#1034 - Buy in May and Go Away? Ft. Peter Boockvar

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0:37Buy in May and go away. Hi, everyone. Welcome to the Real Vision Daily Briefing. I'm Maggie Lake. With me today is Peter Buchfar, the CIO of Bleakly Financial Group. And Peter is also part of the RV Marketplace. Hi there, Peter. Hi, Maggie. Good to see you. Good to see you too. So clearly, the first line is a riff on the old adage, sell in May and go away. And coming in today's session, it certainly seemed like equity investors were more interested in buying. and we did see the indices end up mostly positive. The Nasdaq's kind of on either side as we settle in here, rustled down three quarters of 1%.

1:14But that University of Michigan Consumer Sentiment Index seemed like it kind of set the tone. That was pretty ugly this morning. What did you make of the data? It was ugly because it was trying to recover. Now, with perspective, it's still well below where it was in February 2020, well before inflation started to flare up. But it was really three things that are persistently weighing on consumers. And one of them is very noteworthy. Now, it's still sticky or the cumulative rise in inflation, even though the rate of change might be slowing. It's higher for longer interest rates. But what was really most notable about it is another piece of evidence that the labor market is softening.

2:03And the number of those that expect higher unemployment over the next six months rose to the highest level, I think it was since 2011. So that really stuck out. But I'm seeing a lot of different anecdotal pieces falling into place, pointing to this slowdown in hiring. So that was certainly concerning. And so I called it a trifecta of worries for the U.S. consumer. Yeah. So that combination is really problematic. It's kind of the worst case scenario for the Fed. It is. But here's where it gets interesting is that the Fed is very focused on inflation rate of change, where the consumer is really just, as I said, dealing with a cumulative rise of nearly 20 % in inflation.

2:56Granted, wages have offset a lot of that for some people, not so much for others. But there's definitely strain. And it depends on where you are sort of in business in terms of how you touch the consumer, because there are certain parts of the economy in dealing with consumer spending that's doing just fine, like live entertainment that we heard over the last couple of weeks from Live Nation. We heard from Madison Square Garden Entertainment that they're not seeing any change in consumer behavior as they pack their arenas, whether it's a concert, a sporting event or a comedy show. But then on the other hand, you hear from Starbucks and McDonald's talking about strain on their consumer.

3:40But on the flip side, you hear someone like Cheesecake Factory said that things seem to be doing OK. It's hard to sort of reconcile. I did hear one interesting sort of thesis on this based on consumer surveys that they've done, because you look at like Chipotle that seems to be doing just fine. And this person, based on what they've heard from consumers, is that let's just say you're out, you have$10 that you have budgeted for dinner and you can go to Chipotle. And because of those big bowls, that$10 can get you not only dinner, but there's going to be leftovers that you can have lunch the next day.

4:19So$10 will get you two meals, whereas you go to McDonald's and$10 is only going to get you one meal. And I think that is somewhat interesting. And it tells you how price conscious a portion of the population is right now. And it's highlighting sort of the strain on at least the lower and even the middle income consumer that's stressing out here. Yeah. It's so hard. We always say this, but again, I think it comes down to timing. And I want you to walk me through what you think. But last month, it came up again today in conversation. But last month in his annual letter to shareholders, Jamie Dimon warned the bank was preparing for a pretty wide range of interest rates, anything from 2 % to 8%, right?

5:05That 8 % level kind of caught people's attention because it sounds so high. But he had said 7 % before. But pretty consistent, though, warning like, hey, don't be too complacent about inflation. We just may be in a structurally higher inflation environment. It doesn't mean that rates will hit that or that they'll go that low. Maybe they'll zigzag back and forth, which is kind of what we've seen as everybody runs from scenario to scenario. But when you see the economy look like it's rolling over, because this is like adding to that we had a week monthly lower than expected, weekly jobless claims was low, the employment today and consumer confidence was low.

5:46You know, we look like we have signs of the economy softening quite a bit. But then you have those inflation expectations. Wouldn't a slowing economy kill demand and bring prices down? Or is there something different going on that we need to understand? Well, you'd think inevitably it would. But here you have one of the interesting things within that consumer confidence report is plans to buy a home fell to the lowest level since that question was first asked in 1978. But home prices keep going up. So that is the clear definition of a stagflationary situation. Now, I know people throw out the word stack inflation for the broader economy.

6:32I like to really more talk about sort of individual pieces of it, because on the other hand, you know, certain businesses, consumer products companies are having less ability to pass on higher costs because it's damaged their volumes. So they're trying to reverse themselves. Uh, so I, I think they're, the economy's remarkably mixed and uneven is, is, is really how I'm, uh, I'm, I'm trying to describe it here. I mean, yesterday, the Atlanta Fed raised their Q2 GDP number, even though it's only a month and a half into the quarter. So it's still, you take it with a grain of salt, but the rates are to over 4%.

