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End of Year Rally Recap
Noah Brooks:
Welcome back to another installment of the Market Enthusiast. As always, I’m Noah Brooks, and with me Chris needs Chris. Let’s talk about the end-of-the-year rally.
Chris Needs:
I mean, it was a crazy rally, wasn’t it? So here in January, we’re at all-time highs again. It took two years and a month, but we’re back.
Noah Brooks:
Yeah, 4,800, right? Yes, 4,900 if I’m not mistaken. Yesterday. Yeah, good stuff happening. Fourth quarter of 2023. The market rallied substantially. Anything that was underwater, it brought it up. Bonds rallied, stocks rallied. Just really, I think the last few days of the year, it didn’t work out so well, but for the quarter, but for most of December, it was just risk-on.
So I don’t want to say it saved the year because at the beginning of the quarter, I think the market was up maybe 15, but S&P ended up 26, mid-caps up, 17 small caps up, pretty close to 17 bonds up five and a half across the board. So all in all a pretty good year.
And we were joking a little bit earlier about those bears. There were a lot of people that were calling for a deep recession in 2023. Some of the stuff that I saw on television was the worst market since the 1930s or 1929. Obviously, none of that happened. Most of the economists were wrong. Don’t know what’s going to happen in 2024, but let’s talk a little bit about some of the numbers that made it work.
Job Growth and Economic Resilience
Noah Brooks:
We’re mid-January right now and so far year to date, we’ve had some job numbers come out. January, we saw 216,000 jobs being created by the US Economy.
Chris Needs:
Strong report.
Noah Brooks:
Yeah, strong report. So December number came out in January for the year, though I added it up. It’s pretty handy to be able to do that. I added it up, 2.7 million jobs created for the year and net new jobs since the beginning of covid, 3.8 million jobs.
Chris Needs:
That’s law jobs without a doubt. Now I’m going to come back with the every month’s initial revision on the jobs came down some substantially. There was one month, I believe it was July, where the second revision actually took that month back to above the initial reporting number. But very interesting. I don’t think it’s that consistent normally that they always get revised down for the most part. So that was a little surprising.
Noah Brooks:
Now my numbers include all the revisions with the exception of November and December, but I thought that was, that’s a fair number of jobs. I actually did a little bit more math and I came up with that since the turn of the century, since December of 99, the economy has added almost 26 million jobs, 25.8 million jobs, net new jobs.
That includes the global financial crisis where we had a big job loss. It obviously includes covid. I mean that’s a fair number of jobs. Almost 26 million jobs in the last 24 years or so. 23 years. You do the math. I would just say, and I’m going to probably say this a few times throughout, don’t bet against the American economy.
Chris Needs:
Yep, and we’ve been outperforming international for it seems like every year there has been, I think two exceptions since the great financial crisis. But our economy is the best.
Noah Brooks:
The best of the best, the best of the best, the best. So here we are. I already said we had some GDP numbers that came out this week, blew the expectations away. Fourth quarter. GDP came in at 3.1 year over year, and if I’m not mistaken, was it three, four quarter, quarter, quarter over quarter, quarter? I mean, those are good numbers. Those are not recessionary numbers and they’re not pointing to anything. At the same time, I would think that the Federal Reserve was looking for lower numbers.
Chris Needs:
I think they would’ve expected with their level of activity, they would’ve seen lower numbers. But even when you’re looking at jobless claims, continuing an initial, they’re coming in right around where they’re expected to be. There’s not this fall off you would’ve expected based on the fed activity. So the economy just keeps chugging along.
Inflation and Economic Trends
Noah Brooks:
So I know last time we were here, I used the word transitory and kind of made light of that. It does seem to some degree that spike in inflation headed up to 9% was really temporary or transitory. It does feel like there’s some things that are a little bit sticky though.
Chris Needs:
We did see a slight uptick. I think it was 3.4 versus 3.2 expectation on CPI chalk that up to services were really high. We talked about it was transport services, so car maintenance was way up.
Noah Brooks:
And what about insurance, right?
Chris Needs:
Insurance was way up as well. I think it was 70 year over year, up 70 or something like that.
Noah Brooks:
I don’t know how that’s possible.
Chris Needs
I know I don’t like insurance payments, but it was definitely one of the high-low lights, I guess of a higher print.
Noah Brooks:
I was having this conversation about the insurance print the other day and batting some things around. Here’s kind of what I came up with. We drove so little in 2020 and significantly less in 21 than we did in 2019, and they didn’t raise rates. They in some cases had to, I think lower rates because people weren’t driving. And then at the end, 2023, they had to make up for it all and they essentially just moved the rates to where they would’ve been had we not had covid. It’s the best that I come up with.
