Introducing the Dugout, a new segment of the podcast where hosts Paul and Clint go one-on-one and talk about what’s going on in the world. In this Dugout episode, Paul and Clint hit on inflation trends, the consumer's spending behavior, the potential impact of the Xi-Biden meeting, and deglobalization. The conversation also includes insights into the manufacturing renaissance, the importance of the CHIPS Act, and the potential for a rebirth of American manufacturing.
RECORDED NOV 15, 2023
Introducing the Dugout, a new segment of the podcast where hosts Paul and Clint go one-on-one and talk about what’s going on in the world. In this Dugout episode, Paul and Clint hit on inflation trends, the consumer's spending behavior, the potential impact of the Xi-Biden meeting, and deglobalization. The conversation also includes insights into the manufacturing renaissance, the importance of the CHIPS Act, and the potential for a rebirth of American manufacturing.
RECORDED NOV 15, 2023
Welcome, everyone. This is Paul arouse key chief distribution officer from Sealy investment securities and I'm joined by my co host Clint Sorenson of wealth shield and welcome to the newest episode of the fat pitch Podcast. Today, Clint, we don't have a guest you and I just get to talk about things on our mind.
Clint Sorenson:Yeah, I love this. You and I just get to chop it up about all stuff going on in the
Paul Barausky:world. Then listen, since our friends are kind enough to listen to us on stage and on webinars, and then meetings, why not put it out over the airwaves? So let's talk about three things this week. I think two of them are always on your mind. And one is on my mind. Number one inflation. We've been talking about since peak inflation last summer. I remember calling you from Booth School of Business in Chicago. It's daunting when you're the speaker after Austen Goolsbee, second to consider consumer, which ties into inflation. And then let's talk about GE and Biden a meeting coming up. So where do you want to start?
Clint Sorenson:Yeah, let's start with inflation. I think that's the hot topic. Right? We had a great number yesterday in terms of beating expectations flat for the month over month. We had PPI out today too. And CPI was better than expected as well, wholesale spinning was down, I think point 5%. But yeah, that's a big win.
Paul Barausky:Well, you look at peak inflation last summer, what we were 9.1, around May of last year on CPI. And yeah,
Clint Sorenson:we talked about it slowing, right. I mean, it's pretty obvious that hey, inflation is going to slow. But everyone was in this camp that it was just going to continue to the moon. So it's been great to see that it's come down for sure. Well, let
Paul Barausky:me ask you a question. So there's all this confusion amongst the folks that I talked to about core, super core, right? CPI, TC D? What's next? Let's manufacture so I believe right now. And correct me if I'm wrong, that the feds favorite number is core PCE, which they now have down below for for last 30 days. And energy prices have not gone the way people thought they could have gone after the Hamas attack on Israel. What are you looking at? When you look at inflation? Because it's clearly down? Yeah, it's
Clint Sorenson:clearly down. You know, I look at the dollar, that's my favorite thing to look at. Right? So yeah, because it's a leading indicator to inflation. So everything's priced in dollars if you're a US consumer, so I really like to look at the dollar really is the inverse of the dollar. But if the dollar is stronger, pretty much six to 10 months down the road, you're gonna have inflation, weaker dollar weaker six to 10 months down the road, you're gonna have inflation stronger. So I like to first look at the dollar, Paul next I obviously look at ppi right, I want to see what different commodity baskets are doing. And you can look at energy, right? If you look at energy and gas prices, you can pretty much get it figured out a CPI is a little confusing, because they calculate it a little differently. But I think that's the headline number there by pays attention to but I'm a little odd. I look at the dollar first and foremost. So
