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that's why failure, That's why Mark's great, is that he
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actually cares about this stuff. We also get some consumer
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sentiment data on Friday, an updated version of what we
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already received earlier in the month. So again just not
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that much from a data perspective, but from an earnings perspective,
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there's a lot going on. We do have a good
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amount going on here so thus far through earning season.
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This is as of the close on last Friday, October eighteenth,
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Only fourteen percent of S and P five hundred companies
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have reported thus far, so not much, but when we
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look at what is on tap this week and next week,
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it's it's really the heart of earning season. One really
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reports on a Monday, aside from Tuesday through Thursday is
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the big stuff. We get ge Danaher and Philt Morris
3:08
International tomorrow, as well as Verizon. I know that, you know,
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those aren't sexy names these days, but they're still all
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north of one hundred and fifty billion dollars in market cap,
3:17
Like they're not small companies and they're you know, still
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important to the overall broader economy. I'll go for Raytheon
3:23
and Lockheed Martin Again, smaller companies already they're selling plenty
3:27
of missiles.
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Speaker 3: But yeah, I mean massive defense companies that are strategically
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hugely important to the overall nation reporting earnings on Tuesday.
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Speaker 2: Wednesday, we get a little bit of sexiness when old
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Dominion Freightline reports. Yeah, I met Tesla. Sorry, Tesla reports
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on Wednesday, along with Coca Cola, T Mobile, ThermoFisher Scientific IBM,
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who's still somehow worth two hundred and twelve billion dollars
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service now in DEXTERIR Energy, and AT and T you
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is still somehow worth one hundred and fifty seven billion
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dollars again. Things that I just want to know the
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answer to Thursday again, long list of kind of mid
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size still large cap names, SMP Global, Union, Pacific, Honeywell
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ups they're reporting ups. Is always interesting to hear what
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they're saying about the ongoing holiday shopping season. Sure, and
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so you've got some you know names reporting this week,
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and then next week you get all into basically anything
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artificial intelligence related.
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Speaker 3: Am I hold on a second?
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Speaker 2: Sure, Yeah, we'll wait for you.
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Speaker 3: Amazon, what's going on there.
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Speaker 2: They were originally supposed to report this week. They're reporting
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next week. Now, come on, I know every like trust me.
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I did the same thing last week and it was embarrassing.
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Speaker 1: It's weird.
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Speaker 2: I know.
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Speaker 3: Yeah, I see them on my calendar for Thursday.
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Speaker 2: But there's in like, I know, I don't know, I know, Okay,
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I told everyone last week that Amazon was this week
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and now their next week.
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Speaker 3: Got it?
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Speaker 2: Okay, So there's that. But Tesla does report this week,
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and if you you know Tesla, the last couple of weeks,
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the thing that they've been getting all the buzz about,
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most of it bad buzzes, was the unveiling of their
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cyber cab cyber taxi. Would they end up calling it?
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I don't know.
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Speaker 3: It doesn't matter, don't.
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Speaker 2: Even know, because it didn't impress anyone in the stock
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fell almost ten percent the day after. So stocks now
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down eleven percent for the year. Is that where we
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stand at the moment.
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Speaker 3: Yeah, eleven and a halfish is what I'm seeing as
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of this exact moment.
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Speaker 2: So ultimately what matters here is going to be what
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they actually report as far as hey, how many cars
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did you sell? What are the prices that you're selling
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those at and what are your margins? Because the problem
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that they've had for the last few quarters is, look,
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your your comps don't look great in terms of negative
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year over year for total top line. You're selling those
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at lower prices, so your margins have been compressing significantly,
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and it's unclear if there's a growth engine that's out
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there as well. And so these are questions that Tesla
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is going to need to be able to answer. They
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have been selling, you know, a decent number of these
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cyber trucks quite honestly, the estimates that are out there
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or that they've sold like somewhere in the ballpark of
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forty to forty five thousand of them already. Yeah, the
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saw one on my way in here. The problem is, look,
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they're expensive vehicles. You know that they start at eighty
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thousand dollars and work their way up well over one hundred,
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and there are only so many people that are buying
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cars in that price range. And based on these stories
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that we have seen online, it does appear that despite
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receiving nearly two million refundable one hundred dollars pre orders
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for the cyber truck, if you want to place an
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order on one now you can get it delivered in
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October or November. Yeah, I mean I'm looking at a
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you know, just aside from the cyber truck here, I'm
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looking at a Model three and just baseline, most most
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common vehicle you sell, same story. You can get it
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between October and November of this year, meaning immediately, And
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you're talking about a forty four thousand dollars purchase price,
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which I don't know may that's below the average vehicle
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sale price, right, that's not terrible for an electric vehicle
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that if you're not it was well above the average
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for all vehicles. But I'll also say that doing some
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browsing on my own here and just look, I was
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just looking at like Auto Trader, looking at Tesla Model threes.
