March 28, 2025 • 37 mins
Recession? – Chris Boyd welcomes Jeff Perry and Brian Regan for an in-depth
discussion whether the US economy is heading into a recession. Chris begins the
conversation with a detailed explanation of the definition of a recession, which may not
be as simple as it seems. The trio reviews recent related economic news, including the
potential impact of Trump tariffs, inflation, employment data, retail sales, potential of a
reduction in government spending, and consumer confidence. Brian offers his expert
commentary about the risks of an economic slowdown in the near future.
For more information or to reach Chris Boyd or Jeff Perry, click the following link:
https://www.wealthenhancement.com/s/advisor-teams/amr
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Transcript
Episode Transcript
Available transcripts are automatically generated. Complete accuracy is not guaranteed.
(00:00):
Welcome to something more with Chris Boyd.
Chris Boyd is a certified financial planner, practitioner,
and senior vice president, financial advisor at wealth
enhancement group.
One of the nation's largest registered investment advisors.
We call it something more because we'd like
to talk not only about those important dollar
and cents issues, but also the quality of
life issues that make the money matters matter.
(00:22):
Here he is your fulfillment facilitator, your partner
in prosperity, advising clients on Cape Cod and
across the country.
Here's your host, Jay, Christopher Boyd.
Welcome everybody to another podcast of something more.
I'm here with Jeff Perry and Brian Regan.
All of us are from the AMR team
at wealth enhancement group and glad to have
(00:43):
you with us.
Uh, today we're going to talk a little
bit about recession, the topic of recession, the
concern.
I find this keeps popping up in conversations
and, uh, uh, things I'm, uh, hearing, watching,
you know, people have been more prone to
talk about this in light of recent topics
(01:03):
like tariffs and the like there's concerns of
like, oh, is this going to slow the
economy to some extent?
And when people start having those kinds of
anxieties, we've seen the market have some, uh,
volatility because of anxieties around, I think, particularly
related to tariff, uh, uh, policy and, or
(01:25):
questions of what's policy, you know, that kind
of thing.
Um, it, it comes up on people's minds
of, uh, should I be more defensive?
Should I be worried?
Is there something that's going to change?
And, you know, it wasn't long ago, just,
uh, the turn of the year, we were
talking about how earnings were really solid and
things were really going well, and there's a
(01:48):
lot of optimism around the prospects of, um,
extended, uh, tax cuts and things of that
sort.
So, um, so I thought this might be
a topic for us to revisit for people
to give thought to and understand, uh, what
is a recession and what defines it?
What are the signs of it?
(02:08):
Is this something we should be focused on
today?
Or is it something to put off to
be, you know, mindful of, but maybe not
imminent.
So, um, we're going to talk about that
and, you know, Jeff, one of the things
that, um, I remember as sort of a
rule of thumb, it used to be that,
uh, we talked about a recession as two,
(02:30):
uh, consecutive quarters of negative GDP.
You know, the, the growth was declining, you
know, was negative, uh, judged by, um, the
GDP, and that was sort of our, our
standard for expectation of whether we had a
recession.
And I remember it wasn't that long ago
that we actually had that happen.
It was very slight and barely negative, but
(02:52):
there was some, uh, I think it was
around that time.
I'm trying to remember now when it was,
but I think it was in COVID and
then it turned out, oh, there, there, yeah,
it was 2020.
There wasn't a deemed a recession by, it
turns out there's an organization, the national bureau
of economic research that, uh, is actually, they
(03:16):
get, they get to rule, they get to
overrule the definition.
Well, they, they actually have a more complex,
I guess, assess, you know, let's face it,
that's a shorthand, maybe write a rule of
thumb, but when you look at, um, uh,
uh, more involved, you know, group of data,
you might find that, well, some things are
(03:38):
one thing, but another says something else, right?
And it's this combination of, is it, is
it, uh, the, uh, the combination of things,
the main factors, this was, uh, off of
the website and so forth.
Um, the NBER looks at three main factors.
How deep is the decline?
(04:00):
How widespread is it?
And how long is it lasts?
And of course you can only tell if
a recession has occurred in hindsight, right, we
don't know in advance, but there are things
we can pay attention to.
And, uh, that's, I think what we want
to do today is talk to Brian a
little bit about, before we do, there is
(04:20):
another definition that we should outline.
What is that?
If your neighbor loses their job, it's a
recession.
If you lose your job, it's the depression,
right?
Right.
Is it affecting you?
Yeah, how personally, but that's a good example
though, with you, you hear about, um, people
being laid off a lot of government, you
know, focus on, you know, government workers being
(04:41):
paid off and that can precipitate sometimes, um,
that sentiment that, uh, Oh, I know someone
who is affected by this.
And therefore you start to think, Oh, well
maybe my job could be affected too, and
maybe it affects your behavior and your spending
behavior.
(05:01):
And, um, there can be this whole psychology
that's a self-fulfilling no element to this
of, does it, uh, does it, you know,
kind of feed on itself to create some
of the, uh, concerns that we have.
And it's all about a word that I
believe Brian doesn't like.
So I may as well put it out
(05:22):
there and get it out of the way.
Uncertainty, right?
So nobody likes uncertainty, right?
Uh, especially as investors, we all want, didn't
I, uh, didn't I use that word on
the call and you were tired of the
word.
Do you think it's like an overused term
out there?
Well, let's bring Brian in.
(05:42):
Yeah.
Yeah.
Thanks guys.
Thanks for having me.
Um, enjoy being with you, having these, uh,
fun conversations, at least to me, they're fun
stuff from probably, probably to our listeners too,
if they're, they're this, uh, yeah, I, I,
you know, I have pet peeves as you
guys know, and one of them is overused
terms, um, that try to simplify what's, you
(06:03):
know, going on or scare people or predict
things that, you know, aren't really predictable, right.
And these, a lot of these terms get
thrown out casually.
Um, and I guess the, you know, the
easily, easily brought from the frontal cortex of
the brain or something, because they seem to
get repeated over and over and over again.
And, you know, uncertainty is one of those
(06:24):
words.
Um, and of course, you know, uncertainty exists,
but the reason why I don't like it
is it exists all the time.
I mean, the function of being invested in
the capital markets is having an expectation of
the future, um, which is uncertain, right.
We don't have any idea what's going to
happen in the future.
We might not even know what's really going
(06:44):
to happen to us later on this afternoon
or this evening.
Right.
Um, so, you know, there's the reason why
the main reason I don't like it is
because it's, it's always uncertain.
Sometimes there's heightened uncertainty.
Um, you know, I would say that when
we have a guessing game on where we're
going to go with this tariff and trade
war, sure, you know, there's, there's more uncertainty
(07:06):
and that creates a more volatility in the
market.
Um, but just because there's volatility in the
market, uh, doesn't necessarily mean, um, we should
be concerned or feel like things are more
up in the air than they usually are.
Um, I think things are, you know, often,
you know, subject to change.
We, we know that, uh, many of the
(07:26):
stocks in the, in the, in the stock
universe will go bankrupt, right?
Uh, we know that a very small percentage
of the stocks drive overall returns over time.
Um, you know, these are things that are
innately uncertain.
So it's not that I necessarily disagree that
uncertainty is a thing or, um, it's just
that it's over, it's overused during certain times.
It's almost like a euphemism for the VIX
(07:48):
increasing or consumer sentiment or, you know, investor
sentiment, which, you know, to me are all
bologna sauce, um, you know, investor sentiment should
be a fun show.
It's nonsense, bologna sauce.
I like that, but it's fun.
So, um, you know, I was holding back
that word.
(08:08):
I thought you guys would enjoy that.
Um, so investor sentiment to me is just,
it just tells you what the market has
done recently, right?
It's like the definition of recency bias.
It's not that helpful.
Consumer sentiment is very political.
It's done like on a landline phone call.
It's, it's been incredibly, you know, inconsistent and
(08:28):
unreliable over time.
So I don't know why we keep saying
these things as, as a put stock into
them.
Um, you know, I sent you guys some
charts this morning and the first chart that
I sent you was just us personal consumption
over time.