Paul Barausky:when I look at all that though, here's what's interesting. This is a different set, there's fed speak. I mean, I opened up the Bloomberg calendar on Monday, I think are there 20 Fed speakers this week, it was something insane. And so we never used to run like this, right? There wasn't all this. I mean, there was some subliminal messaging. But it wasn't this onslaught of speakers. And so when I saw when, specifically earlier this week, when the two and the 10 near both mercifully forgotten the real estate sector, like me went down. I thought, This is great things are headed down. And then further, I started to look at Fed Funds, futures pricing and zero chance of a rate hike in any meeting. Anymore gone done, though they have a rate cut at the June meeting went from 80% to 130%. So what that tells me is now we've got this complete overreaction by the markets and that the Fed wants to come in and I don't know, give speeches to say no, we really do mean higher for longer. You think I'm just overreacting or do you see anything in this? I mean,
Clint Sorenson:the market has no clue what the Feds gonna do. No one respects the long and variable lag between a Fed tightening cycle and its effects on the real economy, and in particular on inflation and all this other measures. So the market always overreact to both sides. And unfortunately, I think the Fed is over tightened today. Inflation was set to come down from a rate of change perspective just based on base effects, right, because that was the math of it, is it was going to come down and they tightened to keep tightening and tightening throughout the higher inflation times and now they're done. But now we're getting inflation that is resuming its downtrend and by our forecasts, we have maybe a slight uptick into The first half of next year, but not meaningful enough, in our opinion, it's falling not to 2% in terms of core inflation, but it's probably, you know, 3.2 to 3.6, somewhere in that range. But definitely the rate of change has come down significantly, and the Fed still holding rates high. So I think they have to cut rates because they need to monitor the real rate. But yeah, it'd be interesting to see how they play this because Powell to your point, has just said, Hey, here it comes. We gotta go manage the expectations. We said it was transitory it was, but it wasn't as transitory as the market likes. So we got to step out there and show that we're gonna prioritize inflation, and we're channeling our inner Volker, we're not Arthur burns, and we're gonna go out there just kill inflation with inflation. Now, when we've overdone it, I
Paul Barausky:think, you know, you and I have had this discussion for well over a year now. But the whole transitory thing, I've probably beaten it to death, personally, but managing that last point down from inflation, that's where all the risk is, you know, whether it's taking four down to three or three down to two, however you want to play at what measure you want. That risk is always I think, in that last percent or so, in not crashing the economy into a deep recession. Since you and I both failed. We're basically already in one in some way, shape or form, and not deflationary. Right. That's why two was always the number not zero. So the over cool the economy, and I think the concern right now, frankly, is the consumer. I had to get off of fin twit. The other day, I still called Twitter. I don't know what x to me. It was Xavier McDaniel. Onyx. Still the only guy that tried to pick a fight with Shaq? Not us move. And I guess he would be that old Dallas receiver, but I refuse to say his name being an Eagles fan. But Dez Bryant, in case you were wondering, but um, you know, the consumer is the X Factor, right? Consumer has been spending like a drunken sailor. And I just don't know how long that keeps up. Because going back to financial Twitter, everybody that's trying to show you clickbait is trying to show you how the consumer is driving off a cliff. Yeah,
Clint Sorenson:I mean, look, we had tons of pent up savings, right? If you think about how much stimulus was put into the system. I mean, it's amazing. We had PPP loans, idle loans, we had direct stimulus checks to individuals we had. I mean, the Fed doubled its balance sheet, in a matter of days. 4.4 trillion, we spent another five, 6 trillion. It was fun. I did a presentation. And I think I sent you to me, but it was a Will Ferrell walk in and say you did it, congratulations. Like we literally set a record a record US federal debt. We set a record in terms of spending in terms of deficit spending. And guess what, now we have $8.2 trillion of federal debt maturing in the next 12 months. We've got to issue we've got to reissue that much.
Paul Barausky:You know, you bring up a good point. Everybody wants to say the consumer spending like a drunken sailor. Oh, yes. So is our government.
