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
Want the Rainbow? Put Up With the Rain (FvF Ep. 203)
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In Episode 203 of Facts vs Feelings, Carson Group’s Ryan Detrick, Chief Market Strategist, and Sonu Varghese, Chief Macro Strategist, tackle a surprise caller's question on why oil and gas prices aren't higher given ongoing disruptions in the Strait of Hormuz. The hosts break down global oil dynamics, including China's massive strategic petroleum reserves, economic cooling,
and EV adoption, as well as the impact of refining margins ("crack spreads") and Ukrainian strikes on Russian refineries.
Later in the episode, the team pays tribute to the legendary Dolly Parton and uses her timeless wisdom ("if you want the rainbow, you gotta put up with the rain") to frame long-term market resilience. Plus, they recap a surprisingly strong August for equities, analyze the tech sector's software surge, review blockbuster Nvidia earnings, and look back at historical market shocks like the 1998 Long-Term Capital Management crisis.
[Key Takeaways]
- Despite severe supply shocks in the Strait of Hormuz, global oil prices have been cushioned by China's strategic petroleum reserves (SPR), slower domestic economic growth, and aggressive moves into electric vehicles (EVs).
- Elevated gas and diesel prices at the pump are driven not only by crude oil costs, but also by high refining margins ("crack spreads"), which have remained stretched due to attacks on Russian refining infrastructure.
- Defying historical seasonal weakness, the S&P 500 gained roughly 2.7% in August. Leadership rotated beyond chip stocks into beaten-down areas like equal-weight software, cybersecurity, and energy.
- Nvidia posted record quarterly revenue of $96.2 billion (up 106% year-over-year), with CEO Jensen Huang emphasizing that demand and AI compute acceleration remain robust.
- Referencing historical events like the 1998 Long-Term Capital Management crisis, the hosts remind investors that every year features scary headlines and bad days, but long-term investors must endure short-term "rain" to capture market gains.
Jump to:
0:00 — Surprise Caller on Gas Prices
1:35 — Why Oil Is Not $200
4:10 — China’s Demand and SPR Release
6:10 — Crack Spreads and Refining Margins
8:02 — Listener Shoutouts and Bike Bus
9:28 — Dolly Parton and Market Perspective
13:31 — 1998 LTCM and Bad Market Days
15:35 — August Recap and Sector Leaders
18:40 — Software Surge and AI Agents
22:41 — Nvidia Earnings and AI Demand
31:59 — Vendor Financing Hidden in Footnotes
39:12 — Jackson Hole and Rate Uncertainty
49:57 — Rising Yields and 1990s Parallels
58:21 — Jobs Data Risks and September Myths
1:07:23 — ISM Signals Hot Growth and Wrap
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
Cold Open And Listener Call
SPEAKER_01Welcome to the Facts versus Feelings Podcast. I'm your host, Ryan Dieter, and I'm joined by my co-host, Tony Varke. Cutting through the noise, Ryan Dieter, Chief Micro Strategist, and Tonavarke, Chief Macro Strategist. Taking out the board and helping investors focus on what really matters. And we are back, everybody, episode 203 of Carson's Facts versus Feelings. Ryan and Sonu is always Whoa, whoa, whoa, whoa, what's that, Sonu? Sonu, I think we have to do that. Somebody's getting giving us a call. Is someone calling us on our podcast? Who could this be? Let's answer the phone right now.
SPEAKER_00Hey Sonu. Just wanted to let you guys know. I I never miss, I know I tell you this, I never miss your episode, but I have a question. And I think there's probably a lot of people having this question. Gas prices are up, but they're only up a dollar more than they were before the war started. And we've been hearing for all, I mean, for uh two months now that we're right at the edge of global collapse in inventory. And I haven't heard you guys talk about it in a while. Why is it so yeah, gas is higher, oil is higher, but with almost no traffic through the strait, uh, how are we not like double the price that we were? It just seems like am I missing something here?
SPEAKER_01All right, yes, and that was Omani Carson with a very special
Why Oil Is Not At 200
SPEAKER_01call. He's a uh weekly listener to this very podcast. So thank you to Omani, um, founder and chairman of the board here at Carson. So Sono, I mean, listen, that's a great question. We we I I wouldn't say gloss over the fact that a lot of stuff's happening, yet when you go to the pump, I mean you're paying more, but it's not like a whole bunch more. And that's a really good question. Why in the world aren't we paying seven, eight bucks a barrel when every time we turn around, this war in um you know the Middle East is not slowing down? And again, things going through the straight, it's virtually back to zero. Well, not zero, but it it's not many, right?
SPEAKER_03Yeah, no, look, gas prices are over four dollars a gallon. To be clear, that is actually the highest we've seen gas prices in a very long time, including 2022 for this period period of the year. Right? This is close to the end of summer driving season. Usually gas prices start pulling back after the summer driving season. We're not seeing that. Gas prices still elevated, even diesel prices, it's close to 560, 565 a gallon, which is close to the highest we've seen. So you know, we this is close to what we saw back in March and April. You know, when this price is sort of peaking. Now, as you said, the crisis hasn't gone gone away. Every few weeks we hear, oh, there's a deal. Two weeks later, oh, Iran's struck some ships, the US has struck some Iranian, you know, bases, things like that. So this thing continues. If you ask me, my view is that this is probably going to continue in some shape or form for you know, maybe another year. My guess is we we'll be here a year from now talking about how this create of Hermes is still sort of shocked, right? It's not fully open again because I just don't see both the sides, the US and Iran getting to the table and coming to a D. That gets to okay, what about oil and then gas prices? Oil has gone up recently, it's close to like I'm looking at WTI prices of $88 a barrel. Rent, which is a global benchmark, that's up over $90 a barrel. And now you look at gasoline prices. Wait a minute, you know, two things. One is why isn't oil at $200 a barrel given the straight of hormones is sort of close. There are a few things that there's some discrepancy about you know how much oil is getting through the straight of hormones. The US government says it's close to like nine, 10 million millions of barrels per day. People who track this thing very closely, there's I follow tanker trackers, Kepler, things like that, they say it's much lower, right? Set aside, who do you believe, right? Oil prices are going up, gas prices sort of elevated, but to your point, and Omani's question why aren't gas prices at $6 a barrel? Why isn't oil at $200 a barrel? The big and the answer, the short answer there is China. You rewind back to the start of the year. We came in with massive inventories, oil was down to like $65 a barrel, it was getting close to $60 a barrel. I think it went below that, even WTI. So there was a glut, right? And then we got the crisis. We started to work off that glut. That was a reason why, even during the crisis, we didn't get to even $150 a barrel. We got to like $120, something like that, right?
SPEAKER_01Right.
SPEAKER_03But okay, and then we started releasing oil from the our strategic petroleum reserve. This SPR is now to its lowest level in like three to four decades or something. So there's not much more to go, you would think. They still they'll still release some, I think. But I think the big answer is China, right? Okay. A couple of things have happened in China. So China's SPR is maybe three to four times the size of ours, their strategic petroleum reserves over a billion barrels, right? They've been releasing that. So there's more supply coming from that side. There's also demand destruction. China's economy is not doing great, right? We just got some new numbers yesterday as well. It's not doing great. Consumption is lower, and they've been making a huge push into EVs as well, right? So you don't have China, the Chinese competing for Middle East barrels of oil, which means your Thailand, Vietnam, Indians of the world can get that oil, you know, what little oil is coming out of the Middle East. And I think that's essentially why oil is not at $200 a barrel. But you know what? I think if oil had gone to $200 a barrel, gas price had gone to $6 a gallon, then pulled back to let's say $3 a gallon, I think people would have been like, okay, we're over it. The problem is we're continuously paying. Now what? We've been paying over $4 a gallon for five months.
SPEAKER_04Oh, yeah.
SPEAKER_03And we may be paying this for another year. That's the problem, right? And then that sticks in people's head. It's like, oh gosh, the gas prices are never going down. I think that's an
Crack Spreads And Diesel Squeeze
SPEAKER_03issue. The other final thing is two things determine gas prices. It's not just the price of oil, it's something called a crack spread as well. It's a refining margin, right? About 50% of what you see at the pump, your the price you pay at the pump comes from oil prices. Okay, oil goes up, that goes up, oil goes down, same thing. But it's not fully, you know, it's not 100% oil prices. It's uh you know, 25-30% is also crack spreads, the rest is marketing, things like that. The crack spread is how much margins are refiners mark making. Right now, refiners are making massive margins, right? It gets to the fact that one person's margin expansion is another person's inflation, right? You and I have talked about that. Diesel margins are blowing up across the world, and that's because the other thing that's happening is the Ukrainians have hit so many Russian bases. I'm sure all of you probably seen it on the news here and there. Ukraine's, I don't know, I don't want I don't know if they've got the upper hand at the war, but they're really hitting Russia hard. They're hitting Russian refineries, which means it's hard to get products out. What do refineries do? They convert oil into products like diesel and things like that. It's harder to get that. So our refineries are running at full tilt, and that's why refining margins are elevated. Diesel margins are you know much higher than they were even in 2022. And I think this continues for a while. And so, yes, it it's a it's good news that oil gas prices aren't higher, but that's mostly because of China. Will it go down from here? I don't know. Looking at you know the situation of the world we are in today.
