This Doesn’t Look Transitory

Ryan (00:00):

Hey, everybody. Welcome to the latest edition of the LPL Market Signals podcast. Ryan Dietrich here. Jeff Buchbinder as always. Jeff, you know, one of my big worries. I've got a few what we said, like electricity always scares me. Right? Sharks scare me and my wife honestly scares me. The third thing, the fourth, fourth, fourth thing that scares me are the machines potentially taking over. Here's where I'm going with this Jeff. We've all seen Terminator, right? And you know, the machines take a, take a little, get a little too powerful. Listen to this one. Jeff, The Association for Advancing Automation for robotics said sales the first nine months of this year are totally almost one and a half trillion, an all-time record. All right. So people are doing more and more machines. Did anyone not see the movie Terminator? What's your take on this Jeff?

Jeff (00:55):

I'm scared too, eventually the machines are going to be smarter than we are and yeah, they could, they could take over. So we've got to be really careful about how smart we make these machines. They hopefully will be used for good.

Ryan (01:08):

Exactly. Now in all seriousness, you know, one could take a look at this and it's the whole idea of CapEx, right? Capital expenditures. When people are scared, they're not out there spending money necessarily. We didn't see a lot of spending on capital expenditures, plants, business, property, technology, IT, things like that. So to see the first nine months of this year, and maybe my fear of you know, the machines taking over is still there. But the idea that corporations are spending a lot, that's probably a good thing. Now, guys, this week on the LPL Market Signals podcast, we are going to talk a little bit about spending and how the how the consumer is doing at the end here. We've had some interesting consumer data, but we're going to focus a good deal here in the beginning on the Fed and inflation, we hear you loud and clear every week.

Ryan (01:52):

We're talking about the Fed. It's amazing how news driven the Fed really is and who knows, by the time everybody listens to this, we might potentially have a new person in charge of the Fed. The rumor is it's imminent. The release of who's going to be either the current Fed chairperson or maybe a new one. Then we're also going to take a look at splitting up. Apparently everybody's splitting up all of a sudden. And what I mean by that are some corporations are splitting themselves up to unlock shareholder value. We've seen this before actually near some major market tops. So we're going to dive into that again. And then again, we'll finish things up with the consumer, which makes up two thirds of the economy, consumer you know, there's differing views on what the consumer is saying and what the consumer is doing. We're going to dive in there, but Jeff, you pointed this out the other day and I didn't realize it. Tell us about the swear jar. I mean, you, you pointed this out. I didn't know it on the YouTube channel. We've got the swear jar. What exactly is the swear jar with the Fed here?

Jeff (02:51):

Yeah. Transitory is a bad word now, apparently at the Federal Reserve Bank of Atlanta, Raphael Bostic, the head of the Atlanta Fed, that word is probably worn out its welcome. There's no limit to how long you can be in a transitory environment. So you know, we're hearing that word less and less and you know, it's probably going to be a year long inflation problem, not just a few months. Although we're already into that one year, certainly several months in. So maybe by mid next year the inflation picture will look pretty good, at least that's our view here.

Ryan (03:27):

Yeah, exactly. So the word transitory and I agree, I feel I'm kind of sick of saying this word too, but it is true. There's apparently a swear jar and the word transitory is a bad word. If you use it around Fed Governor Bostik, but the official definition — of brief duration temporary also tending to pass away, not persistent. Well, Jeff, we're going to talk a little bit now about the CPI number that we just saw last week. I believe it's six consecutive months now of over 5%, a headline CPI. That's the highest we've seen since the early nineties, the headline number is up over 6%. Again, the highest we've seen since the late nineties, a lot of the research that we do and look, it doesn't seem like we're going to see peak inflation likely until probably early next year. That doesn't sound very transitory. What do you think?

