E18: Searching for Buffett

Markets and McMuffins, what could be better? In this episode, Ryan and Sonu take the podcast on the road, to Omaha, Nebraska, to be exact, to channel one of the greats... Or at least eat like him. Buffett, Inflation, and automation are just a few topics on the menu. 

Join us to hear what unfolds.

Facts vs. Feelings is hosted by Ryan Detrick and Sonu Varghese and is a product of the Carson Investment Research team.

You can find other information at CarsonGroup.com.

Transcript

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SPEAKER_00 0:01

Welcome to the Facts Versus Feelings Podcast. I'm your host, Ryan Dick. And I'm joined by my co-host, Tony Marky. Each week, we dive into the important market moving events and cut through the noise to help you, as an investor, identify what really matters. Let's get this show started.

SPEAKER_01 0:24

Guys, this is an incredibly special. On location, facts versus feelings with Ryan and Sonu. Searching for Buffett. That's what we're doing. Now, when you hear that, that doesn't mean we're searching for a buffet, right? We're actually searching for Warren Buffett. You're not looking for a buffet. Okay, yeah, people might be confused. Sonu, where are we? Tell people where we are. Omaha.

SPEAKER_02 0:46

So yeah, so we are, you know, with Carson, obviously. And uh, you know, that's Carson the most famous name out of uh Omaha, I can say no offense to our boss, but he's number two.

SPEAKER_01 0:57

Warren Buffett lives in Omaha, and rumor is on him. He goes to the same McDonald's every day. We are uh 13 minutes away from four and a half miles from the literal, literally the McDonald's Warren Buffett goes to every day. We're gonna get the Warren Buffett breakfast and maybe even see it. Because we've got a um really, really awesome all-day event yesterday and today, where the whole team's getting together, a strategy event. And we just want some um Warren Buffett magic to rub off on us and make the event all the all that much better, right? So the most successful investor of all time. I think that's safe to say. Hopefully that rubs off. Yes, it is. So so guys, so we'll we're we're gonna dive in again. We are we are doing this from a car, as we already mentioned. And Ryan's trying not to kill us. And I'm trying not to kill us. I'm I got Google Maps down here directing me. So we're gonna we're gonna have some fun. And normally I joke with Sony. So I've got like notes in front of me. Normal, this is like shit. We are just gonna wing it. Very, you know, so obviously, so again, searching for Warren Buffett. But Sony, there's a lot to talk about this week. We're gonna we're gonna dive in. We're gonna take a look at last week's stock market action. I know we've had China reopening, which is really interesting. Um, you know, so goes January goes the year. Maybe take a look at the economy and whatever else comes uh comes up. So, Sonu, I'll start. Maybe I'll give you the question because I gotta make sure I know where we're going here. Um, let's start with China reopening. I think it's kind of neat. You've got some really cool talk uh talking points on this. We've seen base metals stronger, we've seen the global economy. I'm sorry, the global stock market doing a lot better. Um, you know, but I've heard, I've heard that China reopening is inflationary. Talk to me about what you're seeing in the data, and is that even true?

SPEAKER_02 2:34

Uh look, China is the second biggest economy in the world, and how their economy has historically run, at least over the last decade, is they fund investment, right? And that's how they build, you know, these glitzy cities. You look at pictures of Shanghai or Beijing, it looks amazing, right? Uh but what does that require? It requires a lot of investment, it which means they're buying a lot of raw materials, there's a lot of construction activity, a lot of growth, economic growth in China happens because of real estate, basically. All of this stuff, right? And it feeds on itself. And what have we seen over the last three years? COVID hit. So because of that, they haven't been able to do a lot of that. Now there have, you know, we've had inflation, obviously, despite China not growing. Right. So that's the other side of it. And that's, but you know, you and I have talked about this a lot. Inflation, you know, uh China shutting down has caused supply chain issues. That's the other side of it, right? If China comes back online, those supply chain issues go away even faster. I mean, those are going away already, those go away even faster. Yes, there will be more demand for things like I mean, oil is a great example, right? You have a country of more than a billion people who have been stuck at home for the last two, two, three years, really, right? Yep. And if they start coming out and spending and all that, that's going to have some impact. But I think that's priced in. Markets are not waiting for this data. They everyone's all of us are looking at the same data, right? They see, you know what, Chinese growth did better than expected in uh the last quarter of 2022. It came in that the economy grew about 3% over the last year. That was definitely much worse than it's done over the last decade, which they were growing at about 6% or so consistently. It's like a straight line, right? And over the last three years, you've seen all this volatility over there. And I think now the Chinese government is back to, you know what, we're getting out of COVID, and we want growth, we want to prioritize growth again, economic growth. And I think on balance, that would be good for the global economy. Because look, if the second largest economy in the world is coming out of like this volatility and recessionary type conditions, that's good for everyone else.