SPEAKER_01Well, you know, great summary there. Um again, shout out to Amani for that great question. I was thinking like of the weekly listeners that we know listen every week. So I was thinking off the top of my head, Jeremy Wilner, shout out to Jeremy, and um John Stevens, shout out to John. Those are two off the top of my head. I know listen every single week because they give us a lot of feedback and we really appreciate it. And I know there's a lot more out there, so thank you to everybody who listens to our podcast every single week.
Shoutouts And The Bike Bus
SPEAKER_03Some people I see on my uh kids' playground, by the way. And and speaking of kids' playground, today I was part do you know what a bike bus is, right? No, okay, so I didn't know what it was either until a few months ago. So some parents uh apparently it's a thing that's across the US. Uh some parents in the school organize a bike train. So kids get to, you know, like 50, 60 kids get to bike to school on that day. We start off, you know, maybe, you know, instead of walking to school 15 minutes before school starts, we start this old process of we meet at one place about 40 minutes before school starts. Everyone bikes together, we take a long road, and we probably pardon my language, piss off a whole bunch of drivers who are looking to cross streets because you have 50, 60 kids going. So I just got back from that. And so if I'm sweating, that's why. I just got off the bike bus.
SPEAKER_01It's been really hot. You and I hung out in Chicago last week at a blast uh with the Carson uh Great Lakes team up there. Um is it hot in Chicago? Were you sweating?
SPEAKER_03I was you know this morning. You know, if you look at me like, oh, that guy sweats a lot, and you probably know why. But no, it's it's actually pretty pleasant. It's about 75 degrees. I shouldn't complain, but you know, a little bit of activity, and there I am.
SPEAKER_01Yeah, good for you. So um you mentioned the word crack spreads. It's one of those things. I remember hearing that a lot, like in 2008 when oil was peaking. You know, now we're hearing those words again. So um, very interesting discussion for sure. So, Sona, let's get into it though. Again, episode 203. Uh, we did lose a legend last week. Dolly Parton passed away at 80 years old.
Dolly Parton And Market Perspective
SPEAKER_01I love her quote. She says, you know, if you want to, if you want the rainbow, you got to put up with the rain. And then you can take that with life. You can take that with markets. We're gonna talk about September, it's usually rough. We've maybe got a couple down days in a row. And just, you know, you've been all over this, but since 2019, SP is up 155%. Uh, K-Shiller housing index is up what, 50 to 55 percent. Yet we had a hundred-year pandemic and a 34% bear market in the middle of that. 2022, a 25% bear market over 10 weeks, and bonds did horribly, gave you really no diversification at all. 2023, we had the regional bank crisis in March. 2024, August, we had the um yin carry trade. 25, we had a near bear market over all the trade stuff. In 26, we have a war with oil that won't go down, like you just said. So, you know, but you're up 155% over that time frame. But you had to put up with a lot of rain to get there. So, again, shout out to Dolly. I grew up in Ohio, as I talked about before, Cincinnati or southwestern Ohio. I live in Cincinnati now, Springfield, Ohio is where I'm from. But my mom, what we always go down to uh the Smoky Mountains often for uh, you know, trips and stuff. Uh Seaverville, Gatlinburg, Pigeon Forge, all that stuff. So some of my greatest, I was thinking about it after Dolly passed, like some of my best childhood memories of going with some other families, just down to the Smoky Mountains and goofball and having fun. And yeah, but Dolly was, I mean, if you don't know her, she's bigger than life in that part of the world. And you see all the cool tributes to her and just the way she was, how she she even said it like, you know, she looks one way, but you better, you know, you might have an opinion of her, but oh, she's ruthless on the other side, and she was just an incredible businesswoman and just an incredible um uh philanthropist who just cared about people and all types of stuff. Now, growing up in the Middle East, like you did for school, then obviously India, was she um was she really big over there? How I mean I know you you love Jean-Claude Bandamme and you love um you know Arnold and was she on the level with all those guys, Stallone or not quite?
SPEAKER_03Definitely nobody's at the level of Stallone. I should say, ah, good point. Yeah, you're you know, you're right, you're right. Yeah, but Dolly seems so nice. I mean, just reading about her and no, it was after coming in because the two genres of music that wasn't a big thing back when I was growing up, where in the Middle East and the India, too, going to boarding school there. Uh well, I think most of Asia are you know two genres that were very closely tied to I think the American experience country and rap. Okay, never made it big, so we didn't listen to too much of that. Set aside, you know, your uh ice ice baby and you know MC Hammer and things like that, right? The ones that made it into the Grammys and things, yeah, you hear that, but otherwise, rap and country, which I think is very tied to a very localized experience, localized our American experience. I you know, and I I would say someone like Bruce Springsteen, who I'm a massive fan of you know from childhood, that was very different because he talks about when I think about American the American experience, I think about Bruce, right? Sure, it's almost like I have a ritual every time I fly out of the country. I don't know if you if I've told this before, when I fly back, when I fly back to the country, I always have to listen to Bruce Springsteen. I feel like that's Americana for me, right? Okay, so I it's just a thing I do not and but Dolly, no, I I I mean we had a few songs, the the one she sang with what Ketty Rogers, Islands of the Stream, that that was fantastic. So Kenny Rogers ironically was sort of big there, you know. We like I remember listening to The Gambler and Coward of the County and all of that stuff, right? But Dolly, except for these few songs, and then I think when I first heard of her, I think my earliest memory was listening to Whitney Houston saying, I will always love you. Exactly. And then somebody saying, Oh, she didn't actually write the song, right? And it was this other person called Dolly Parton, who seemed pretty larger than life, right? Now I'm reading about her. It's like goodness, the imagination library and just her business savvy.
SPEAKER_01I mean, she seems like an incredible woman. What can you say? Yeah, I think I think a lot of people were realizing that that Whitney Houston song was not written by Whitney Houston. I mean, people might have known it, but maybe forgot over time. Um, so and I I think at the at the end, Sonu said he's actually gonna sing I Will Always Love You. Um, so just stay tuned, everybody. Stay tuned.
SPEAKER_03Um before that, but we'll end. So don't do it now. Don't log off now.
SPEAKER_01All right, so let's get done, let's get into some stuff. So I I love looking at history. I know you you do too, and I didn't know this until just yesterday. But we're recording this on September 1st. Um, most
Bad Days Then August Recap
SPEAKER_01people listen to it you know later this week. Uh by the way, have a happy um Labor Day holiday, everybody. Hopefully it's a nice calm week for everybody and then a nice three-day weekend. But on August 31st, 1998, the SP 500 in one day. Just imagine this happened today, by the way. In one day fell 6.8% in one day. That was the Russian ruble crisis. Okay. Russian default. Long-term capital management, a very, very large hedge fund with I was a joke. They they they were fine when they had like one Nobel Prize winner. Once they hired two or three, that's when they knew they were in trouble. Something like that. I paraphrased it. Um, and so anyway, the large hedge fund went under, I mean, down almost 7% one day. And then you look up Sonu and you look up, but end of the year, the SP gained 28% in 1998. I mean, just wild, but I think my what I'm hammering home here, and this is a concept we've talked about for years. Every year has a bad day. Even some of the best years have a bad day or two. We had that 2% drop a couple weeks ago. Um, the SP is still 13, 12, 13 right now. We might have another couple, in fact, we probably will have another couple bad days coming up to this election in September. Who knows? It may rain, right? That's wild. It might rain. Get your umbrellas, it might rain. Um, so let's see. Well, how do we want to start? We want to start with August. Let's start with August. Let's start with August. So, August historically is not that great of a month. We were talking like we didn't think that would be the case. Maybe we can have um, you know, an okay August SP gain close to 3%, down a little bit on that last day. Uh, suddenly, what I think stood out though is tech came soaring back. I mean, let's not forget it was July, the momentum trade blew up, semiconductors really had a lot of trouble. A lot of people felt very scarred. Then you look into the day, and the SP was like flat the month of actually positive on total return basis. Um, but a lot of people felt pretty badly because of that momentum trade, which so many people are in, really capsized. Uh, but then you know, you peel back the onion, energy did well, technology did well, uh, what communication services, healthcare did well because of the biotech stuff that we talked about last week. But you had some laggards. What was your take on the action in August?