It goes back all the way to 1950
and it's an exponential line, um, rising from
the lower left to the top, right.
(08:49):
And it's smooth.
Okay.
There's basically all I'm saying is that it
takes a lot for the U S consumer
to stop spending.
So if you're looking for certainty in the
market, I think you could probably hang your
hat on that.
Say for two pretty extraordinary situations, the pandemic,
um, and the financial crisis, which, you know,
(09:09):
uh, the financial crisis was a credit event.
And we can talk more about that in
the pandemic, I think was kind of a
one-off event.
Right.
Um, it was, I hope it was a
one-off event and, uh, you know, in
the, in the, in the history books, we
can kind of discount that as a non
-economic event, if you will.
Right.
And it was a pandemic, but that's also
(09:30):
a great example of uncertainty, right?
Was there any time that was more uncertain
to the March of 2020?
Um, the reason why I point out March
of 2020 is because that was the height
of the pandemic, but it was also the
bottom of the stock market, the stock market
fell dramatically.
And I believe it was March 23rd where
it, it bottomed.
Um, there was no, uh, shortage of uncertainty
and the market, uh, marched on very significantly
(09:54):
since then.
So, um, I hope that gives you guys,
uh, an idea of why, you know, I
think this quote unquote term uncertainty is, uh,
you know, overused and unreliable.
And, you know, quite frankly, I'm not sure
what you're supposed to do with it.
Um, if it means that the stock market's
going to be more volatile, that's okay.
I think that's probably going to give you
more opportunities than, than, um, you might otherwise
(10:17):
have.
So Brian, um, I thought it might be
helpful to talk about some of the kinds
of things people look at when trying to
assess whether or not, um, a recession may
be, uh, imminent or, you know, we might
be evolving into recession.
You just talked about consumer spending, which is,
(10:38):
we often hear is what, something like 70
% of what drives the U S economy.
So, um, the, the fact that that looks
strong still is, um, a good sign and
encouraging.
And so, uh, all right, we can check
that one off as not really a particular
concern today.
Right.
Uh, another one oftentimes is concerns around employment,
(11:02):
uh, or unemployment.
Um, we're at pretty low levels of, of,
uh, unemployment, uh, you know, historically I'd say
we're still in a really attractive place for
unemployment levels, but we do hear about a
lot of layoffs happening in government.
And, um, perhaps some related, uh, impacted, um,
(11:27):
industries that might, uh, might rely on government
spending.
Uh, how, how's unemployment data looking at this
point?
What's your take on that part of it?
Sure.
So the unemployment rate right now is 4
.1%. The long-term average is 5.56%.
Um, the high during the pandemic was nearly
15%.
So, you know, we're still pretty low.
(11:49):
It's, it's higher off the lows of 3
.4%. Uh, you know, 70 basis points higher.
It's not an insignificant number, but you know,
it's a, it's a very low unemployment rate
still.
It's nothing to be overly concerned about at
the moment.
The prime age labor force ages 25 to
54 is close to all time highs.
(12:10):
So that's also a very good, uh, in
terms of employment, the, the, the number of
people employed in the, or the percentage of
people employed in that demographic, you're saying.
The percentage of people either employed or looking
for work.
That's what the labor force is.
So, um, it, it, the higher, the better,
right?
We want more people working.
We want more people looking for work.
Uh, the labor force as a whole, again,
(12:33):
near all time highs.
So, you know, from that vantage point, things
are, things are pretty good.
Um, we have seen a little bit of
an uptick in initial claims, but nothing too
significant.
Now, this is another opportunity, I think, to
point out another way where I think, um,
you know, market participants, media participants, they, they,
(12:56):
your short-term investors might, uh, overlook some
important things.
So let's think about what the unemployment is
really telling us.
Like the, the, the Bureau of Labor Statistics
at first Friday of every month comes out
with a labor report.
Right.
And there's, there's, there's nonstop coverage of it
on CNBC until the data is released at
8 30 AM.
(13:17):
And then for at least an hour and
a half after that, there's no nonstop chatter
about what it means to be higher or
lower by $10,000, 10,000 jobs from
the estimate.
So there's about 4 million jobs that are
either lost or quit every month.
And there's about 4.1 million jobs because
the unemployment rate is going up by about
(13:38):
a hundred thousand, a hundred thousand jobs a
month.
Um, that are added.
So, you know, this, this, this margin of
a hundred thousand from that vantage point, when
we're talking about 350 million Americans and 180
million people in the labor force almost feels
insignificant, right?
When we're talking about a hundred thousand, a
hundred and 50,000.
(14:00):
Unless as Jeff said, it's your job or,
you know, the next door, but, but yes,
in reality and objectively, right.
This is, this is modest percentage movements.
Yeah.
It's kind of interesting, right?
Like if you were to define the economy,
I think of the economy as the goods
that you could think about it from your
own personal economy, the goods and services that
you provide and consume, and the overall economy
(14:22):
is the goods and services that all the
people provide and consume.
Right.
And that's my simple definition.
Now, you know, somebody wants to ask me
and I, I said that off the top
of my head.
I think it was pretty good.
So I've been sticking with it.
Um, you know, it works pretty good, pretty
well.
Um, so where was it going that, so,
you know, you could make the argument that
we overreact to the unemployment report every single
(14:43):
month.
I mean, four or five hours of coverage
on it, you know, every day on, on
CNBC, um, might be too much, you know,
the stock market moving 1% because we
missed the jobs report by 30,000 or,
or, or beat it by 30,000 might
be overdone to changes in interest rates might
be overdone when you put it in from
that lens, right?
What you really want to look for is
(15:04):
violent changes in the trend.
Um, and one data point does not make
a trend.
Multiple data points make a trend.
Uh, you know, Chris started off the show
by talking about the NEBR or NBER, the
national bureau of economic research.
They don't look at, you know, one month,
two months, three months, they're looking at a
series of data points to determine whether there
(15:25):
is a severity in depth necessary to call
a recession.
I mean, that makes sense to me, right?
So we want to look for dramatic changes.
We want to see if it's going to
be, is that negative a hundred thousand, um,
jobs lost is that at the start of
a new trend, are we, are we going
to go to one 50, 200 the next
month, or are we going to revert positive?
Um, I think all that makes a big
(15:47):
difference, which is why, you know, we emphasize
as a group, as a team, uh, that
we want long-term investors that will find
the risk profile that fits for them, um,
and stick with it because, uh, this short
-term game is unpredictable.
The data is almost too fast.
It would be great if everybody slowed down,
um, and started to look at things that
(16:07):
were, uh, you know, maybe more important than,
uh, what it might seem like on any
given day.
We've a good point.
We've talked about this.
I think, uh, I don't know if it's
been on the show or just, um, in
our own conversations, but the, uh, the percentage
of, uh, people that work for the federal
government and, you know, how that fits into
(16:29):
perspective and whether or not that shows up
in data, um, is that something you can,
uh, just share a little bit with the
audience about, uh, as we talk about this,
uh, you know, if so a little, uh,
I framed some of the unemployment with this
whole notion of, uh, people getting laid off.
Uh, we see in the news when it
comes to, um, uh, government workers and, and
(16:53):
sometimes, you know, ancillary, uh, contractors and things
like that being affected by that.
Uh, is this going to show up in
the data?
And is it something that you think is
going to move that needle in any way
that's significant?
Well, it's definitely going to show up in
the data.
Um, so whether it's people just leaving their
(17:14):
government job, uh, at beginning ahead of possibly
being fired or actually being fired, or, you
know, we're going to have this back and
forth where judges are forcing them to rehire
them or they realize they need to re
there's going to be noise in the data
over the next couple of months.
Um, and whether you want to take that
seriously or not is entirely up to you
as an investor, but I would stand by
what I just said.
(17:35):
Um, we know this noise is going to
be in there.
Uh, consider it when you're looking at the,
a possible change in trend.
Um, and consider what, what it really means
now, Chris, I asked you this question for
a few weeks ago, so please don't answer
it.