SPEAKER_01 4:46

Yeah. Good points there. And again, you know, we saw the start and the stop and the start and the stop last year with China. This time, you hate to say this time is different, right? Four most dangerous words in investing. But we are seeing, again, those base metals, your copper, nickel, zinc, steel, uh, industrials in general, materials, just here in the US material stocks, a lot of things are doing a lot better. So that's a tailwind that we did not have last year. China. Now, here's the update, guys. We're on Dodge Road. We are nine minutes away. All right from what we're gonna call Warren Buffett's McDonald's. Cross your fingers. Hopefully we see them. Hopefully, we see them. I'd love to buy them lunch. I said it'd be funny if you like yelled at us or something.

SPEAKER_02 5:23

Here's the thing, apparently, depending on how rich he feels on the day. Yep, yep, his wife gives him more or less money. So this is a few years before egg prices are up, I don't know, whatever. We can't even buy eggs. I mean, my company car can't afford eggs right now. We need a credit limit increase, speaking of, you know, like the government does, right? But uh, yeah, no, Buffett's wife gives him either, you know, two dollars and sixty cents. This is three years back or so, or three dollars and seventeen cents if he's feeling good about, you know, if he's making money and he goes and gives the exact change, and that's his breakfast. What a sausage McMahon or two sausage patties, or two, yeah, that would be getting there.

SPEAKER_01 6:02

There's a McDonald's. That's not the one we're going to, though. Um, yeah, I think the thing that he always got that I wanted or thought sounded good was a uh bacon, bacon, um, egg and cheese biscuits. I'm gonna go that route. I'll do the same. All right, so Sony, you mentioned something that I didn't want to talk about. I didn't even say this at the beginning, it's like a bonus. The debt limit. Let's spend just a few minutes on. I'm sorry, the debt ceiling. You know, uh we've hit uh oh geez, 30. 34 trillion. 34.1, yeah, who's counting? We've hit that. Now the big worry, I mean, believe me, you've had the data, I think 20 last 20 years increased the debt ceiling like 70 times.

SPEAKER_02 6:34

Yeah, 70 to 80 times, and you know, about 40, 40, 40 to 45 times, something like that under Republican presidents, and you know, about 35 times something like that under Democratic presidents.

SPEAKER_01 6:46

So the question, Sonu, that I know most of the listeners who've been around a minute, in 2011, we had these debt ceiling issues. There was a debt downgrade as there were concerns over the U.S. being able to pay its debt. We saw almost a 20% bear market in the middle of August 2011, if some of you remember that. I mean, you know, I don't think we're gonna I think we're gonna avoid that. Market seems to think that, but we said that in 2011, to be honest, and then boom, the debt downgrade. Is my lane ending? Sonu, my lane is ending. Uh guys, if you don't know it's not, no. That's an optical illusion. There's optical illusions in Omaha. Never mind, the lane is not ending. Anyway, back to you, Sonu. Do you think um how is this not like 2011, besides the fact that we're a little bit older and wiser and wiser? But yeah, that you thought you pulled out some great stuff you shared with our Carson partners the other day. What's different between now and 2011?

SPEAKER_02 7:32

I think the big difference is look, we had even back then, the similarity is we had a Democratic president. We had Republicans just took the House. That was back in, you know, 2010 election, the central. And now my lanes are. They're gonna make me turn. Here we go.

SPEAKER_01 7:44

Let's get over.