SPEAKER_03So I didn't send this chart, Carter. I can send this up to show sector returns for uh uh August and year today. So to Ryan's point, energy was up there, up over seven percent. Tech was up there six percent. Remember the SP 500 gained 2.7 percent for the month, which is pretty, you know, it's not shaggy at all.
SPEAKER_01No, best in five years, best or best best in yeah, but I think it's best in five years. Okay, pretty sure best in five or six years, but best in a while. Let's leave it there.
SPEAKER_03Yeah, so tech came back, and then it was sort of like quote unquote a motley crew of sectors that did well. You had energy and materials up there, you had tech was Molly crew big in the in India?
SPEAKER_01Nah, a little bit, yes, yes.
SPEAKER_03But then I it was more it was more GNR and you know okay. Metallica was massive. Metallica and GNR are just massive, right?
SPEAKER_01I heard Molly Crew just yeah, made me think of Tommy Lee. What do I say?
SPEAKER_03No, I've listened to that though. Yeah, yeah. Oh yeah, that's so yeah, energy materials, and then you had healthcare in there as well, doing well, you know, the the Moderna news. Then tech and com services, you know, com services sort of sneakily. And I should say sneakily because it is still down close to five percent here today, or the first eight months of the year. But it's gained that's after gaining three percent. Or it it outperformed the SP 500, you know, on you know, fairly long, you know, three, four-week period in the month of August, especially. Right. And that's you know, we haven't seen that all year. Right. The other thing, last thing I would say amongst the sectors is industrials pulling back. And I think that gets to what's sort of happening under the hood. Yes, tech has come back, tech had a big month, but I think it's a different sort of tech. Back in May and June, I think it's been April, May, June, we are talking about tech. It was mostly chips we're talking about. Sure. And software was left for dead. I think what's pulled tech up, and chips are sort of doing okay, it depends on which one. Nvidia had a pretty bad run going into earnings. We'll spend some time talking about NVIDIA, and then it had a big rally as well. So I think it was good for the month. But yeah, it was mostly software pulling tech up, and I think that's also you know, com services, not quite software, but you had good alphabet and good meta in there as well. So, yeah, so it's a different, if you open up the hood, it's a different set of tech companies that did well relative to what we saw in April, May and June.
SPEAKER_01So let's dive into that because that's interesting. Um, SP, I'm sorry, on a monthly basis, on a closing monthly basis, if you look at like an equal
Software Rebound And AI Agents
SPEAKER_01weight software ETF Sony, literally close the highest level ever. Now, if you would have told anybody that back in April and May when it's I'm hopefully I can say the word, I always screw this word up. The SaaS Pocalypse. I think I said it right. Yes, yes, that's right. I don't think I can say that. Whatever. I'm not gonna say it again, but I got it out okay. Uh the SaaSpocalypse happened, and but now software has come soaring back. It had one of its best months in years last month, but on an equal weight basis, is it incredible? Uh, you had um Salesforce come out and jumped 21% last Thursday, really helping software. And they, yeah, they beat and they raise all this stuff, but they said, you know what? We're actually gonna use AI agents to help us grow. They said that if people use Salesforce, the AI agents are gonna come back the next day and say, hey, you used us this way, maybe you should use it this way, this way, and this way. So instead of being eliminated, like we were told back, you know, four or five months ago by these AI, AI chatbots, they're actually saying, you know what, let's leverage them and make our service better. So that's again, no rec we we got dang this week. No recommendations on any stocks we're talking about. We're trying to just be very factual and be very clear on that. Um, so but that's that's that's pretty cool, and and it is what it is. But like you said, it's a different type of leadership, lasting for me than jump in, Sony. Life blood of bull markets rotation. We said at the middle of the year, when all those chip stocks are up two, three, six hundred percent, we said, you know, do you really want them to be up that much again? Probably not. I mean, that that feels a little bubblish. What's happening? The chip stocks are hanging in there, like NVIDIA stock price has literally been flat for months. We'll talk about their earnings soon. But now the baton has been passed to the beaten-up, underloved, underappreciated software names. And you know what? Also, cybersecurity, cybersecurity is really something to do with that baton. I don't know how much that is in the overall software world. I know it lives there. That's really a we need to talk about that in one of our one of our internal calls, too. Because I'll tell you those uh cyber names looking really good here. Um, so anyway, that that's those some comments on tech. What else you want to talk about here? So, do you want to go to NVINVIA earnings or jumping on the other hand?
SPEAKER_03Yeah, last thing just last thing before mentioning NVIDIA earnings. We'll talk about yields as well. I mean, Warsh and Jackson Hole.
SPEAKER_01Uh I think we're talking about of course you will. You love Wars and Jackson Hole. Of course you will.
SPEAKER_03Yield has quoted the chart I fit putting up for a few years.
SPEAKER_01I'm gonna point that out. We're gonna point that out. I think he did. I think he follows you on X. I'd honest the guy. We'll talk about that in a second. Put a pin in that. Yeah.
SPEAKER_03So anyway, I was talking about industrials going down two and a half percent in August, and industrials have been very correlated with the tech trade. And that gets to it's not the same tech that did well in August. I think industrials is sort of very correlated with chips, yeah, because you know, whether it's a catapult is at the world, they're very tied to the data center, the infrastructure, hits and troubles side of things. Whereas what pulled tech up, as we just talked about, was mostly software. So industrials is one I'm closely watching, right? You don't want to see industrials starting continue to pull back.
SPEAKER_01Yeah, right, that's momentum. Industrials are group we we don't have a problem with. We like industrials, so I'm with you. That's definitely something that's kind of losing, but then the other side financials are hanging in there, tech's coming back. So, yeah, you know, I mean, listen, you can't get them all right, but it we definitely don't want to lose industrials. Now, shout out to our buddy Frank Capillary over Cap Thesis, he pointed this out. It's more interesting when you look back on the month, according to Frank, and I'm sure he's right. SP 500 gained 3.3 percent the first two days of August, literally gained 2.6 or 2.7 percent for the whole month. So, like the whole monthly gains were right at the beginning. So that's kind of interesting. Um we'll talk about that from Frank there.
SPEAKER_03It's almost like a tail of two halves, right? We really talk about what happened with the yields because what happened is I mean, just briefly coming into the month, we got a big tailwind from the fact that oh, the Fed's not going to hike, they didn't hike in July. Maybe you get a dovish Fed. We got CPI PPI relatively soft, and then in the back half of the month, what do we see? Yields started to rise. People are worried about this stuff. Yeah, they ever comes out and gives sort of a hawkish maybe speech. So we'll talk about that anyway.
SPEAKER_01So, I mean, let me just do it. The two big events last week, and we're hinting at both of them. Let's just rip the band-aid off NVIDIA earnings and Jackson Hole. Sony, you you call it. Which one do we want to talk about first? Let's talk about those two big events from last week, then we'll go some different routes after this. What do you want to do?
SPEAKER_03Nvidia, I think that's a big macro story. Let's do NVIDIA.
SPEAKER_01Yeah, I mean, I'll just kind of set it up then. I mean, you've got all the numbers, incredible, but what stood out the stock was up. Almost nine percent on Thursday. Thursday's a
Nvidia Earnings And Vendor Financing
SPEAKER_01pretty good day for like tech and AI and software, but really look under the service. Actually, a lot of stocks were negative that day across other sectors. So tech did well, but other groups didn't. But NVIDIA was up like nine percent. And honestly, for the week, it was up like 1%, you know. So it's like it's a bit in this big old range. But still, what we heard repeatedly, and we talked about it, I believe, last week. The last four, the last five earnings seasons, uh, NVIDIA dropped you know, a decent amount after really, really strong earnings. Now, that bar maybe was really, really high, but they came out and maybe the bar was a little bit lower because everybody on CNBC, because I know I was on the network, listening to everybody, pointed out the same thing. Well, the stock always drops after earnings, as soon as you start hearing that on TV. I am a contributor, so listen, I'm not ripping CNBC, but you know, it's like everybody pointed out how the stock usually did poorly after earnings. What did Jim Kramer say? Oh, I'm not sure. I don't know. Well, Jim, Jim, Jim's Jim named his dog NVIDIA way back in the day, right? So he he he did all right on that stock. Um, but but the reality is it had a solid reaction to earnings. Um, just how good were these? Were these numbers are just wild, what you're about to read. It's like we're almost taking it for granted when you start talking billions and billions of dollars. How good were these earnings? Was it wasn't it? I think I saw the greatest earnings season ever in terms of uh in terms of profits. Am I wrong there?