I'm going to ask Jeff, uh, Jeff, how
many workers do you think the federal government
employs versus how many workers do you think
(17:58):
that state and local government employs?
Well, I don't know the numbers, but I
would guess a state and local government far
surpasses the federal number.
Well, you're right.
Um, you know, I think, I think me
and Chris were a little, um, a little
bit more surprised about the, the new I
worked in, I worked in local and state
government.
(18:20):
So, uh, you know, when we talk about
doge and, and, and, and cuts and things
of that nature, you know, there's 3 million
people that work in the federal government that
does not include contractors.
And there's about 20 million people that work
in state and local government.
Um, I'm doing that from memory.
So, uh, you know, if I'm off by
a million here or there, give me a
break.
Um, so my point is in an economy
(18:41):
that has about 180 million workers.
It, we might be overreacting to a five,
10,000 jobs here or there.
And, uh, but that doesn't mean that that
five, $10,000 isn't, uh, I keep saying
dollars jobs isn't going to, uh, show up
in that unemployment, uh, report, uh, that the
BLS shows shows every, every month.
(19:03):
So, um, there's going to be noise and
it's up to you as an investor, what
do you want to keep your eye on
the longterm or react to, um, you know,
short-term, uh, noise, I guess.
Sensitive to that.
I mean, it's, it's certainly, again, we're, you
know, to bring it to the personal level,
um, you know, if you're one of those
5,000 or whatever it happens to be,
uh, you know, it's certainly relevant and, you
(19:25):
know, we're not insensitive to that, we're just
simply trying to point this out from a.
A macro view.
How, how big a move is this impacting
the economy and therefore how investors might think
about it.
Part of the problem when we talk about
the macro economy in general is it sounds
so insensitive.
Yeah, exactly.
Yeah.
It's generally a problem.
(19:46):
Um, lots of politicians have gotten in trouble
about talking about the macro economy, right?
Yeah.
Yeah.
Well, let's, let's talk about another component that
sometimes people want to look at when thinking
about is a recession on the horizon.
So, so far it sounds like we've had
strong consumer spending, unemployment's pretty low.
How's business investment?
(20:08):
Is there any data that's indicating anything really
changing when it comes to business investment?
I haven't seen, I haven't seen anything of
significance.
Now I sent you guys a chart this
morning about durable, durable goods orders, and I
had two points that I wanted to make
about durable goods orders, um, when it comes
to, you know, uh, I think, I, I
think I said your durable goods orders and
(20:29):
I said your durable goods orders X defense
because X defense is, you know, obviously a
big portion of the durable goods that are
going to happen in the economy.
Some people, um, take out transportation in general.
Um, I don't really like to do that
because I think cars are important.
Um, but airplanes take up a huge portion
of that, uh, of that situation.
So that's why people do that.
(20:51):
But by, I had two points, one, it's
very cyclical.
So when consumer spending is not cyclical business
spending on durable goods, consumer spending on durable
goods does seem to be cyclical.
So, um, you should expect less capital expenditures
in a, in a recession.
Right.
Um, but two, the numbers in, as a
(21:12):
percentage of the total economy are almost a
footnote.
Um, you know, they're, they're in the couple
hundred billion when the economy is measured in
trillions, especially on a nominal basis, we're well
over 30 trillion, um, on an annual GDP
basis.
So, uh, yeah, there's going to be a
lot to be made of that.
Um, but in the end, it, it, it
(21:34):
might be fairly benign.
Um, I think the things that are cut
first when businesses get in trouble or not
really, I think it's been, my experience has
seen this is, uh, sales, advertising, marketing, um,
your SGA expenses, your cost centers, your HR,
your accounting, um, those are the things that
(21:55):
go first.
So, uh, you know, that's, that's something you
might want to keep on an eye on,
on, on, um, on income statements.
You know, companies generally try to reduce that
to increase their operating leverage.
So there's kind of a natural progression of
trying to increase margins and increase operating leverage.
Um, but then there could be the abrupt,
you know, we need to make changes because
(22:17):
revenue is slowing down.
Um, and you know, those are, might be
things you want to look for on the
business level.
Um, but, uh, you know, I'll point to
Darden restaurants, for example, Darden restaurants, it might
be the ultimate consumer discretionary, uh, consumer spending
company.
And, you know, they're not really seeing much
slowdown in consumer spending.
(22:37):
Um, you know, that could be one bellwether
for you.
And, you know, when I hear things like
that, uh, I shrug my shoulders.
I'm just feeling the U S consumer is
going to consume.
That's what they do.
And then you hear something like Delta, who
says they're seeing a slowdown in growth?
They're not saying they're expecting a recession from
growth, but what you might be seeing there
(22:58):
is the business travel or slowing down a
little bit.
Uh, which I think, you know, that's cultural,
right?
It might be a reaction to the boom
that we had after the pandemic.
It might be, uh, companies reigning in based
on a slowdown that they're seeing, seeing in
revenue, but a slowdown isn't necessarily recessionary.
(23:19):
My point is, there's a lot of noise.
Um, and what we want to concentrate on
are the things that are important, which can
really be tough to dial down.
Right.
And sometimes you need to like clear your
head, shut it off and think, right.
Just think through what's important.
Think through reality, think through real life.
Um, I think that that can be, especially
(23:41):
now in the social media age, there can
be an overwhelming amount of information thrown at
you and it can all seem important and,
uh, it's not necessarily all important, you know,
we, we have an, uh, individual stock portfolio
and we concentrate on consistency and growth.
And the reason why we do that is
because I understand there's an enormous amount of
uncertainty, even in, even when you concentrate on
(24:02):
things like consistency and growth, inevitably, there's going
to be things that don't go the way
you expected or that business expected.
Um, but, uh, in a, in a world
of enormous amounts of uncertainty, if you can
do a good job of maximizing that consistency,
uh, you know, you're probably going to be
in good shape over the long run.
Good point.
(24:23):
You know, Brian, during, uh, the COVID time,
we talked a lot about government spending and
what it was doing to inflation at the
moment.
Right.
We talked that government spending is a stimulus
to the economy and reducing government spending is
restrictive.
So this is something else that we haven't
seen yet, including in the recent six month,
(24:44):
uh, budget deal that was passed, there was
no reduction in government spending.
Um, how much is government spending really impacting
our GDP and our, you know, our economic
cycles here.
And if, if, if Congress actually restrains government
spending and DOJ is successful at their efforts
(25:06):
to really get rid of some agencies and
really reduce the federal workforce, is that something
that you would think could really impact the
economy in a slowing way?
Yes.
I think, uh, deficit spending is stimulative, like
deficit reduction or surpluses are restrictive.
Um, you know, John Maynard Keynes, a famous
(25:28):
economist, uh, he put forth and I ascribed
to this idea that, uh, during a troughing
economy, uh, you need, uh, and, and, uh,
to stimulate demand, stimulate aggregate demand.
And part of the way that you do
that is through government spending.
And we saw this during the great depression.
Uh, the, the new deal, uh, certainly helped
(25:50):
increase aggregate demand in hindsight and world war
II and the, the, the abundance of spending
that we had there, uh, really got us
out of the great depression.
Um, but he also said that when the
economy is humming along that the government should
cut back, uh, so not to overstimulate the
economy and cause, you know, an inflationary problem.
So, um, there is that balance.
(26:11):
Uh, we ran extra deficits during a booming
economy, which was a mistake.
And we had, you know, uh, inflation, the
government did not get that balance right, uh,
between, you know, 21 and 23.
Um, you know, eventually it seems like the
supply side of things caught up to the
demand side of things.
(26:32):
Um, but you know, naturally what we should
have been doing is cutting back on government
spending, uh, during those times.
Uh, and so we, so we have firepower
for, for the next trough.
Um, that's not what we've done.
Um, but inevitably, yes, uh, we, it will
be depressive in my opinion.
(26:53):
Okay.
Um, doesn't mean recession too.
It could be a slowdown.
So, you know, I think people think there's
like a binary situation here, but we were
growing at 5% GDP for a long
time, which is well, be well above potential.