Chris Needs:
That makes sense.
Noah Brooks:
That’s the best I could come up with. So, you said new all-time highs, right?
Chris Needs:
We didn’t get Santa Claus rally, though. We did not.
Noah Brooks:
Yeah, no, Santa Claus, what the last seven days of the year didn’t happen. I think the last six days of the year we actually closed flat or down,
Chris Needs:
but we’ll just look at that from look what we did in November and earlier December and skewed numbers. We were very, very overbought.
Noah Brooks:
Yeah, but I go back to this. I was talking to someone earlier today about this, and I used my old Rip Van Winkle analogy. You just said we had two years between all-time eyes, right? So, January 3rd, 2022, all the way to January, I think 19th or 18th last week it took to get all-time highs. Now today, from that period to today, I think we’re up 2% on the s and p 500.
Not a great number, but if you were ripped Van Winkle and you had fallen asleep and December 31st, 2019, and you woke up today, what you have is 4 million new jobs. You have the s and p that’s up 50% since you fell asleep and you have a bond market that’s still underwater though, right? The ag is still negative from that time period, if I’m not mistaken. But on stock market wise, I mean that’s a great, great return over a four-year period.
Chris Needs:
Never would’ve known what we’ve seen in those years happen for sure.
Noah Brooks:
So don’t bet against the American economy. It doesn’t mean the market won’t go down, just don’t bet against us.
On Inflation and Interest Rates in 2024
Noah Brooks:
Alright, let’s talk inflation for a little bit. So you mentioned the CPI came in actually a little bit hotter than expected. Anything in there that we should be aware of?
Chris Needs:
No, I mean it’s not going to be a straight line down, obviously.
I mean core is still a little sticky. I think it was at 3.9 for December. We’d like to see that move a little bit lower, but with shelter being such a large component in such a slow-moving component, just going to take some time.
Noah Brooks:
Yeah. Shelters, what, 35% of CPI, if I’m not mistaken, and we might’ve said this before, but in the last hundred years, home prices have only declined three times. The Great Depression, 73, 74 and global financial crisis 2008 into 2009.
Chris Needs:
And despite interest rates, they were still up 4% last year. So, they keep going up.
Noah Brooks:
But existing home sales are kind of taking it on the chin. So, I think there might be a scenario here where it’s not so much that home prices don’t go up or they don’t go up at the rate that they were, but they just stabilize for some period of time until either rates come down or we’ve gone a long enough period that people say, Hey, I can’t wait anymore. I just have to do it.
Chris Needs:
JP Morgan had some research where they said holding house prices constant, they estimate that the market’s really not going to loosen up until 2027 or 2028. So, they expect, I guess, existing home sales to struggle till that time and no huge moves and affordability.
Noah Brooks:
Yeah. Speaking of affordability and new home sales, somebody I know their daughter bought a house with the proceeds of crypto.
Chris Needs:
Oh boy. I don’t know if you…good for her.
On Dumb Money: The Gamestop Movie
Noah Brooks:
Yeah, that’s exactly what I was thinking and it made me think there was, it’s new to me. I don’t know if you saw it, dumb money that just came out. It’s about the kitty guy.
Chris Needs:
Okay, now I know what you’re talking about, right? Yep. The guy that pumped GameStop.
Chris Needs:
The meme craze.
Noah Brooks:
Yeah, the meme craze. Really interesting movie. I mean, even for people that aren’t investors or anything like that, they made it in such a way that you could still understand it. But for me now, truth be told, I never owned any game stuff. Did you own any game stuff?
Chris Needs:
No.
Noah Brooks:
Yeah, I mean, I missed that one, right? But truth be told, it’s an interesting movie and I would recommend it to anybody. I think it’s on Hulu or Netflix or one of those, but some kid that has, I think he started with $40,000 or something like that, and he wound up at one point having $30 million.
Chris Needs:
Oh my gosh.
Noah Brooks:
And everybody around him, everybody listening to him. So this isn’t about movie recommendations, but it brings me to my next thing, which is crypto.
Crypto and ETF Developments
Chris Needs:
Yeah. We had the ETF approval happened earlier in the month, and it was a little bit of a debacle. So the day before the approval was due, I guess court mandated a certain timeline for them to approve it or deny it, and the Fed got hacked apparently. Apparently it was a SIM card attack.
Noah Brooks:
Their Twitter account, their Twitter account or X if you prefer.