SPEAKER_02 7:44

All right, there we go. Make sure we don't go to the wrong McDonald's here. Exactly. Yeah. But look, uh, Republicans, a short story is I don't think we'll run into an issue. On hopefully not. I mean, you never know with these things. I think there's a small probability something goes haywire. But I think, you know, 90-95% odds. I mean, it's subjective probability, but who's counting, right? Uh I I I don't think we run into problems simply because back then Republicans had a big majority of about, you know, they had about 240, 245 seats in Congress. That's so they if even if, you know, they lost 20 votes, they still could say, you know what, we're not passing the debt seal, right? We're not raising it. And you President Obama, you need to come and negotiate. That's what happened. And they we had austerity, the government cut spending. I mean, they slashed spending over the next few years, which is part of the reason, you know, the economy also it was rising, it was starting to grow after the recession, and then we kind of hit a funk there for a little bit. Europe went to a recession, Europe went to the Greek crisis. So there was a lot of talk at that time about oh my god, everyone's worried about the debt, right? And you know, like I'm not saying we shouldn't have been, but everyone is in a recession too. The irony is now the economy is we're trying to slow the economy down, but both parties are not talking about debt in a sense. But the Republicans also have a smaller majority, right? They can afford to lose only four seats. So you think there are about 18 Republicans who won elections from counties that uh President Biden took in the election, in the 2020 election. So there's gonna be a lot of pressure. Like by the time we get to so the US hit its debt ceiling last week or about 10 days ago, uh, and but they can do what's called extraordinary measures, so basically push things around, push some paper around here and there, and they can stretch it to about June. Or I I'd say, you know, I think we'd be able to stretch it to about July or August. But that's when the so-called D-Day arrives, right? And the US government, Treasury has to balance its books. Treasury's been running a deficit of about an average hundred million, 100 billion or so, right, uh a month. So the moment they hit the ceiling, they can't go past, they need to balance it. They cannot go into a deficit, can't they do deficit spending anymore, right? And that think about that, the government pays millions of vendors, right? And all these vendors, the moment they stop getting paid, what are they gonna do? They're gonna call their congressional representative and say, hello, can you raise the debt ceiling? Because we need to get paid here. We need to pay our employees, right? So there's gonna be a lot of pressure on, I think, especially moderate Republicans.

SPEAKER_01 10:18

So I think, you know, this thing will pass. Yeah, you know, Libby Cantrell, friend of the show, right, from Pimco, she did an awesome note. She talked about in 2010 Republicans gained, oh, I think it was close to 60 seats. And this most recent, obviously, midterms Republicans gained but much smaller than expected. So they had more, you know, leverage. She also put out a Gallup poll that showed how many just people, like us consumers, were concerned about debt in 2011 versus now significantly less. So Washington's had a lot of black eyes lately. We just don't think this is gonna be another one. We think honestly they're gonna punt the football one more time and increase the debt ceiling. Believe me, we're watching it, we're not minimizing it, but that's just kind of where we see things. So, Sunu, update. We are four minutes away from searching for Buffett or Buffet. Um, I'm in a Subaru, right? And I kind of pick you up this morning, guys. So this is a rental car, obviously. So most rental cars you walk up to and it's like automatic, it just unlocks, you know, when you get close to the door. That's what this one was doing until this morning. I come out and like the door didn't unlock. I look at the the remote key, there's a lock, and there's an open the back. There's literally not an unlock the door. So I did like three, we run around the car. I did that three times, and eventually the door is unlocked. So I don't know. It's not warm at all. Yeah, it's not warm. I'm like, I gotta take soda up. I'm running around doing laps around my car, and eventually it just opens. So anyway, I don't have a problem with Subaru, but uh interesting morning. Uh soda's flipped to see here as we work our way closer to finding Warren Buffett. We'll talk about the stock market maybe when we get there, and I'll have Warren. The other thing I want to dive into, it feels like every day we are hearing a major tech company, communications company, let's put it this way, winter during the COVID times, cutting uh cutting employees, right? Microsoft, Google, um, you know, Twitter cutting nearly half their their other stuff going on on Twitter. But still, lots of companies every day. Talk to me about how concerned we should be with these tech cuts. Will they kind of reach out and go to other parts of the economy?