You know, it could just go down a
half percent or 1% or something like
that, stay there for a while.
Sorry, Chris.
Oh, that's a good point.
(27:14):
Um, so one other thing to look at
sometimes when thinking about the concern of whether
there's a recession coming or not, is to
look at manufacturing output.
Um, is there, has there been any material
developments with regard to that?
I actually disagree.
I don't think it's that important.
So the reason why I don't think it's
(27:35):
that important is because we are more of
a services economy than a goods economy.
Um, and it's not even really close.
I sent the chart to you guys, uh,
again, that, that showed the differences between personal
consumption expenditures on services and personal consumption expenditures
on, um, manufacturing, it's not even close.
(27:57):
So, uh, you know, if we have a
blip in the manufacturing surveys, I, you know,
again, it's important, but not that important.
What I think, what I think is what
I think people struggle with sometimes is, you
know, everybody reads, uh, their economics textbooks and
all of it's based on the past, right.
Um, for, for, for good reason.
(28:18):
You know, I, when I was in school,
I learned about inventory cycles and how inventory
cycles can cause the business cycle to, um,
you know, be in flux and sometimes cause
a recession based on the ideas you have
too much inventory, you have to discount your
inventory, uh, if you discount your inventory, your
margins go down and you have to fire
people, if you fire people, they can't spend
(28:39):
as much, you have to discount some more,
you can't buy a new inventory and this
cycle kind of perpetuates itself until, you know,
interest rates come down and the government spends,
um, you know, out of a recession, since
we're mostly a services economy, there's not really
an inventory cycle anymore.
Um, so, you know, we don't really have
that great of a manufacturing, um, cycle, uh,
(29:01):
to, to create this inventory.
Uh, basically if we want it, we can
get it.
Uh, and that's how it's been for the
vast majority of the last 25 years, save
for the pandemic.
Uh, and so, you know, for that reason,
I discounted a little bit.
I mean, China has been a huge slowdown
and we get a lot of our manufacturing
power from there.
(29:22):
And it has not stopped anybody from getting
anything from, you know, or Amazon or any
of those, uh, any of those retailers or
Walmart, for example.
So, um, yeah, I discount that a little
bit.
Again, it's both like, what's, what's important to
concentrate on and what's not.
And, you know, you guys can disagree with
me on that.
It's, uh, you know, perfectly up for discussion
(29:43):
as far as I I'm concerned.
I just think something has to be dramatic
enough to slow down the $20 trillion consumer.
I guess that leaves us with the question
of the day is tariffs.
If enacted as suggested, you know, broad-based
tariffs, 25% here and there.
(30:04):
Is that enough to really slow the economy
down?
Uh, I think it's certainly enough to slow
the economy down.
Um, whether it's enough to bring down tariff,
bring down, um, that is the question, right?
Bring down the, the economy.
I do, I do not think I'll say
that.
Not static, right?
It's, um, well, is there a retaliation?
(30:26):
Is that correct?
Yeah.
Ultimately I think that's the bigger problem, right?
Our, our imaginations can run wild with how
big these tariffs are going to be.
And I think that's the uncertainty, Jeff, you're
relating to.
Yeah.
So, um, you know, I did some math
on this subject, uh, and we just pull
it up.
(30:47):
While you're pulling that up, I'm just going
to point out two other things that I
think are, uh, things that we may want
to just weave into our comments that are
sometimes also things people think about when trying
to evaluate, oh, is there a recession happening
is what's happening with investor sentiment in terms
of the stock market and, and secondly, with
(31:07):
housing, right?
You know, uh, uh, what's happening with home
prices and things of that sort.
So in any case, if it would complete
your comment, but we might want to tie
those things into.
Yeah.
So I, uh, the, this is all subject
to change of course.
And none of these have actually been enacted.
I don't believe.
And, uh, we're waiting on April 2nd to
(31:28):
get more numbers when it comes to, uh,
Europe and whether or not these Canada and
Mexico tariffs are going to keep up.
But I have 45% on China, 25
% on Canada, 25% on Mexico.
Um, and to me that the, that will
increase taxes by about $470 billion on the
economy.
Now, if, if spending habits didn't change, right.
(31:51):
If everything was constant, right.
Yeah.
So that's about a one and a half
percent tax.
Uh, and I think that number in China
is definitely in flux.
So this is kind of a problem, right?
We, a one and a half percent tax
is significant, right?
We have inflation of, uh, you know, two,
let's just call it two and a half
percent, um, or that's around where the trend
(32:11):
is.
If you increase it by one and a
half percent, we're closer to four again.
Right now that's assuming nothing changes.
We don't have a slow of what I'm
sorry.
I didn't follow.
If they go up 25%, that's a 25
% tax, isn't it?
It is.
So for example, we, uh, we import $413
(32:31):
billion worth of goods from Canada at a
25% tax, that would be 103 billion,
uh, in taxes per year against, uh, an
economy that is, uh, uh, let's call it,
call it 30 trillion.
Um, you know, that when you add up
all those, it ends up being one and
(32:52):
a half percent increase the economy you're saying
of the economy.
So of all prices, I would expect prices
to increase one and a half percent.
If the, if the tariffs go in, as,
as, as mentioned, if they stay for in
perpetuity, um, those are, those are a lot
of ifs to, to, to, um, point.
Yeah.
Now the question is like, okay, let's say
(33:15):
that happens, right?
Let's say that's our baseline.
What do you, what do you think will
happen to earnings?
Well, I think earnings will go down to
$259 and 50 cents, but I'm not going
to get into the math on how I
got there, but you know, that's my rough
estimate, um, for 2025.
Now that the initial earnings estimate coming into
the year was $278.
(33:35):
So that's a pretty big slowdown, right?
That's that I'd say that cuts the, uh,
earnings growth by about half of, of what
we expect in an economy, which isn't great,
therefore maybe that justifies the notion that, Oh,
uh, Mark stark market prices have come down
some, you know, that kind of like, Oh,
if we're going to have an effect on
(33:56):
earnings.
So if we had earnings growth go down
by half in a vacuum, then absolutely like
stock prices to come down.
The beautiful thing is none of this happens
in a vacuum, right?
Um, if that were to happen, what we
have seen is growth expectations have come down
and the 10 year treasury has come down,
um, in relation to that.
So, you know, when we had a 5
(34:17):
% 10 year treasury, it should be a
higher discount on stocks than when we have
a 4.3, 4.4% 10 year
treasury, which is around what we have today.
Um, and when you put those two things
together, you know, the stock market probably corrected
too much in my opinion.
You know, the, what the stock market is
saying is we're, we're handicapping things we don't
(34:38):
know.
So if we just have a kind of
a benign April 2nd, when the Trump administration
comes out and says, it's not going to
be, you know, as bad as we said,
the, these countries kind of worked with us,
then I think you'd see the stock market
react.
I don't think we're going to have any
benign days actually.
Well, what I think what we've seen is
we've had a combination of benign days and
(35:00):
crazy days, and you know, that causes the
relative volatility.
Right.
But if, again, if we want to take
a sober look and not think about it
day to day, and you want to think
about the longer term, is there an opportunity
here that today's price is to take advantage
of opportunities that being a longterm, you know,
of course there's no guarantee.
I mean, they, they, they could make the
tariffs way worse than we expect, but based
(35:22):
on what they've proposed and enacted so far,
I think there could be a bit of
an opportunity here, which is why, you know,
I've, I've mentioned to our clients in that
call we had a couple of weeks ago
that all things equal today, I would want
to take more risk.
Um, the beautiful thing is, you know, April
2nd, we're not going to be making any
changes for another couple of weeks.
So we're going to be able to, um,
you know, input that information into our analysis
(35:44):
to, to make decisions on asset allocation.
That sounds like we've, we've kind of run
the course.
I think, uh, listen, if, if you've been
enjoying this conversation, you, you need to be
sharing it with others.
This is the kind of stuff that, uh,
people are worried about.
And, uh, we tried to give you some
substantive way to think about this and understand
how it is that you can approach this
(36:06):
topic as you think about your portfolio and
investing.