Chris Needs:
Yeah. The day before, there was an announcement right after Market Close, which is when you would expect announcement to happen that everything was approved and it had Gary Gensler’s face on it and everything and sent out from the official SEC Twitter or X account, and it just caused massive volatility because 10 minutes later, Gary Gensler went on his personal account and denied it and said, nothing has been approved. This is not true. There was a hack involved and there was a lot of volatility up and down in those 15, 20 minutes in between that.
But the next day, of course, we did get the ultimate approval. So there were what, 11 ETFs spot Bitcoin approved, and Bitcoin, I guess has been going down since then, right? Sell the news.
Noah Brooks:
The rationale was this whole lead-up to an ETF tracking product. Was that kind of like what happened with Gold? If you now have a way to access Bitcoin that isn’t going on one of the crypto exchanges that you can actually get it, more people are going to buy it and the demand for that ETF will obviously filter through because it’s a tracking product, they have to go out and they have to buy the coins themselves. It doesn’t seem like based on the price; it doesn’t seem like that occurred.
Chris Needs:
Yeah, I don’t know if it’s, I assume you’re able to short those, just like anything else, I wonder if there’s a lot of shorting activity that became possible based off of it, but I’m not going to say a straight line down, but it hasn’t appreciated since the approval.
Noah Brooks:
It’s about two weeks since it went out. If all of this money went in there and they had to buy the coins, because these aren’t futures-based ETFs, these are SPOT ETFs. If they had to go and buy it, how is it possible that Bitcoin went down during all this buying?
Chris Needs:
It defies supply and demand, right? Seemingly. Now, there was a lot going from, there was A-G-B-T-C product, grayscale Bitcoin Trust that has a one and a half percent fee, which is far in a way more than any other ETF that was approved. So, a lot of it might’ve been going from there to a lower fee product as well being exchanged, but
Noah Brooks:
So not real true buying, right?
Chris Needs:
Right. Movement.
Noah Brooks:
Just movement. Yeah, it’s possible. Did you buy any?
Chris Needs:
I haven’t bought any. Not yet. Hey, I’m, I’m interested. I’ll check out anything, but I haven’t purchased any yet.
Noah Brooks:
Has your team gotten any requests from advisors or from clients have been there lots of calls coming in?
Chris Needs:
Surprisingly not. I would say I haven’t gotten as much attention during the big run-ups over the last several years. There were calls and questions that would come in and people inquiring on how that would work, but I’m surprised that there hasn’t been too much attention, I guess, from the teams that we speak with.
Noah Brooks:
Yeah, I suspect, I could be wrong on this, but I suspect that I think Bitcoin was around 35,000 today. 35 and a half, something like that. I suspect if we start getting a rally, you’re going to get calls.
Chris Needs:
I would agree with that. I mean, it was at about 46 when it was approved. Yeah, anytime anything rallies, you’ll get calls. So true.
Noah Brooks:
True, true, true. Alright, how about statistics to wrap up with anything interesting?
Mark Zuckerberg’s Hawaiian Cattle Farm
Chris Needs:
Well, this is just besides the points, and I apologize for digressing, but did you see Mark Zuckerberg’s, his cattle farm that he is doing?
Noah Brooks:
Tell me about it. What is it?
Chris Needs:
He has a 1500-acre estate down in Hawaii and he wants to have the world’s best steaks. So he’s going to have his own cattle farm, Wagyu and Angus cattle, and his intent is to serve them macadamia nuts for protein and taste and beer. I didn’t know cows like beer as well.
Noah Brooks:
So I always joke about vegan beef, right, because the cattle eat grass. But now you’re telling me they’re going to be eating nuts.
Chris Needs:
I mean, I’m sure they’re going to be grazing and having grass as well, but yes, that’s what he’s supplying instead of the feed and all this stuff you hear about being fed with fillers and things like that. But he said just pure macadamia nuts. So cows on average eat 5,000 to 10,000 pounds of food. That’s a lot of macadamia notes that he’s going to have to supply.
Chris Needs:
In one year, how much do you think an average human eats in one year?
Noah Brooks:
Me, on average one year?
Chris Needs:
An average human?
Noah Brooks:
An average human in total consumption by weight of meat or of everything in just in one year? 500 pounds?
Chris Needs:
2000. I was surprised it was high. I thought that was high too. But yeah, 2000 pounds apparently. I just thought it was interesting seeing they eat five to 10,000 pounds. I’m like, that’s a lot.