Jeff (04:18):

Yeah, well we need to see peak bottleneck first and then we'll see peak inflation, right? These supply chain concerns all the, you know, the ships waiting out off the west coast, the ports of LA and Long Beach, right? Once we can get through these supply chain issues, that's a big piece of the inflation problem. Then you get through, hopefully this labor squeeze, right? A lot of companies don't have enough workers are going to pay up for them. You know, rising wages are good because it helps people pay for stuff and help support consumer spending. But you know, certainly we don't want wage pressures to get too hot because then you start to worry the Fed, but those are two pieces, right? Labor supply, and supply chain bottlenecks that we can get passed over the next few months. And you know, when we get to the spring, we think the inflation picture will look a lot better than it does right now.

Ryan (05:09):

Absolutely. You look at the major components of inflation. The majority of them are once again, a little bit hotter than expected. You know, Jeff rents make up about 40% of overall CPI inflation that had its largest monthly gains since 2006. Well, we hear the words about sticky inflation, you know, rents only change. I don't know what, like once a year, maybe I guess, you know what I mean? So when those change and go higher, that's likely kind of sticky. I mean, tell what, tell, tell the listeners what that means when we say sticky inflation versus just regular inflation, I guess we'll say.

Jeff (05:41):

Sure. Well, regular inflation, I guess you'd say or nonsticky those are prices that can change frequently, right? So prices at the pump prices, at the grocery store. Those are obvious examples. Sticky inflation, those prices, as you alluded to Ryan, like rents don't change very often. And so if you start to see, oh, actually wages don't change that often either. So if you start to see persistent excess inflation in terms of wages and rents and that's when you get the Fed's attention and that's when they potentially have to slam on the brakes to tamp down prices.

Ryan (06:21):

Exactly. So month over month, we saw food up almost a percent energy up almost 5%. I did see a quarter of the AAA. At least people are paying more for a gallon of gas in California than any time in history up close to $5. So that's, that's part of that energy. Gasoline up 6.1%, oh, hotels up one and a half percent of 26% on the year. What else do we have here? Used, a big spike in used cars wants to get up two and a half percent month over month. We've been talking about used car prices, going up a lot for a long time, go try and buy a car, right? You can't even, you can't find them. I mean, there might be a few, but you have to act fast. And let's see new cars up 1.4% higher making a new record, six months in a row now and the shelter again, kind of the component of, of housing and rents up almost half a percent.

Ryan (07:08):

I mean, it was just, I don't know, Jeff, it, it is what it is. It doesn't feel transitory. You know what I mean? I know we all said it including LPL Research, but it does seem like this is going to stick around a little bit longer, but in our recent Weekly Market Commentary, Jeff, I'll turn it over to you here in a second to kind of dive in. We've pointed out some things that we wanted to see. I think you kind of hinted at some of these, but on the YouTube channel right now, we are sharing kind of a different way to look at potentially consume our inner job. Let's see shelter, excluding energy CPI, which may be isn't as fearful as some of the things we just talked about. Take it away, Jeff.

Jeff (07:41):

Yeah. The, just to go onto rents a little bit more the rent component of the CPI is actually only up about three and a half percent. Right now that's not terrible. In fact, that's not yet above the peak of 2019, which of course was pre-pandemic. So you know, housing prices have risen, that goes into the rent calculation in addition to just rent, but they're, they're really not skyrocketing yet. So for now this is contained. You could say that's good news. So that's one thing to watch. Some other things to watch to tell us that, you know, we're in, we're at a peak and then inflation won't getting worse. The PMI data, right? Purchasing managers surveys, which include backlogs and supplier delivery times, right? Those are about as bad as they've been. If those start to roll over that certainly would be a positive sign. And then there are others I’ll throw out, one more, which is break even inflation rates. So that's the yield difference between TIPS and nominal treasuries. TIPS being Treasury Inflation, Protected Securities, right? You have that built in inflation component in TIPS. The difference between those two right now is about low over 3% for the next couple of years. If that stabilizes or starts to fall, even better, that will be an excellent sign that inflation tapering off we’ll be watching that indicator very closely.