But along the way, if you need a
little bit of helping hand, uh, don't hesitate
to reach out to us.
We're happy to be a resource to you
and assist you in your, uh, portfolio management
or financial planning.
Hope we can be that.
Thanks everybody.
Until next time keeps driving for something more.
(36:28):
Thank you for listening to something more with
Chris Boyd.
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quality of life issues that make the money
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(36:51):
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(37:13):
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Welcome to something more with Chris Boyd.
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(00:22):
Here he is your fulfillment facilitator, your partner
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Here's your host, Jay, Christopher Boyd.
Welcome everybody to another podcast of something more.
I'm here with Jeff Perry and Brian Regan.
All of us are from the AMR team
at wealth enhancement group and glad to have
(00:43):
you with us.
Uh, today we're going to talk a little
bit about recession, the topic of recession, the
concern.
I find this keeps popping up in conversations
and, uh, uh, things I'm, uh, hearing, watching,
you know, people have been more prone to
talk about this in light of recent topics
(01:03):
like tariffs and the like there's concerns of
like, oh, is this going to slow the
economy to some extent?
And when people start having those kinds of
anxieties, we've seen the market have some, uh,
volatility because of anxieties around, I think, particularly
related to tariff, uh, uh, policy and, or
(01:25):
questions of what's policy, you know, that kind
of thing.
Um, it, it comes up on people's minds
of, uh, should I be more defensive?
Should I be worried?
Is there something that's going to change?
And, you know, it wasn't long ago, just,
uh, the turn of the year, we were
talking about how earnings were really solid and
things were really going well, and there's a
(01:48):
lot of optimism around the prospects of, um,
extended, uh, tax cuts and things of that
sort.
So, um, so I thought this might be
a topic for us to revisit for people
to give thought to and understand, uh, what
is a recession and what defines it?
What are the signs of it?
(02:08):
Is this something we should be focused on
today?
Or is it something to put off to
be, you know, mindful of, but maybe not
imminent.
So, um, we're going to talk about that
and, you know, Jeff, one of the things
that, um, I remember as sort of a
rule of thumb, it used to be that,
uh, we talked about a recession as two,
(02:30):
uh, consecutive quarters of negative GDP.
You know, the, the growth was declining, you
know, was negative, uh, judged by, um, the
GDP, and that was sort of our, our
standard for expectation of whether we had a
recession.
And I remember it wasn't that long ago
that we actually had that happen.
It was very slight and barely negative, but
(02:52):
there was some, uh, I think it was
around that time.
I'm trying to remember now when it was,
but I think it was in COVID and
then it turned out, oh, there, there, yeah,
it was 2020.
There wasn't a deemed a recession by, it
turns out there's an organization, the national bureau
of economic research that, uh, is actually, they
(03:16):
get, they get to rule, they get to
overrule the definition.
Well, they, they actually have a more complex,
I guess, assess, you know, let's face it,
that's a shorthand, maybe write a rule of
thumb, but when you look at, um, uh,
uh, more involved, you know, group of data,
you might find that, well, some things are
(03:38):
one thing, but another says something else, right?
And it's this combination of, is it, is
it, uh, the, uh, the combination of things,
the main factors, this was, uh, off of
the website and so forth.
Um, the NBER looks at three main factors.
How deep is the decline?
(04:00):
How widespread is it?
And how long is it lasts?
And of course you can only tell if
a recession has occurred in hindsight, right, we
don't know in advance, but there are things
we can pay attention to.
And, uh, that's, I think what we want
to do today is talk to Brian a
little bit about, before we do, there is
(04:20):
another definition that we should outline.
What is that?
If your neighbor loses their job, it's a
recession.
If you lose your job, it's the depression,
right?
Right.
Is it affecting you?
Yeah, how personally, but that's a good example
though, with you, you hear about, um, people
being laid off a lot of government, you
know, focus on, you know, government workers being
(04:41):
paid off and that can precipitate sometimes, um,
that sentiment that, uh, Oh, I know someone
who is affected by this.
And therefore you start to think, Oh, well
maybe my job could be affected too, and
maybe it affects your behavior and your spending
behavior.
(05:01):
And, um, there can be this whole psychology
that's a self-fulfilling no element to this
of, does it, uh, does it, you know,
kind of feed on itself to create some
of the, uh, concerns that we have.
And it's all about a word that I
believe Brian doesn't like.
So I may as well put it out
(05:22):
there and get it out of the way.
Uncertainty, right?
So nobody likes uncertainty, right?
Uh, especially as investors, we all want, didn't
I, uh, didn't I use that word on
the call and you were tired of the
word.
Do you think it's like an overused term
out there?
Well, let's bring Brian in.
(05:42):
Yeah.
Yeah.
Thanks guys.
Thanks for having me.
Um, enjoy being with you, having these, uh,
fun conversations, at least to me, they're fun
stuff from probably, probably to our listeners too,
if they're, they're this, uh, yeah, I, I,
you know, I have pet peeves as you
guys know, and one of them is overused
terms, um, that try to simplify what's, you
(06:03):
know, going on or scare people or predict
things that, you know, aren't really predictable, right.
And these, a lot of these terms get
thrown out casually.
Um, and I guess the, you know, the
easily, easily brought from the frontal cortex of
the brain or something, because they seem to
get repeated over and over and over again.
And, you know, uncertainty is one of those
(06:24):
words.
Um, and of course, you know, uncertainty exists,
but the reason why I don't like it
is it exists all the time.
I mean, the function of being invested in
the capital markets is having an expectation of
the future, um, which is uncertain, right.
We don't have any idea what's going to
happen in the future.
We might not even know what's really going
(06:44):
to happen to us later on this afternoon
or this evening.
Right.
Um, so, you know, there's the reason why
the main reason I don't like it is
because it's, it's always uncertain.
Sometimes there's heightened uncertainty.
Um, you know, I would say that when
we have a guessing game on where we're
going to go with this tariff and trade
war, sure, you know, there's, there's more uncertainty
(07:06):
and that creates a more volatility in the
market.
Um, but just because there's volatility in the
market, uh, doesn't necessarily mean, um, we should
be concerned or feel like things are more
up in the air than they usually are.
Um, I think things are, you know, often,
you know, subject to change.
We, we know that, uh, many of the
(07:26):
stocks in the, in the, in the stock
universe will go bankrupt, right?
Uh, we know that a very small percentage
of the stocks drive overall returns over time.
Um, you know, these are things that are
innately uncertain.
So it's not that I necessarily disagree that
uncertainty is a thing or, um, it's just
that it's over, it's overused during certain times.
It's almost like a euphemism for the VIX
(07:48):
increasing or consumer sentiment or, you know, investor
sentiment, which, you know, to me are all
bologna sauce, um, you know, investor sentiment should
be a fun show.
It's nonsense, bologna sauce.
I like that, but it's fun.
So, um, you know, I was holding back
that word.
(08:08):
I thought you guys would enjoy that.
Um, so investor sentiment to me is just,
it just tells you what the market has
done recently, right?
It's like the definition of recency bias.
It's not that helpful.
Consumer sentiment is very political.
It's done like on a landline phone call.
It's, it's been incredibly, you know, inconsistent and
(08:28):
unreliable over time.
So I don't know why we keep saying
these things as, as a put stock into
them.
Um, you know, I sent you guys some
charts this morning and the first chart that
I sent you was just us personal consumption
over time.
It goes back all the way to 1950
and it's an exponential line, um, rising from
the lower left to the top, right.
(08:49):
And it's smooth.
Okay.
There's basically all I'm saying is that it
takes a lot for the U S consumer
to stop spending.
So if you're looking for certainty in the
market, I think you could probably hang your
hat on that.
Say for two pretty extraordinary situations, the pandemic,
um, and the financial crisis, which, you know,
(09:09):
uh, the financial crisis was a credit event.
And we can talk more about that in
the pandemic, I think was kind of a
one-off event.
Right.
Um, it was, I hope it was a
one-off event and, uh, you know, in
the, in the, in the history books, we
can kind of discount that as a non
-economic event, if you will.
