Facts vs Feelings with Ryan Detrick & Sonu Varghese
This podcast takes a deep dive into the market-moving events to cut through the noise and help you identify what really matters. Facts vs Feelings is hosted by Chief Market Strategist, Ryan Detrick and VP, Global Macro Strategist, Sonu Varghese, and is a product of the Carson Investment Research Team.
The information included herein is for informational purposes and is intended for use by advisors only, and should not be copied, reproduced, or re-distributed without the consent of CWM, LLC. Carson Partners offers investment advisory services through CWM, LLC, an SEC Registered Investment Advisor. Carson Coaching and CWM, LLC are separate but affiliated companies and wholly-owned subsidiaries of Carson Group Holdings, LLC. Carson Coaching does not provide advisory services.
Facts vs Feelings with Ryan Detrick & Sonu Varghese
Is The Consumer Tapped Out? (FvF Ep. 201)
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In this episode of Facts vs Feelings, Ryan Detrick, Chief Market Strategist at Carson Group, joins Sonu Varghese, Chief Macro Strategist at Carson Group, live from Penn State as Ryan navigates college move-in day and a few very real headlines along the way. From there, they dive into the increasingly complex financing behind the AI boom, including NVIDIA's role in funding AI infrastructure, the rise of "neo-clouds," private credit, and the shift of AI financing risk from corporate balance sheets toward the broader financial system.
Ryan and Sonu then examine what the market is saying about risk. Semiconductor stocks have staged a powerful rebound, financials are on an unprecedented winning streak, European banks continue to outperform, and private equity and private credit names are breaking higher. They ask whether these market signals are consistent with the growing recession concerns that dominate financial headlines.
The conversation turns to the consumer, where weak retail sales headlines tell only part of the story. Sonu explains why Prime Day timing, lower gasoline prices, and volatile monthly data can distort the picture, while restaurant spending, household balance sheets, debt levels, and delinquencies suggest the consumer remains more resilient than sentiment surveys imply. They also explore why consumers can feel worse while continuing to spend on restaurants, travel, concerts, and other experiences.
Finally, Ryan and Sonu tackle inflation from the household's perspective, highlighting stubborn services inflation in areas like lawn care, health care, vehicle repairs, restaurants, and veterinary services. They discuss falling expectations for a September Fed hike, rising long-term Treasury yields, massive federal deficits, the growing cost of government interest payments, a steepening yield curve, and heavy Nasdaq hedging. The episode closes with a broader look at what these signals mean for the bull market and the economy.
[Key Takeaways]
- AI financing is becoming increasingly financialized. NVIDIA's involvement in AI infrastructure financing, alongside major private-capital firms and banks, is helping shift the funding of AI buildout toward private credit, special-purpose vehicles, and debt-backed structures.
- The AI financing risk may be moving rather than disappearing. NVIDIA's proposed backstop structure can reduce tail risk on its own balance sheet, but some of that risk is transferred to investors, lenders, institutions, and private-credit vehicles financing AI infrastructure.
- The consumer is showing more resilience than the headlines suggest. Retail sales weakened in July, but Prime Day's earlier timing, lower gas prices, and monthly volatility complicate the headline number. Restaurant spending remains strong, while household debt and debt-service burdens remain relatively manageable.
- Household leverage does not look excessive by historical standards. Total household debt declined in Q2 2026, credit-card debt was down during the first half of the year, and household debt-service costs remain below 2019 levels. Delinquency data also require context because charged-off debt can remain in reported measures for longer than it historically did.
- Inflation remains a problem at the household level. While some headline inflation readings have been encouraging, services such as lawn care, home health care, vehicle repair, restaurants, dental care, and veterinary services continue to run above pre-pandemic inflation rates.
Jump to:
0:00 - College Move-In And Headlines
4:20 - The Circular AI Money Loop
8:30 - Neo-Clouds And Compute Financing Explained
16:40 - Chip Rally And Financials Breakout
19:45 - Why European Banks Still Lead
22:20 - Retail Sales And Consumer Fears
33:20 - Savings Rate Debt And Balance Sheets
43:30 - Delinquencies The Data And The Asterisk
49:40 - Inflation From A Consumer View
56:55 - Fed Hike Odds Shift And Yields Rise
1:01:20 - Deficits Long Bonds And Portfolio Positioning
1:08:15 - Nasdaq Hedging And Final Takeaways
1:11:57 - Wrap And Listener Requests
Connect with Ryan:
• LinkedIn: https://www.linkedin.com/in/ryandetrick/
• X: https://x.com/RyanDetrick
Connect with Sonu:
• LinkedIn: https://www.linkedin.com/in/sonu-varghese-phd/
• X: https://x.com/sonusvarghese?lang=en
Questions about the show? We’d love to hear from you! factsvsfeelings@carsongroup.com
Welcome to the Facts versus Feelings Podcast. I'm your host, Ryan Dieter, and I'm joined by my co-host, Sonyvar Geek. Cutting through the noise each week, Ryan Dieter, Chief Market Strategist, and Sonovarki, Chief Macro Strategist, taking out the board and helping investors focus on what really matters. All right, Sonu. I'm live on location. Penn State University. We just moved my daughter into school. And here's an actual headline that my son just sent us. Okay. Pitt, this is true. This is sometimes I make stuff up. This is the real headline right now. Penn State cocaine bust nets 14 arrests. So for alleged pledge, coke cutting indoctrination rituals, like 13 students and a father were arrested. Now, the good news, this was like a couple of years ago. I guess it took a while. So I had some hard. I mean, back, I mean, you know, back when I was a kid, you maybe had to chug some beers or something. So I don't know. This is taking it to another level. But um, yeah, we moved my uh daughter into college today. So I'm doing this from northwest to northwestern. I'm tired. It's been a long day. I'm not northwestern, I'm a penn state. I've even got breakfast. Check it out. There's a lot I don't know what, you know, I probably should learn this. I'm paying enough money. I don't know what you call the little guy, but there's my tiger there, um the Northwestern um or lion, I guess.
SPEAKER_01So no more scarlet and gray for you, huh?
SPEAKER_00No, that's not true. I I still bleed scarlet and gray, but um yeah, as much money as I'm paying this school, I guess I'm gonna start rooting for them too now. Um, but yeah, it might as well. Yeah, it might as well. Yeah, but I mean it's it's a I'll tell you moving to kid into college is exhausting. We can talk more about it later, but we'll I'm gonna let you do most of the talking. It's been a long day, long, long couple days putting it putting. I do have a question for you on that.
SPEAKER_01Okay, how much did you pay? How did did you get first? Did you get an interior designer for your daughter's dorm room? I hear that's a thing these days.
SPEAKER_00Yeah, not for not for the Dietrich family, it's not. No, I'm honestly Susanna and Emily are both, they like that stuff, I guess is what I'd say. So they they were pretty excited to decorate the room. They had ideas with um all with like TikTok and Instagram and all the Pinterest, all that stuff. I mean, there's so many ideas that Susanna had and they they you know still putting the room together. She's in a room with three other girls, so it's like um it's a huge room, but like you gotta move everything around. We were playing Jingo with all the beds and desks and everything, but I think we got it the way we want it. But it looks it looks nice, it looks nice. So I'm gonna go home early tomorrow morning. Emily's gonna stay a little bit longer, but um yeah, so we we made an Inpaya on the ride up, so I guess it would have been Monday, today's Monday, so it would have been Sunday. I got to Columbus. It's about a seven-hour drive. So the first two hours to Columbus, so only the next five hours. Well, it was longer than that, actually. The next seven hours, because it took me almost nine hours to get here, was a huge storm. I've never seen rain like this, and I think I just went east. I think the storm just went with me. I mean, I I could I called my my wife and Susanna and Emily. They're like 30 minutes in front of me, and I'm like, there's like a tornado. Like my phone is saying there's a tornado, take cover. There's trees flying into the highway, the highway shut down because trees are in the middle of the highway. Ooh, craziest thing. And they're like, no, it's sunny, it's fine. I'm like, it's like barely in front of me. So I don't know. We took two cars, all the junk we had to take up, but it was wild. So I was glad to make it. That was a terrible drive. But um I made it, so it happens.
SPEAKER_01No, that's great. It's been crazy weather here in Chicago, too. It's been wet. Yes, literally every day. Today we got a bit of a breather. We're recording this on August 17th. No, why I was, you know, I was thinking about your daughter moving into a dorm. Hey, hey, you know what? If she likes designing dorm rooms, maybe she should start charging other people a pretty penny for that. And you know, uh, apparently the going rate is something like $10,000, $20,000 right now, Ryan.
SPEAKER_00It's crazy. Yeah, I told Emily the same thing. They show up on like a blog, just the stuff you learn, the stuff you have no idea. Like when your kids go to college, you're not gonna know that I didn't know any of this stuff. Just stuff you learn with the first kid, and then it's uh there's a lot there. There is there is demand. But listen, let's get to it, Sony. What do you say? I mean, I mean, demand.
SPEAKER_01Speaking of demand, yeah, yeah. There is demand, right? And maybe this is why the Fed should raise rates, but that's a different thing.