SPEAKER_02 12:15

I mean, for now, look, uh, we are seeing a lot of, I mean, these are headlines too, right? You see this on CNBC and Bloomberg and the New York Times and the Wall Street Journal, like, oh, Google's cutting 10,000 jobs, Microsoft's cutting 15,000, whatever the numbers are, right? Now, one thing to keep in mind, these are they're cutting jobs globally. That's the other side of it, right? Uh and one thing you don't hear, I don't think they've stopped hiring, by the way. It's not like they've said, oh, we have a hiring freeze as well. So we don't know what the net number of jobs are, right? That's one thing. The other thing is look at the job market, right? Uh if you look at the unemployment rate is 3.5%. I was looking at the numbers, Ryan. For people with bachelor's degrees, so you think a lot of people working at Google and Microsoft have bachelor's degrees, the unemployment rate is two percent. Wow. That's a tight job market. A lot of people are getting hired, right?

SPEAKER_01 13:04

That's what we don't hear. Oh my goodness, I see it. I see McLean. Is that the one? That's the one. All right. We're almost there. You're almost there.

SPEAKER_02 13:10

And for people with advanced degrees, so the master's or something, a lot of them, engineers at uh Google and Microsoft and places like that, the unemployment rate is one and a half percent. So we're talking about a very tight job market, right? And a lot of other companies are still hiring. I dare say even these companies are hiring, even you know. So I I think a lot of this is to satisfy investors too. You know that. They're trying to make a big splash about it.

SPEAKER_01 13:35

Well, yeah, Google cut, I think 12,000, maybe 20,000. Sorry if I got the number wrong. But um, yeah, their stock actually went up late last week. Yeah. You know, I mean, uh Sam Rowe does amazing work, a TK or I love Sam's stuff. He pointed out Sony that where do you turn for this, by the way? Just make sure I don't miss the turn. This is a weird thing.

SPEAKER_02 13:53

Oh, there it is.

SPEAKER_01 13:53

Oh, there it is. Okay, well, I might have missed it. I think you missed the turn. I think I missed the turn. This is what happens when you do stuff live. But it's almost so there's probably more than one half 50 things. Well, hey, there it is, drive-thru. All right, there we go. Anyway, Sam pointed out only 3% of the overall um people employed work in the tech sector. And when you look at these cuts these companies have done, it's like you know, 5-10% of the workforce not minimizing it, but it's not it's not enormous. But again, tech is such a small part. So as of now, we're not minimizing it, we're looking at it, but we just don't think it's necessarily going to spread. I mean, Sona, you're seeing some. Oh, yeah, oh, what was that? Where that do you see what type of car does he have?

unknown 14:31

I don't know.

SPEAKER_01 14:32

Yeah, who knows? We'll probably view it. I'm gonna guess Buick at all.

SPEAKER_02 14:35

But I doesn't he buy only American? No, I'm sure.

SPEAKER_01 14:37

No, no problem. That's true. He did write that article in September 2008, right? Behind American. Um, you know, I forget what I was totally talking about. I'm just so excited looking for the guys. The inside do we see Warren searching for and buffanies? Or or one of these cars? Should I bump the car and see if he pops his head out?

SPEAKER_02 14:52

It's another Silver in front of us. Yeah.

SPEAKER_01 14:53

Anyway, so so so yeah, so so believe me, we're watching it. We just don't think it's oh, I don't know what I was gonna ask you. But we're seeing big pickups in other areas. So tech is cutting, yes. But I mean, leisure hospitality, you had some pretty good stats on that. How many jobs we're adding there, right?

SPEAKER_02 15:07

Yeah, all the tech layoffs, I think, you know, I forget the exact numbers, but all the tech layoffs that we've had over the last six, seven months announced, right? They've not laid off people yet. A lot of them are yet to come. But leisure and hospitality, that industry services spending basically, added the same amount of jobs over the last two months. That's probably way too small. Yeah, I think that's way too much. We don't think uh Buffett, yeah. Yeah, it's Chrysler for you. Uh you know, you think Buffett could, that's a potential car, but I just don't know. What do you want, by the way? Do you want the the same the I'll take the same place? Okay, yeah. We'll make it easy. Orange juice and hash brown. Okay. And we're paying it pay for paying cash like Buffett does, right?