Clint Sorenson:Exactly. It's
Paul Barausky:correct. Are you aware that there's still something like 400 billion in our commodity that has to be pointed to the specific projects? Yeah,
Clint Sorenson:and eight, yeah, exactly, are our commodity and then the chips Act, which is sitting in accounts, we haven't even begun to see all the rest of the stimulus. Now. I think that the consumer, though, is tapping out because all that savings that they had from stimulus checks is kind of drying up, and we're seeing it delinquencies. So credit card delinquencies on a year over year basis are up over 50%
Paul Barausky:Yeah, they're up sorry, balances, but
Clint Sorenson:that's higher than any other time. Highest since 1991. That's higher than it was in Oh, eight. So there is pain in the consumer now forecasting when they're going to stop spending is anyone's guess. Right. But at the end of the day, we're seeing some some signs that suggest that consumption is not going to be as robust as it has been.
Paul Barausky:Do you think we're gonna see a holiday spending a bad number or do you think we're still not close enough that we'll see a good number?
Clint Sorenson:Yeah, actually, I've been looking at some of the you know, what they call the high frequency data by folks like Bank of America, etc. And if you're looking at some of that, it looks like it could be softer than expected, but who knows? Right? That's my guess based on that information, credit card spinning data, but you're getting mixed reports there. I mean, the US what we do is we spend money, consumer spend money. That's why stimulus works. So well. Post pandemic is week eight people checks and then we wonder why we had inflation they were locked up with a problem account right there sooner other private accounts. Can't leave the house. So I'm just gonna start by On stuff, they just start fine. Every funny
Paul Barausky:you say that, you know my entire career and distribution programs, every time I talk to advisers, it's Don't send the income to my client, when you have a liquidity event, send it back to the account. Otherwise, there's a new boat, a new car actually wired that way. And we grew up in a consumer driven culture, where, you know, let's get something new and shiny. It's just that's how we're wired, particularly in the United States. And they're not much better over in Europe. You know, I just got back from about two weeks over there. I was in Copenhagen for the first time, I no longer feel tall at six foot three. Amsterdam, and then Germany. And look they spend over there. I don't think they spend the degree we do. I think we've ruled the world hit consumer culture, we're
Clint Sorenson:completely out of control. I mean, it's not like if you think about what we do for status, right? It's such a baked in part of our culture, that's what GDP is 70 plus percent consumption some years been as high as 90%. Driven by consumption. If we look at our most recent real GDP report, which came out a couple of weeks ago, three weeks ago, if you look at that, it was all two things, government spending, and consumption. And we're doing both at record pace at record levels. So yeah, it seems it holds up. I mean, I would expect rate of change to fall there, Paul. Yeah,
Paul Barausky:I agree with you. So back to the inflation report that I focused in on earlier this week. It compared Morgan Stanley's number on inflation on Fed funds rate, etc, when cuts are going to come Goldman Sachs, which I think was a little more sanguine, and then the Fed probably using the dot plots. I could not get over how aggressive Morgan Stanley stance was, on how early and how large rate cuts are, and how by time we're getting towards the end of 25. Wow, UBS
Clint Sorenson:came out to and they said, 275 basis points of cuts next year. So they're really expecting not only inflation to fall, but you have to be expecting growth to falter. And we're in that camp to Paul, if you look at I mean, leading economic indicators have been have been consistently negative for 17. Going on 18 months, coincident indicators have been slowing slowly. But yeah, we're starting to get signs unemployment starting to crack, right, we're seeing the unemployment rates crossed above the 12 month moving average, that's historically been a pretty good signal. Yeah, if you look at a lot of a lot of states that are showing continued claims rising above 10 to 20%, year over year, you're getting up to a level that's typically indicative of employment cracks, I think you're gonna see some signs of growth slowing and inflation continuing to slow throughout the course of next year. And I think that does historically weren't rate cuts. I just wonder if Powell is going to do that. That's my big question is, is it enough political clears? Are we just so conditioned like conditioned like Pavlov's dogs, that we're, we're seeing the ringing of the bell as grow falling and inflation falling, and we're salivating over lower interest rates, obviously, Wall Street wants them, it's gonna be interesting to see if Powell actually does that. He's not hitting it that currently.