SPEAKER_03No, no, I I mean these are going up. And look, the numbers are fantastic, right? So I'm gonna separate what I'm gonna say into two pieces. One is I'll put it this way. One is a story, you'll recap it, but it's a story most of you have probably been hearing or in seen on the headlines and you know news reports. The other story, which I'll talk about, is what's in the footnotes, right? Which I think is a very big story. The footnotes are very large, actually. It's not a small story. So, anyway, coming back to the top, Jensen. I think this underlines it, right? What Jensen said is compute is revenue and demand is accelerating. That means the AI wave continues, right? Second quarter revenue record 96.2 billion, 92 billion is what was expected. That's an 18 increase quarter over quarter. It's 106 year over year. Two years ago. So that's keep that in your head. 96 billion. Two years ago today, it was 30 billion. 30 billion, it got to 96 billion. And this is just one quarter revenue. That is just mind-boggling.
SPEAKER_01Let me just point out we were being told it was a bubble back then. People were saying, ah, it's a bubble back then. So yeah, not so much.
SPEAKER_03So, and I think actually revenue is the story. Profit, okay. I think, yes, profits, you know, net income, according to Gab, you know, generally accepted accounting principles. And this is where things get a little murky, right? Uh, that was a record close to 60 billion, 59.7 billion. It was up 126 year over year, it was up only 2% quarter over quarter. Now a chunk of this was equity investment gains, right? It's like they have an equity portfolio. Bunch of it is in privately held comp companies, could be like anthropic and open AI, things like that. That was about $8 billion this quarter. It's not last quarter, it was larger, it was about 16 billion, but still eight billion is, you know, hey, my portfolio gained. So my net income, my profit went out, right? That's not the only thing. But I think that's actually, I think the profit stuff is a side story here. Because remember what I said, like the revenue is what you have to look at to see, you know, we've talked about this, right? One person's spending is another person's revenue. Where is the revenue coming from? Right? Data centers, so you talk about 92, 96 billion was the revenue number last quarter. It's up 106% year over year, so it's doubled from last year. And 93% of that, 89 billion is from data centers, right? Which is fine, right? That's up 117% year over year, right? That 89 billion. Now, there are three pieces to this. Connor, we can put this chart up, and who's spending this money for NVIDIA to get the revenue? In your head, you're thinking it's a hyperscalers. It's your Amazons, Googles, or Alphabet, you know, I guess they're saying Google, Google, and you know, all those meta, all those companies, it's a hyperscalers spending. Sure. But that wasn't all of it. What's interesting is out of that 89 billion, 49 billion, 48.7 billion was actually hyperscalers. And that's up 100% year over year. But what's actually starting to be the marginal driver of revenue growth? It's something called AI clouds, industrial and enterprises. It's like it's all the Nvidia's bucket for AI native clouds, these neo clouds. I explained this last week, I think. You know, on-premise enterprises. Basically, think about it this way everyone who is not a hyperscaler, right? That revenue was 40 billion dollars. It's up hundred and close to 140% year over year. Right? So that's the marginal driver of growth. And if you think, why is this important? And that's because it tells you about you know, how is this AI boom being funded? If it's coming from hyperscalers, yeah, Amazon's alphabet's metas of the world, they have advertising revenue. They still have cash flow, it's dwindling, but a lot of their spending is coming from cash flow. With everyone else, it's not cash flow, it's debt. So the fact that Nvidia's revenue is starting to grow, the marginal driver of that revenue growth is coming from all these non-hyperscalers, that also tells you that debt is increasing. Because all these neo clouds and things like that, they pay NVIDIA with borrowed money. Hyperscalers pay out of cash flow. The other thing, one last thing before I take a break, and then you know, I want to get your thoughts on this as well. The other is if you look at free cash flow is about 21 billion for Nvidia, that's down from 49 billion in the first quarter. And it's all something called working capital. Basically, I'll I'll explain that. Receivables increase receivables out of that, out of their revenue, receivables are about 22 billion. The days of sale outstanding was increased from 45 days to 60 days. Basically, what is happening? Nvidia is financing its own customers' purchases. Right? It's this is classic vendor financing. Think about it this way: say there's a car dealer who stops saying, you know what, when you take usually a car dealer, what do they say? When you drive the car off the lot, you gotta pay me. Instead, what if they start saying, you know, yeah, you can drive it off, but pay me in two months? Sales look good, probably look fantastic, but the dealer is now effectively lending the buyer some money. Now the loan is just it's a payment term and things like that, right? So that's basically what's happening here, and which is why Nvidia in the same quarter, it's like, wait a minute, they're making all this, they're making tons of cash, right? Tons of money, sure, but they borrowed 25 billion. They took long-term debt, you know, from seven billion dollars to 32 billion, right? And that so some of this lending that they're doing to their customers is also by raising their own debt on the other side, now their investment grade. So that's you know, like that that's a big picture of what's happening on the revenue side. This is all on, you know, I'll get to the footnotes, but quickly want to get your thoughts as well.
SPEAKER_01I said a lot there, you know. The stock in one day, it was up again 8.7 percent last Thursday. That comes out to $442 billion in market cap in one day. Obviously, one of the largest one-day market cap gains we've ever seen. Again, on the week, though, still only up about a percent or so. Um, you know, the gross margins, maybe you mentioned this or not, but I'll just reiterate it. Gross margins hung tough at 75%. But again, during the uh, I guess it was doing the what, the QA session or so. Uh Jensen pointed out that revenue next fiscal year would be 70%. Expectation was 44%. Expectations were down around 44 to 45 percent. And he also said it'd be closer to 100 absent supply issues. So, you know, they just they literally can't make this stuff fast enough. Demand is that strong. When he said that after hours, that's when the stock really, really pops. So, like you said, I guess it's more of a revenue story. Yes, they're tapping into their cash flows, much like a lot of the other hyperscalers, which we've been talking about for the last couple of months, along with a lot of other people, but they're still making a lot of money. Um, you know, I guess we're starting to see some real benefits from it. I guess have you heard the numbers? Like you said, is it 89 billion? Yeah, data center revenue, 89 billion. Yeah, that's the one I mentioned. If you know off the top of your head, and maybe we can just ask AI, but how much of that is the five major hyperscalers or four? That's the one I said.
SPEAKER_03I mean, out of maybe nine billion 49, that's the chart we put up. So out of 49 billion hyperscalers, but the rest of it is all these non-hyperscalers, and that's what I said is that's where the marginal growth is. The growth is not in the hyperscale, less than I expected. I thought it'd be higher than that. So okay. The growth of non-hyperscalers right now, because over the last year, non-hyperscaler revenue, revenue accruing to NVIDIA grew 140%. Hyperscaler revenue is still growing, but it grew 100%, right? And that's why I mentioned hyperscalers when they spend, they mostly spend out of cash flows.
SPEAKER_04Yeah, everyone else takes on debt, right?