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Cheapest you can get for you know, let's call it
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under forty five thousand miles made in the last three years.
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I think you can probably're probably like the low twenties.
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Speaker 3: Yeah, mid twenties, mid twenty five, twenty six thousand dollars
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for a used one. And and I think those two things,
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the fact that you can get one of these immediately,
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plus they used vehicle market on these things speaks a
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little bit to the pressure that not only Tesla is having,
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but the entire EV market is facing right now where
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they've frankly oversupplied. Yeah, it's not unique to Tesla. What
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is unique to Tesla is it's all they sell.
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Speaker 2: Correct, Like they they don't have gas vehicles or hybrids
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to fall back on, Like this is what they are.
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So I think it'll be interesting to see the actual
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Tesla number that come out and what we're seeing from them,
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just because this is a company that now has questions
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about really growth and margins too. Things that you know,
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we're in a pretty good spot for for quite a
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while for them, but now have turned into, you know,
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some things that are kind of cautionary in the last
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two or three quarters. I think is a fair way
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to look at it.
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Speaker 3: My question or another question I have, did Tesla finally
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open up their charging network to non TESTA vehicles like
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I today can go do this or they're going to
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do it in the future.
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Speaker 2: They have for at least a number of them. They're
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up and running at this point. I know GM is
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up and running on them. I believe Ford is as well.
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But Ford just issued a recall of their charger adapters
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because they can cause problems with the Ford dvs in
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terms of I guess it's it. There's something where it's
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it's causing issues with the batteries not charging properly, and
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so it's it's a problem. But here here's Tesla right now.
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In Q three of twenty twenty two, they're operating margins
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were sixteen point seventy one percent. For the last twelve months,
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those margins are now been cut more than in half.
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They're down to seven point five eight.
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Speaker 3: So you're looking like a regular automaker.
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Speaker 2: Correct, So you're turning into a regular automaker as far
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as your overall margins trailing twelve month revenue is now
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at ninety five point three two billion dollars. Second quarter
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last year was ninety four point zero three. Your revenue
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has flatlined over the last fifteen to sixteen months. Now again,
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I'm just going through the metrics that are again not concerning, like, hey,
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Tesla is going to go out of business, but hey,
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why are you valued at more than like every other
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automaker combined? Free cash flow is now at one point
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seven billion dollars trailing twelve months. Great, that's fine. Your
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free cash flow positive in September of twenty two, free
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cash flow is eight point nine billion dollars. So free
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cash flow has been reduced by seventy five percent. You
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talk about net income, so the actual profit that you're
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generating right now, it's a twelve point three billion dollars
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December of twenty two. Q four of twenty two it
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was twelve point five eight billion dollars. Your profit has
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decreased over the last two years. Now, So these are
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the things that when we talk about Tesla and where
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the stock eventually ends up. Hey, if you want to
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believe that Tesla is a seven hundred billion dollar company,
10:24
can't just be about the cars that like that that's
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where we are now. It can no longer be justified
10:31
in any way shape Like before you can at least say, hey,
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car sales are growing forty percent year over year, the
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margins are fat, Like maybe they're different. He needs to
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deliver on one of his wild ideas. You either have
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to get like the cyber cab has to be a
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real thing and not like thirty years from now, like
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by twenty twenty seven. It's gotta be a real thing,
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or you got to figure out something you know with
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you know, autonomy as it relates to all the other
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cars that you have. There has to be something else
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there because the rest of the company looks fine, but
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fine doesn't make a seven hundred billion dollar company selling
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two million vehicles a year like That's that's where we are. Otherwise, Hey,
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I'm Toyota. You know I sell ten million vehicles a
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year and mine can stay in their lanes on the
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highway also, and I'm only worth two hundred and twenty
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three billion dollars. Something's got to give, and it's probably
11:36
not Toyota being worth two trillion.