Paul Barausky:But if he's been data driven on the way off, then he's got to be data driven on the way down, and we hear the complaints that they're so data driven on these increases, I'd like to think they are on the way down. And I'd like to think that they recognize the gross fiscal irresponsibility of the country and they say, We got to help that side out. And we got to take these rates down, because as you said, and anybody said, we might not say it as strongly as somebody as famous as drunken Miller, who took Janet Yellen, literally behind the woodshed. Did you see she refuted his comments for anybody that doesn't know what I'm talking about? I think the interview was what about 10 days ago, Clint maybe long Yeah, it
Clint Sorenson:was with Paul Tudor Jones to see if like two of the greatest investors of all time talking about this. It was epic. I wish I could have been there. I was doing a pan on Dallas. I wish I would have been there in the audience.
Paul Barausky:And I was headed off to Europe for god knows votaries and my wife says why he's there in November. It's cloudy. I said, because people are working or they're off having a good time. Hey, one other thing we'll touch on a little bit longer on inflation, another pot. This really was the summer of the woman and you and I said I don't want to come out and ever be labeled a misogynist because I'm as you and I both is bigger champions as we can have the power of the woman long underrecognized that in our country, but between the Barbie phenomenon and Taylor Swift becoming a billionaire. Let's unpack that on a future podcast and bring on one of our female colleagues to just talk about the pricing and consumer power that females now hold in our country.
Clint Sorenson:Now it's amazing. Long overdue for Taylor Swift to be a billionaire. That's amazing. I couldn't believe when I saw it. The announcement that she was just now a billionaire. I was thinking halus as
Paul Barausky:a friend of mine who was over at the AT and T Stadium where she did three concerts at good performer even better business person. Great. After this summer, and a little more interesting meet up and Travis Kelce. And Taylor Swift to me is me and Biden is my golly, I apologize. Is it next week? When it is I don't I don't want to get on the computer here and look, and I've had a long week. But
Clint Sorenson:no, it's right now he's already in San Francisco. They cleaned up San Francisco. You saw that how they cleaned it up in record time. So and then Newsom gets on the, on the screen. And you know, I'm a libertarian. I'm such a coward when it comes to political. Political right in the middle, right. So it's funny what Gavin Newsom says, just made me laugh. He said, Yeah, people are gonna say, I cleaned up the streets quickly, because she was coming into town. And they're right. But he literally, the streets transformed overnight. And San Francisco looks like the city I love or used to love. It looks. It's clean. It looks wonderful. And she's there bides expected to meet and talk to you about several issues. I've heard a lot of interesting tidbits from folks. So I'd be curious what
Paul Barausky:you've heard, I'll just that it must have been the same crew that cleaned up Beijing before the Olympic Games. Exactly. The streets outside the bars in Hong Kong, which are not like they used to be. I will tell you, we could unpack a lot. I'd be curious what you think the keys to this meeting are? Because the problems in China right now are pretty severe, particularly from a commercial real estate lens. And then yeah, falls by this demographic cliff. And the one thing you and I don't like is, you know, the Chinese and Japanese consumption of our 10 year treasuries and longer the risk of that slowing even further and not being picked up by other parties.