SPEAKER_00I want to go one other route first. Demand with this whole AI, right? There is the $500 billion deal with NVIDIA, multiple companies. Before I go there, I do want to read. So in Barron's over the weekend, I was had the honor of being quoted in a Barron's article. So that's just I mean, like the Baron Barons is you know, that's just like big as it gets to be in the Barron Saturday edition, which is amazing. Uh Andy Sewer uh called me up. We had a little talk, and I read, I'm gonna just read what he said here. Um talk about veteran money manager George Noble, who recently posted this about Laurel and Hardy from the film Thicker Than Water. Um in the clip, Stan from the movie gives uh money or he takes money given to him from Ollie to pay a furniture salesman to pay his rent to Ollie's wife. Or as Ollie says, that was the money that she gave to me, and I gave it to you to give to him. Then you gave it back to me, and I had to give it to her to give it to him, which brings us to what I was about to say with the whole circular AI stuff. Let me pull it up. I had a nice thing here. Along these lines, Sonu. Step A to this whole thing. Wall Street raises $500 billion in a private credit and institutional debt to build quote unquote AI factories. Step B. Data center operators and AI startups take those loans to buy massive server racks from NVIDIA chips. Step C. NVIDIA records record-breaking chip revenue and piles up the cash. Now here comes step D. NVIDIA invests that cash in AI startups and funds and compute platforms who turn around and say, awesome, we have money now. Let's go buy more NVIDIA chips. I mean, that's it's a playful way to put it, but at the same time, it's kind of what's going on. And we talked about this, I mean, I think like a year ago, the circularity of the whole thing gave me a lot of different things. Even in our 2026 Outlook. Yeah, but I mean, so what's the late? I mean, what's your latest take on this? I mean, it feels like it happens every week. What do you think? What's going on?
SPEAKER_01It's funny you asked me about this. I just literally wrote 1,500 words on this in the daily note I do for our advisors.
SPEAKER_00And I had no idea. That's we share the same brain sometimes. I didn't know that, but good.
SPEAKER_01Literally asked you, I just literally wrapped that up. Almost, right? So yeah, uh, I think it's a good place to start because this is a big story, I think. Oh, yeah. And take your pick, actually. Let me do you want circular financing or would you prefer financial engineering? Right? And now we're getting a bit of both. How about that?
SPEAKER_02Yes, okay.
SPEAKER_01So as it turns out, by the way, this is a memorandum of an understanding, it's not final or anything like that. Nothing's being committed. Uh, I think Jensen is sort of jaw boning, and I'll give you the context of this. The context of this was July 22nd, you know, they announced that, you know, NVIDIA basically announced that, hey, we are going to uh backstop $250 billion for OpenAI to lease compute from SB Energy's Ohio hub, I think somewhere in your neck of the woods, yeah, plus another $350 billion of chip purchase financing.
SPEAKER_00Okay.
SPEAKER_01So this is basically getting to what you were just talking about in the Baron's article. So what happened after this news is Nvidia's credit risk. Remember, we were talking about the CDS spreads for these some of these hyperscale is rising. Their credit risk nearly doubled on that news. Five years CDS credit default swaps hit 82 basis points in late July. It was about half that level earlier in the year, right? It's still okay, but still they know I don't think investors think they're going to default, but the direction of travel is what's important here. Investors are clearly worried that this is classic quote-unquote vendor financing, what you were that Laurel and Hardy's kit you were describing, right? Nvidia is backstopping a customer's lease and chip financing directly beyond just providing capital, and they're basically manufacturing a sale that otherwise wouldn't clear, that otherwise nobody would make, right? Okay, and then they're basically creating demand with their own balance sheet, as you described. So then what happened last week? This is August 11th, Jensen Huang, I think it was on CNBC. He basically announces this MOU memorandum of understanding. That's all it is with five major Wall Street players BlackRock, Blackstone, Brookfield, Goldman, and KKR.
SPEAKER_00Yeah, those are let's just be clear, those are about as major as it gets. I mean, you that's like the 1927 Yankees. I mean, you're pulling out when you lit.
SPEAKER_01Interestingly, like I think I have a lot of the the description of that was of five large banks. Technically, Goldman's only bank here, right? The rest are private capital and asset managers. Bookfield is an interesting one in there too, with the whole real estate play and things like that. But they're also asset managers, right? But the idea is they're going, you know, all of them are going to set up this independent compute financing platform. Never mind. I'm never going to repeat that again. The idea is to use it to raise $500 billion of third-party capital, right? That's from the likes of they'll come to us, you and me, and they're like, oh, Ryan Sono or Grant Barry, do your investors want to invest in this thing? Like private credit, you know, all of these things, right? And or they go to institutions, they go to the Abu Dhabi Fund or Dubai fund, whatever it is, right? Singapore, Norway, things like that. So how is this working, right? And this is a little different from the circular financing thing. And that's what's important here. One is so these the platform, this platform they're creating, is going to lend to operators building out AI capacity. Operators called neo-cloud. So this is a new word I love, right?
SPEAKER_00Oh, I never heard that one. Okay.
SPEAKER_01So that we may be using more often than not. So these are actually non-traditional cloud computing companies, right? They're going to build systems. So they're different from your Amazons and Microsoft's of the world. They, Amazon, Microsoft, these are hyperscalers, they have cloud computing, you know, uh the cloud, you know, computing uh entities, they sell storage, databases, web services to all sorts of players, right? Building all sorts of apps. I I mean, Carson, for example, could be a purchaser of AWS services, right? But these neo clouds, they just build these systems only for training and running AI. That's it. Right? So the borrowers, so these neo clouds are borrowing money, they turn around and spend that borrowed money on mostly NVIDIA chips.
SPEAKER_02Yep.
SPEAKER_01But that debt, now this is on the back of debt. It's not the money is not coming from NVIDIA, until uh at least not up to a point. The debt is going to be in a special purpose vehicle, private placements, things like that. And this is the important thing, right? That's going to be collateralized. Now you here you think about MBS, mortgage-backed securities. What is it? It's collateralized, right? By your house and things like that. In this case, these special purpose vehicles is debt is going to be collateralized by two things a combination of Nvidia GPUs and the contract. The contract is made by a customer like OpenAI to lease compute capacity from the, you know, from this neo cloud, right? And that's essentially what's happening. What's important is the neo cloud can be rated as junk. That's okay. Right? But what matters is who's leasing compute capacity. If it's open AI, well, maybe that's a problem. If it's Microsoft, that's okay. Microsoft is a str it's got a strong credit rating, right? And that's the idea here is now where what is Nvidia's role? They're facilitating this, but to a limited extent. So what Jensen Huang is now describing is NVIDIA's AI compute, the chips, is an investable infrastructure asset. And they're going to provide financing capacity, quote unquote, up to 25% of an opportunity. It's essentially a what a residual value guarantee, right? It's based on deal-by-deal, NVIDIA's discretion, by the way. They just don't take everything that comes through. And the ceiling on Nvidia's commitment, yes, it's 500 billion, but it works out to be about 125 billion. That's a 25%, right? Right. And residual value means it's basically a backstop. That's a good way to think about it. It's a backstop. It kicks in only after, like, let's say the neo cloud goes under, right? They go bankrupt. And now there's a recovery process, right? You release the compute capacity to a different tenant, you know, so that the money keeps flowing in, they use the compute. Or you sell the chips. There's some value there, hopefully, that the chips have. And then if none of that works out, then NVIDIA steps in. Sort of like the central bank. They're the lender of last resort, right? Like those jokes going around about NVIDIA being the lender of last resort. But that $125 billion backstop is essentially a ceiling for NVIDIA at this point. Now, what's interesting, the credit markets actually like this. They're like, okay, NVIDIA is not the tail risk here is being taken off NVIDIA's balance sheet because they're not financing the whole thing. But they're transferring, the tail risk hasn't gone away, by the way. It's transferring to the rest of the market. It's transferring to all of us institutions, the people who put money into these private credit vehicles and you know SPVs and things like that, right? So, which is why the CDS spreads actually for NVIDIA, you know, reduced. It eased to about 70 basis points or something. Remember, it hit 82 basis points July 29th, it pulled back after this news broke. The stock is up. Uh so from final thing, from July 22nd to July 29th, this NVIDIA stock fell about 10%. Okay. Since then, it's gained 18%. So the market sort of likes this because it's like, okay, we're taking this tail risk off of Nvidia's balance sheet. We're just shoving it on everybody else. And that's hence that the financial engineering. And to be clear, this is financial engineering, right? Where it ends up, that's a whole other story. I'm sure you and I will be going to be talking about it for you know weeks, months, maybe even years.
SPEAKER_00There is a lot there, Sonic. I had like nine questions I want to ask, and then I then you kept talking. So that's interesting. And then I kind of dozed off because it was above my pay grade, what you were talking about. But um, you know, I guess the reality though, you talk about CDS spreads, right? Credit default, um, swap spreads. So that's again kind of what how you the word it, the insurance that the company might go under, right? So it's kind of like a bet. I mean, and again, so when that goes up, the market, the market is saying, well, maybe there's a chance. Yeah, I guess why didn't we? Oracle, Oracle's the big one, right? Oracle's the big name that spends a lot of money, that's worth a lot. Now, that stock's been hit hard. I mean, that stock has been hit hard. Their credit to credit default swaps, I'll get it right. CDS uh has definitely been kind of the worrisome one. Um, are there any others besides Oracle that did you get a chance to look into that that that that the market is saying, you know, we don't first of all be clear, I don't think we think any of these companies are gonna go under. But again, the market's saying, you know, maybe there's a little bit more of a chance with Oracle. Anybody else stand out to you?