Right.
And it was a pandemic, but that's also
(09:30):
a great example of uncertainty, right?
Was there any time that was more uncertain
to the March of 2020?
Um, the reason why I point out March
of 2020 is because that was the height
of the pandemic, but it was also the
bottom of the stock market, the stock market
fell dramatically.
And I believe it was March 23rd where
it, it bottomed.
Um, there was no, uh, shortage of uncertainty
and the market, uh, marched on very significantly
(09:54):
since then.
So, um, I hope that gives you guys,
uh, an idea of why, you know, I
think this quote unquote term uncertainty is, uh,
you know, overused and unreliable.
And, you know, quite frankly, I'm not sure
what you're supposed to do with it.
Um, if it means that the stock market's
going to be more volatile, that's okay.
I think that's probably going to give you
more opportunities than, than, um, you might otherwise
(10:17):
have.
So Brian, um, I thought it might be
helpful to talk about some of the kinds
of things people look at when trying to
assess whether or not, um, a recession may
be, uh, imminent or, you know, we might
be evolving into recession.
You just talked about consumer spending, which is,
(10:38):
we often hear is what, something like 70
% of what drives the U S economy.
So, um, the, the fact that that looks
strong still is, um, a good sign and
encouraging.
And so, uh, all right, we can check
that one off as not really a particular
concern today.
Right.
Uh, another one oftentimes is concerns around employment,
(11:02):
uh, or unemployment.
Um, we're at pretty low levels of, of,
uh, unemployment, uh, you know, historically I'd say
we're still in a really attractive place for
unemployment levels, but we do hear about a
lot of layoffs happening in government.
And, um, perhaps some related, uh, impacted, um,
(11:27):
industries that might, uh, might rely on government
spending.
Uh, how, how's unemployment data looking at this
point?
What's your take on that part of it?
Sure.
So the unemployment rate right now is 4
.1%. The long-term average is 5.56%.
Um, the high during the pandemic was nearly
15%.
So, you know, we're still pretty low.
(11:49):
It's, it's higher off the lows of 3
.4%. Uh, you know, 70 basis points higher.
It's not an insignificant number, but you know,
it's a, it's a very low unemployment rate
still.
It's nothing to be overly concerned about at
the moment.
The prime age labor force ages 25 to
54 is close to all time highs.
(12:10):
So that's also a very good, uh, in
terms of employment, the, the, the number of
people employed in the, or the percentage of
people employed in that demographic, you're saying.
The percentage of people either employed or looking
for work.
That's what the labor force is.
So, um, it, it, the higher, the better,
right?
We want more people working.
We want more people looking for work.
Uh, the labor force as a whole, again,
(12:33):
near all time highs.
So, you know, from that vantage point, things
are, things are pretty good.
Um, we have seen a little bit of
an uptick in initial claims, but nothing too
significant.
Now, this is another opportunity, I think, to
point out another way where I think, um,
you know, market participants, media participants, they, they,
(12:56):
your short-term investors might, uh, overlook some
important things.
So let's think about what the unemployment is
really telling us.
Like the, the, the Bureau of Labor Statistics
at first Friday of every month comes out
with a labor report.
Right.
And there's, there's, there's nonstop coverage of it
on CNBC until the data is released at
8 30 AM.
(13:17):
And then for at least an hour and
a half after that, there's no nonstop chatter
about what it means to be higher or
lower by $10,000, 10,000 jobs from
the estimate.
So there's about 4 million jobs that are
either lost or quit every month.
And there's about 4.1 million jobs because
the unemployment rate is going up by about
(13:38):
a hundred thousand, a hundred thousand jobs a
month.
Um, that are added.
So, you know, this, this, this margin of
a hundred thousand from that vantage point, when
we're talking about 350 million Americans and 180
million people in the labor force almost feels
insignificant, right?
When we're talking about a hundred thousand, a
hundred and 50,000.
(14:00):
Unless as Jeff said, it's your job or,
you know, the next door, but, but yes,
in reality and objectively, right.
This is, this is modest percentage movements.
Yeah.
It's kind of interesting, right?
Like if you were to define the economy,
I think of the economy as the goods
that you could think about it from your
own personal economy, the goods and services that
you provide and consume, and the overall economy
(14:22):
is the goods and services that all the
people provide and consume.
Right.
And that's my simple definition.
Now, you know, somebody wants to ask me
and I, I said that off the top
of my head.
I think it was pretty good.
So I've been sticking with it.
Um, you know, it works pretty good, pretty
well.
Um, so where was it going that, so,
you know, you could make the argument that
we overreact to the unemployment report every single
(14:43):
month.
I mean, four or five hours of coverage
on it, you know, every day on, on
CNBC, um, might be too much, you know,
the stock market moving 1% because we
missed the jobs report by 30,000 or,
or, or beat it by 30,000 might
be overdone to changes in interest rates might
be overdone when you put it in from
that lens, right?
What you really want to look for is
(15:04):
violent changes in the trend.
Um, and one data point does not make
a trend.
Multiple data points make a trend.
Uh, you know, Chris started off the show
by talking about the NEBR or NBER, the
national bureau of economic research.
They don't look at, you know, one month,
two months, three months, they're looking at a
series of data points to determine whether there
(15:25):
is a severity in depth necessary to call
a recession.
I mean, that makes sense to me, right?
So we want to look for dramatic changes.
We want to see if it's going to
be, is that negative a hundred thousand, um,
jobs lost is that at the start of
a new trend, are we, are we going
to go to one 50, 200 the next
month, or are we going to revert positive?
Um, I think all that makes a big
(15:47):
difference, which is why, you know, we emphasize
as a group, as a team, uh, that
we want long-term investors that will find
the risk profile that fits for them, um,
and stick with it because, uh, this short
-term game is unpredictable.
The data is almost too fast.
It would be great if everybody slowed down,
um, and started to look at things that
(16:07):
were, uh, you know, maybe more important than,
uh, what it might seem like on any
given day.
We've a good point.
We've talked about this.
I think, uh, I don't know if it's
been on the show or just, um, in
our own conversations, but the, uh, the percentage
of, uh, people that work for the federal
government and, you know, how that fits into
(16:29):
perspective and whether or not that shows up
in data, um, is that something you can,
uh, just share a little bit with the
audience about, uh, as we talk about this,
uh, you know, if so a little, uh,
I framed some of the unemployment with this
whole notion of, uh, people getting laid off.
Uh, we see in the news when it
comes to, um, uh, government workers and, and
(16:53):
sometimes, you know, ancillary, uh, contractors and things
like that being affected by that.
Uh, is this going to show up in
the data?
And is it something that you think is
going to move that needle in any way
that's significant?
Well, it's definitely going to show up in
the data.
Um, so whether it's people just leaving their
(17:14):
government job, uh, at beginning ahead of possibly
being fired or actually being fired, or, you
know, we're going to have this back and
forth where judges are forcing them to rehire
them or they realize they need to re
there's going to be noise in the data
over the next couple of months.
Um, and whether you want to take that
seriously or not is entirely up to you
as an investor, but I would stand by
what I just said.
(17:35):
Um, we know this noise is going to
be in there.
Uh, consider it when you're looking at the,
a possible change in trend.
Um, and consider what, what it really means
now, Chris, I asked you this question for
a few weeks ago, so please don't answer
it.
I'm going to ask Jeff, uh, Jeff, how
many workers do you think the federal government
employs versus how many workers do you think
(17:58):
that state and local government employs?
Well, I don't know the numbers, but I
would guess a state and local government far
surpasses the federal number.
Well, you're right.
Um, you know, I think, I think me
and Chris were a little, um, a little
bit more surprised about the, the new I
worked in, I worked in local and state
government.
(18:20):
So, uh, you know, when we talk about
doge and, and, and, and cuts and things
of that nature, you know, there's 3 million
people that work in the federal government that
does not include contractors.
And there's about 20 million people that work
in state and local government.
Um, I'm doing that from memory.
So, uh, you know, if I'm off by
a million here or there, give me a
break.
Um, so my point is in an economy
(18:41):
that has about 180 million workers.