Noah Brooks:
Well, how much does a gallon of water weigh? Are they weighing it like that? I mean, okay, we definitely moved away from the investment side on that one. I guess let’s wrap up a little bit here.
Looking Ahead for the Fed
Noah Brooks:
I think it’s safe to say, going back to the Fed, that this idea that they’re going to cut in March is gone. So about a month ago in mid-December, fed Watch tool based on futures had the probability of a rate cut in March at around 80%. Today it’s in mid-January, it’s around 45%. So I think the whole thing is being pushed back and there are little pockets of stickiness in inflation. I’m not saying that we got ahead of ourselves, but the market might’ve gotten ahead of itself a little bit.
Chris Needs:
Yeah, I agree with that. And there are significant things going on around the world. I mean, that could impact inflation. You talk about everything going on in the Red Sea, obviously it’s a 10 to 12 day trip around the Horn of Africa to deliver things. If nothing’s going through the Red Sea containers for shipping are up over 150% in last month.
And then you also have a drought going on in the Panama Canal that a lot of Maersk Ships can’t use apparently. So they’re going around. So Maersk, one of the biggest shippers in the entire world, if not the biggest, is not having efficient or optimal trips for delivering. So I mean something to be on the eye out for, I guess.
Noah Brooks:
Yeah, I mean that could definitely affect, I mean, if you go back to the rise in inflation in 2022, we can debate the percentages, but there’s no debate that a big portion, a big factor of the increase was supply chain problems and shipping.
Chris Needs:
The costs were astronomical.
Noah Brooks:
Oh yeah, no question about up to 20,000 or even more container. So it’s possible that if the Red Sea situation gets worse, right?
I mean it’s not great right now, but if it gets worse and all container ships stop going around there, it’s certainly possible that that cost goes up. I don’t know, dramatically, but it goes up, let’s put it that way, which will have an effect on the underlying cost of goods and services, whether it’s a finished product that’s coming in that we just go and buy retail, or if it’s an input component that goes into manufacturing, it’s still going to raise it.
So that could be something that the Fed, I mean not could be. It is definitely something that the Federal Reserve is looking at from an inflation standpoint, and so that’s why I say I think it’s possible that the market got ahead of itself a little bit. I mean, that’s not new news. I think most people saw that, but no rate decrease in March, is that what we’re saying?
Chris Needs:
I would agree with that, certainly, yes.
Fed Policy and Rate Cut Expectations
Noah Brooks:
What about when is the first one going to happen? Can we bring it out? Can we talk about it?
Chris Needs:
I’d say maybe July. July, yeah. So second quarter, I’m actually thinking a little bit longer. If I had to put money on it, I would say third quarter, unless something dramatic happens. Right?
Chris Needs:
July is the third quarter.
Noah Brooks:
Well, let’s say later in the third quarter. You’re right. Yeah, you caught me on that. Sorry about that. Let’s say a little bit later. Let’s say even beginning of the fourth quarter, that GDP number that came out, 3.1 year over year 3.3, if January, now we’re talking a few months from now, if the first quarter number starts with a three or a high two, the Fed is not going to be in a position to want to lower rates.
And specifically going back to the inflationary trends in the late seventies, again, caused by a different setup, Arab oil embargo, lots of different factors in there, but they’re not going to make the same mistakes. It’s not that it’s fresh on their mind, but it is definitely on their mind about lowering too soon.
Chris Needs:
Yeah, they’re historians of the market. They can’t make mistakes that have been made before we sort of drug around his name through dirt, but Arthur Burns and the mistakes that happened. But yeah, they know what’s happened before, and you’re right, I don’t think they’re going to cut too soon with a three handle on inflation. Certainly. Yeah.
Noah Brooks:
Alright, well listen everybody, thank you so much for joining us today. I’m just going to wrap up. Here’s what I’m going to say. Inflation seems to be transitory, but it doesn’t mean that it’s not a little bit sticky. So, I guess the expectation is four rate cuts, but maybe significantly farther down the road than March. With that, we’re going to end here.
Thank you so much for listening today, we really appreciate it, and we’ll see you next time on the Market Enthusiast.
Disclaimer
The opinions voiced in this podcast are for general information only and are not intended to provide specific advice or recommendations for any individual to determine which strategies or investments may be suitable for you. Consult the appropriate qualified professional prior to making a decision. The economic forecast set forth may not develop as predicted, and there can be no guarantee that the strategies promoted will be successful. All performance referenced as historical and is no guarantee of future results. All indices are unmanaged and may not be invested into directly.
Good Life’s Investment team keeps you up to date with timely market insights and updates to help you navigate the investment landscape.