Clint Sorenson:Yeah, I mean, if you've seen economically, China's been in a tough spot. Right, US and China diplomatic relations have been not doing so hot, right, especially since the Russia Ukraine war and the announcement of Russia or Xi and Putin is kind of unbounded friendship. And I think that has really kind of accelerated tensions on both sides. And so I think I love to see us getting back to the table. I think it's really important, especially in terms of what's going on, but I saw something from Dr. Pippa Malmgren and she said I'm sorry if I mispronounced your last name, but she's awesome first speak before and it's at Dr. Pippa P i P p a m. So Michael, Dr. P i P p a m is her ex handle. And she sets up that I just thought was incredible. And I'm going to read it here because you know, she's who I follow typically on geopolitics is her and Peter's in. But she said, CIA boss heads for Z day and Kyiv. As Ukraine falters on the back of the GE and Biden meeting looking for the CIA to negotiate an armistice in Ukraine and Solinsky will object us will insist on elections China will have to hold Russia back. And that's what she kind of said. So I thought that was a really unique take on what's going on and not something I've thought about. And I'd wrote about this when the Ukraine Russia conflict started, I said she has to be the one to step up and, and broker peace. I think it's really important for China at this juncture. I think it's important for China on the world stage, I think, to hold globalization together, it is imperative for China who has, to your point, the bad economic situation, the terrible demographic situation. I mean, they just reported their first ever quarterly deficit and foreign direct investment. During the July September period. They've underreported population growth, they said the population actually dropped by 100 million people that came out last year. And you know, they've had a really weak economic environment, when you think about real estate being smoked this year, in a lot of negative headlines. So I think it makes sense for both of these sides to come back together the number one and number two economy and to figure out ways to work together cooperatively for the greater good, quote, unquote, of society, but we'll see what happens. A lot of people are saying they're not holding out, you know, high hopes for the meeting. But I think the fact that their two superpowers are having a meeting is stonewalling
Paul Barausky:each other and, you know, the saber rattling we read in the South China Sea and things like that. But you're right. I mean, you touched on when you add commercial real estate being down over 30% bk on Country Garden in Evergrande. The youth employment problem is a nightmare so much so that they stop reporting. And I've heard whispers I can't confirm this that 40 an hour a week of work is employed. You know, I don't know, numbers are murky from a lot of corners. But take a look at that banking system and the stress it's under. It's four times as levered as we were in the global financial crisis. So when Bernanke recapped, our system, I was get this wrong, it's somewhere between one 800 and a trillion, maybe it's a little harder to recap, there's at four times the leverage can do it. But that's not good for us. That's not good for anyone in the world to your point. And they can really have a major impact on what's going on over there in Russia, Ukraine and other parts of that area. Since you spoke about it, too. You look at the pressures on Taiwan and that whole South China Sea region, how important is that ships act and moving stuff back here to our country? The EU? Does that still a point of emphasis for you?
Clint Sorenson:Yeah, I think it's incredible. I think the manufacturing renaissance in the AI revolution, and what's going on across industry in the US, I think you have to prepare for D globalization Peters and said it best in his book, he talks about the US stopping the policing of shipping routes back in 2015. The reason why we had Globalization In his view, was that we have the US with the most powerful navy in the world policing, shipping routes, and making sure things run smoothly, they're moving from the area that they are produced the most efficiently to areas that need them, the most of those areas can concentrate on producing other goods that they produce more efficiently and shipping those right. And so under the protection of the US military, ie the US Navy, which is stronger than all the other navies combined by a factor of 10. Right. When you think about that power going away, what you have is you have in his view D globalization really picking up. And I think that that's what we've seen, we've seen a rise in D globalization, I can't unsee it now that I've seen it everywhere. And when you have that happen, you have geopolitical tensions rise, and you have a significant amount of prohibition with
Paul Barausky:D globalization. By its very nature, it's inflationary.
Clint Sorenson:Exactly, because you have a higher cost regime. So getting against
Paul Barausky:that, too, particularly as you start out in the very early stages of D globalization before you have efficiencies. And so, you know, kind of finish up this week's comments, you and I do this enough, sometime back?