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Speaker 3: Right.
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Speaker 2: Let's take a quick break here. When we come back,
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we'll talk about the fine folks at Goldman Sachs and
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why they're projecting just a three percent annual return on
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the S and P five hundred over the next ten years.
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They've been to the future and this is what they
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think is going to happen.
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Speaker 2: Mike so Goldman sach sent a bunch of their investment
13:02
bankers ten years forward in the future using their proprietary
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time machine technology. They did, and they came back and said, hey,
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we think the S and P five hundred is going
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to return just three percent per year over the next decade. Now,
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Goldman Sachs does not actually have a time machine. They
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didn't actually do this.
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Speaker 3: But and if they did, can you imagine anything more
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boring to predict than what the S and P five
13:27
hundred is going to do over the next decade?
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Speaker 2: What do you mean? It's like the most exciting thing
13:30
that you could do. Do you know how much money
13:32
could make it? If you could make a kill? Actually
13:33
what the market's going to do for the next decade? Yeah,
13:36
I mean like a lot of money? Holy cow, Like
13:38
my goodness. In any case, if the S and P
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only returns three percent a year over the next decade,
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that puts it in the seventh percentile of returns for
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decade long periods historically.
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Speaker 3: Going back to what like nineteen forties, fifties, sixties.
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Speaker 2: I think this actually goes back to like the nineteen
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twenties using the data that they have, yeah, nineteen thirty.
14:02
So when you're on P. Five hundred when it was
14:04
called something else.
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Speaker 3: Rolling ten year periods, this would put you very close
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to the bottom of them if we did get here correct.
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Speaker 2: On the other hand, for the last ten years, the
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S and P five hundred has returned about thirteen percent
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a year. That is in the seventy fifth percentile. For
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historical returns, I.
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Speaker 3: Would have guessed higher.
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Speaker 2: No, there have been higher ones, actually quite a few.
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And so ultimately it's something where, look, none of us
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know what the returns are going to be over the
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next ten and I think this is something important also
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that even as you're going through it, it's not easy.
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I mean, look back at the last ten years, which
14:42
started in twenty fourteen, and think about all this stuff
14:46
that we could gnash our teeth about during that time period.
14:50
It's not something where you just sit there and say, well,
14:52
I'll just set it and forget it. And it's you know,
14:55
an easy no. Like as much as all of us
14:57
talk about, hey, just don't look at your port folio
15:00
and you know, let the market do its thing. We're
15:04
all human, we all you know, see the news. Oh gee,
15:09
you know Russia invaded Ukraine. We're really nervous about this. Hey,
15:14
there's an election coming up. I'm so nervous about this. Hey,
15:19
COVID is happening in China. Do you think this means anything?
15:22
Like we've all been through, sure, all this stuff, and
15:27
as you're going through it, it's it's hard to remain rational.
15:32
And also, by the way, there's no guarantee that even
15:36
if the same stuff happens over the next ten years,
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Like let's say you have the exact same things happen,
15:40
it's it's groundhog Day. Yeah, the marfset goes up another
15:44
forty the market might not perform the exact same way
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even in the same set of circumstances, like well, look,
15:52
I'll just hold out and maybe the market does return
15:55
three percent.
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Speaker 3: I have a few takeaways from this. I mean, one,
15:58
this is a three percent who knows nobody knows good
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as guests as any other although well below averages over
16:07
any period of time. This is one of those areas
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you know the phrase, or you know the disclosure that's
16:12
on every single investment you've ever looked at, which is
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past performance is not indicative of future results. In the
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case of like broad based indicies, you can almost take
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it like the reason Goldman Sacks feels this way is
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because actually the past performance over the last decade in
16:27
US equities makes the future results even more difficult to accomplish.