SPEAKER_03And then, you know, you and I talk about the circular financing thing, and now that gets to the footnotes piece of it, which is large. The footnotes is a big piece, and I think the footnotes are a macro story as well, because all of this stuff is, you know, all the non-hyperscalers, how are they paying Nvidia? They're raising debt, right? So, and and then I already talk about receivables and things like that, right? So, there's even on you know, in the regular part of their earnings statement, balance sheet, all that, you see all this stuff. Then you go to the footnotes, supply and capacity commitments rose from 119 billion to 280 billion. It exploded, right? That's mostly memory because Nvidia needs memory as well when they're doing the stuff, and they're basically saying, you know what, there's not enough memory. Prices are going up. We need to get a hold of this. So they're already making commitments to this stuff. We can put this chart up showing off balance sheets commitments. It basically doubled. In addition to you know, memory and things like that. There's also 29 billion for cloud services, 25 billion for leases that haven't started yet. I'll come to that because it was a very interesting article in the Wall Street Journal yesterday: 25 billion for equity, another 8 billion for more capex. Anyway, total future commitments rose to about 366 billion. And that was about 100, 120 billion in the first quarter. And then you had also guarantees. They're basically saying, Oh, you guys lease the space. I'll talk about something that's happening in your neck of the woods, which is a SB energy port spike data center that's being leased to OpenAI. Nvidia saying, Oh, you guys go ahead and do it, we'll guarantee it. Right? So, what are those guarantees work? It's about three and a half billion on AI Cloud Partner leases, another 105 billion was signed in August. So, anyway, all this is a total commitments and guarantees that are off balance sheet. That's not on top, that's not in the regular stuff, it's in the footnotes. That's about over 500 billion dollars. In the first quarter, it was about 218 billion, right? So that is massive. And this gets to yesterday's piece in the World Wall Street Journal. Anthropic signed a $35 billion cloud deal with this company called Lambda. And this is to, you know, this is for a data center in the HUT 8. It's a it's a site in Texas. And who's holding the lease there? It's actually Nvidia, right? And this is on the back of another anthropic deal with another country company called NScale, and that's also an NVIDIA blacked neo cloud. So, what's making all this stuff work? Because Anthropic doesn't have a good credit rating. I mean, they're private, and they don't they don't invest in great. What makes it work is Nvidia's credit rating, right? So HUT 8 needs an investment grade tenant to raise debt. Anthropic is not that. Lambda cannot do it by themselves, they can't procure a campus of that massive size by themselves. And that is why you need Nvidia to come in and say, oh no, we'll guarantee it. We'll backstop this. And by the way, it's not just Nvidia, the same Hut 8 is also backstop separately by Alphabet. Alphabet is guaranteeing another Hut 8, you know, it's another data processing center, except they're using Google's chips, something called Tensor Processing Units that's competing with Nvidia's chips, and that's a project for Anthropic. And Broadcom, you know, uh is also backing that to about $100 billion on their balance sheet to lease chips to Anthropic for this heart aid center. Anyway, all this to say there are three vendors financing the same buyer, all through structures that are off balance sheet. It's not showing up on the top of the balance sheet. You have to go and look. Now we have AI to do this, thankfully, but you can go look at the footnotes, right? Wow, that's what's happening under the hood. But these are massive numbers, not small numbers. So a simple way to explain this, right? The balance sheet is what you own and what you owe today. The footnotes is what you sign up for. And there are two kinds of it. One is promises to buy, supply and capacity commitments. Like, I'm gonna buy these memory chips from Samsung or you know, SKINix, whatever, right? And then there are promises to pay, it's the guarantees if somebody else cannot pay, right? That's like, oh, if this company goes under, we'll backstop it, we'll pay for it.
SPEAKER_04Yep.
SPEAKER_03And so NVIDIA is guaranteeing the leases. So because of that, the site gets built, right? And this is all real activity, by the way. Electricians getting hired, people doing the pooling. It's all real stuff, it's not fake. There is a lot of financial, it's it's all financial engineering, but in support of real activity. So the site gets filled with NVIDIA chips, NVIDIA books the revenue, and they say, you know, each generation could mean 1.5 million GPUs, 150, 200 billion of their own sales. So no surprise, Jensen's coming in and saying, Oh, we're gonna increase revenues by 100, you know, like 100, 70 next year, next fiscal year. The thing is they're now underwriting demand for their own product, they're not just supplying it right now. I don't think any of this is a problem. I don't mean to sound bearish, but I think it's something to be aware of, right? It's definitely something to be aware of. Nvidia used to sell showels, now they're lending to prospectors the money for the showels, they're co-signing the lease on their claim, and they're pre-buying three years of steel as well. That's the way I would think about it.
SPEAKER_01Well, there's a lot there, Sonu. I was pretty impressive. You should go, you should uh you you you followed, you've done a lot of things.
SPEAKER_03This is in my daily notes, by the way. Like I didn't, I I I wanted to turn this in a blog, then I was like, maybe this is too much detail. I'll just leave it in my you know, stream of consciousness. But yes, there's a lot of things.
SPEAKER_01Um you kept saying, is it Hutt 8?
SPEAKER_03What's the name of that company? Hutt 8. Yeah, it that's a project in Texas, Hutt 8.
SPEAKER_01And you said Texas. So see, here's the problem. Every time you said I got hungry because Hard Eight, that's my favorite barbecue in the world, and that's that Texas pit style down there in Dallas. Um, anyway, hard eight, you got me hungry thinking about it. Um, so listen, there's a lot there. I mean, the stock's obviously on sideways for a couple months. I mean, everything you just mentioned, most people know, and I I know some bears point out a lot of these things, but you know, we're watching it, but it's um it's fascinating. I mean, I I don't think we have too much more to say. I think you kind of did a pretty good job.
SPEAKER_03This is the kind of thing when we let's say if this is a bubble, you know, maybe it is, right? Maybe we're not gonna know that for five years, ten years. Ten years from now, when you look back, you'd be like, oh yeah, it was so obvious. It was right there in the footnotes.
SPEAKER_01It was in the footnotes. Well, isn't it always in the footnotes? It's always in the footnotes. So on Thursday, uh IgV, that's the software ETF, not a recommendation, was up 7.4% for the best single day. Again, it's a software, it's a little bit different, but still kind of the same, same ballpark. Uh, best software day since April of 25. And previous times software had at least a 6% gain. So do they usually mark major lows and continue strength at least three to six months. So something to think about there. I mentioned already Salesforce up 23%. Best day since April 2020. As earnings expanded, earnings are strong, and they did a partnership with Claude Force to do more chatbot AI. And the CrowdStrike was up 21% on Thursday. That's the cybersecurity name. Uh, they increased guidance at a really strong quarter. So, again, there's a lot of companies that are um they're making a lot of money out there, and those are some that we mentioned. Now, um, I guess let's go to the Fed. The other big thing was Jackson Hole, the Fed annual symposium.
Jackson Hole And Rate Uncertainty
SPEAKER_01Yeah, well, I'll make it a lot of my notes. I had something I wanted to say about it. I got a lot to say about it. Yeah, the annual symposium put on by the Kansas City, more barbecue theme, the Kansas City Fed. Um, where are my notes for? There it is. There we need to get an invite to that, don't you think?
SPEAKER_03I mean, maybe somebody someone knows Jeff Schmidt at uh the Cats City Fed.
SPEAKER_02Maybe you know, you can finagle an invitation for Ryan and me to do a live facts with his feelings at Jackson Olix.
SPEAKER_01That would be neat. Just walk around and be like, excuse me, um, you know, whatever. Mr. Bissent, can you answer this for us? Um, actually, I don't even know if he's there, he might not even be there. But anyway, so it was it was interesting because we talked before the two other times. You get some water, soon. I'll try to talk for a couple minutes before break. Thank you. Um, the the two other times that um we had a Fed meeting, right, with Warsh the first two times. The market didn't like it. Now he didn't say a lot, okay? Both times are down one percent, got a Fed meeting coming up in September 16th. We'll wind all this together, but we dropped dropped two percent the last time, and I think a lot of it was market didn't like it because the guy didn't say anything. He said a bunch of nothing. He kind of he sounded like Greenspan. Now, here's what's unique about this at his first annual symposium out there uh in Wyoming, he said it was how many words was it? It's 3,500. You have a 3,500 words that's compared to only 2,200 last year. And in 2022, only 1,300 words, one of the least words ever for the prepared statements um that we had. Now, the most most in recent memory was in 2017. Janet Yellen had close to 5,000 words. He mentioned the word footnote, if you include the footnotes, which she didn't read it, but if you look at that as over 7,000 or so. So he apparently had a lot more to say. And we can put that chart up. We have uh the Carter Fed chair speech length. Yeah, there we go. Okay, so put that up, Connor. I mean, he actually said, hey, the economy looks pretty strong. Okay, we would agree there. Um, you know, he actually talked about inflation, though. He said for 65 weeks in a row, inflation above our target. He hadn't really mentioned inflation yet, and the market heard that. That's why I thought he was hawkish. There's probably some more things, and then he mentioned your chart you talk about all the time. Core PC, 178 components, like 54, 55 percent of them are above three percent. Literally, he cited that Sono. You've been all over that one, so I think he's following you on X to get his um information on what he should say. Um, I think we can put that chart up. You do you want to do uh Connor? We can put that chart up. Yep, the one yeah, the the core PCE. So Sono talk about it in a second. But the bottom line is inflation continues to broad now, and he kind of acknowledged that the market took it as hawkish. What he said. The odds of a hike continued to really jump a lot and even jumped early this week as well. As people had time to think about it, Sony. You've had a weekend to think about, if not more. Was he really that hawkish?
SPEAKER_03I don't know, I don't think so. I mean, he said a lot of hawkish things, to be clear, yeah. And he said the economy is running hot, to be clear. Okay, but I'm like, welcome to the party, pal. I mean, yeah, right. I mean, you and I've been talking about that for a while.
SPEAKER_01Six percent nominal GDP. I mean, okay, not doing that badly.