Table of Contents
End of Year Rally Recap
Noah Brooks:
Welcome back to another installment of the Market Enthusiast. As always, I’m Noah Brooks, and with me Chris needs Chris. Let’s talk about the end-of-the-year rally.
Chris Needs:
I mean, it was a crazy rally, wasn’t it? So here in January, we’re at all-time highs again. It took two years and a month, but we’re back.
Noah Brooks:
Yeah, 4,800, right? Yes, 4,900 if I’m not mistaken. Yesterday. Yeah, good stuff happening. Fourth quarter of 2023. The market rallied substantially. Anything that was underwater, it brought it up. Bonds rallied, stocks rallied. Just really, I think the last few days of the year, it didn’t work out so well, but for the quarter, but for most of December, it was just risk-on.
So I don’t want to say it saved the year because at the beginning of the quarter, I think the market was up maybe 15, but S&P ended up 26, mid-caps up, 17 small caps up, pretty close to 17 bonds up five and a half across the board. So all in all a pretty good year.
And we were joking a little bit earlier about those bears. There were a lot of people that were calling for a deep recession in 2023. Some of the stuff that I saw on television was the worst market since the 1930s or 1929. Obviously, none of that happened. Most of the economists were wrong. Don’t know what’s going to happen in 2024, but let’s talk a little bit about some of the numbers that made it work.
Job Growth and Economic Resilience
Noah Brooks:
We’re mid-January right now and so far year to date, we’ve had some job numbers come out. January, we saw 216,000 jobs being created by the US Economy.
Chris Needs:
Strong report.
Noah Brooks:
Yeah, strong report. So December number came out in January for the year, though I added it up. It’s pretty handy to be able to do that. I added it up, 2.7 million jobs created for the year and net new jobs since the beginning of covid, 3.8 million jobs.
Chris Needs:
That’s law jobs without a doubt. Now I’m going to come back with the every month’s initial revision on the jobs came down some substantially. There was one month, I believe it was July, where the second revision actually took that month back to above the initial reporting number. But very interesting. I don’t think it’s that consistent normally that they always get revised down for the most part. So that was a little surprising.
Noah Brooks:
Now my numbers include all the revisions with the exception of November and December, but I thought that was, that’s a fair number of jobs. I actually did a little bit more math and I came up with that since the turn of the century, since December of 99, the economy has added almost 26 million jobs, 25.8 million jobs, net new jobs.
That includes the global financial crisis where we had a big job loss. It obviously includes covid. I mean that’s a fair number of jobs. Almost 26 million jobs in the last 24 years or so. 23 years. You do the math. I would just say, and I’m going to probably say this a few times throughout, don’t bet against the American economy.
Chris Needs:
Yep, and we’ve been outperforming international for it seems like every year there has been, I think two exceptions since the great financial crisis. But our economy is the best.
Noah Brooks:
The best of the best, the best of the best, the best. So here we are. I already said we had some GDP numbers that came out this week, blew the expectations away. Fourth quarter. GDP came in at 3.1 year over year, and if I’m not mistaken, was it three, four quarter, quarter, quarter over quarter, quarter? I mean, those are good numbers. Those are not recessionary numbers and they’re not pointing to anything. At the same time, I would think that the Federal Reserve was looking for lower numbers.
Chris Needs:
I think they would’ve expected with their level of activity, they would’ve seen lower numbers. But even when you’re looking at jobless claims, continuing an initial, they’re coming in right around where they’re expected to be. There’s not this fall off you would’ve expected based on the fed activity. So the economy just keeps chugging along.
Inflation and Economic Trends
Noah Brooks:
So I know last time we were here, I used the word transitory and kind of made light of that. It does seem to some degree that spike in inflation headed up to 9% was really temporary or transitory. It does feel like there’s some things that are a little bit sticky though.
Chris Needs:
We did see a slight uptick. I think it was 3.4 versus 3.2 expectation on CPI chalk that up to services were really high. We talked about it was transport services, so car maintenance was way up.
Noah Brooks:
And what about insurance, right?
Chris Needs:
Insurance was way up as well. I think it was 70 year over year, up 70 or something like that.
Noah Brooks:
I don’t know how that’s possible.
Chris Needs
I know I don’t like insurance payments, but it was definitely one of the high-low lights, I guess of a higher print.