16:33
You could take it to the step further saying like
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past performance might actually be negatively correlated to future results
16:40
in these cases. The other piece I would add to
16:44
all of this is if you have built yourself some
16:48
sort of financial projection and financial plan, or if you
16:51
work with a professional who does so for you. One
16:55
of the first questions you should ask about those projections are,
16:58
what are you assuming my money will got over the
17:01
lifetime of this? If somebody's not test I'll tell you
17:05
if the markets actually do return only three percent over
17:10
the next decade, or let's take that a step further, like,
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let's say they only do three percent over a couple
17:14
of decades, which would be almost unheard of. There are
17:19
a lot of financial plans that I've personally seen that
17:21
are not going to work correct, Like they are going
17:25
to fail in spectacular fashion. There would be pension funds
17:28
that would not be able to keep pace that there
17:30
would be really big problems if US equities can only
17:33
perform at three percent for an extended period of time,
17:35
basically not beating inflation. And so that's the only addition
17:39
I have on top of all this is, you know,
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this is interesting conjecture, but to bring it home to
17:44
the regular person out there, if markets only do three
17:48
percent for a prolonged period of time.
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Speaker 2: You better hope you have a whole lot more save
17:53
than you were anticipating needing, because it's going to stretch
17:57
you thin. And none of this is to say that
17:59
the like none of us know what the next ten
18:02
years actually holds. That's what makes it both so like
18:07
on one hand kind of exciting, but on the other hand,
18:09
like I'm gonna throw up, like it's you know, it's
18:13
like none of us know what's gonna happen. It's just
18:16
it's it's kind of nerve wracking.
18:17
Speaker 3: Yeah.
18:17
Speaker 2: Sure, But ultimately I come back to this over and
18:21
over with investing, and I'm specifically saying investing and not trading,
18:26
because those are fundamentally different things, and I think oftentimes
18:29
we get confused talking about them. If you are investing
18:34
in anything, number one thing that you have to do
18:37
is say, look, I need to match, you know, my
18:39
liabilities when I need money to what I actually own.
18:44
And stocks are a horrible vehicle for matching liabilities in
18:48
the next decade. Like if if you need money in
18:51
the next ten years, shouldn't be anywhere near the stock market,
18:55
really shouldn't. I mean you can make a case like
18:57
five to ten years, okay, like yeah, that that money
19:00
you maybe could if you have a high risk tolerance, sure,
19:03
but otherwise what are you really doing? I mean, you
19:07
have no idea, just because the last like fifteen years
19:10
has made you feel that nothing can go wrong and
19:12
if you buy the dip, it's always gonna work out.
19:15
There are a litany of market periods where buying the
19:18
dip was like the worst thing you could do, Yeah,
19:20
because it dipped another fifty percent. Not for the long term,
19:23
but for like the next five to ten years. It
19:25
was an awful decision. Like if you bought the dip
19:27
in two thousand and one on the Nasdaq, it took
19:30
you like fourteen years to get back. Quick break here.
19:34
When we come back, we got Wall Street Watch and
19:35
we're talking Boeing.
19:41
Speaker 1: Like us on Facebook and follow us on Twitter at
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TFE show. Breaking business news is always first right here
19:49
on the Financial Exchange Radio Network. Time now for Wall
19:54
Street Watch, a complete look at what's moving markets so
19:57
far today right here on the Financial Exchange Radio Network.
20:02
Speaker 4: Markets are mixed territory relatively quiet as investors ready for
20:06
a big week of third quarter earnings, where major names
20:09
including Tesla, Coca Cola, and many more are slated to
20:13
report their results. Right now, the Dow is off by
20:15
just over a third of a percent, or one hundred
20:17
and seventy points. SMP five hundred is off by nine points,
20:21
and the Nasdaq is edging thirteen points higher. Russell two
20:25
thousand is down nearly two thirds of a percent. Ten
20:28
Your Treasury yield up by eight basis points this morning
20:31
at four point one five percent, and crude oil up
20:35
one in a third percent, trading just above seventy dollars
20:39
a barrel. Boeing shares up by four percent following news
20:43
at the planemaker and leaders of his machinist union reached
20:46
a tentative deal that could end the strike that has
20:50
halted most of its production. Chuck and Michael have more
20:53
and Boeing coming up here in a matter of moments.