SPEAKER_01Meta's CDS spreads have increased, alphabets have increased. Nvidia is a big one because Nvidia is like they're minting money, right?
SPEAKER_00That's why this is five five trillion five trillion dollar market cap, you know.
SPEAKER_01That's yeah, and 80% margins are like, wait a minute, why are CDS spreads going in? But this was a problem because they're creating demand with their own balance sheet, yes, right? This vendor financing, right? Now, with this new platform, this the underwriting is actually handed off to Goldman, Apollo, Blackstone, and such, right? So these companies now screen the deals independently, quote unquote, independently, and they have incentive, again, quote unquote incentive to decline deals that normally Nvidia may have said, you know what, we're gonna make this happen, right? Because we want to protect the customer relationship, we want good news headlines, make the stock price go up. But in theory, these your Black Rocks and KKRs are like, yeah, we don't think this deal is gonna work, so we're gonna reject it, right? That is the idea here, right? But you and I know we we've we were doing this back in 2008. I'm not saying any of that will happen, but the big picture here is final thing. Essentially, so far, the big chunk of the AI build-out was financed by, let's say, the chip company's balance sheets and the hyperscaler balance sheets. No longer. Right now, debt is going to what's finance, going to finance AI build-out.
SPEAKER_00Wow. Interesting. So again, you know, South Korea, obviously kind of epicenter, the AI memory chip, uh, in a quote unquote new bull market up 20% from those recent lows. And I saw the SOX, right? The um the chip index. The SOX was up 20% in only 21 days. It was in a bear market, then 21 days later, up 20%. That was the fastest recovery from a bear market since March of 2020. In terms of the rebound that we've seen, you mentioned NVIDIA is a ballpark 18%. Well, it's not a shot shot, the socks up right around 20%, because NVIDIA is the largest one there. And some other ones have actually done even better on this incredible rally. I know on, oh, let's see, I guess it was Friday, um, you know, the market was kind of weak-ish, but momentum names did really well. That's because chip stocks had a really good week last week, and chip stocks are a big chunk, of course, of momentum. Um, there you know, a couple other things just popped my head as you were talking. You mentioned these big financial companies that are involved in all of these deals with AI. Listen, all I know is this, Sandu, the XLF. Again, probably let's make the standard. We're not no recommendations. No recommendations anything we're talking about here. Um, in terms of the ETFs and the tickers we're mentioning. Um, but XLF is financials, it is up a record 11 weeks in a row. That ETF's like 30 years old, something like that. Never in its history has it been up 11 weeks in a row. So again, you look at all this stuff going on. And uh, you know, JC came on a while back, talked about this, messages of the market. I just love seeing financials. I'm not saying they're leading, but boy, they're one of the top groups, especially the last 11 weeks, top 11 weeks in a row. Um, to see banks and a lot of these names doing really well uh is a good sign because again, these companies are the ones that are benefiting from all of this stuff, whether it be MA, whether it be the deals with AI, whether it be the big IPOs that are coming out, whether it be the economy just getting better, whether it be small businesses, regional banks are able to loan, community banks able to loan. We're gonna get way into the consumer here in a minute or two. Um, those are all potentially very positive uh developments, I'd say. And the other one, and I don't know. You know what? We didn't talk about it last week because last week was episode 100 with our 200, 200. Or 200. Jeez. I told you I've been up all day, Sonny. Sorry. So episode 200 by two-man shop. Uh episode 200, our that was great, but we did record that two weeks ago, so we kind of have more to discuss here. Private equity. Remember those names? Yeah, the private equity now. I guess Blue Al was kind of the center of it. There's others just think Blue Ow. Private equity, private credit, Apollo's are the ones that are. Apollo's Aries, all those they are, I would say, very quietly breaking out to like new highs, 52-week highs, multi-month highs. Remember, it was last, you know, cockroach with Jamie Dimon to use the word cockroach right about September, October last year, right about a year ago, right about a year ago. And that's when those names really were hit hard into the March lows. Uh, but since March, those names have quietly been leading. I personally like to see that. I think that's uh, you know, that's one area that we're maybe we're cockroaches, but I mean, at least from equity point of view, those names are coming back, and I think that's a good sign. Um any let's see here. So now I kind of threw a few things at the wall there. Anything else you want to touch on before we get into the consumer?
SPEAKER_01On the notion of banks, right? Uh, I'm gonna channel my in inner JC Paretz here.
SPEAKER_00There we go.
SPEAKER_01Right. And you you may guess what I'm gonna talk about when you refer to banks, European financials.
SPEAKER_00Oh, yeah.
SPEAKER_01European banks. So again, not a recommendation if you take the EUFN ETF. Yep. MSCI Europe FinTech ETF. Over the last year, the SP 500 is up 20%. Okay. Pretty good as these things go. We're one year return. Not bad. This ETF is up 29%.
SPEAKER_02Wow.
SPEAKER_01Right? Over the last three years, this is as of today. The SP 500 is up 77%. I mean, pretty amazing return. This ETF is up 157%.
SPEAKER_00Damn.
SPEAKER_01European financials. I mean, look, I I was talking to the team today, uh, and I was saying we're joking about this stuff, and I was saying European financials are not, you know, safe to say, pretty poorly managed for the most part. Right? Like US financials are actually good, well-managed companies, whether you think about Goldman or JV Diamond and Chase and things like that, right? European financials are not quite. And for them to be doing as well as they're doing, and maybe it's your you know, Spanish banks and French banks, that you know, all of them, you know, there is a story there, going to your point about financials coming back and doing well. I mean, yeah. I I I think you see that even in, you know, quote unquote the junk financials, which in my brain, when I think junk financials, I don't think about small cap US financials. I'd say those are pretty good companies. I think about European financials.
SPEAKER_00Greek Greek banks, perhaps. I don't know what comes to mind. Um, yeah, and you listen, we've we've talked about these concepts before. I mean, literally like a year ago, kind of like you've listed those numbers over the last three years. It's not like European banks just started leading. I mean, European banks well over a year ago were breaking out to new highest before the US. Now that you US banks have broken out, the large money center banks have broken out, community banks did it first, and regional banks, now the larger banks in the US are following, but it's it's it is what it is, everybody. Um, European banks have been leading. And it's a concept that I know JC's pointing out. I've said too, if European banks are hitting new highs, how bad can it be? I mean, the market would sniff out trouble, uh, and it would probably be starting with the European banks. And not maybe starting, but they would be they would not be um as strong as they are. Um let's see, my screen went uh asleep here. What else do we want to talk about? So when we get to the consumer, you want to talk about more markets? What do we want to do here?
SPEAKER_01We could talk about retail sales and the consumer, right? Because the as these things go, retail sales come out, it you get a big whiff relative to expectations. Suddenly everyone's like, which Oh my god, the consumer.
SPEAKER_00Let me jump in. One of my favorite things that happen every three months. Walmart earnings are this week so new. And that means and listen, so this means no matter what happens, it's bad. Because if Walmart earnings are good, everybody has to go to Walmart to buy something cheaper. And if Walmart earnings are bad, well, of course it's bad because the consumer is bad and the economy's bad. So just wait for it, everyone. I promise you. I can't make promises. We can't make promises or guarantees, but I'm gonna make a darn near guarantee that no matter what Walmart says, somebody's gonna spin it negatively. I've been watching this for 25 years of my career. Um, I'll set it up so I'm gonna turn it to you. So the retail sales numbers came in, I believe, down 0.6% on the headline. That was the first time it was negative, I believe since October 2025. You might want to correct me there, but in a while, yeah, uh missed on the control group, missed on the uh core, which strips out you know the more volatile things. The reality is it's like, ooh, it's kind of weak. Now I know our buddy Neil Dutta and Ju pointed out, well, listen, Prime Day was a month early. So uh online sales, I believe, are down 2.2%, which is a pretty big drop. Not that shocking because everybody bought their stuff on Prime Day. Um, you always peel back that onion. How bad is the consumer? Which by the way, I don't think we announced this is episode 201. What did we say the title was? Something about the consumer. Is the consumer tapped out? Is the consumer tapped out? So that's the question. So perfect segue. Yeah, perfect segue. How tapped out is the consumer? Are they? Are they not? Well, what are weaknesses? What are strengths? And you've done a lot of work on the consumer here the last couple days. What do you say?
SPEAKER_01I mean, I may regret saying this, but I'm gonna say no. I I'm not I don't want to say remotely worried about the consumer. I'm not worried. I'll put it that way. Right? And we've talked about the labor market from the beginning of the year. I always thought the labor market's probably doing better than you know the headline payroll date. It's I mean, just look at the unemployment rate, it's down to 4.1%. You can't say the consumer is in rough shape and the unemployment rate is at 4.1%. And to your point, like Prime Day, yes, that moved to June. So that's most of the story, along with gas prices. Gas station sales, obviously, these are when we talk retail sales, we talk about nominal sales, right? Right. So prices matter too. Gas prices go down, and which is what happened in July. Yeah, gas station prices, gas station sales fell. Auto sales also fell a little bit. Uh, but you look at the three-month pace of even just auto sales, right? Auto sales fell almost two percent in July, but the three-month pace of auto sales about six percent, right? Now the control group, which is like think of that as core retail sales, yep, strips out autos, gas, building materials, and things like that.