SPEAKER_03Last quarter was eight percent. Last quarter was eight percent, right? So he said, look, CapEx estimates and profit growth are running strong. We literally just talk about NVIDIA, okay. Credit spreads are tight. This is important because he says loan standards are at the easier rate, easier end of the historical range. And then he underlined it by saying policy isn't restrictive, policy is not restrictive. The labor market, interestingly, he said is consistent with full employment. Even I wouldn't go that far, and I'm optimistic about the labor market, but I don't know if I'd say it's a full employment. And interestingly, look, one thing a lot of uh Fed officials over the years have said is like, oh, wage growth is accelerating, so that's an inflation problem, or it's not, so that means inflation is gonna go down. He basically poo-pooed the whole notion. He basically said wage growth is pretty moderate, but he's also said wage growth's not been a reliable inflation signal for a long time. I kind of agree there. I mean, depends on you know which data point you pick and how you think about that. And then he said inflation's a bigger worry. PCE inflation, uh, like you said, he I I think let's just say he used our chart, right? I mean let's put that chart. Yeah, so it shows the distribution of 178 core PCE categories as goods and services, and it looks at you know how many items have over 3% year over year inflation. Just to give you some perspective, in December 2019, only 24% had three percent plus inflation, 10% actually had 4% plus inflation. Then you fast forward to June of 2022 when inflation hit the highest level in 40 plus years, and 72% of items had inflation above 3%. Fast forward to a year ago, July 2025, right? For you know, we got a little improvement, but it was still 47% of items with over three percent year over year inflation. Remember in 2019 it was 24%. So double that. What's happened over the last year? Well, things have gotten worse, right? Now 54% of items within the core PC basket have inflation over three percent. That is literally what Walsh cited, right? Inflation's a problem, but you would think, okay. Inflation's a problem, and he's telling us that you know the labor market is at full employment or maximum employment. By itself, you think, goodness, that's very harkish. Hike now. I mean, don't even wait for two weeks, hike today, right? But he gave no indication of that. He gave no indication of where it's almost like he served everything up, but he didn't serve spoons and forks for us to eat off the tape, you know, eat the food. Right? He gave no indication of where rights would go. Up front, he said, look, I'm not comfortable setting out the path for future policy. And he thinks, look, I mean, part of me doesn't disagree completely. He's saying oversharing Fed deliberations and overcommitting leads businesses, households astray, in his view, using his words, right? He said, say, he said, we shouldn't indulge a regime where markets are looking to the Fed for their next trade. Right? Okay. Okay, fight.
SPEAKER_01I mean, he he was saying that before he even got the job. Yeah, yeah. Nothing new.
SPEAKER_03Right, except that we are all still looking to that, right? Everyone still does that. Whether he likes it or not, we're still going to do that. And of course, keep in mind the treasury is also actively intervening in the bond market because Besson things, you know, yields don't reflect fundamentals, but that's a whole other thing. I'm curious. They both flew to Asheville, North Carolina yesterday for the G20 summit. Yeah, they were both on the same plane, so I wonder what they talked about. Oh, okay. So anyway, I I'd be interesting. I read all this as I think Walsh is sort of uh Neil Dutter mentioned this too. Shout out to Neil. Warsh sort of marking his views to the mark to the committee.
unknownRight?
SPEAKER_03He's like, this is where the committee is. I agree. And but I think you know, usually you think, okay, the Fed chair leads, whether it was Greenspan, whether it was Bernanke, Ellen, Powell. But now it comes down to 12 independent voters, and that's why uncertainty is high. I like something Guy Berger said. Walsh's idea seems to be tight to tighten policy by increasing uncertainty around rates rather than raising rates directly.
SPEAKER_01Interesting. Yeah, that's that's a good way to point out. Right?
SPEAKER_03I think that's I I don't know if that's his intention, but that's kind of what's happening. Because September, right high cards, as you said, before the meeting. So after, if you rewind all the way back to the July Fed meeting, remember we said markets rallied soon after that, right? Now part of that is earnings, earnings are strong, but earnings are strong even before the you know, going into earnings season, the first two weeks, even before the Fed meeting in July. But the Fed didn't raise rates. Everyone read that, okay, maybe we're not getting rate hikes in September. The rate hike probably for September pulled down to 35%. It went down to 30%, even lower than 30%. Then middle of the month, it started creeping higher a little bit just before Walsh's speech. It was about 35%. And then boom, after his speech, everyone thought it was hawkish. But given that he said, you know, he may have full employment, inflation's a problem. You think the probability of a rate hike should be 90% or 95%. But no, it went up to 60% this week. It's about 65%. So it's still closer to coin toss odds of 50% than it is to 100%.
SPEAKER_01I'll jump in. I've got some exact numbers here, and I know they're close to what you just said. A week before Jackson Hole is a 40% chance of a hike in September. The day before Jackson Hole is 35%. The day of a jump to 57. But I thought what was interesting is we came in on Monday and Tuesday, and now those odds are up over 60, right? Yeah, it's about 65%. Yeah, yeah. Even because I mean, every time he's spoken, it's like everyone sleeps on it. Next day comes in and say, uh no, never mind. But the market still kind of trickled a little bit higher. But I guess our base case as of this second son, do you still don't see a hike um on the 16th of this month?
SPEAKER_03It's very hard for me. And I don't want it to get like the I'm look looking at the odds right now. It's literally 66%. But that's still that's still closer to 50, right? It's not close, it's not even it's closer to 50 than even 90. Forget 100%. True, true. Usually, you know, the last several years. I mean, even when you and I have been doing this together, two weeks before a Fed meeting, we go into, you know, odds are what 80, 85 percent of you know, whether they hike or whether they cart or whatever it is, right? Or they keep rates unchanged. That's a lot of uncertainty. 66 is not that different from 50 percent.
SPEAKER_01Right. And we have some inflation data coming out before the next meeting. It's a job number right and a payroll report. Uh, we had a negative 23,000 payroll up print last month. That actually decreased things. Um, I had something else. Okay, he said, quote unquote, the trend in PCE is concerning. I know you you dove into that, but that was his that was his take. The 12-month change in PCE headline is 3.7 percent. So he he acknowledged those things. Um, you know, then he did say again, express the economy appears to have strengthened. Um, yeah, those are my my my notes there. Anything else we want to talk about? I mean, the bottom line just yesterday, the 10-year yield hit the highest level under uh President Trump's second term, up close to 380. I'm sorry, 480, up close to 480. Um, you know, now still it's kind of the 480 was the peak a couple years ago, but still, you know, that that that hasn't quite broken out yet, but it's getting close. And we talked about last week how the longer end of the curve has broken out. Um, I guess anyway, I mean we want to. I mean, we've we've hammered a lot here. Do you want to say anything else about Jackson Hole or you want to kind of jump in?
SPEAKER_03Yeah, look, yields are going out, going up 477. Now, like one thing you could say, oh, global yields are going up. So it shouldn't be a suppression. But I would argue that global yields are going up because US yields are going up. Because if the US is paying you more to park your money in the US, the rest of the world has to compete with that. It's correlated, right? So you would think yields go up. Whether global central banks like it or not is a different thing, but the global bond market is very correlated. So if US yields are going up, because you know, uh we talk about NVIDIA and the non-hyperscalers needing to borrow money to pay Nvidia, and that's where NVIDIA, a lot of NVIDIA's revenues growth is coming from. So that's competing with fiscal deficits.
SPEAKER_04Yeah. Right?
SPEAKER_03$2 trillion is what the government needs to borrow to fund itself, or is it overfund itself? And yeah, my goodness, it's not a surprise that I think the 10-year bond needs under I it's gonna sound like a call, but we've been underweight bonds since the beginning of the year. So yeah, I guess it is I would argue before that, right?
SPEAKER_01Even before that, yes, yes, definitely before, but yeah, definitely been pounding that table this year.
SPEAKER_03Yeah, that like 477. That's not surprising. Why not hire? I'm not saying it will go higher in the next week or two weeks, but yeah, I'm like, why not hire?
SPEAKER_01Yeah, I'll jump in there. You know, you look at real long term of the 10-year went up for 42 years, down for 42 years, bottom 2020. Now it's
Yields Inflationary Growth And Bonds
SPEAKER_01been up for about six years or so. I'm not saying it's gonna go for 42 years, but just saying, you know, sometimes these things can bounce a little bit. Now, you I love this uh conversation, I'll set it up. Connor, we've got I believe, did we send the chart of now versus 1990s? Did you send that one, Sonu?
SPEAKER_04Did we do that?