20:55
Sticking with air Travel, Spirit Airline stock jumping by forty
20:59
six percent after the struggling budget carrier received a debt
21:03
refinancing extension. Meanwhile, the Wall Street Journal is reporting that
21:07
activist investors Starboard Value has taken a sizable stake in
21:11
consumer products company ken View in order to make changes
21:14
to boost the stock price. Ken View was previously spun
21:17
out of Johnson and Johnson last year. That stock today
21:21
is up by six and a half percent. Elsewhere, Bloomberg
21:24
is reporting that Signa has revived efforts to buy rival
21:27
health insurer Humana. Talks still, however, remain in early stages.
21:32
Signa down by four percent, while Humanis stock is up
21:35
by one percent, and UPS was downgraded to underweight from
21:39
equal way to Barclays, where the banks said it sees
21:42
risks to the package delivery company's earnings as well as
21:46
competition from Amazon. UPS down by two percent. I'm Tucker Silvan.
21:51
That's Wallstreet Watch.
21:53
Speaker 2: Let's see Mike Boeing and this union Nanotucker referenced it
21:58
briefly thereuote's from the union saying that this deal warns
22:03
presenting to the members and is worthy of your consideration.
22:05
This on the back of the previous one being rejected,
22:08
you know, ninety five to five percent.
22:11
Speaker 3: Sometimes, I mean, we've had a few of these big
22:14
strikes over the last several years, and sometimes the union
22:16
leadership will come out and come up with a statement
22:18
like we fought really hard for these benefits. We think
22:22
that this is the best deal or a great deal
22:25
for our members, and this is like looking forward to
22:28
presenting it to our union. This is like see what
22:31
do you think about this one? Guys, you rejected the
22:33
last one by ninety five percent, so we don't want
22:35
to get shot if you guys hate this one too.
22:37
This is I have no idea for this will get passed.
22:40
I mean, it has been what six weeks now that
22:43
the union has been on strike. I would think it
22:47
more likely than not that this will in fact go through,
22:50
given that it's the second vote that has come to
22:52
pass on this and has been beefed up a little bit.
22:56
But wow, I don't think it's a certainty by any stretch.
23:00
Speaker 2: Just to put this in perspective, the union has thirty
23:02
three thousand members and their wages average about seventy five
23:07
thousand dollars a year. Thirty five percent bump there takes
23:10
you up to about one hundred and one thousand, two
23:12
fifty So like you're talking about a pretty substantial bump here.
23:16
And again, I'm just thinking this out as far as
23:21
and I'm not saying this is good, bad or whatever.
23:23
I'm just saying that this is when you think about
23:27
how airplanes are sold, and I know that most of
23:29
you don't just wake up in the morning and you're like, man,
23:33
I love to think about how airplanes are sold. But
23:35
just bear with me for a moment. If you are
23:38
United and you're flying a seven thirty seven right now,
23:42
the decision to buy a new model and which model
23:45
you buy is based on two things. Number One, hey,
23:49
if I stretched this current plane as long as it
23:51
possibly can, because you're talking about tens of millions of dollars. Sure,
23:54
most of the time that includes like a mid cycle refurbishment,
23:58
usually when the plane's about fifteen years old. Planes generally
24:01
last twenty five to thirty years. That's the typical life
24:03
cycle of a plane. But the other one, then, in
24:06
terms of you know, what plane do I buy to
24:08
replace it, is, Hey, when I am buying new planes,
24:15
the reason that I might do so before that thirty
24:17
year period is up is because I can get incremental
24:20
efficiency improvements that allow me to expand my margin. The
24:24
single biggest cost for any airline is fuel. So if
24:28
you look at it and Bowing comes out with you know,
24:31
the seven thirty seven max, and they're like, hey, this
24:33
is you know, ten percent more fuel efficient than the
24:35
old seven thirty seven. That is a huge upgrade are
24:40
United to make in terms of their bottom line? Yes,
24:43
it it hurts in terms of the capital outlay, but
24:45
they might lease the planes. There's all kinds of ways
24:47
you can depreciate, Like the accounts will figure that out,
24:49
especially if.
24:49
Speaker 3: I don't have to retrain all my pilots on it.
24:52
Speaker 1: Correct.
24:53
Speaker 2: But here's the thing. If Boeing is seeing its labor
24:58
costs go up by thirty five and you better believe
25:01
that just like any other business, Boeing's labor costs are
25:04
like the biggest line item for them. I know that.
25:06
I just said it was different for you know, airlines,
25:08
because it is there, But with just about any other
25:11
business it's Hey, your labor costs are the biggest input.