It, we might be overreacting to a five,
10,000 jobs here or there.
And, uh, but that doesn't mean that that
five, $10,000 isn't, uh, I keep saying
dollars jobs isn't going to, uh, show up
in that unemployment, uh, report, uh, that the
BLS shows shows every, every month.
(19:03):
So, um, there's going to be noise and
it's up to you as an investor, what
do you want to keep your eye on
the longterm or react to, um, you know,
short-term, uh, noise, I guess.
Sensitive to that.
I mean, it's, it's certainly, again, we're, you
know, to bring it to the personal level,
um, you know, if you're one of those
5,000 or whatever it happens to be,
uh, you know, it's certainly relevant and, you
(19:25):
know, we're not insensitive to that, we're just
simply trying to point this out from a.
A macro view.
How, how big a move is this impacting
the economy and therefore how investors might think
about it.
Part of the problem when we talk about
the macro economy in general is it sounds
so insensitive.
Yeah, exactly.
Yeah.
It's generally a problem.
(19:46):
Um, lots of politicians have gotten in trouble
about talking about the macro economy, right?
Yeah.
Yeah.
Well, let's, let's talk about another component that
sometimes people want to look at when thinking
about is a recession on the horizon.
So, so far it sounds like we've had
strong consumer spending, unemployment's pretty low.
How's business investment?
(20:08):
Is there any data that's indicating anything really
changing when it comes to business investment?
I haven't seen, I haven't seen anything of
significance.
Now I sent you guys a chart this
morning about durable, durable goods orders, and I
had two points that I wanted to make
about durable goods orders, um, when it comes
to, you know, uh, I think, I, I
think I said your durable goods orders and
(20:29):
I said your durable goods orders X defense
because X defense is, you know, obviously a
big portion of the durable goods that are
going to happen in the economy.
Some people, um, take out transportation in general.
Um, I don't really like to do that
because I think cars are important.
Um, but airplanes take up a huge portion
of that, uh, of that situation.
So that's why people do that.
(20:51):
But by, I had two points, one, it's
very cyclical.
So when consumer spending is not cyclical business
spending on durable goods, consumer spending on durable
goods does seem to be cyclical.
So, um, you should expect less capital expenditures
in a, in a recession.
Right.
Um, but two, the numbers in, as a
(21:12):
percentage of the total economy are almost a
footnote.
Um, you know, they're, they're in the couple
hundred billion when the economy is measured in
trillions, especially on a nominal basis, we're well
over 30 trillion, um, on an annual GDP
basis.
So, uh, yeah, there's going to be a
lot to be made of that.
Um, but in the end, it, it, it
(21:34):
might be fairly benign.
Um, I think the things that are cut
first when businesses get in trouble or not
really, I think it's been, my experience has
seen this is, uh, sales, advertising, marketing, um,
your SGA expenses, your cost centers, your HR,
your accounting, um, those are the things that
(21:55):
go first.
So, uh, you know, that's, that's something you
might want to keep on an eye on,
on, on, um, on income statements.
You know, companies generally try to reduce that
to increase their operating leverage.
So there's kind of a natural progression of
trying to increase margins and increase operating leverage.
Um, but then there could be the abrupt,
you know, we need to make changes because
(22:17):
revenue is slowing down.
Um, and you know, those are, might be
things you want to look for on the
business level.
Um, but, uh, you know, I'll point to
Darden restaurants, for example, Darden restaurants, it might
be the ultimate consumer discretionary, uh, consumer spending
company.
And, you know, they're not really seeing much
slowdown in consumer spending.
(22:37):
Um, you know, that could be one bellwether
for you.
And, you know, when I hear things like
that, uh, I shrug my shoulders.
I'm just feeling the U S consumer is
going to consume.
That's what they do.
And then you hear something like Delta, who
says they're seeing a slowdown in growth?
They're not saying they're expecting a recession from
growth, but what you might be seeing there
(22:58):
is the business travel or slowing down a
little bit.
Uh, which I think, you know, that's cultural,
right?
It might be a reaction to the boom
that we had after the pandemic.
It might be, uh, companies reigning in based
on a slowdown that they're seeing, seeing in
revenue, but a slowdown isn't necessarily recessionary.
(23:19):
My point is, there's a lot of noise.
Um, and what we want to concentrate on
are the things that are important, which can
really be tough to dial down.
Right.
And sometimes you need to like clear your
head, shut it off and think, right.
Just think through what's important.
Think through reality, think through real life.
Um, I think that that can be, especially
(23:41):
now in the social media age, there can
be an overwhelming amount of information thrown at
you and it can all seem important and,
uh, it's not necessarily all important, you know,
we, we have an, uh, individual stock portfolio
and we concentrate on consistency and growth.
And the reason why we do that is
because I understand there's an enormous amount of
uncertainty, even in, even when you concentrate on
(24:02):
things like consistency and growth, inevitably, there's going
to be things that don't go the way
you expected or that business expected.
Um, but, uh, in a, in a world
of enormous amounts of uncertainty, if you can
do a good job of maximizing that consistency,
uh, you know, you're probably going to be
in good shape over the long run.
Good point.
(24:23):
You know, Brian, during, uh, the COVID time,
we talked a lot about government spending and
what it was doing to inflation at the
moment.
Right.
We talked that government spending is a stimulus
to the economy and reducing government spending is
restrictive.
So this is something else that we haven't
seen yet, including in the recent six month,
(24:44):
uh, budget deal that was passed, there was
no reduction in government spending.
Um, how much is government spending really impacting
our GDP and our, you know, our economic
cycles here.
And if, if, if Congress actually restrains government
spending and DOJ is successful at their efforts
(25:06):
to really get rid of some agencies and
really reduce the federal workforce, is that something
that you would think could really impact the
economy in a slowing way?
Yes.
I think, uh, deficit spending is stimulative, like
deficit reduction or surpluses are restrictive.
Um, you know, John Maynard Keynes, a famous
(25:28):
economist, uh, he put forth and I ascribed
to this idea that, uh, during a troughing
economy, uh, you need, uh, and, and, uh,
to stimulate demand, stimulate aggregate demand.
And part of the way that you do
that is through government spending.
And we saw this during the great depression.
Uh, the, the new deal, uh, certainly helped
(25:50):
increase aggregate demand in hindsight and world war
II and the, the, the abundance of spending
that we had there, uh, really got us
out of the great depression.
Um, but he also said that when the
economy is humming along that the government should
cut back, uh, so not to overstimulate the
economy and cause, you know, an inflationary problem.
So, um, there is that balance.
(26:11):
Uh, we ran extra deficits during a booming
economy, which was a mistake.
And we had, you know, uh, inflation, the
government did not get that balance right, uh,
between, you know, 21 and 23.
Um, you know, eventually it seems like the
supply side of things caught up to the
demand side of things.
(26:32):
Um, but you know, naturally what we should
have been doing is cutting back on government
spending, uh, during those times.
Uh, and so we, so we have firepower
for, for the next trough.
Um, that's not what we've done.
Um, but inevitably, yes, uh, we, it will
be depressive in my opinion.
(26:53):
Okay.
Um, doesn't mean recession too.
It could be a slowdown.
So, you know, I think people think there's
like a binary situation here, but we were
growing at 5% GDP for a long
time, which is well, be well above potential.
You know, it could just go down a
half percent or 1% or something like
that, stay there for a while.
Sorry, Chris.
Oh, that's a good point.
(27:14):
Um, so one other thing to look at
sometimes when thinking about the concern of whether
there's a recession coming or not, is to
look at manufacturing output.
Um, is there, has there been any material
developments with regard to that?
I actually disagree.
I don't think it's that important.
So the reason why I don't think it's
(27:35):
that important is because we are more of
a services economy than a goods economy.
Um, and it's not even really close.
I sent the chart to you guys, uh,
again, that, that showed the differences between personal
consumption expenditures on services and personal consumption expenditures
on, um, manufacturing, it's not even close.
(27:57):
So, uh, you know, if we have a
blip in the manufacturing surveys, I, you know,
again, it's important, but not that important.