Noah Brooks:
I was having this conversation about the insurance print the other day and batting some things around. Here’s kind of what I came up with. We drove so little in 2020 and significantly less in 21 than we did in 2019, and they didn’t raise rates. They in some cases had to, I think lower rates because people weren’t driving. And then at the end, 2023, they had to make up for it all and they essentially just moved the rates to where they would’ve been had we not had covid. It’s the best that I come up with.
Chris Needs:
That makes sense.
Noah Brooks:
That’s the best I could come up with. So, you said new all-time highs, right?
Chris Needs:
We didn’t get Santa Claus rally, though. We did not.
Noah Brooks:
Yeah, no, Santa Claus, what the last seven days of the year didn’t happen. I think the last six days of the year we actually closed flat or down,
Chris Needs:
but we’ll just look at that from look what we did in November and earlier December and skewed numbers. We were very, very overbought.
Noah Brooks:
Yeah, but I go back to this. I was talking to someone earlier today about this, and I used my old Rip Van Winkle analogy. You just said we had two years between all-time eyes, right? So, January 3rd, 2022, all the way to January, I think 19th or 18th last week it took to get all-time highs. Now today, from that period to today, I think we’re up 2% on the s and p 500.
Not a great number, but if you were ripped Van Winkle and you had fallen asleep and December 31st, 2019, and you woke up today, what you have is 4 million new jobs. You have the s and p that’s up 50% since you fell asleep and you have a bond market that’s still underwater though, right? The ag is still negative from that time period, if I’m not mistaken. But on stock market wise, I mean that’s a great, great return over a four-year period.
Chris Needs:
Never would’ve known what we’ve seen in those years happen for sure.
Noah Brooks:
So don’t bet against the American economy. It doesn’t mean the market won’t go down, just don’t bet against us.
On Inflation and Interest Rates in 2024
Noah Brooks:
Alright, let’s talk inflation for a little bit. So you mentioned the CPI came in actually a little bit hotter than expected. Anything in there that we should be aware of?
Chris Needs:
No, I mean it’s not going to be a straight line down, obviously.
I mean core is still a little sticky. I think it was at 3.9 for December. We’d like to see that move a little bit lower, but with shelter being such a large component in such a slow-moving component, just going to take some time.
Noah Brooks:
Yeah. Shelters, what, 35% of CPI, if I’m not mistaken, and we might’ve said this before, but in the last hundred years, home prices have only declined three times. The Great Depression, 73, 74 and global financial crisis 2008 into 2009.
Chris Needs:
And despite interest rates, they were still up 4% last year. So, they keep going up.
Noah Brooks:
But existing home sales are kind of taking it on the chin. So, I think there might be a scenario here where it’s not so much that home prices don’t go up or they don’t go up at the rate that they were, but they just stabilize for some period of time until either rates come down or we’ve gone a long enough period that people say, Hey, I can’t wait anymore. I just have to do it.
Chris Needs:
JP Morgan had some research where they said holding house prices constant, they estimate that the market’s really not going to loosen up until 2027 or 2028. So, they expect, I guess, existing home sales to struggle till that time and no huge moves and affordability.
Noah Brooks:
Yeah. Speaking of affordability and new home sales, somebody I know their daughter bought a house with the proceeds of crypto.
Chris Needs:
Oh boy. I don’t know if you…good for her.
On Dumb Money: The Gamestop Movie
Noah Brooks:
Yeah, that’s exactly what I was thinking and it made me think there was, it’s new to me. I don’t know if you saw it, dumb money that just came out. It’s about the kitty guy.
Chris Needs:
Okay, now I know what you’re talking about, right? Yep. The guy that pumped GameStop.
Chris Needs:
The meme craze.
Noah Brooks:
Yeah, the meme craze. Really interesting movie. I mean, even for people that aren’t investors or anything like that, they made it in such a way that you could still understand it. But for me now, truth be told, I never owned any game stuff. Did you own any game stuff?
Chris Needs:
No.
Noah Brooks:
Yeah, I mean, I missed that one, right? But truth be told, it’s an interesting movie and I would recommend it to anybody. I think it’s on Hulu or Netflix or one of those, but some kid that has, I think he started with $40,000 or something like that, and he wound up at one point having $30 million.
Chris Needs:
Oh my gosh.
Noah Brooks:
And everybody around him, everybody listening to him. So this isn’t about movie recommendations, but it brings me to my next thing, which is crypto.
Crypto and ETF Developments
Chris Needs:
Yeah. We had the ETF approval happened earlier in the month, and it was a little bit of a debacle. So the day before the approval was due, I guess court mandated a certain timeline for them to approve it or deny it, and the Fed got hacked apparently. Apparently it was a SIM card attack.