25:15
Your labor costs are going up by thirty five percent.
25:17
Can you sell your planes for the same price you
25:18
used to?
25:19
Speaker 3: Presumably not, it's not a thirty five percent increase, but
25:22
it's an increase.
25:23
Speaker 2: When when airplane manufacturers build in their projections for their airplanes,
25:29
they know they're gonna sell the seven thirty seven max
25:31
for twenty five to thirty years, like they have this
25:33
life span, and they say, Okay, here's what we anticipate
25:36
our labor cost changing over the course of that lifespan.
25:40
Here's how much. You know, union negotiations typically see that
25:43
the cost increase, like they build this in. They're not
25:46
dumb either, They don't just say, you know, okay, none
25:49
of this is gonna happen. But remember when Boone came
25:51
out with the seven thirty seven Max. It was twenty sixteen,
25:54
twenty seventeen when they released that plane, far less than
25:57
the way of labor pressures when you are running your
25:59
projection in and again when when you actually think about,
26:02
like that plane came out in I think twenty sixteen
26:05
or twenty seventeen, the decision to actually build that plane
26:09
was made in twenty ten. Bowe might be sitting there saying, okay,
26:15
we think our you know, labor costs are going to
26:17
go up four percent a year, five percent a year,
26:19
and now you've got a four year period where you
26:21
just printed a nine. In order for Boeing to make
26:25
that plane profitable in the long run, they're gonna have
26:29
to raise prices as well, which means one of two things,
26:34
you're not selling as many planes, or if you are
26:37
selling planes to you know, United Southwest, whoever it might be,
26:42
their margins become pressured and they got to raise fares
26:46
like that's that's where you end up on all of
26:49
this in my.
26:49
Speaker 3: Book, which I mean, look at the already existing profit
26:53
line pressure on major airlines. Right, we have one that's
26:57
on the verge of bankruptcy. We have Jet Blue fallen
27:00
way far behind we.
27:01
Speaker 2: Southwest is kind of a moss.
27:02
Speaker 3: Southwest basically saying we have to restructure our entire model
27:06
of doing things. So yeah, this is already a pressured
27:11
industry on a number of fronts. But we will see
27:14
where this deal goes. I think they're voting this week Wednesday, Thursday. Maybe.
27:19
In addition to that, they bumped up the one time
27:21
ratification bonus to seven thousand dollars. They bumped up some
27:25
more four to one k contributions, but the pension piece
27:28
remains off the table. That piece is not being moved
27:31
on from what I can see really, regardless of the pressure.
27:35
Voeing does not seem willing to move on that one.
27:38
Speaker 2: If if this doesn't get approved which I have no
27:42
idea how this is going to go again.
27:43
Speaker 3: Last one lost by ninety percent voted against it.
27:47
Speaker 2: Now, this is an extra two percent a year, pretty
27:49
much ten and a half percent a year in wage growth,
27:51
So like that's that's meaningful. But if if this doesn't
27:58
end up passing, I don't know where Bowen goes at
28:00
this point, like it's a real problem. Yeah. At the
28:06
same time, regardless of the labor deal, Boeing's new CEO
28:10
is needing to take some pretty critical looks at the
28:13
business itself, which you can assure yourself this was all
28:16
going on before Kelly or Purkin was there too, But
28:21
I mean realistically, they are looking at some significant business
28:27
lines that they might be looking to exit over the
28:29
next few years. They have tried, unsuccessfully to sell a
28:32
rocket joint venture that it shares with Lockheed Martin. They've
28:36
been looking at some do you sell that to other
28:39
than Lockheed?
28:39
Speaker 3: Just Lockheed. There's no one else, which is why you
28:42
can't sell it. Military refueling tanker and Air Force one
28:46
replacements on their jets, they're having a tough time with those.
28:49
They reached a deal last week to offload this small
28:52
defense subsidiary that makes surveillance equipment for the US military.
28:55
So between that plus the what are they raising ten
28:59
billion dollar in equity on their shares, you are looking
29:03
at a company that is rapidly trying to plug some
29:07
holes from their sinking ship right now, and it's not
29:12
getting this deal done again. I don't know. I don't
29:15
know if it gets done or not, but if it
29:17
does not, it puts that additional pressure on them when
29:20
it comes to the all important you know, credit quality
29:25
of their junk, of their bonds and not getting downgrade
29:27
to junk, among other problems that they face.