Ryan (09:12):

Oh, absolutely. Again, please check out the recent Weekly Market Commentary that LPL Research put together. You can go to lpl.com. Just scroll down just a little bit to read, to read more about it there. But I feel like we've talked a lot about inflation over the past year or so,  and, and rightfully so. You know, Jeff, I guess, but we're going to, I mean, we can talk about the stock market just for a minute. I mean, the stock market's made like 65 all-time highs this year on the S&P the next time, it makes it all time high, who knows it could be Tuesday, the day we're recording this. That would be the second most, all-time highs in the history of the stock market. Only 95 has had more. We talked last week about just some of the unbelievable streaks.

Ryan (09:51):

The stock market had been on. The one that got me was up 19 out of 20, I'm sorry, up 17, 18 out of 19 days for the S&P. I haven't seen anything like that since 1971. All right. The stock market seems to be , if you will, or at least not concerned is a better way to put it, not concerned about inflation. I mean, to me, that's one of the biggest reasons to think inflation is transitory. It's not going to be a 1970 style inflation because the stock market leads the economy, it's smarter than any of us. It doesn't care about our feelings, but a lot of times the stock market is right about these things. I mean, am I sniffing around the right thing there? Do you think there's something to that? Or what anything else about stocks and inflation here?

Jeff (10:30):

Well, let me first say, I think the market in 1971 was celebrating my arrival into the world. That was what was going on there. You know the market, I think, does buy the argument that this inflation is not going to persist much beyond next year. Okay. You know, typically the market only looks six to 12 months ahead, but I think now with this inflation situation, it's getting comfortable with prospects for, let's say, inflation to, you know, add in the back half of next year and into 2023. Part of that is the Fed having credibility, right? The market's starting to price in rate hikes in 2022, which could help tamp down inflation late in 2022 and into 2023. Right. So and in addition to that, we know we have these long-term structural forces pushing down on inflation. It's cheaper to make stuff, technology, globalization, all of that. Companies you're hearing during earnings season, companies are doing an amazing job of managing their supply chains in an extremely difficult environment where they can't get labor, let alone materials that are really expensive to move around. So, you know, the next six months are going to be really tricky. We won't deny that, but I think the market's doing a good job of looking through it. It doesn't mean we're not going to have volatility at times, but the intermediate to long-term outlook for inflation still looks pretty good to us.

Ryan (12:03):

Well said there, I mean, you know, we've talked about inflation a lot, and that is our stance, your transitory, maybe the wrong word, but hey, the Fed started to use it before we did. But it's sticking around and Janet Yellen just on Sunday, I think it was Meet the Press, I think is where she was somewhere. Publicly stated, you know, the inflation's here likely because of COVID. And once we get through in the bottlenecks that has caused, once we get through that inflation should come down. So I know she's not at the Fed yet, Yellen's in charge of the treasury, but obviously she knows a thing or two about what's going on at the Fed and her voice carries a lot of weight. I still get a kick out of the fact that, you know, when you work for a publicly traded company and they're about to have earnings, you can't trade the stock.

Ryan (12:40):

Right. We know that, well, the Fed is similar. The Fed has a blackout date. Once you get close to a Fed decision, no Fed members talk. All of a sudden, you start seeing Janet Yellen's voice out there a lot more, once you get closer to these Fed meetings, because she can kind of voice kind of an interesting way around it, but she can kind of voice some opinions and her voice obviously still matters. And she's in the big transitory camp as well. And Jeff, maybe final thing, we talked about inflation and Fed maybe egg on our face by the time people hear this, but Janet Yellen continues to back the current Fed chairperson. You know, we're hearing rumors that imminent is the lingo that the President Biden might reinstate Powell, or I guess Brainard is probably the number one potential to take over in February of 2022. If it's not Powell, I mean, my stance is I'd say, well, let's, let's pick up some numbers. It's fun to do numbers, right. I'd say about 70% Powell, what is your opinion  of who Mr. Biden's going to pick here probably pretty darn soon.

Jeff (13:39):

Yeah. I lean Powell as well, maybe 70% a bit high. But if, if Brainard's not Fed chair, there are other very important positions at the Fed that she could take. And I think, you know, what president Biden might find most attractive about her is that she can be tough regulating the banks. Right. And you can do that from another position, right. Head of  supervisory or, or even vice chair for that matter. So I think you know, generally Powell has bipartisan support, so he's still the favorite, it's hard to come up with a reason why he should lose his job, frankly. But there, there, the environment that we know is very politicized. And so it's possible that you know, Biden puts a Democrat in there.