Noah Brooks:
Their Twitter account, their Twitter account or X if you prefer.
Chris Needs:
Yeah. The day before, there was an announcement right after Market Close, which is when you would expect announcement to happen that everything was approved and it had Gary Gensler’s face on it and everything and sent out from the official SEC Twitter or X account, and it just caused massive volatility because 10 minutes later, Gary Gensler went on his personal account and denied it and said, nothing has been approved. This is not true. There was a hack involved and there was a lot of volatility up and down in those 15, 20 minutes in between that.
But the next day, of course, we did get the ultimate approval. So there were what, 11 ETFs spot Bitcoin approved, and Bitcoin, I guess has been going down since then, right? Sell the news.
Noah Brooks:
The rationale was this whole lead-up to an ETF tracking product. Was that kind of like what happened with Gold? If you now have a way to access Bitcoin that isn’t going on one of the crypto exchanges that you can actually get it, more people are going to buy it and the demand for that ETF will obviously filter through because it’s a tracking product, they have to go out and they have to buy the coins themselves. It doesn’t seem like based on the price; it doesn’t seem like that occurred.
Chris Needs:
Yeah, I don’t know if it’s, I assume you’re able to short those, just like anything else, I wonder if there’s a lot of shorting activity that became possible based off of it, but I’m not going to say a straight line down, but it hasn’t appreciated since the approval.
Noah Brooks:
It’s about two weeks since it went out. If all of this money went in there and they had to buy the coins, because these aren’t futures-based ETFs, these are SPOT ETFs. If they had to go and buy it, how is it possible that Bitcoin went down during all this buying?
Chris Needs:
It defies supply and demand, right? Seemingly. Now, there was a lot going from, there was A-G-B-T-C product, grayscale Bitcoin Trust that has a one and a half percent fee, which is far in a way more than any other ETF that was approved. So, a lot of it might’ve been going from there to a lower fee product as well being exchanged, but
Noah Brooks:
So not real true buying, right?
Chris Needs:
Right. Movement.
Noah Brooks:
Just movement. Yeah, it’s possible. Did you buy any?
Chris Needs:
I haven’t bought any. Not yet. Hey, I’m, I’m interested. I’ll check out anything, but I haven’t purchased any yet.
Noah Brooks:
Has your team gotten any requests from advisors or from clients have been there lots of calls coming in?
Chris Needs:
Surprisingly not. I would say I haven’t gotten as much attention during the big run-ups over the last several years. There were calls and questions that would come in and people inquiring on how that would work, but I’m surprised that there hasn’t been too much attention, I guess, from the teams that we speak with.
Noah Brooks:
Yeah, I suspect, I could be wrong on this, but I suspect that I think Bitcoin was around 35,000 today. 35 and a half, something like that. I suspect if we start getting a rally, you’re going to get calls.
Chris Needs:
I would agree with that. I mean, it was at about 46 when it was approved. Yeah, anytime anything rallies, you’ll get calls. So true.
Noah Brooks:
True, true, true. Alright, how about statistics to wrap up with anything interesting?
Mark Zuckerberg’s Hawaiian Cattle Farm
Chris Needs:
Well, this is just besides the points, and I apologize for digressing, but did you see Mark Zuckerberg’s, his cattle farm that he is doing?
Noah Brooks:
Tell me about it. What is it?
Chris Needs:
He has a 1500-acre estate down in Hawaii and he wants to have the world’s best steaks. So he’s going to have his own cattle farm, Wagyu and Angus cattle, and his intent is to serve them macadamia nuts for protein and taste and beer. I didn’t know cows like beer as well.
Noah Brooks:
So I always joke about vegan beef, right, because the cattle eat grass. But now you’re telling me they’re going to be eating nuts.
Chris Needs:
I mean, I’m sure they’re going to be grazing and having grass as well, but yes, that’s what he’s supplying instead of the feed and all this stuff you hear about being fed with fillers and things like that. But he said just pure macadamia nuts. So cows on average eat 5,000 to 10,000 pounds of food. That’s a lot of macadamia notes that he’s going to have to supply.
Chris Needs:
In one year, how much do you think an average human eats in one year?
Noah Brooks:
Me, on average one year?
Chris Needs:
An average human?
Noah Brooks:
An average human in total consumption by weight of meat or of everything in just in one year? 500 pounds?
Chris Needs:
2000. I was surprised it was high. I thought that was high too. But yeah, 2000 pounds apparently. I just thought it was interesting seeing they eat five to 10,000 pounds. I’m like, that’s a lot.