29:30
Speaker 2: Take a quick break here. When we come back, we'll
29:32
talk about this piece. I actually saw this last night.
29:34
This is always a great thing to read as you're
29:36
going to bed on a Sunday, But I literally saw this.
29:39
I knew who wrote it before I even opened it.
29:43
Here's why inflation may look like it's easing, but it's
29:45
still a huge problem. We'll talk about that when we
29:49
come back.
29:50
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30:27
Speaker 2: All right, So we've got a piece in CNBC. It's
30:29
titled Here's why inflation may look like it's easing but
30:32
is still a huge problem. Number one. I really object
30:37
to the use of that word huge there, because there
30:40
are huge problems out there right now. The pace of
30:43
inflation is not one of them. And when you cherry
30:45
pick stuff to be like, well, egg prices are still
30:48
up eighty seven percent in the last four years. Okay,
30:52
you want to do like some cherry picking on some stuff, fine,
30:55
Like do you want to talk about how over the
30:57
last and again I'm just doing my own cherry picking,
31:00
which again I think is dumb. Hey, did you know
31:03
that gas prices are down fifteen percent in the last year?
31:06
Does that mean inflation is no problem where where you
31:09
used cars? You know. Again, we could do this with
31:12
all of the cherry picking that we want, but it
31:14
doesn't do anyone any good. What we do know is
31:17
that the rate of inflation right now, if you look
31:20
at either the CPI or the PCE, so a couple
31:23
different metrics that are out there. If you look at
31:26
where they actually sit right now. CPI is at two
31:29
point four percent, pcees at two point two, and core
31:32
CPI is elevated. And again this is why I'm still like, hey,
31:35
it's a problem. Core CPI is still at three three
31:38
year over year, So yeah, it's still something that we
31:40
need to pay attention to, and not you know, dismisses
31:43
something that you can just you know, cut rates a
31:45
million percent and call it a day. But to say
31:48
it's a huge problem is kind of disingenuous to the
31:52
actual huge problems that exist today, one of which is, hey,
31:56
what's going on with the labor market and has it
31:58
turned a corner or is it still weakening and we've
32:01
just you know, had a little blip for a month
32:02
or two. Yeah.
32:03
Speaker 3: I find it to be a little bit disingenuous if
32:06
you want to write a piece about how inflation is
32:08
still a huge problem and it's going to be show
32:10
shown up at the voter ballot box this year. I
32:12
find that piece boring, but at least, you know, not
32:16
not problematic. This one seems to be making an argument
32:18
that watch outs inflation's just on the verge of coming
32:21
right back, and then provides no evidence as to why
32:23
that would happen if you want to see inflation coming
32:27
and then, by the way, blames the FED in part
32:28
for it, seemingly, if you want to make a case
32:31
for inflation coming back, I see maybe two paths, and
32:35
neither of them have much, if anything, to do with
32:37
the Federal Reserve. One path would be the next president,
32:41
with the help of Congress, passes a number of sweeping
32:45
changes that put more money in people's pockets. We saw
32:49
what happened with inflation when we did that in twenty
32:52
twenty and twenty twenty one. It was the worst inflation
32:54
we saw in forty years. And both candidates on the
32:59
you know, on the trail have been talking about exactly that. Well,
33:02
tax cuts or stimulus from you know, either it's tax
33:05
cuts from Trump or it's you know, stimulus from Harris.
33:08
Speaker 2: He's talking about tax cuts too.
33:10
Speaker 3: Yeah, true, not to everyone, not everybody, but yeah, tax
33:13
cuts there too. So that could spark some inflation. I
33:17
won't to deny that, but that's not mentioned anywhere here.
33:19
The other piece would be craziness in the Middle East
33:22
and like two hundred dollars barrel oil. Again, I'm not
33:25
going to diminish that as an impossibility. It's always a possibility.
33:31
But what's the likelihood of either of those things truly
33:34
genuinely happening. I don't know. I don't I don't see it,
33:38
and so I'm willing to continue to put If inflation
33:41
is not dead, which the author makes the case that
33:44
it's not, I'm at least putting it way in the
33:47
back seat, maybe in the trunk here in terms of
33:49
my order of priorities.