SPEAKER_01I didn't, but I can. I I let's do that because I mean you wrote a very thoughtful blog and just some things were were kicking around, but yeah, you pointed out, you know, if you look at like nominal growth in the late 1990s, it was up what around six percent, give or take on average, um, versus now since 2024, we're about 5.5 percent on average, so pretty close. And last quarter we were at eight, by the way. Yeah, exactly. Yeah, but then you look at the 10-year yield, it averaged about six percent during the late 90s, and we know we're nowhere near six percent now. And now listen, there's always you can pick flaws and issues with this, but as you point out, we had a surplus, a one percent deficit surplus of GDP back in the late 90s versus the six percent we have right now. That by itself should maybe pressure rates a little bit higher. Um, so again, this is a big picture look at it. So now I know there's more to it, but I I I I agree with you. I mean, again, I take a different look at things. I have a CMT behind my name. I see copper breaking out, I see agriculture breaking out.
SPEAKER_03So have it copper, let's let's put copper price up because let's put the copper price up.
SPEAKER_01There we go.
SPEAKER_03Yeah, let's put copper price, copper price up 11% year to date. It's up 39% over the past year to your point.
SPEAKER_01And the way I grew up learning from John Murphy, RIP John Murphy, uh passed away earlier this year. You know, intermarket analysis. When you see these commodity prices doing that, usually that means the 10-year yield is going to follow. And that's something we talk about at the start of this year. We talked about that. One of the one of our, I wouldn't even call it contrarian calls, but we said, hey, oil's probably gonna go up a lot this year just because it's gonna play catch up with all those other metals that went up a lot last year. Now, this year we're starting to see agriculture, starting to see some other base metals start to do well. Because we know gold and silver did its thing already, and they're still probably doing okay. But I mean, those are some things that I see that said maybe yields go higher. You've got these things you're looking at, and that's why we position the models we run. We manage billions of dollars here at Carson Group. And I think I heard we're up close to 70 billion dollars. I don't know if that's public yet, or not hoping they get in trouble for saying that. I mean, we're really growing, right? Carson Group's growing. So if you need a new home, your advisor, please reach out. We'd love to talk to you. And if you're a client that needs a good advisor, go to CarsonWealth.com. We know some good advisors, but the way we position our model sonar this year, it's not perfect. I mean, I wish we were all in AI semiconductors first half of the year. Let's be clear.
SPEAKER_03You know, I wish we were, but then they crash and timing would have to be perfect because in the beginning of the year, it was like SAS Pacela. I can't say it.
SPEAKER_01You you said it like SAS Pacelypes, whatever. Yeah, SAS, SAS, SAS pocalypse. Uh get out of that and go in software, you'd be, oh boy, you'd be sitting pretty much.
SPEAKER_03And then you switch to chips and then you switch back.
SPEAKER_01And yeah, you know, that's not that's not our job. It's not our job. Someone else can do that. But big picture the way we look at money and the way we've talked about this world inflationary growth environment, meaning the economy is going to grow, stock market's gonna do pretty good. You know, it's not gonna do so well, bonds, because there's a little bit higher inflation, a little bit higher yields. Uh, I've said repeatedly, if you drop it, it hits your foot and it hurts, maybe own some of that in place of bonds, which those things have done very well. We have some managed futures, which really, really helped back in the 9.1% really scary drop earlier this year. Um, you know, real assets, hard assets, these are concepts we've talked about all year. And if you've kind of position portfolios this way, not saying it's perfect, but I'm saying it's done pretty darn well. And you are saying, Sonu, there's still probably upper bias to yields. Let's let's talk about that.
SPEAKER_03I think so. I mean, you you mentioned like nominal GDP growth running like five and a half percent over the last quarter, it was eight percent. You know, it's right, it's running even faster over the fast year, last year. It's like six, six and a half percent back in the new running faster over the past year, right? So biking faster, yeah. Exactly. Biking faster, yeah, yeah. And 95-99, it was you know, over the late 90s, so a five-year period there. Nominal GDP growth clopped in around 5.8 percent. By the way, the 2010-2019 trend is four percent. I know I talked about some of this stuff last week, but Des repeating given what Walsh also said.
SPEAKER_01I was there, I don't remember it, so that's okay.
SPEAKER_03There you go. So, I mean, this is basically what what Walsh is saying in some sense. He was acknowledging that things are running hot, right? So what's driving it is a little different from the 90s. In the 90s, it was mostly productivity growth and real GDP growth. So you got near six percent nominal GDP growth, but over four percent of that was from real GDP growth, inflation growth, and inflation was less than two percent. Whereas now you're getting about two percent real GDP growth and three and a half percent inflation, right? So it's a different picture of what's driving nominal growth, but the end result is we still have strong nominal growth, sure, right? We still have a lot of activity, right? And of course that you mentioned the fiscal comparison, but yeah, I think look, I'll put it this way like if you ask me what what do you think the Fed should do, I would say, goodness, looking at the AI boom, all of that, and we've been talking about the boom, that's why we said cruelee have been saying ride the wave, try to avoid the wipe out, and yeah, I I what's a simple way to put it rates are at 3.6 percent. I think they should take rates to five percent. No, not immediately, slowly, just tell us, you know what? Things are going really well. There's a boom, monomal GDP is hot, everyone needs money. We're gonna, you know, gonna make it a little harder for people to borrow so that they think a little harder about whether they should be borrowing and whether they want to borrow even after we raise the hurdle rate, so take rates up to five, five and a half percent, crush inflation in the process, right? I think the economy can handle it right now. Whereas if they leave rates where they are, or let's say they raise 25 basis points and then call it a day. Two years from now, let's say two years from now, suddenly we've had seven years of three percent plus inflation. Suddenly they get worried about uh-oh, what are we doing here? The booms become a bubble, right? Credit is blowing, you know, it's going crazy, everyone's borrowing, the boom's going nuts, the AI boom, and then they'd be like, Oh, now we have to hurry up. You need to play catch-up, and that results in a bust and a lost decade. I would argue in the 90s, yes, people say, Oh, rates are not too far off relative to the 90s. Maybe in the 90s rates should have been higher. Because then maybe we wouldn't have gotten a bust in a lost decade.
SPEAKER_01You want to that's what I worry about. No, well said and good stuff to just kind of think about. You want to go down a real rabbit hole. Go look at uh what happens during some of the election years of a lame duck president. Not that great. We'll just leave it there. 2000, 2008. You know, so President Trump will be a lame duck president here in two years. You just talked about keep it running hot this year, keep it running hot next year, and then I don't know, you know, whatever, whatever. Just think of something something to think about as you talked about that. But we've almost gone an hour. I know we have to finish this podcast a certain time, so our producer Pod Pony can get this through all the channels sooner. We probably need to wrap things up. So that's a great discussion, I think, of what happened last week, a little bit of this, a little bit of that. Um, the big thing this week, and let's maybe finish on this labor market, right? I we might have even had some of the labor, the Joel State on if you had a chance to look what I know. Joel's
Jobs Data And September Seasonality
SPEAKER_01data is this week, initial jobless claims, ADP, your favorite, the Challenger Gray. It's a joke, he hates the challenger gray, but anyway. Um, and then the big monthly jobs number. We've said we've been on record labor markets maybe a little bit better. I think you peel back the onion, you look at like some of the recent ISM manufacturing, ISM services, actually, some big jumps in employment. Employment's not rip roaring higher. We're we're gonna be very clear. We lost 23,000 jobs last month. Um, what do you think? Does that maybe get revised higher? I think you maybe mentioned that a month ago, you thought it might get because we usually jobs numbers get revised lower. That's just how it is. Jobs numbers get revised lower all day long. Um, but what are you thinking for this Friday with the labor market data?
SPEAKER_03By the way, last month we got bench that you remember benchmark revisions when they revised like the whole year of job growth down by 700,000 jobs, 800,000. Yes. So last week we got that and they revised last year's well, April of 2025 through March of 2026. They revised the jobs numbers down by another 100,000. It wasn't great to start off with.
SPEAKER_01They revised didn't who Trump fire the head of the BLS because it didn't like the numbers? Oh boy, I would not want to work at the BLS right now with some of that data.
SPEAKER_03Yeah, uh by the way, the the current head of the BLS, he's actually a great guy. I I used to follow him on Twitter or X and Brett Matsumoto. I think he's fantastic. I should say that's off to him. But anyway, I'm just saying that's a tough spot to be in.
SPEAKER_01That's all I'm saying on it. Might be a great guy, but it's a tough spot.
SPEAKER_03Right now, I would just look at the unemployment rate, 4.1%. Okay. But the problem is, and this gets to will they hike or not. One is there's a conspiracy theorist that would say, I'm not saying I'm one of them, I don't think this matters, but a lot of people say, then I'm gonna hike before the midterms.