Clint Sorenson:I didn't finish all the chips thought but yeah, so
Paul Barausky:I'm always on my own agenda. No, I
Clint Sorenson:love that. But on the chips that your point like, yeah, that's a higher cost machine. Because guess what we're gonna say, you know, what, we just had COVID, supply chains are broken, we've got D globalization, I can't be held up and have our economic system held up, which is growing in its chip dependence, because I can't get chips from Taiwan. I can't run that risk. So what I need to have is I need to have chips manufactured here. So we have that big Taiwan Semiconductor plant being facilitated that fab I think it's an Arizona, your hands
Paul Barausky:held down by Columbus and Dayton, Ohio, you have whoever's doing upstate New York. I mean, it's a meaningful thing. And I think you and I have discussed and this is kind of one where I take us today, in the last five minutes or so, is you and I are huge believers personally, and a chance for a rebirth of American manufacturing. And I'll speak for you we both believe that we had jobs that were so far below the poverty line in manufacturing, they had to be in China or India, wherever. Vietnam, it just was not feasible here, with AI and robotics powered by AI and 3d printing to some degree. Move those lowest rung jobs back here, mostly automated, we can create more jobs further up the food chain, the income chain, that wouldn't have been here. So 1000 jobs, we create 100 I don't care that's net 100. Because the 1000 were gone. Yeah. To me, the biggest benefit in this country is we will be forced to finally make considerable improvements in infrastructure with our downtime bridges, and railways and ports. And it is so overdue and don't get me on my soapbox here, but we're not going to get typical 22 year old Americans are going to do it. So we're still going to need legal immigration.
Clint Sorenson:For our population shrank this year. We're not quite it's down zero is zero.
Paul Barausky:Numbers are shocking. It's crazy.
Clint Sorenson:We have to have immigration. Immigration is not a we have to have it we've learned from Japan or what not having immigration does. If not you run a risk of a major deflationary event. Yeah,
Paul Barausky:one minute, you know, the land under the palace in Tokyo. is worth more than half of Manhattan and then they're buying up Manhattan. And the next thing you know, there's demographic cliff. I mean, threw that live in there. So I think we both love that. And I'd love to get a guest on some time to really unpack this potential rebirth of American manufacturing. I think it's something that goes across both sides of the political aisle. And it gets us to infrastructure. Let's face it, Trump Biden, whoever's next, nobody's gotten anything meaningful done there. As people set out for their Thanksgiving and Hanukkah and Christmas holidays, they're going to see just how bad the roads and bridges getting the airports are in the US and we still are the greatest place to live in the world. But by golly, let's get those things done. And since you brought it up, you know what scared me the most about some of the individual meetings I did in Europe was now out of concern from some investors. I talked to him about fentanyl pouring into the US. If you
Clint Sorenson:look at the deaths in young man, it's painkillers and fentanyl is a largest culprit. If you look at it's amazing. The statistics are staggering.
Paul Barausky:I heard about that in Europe budget. No,
Clint Sorenson:no, that's pretty crazy there. Because fentanyl like I don't understand. If I'm a drug dealer. That's the last thing I'm dealing like killing my customers. My goal.
Paul Barausky:Drug dealers is viruses and they say a virus learns to not kill its host so it can propagate. Yeah. So that's a bad virus. Leave it to me. Take us from inflation defense. Let's say add is a gift. This holidays. For those of you playing fat pitch bingo at home, we've covered inflation, the consumer, Jean Biden, American manufacturing and the scourge of fentanyl.
Clint Sorenson:And Taylor Swift. We actually got Taylor Swift in there too. So that's pretty amazing.
Paul Barausky:And I know the NFL loves Taylor Swift viewership is definitely did you catch Carolina this weekend? I did.
Clint Sorenson:I didn't go to the game. But I did catch it. So it's nice to get a get a W shirt. If we can beat Duke and I spell Duke with D Okay, sorry. Oh, my Duke friends out there. But if we can beat Duke I'm happy. But yeah, we still you know, we've had a disappointing season we started off so strong and and last to really close once.
Paul Barausky:You were crying down the stretch last year as the tournament ended. Listen, everyone. Thank you for tuning in to this episode of the fat pitch podcast. And hopefully you'll join us for the next one. Clint, thanks again. But see Paul