SPEAKER_00I believe cigarettes too. I always make a deal. Yeah, I don't know. There you go. Scripts now tobacco, there you go. Yeah.
SPEAKER_01So that's running at okay, you know, when you get screwy numbers a month like July, and then because of what happened to Prime Day, June, take a three-month average. The annualized pace of the control group core retail sales is about 2.1%.
SPEAKER_02Okay.
SPEAKER_01Is that great? Remember, this is nominal. That's not all that great, right? Because in the prior, so this is basically we're talking about May, June, and July. In the prior three months, we're talking about what February, March, and April, the control group was running at run 14%. So you got from 14% to two percent, two percent, right? So that's definitely a momentum slowdown. But then it goes back to sort of if your question is don't know where you're worried. I'm I'm like, no, I'm not worried at all. I'm literally not worried. And it maybe a little bit, but it's not entirely unexpected. Look, what happened in the first three, four months of the year? Everyone got larger than expected tax refunds. Right? So I think it was not a surprise that spending was pretty strong during that time. Yes, it was nominal, but it wasn't just uh you know, function of higher prices or anything like that. Even like I said, this is core retail sales, takes out gasoline sales, gasolization sales, autos, things like that. It was 14% February, March, and April. That was really strong. But then what was interesting is that last thing uh we can talk about the consumer balance sheets and things like that.
SPEAKER_00Yeah, we're gonna be able to do that.
SPEAKER_01During that period, restaurants are actually weak. Over the last three months, restaurant spending, which I think is safe to say you could argue that's the most discretionary line in the retail sales report. Technically, it's not even a good, it's a service, right? And if the consumers really tapped out, you would think restaurant spending would be one of the first things they cut. Sure. They haven't done that over the last three months. So this is May, June, and July, restaurant spending is clocking it at nine percent annualized. Yes, some of that is inflation, maybe about three percent, three and a half percent of that is inflation, but that still leaves six percent annualized growth, real growth, right? Volumes essentially. I mean, that's pretty good. All right. I uh like I said, this is the most discretionary item in that report. And I look at that and say, you know, goodness people, what are we worried about?
SPEAKER_00So I want to point out something out. Give me one second here. Okay, the Cheesecake Factory. Again, no recommendations on the stock, although I do enjoy the good dive of chocolate uh cheesecake. Um up a hundred and sixty percent. Yeah, up a hundred and six percent this just this year. Now, I want to read something else that you mentioned in restaurants that that's a great segue because um I had some data on restaurants here. The past 60 days, if you take like a bucket of sit-down restaurants, which again are the ones that I don't think you go to if you're really struggling, things like Cheesecake Factory, uh BJ's, uh Texas Roadhouse. Ooh, personal favorite of Teacher Council. We love that brand of the Texas Roadhouse. Um, Brinkers, Darden, all outperformed these more fast casual names. Chipotle, um Wingstop. My by the way, my son Gus loves Wingstop. Uh Chipotle, Wingstop.
SPEAKER_01There's one down the road. Should I go? I guess Gus would tell me I should go.
SPEAKER_00He would tell you you should go. Um, I would say this ordering. You don't think to be one time? Well, here's the thing. One time we went in there, I was like, give me some wings. It took like 35 minutes. Now I guess you gotta call ahead and time it correctly. I'm like, just give me some wings, you know. But they are tasty according to Gus. Anyway, these three names, Chipotle, Wingstop, and Shake Shack. You kind of make a bucket of them. Maybe this is you can argue, you're picking and choosing. Those other sit-down restaurants don't know outperformed the last 60 days by 49%. That's from my friend, uh, our friend Hardika Singh over at uh fun straw. Hardika's blown up, doing a lot of media and stuff. She's awesome. I used to work with her when she was a Wall Street Journal, so she's she's awesome anyway. So that was something that she noted. But again, sit-down restaurants that aren't cheap. I mean, Cheesecake Factory is not cheap. Maybe wing stops a little cheaper, uh, at least on a stock performance, are doing well. Now, you mentioned restaurants doing better. Have you seen that data that sit-down restaurants are doing better in fast casual? Or does it get that specific with some of the data?
SPEAKER_01But at least with stocks, we're seeing it in a big way. I mean, just by the nature of it, because sit-down restaurants you spend more, they're going to be a larger part of this. I mean, even Olive Garden will be, you know, which is I think garden is I think that's darden. That's part of Darden.
SPEAKER_00That's a dark. I'll tell you, end of the day, red lobster is red lobster. I love those cheddar bread. I'll tell you red lobster cheddar bread. You can't beat that. That's my favorite one. I love the cheddar.
SPEAKER_01So that's going to be more expensive than your McDonald's of the world. I mean, McDonald's sort of like Walmart. If everyone's going to McDonald's, there's always like, oh, you know, they don't have money. That's why they're going to McDonald's. But yeah, I think you're seeing that, like I said, restaurant spending over the last three months, clocking it at 9%. I do have one more number for you. I know you were in the store today, Target. Now coming back to like goods.
SPEAKER_00I was in Target. I haven't been at Target like two years, so then I were talking about something. I was so bored because it's just my last day with Susanna. I think it's not my last day anyway. But so Emily's like, you got to come to Target with I don't think go to Target. So I'm running around Target.
SPEAKER_01I thought I heard you, I was on the phone with you. I thought I heard you buying Starbucks or something.
SPEAKER_00Well, yeah, I wanted to get a hot chocolate. You know, that's what I'm talking about. There you go. I'll tell you, I was like, I got like lost in Starbucks. Not Starbucks, I got like lost in Target because I just zone out. I'm just gonna call Sony. So I'm talking to Sony walking around to Target today.
SPEAKER_01Anyway, this is a Target stock, right? Or you're today, Target stock. Again, an art recommendation, please. 59%. Wow. Okay. Like who would have thought, right?
SPEAKER_00Like it was packed today. The target I went to was nuts here in uh uh um state college, Pennsylvania. But yeah.
SPEAKER_01I I I think half of it is my wife and daughter. They love going to Target. I haven't stepped into Target, you know, no offense, but to all of you who love Target, I haven't stepped into one for about two or three years. Right. Right. I probably should because you know every time I look at a Target bill, I was like, oh my god, is that that much Target?
SPEAKER_00Exactly. Um, more anecdotal, more anecdotal. But we were in Boston two weeks ago, like we talked about. And um, you know, we went to dinner a couple nights, everything was packed. The one night we did our uh thing with art, and I had a little time to kill, and I was gonna go to the north end, the north end. North ends. Yeah, I mean, I love Italian food, you know. Look at me, I like Italian food. And I'm going there like five o'clock by myself. I had like two hours to kill. I'm by myself. So no, I went to just I did like three different just random places in the north end for one person. I said, can I just sit at the bar? I said, now we're full. This is at five o'clock on like what was it, Wednesday? Probably Wednesday. It was Wednesday. Yeah, it was a Wednesday because we got we went to the North End, but we went around 600. Well, you had well, you have reservations too. You were smarter than me. But I just thought I could craft one, one dude sit at the bar by myself. Eventually I found one, got some chicken parm and did buy meatballs and chicken parm. It was amazing. I forget where it even was. But that I'm like, that's some anecdotal stuff right there. Also, I know you tried to get an extra room. Um, where were we staying? We didn't remember. Let's just leave it at that's not a cheap hotel. We'll just leave it there. That it was sold out. You couldn't even get an extra room. I tried to get a later checkout. They said no, I was in New York a week ago. All right. I I've got like five a year upgrades to my Marriott. And usually I get those. Or I say I want it. I'm like, I'm like platinum or titanium, whatever. I'm not bragging, I just I travel a lot. So I've got pretty high status. And if I say I want to use one of my upgrades, they usually give it to me. Because I was in New York last week, took Sebastian, my um, I guess my soon-to-be sophomore, running around New York, did some media stuff. I said, Oh, give me a bigger room. I got my kid. They said, no, we're sold out. We don't have it. I tried to get a late checkout. They said, no, we don't have late checkout. Like, and this is like wow, I'm looking around, like, I'm and the well cup's over, too. And the well cup. I'm like, I'm like, listen, like, I I don't know. I mean, yes, we can find holes in it, and I want to talk to you about maybe some of the worries you see with the consumer, but just from like a guy who travels a lot, I mean, I've never seen a there's no seats on plate. I mean, there's no seats on a plate. Every plate is full, every restaurant's full, doesn't care what day it is, every hotel, the intercontinental 600 bucks a night. You can't even get a room on a Wednesday night because they're sold out for 600 bucks a pop. Those are the cheap rooms. I mean, it was like, are you kidding me? I don't know. It's um there's just different ways to look at this. But what what else on the consumer do we want to get into?