SPEAKER_01Well, I'm in that I think it's gonna be harder, right? Yeah, yeah.
SPEAKER_03I don't think they'll think about it in that sense. If they hike, it'll be for you know valid reasons in their mind. If they don't, it'll be for valid reasons in their mind. I don't think it'll be like, oh, it's the election, so now who knows? It may play a part, right? The other thing is what if we get two negative payroll prints? The last month was what, you meant negative 23,000? Yeah, and it's very possible because if you think about like the BLS survey, the payroll number uh the payroll number comes from something called the establishment survey. It's a survey of 150,000 businesses. It's more massive than anything the private sector does or probably can do. It's very expensive, right? That's why it's only the government that can do it. But it's a survey at the end of the day, there's a confidence interval around that. The confidence interval is about plus minus 120,000 jobs. This is per month. That's a 90% confidence interval. Now that's okay if you know breakeven employment, the number of jobs the economy needs to create to keep up with population growth to keep the unemployment rate from going up, if that's running about 150, 120,000, yeah, that's okay. Because even plus minus a 90% confidence interval, it's all positive, right? But if the breakeven employment number is 25,000, which may be where we are, you know, that's the average. But you take off 120,000 out of that, we could very well see a negative number, and that's just noise. It may not be actually what's happening, it may be just noise, but then you have to ask the question will they hike if we get two negative payroll prints in a row?
SPEAKER_01Nope. I don't think so.
SPEAKER_03I don't think so.
SPEAKER_01I don't think so. Yeah. So we'll see. A lot to get the get your 10 foil hats out, everybody. You know, I just realized we've gone an hour, we need to wrap it up, but I didn't even talk about September. So I'm gonna rip through this very, very quickly. September is the worst month of the year on average since 1950. The worst month the last 10 years, last month the last 20 years, and the third worst are in a midterm year. Uh, Connor, I've got all these different charts. We can just kind of put these up periodically as I'm talking about them. Uh higher only 45% of the time. It's the only month, Sonu, that is up less than 50% of the time. And it's down on average, only February is down as well, but it is the worst month. Um, so I looked into some of the things that were interesting. It's almost kind of like how you're trending into September. I've seen some data like if you're above or below 200 days. What I did though, I see up 13% for the year. So I looked at all the times we were the 10 worst Septembers ever, Sonu. Nine of them were down year to date heading into the tricky month of September, specifically 74, 2002, 2022, and 2008. Those are the four worst Septembers ever, down a good like double digits year-to-date, every one of them headed into it, versus the 10 best Septembers ever, seven of them were positive year-to-day heading into it. So that right there hopefully calms some fear. Um, when you're up between 10 and 20% for the year going into September, like we are in 2026, happened 20 other times. Rest of the year higher, 90% of the time, up 6% on average. And only once out of those 20 times did we see a so much as a 10% correction the second half of the year. I know one of my more contrarian calls at the midpoint of this year was the 9.1% peak trough correction earlier this year, was it. What doesn't mean we can't have a five or eight or I didn't we'd have a bigger one. There's some big well-known bulls were saying we might have a bear market second half this year. So no, no, I didn't think that's the case. Believe me, I could be wrong, but still in that camp. And what I just said kind of helps that. Um, when you're up in August, like we just were, and up year to date nicely, between 10 and 17 and a half percent. Yes, I'm cherry picking to a degree, because like 87, you're up a whole bunch, and then you had a bad. So I'm just saying years like this one, positive August, which isn't always that normal, and a good start to the year. Sony, September's been higher, oh, about six out of 11 times, but a median of 1.2 percent. So pretty solid and really no big drops. The other way to look at this, the rest of the year is higher 10 out of 11 times, up almost six percent on average. Also, I know I got this chart, Connor. Under President Trump, September's been higher four out of five times. Small sample size, yes, different factors, yes. I get all that stuff, just something to be aware of. But August has actually been really strong too under President Trump. So this is normal. And as you can see on the chart on YouTube, it's in February and March that that's when the stock market doesn't do well under President Trump. Does that sound familiar? That's exactly what we just saw. Um, and then if just one more on this, if you look at the four best Septembers ever, just look at the four best ones ever, all four we're in a midterm year. Sounds kind of interesting, but check this out. The three worst Septembers ever, all three were in a midterm year. Let's put a bow on this. September historically is volatile, but I think we see some signs. It listen, we could have a down September. I'm not saying we couldn't. I don't that base case gun ahead. I think we actually have a positive September here, surprised a lot of people. But the reality is a big drop right now in the month of September, I would argue, doesn't look likely. So that was pretty fast. I ripped through that. Um, Sonu, last comments from you. We need to wrap this thing up.
SPEAKER_03No, look, revenue numbers are strong, profits are strong, profit growth is strong, like blockbuster earnings cycle just got done. I mean, yeah, like, and momentum begets momentum. Literally, what you just said, August is strong, year to date is strong. I mean, I guess it shouldn't be a big surprise if September rides on that. Now we have a lot of volatility and noise. Last thing, the ISM manufacturing PMI came out, the number this morning, an hour ago. I've been talking for over an hour now, so I guess it came out around.
SPEAKER_04Who knows?
SPEAKER_03But yeah, the manufacturing PMI is 54.6. Solid, solid expansion territory. Now it pulled back with July's 55.6. But two numbers I want to focus on. What is production? The production sub-index is 58.3, right? 58. That is really strong production. That is the growth part. But then you think about the inflation part, prices subindex was 71.1. That's really hot. That's a picture of inflationary growth right there. Last thing you mentioned, copper. We put the chart up. In the report, the respondents tell the surveyors what commodities are in short supply. Guess what? The first one is copper. Chocolate. I was gonna say chocolate. Oh, okay. Chocolate's never in chocolate. Well, maybe cocoa is. Don't say that. I don't think so.
SPEAKER_01Yeah, Sona and I were in the we were in New York, or not New York, we were in Chicago last week. We got the big old chocolate cake. Shout out to um where were we, Sona? Where'd we go? I just went to the case. Gibson's Gibson's Gibson's sorry, I've been talking for over an hour. Gibson's chocolate cake. Oh my. Did your kids like that by the way when you came up with that thing?
SPEAKER_03But the carrot cake, we had some carrot cake, which sort of we had to, yeah, you know, we didn't finish that. I'll put it that way. I hope not. Goodness gracious.
SPEAKER_01No, you're enormous.
SPEAKER_03Yeah, but yeah, copper's in short supply, electrical competence, short supply, electronic competence, short supply, labor, memories and short supply, printed circuit boards, short supply, steel and short supply. Hey, I you think inflation's going down?
SPEAKER_01Wow. Wow. Uh, one more of the we mentioned last week about how the Philly Fed was really strong. I made the joke it's because of LeBron, it's not because of LeBron. But now we've Dallas Fed. Dallas Fed came out. Uh, new orders up 16 points to 22 highest levels since February 2022, and future production soared to the highest levels in 2021. That's another regional manufacturing survey. Dallas and now Philly last week in Dallas. I think it might have been some other ones. Empire was strong, but anyway, um, that say again, this economy looks like it wants to heat up. So we'll see if it can continue. So, with all that, everybody, thank you as always for joining us at the Facts First Feelings Podcast episode 203. Um, thanks to
Thanks Reviews And Disclosures
SPEAKER_01Pod Pony, our producer, as always. And if you want to help us, give us a like, give us a follow, give us a review, positive and negative. We cannot lead the witness, but uh feel free and do that. And on algorithms, the YouTube channel, feel free and say whatever you want on that YouTube channel, algorithm as well in the comment section. That helps as well. And last week's podcast did really well. Last week's podcast on YouTube was a top 10 in terms of views and downloads and everything. So thank you uh for that, everybody. All right, Sony, we're done. We went pretty long, but hey, there's a lot going on. Hey, you know what? Everybody enjoy the weekend. Long weekend, Labor Day. Everybody have fun, enjoy it. Um, school started officially, all conference season's coming back around, which is always fun. So a lot going on. Football, by the way, football's starting real soon, too. So hopefully your fantasy drafts are going well. I got an A plus in one of my fantasy drafts. So we're gonna see how that team does. I'm gonna assume that team probably goes two and fifteen if you get an A plus. I don't call me a contrario. I don't know about that one, but anyway. All right, everybody. See you next week. See you soon. Thank you. Bye-bye. 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 affiliate. Past performance is no guarantee of future results. All industries 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. Guess on facts versus feelings are not affiliated with CWM LLC.
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