What I think, what I think is what
I think people struggle with sometimes is, you
know, everybody reads, uh, their economics textbooks and
all of it's based on the past, right.
Um, for, for, for good reason.
(28:18):
You know, I, when I was in school,
I learned about inventory cycles and how inventory
cycles can cause the business cycle to, um,
you know, be in flux and sometimes cause
a recession based on the ideas you have
too much inventory, you have to discount your
inventory, uh, if you discount your inventory, your
margins go down and you have to fire
people, if you fire people, they can't spend
(28:39):
as much, you have to discount some more,
you can't buy a new inventory and this
cycle kind of perpetuates itself until, you know,
interest rates come down and the government spends,
um, you know, out of a recession, since
we're mostly a services economy, there's not really
an inventory cycle anymore.
Um, so, you know, we don't really have
that great of a manufacturing, um, cycle, uh,
(29:01):
to, to create this inventory.
Uh, basically if we want it, we can
get it.
Uh, and that's how it's been for the
vast majority of the last 25 years, save
for the pandemic.
Uh, and so, you know, for that reason,
I discounted a little bit.
I mean, China has been a huge slowdown
and we get a lot of our manufacturing
power from there.
(29:22):
And it has not stopped anybody from getting
anything from, you know, or Amazon or any
of those, uh, any of those retailers or
Walmart, for example.
So, um, yeah, I discount that a little
bit.
Again, it's both like, what's, what's important to
concentrate on and what's not.
And, you know, you guys can disagree with
me on that.
It's, uh, you know, perfectly up for discussion
(29:43):
as far as I I'm concerned.
I just think something has to be dramatic
enough to slow down the $20 trillion consumer.
I guess that leaves us with the question
of the day is tariffs.
If enacted as suggested, you know, broad-based
tariffs, 25% here and there.
(30:04):
Is that enough to really slow the economy
down?
Uh, I think it's certainly enough to slow
the economy down.
Um, whether it's enough to bring down tariff,
bring down, um, that is the question, right?
Bring down the, the economy.
I do, I do not think I'll say
that.
Not static, right?
It's, um, well, is there a retaliation?
(30:26):
Is that correct?
Yeah.
Ultimately I think that's the bigger problem, right?
Our, our imaginations can run wild with how
big these tariffs are going to be.
And I think that's the uncertainty, Jeff, you're
relating to.
Yeah.
So, um, you know, I did some math
on this subject, uh, and we just pull
it up.
(30:47):
While you're pulling that up, I'm just going
to point out two other things that I
think are, uh, things that we may want
to just weave into our comments that are
sometimes also things people think about when trying
to evaluate, oh, is there a recession happening
is what's happening with investor sentiment in terms
of the stock market and, and secondly, with
(31:07):
housing, right?
You know, uh, uh, what's happening with home
prices and things of that sort.
So in any case, if it would complete
your comment, but we might want to tie
those things into.
Yeah.
So I, uh, the, this is all subject
to change of course.
And none of these have actually been enacted.
I don't believe.
And, uh, we're waiting on April 2nd to
(31:28):
get more numbers when it comes to, uh,
Europe and whether or not these Canada and
Mexico tariffs are going to keep up.
But I have 45% on China, 25
% on Canada, 25% on Mexico.
Um, and to me that the, that will
increase taxes by about $470 billion on the
economy.
Now, if, if spending habits didn't change, right.
(31:51):
If everything was constant, right.
Yeah.
So that's about a one and a half
percent tax.
Uh, and I think that number in China
is definitely in flux.
So this is kind of a problem, right?
We, a one and a half percent tax
is significant, right?
We have inflation of, uh, you know, two,
let's just call it two and a half
percent, um, or that's around where the trend
(32:11):
is.
If you increase it by one and a
half percent, we're closer to four again.
Right now that's assuming nothing changes.
We don't have a slow of what I'm
sorry.
I didn't follow.
If they go up 25%, that's a 25
% tax, isn't it?
It is.
So for example, we, uh, we import $413
(32:31):
billion worth of goods from Canada at a
25% tax, that would be 103 billion,
uh, in taxes per year against, uh, an
economy that is, uh, uh, let's call it,
call it 30 trillion.
Um, you know, that when you add up
all those, it ends up being one and
(32:52):
a half percent increase the economy you're saying
of the economy.
So of all prices, I would expect prices
to increase one and a half percent.
If the, if the tariffs go in, as,
as, as mentioned, if they stay for in
perpetuity, um, those are, those are a lot
of ifs to, to, to, um, point.
Yeah.
Now the question is like, okay, let's say
(33:15):
that happens, right?
Let's say that's our baseline.
What do you, what do you think will
happen to earnings?
Well, I think earnings will go down to
$259 and 50 cents, but I'm not going
to get into the math on how I
got there, but you know, that's my rough
estimate, um, for 2025.
Now that the initial earnings estimate coming into
the year was $278.
(33:35):
So that's a pretty big slowdown, right?
That's that I'd say that cuts the, uh,
earnings growth by about half of, of what
we expect in an economy, which isn't great,
therefore maybe that justifies the notion that, Oh,
uh, Mark stark market prices have come down
some, you know, that kind of like, Oh,
if we're going to have an effect on
(33:56):
earnings.
So if we had earnings growth go down
by half in a vacuum, then absolutely like
stock prices to come down.
The beautiful thing is none of this happens
in a vacuum, right?
Um, if that were to happen, what we
have seen is growth expectations have come down
and the 10 year treasury has come down,
um, in relation to that.
So, you know, when we had a 5
(34:17):
% 10 year treasury, it should be a
higher discount on stocks than when we have
a 4.3, 4.4% 10 year
treasury, which is around what we have today.
Um, and when you put those two things
together, you know, the stock market probably corrected
too much in my opinion.
You know, the, what the stock market is
saying is we're, we're handicapping things we don't
(34:38):
know.
So if we just have a kind of
a benign April 2nd, when the Trump administration
comes out and says, it's not going to
be, you know, as bad as we said,
the, these countries kind of worked with us,
then I think you'd see the stock market
react.
I don't think we're going to have any
benign days actually.
Well, what I think what we've seen is
we've had a combination of benign days and
(35:00):
crazy days, and you know, that causes the
relative volatility.
Right.
But if, again, if we want to take
a sober look and not think about it
day to day, and you want to think
about the longer term, is there an opportunity
here that today's price is to take advantage
of opportunities that being a longterm, you know,
of course there's no guarantee.
I mean, they, they, they could make the
tariffs way worse than we expect, but based
(35:22):
on what they've proposed and enacted so far,
I think there could be a bit of
an opportunity here, which is why, you know,
I've, I've mentioned to our clients in that
call we had a couple of weeks ago
that all things equal today, I would want
to take more risk.
Um, the beautiful thing is, you know, April
2nd, we're not going to be making any
changes for another couple of weeks.
So we're going to be able to, um,
you know, input that information into our analysis
(35:44):
to, to make decisions on asset allocation.
That sounds like we've, we've kind of run
the course.
I think, uh, listen, if, if you've been
enjoying this conversation, you, you need to be
sharing it with others.
This is the kind of stuff that, uh,
people are worried about.
And, uh, we tried to give you some
substantive way to think about this and understand
how it is that you can approach this
(36:06):
topic as you think about your portfolio and
investing.
But along the way, if you need a
little bit of helping hand, uh, don't hesitate
to reach out to us.
We're happy to be a resource to you
and assist you in your, uh, portfolio management
or financial planning.
Hope we can be that.
Thanks everybody.
Until next time keeps driving for something more.
(36:28):
Thank you for listening to something more with
Chris Boyd.
Call us for help, whether it's for financial
planning or portfolio management, insurance concerns, or those
quality of life issues that make the money
matters matter.
Whatever's on your mind.
Visit us at something more with chrisboyd.com
or call us toll free at 8 6
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(36:51):
Or send us your questions to AMR dash
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You're listening to something more with Chris Boyd,
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The information given on this program is general
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(37:13):
pertaining to your specific situation.
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