SPEAKER_01So I I mean, I think there's a question about obviously inflation's hard, right? We've talked to talk about inflation, set that aside for a moment. Question is I mean, consumers are spending, but how are they funding the spending? Because inflation's clearly high, right? Nine percent restaurant spending. Like, where's it, where's the money coming from? Right now, you think, oh, are they borrowing more? Speaking of you talk about AI and you know, the AI build out, yes, that's being financed with debt increasingly. But in the consumer's case, actually, no, they're not borrowing more, they're saving less. Right. You and I have talked about the savings rate. It's the difference between how much, you know, the aggregate savings rate is the difference between how much uh you know uh disposable income there is across the economy, across all uh all households, minus how much is consumed, total consumption, right? And so if the savings rate, the savings rate at the end of 2024 was 4.3 percent. And Connor, we can put this chart up. I'll send it to you, personal savings rate. Okay, at the end of 2024, it was 4.3%, it's fallen to two and a half percent as of June. By the way, this is not, you know, we have to be careful here. This doesn't mean people are drawing down their stock of savings, it just means they're saving less month after month after month.
SPEAKER_00And that's such an important concept, Sonda, because so many people think that they're it means you're not saving, tapping into your savings. No, they're saving less every month. Exactly.
SPEAKER_01They're not tapping into the savings. I mean, which is not to say some people obviously could be, right? But for now, they're saving less. And this is probably because household balance sheets are strong. Over the last six years, stock prices are up 155% from the end of 2019. Home prices are up over 50% over the same stretch, right? Now, of course, this does mean if things reverse, if we get into a big bear market, that could hit support, you know, consumer spending and you know, household balance sheets. But for now, we have a good thing going. And the reality is you're not taking on a lot of debt, right? You talk about credit card debt, so we can go there. If you look at like total household debt, it actually fell in the second quarter of 2026. It fell to 18.8 trillion. That was the first decline, the first fall since 2020. Right? It's only the fifth. And that's total debt. That's total. Now, total debt means mortgages, home equity, car, you know, old school, I'll tell you student loans.
SPEAKER_00And credit cards.
SPEAKER_01Now, credit cards is 1.26 trillion. It went up, right? So credit card debt, but it went up from quarter of the first quarter. But if you look at the first half of 2026, credit card debt actually fell. It fell 1.1% from the end of 2025.
SPEAKER_00And that makes the head explode the bears. Credit card debt is down this year, 1.1%.
SPEAKER_01So 1.1% for the end of 2025. How about that, right? And but then you and I always talk about denominator blindness. Credit card debt is a nominal number. You have to normalize the nominal numbers. So, what do you normalize it by? Disposable income. Over the same stretch, disposable income hasn't been great in terms of growth, but it's still up 2.4%. But which means what happened? Households got less levered, right? And just for perspective, in 2019, we talk about that as a good year for consumption and the labor market and all that. Credit card debt increased 6.6% over the full year of 2019. Disposable income rose less than 3%. Right. It got because it was got more levered, at least looking at the credit card side, even total debt. This year, the opposite's happened. Right now, credit card debt, we can put this chart up, uh, corner. This is credit card debt as a percent of disposable income. That is running at 5.3%.
SPEAKER_02Yeah.
SPEAKER_01At the end of 2019, it was 5.7%. The average from 2003 to 2019 was 6.44. You look at then final thing for me, debt service. What matters for disposable income is debt service. Like, can you service the debt? Right. And we can put this chart up as well. Uh, Carter, it shows household debt service prepayments as a percent of disposable personal income. That is running at 11.2%. The 1980 to 2019 average is 12%. Even in 2019, you're at 11.7%. Right now, we're at 11.2%. We're below, you know, even 2019. And 2019 was at the end of a decade of deleveraging for households, and we are better than that state right now. So, yeah, I think I I mean, what more is there to say, right? Yeah, go ahead.
SPEAKER_00Yeah, well, the media they have fun with this stuff because again, some of these numbers are higher, but again, it's all I think it's just being more normalized, right? We're getting more where we were kind of pre-2019 because a lot of these levels are extremely low post-COVID. People had extra money, dah dah, dah, dah, paid off a lot of debt. Now, yeah, there's more debt as percent of certain things, but it's more normalized. A couple things, again, this is from the in the data you just said, it's from the New York Fed household debt and credit report, uh, affectionately known as the Z.1 report, right? Uh, if you know what I'm talking about, you're real, you're a real geek. No offense, because we know what Z.1 means. Um uh the uh total balance on delinquencies actually was lower for the second quarter in a row. Not by a lot, but I mean two quarters in a row now. The total balance on delinquencies actually went down just a little bit. So I don't think that's a bad thing, Sonu. Um, I had some other ones. A number of four.
SPEAKER_01And we can show that we can show the charge of total balance by delinquency status. I'll give some Connor. So the balance is like if you look at the balance current on payments, look parents and payments are on current, that's about 95.3 percent. By the way, that's exactly in line with 2019 fourth quarter. Right, right? So, you know, it's gone up over the last year, but you know, well, to your point, it's normalized.
SPEAKER_00Well, uh, here I'll just I mean why I followed it. I mean, it actually went down, so it's 95.27%. Yes, and that came from 95.24. So again, just the tiniest little bit, but a little bit more being paid on time. So if you subtract that from 100, it comes out to about 4.7 percent of delinquency. So all the debt that's out there, about 4.7 delinquent, listen, that's kind of normal. I mean, you are always going to have some money in delinquency. That's just how it is. Um, so that's really important, I think, to um to be aware of. Does that have anything else? Okay, yeah, the number of foreclosures actually fell in the second quarter. Yes, bankruptcies went up a little bit. This isn't perfect, but again, still bankruptcies aren't anywhere near what we were seeing in 2006, 2007, even before the great financial crisis.
SPEAKER_01And even 2019, bankruptcies are down 33 percent, 33 percent from 2019. Foreclosures are down 21 from 2019. Connor, again, we can put this chart off of foreclosures and bankruptcies. I'll get this out to you.
SPEAKER_00And another one, I mentioned this a month ago. It's funny how it's been a month. Time flies when you're having fun. Uh, but the census does this how many businesses um apply for applications to start a business, how many businesses start in essence? Up 8.1% year for year. We saw a huge jump actually recently in number of business applications. Um, so again, that you know, up eight percent. It's hard to think that that's a bad thing if people have the confidence to quit their jobs and potentially start a business. Now, something else that caught my attention, this is not all due to consumer. I just want to point it out. Workday was up 18% last week, would be one of the larger software deals ever deals ever. Silver Lake came out and said they might potentially buy them. So again, software's just been crushed. Workday's just been crushed, but you know, maybe now you say there's some potential good deals out there. Last week we saw Cisco. Now, their stock was down on this, but Cisco said they saw continued very strong hyperscaler orders. CoreWe was up 19% revenue up over 112 uh to 2.6 billion. Um, supermicro, remember that name? That was a hot name in 23, 24. Then they crashed, had some accounting issues. I don't remember all the exact details.
SPEAKER_01They were in the Russell 2000 small cap index and then they moved up to the large cap index.
SPEAKER_00And then they got hammered, and then they got hammered. It's funny how that works. Um, they their sales, let's see, we're reading my chicken scratch here. They increased their sales to between 65 and 72 billion. They streetly expected 53 billion. So they're turning that corner. They're in for their stock is up a whole bunch on that day. And then one called Nebbius. I hope I pronounced that right, Nebbius up 19%. Again, revenue up close to 500%, AI cloud up uh five times from a year ago. So again, it is what it is. Those are some of the high-flying AI names. Yes, they all had earnings last week. Not a lot of earnings last week, but some pretty good numbers. That's probably why chip stocks at some of these names really came back. So those are so then just the message of the market. Copper's at all-time highs. That's not a bad thing. And staples relative to the SP 500 Sunu closed at an all-time low last Friday. And I've talked about this one for a while now. We want to see staples. Hey, staples are what, 10% for the year, 12% for the year? I don't know. About 12%. Yeah, something like that. Listen, that's great. You own some staples, you own some safe stuff in your portfolio, your cokes and different things, director again. That's fine, you know, but hadn't done as well as the market. We want to see that lag. I mean, I I'm old enough to remember because we just did this like back in March when everybody said how bad it was. I was talking about this. Staples were still lagging. If the market was really about to fall apart, staples would find a bid, staples would lead. That is not the case. So still, the message of the market is really strong. And then a buddy Scott Brown pointed out it's uh the ticker P-E-J. So it's like a leisure, again, no recognition, but like a leisure, um, like Viking cruises is in there, XPD is in there. That's blowing up. I mean, that's like making new highs, okay? Excuse me, get so choked up talking about this stuff. So shout out to Scott. But when you see leisure things like that doing well, you chimed in on X. You said, you know, experiences over stuff, which I think is true, but still, you know, it seems like you're spending on both now. Yeah, and I believe Scott pointed out like Live Nation is not actually in there. That's a ticket place. That's going crazy to the upside. People are going to concerts and stuff. It's just, I know, my goodness, with my daughter going to some of the concerts, I spent a ton of money on concerts. Look at that, not the only one doing it. So you see those things like that. It's like, you know, yeah, there's issues with the consumer some places, but it's like maybe not everywhere. And it's not like it's just the top 10% of people are going to concerts. I mean, every concert's sold out, everything's going nuts. There's a lot of people that are doing it. Anything else? I went all over the place with that one, Sunu.