Ryan (14:29):

Yeah, no, it absolutely is. So we'll, we'll watch that this kind of reminded me, we might have a new Fed chairperson by the time we do the next podcast. Guys with it being a holiday week, Thanksgiving week, we are going to take the week off next week, which is a Tuesday before Thanksgiving. So it was probably a very good chance by the time to the next podcast we will be talking about, well, I'm sure we're talking about the Fed one way or the other, it's all we ever talk about it. Like, but who's in charge of the Fed. I will dive in a little bit more in two weeks, but you know, anyway,

Jeff (14:56):

One more thing on that real quick. So I was on a call with the LPL lobbyists in Washington, and they had some consultants on in Washington, you know, feet on the ground, very in tune to what's going on at the White House and the Capitol. And they said they expect a Powell to be reappointed as well. So that's why you see these numbers like 70%.

Ryan (15:20):

Yeah. Okay. Well, it makes sense. So we'll continue to watch it. And some other things we're going to watch, Jeff, it feels like the world is getting back to normal because the calendar just switched to November. And I think I can talk about your Chiefs now, your Chiefs absolutely just went nuts and given in our fantasy league for LPL Research, I went Chiefs heavy as it worked so well, all of a sudden with Patrick Mahomes homes and Tyreek Hill , and who was the running back, Edwards-Helaire, the running back that got hurt on IR. So I'm struggling, but all of a sudden I'm seeing maybe I can make a run at this thing. You, you know, you, I was talking, you know, some smack when your Chiefs were terrible, but I knew they'd come back. So I had to do it now, they are back, I'm going to shut up again. You feeling pretty good though? They sure looked good on Sunday.

Jeff (16:04):

Oh. That they made it look easy. So yeah, maybe we have sort of rekindled what made them so great the last couple of years. That was fun to watch for me as a Chiefs fan.

Ryan (16:17):

Yeah, and as  a fantasy player with a lot of Chiefs or a fantasy owner with a lot of Chiefs or manager, I guess the word I'm using. That was nice to nice to see as well,

Jeff (16:26):

Bengals vs. Chiefs coming up in a few weeks. So that'll be, that'll be big. I don't know how we're going to make this podcast work after my Chief's beat your Bengals.

Ryan (16:35):

Yeah. That's true. That's true. I don't, I don't either. I don't know. I'll be all. Oh, well maybe we should have a bet, like the other one has to wear the other team's jersey or something. Well, we'll do something with that. But yeah, my boys are excited because I think the Bengals play with Chiefs and like week 16 or 17, we were like, oh, wouldn't it be great if they're like undefeated, they just tank that game and the Bengals get an easy win, but it doesn't look like it's going to happen. But anyway, that's, that's enough about the enough about that, but congrats to the Chiefs who look like the Chiefs, unlike that team they looked like earlier this year. So do you have let's move forward? Everyone is breaking up. All of it just like just happened. It's almost like deer, right?

Ryan (17:10):

You see one, you know, there's more coming. GE decided to split up, Dupont decided to split up to, Toshiba was going to split up, Johnson and Johnson. And even Britney Spears, after 13 years, she is now split up. She's free from her father telling her exactly what to do with her money and how to live her life. So I'm kind of team Britney on that one. I think she should be allowed to do what she wants to do. Anyway, so everybody's breaking up or splitting up. Jeff, here's my question to you. We've seen this before, right? There's been some studies. Now you could say small sample size. I totally get it, but it's a podcast and it's fun stuff to talk about. We've seen some split offs before that have taken place, its  a major market  with splits peaks, get all tongue twisted talking about this, specifically 2006, 2007. We did see some of this stuff. Are you concerned at all about the action we saw last week where apparently shareholders, sorry, companies are trying to find shareholder value in their company by splitting things up.