Noah Brooks:
Well, how much does a gallon of water weigh? Are they weighing it like that? I mean, okay, we definitely moved away from the investment side on that one. I guess let’s wrap up a little bit here.
Looking Ahead for the Fed
Noah Brooks:
I think it’s safe to say, going back to the Fed, that this idea that they’re going to cut in March is gone. So about a month ago in mid-December, fed Watch tool based on futures had the probability of a rate cut in March at around 80%. Today it’s in mid-January, it’s around 45%. So I think the whole thing is being pushed back and there are little pockets of stickiness in inflation. I’m not saying that we got ahead of ourselves, but the market might’ve gotten ahead of itself a little bit.
Chris Needs:
Yeah, I agree with that. And there are significant things going on around the world. I mean, that could impact inflation. You talk about everything going on in the Red Sea, obviously it’s a 10 to 12 day trip around the Horn of Africa to deliver things. If nothing’s going through the Red Sea containers for shipping are up over 150% in last month.
And then you also have a drought going on in the Panama Canal that a lot of Maersk Ships can’t use apparently. So they’re going around. So Maersk, one of the biggest shippers in the entire world, if not the biggest, is not having efficient or optimal trips for delivering. So I mean something to be on the eye out for, I guess.
Noah Brooks:
Yeah, I mean that could definitely affect, I mean, if you go back to the rise in inflation in 2022, we can debate the percentages, but there’s no debate that a big portion, a big factor of the increase was supply chain problems and shipping.
Chris Needs:
The costs were astronomical.
Noah Brooks:
Oh yeah, no question about up to 20,000 or even more container. So it’s possible that if the Red Sea situation gets worse, right?
I mean it’s not great right now, but if it gets worse and all container ships stop going around there, it’s certainly possible that that cost goes up. I don’t know, dramatically, but it goes up, let’s put it that way, which will have an effect on the underlying cost of goods and services, whether it’s a finished product that’s coming in that we just go and buy retail, or if it’s an input component that goes into manufacturing, it’s still going to raise it.
So that could be something that the Fed, I mean not could be. It is definitely something that the Federal Reserve is looking at from an inflation standpoint, and so that’s why I say I think it’s possible that the market got ahead of itself a little bit. I mean, that’s not new news. I think most people saw that, but no rate decrease in March, is that what we’re saying?
Chris Needs:
I would agree with that, certainly, yes.
Fed Policy and Rate Cut Expectations
Noah Brooks:
What about when is the first one going to happen? Can we bring it out? Can we talk about it?
Chris Needs:
I’d say maybe July. July, yeah. So second quarter, I’m actually thinking a little bit longer. If I had to put money on it, I would say third quarter, unless something dramatic happens. Right?
Chris Needs:
July is the third quarter.
Noah Brooks:
Well, let’s say later in the third quarter. You’re right. Yeah, you caught me on that. Sorry about that. Let’s say a little bit later. Let’s say even beginning of the fourth quarter, that GDP number that came out, 3.1 year over year 3.3, if January, now we’re talking a few months from now, if the first quarter number starts with a three or a high two, the Fed is not going to be in a position to want to lower rates.
And specifically going back to the inflationary trends in the late seventies, again, caused by a different setup, Arab oil embargo, lots of different factors in there, but they’re not going to make the same mistakes. It’s not that it’s fresh on their mind, but it is definitely on their mind about lowering too soon.
Chris Needs:
Yeah, they’re historians of the market. They can’t make mistakes that have been made before we sort of drug around his name through dirt, but Arthur Burns and the mistakes that happened. But yeah, they know what’s happened before, and you’re right, I don’t think they’re going to cut too soon with a three handle on inflation. Certainly. Yeah.
Noah Brooks:
Alright, well listen everybody, thank you so much for joining us today. I’m just going to wrap up. Here’s what I’m going to say. Inflation seems to be transitory, but it doesn’t mean that it’s not a little bit sticky. So, I guess the expectation is four rate cuts, but maybe significantly farther down the road than March. With that, we’re going to end here.
Thank you so much for listening today, we really appreciate it, and we’ll see you next time on the Market Enthusiast.
Disclaimer
The opinions voiced in this podcast are for general information only and are not intended to provide specific advice or recommendations for any individual to determine which strategies or investments may be suitable for you. Consult the appropriate qualified professional prior to making a decision. The economic forecast set forth may not develop as predicted, and there can be no guarantee that the strategies promoted will be successful. All performance referenced as historical and is no guarantee of future results. All indices are unmanaged and may not be invested into directly.
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