SPEAKER_01No, that's what I brought it back to the consumer. I I do want to pick up one thing on delinquencies, though, because everybody's talking about oh, the flows into delinquencies are rising and things like that. And credit card delinquencies, to be clear, it's about 12 like serious delinquencies. Okay, this is 90 plus days behind, right? In terms of payments. That's Roddy for credit cards, it's a 12 point nine percent. At the end of 2019, it was eight point four percent. So it is definitely elevated, but there's a big catch. Here right now, the catch is, and the New York Fed actually they put a blog on this last week. The Wall Street Journal also picked up uh picked it up. So what they found is that charged off credit card debt, basically the banks have said, you know what, this is gone. That's apparently staying on credit card reports longer than they used to. From 2004 to 2012, 40% of charged off debts were still reported a year later. The banks are like, whatever, it's gone, right? But they were still reported a year later. By 2024, that share doubled. Right. Now, severely derogatory balances, these are basically balances that lenders drop them after their 120, 180 days past due, right? These apparently never leave the New York Fed's delinquency measures. So the stock of delinquent debt, especially severe delinquent debt, keeps building even though no new borrowers are falling behind. Right. If you strip that out, the pace of the pace at which delinquencies increase, that's actually stabilized since 2024. Right. And so even if, you know, here's I'll I'll put this final chart up on the consumer. If you look at credit card debt, credit card delay, like I said, credit card debt there isn't a lot because as a percent of disposable income, it's 5.3%.
SPEAKER_02Right.
SPEAKER_01And if you look at credit card delinquencies as a percent of disposable income, that's running at 0.7%. It's sort of stabilized. But keep in mind that's higher than what we saw before the pandemic in 2019. But there's this asterisk here. A lot of debt that's already been charged off, banks and no loan concern is it, that's still on the books, at least in New York Fed Fed's books when they do this household credit and debt report, right? So just some perspective on that, too. Again, I think for the last two years, that's been a big talking point for a lot of the bears. Like, oh, look at the Lincoln balances. It's going up. And yes, it was. But turns out it was for a spurious reason.
SPEAKER_00Yeah, well, you and I get pounded on social media when we point this stuff out. Look at the debt. Look at the debt. Um, one other one connecting all this stuff to a degree. Uh, the University of Michigan, Consumer Confidence, came out at 51, is expected to be up around 55, and I believe that's one of the lowest levels in a while. I think it might have been high 40s, like not that long ago, but that's still extremely low. So consumers again are feeling one way, but they're all going on Viking cruises for $25,000 all over Europe. I mean, it's you know, it's it's uh interesting how how that works.
SPEAKER_01Um I I I think the the disconnect, I was talking to somebody else. I think that this I mean it's not a disconnect. I mean, they're spending, right? But they're upset in a way because they're paying more. Right? I think the thing is in in there's inflation, which also gets to, you know, you and I have talked, I've mentioned this before. One person's inflation is another company's margin expansion. There's probably a reason why cruises and you know, leisure and entertainment and all that is doing well, because they're like, hey, we have to raise prices because you know, look at input prices, look at copper, look at oil, look at lead diesel. We have to raise prices, right? And hey, they use that opportunity to expand margins as well. Stock prices are doing well, but that also feeds into consumers saying, you know what, you feel more wealthy, we can take the bigger trip.
SPEAKER_00Yeah. Um, no, you're right. You know, the one other thing caught my eye going to go all over the place, but it's something else I want to touch on. It's amazing when someone and I started, we're like, ah, we'll go like 40 minutes. Uh we've gone like 47, and we I don't know if we hit everything. We we still have more to talk about. So um August 12th, which wasn't that long ago. So today we're doing this the 17th. We're recording this the 17th, everyone. Um, August 12th, 1982. Um, what were you doing back then, Santa? What were you doing? August 12th, 82. I was getting old.
SPEAKER_01You were two, you were still not.
SPEAKER_00No, no, no. If you're three, I was two. And I in August, you're a year older than me. I know that much. So you might have been four and I might have been three. You're the old guy. I don't ever forget that. Anyway, um, the SP 500 bottomed at 776, August 12th, 82, and then it just soared. It went to 11,732 until the peak in early 2020. I'm sorry, 2000, 2000. Uh, that is a over 1,400% return in approximately 18 years, kicking off just an incredible, incredible rally. Yes, you had the crash of 87 in there. You had the bear market recession of 1990, you had a bear market, near bear market 1997, another near bear market 1998, crashing with long-term capital management, age and contagion, all that stuff happened. Um, but the reality, again, is there were some rocky times, but then you look up and 18 years later, you have 1400 percent. You know, I mean, so it is what it is. Just uh just important to remember, and then again, it put it puts a full circle with this particular bull market we're in, given we just hit new highs once again last week. This is now the eighth longest bull market. It'll be four years old this October, assuming we hit new highs in October, about 3.8 years old right now. And again, I've talked about this before, but Connor, I'll get you to this. We put this up, the longest bull markets ever. This is now the eighth. Looking at the other seven that made it this far, six of them made it to at least their fifth year. And look at all those, the average is like between seven and eight years. We're not saying this is going to go that long. We're just saying once bull markets get to this point, and this might sound very familiar because I've been talking about this concept for over a year now, and the market keeps going up, these bull markets tend to last a lot longer than you think. But again, one of the greatest ever bull markets kicked off uh 82 just a week ago. Um, what else we want to hit on? You want to uh you mentioned inflation. We didn't talk CPI PPI. That's one thing I wanted to talk about. Do you want anything else on the consumer to wrap this up? Maybe we'll talk about inflation Fed minutes and then kind of wrap this thing up.
SPEAKER_01I think to that point about the consumers being unhappy. So we've got inflation data, and you know, I won't cover too much. Look, over the last two months, we've got a couple of benign inflation reports, but uh this just goes to you know how low our expectations are that for core CPI it came in at 0.22 percent month over month in July, right? That actually translates to 2.6 percent, and everyone's like, yay! Yay, yeah, but of course the three-month annualized pays of 1.6 percent. So but again, that's CPI. A big part of that is shelter. Shelter is over 40% of the core CPI basket, whereas you know, core PCE is what the Fed takes a look at until you know, I don't know, one of Kevin Walsh's committees says we don't want to look at it. Who knows, right? That's in January, but for now, core PC is what they're looking at. Uh but when I looked at inflation data, I did something different this time. And I put this blog up on Carsong Group.com slash research. Well, I you know, I'm not an economist, but I play one, right, in my daily, you know, life in the daytime or nighttime that I write about this stuff. And I decided, you know, instead of looking at it from that economist policy perspective, let me think put like a consumer hat on, right? As you said, consumer sentiment is going down. And you look at most inflation is broad-based, and there's a problem everywhere. You look at energy commodities, yes, gasoline prices came down in July, but you look at where gasoline is right now, $4.07 a gallon, nationwide average. That is the highest ever for this time of the year.
SPEAKER_02Wow.
SPEAKER_01You look at energy services, electricity, and utilities, right? This is a there's an AI power demand story here as well. That's up 4.3% year over year.
SPEAKER_00Can I vent for a second, Sonny? May I? May I? I mean, it's like midnight. I'm tired about it.
SPEAKER_01Depends on what of the year, what you what you're wanted to get. No, go ahead.
SPEAKER_00We had a huge storm come through Cincinnati a couple days. I'm talking like tornado, everything got knocked over. My my in-laws didn't have power for three days. Lots of kids that go to our school district, a little more north. They didn't have power for many days. We had people coming over, spending the night doing stuff. You know, it is what it is. We had a pretty big branch fall, and it's a big branch, yes. Okay. I've got some yard guys that do cut my yard. I say, hey, how much would it cost to like get rid of that branch? I mean, it's a big branch, but he's like, he sent me the bill, I guess, this morning, must have been this morning. He said, like, $500. I'm like, $500. I'm just gonna like drag it into the woods behind my house. Like, I thought you could I don't know. I mean, anyway, I'll there's inflation there.
SPEAKER_01You know, yeah, I I do that that's such a great point. And I'll give you the macro picture based on that, right? So, and then food services too. We just talked about restaurants, right? Restaurant inflation run at three and a half percent year over year. 2010 to 2019, it averaged two and a half percent. Groceries, 2010 to 2019 was running at 1.2 percent. Today's 2.6 percent, more than double what we saw in the last decade. Remember, food and energy, yes, from an economist perspective, central bank perspective, you throw it out, yeah, or you look, you keep that away because it's volatile, but it's 20% of the CPI basket, right? So the inflation households actually experience is harder than core implies. You then you look at diesel prices. Diesel prices feed into food prices. Diesel prices right now at about five dollars and forty-five cents a gallon. That's close to the highest we saw, you know, after the Iran War. It's not far off from that. Right. But okay, set all that aside, you look at core services, right? And we can put this chart up. Uh, I'll I'll send it to you, Connor, this table of, you know, it I I I took a bunch of services that we all use, including gardening and lawn care. Yeah, it's uh I I didn't know your story until like right now. Yeah, yeah, right until right now. Gardening and lawn care, it's up 12.3 percent year over year.
SPEAKER_00Wow.
SPEAKER_01Now in December 2019, it was running about eight percent. So it generally tends to run hot, right? You look at home health care, it's running about 10 year over year. Before the pandemic, 2019, it was 1.9%. Vehicle repair running at 6.5%. Before the pandemic, it was three and a half percent. Dental services, another discretionary service, you would think, up five percent. Oh, yeah. Before the pandemic, it's three percent.