Jeff (18:04):

You know, if you're looking for a sentiment gauge that suggests that stocks are too high, then I don't think this is the one. I think  you're probably better off maybe looking at IPO's. I mean, this is kind of similar to IPO's cause you, you think the market's going to value the pieces of a GE or a J&J, higher than the whole conglomerate. You know, mergers and IPOs are, are pretty healthy. We've seen a little bit of a pickup here lately. Which sure, it's kind of a symptom of a strong stock market. So, you know, you look back in history every time you get a strong stock market. Sure. You're going to get secondary offerings. Sure. Peloton just announced a secondary offering and I'm sure you're going to get IPO's, spin outs, carve outs. There's a carrot there, right, which is, you know, a higher valuation that companies are shooting for. And you know, right now, at least it appears that we're in an environment where conglomerates aren't being looked upon very favorably by the market. So if you think that some of the parts is you know, greater than the whole, then you know, make sense to break up and be more focused and, and try to get those higher valuations for the pieces.

Ryan (19:22):

Yeah, exactly. So GE and Toshiba are going to split into three. J&J is going to split into two, consumer healthcare and then traditional healthcare, consumer healthcare, things like Band-Aids and Tylenol, both of this is going to be like two of the largest companies in the world, even after the split up. What gets me though is like GE right? We can't make individual recommendations. We're just stating the facts here. GE has been, I don't know if I can say train wreck, a train wreck, right? I mean, it's been a really rough situation for a long time, so, you know, make sense, maybe try something new. My personal take is it's so obvious later. Oh my goodness. Look at that. That was obviously the peak. Right? And I've been hearing in this for years now. Well, that's the peak, that's the peak. That's the peak.

Ryan (20:03):

I use the one Mila Kunis, right? She went all in on the S&P in 2013. I remember that specifically. It was all over the place at all. That's it contrarian warning. We've got a four-year bull, a bull market since 2009, Mila Kunis is now bullish into the world. What happened? The S&P broke out of a 13 year trading range and went up significantly. So I'm not saying always follow Mila Kunis’s  investments, I'm just saying sometimes these things aren't so obvious and the underlying fundamentals of this economy with fiscal policy, monetary policy, strong earnings, all the stuff we've been talking about literally for years on this podcast, why we think it's a major structural bull market. Yes. We have the 34% correction during coronavirus or COVID. And the shutdowns we’re aware of that, but still, this is still a bull market, something to pay attention to, but I'm not, superly overly worried as well. It's just in the news and I've heard people talking about it. So we wanted to give our 2 cents on the LPL Market Signals, podcast, Jeff, any final comments, and then we're going to kind of move forward to the final discussion. The consumer.

Jeff (21:03):

I'll just close this segment out by saying valuations still look reasonable, given the economic environment, the earnings environment, and low interest rates, despite high inflation, all of that suggests that, you know, a PE ratio for the S&P of 21 is fair.

Ryan (21:20):

Yeah, absolutely. And it's fair that Britney’s free. I’m team Britney, again, I'm not really, I don't know. I think you should get to do what you want to do if you're, if you can prove it. And she proved so more power to her. Let's move forward Jeff. Slowly getting back to normal for the Detrick’s. My son was diagnosed, Sebastian, the middle one, was diagnosed with COVID-19. I guess it would have been on, oh my goodness. I think two Mondays ago, whatever two Mondays ago was, so that'd be the 15th. So I guess that's the eighth, I think the eighth. It's the weirdest thing though, Jeff, because we were shocked. He's totally fine. I'm one of, you know, we're one of those. His class of 19, five of them got it. It feels like we just heard a couple more fifth graders, sixth graders.

Ryan (22:01):

I mean, you know, we, we talked about the trends going the right way yet. All of a sudden in the real world seems like more and more kids are getting it all of a sudden. And the ironic thing about it is literally the day he was technically diagnosed with it. He actually got his first vaccine. I think I mentioned it on the podcast last time that I just got my booster. He just got his first vaccine. So anyway, but after, after over a week of you know, Gus, the youngest one, he had to quarantine because his brother was sick. Good news. We've all tested a ton. I mean, there's a nice little church right up the street, we go to every single day, swab my nose, a day later, get an email. We've all been negative across the board, which is good, obviously. And he's just been stuck at home.