SPEAKER_01 15:45

Well, I see it's a card.

unknown 15:47

It's all right.

SPEAKER_01 15:48

Anyway, okay, so so okay, so good stuff there. We are about to order, so when I order you guys to actually listen to it and we'll ask you.

SPEAKER_02 15:54

The other thing with the employment market, if you're talking about an employment market that's about more than 160 million. So keep that in mind when you think about 10,000 layoffs. Every month we see about one and a half million layoffs, usually. All right, let's order it. Hi, what can I get for you?

SPEAKER_01 16:10

Hi there. We'll do um number three bacon, egg, and cheese biscuit, make it a meal um with a hash brown and orange juice. I want two of those though. Please. I'll just take one.

SPEAKER_02 16:44

Did you want anything else?

SPEAKER_01 16:45

I don't think so. That's perfect, thank you.

SPEAKER_02 16:51

Your total is 1700.

SPEAKER_01 16:53

Thanks. Alright, all right. Well, we got we got our food coming. We don't see Warren Buffett on location in Omaha at the time. I think it's Dodge Avenue, I think. The Dodge Avenue um McDonald's. All right, so Sony, let's let's honor Warren talking about the stock market, right? We had two 1% rallies on Friday of last week and Monday of last week. But the economic data, um, was it retail sales, industrial production weren't very good, but the inflation data continues to um to be very positive. What um what are you seeing out there?

SPEAKER_02 17:25

Uh I think that uh I I mean big story is look, we've had two years, but one second. Yeah, I um was Warren Buffett here this morning by chance.

SPEAKER_01 17:33

Did you see him? No, she did not see. Does he does he really come here? He really does. This is his favorite McDonald's. This is Warren Buffett's favorite McDonald's, and he really gets the same thing every day? Yes. Really? When he comes through. Okay, when he comes through. That's awesome. Well, we missed Warren, but thank you. Okay, appreciate it. All right, well, there you go, guys. Warren Buffett literally does come to this McDonald's, and he was not here today, so pretty cool. All right, um, I have no idea what you're talking about. I'm so excited that Warren Buffett comes to the same McDonald's we are. What we'll do is. No, we were talking about uh the economy and we've got some uh we got some soft data.

SPEAKER_02 18:04

Um salt too and fucking lock, please.

SPEAKER_01 18:07

Oh, you smell this? All right, so now I see why Warren Buffett I I haven't had McDonald's breakfast in a long time. Save me around. Now I see why he does this. And by the way, guys, I don't think you picked it up. Uh Joey, our producer, picked this up uh and said we were talking to a robot when we ordered earlier. And we were just talking about tech layoffs. We were just talking about tech layoffs, and we literally just ordered from a robot at um the McDonald's on Dodge. So anyway, I'm I'm total, I totally forget where we were. We were talking about the stock market last week and the economic data, how some of it was good, some of it was bad. What's your take on kind of last week's action there, Sony, or the recent action, I should say?

SPEAKER_02 18:39

I think with respect to the economic data, look, we just released an outlook. It's called the Edge of Normal. Well, they know that. They listened to our podcast last week. Yeah, yeah. And, you know, I think things are normalizing. Over the last two years, what do we see? A lot of, you know, households spend money on goods, right? And now it's they're spending more on services. You and I are traveling here in Omaha. We traveled here to Omaha, too. It's part of normalizing. We're talking, we have a big strategy meeting, as you mentioned. Yeah. And I think every everyone's doing that. They're spending less on goods, and you've seen that impact on the economy. So goods consumption is pulling back to where it was. And that'd be like retail sales, right? Like retail sales in general, which was weak last week. Right. And then industrial production too. And I mean, you know, if people are not consuming as much goods, you probably have to produce less of that. Right? I want to ask you about the stock market. Now, it's been doing about a good January so far. And speaking of, you know, we are speaking of Buffett. Uh he said, you know, when others are greedy, you should be fearful. When others are fearful, you should be greedy. So you look at a lot of the sentiment stuff, right? You've talked about that. You talked about the Cincinnati Bengals as well recently in a blog post, which is fantastic. So I definitely recommend folks to go on the Carson Group website and check that out or Ryan's Twitter feed.