SPEAKER_00I was supposed to see my dentist, and they sent me a thing, said, sorry, we just lost our power because of that big tornado, so I couldn't go see my dentist. So, anyway, there you go.
SPEAKER_01Nursing homes, adult day services, 4.2% year-over-year inflation. Whereas before the pandemic, it was kind of flat. And I look at all this, and and you know, there I I looked at about 13 of these services categories. The weight in the CPI basket is about 15 and a half, 16 percent. At the end of 2019, the weighted average inflation rate for these 13 items, like some of which I just read it out to you, was about 2.5%. At the end of 2024, it was three percent. Right now it's three and a half percent. It's going in the wrong direction. So it's not just energy and AI and tariffs, and like that. These are services. You mentioned the guy coming to drag the tree branch off your yard.
SPEAKER_00I mean, apologies if you said it. Sorry. Um, did you look at veterinarian prices? With vet with vet, I mean, vet that feels like they go up every single time. Uh yes, I do have that, actually. I I'm assuming it's just it was anecdotally, it just feels like every time I take my dog is like services up about five percent.
SPEAKER_01Whereas before the pandemic, it was up about three and a half, four percent.
SPEAKER_00It's like that's the same shot my dog got a year ago. It used to be 80 bucks, now it's a hundred bucks. It just it just doesn't slow down.
SPEAKER_01It keeps going up. And and I think especially when you're talking about core services outside of housing, I think it's uh goes back to the consumer. I think it's a labor market signal, right? These are everything I mentioned, like gardening, lawn care, vehicle repair, home health care, nursing homes, adult take care services, these are labor-intensive services. It's delivered locally. You can't import it or automate it. The price is basically, at least your first approximation, it's a wage bill. It's a it's a salary, how much you pay the worker, right? Home health care is running near 10%, lawn care about 12%. That tells me the labor market, at least in certain pockets, it's tighter than what that payroll data is selling us month after month. Right? And this is also why I'm skeptical why in whether, you know, I'll put it this way. I don't think inflation is going to go down to the Fed's target anytime soon with all of this stuff happening.
SPEAKER_00You know, though, where inflation did go down last month, Sonu. I know you know this. I'll just um I'm you know trying to make it sound exciting. Lettuce was 16. Our buddy Sam Rowe pointed that out, and I know other people did, but Sam kind of called off first, but lettuce was. But wait, isn't that a salmonella thing? Well, that's what I'm saying. Nobody wants to eat lettuce because it gets you sick. And I guess it started at Taco Bell. It's like, listen, if you're eating Taco Bell, you're risking diarrhea and getting sick no matter what, you know, to begin with. But I guess it was uh I just read something about eggs.
SPEAKER_01Egg prices have been going down, but now I've read there's like a lot of eggs in the Midwest have apparently been recalled. I just saw it on the news before we started chatting right now. Well I I I don't want to spread a rumor. I think I think this is a legit source where I saw it, but you know, yeah.
SPEAKER_00Well, another legit source is the Fed. I mean, you have the Fed remember this time three we three weeks ago, let's say four weeks ago, it wasn't like how much the Fed is going to or when they're going to hike, it's how many times. And you pushed back against that, so did I. So listen, I just I just kind of listen to people, and I don't think the new guy's gonna come in and do it. Like his boss is his boss, I just didn't see it. Uh, and and you had other reasons. And and now it's like uh, I think 22 basis points of hikes expected the rest of this year. It's like 30% chance of a hike in September, 28%, 28% chance of a hike in September. Uh did the inflation data calm things down? It looked like sort of it was 44 a week ago, right?
SPEAKER_01Yeah, short answer is yes. Uh like over the last two weeks, September rate hike odds went from 65% to 28, 30 percent. There you go. So basically, markets are no longer expecting a hike at the next meeting, right? I would say 30% is still significant, it's closer to coin toss odds of 50% than zero, yeah, right. Yeah, but we'll get one more payroll report, one more CPI print. But for now, they're not pricing in rate cuts uh or rate hike, I should say. The fully 2026 odds, which was interesting, before the last Fed meeting, July 28th, it was 180% probability.
SPEAKER_00Right, which means I always make a joke, right? That's not possible. Yeah, yeah.
SPEAKER_01100% odds of one rate hike, 80% odds of a second of another, right? Now that's down to 93%, going back to your point about 22 basis points, right? 25 basis points would be one hike. 22 means you know the probability of a hike is less than 100%. That's essential. Right now it's about 90%, something like that, right? That's the idea. And what's interesting, Ryan, is if you I was I put this chart, I shared this with our advisors this morning on a call. I took the probability of a policy rate move by December, right? Remember, I said that you know, from the end of May through the end of July, just before the Fed meeting, it went from 60% to 180%. And during that time, the SP 500 fell, or it was kind of flat, but it fell about 3.5%. Not a big deal, but still for two months, near on two months, it was kind of flat. Then the probability of a rate hike pulled, like I said, from 180% all the way down to below 90%. And markets have rallied, the SP 500's rallied about six and a half percent, right? So there is this tailwind at the back of it as well. But what's interesting is that okay, this is how you see that in the yield curve, right? You look at two-year treasury yields in late July peaked at about 4.35 percent. Right now it's down to about 4.15, 4.16%, which means investors are expecting the short-term policy rate to average about 20 basis points less over the next two years. Right? You expect that rate hike probabilities have gone down. What's interesting is the long end of the curve has gone up. It's not come down. The 10 year is now at 4, what's 470, 472? That's the highest since January 2025. So back then it was because real growth was expected to be about 3%, real GP growth. Right now, it's an inflation story. The 30 year, goodness, it's at 530 or something like that as of today, right? On uh we're we're be recording this on August 17th, and the 30 year is at 531. That is the highest since 2007. In 2007, the peak was 5.4 percent. So long-end rates have been grinding higher since the Iran War started. We put a chart up of 30-year yields of corner, you can put that. It's been going up since the Iran War started, but then it kept going up despite oil prices coming back down. Oil prices went from $120 a barrel to about 75, 7, it's back up to 80, something like that. But yeah, prior 30-year yields have gone one last gone up. One last thing for me, last week there was a 30-year treasury auction. I think that tells you the story of what's happening. It was a $25 billion auction, and it actually went well, which means investors are still willing to buy treasury debt, but they wanted a higher yield. And in fact, they charged the US government 5.22 percent for that, right? That was a stopout price, as they call it. That is the highest since the 5.5% paid in August of 2001, 25 years ago. Actually, in August of 2001, the Treasury auction, the stop-out yield went for 5.52%. And after that, 30-year auctions was suspended for five years, right? And now we've seen the highest since that time. So, again, tomorrow I think I'll write a blog on fiscal deficits. That's the other side of the story. Look, money is there's so much competition for money. We just talk about AI. AI is going to be financed by death. The federal government is running massive deficits as well. Over the first last year, last fiscal year, so this is October of 2024 to September of 2025. The fiscal deficit was about 1.78 trillion, about just under 6% of GDP. Over the first 10 months of this fiscal year, so October 2025 to July 2026, it's 1.8 trillion. It's already larger than what it was last year, over 12 months. And we have two months left to go. July's $432 billion deficit was a record for any July. It's the largest monthly deficit since March of 2021. But in March of 2021, we were sending stimulus checks and things like that. Right? Yeah, I mean, that's competition for money. And if there's competition for money, what do you think? Interest rates go up. That's what's happening.
SPEAKER_00And that's just something that we we've heard forever. It's like, when do you pay the Piper? All this debt that's out there, all the spending that's out there, this and that. Um, and most people that we hear from kind of assume it's gonna be the stock market's gonna crash, and we kind of push back against that. Obviously, listen to this podcast for several years. Where we're paying the Piper is the long end. You own long-term bonds, you own zero coupon bonds, meow those done for you. They're they're in like the worst pair of big things. Anytime anyone alive is listening to this. Um, and again, we do we own bonds? Yes, we manage billions of dollars at the Carson Group. We were with over 600 financial advisors in 44 states. And, you know, but we've said this for years, and we said it on this podcast: underweight bonds. Of course, you still should own some, but you should own some other stuff, right? And the other stuff is things like, you know, gold and manage futures and hard assets, real assets, you know, things like that. That if you drop it, hit your foot to Hertz, that's gotta be other stuff that might do better in a higher inflation, higher growth, let it run hot type of world. And those are the things we've talked about. And people have given us a lot of kudos for some of our macro calls, some of our, you know, kind of being bullish calls. And uh that's great. Like, well, we that's that's great. That's why we do this. And you know, we try to help people create wealth and and share what we see out there. But I would say our bond calls and our yield calls have even been more impressive if I if I could brag about ourselves a little bit. I mean, you know, the and and and and that's something that ah, boring, whatever. But no, when you manage billions of dollars and you don't have you know 40% in bonds, I mean what what what do you think? A 6040 portfolio, we're about 68 percent um equities, I guess, still, right? So now 68 probably. We're about 72, 73 this time a year, year and a half ago. We have pulled back the dial a little bit because they gotta take some profit, still liquid equities. What what are we for bots? Well, I mean, we're about 32 percent.
SPEAKER_01We have about 30 percent right now, yeah. Yeah, 30% because we have some managed features and all sorts of other stuff, and a little bit of gold into longer-term models and things.