Ryan (22:38):

I think he has got to be at home like another two days. Got to be 10 days total sort of getting back to normal for the Dietrich's here slowly but steadily. But again, fortunately he was, I mean, you'd never know,, we're trying to keep him apart from his brother. It's like, we're watching football the other day, Sebastian is in the corner, Gus is in the other corner, I leave the room, come back in, they've got each other in like a headlock, they’re wrestling they're playing. I said, what are you guys doing? Oh yeah, sorry, dad, we forgot. I mean, it's, you know, we try it's it it's hard. But luckily Gus continues to be negative along with the rest of us. Jeff, how has it up in New England? I mean, you know, down here they literally shut down Sebastian's class. We all had to go virtual cause you know, five out of 19 had the thing. How are you guys doing up there?

Jeff (23:15):

Yeah, we've had a few cases in both my girl’s classes, but thankfully neither my girls was a close contact, so they didn't have to shut down school. They just, you know,  obviously the girl with the case or actually just girls and boys stay home. And then the people that sit right next to them stay home. And then everybody else goes on as a, as normal. So it hasn't been too disruptive. I mean, easy for me to say, my kids are still in school. For the people who are directly impacted, obviously it's been a challenge, but the majority of the class is operating as normal. But I think it does point to the fact that this is still an issue. We've got to wait for kids to get vaccinated. We've got to wait for this wave to evaporate, frankly.

Jeff (24:05):

And I think in the next couple of months, it will, but it's just going to take a little bit more time. You also have to be a little bit concerned about what we're seeing in Europe and what we're seeing in some parts of the U.S. where the cases are picking up. And you know, certainly as people stay inside more in the colder weather states that could potentially drive more cases. So this is, you know, hopefully the kind of the final wave and, and restrictions can, you know, all of our reigning restrictions can pretty much come off by January. That’s personally my expectation. It's interesting to hear you. I was on the school committee call the, the other day here in my town and boy, it is divided in terms of how, you know,  the anti-mask crowd and let's call them the more worried crowd, right? It's just a, it's an impossible situation to make everybody happy. But boy, it makes for some really interesting conversations with the superintendent and the principals

Ryan (25:12):

Yeah, that’s the world we live in, I guess, which again is not a stance on anything here. I know everybody's divided on this stuff. It feels like Sebastian out of 19 kids, he's the only one of two that actually wore his mask the whole time. And believe me, we've heard every day, no one else wears the mask, well, you’re wearing it anyway, but you still got the thing. So what can you do? It's interesting though, because Susanna, my daughter, she just turned 14. You know, she's vaccinated. We said, what do we do with her? So she's vaccinated. She can go to school. I call up LPL, HR, talk to them. I said, well, he's, you know, he's in quarantine. What can I do this? And you've vaccinated. Yeah. Fully vaccinated. So you can go to work. So that's CDC. So I guess that's, you know, the one nice thing potentially about being be vaccinated.

Ryan (25:46):

If you're around someone who's sick, you can continue to go to work. Although if you ask my daughter, she was actually upset hearing she had to go to school. She wanted to be home and do it that way. Anyway, let's move forward Jeff. Good discussion. There is bad news, good news. You know, Disney, everybody loves Disney, right? I mean, I think everybody loves Disney. I'm not allowed to make blanket statements like that, compliance with slap my wrist. But I think for the most part, most people like Disney yet Disney did not have explosive growth under Disney+, or at least as explosive as they wanted. Disney stock had one of its worst days in a long time last week. Yet the  stock market took it in stride. Jeff, you kind of talked about this a little bit. Tell me why bad news for Disney, maybe specifically Disney+, is actually good news for everybody else.