33:50
Speaker 2: At the moment, you're putting inflation in the trunk.
33:52
Speaker 3: In the trunk, yeah, you still drive us edan, I do, yeah,
33:57
but it's a it's more of a trunk. It's more
33:59
of a hatchback. In the case of an emergency, I'll
34:02
be able to access it, you know.
34:04
Speaker 2: But here's why, like this is this piece just really
34:08
grinds my gears a little bit. Is Look, let's go
34:12
back to March of twenty eighteen, just as an example,
34:15
and actually, no, I'm sorry, I want to go just
34:17
forward a little bit more. July of eighteen, headline CPI
34:21
is at two point nine five percent. Is anyone out
34:24
there like, hey, inflation's out of control and a huge problem.
34:28
Speaker 3: No, because it hadn't been for twenty years. So nobody
34:31
cared about it.
34:31
Speaker 2: And then because we've dealt with in the last couple
34:34
it's just the easiest thing to write about. Right you're
34:37
fighting the last battle here. I'm not saying it like
34:41
you'd never have to worry about it, But if you're
34:44
gonna look at the data that's out there, And by
34:45
the way, let's say you don't like US government data.
34:47
Let's say you're like, hey, they're cooking the books, like
34:51
they're actually cooking them. Do you know how to cook
34:53
a cookbook? Yeah, you cook a cookbook. Let's say you
34:57
like that. Anyone remember truef from back in twenty twenty
35:01
one and twenty two to a company they came.
35:03
Speaker 3: They did their on private data.
35:04
Speaker 2: They had like private data, pricing not way higher even
35:07
they said that inflation got to like eleven percent instead
35:09
of nine. Trueflation right now has inflation in the US
35:14
over the last twelve months running at two point two
35:16
one percent. So if you don't believe government data and
35:19
you're like, yeah, there's trueflation, guys had it right back
35:21
in twenty twenty one and twenty two, they're saying it's
35:24
two point two over the last year. Now, So I'll
35:27
pull from multiple data sources, and again, let's at least
35:33
be intellectually honest about this is where I'm going.
35:35
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36:38
Speaker 2: I gotta say, I've been driving around a lot the
36:39
last few days, and the Halloween decorations are fantastic this year,
36:45
And I don't remember anything like this from when I
36:48
was a kid. You know, when I was a kid,
36:50
it was people had pumpkins. You know, he maybe had
36:53
some spider webs and stuff like that.
36:54
Speaker 3: But the big advent of the last few years has
36:58
been giant structures for Halloween, big old giant skeleton, the
37:02
giant inflatables, even the inflatable Like that's the biggest change
37:05
I can But the the biggest change that I can
37:11
tell from like trick or treating when I was a
37:13
kid compared to today, in addition to much far fewer
37:17
homemade costumes, would be the inflatable costumes, which I find
37:23
a little annoying, but generally, yeah, you know which ones
37:26
I'm talking about, the ones that have the little fan
37:27
on the back that like inflate you and make you giant.
37:30
Speaker 4: No, I've never seen that.
37:31
Speaker 2: You've never seen one of these, like you actually wear this? Yes, No,
37:35
I've never seen this. So like they have dinosaurs that
37:37
the whole thing pops around you. Yeah yeah, yeah, yeah yeah.
37:41
Those did not exist when we were kids, obviously, And uh,
37:44
I don't know.
37:45
Speaker 3: This piece seems to decry it a little bit. I whatever.
37:48
If people want to spend their money on stupid decorations,
37:50
who can.
37:51
Speaker 2: If people want to have a little bit of fun, Yeah,
37:55
sorry for partying, you know, like oh, like you know
37:59
the i'm driving past. My favorite ones are the ones
38:02
of like witches mishaps where it's like, you know, someone
38:06
has like the witch that flew into the side of
38:08
their house and splattered her like classic. I always enjoy
38:11
those personally. But yeah, if you're gonna get all ba
38:14
humbug on Halloween, I don't know, you just gotta get
38:19
a little spooky with it. You know, it's no big problem.
38:21
It's a big deal. Let's take a quick break. We
38:23
got more financial exchange coming up
38:25
Speaker 1: In a bit.