SPEAKER_00But I mean, yeah, so again, we we and and again, I guess let's be clear, it's not like we're all treasuries here, right? We we've shortened up duration, you know, across the board uh to do a little bit better, quote unquote. I mean, to the point about yields are going higher, longer-term yields.
SPEAKER_01We have some bonds, part of those bonds are actually loans, exactly, which have floating rates. And you think, wait a minute, if we were worried about the consumer, if we were worried about the economy, loans is not where you want to be. No, no, but we actually, you know, we took a position several months ago in line.
SPEAKER_00I would say what we do that three months ago, four months ago?
SPEAKER_01Time flies, but yes, something like that. Because these are, you know, they can reset rates that they charge, you know, the borrowers. Right? So we like loans, and when nominal GDP is running hot, that's not a bad place to be, actually. Right? These kind of you know, loans that where the rates are reset, you know, much more frequently than fixed rate mortgages and things.
SPEAKER_00Heck of a lot better than like TLT, longer-term 20-year treasuries. We'll put that there.
SPEAKER_01Uh one final thing for me on the fiscal deficit. I thought the stat was, you know, a catch. I people probably into it this, you probably into this net interest. How much the government is paying on interest?
SPEAKER_02Oh, yeah.
SPEAKER_01Right now, it's nine hundred and thirty-one billion dollars. That is larger than the defense budget. It is the third largest outlay behind Social Security. Social Security is about 1.4 trillion, Medicare is about you know, 955 billion. The next largest line item is interest, 931 billion. Now, some people would say that that is. Why the Fed cannot raise rates. I don't quite buy that. I think, look, to control inflation, they kind of have to. But the fact that remember, all that money, by the way, the 931 billion in net interest, most of it is actually going back to the US consumer, to the US private sector. Now part of it is hedge funds and things like that. It's not actually going to the largest holder of treasury securities is now the US private sector rather than foreign governments and things like that. So you know that in a sense, that's sort of I don't want to say stimulus, but it's one way how when the government's deficit, when they keep printing money, that's flowing back to you know the US private sector as well.
SPEAKER_00Wow. Amazing. A couple other things just want to hit on. We're probably gonna wrap this up soon. Auto insurance is actually down four and a half percent year over year, and health insurance is down almost eight percent year over year, according to the recent uh inflation data last week. So that's I don't know. I haven't seen that. I don't believe I don't believe it's but usually I'm like, I don't uh the government, uh listen, I don't know about that. But anyway, that's what the data set and the market seemed to like it. Um was there something else I wanted to say and I could get now, Sonu? Yeah, we've we've talked enough, probably. The dollar. I don't know. The dollar the US dollar looks a little toppy. A lot of people expect the dollar to go higher, dollars weakening a little bit. If it continues to weaken, that'll help international exposure. Um, so that's something that we're we're watching closely.
SPEAKER_01I mean, that's the other big thing with yields going up normally. Good goodness, with the 10-year yield going all the way up to 470, the 30-year yield going up to 530, you think the dollar would be racing higher, but it's not. And that tells you that maybe yields aren't high enough. Well, when foreign investors, you know, if to entice them into the bond market, you need to maybe pay them a higher yield, otherwise they'd be like, no, your inflation's gonna crush this stuff.
SPEAKER_00Yeah, no good point. And listen, I mean, we've go all day. I'll try to make this quick. You know, the inverted yield curve, right? That's when the shorter end of the curve has a higher yield than the longer end of the curve. The inverted yield curve, we had one of those recently. Everybody said out there'd be a recession. We push back against that. We avoided one, but now we have a steepening yield curve, right? With the longer end going up higher, and like I said, the two-year kind of curling lower. So it's, I mean, just some things to think about. Here's what I was going to talk about. We'll put this chart up with our last chart from me from our friend Macro charts. He does some incredible work. Looking at the NDX as a NASDAQ 100. So if you look at all the uh shorts that are out there according to macro charts data, it gets it from Bloomberg record. Record number is shorts on the NDX and NASDAQ 100. Now, listen, that doesn't mean people are quote unquote bearish. I mean, I think it's a lot of hedging, like a lot of hedging. Because we just mentioned the CDS spreads on Oracle. What if Oracle goes under another call? But what if they have so there is a lot of hedging, but I think it's like insurance, you know, when you see markets thing like this, that's a lot of insurance, right? If a lot of people are buying insurance, I've done this long enough that you're probably not going to need it. So the the upside is probably to continue higher momentum to the upside specifically, maybe in technology, because that's a lot of bearish bets. Or maybe let's call it hedging, a lot of hedging on the NDX. You would have anything you want to add on that before we wrap this up?
SPEAKER_01No, I think it just goes to how volatile these things are. And when you have volatility, it worries investors. And this is one last this is from you know one of our friends. By the way, how many times have we said one last time on this podcast?
SPEAKER_00We should have called this one last time with Ryan and Sonny. This is literally our longest. We did like a two or three hour extravaganza podcast a while back. But this one dropped about one hour and nine minutes. This is pretty good stuff. We're getting I don't know.
SPEAKER_01Okay, okay. This is from odds odd stats. Yeah, yeah. You know, the the always is interesting. So I don't know if it's a he or she, but whatever.
SPEAKER_00It's a he, he's funny, he'll say anything. So we'll if you go read his Twitter feed, we're not recommending him either to I like he's funny, but he'll say he'll say anything.
SPEAKER_01So apparently, I'm just reading this.
SPEAKER_00You can tell he doesn't have an employer, by the way. You can tell he has no employer. The stuff he's I'd be more fun too than I have an employer. You've got to be kind of careful sometimes. Yeah.
SPEAKER_01So the Qs, the QQQ ETF, not a recommendation, is up 6.1% for August after 11 trading days, despite having more negative days than positive days. Apparently, that has never happened. He put a word in there, but I'm gonna I'm not gonna read that.
SPEAKER_00That's what I'm saying. So he he said he says lots of fun words.
SPEAKER_01That has never happened before in any month in the 27-year history of the case. But it goes to kind of like people are worried.
SPEAKER_00Jeff Jeff sends that, right? Jeff Killer? Jeff Kilberg? Didn't he send us out? There goes Jeff. Yeah, shout out to Jeff. Jeff send us out. Thanks, Jeff. Yeah, Jeff Killer. Yep. The killer. Yep. Okay. I think we should end now. We can end up. Yeah, maybe we should. I think we've gone long enough. Uh Fed minutes. Let's wrap it up. Fed minutes. I swear to goodness, everybody. Last thing. Uh do you think anything's gonna happen with the Fed minutes, Sonio?
SPEAKER_01Just more grist for Fed watches like myself and you know, Skandam or not, and Neil Dada and you know folks who live and die by the Fed. But I think it'll be interesting simply because we got a bunch of dissents, right? Three dissents who actually wanted to rate Ike. Right? It wasn't a dissent in favor of like hold or anything like that. They wanted to rate Ike. That's a big deal. So it'll be interesting to see how many others were sort of close to that, but didn't want to go over the edge.
SPEAKER_00What did he call it? Good old-fashioned family, not family scuffle, just family argument. I forget what Waller called it. Something it would be scuffle, but anyway, so yeah, they get the I don't know, scuffle.
SPEAKER_01I think the scuffle is happening in the White House at Scott Best.
SPEAKER_00Well, I was saying Scott. I mean, I I love that who has any punch in the White House, I'll tell you. I mean, he just he I saw him on the one of the morning talk shows. He just man, he's a fireball. I like it. He's good. He is he is good. You don't want to mess with him, I guess. He's a big guy that that's oh my goodness. He'll beat you with his words and beat you with his fist, you know. He is something else. Uh just go ask uh Elon Musk around the black eye in the White House about a year or so ago. He he found the wrong end of our treachery secretary. Uh anyway, there you go. That would have been a slight uh that would have been yeah, that would have been anyway. We've gone way long enough. I'm getting slap happy, everybody. Listen, um, if you've stayed this long, thank you because we did go a little long. Hopefully you've enjoyed it. Um, you know, give us a like, give us a follow, positive review, negative review. Can't leave the witness. Give those comments on the YouTube channel. All that stuff really helps the algorithms, but we really appreciate everybody joining us for episode 201 of Facts versus Feelings. Um, you know, this was fun talking about that consumer, which, you know, there's some pros and some cons, but overall, consumers feel pretty darn good. Sonu, thank you for doing this late. I know this is later than we've ever done one of these, but because of my travel schedule, I've got about an eight-hour, well, let's hope about a seven-hour and twenty-minute drive by myself. Hopefully, no tornado is a terrestrial tornado. When my phone buzzes a tornado take cover, I'm like, oh, that's not good. So let's hope we don't have that tomorrow when I'm driving back from um state college up here in Pennsylvania. So everybody, thank you so much for joining us. We'll be back next week as always. We'll see you then. Take care. Thank you. Information provided on facts versus feelings with some of our geeks and Ryan Dietrich are for general information only and are not intended to provide specific advice or recommendations for any individual. The statements and opinions of show guests may not be reflective of CWM LLC or its affiliates. Past performance is no guarantee of future results. All indices are unmanaged and may not be invested in directly. Investing involves risk, including possible loss of principal. No strategy assures success or protects against loss. To determine what may be appropriate for you, consult with your attorney, accountant, financial, or tax advisor prior to investing. Guests on facts versus feelings are not affiliated with CWM or L Cha
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