Jeff (26:28):

I think people are getting out of their houses and doing stuff, right? I mean, we, we know last year, the stay-at-home stocks were, and early this year stay-at-home stocks were just outstanding. And so certainly the Disney+ business within Disney is kind of a stay-at-home business. Netflix. I just mentioned Peloton, right? Zoom is the poster child probably for stay-at-home stock. It makes sense that these companies would see, you know, slower sales increases now that people are getting out there and resuming their normal lives. So it is good news. We want the reopening segment of the stock market, and there's a lot of cyclical value stocks in there that we like that, you know, companies that really need people to get out there and do stuff to work. You know, we think we're on the verge of a really strong reopening push over the next few months that can help those stocks.

Ryan (27:24):

No, I totally agree. I think that makes sense. And I'll be honest, I'm still a fan of Disney and maybe people don't go to Disney+, but maybe they go on a $5,000 cruise or go to the, go to one of the parks or something like that. And instead of buying Disney+, so there's still some, some ways to grow, but Jeff, here's something that intrigues me. You know, we can talk about the retail sales number that just came out and guys, this just came out. So I'll just read the headlines, retail sales came in at 1.7%, better than expected, best number since March. So excluding auto, sorry, was up 1.4%, double the expectations. September revised higher. Walmart just had sales. They increased 2021 guidance, they had sales up 9% year over year, e-commerce up 8%, foot traffic up 6%, really positive stuff from retail sales over Walmart and Home Depot.

Ryan (28:12):

I just saw the headline on Home Depot, but Jeff here's where I'm stumped. Michigan consumer confidence on Friday was at a 10 year low? How in the world had, I, I don't even know the answer. I still can't wrap my head around this. How can consumer confidence be so low? You have consumers apparently keep spending money. And according to the national one of the, I guess I thought I had this written down in front of me. Give me one second. Here. There we go. The NRF National Retail Federation? They think consumers are going to spend $851 billion this holiday season. That's a record up, almost 10% from last year. The average year holiday sales go up about four and a half percent. How in the world could people be spending all this money and feeling confident yet consumer confidence is at a 10 year low. I don't understand it. Jeff try to explain that to me.

Jeff (28:59):

Sure. Well, first I pay much more attention to what consumers do than what they say, right? And so you know, discount survey results when the dollars are rolling in, that's probably the most important point. You know, also the, you know, day to day, we see higher prices at the pump and higher prices at the grocery store. So those, I think have a lot of impact on consumer surveys. Surveys are coming up frequently, right? There are consumer surveys that come out even more than once a month. So I think that's a key point to keep in mind. Also remember that the consumer is really, really healthy still. We've talked a lot about this on this podcast, right? Tons of excess savings. We have solidly rising wages, right? We have still low interest rates. You know, borrowing costs are generally low and consumers are just itching to spend because, you know, certainly you know, it hasn't been so easy to spend over the last call it 19 months. So I think all those factors, excuse me,

Ryan (30:05):

I tell that to my wife every day we have Amazon packages show up. I don't think it's been hard for some of us.

Jeff (30:10):

Well, maybe you spend a little less on Amazon packages than you've been spending on cruises or, you know, touring Europe or commuting. Right. My commuting costs have gone down quite a bit. So there's certainly some savings. A lot of it is the, you know, just the stimulus and pent up demand. But it's also, you know, rising, rising wages.

Ryan (30:33):

Oh, absolutely. I don't have too much to add there. I mean, I just thought it was interesting. I don’t know if  interesting is the right word, really unique where consumer confidence is so low. Yeah. That's what they say. Right. I would say pay attention what people do, kind of like Jeff, you just started that conversation. So Jeff, this week the big thing was retail sales and a lot of retailers you know, what all, what also are you looking at this week that investors should be paying attention to that could move markets and maybe again, kind of give a final summary of this earnings season. And we talked about it every single week, but kind of give us a final, a bow on this earnings season, which has been really, really good.