SPEAKER_01 19:51

Yeah, it's shocking. We've been doing this, I think, for about 20 minutes, and I didn't even mention the Cincinnati Bengals yet. How about that? Um, but anyway, yeah, it is fascinating because you know there's different things we look at, right? Our friends at TD Ameritrade do something where they take a look at what their clients are doing, like the most bearish since April 2010. I'm sorry, 2020. You know, put the call ratios have been high, flows, lots of different ways to look at sentiment. But the one I use is just listen, we're up like ballpark 5% on the SP the time we're recording this in January. Yet every strategist I'm hearing and seeing, they're all saying it's just a um bear market rally. They're not buying what's going on. We've laid out why we think we can avoid a recession. We've laid out some potential positive, but when everyone's on one side of the boat, that's the opportunity. Now, what's neat about this, Soto? The January indicator. So goes January, goes the year. Just one thing to look at. Okay. But when January's higher, the rest of the year is up like 12% on average, just the final 11 months. Up up like over 80% of the time, the final 11 months, up about 12% on average. When January's lower, like last year, you're up like 2% the rest of the year, up like a coin flip. Here's where it gets even more interesting. When January's up 5%, who knows if it's going to happen this January? I know there's more time. But a really strong January, those returns get even better. All right. So, you know, this is just again a nice signal, a different signal than last year. We're seeing leadership from the more aggressive areas, your um, your higher beta areas, even technology. I mean, just terrible actually. That's a daily. Semiconductors on China likely reopening. So these are some signals, whereas a year ago this time we saw defensives, your staples, your utilities, those were the things leading. We are seeing something different. So, again, are you going to listen to the market or ignore it? And we're going to listen to it. And guys, by the way, speaking of listening, if you could smell how good this car smells right now, we we need to wrap this up because I want to eat some more muffin breakfast. This best stuff smells amazing. But anyway, it is really interesting. Let's maybe wrap it up here in a minute or two. Earnings. Earnings have been so far, Sono. I think I'd say lackluster. Stocks have done okay. But lackluster earnings, what are you seeing so far out there?

SPEAKER_02 21:50

I think part of it is uh like what we saw, it it's uh headwind from last year, right? Things slowed last year. Yes as the economy slows, uh yeah, and we saw that. We're gonna get GDP numbers uh by the time you know this week. So because let's see the economy is slowed, right? We know that. And when the economy slows, that means businesses are taking in less money and we're seeing the impact of that. And I think it's we're an interesting point now. Where with China reopening, Europe things in Europe are not as bad as it seems. We've talked about, you know, gas prices are down, right? Food prices are down. Hopefully, egg prices on their way down as well. Yep. Right? Natural gas prices are down, which means what? Utility people's utility bills will be down. So all of which means what? They have more money in their pockets. Right? If they have more money in their pockets, that means it's almost like a tax cut, right? Real incomes, incomes adjusted for prices, is starting to go up. That took a hit last year, right? That's why the economy slowed. This year it's starting to go up. And I think that's going to keep consumption up, and that's good for the economy. So there's a lot of different things going on across the globe, right? The global economy. Sure. And I think those are all positive.

SPEAKER_01 22:59

Yeah, one other thing that's positive is again, US has done so well relative to the rest of the world for a long time now, in terms of stock market. All of a sudden this year, US actually is not really leading the pack. I mean, Europe and other parts, and we think the US is going to come back, but this is an again a nice sign that there's broader participation. I talked about the broad participation last week of the podcast with all the different stocks that have been going up versus down with wildly bullish um future results. So again, all these things are swirling, but more positives and negatives. And again, we are on location. This week's very special Facts versus Feelings podcast with Ryan and Sonu, searching for Buffett. Um, next week we'll be in the studio. I don't know. This was fun. So hopefully the audio quality was good and I didn't kill us. Although that one time that road like changed. I had to turn real fast. But anyway, so everybody, thanks for listening to this one. Uh, this is a fun one. We're gonna continue to have some fun on this podcast and people seem to like it, and we're gonna keep doing it as long as you keep listening. And with that, how excited are you to eat? This smells amazing very much. Yeah, let's do it. I will see you by next week. Take care. Bye-bye.

SPEAKER_00 24:05

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