Jeff (31:06):

Yeah. Great earnings season. We, we got this week off to a good start with what looked like pretty good retailer numbers. We've got some more retailers over the rest of the week. Even department stores were good and the retail sales numbers, which is an area where you would think about, maybe it'd be more challenging to get folks back to the malls. You know, goods are tough to find and all of that. But no, no matter how you look at it, good earnings season, although I will point out that over the last few weeks, these numbers have leveled off. So we didn't get nearly as much upside as we've gotten in the last three quarters that was expected. But you know, we might be sort of finding our footing here in terms of analysts’ expectations, being aligned with reality. So, you know, we could still get, you know, close to $210 in S&P earnings per share for this year 2021. But consensus right now is 205 and that's not going to be easy to do much better than 205, given all these challenges that we've talked about over and over again, materials, labor shortages bottlenecks, cost inflation and all of that. In terms of what else to watch this week. I mean, we, I think we hit on the big ones. Are we going to get a new Fed chair? What are the rest of retail earnings going to look like?

Ryan (32:24):

Wait, wait, wait. We're not going to get a new one necessarily, right. We'll just get a right. Yeah. We might, we might know,

Jeff (32:33):

And just told you. I think odds are Powell is reappointed, but that's a big question and there's really not a ton of market moving economic data besides retail sales this morning. I think we're good. All in all, although keep in mind, inflation does inflate the retail sales numbers, which are expressed in nominal terms. So maybe they're, they're really good numbers, but maybe they're not as good as the headline suggests. And then we’re probably going to get the House vote on the BBB plan or reconciliation, social spending plan, whatever you want to call it, probably around 1.7.5 trillion after it gets scaled back again to get moderate democratic votes, but the Senate is going to change it after that. And we might end up going right until the end of the year before we get that deal across the finish line, it looks very likely that we'll get that deal. But the good news is that the tax increases aren't going to be you know, nearly as impactful for corporate profits, as we thought maybe just a few months ago.

Ryan (33:34):

Absolutely. We said that's probably one of the reasons why we had such a strong run in the stock market there of five weeks in a row. Yes, earnings were really strong, but also the realization that the significantly higher corporate taxes and taxes in general that were coming, cap gains taxes, that we all thought were coming, I guess I should say this time exactly a year ago, likely aren't going to take place. So guys again, thank you so much for listening to our podcast. We did crack over 500,000 downloads. Oh, maybe a week or two ago. So thanks to everyone who's been listening for over three years now and give us a, like, give us a follow. It goes a long way to keep building this podcast and get it out there to more listeners, thanks to Neil as always our producer for getting this out there. Thanks to Jeff for a fun conversation as always. And thanks again to all of you. Again, we will not be doing the podcast next week, going to take a little break for the Thanksgiving holiday. Jeff, what's your favorite Thanksgiving food. And then I'll say mine, and we're going to sign off. What are you looking forward to next Thursday?

Jeff (34:31):

You know, maybe underrated, but stuffing. I actually really like the stuffing. When you put that with the turkey, it really comes together. How about you?

Ryan (34:41):

Yeah. From the time you talked, I think I had about four different things in my head. I, I can't even pick a favorite, like a kid, you can't pick a favorite. Some days you can, but you know, I think I, I don't, I'll go this route. I do not like leftovers at all. I go to a restaurant and nice food, whatever. I just don't like leftovers never have, maybe never will. I do enjoy leftover turkey, put it on a toasted bun, some cheese or something. So I really like the leftover turkey the next day, but at the same time. I mean, look at me. I like pie. All right. I mean, I think yeah, pecan pie or pecan pies. It's called down the south a lot of the  Oregon boys will say pecan pie. You know, pumpkin pie, apple pie. We're going to have a bunch of pies as well.

Ryan (35:20):

So I think that's you know, I don't know. It's just fun. Let's hope everyone has a safe time. Maybe that's the thing also say it's you know, time to get together, hopefully a little more than we did last year or even two years ago. Get out there, maybe go play some football. Hopefully I don't injure myself. You know, go out, play some football or something. Hopefully all the dads Sunday, Saturday warriors don't hurt themselves going out there and play football. But with all that, everyone have a happy, safe Thanksgiving, eat a ton, enjoy yourselves, and we'll be back in two weeks to give some updates on how much we did indeed eat. So everybody take care and thanks again. We'll see you in two weeks. Bye bye.