7:13And then the next day you see this collapse in consumer confidence. So they're just just a weird sort of brew of things going on. But from my viewpoint and what I read and see and analyze and hear from companies is that it feels much more like a one and a half percent economy than anything remotely looking like a three to four percent economy. Hey, everyone, we're going to take a quick break right now to hear a word from our partners. We'll be right back with more of the day's top analysis on the Real Vision Daily Briefing. Have you ever wanted to trade Bitcoin but haven't dared try? With Plus500 Futures, you can trade crypto without the hassle of opening a wallet.

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8:49Yeah, that's fantastic, Peter. And I wanted to ask about that because I know you listen in on so many of the earnings calls and not everybody takes the time to do that and analyze it for people in your book report. What are they saying is their concern? Are they worried about demand? Are they worried about the consumers? Is it global? all of the above? What was the vibe that makes you think they're describing an economy that's closer to 1, 1.5 %? That's a big difference from what the Atlanta Fed's saying. It certainly was, well, on the industrial side, manufacturing is still trying to find a bottom after almost about two years of contraction.

9:31There's no uptick yet. They're thinking that things are bottoming, but there's no improvement. We talked about further signs of of a slowdown in the pace of hiring. I mean, jobless claims yesterday saw the big jump, certainly in measuring the pace of firings, which had been pretty muted for a while. Now, this could be just in one week anomaly because of issues with a certain state here and there. We'll have to see next week. But it definitely was eye-catching. Then, on the other hand, like I said, you hear higher income spenders that are still spending. And you have all this government spending that's flowing through a lot of the data that's really distorting things.

10:16So it depends on sort of who you're doing business with. If you're Vulcan Materials or Martin Marietta that's selling aggregates to the local government because they're building new roads, well, your business seems to be fine there. If you watch the Dodge Construction Network, they have a monthly index and they talked about the robust spending on the construction of data centers, which we know is pretty good. But on the other hand, most other areas of commercial real estate, you're seeing very little construction. Who's building new office buildings? I mean, what are they doing with the ones that exist, right?

10:56That's the problem. So multifamily new start construction is collapsing because there's so much supply already coming online this year. So for every pro, I find a con within this economy. Yeah. We have a comment from Chet in the chat. 1.5 % real terms, 3 % to 4 % nominal economy, which a lot of people sort of liked and think that that resonates. You mentioned that fiscal spending. So that's one of the impulses and one of the things people are looking at in terms of of factors that may be keeping inflation, if not structurally higher, at least for a longer period of time, and may keep that upward pressure on despite what the economy does, because so much of that is still filtering through the pipes, right?

11:51I mean, no pun intended, but you don't know exactly when that's going to hit those projects, hit the profit line of the kind of local economies that it has to snake through the system. The other thing that people have been talking about is trade. And there was a headline out over the last 24 hours about the Biden administration hitting China with some targeted tariffs. They're not the wide sweeping ones that candidate Trump is talking about, but they are still pretty significant if it goes through. Do you worry about that being another area, especially as we head into the election that can cause, if not outright inflation, sort of maybe factor into those inflation expectations, even on the part of corporates?

12:38So nothing good comes of tariff battles, in my opinion, right now. And the irony with the administration is they want clean energy and they want to lower inflation. But by doing this, we're going to have higher prices and more inflation. And just as they want to go green, they don't really want to go green. They only want to go U.S. green, which I understand politics and they want to defend the U.S. auto worker for sure. But it's like I said, nothing good comes of this. And it's another reason why we're not going back to the salad days of of one to two percent inflation anytime soon. Now, inflation is could continue to moderate because of services and the slowdown in rents.

13:30But I just don't see any moderation in inflation sustainable. and I see a good reason for goods prices to inflect higher in the back half of this year into next year. And that inflation volatility is where I've been defining the new era that we're in. And there's going to be a lot of it. And there's going to be another flare-up of inflation in the coming years, particularly when apartment rents start to inflect higher again, because there's not going to be enough supply after we digest the current stuff that's in tow. So and fast forward to November after the election, God knows how many more tariffs will be seen if Trump wins.

14:09And China is not just going to sit there and do nothing. They are going to retaliate. And Europe is talking about trying to defend their auto sector against low cost Chinese EVs. And I understand that concern. I understand you want to defend your domestic auto production. But it's just a dangerous game. to play with consequences that I don't see being very good. Yeah. Well, that's the problem. If you want to defend it, you have to know it comes at a cost, right? And that cost is higher prices across the board. Forget about the geopolitical. And we heard, many people have been talking about that, that EV sector is a shot across the bow of what might be coming.

14:51And we talked yesterday, Shahzad from the China Beige book about if China is not able to grow its domestic economy, do they turn to exports because they need to? And then what does that look like? You've got the pressure coming from China as well because they need to support their growth. So you're getting it on both sides and it's shaping up to be a really, really tense situation. Yeah. I mean, you have the Europeans and the Americans that want everyone to drive an EV, but we don't want you to drive an affordable one from Chinese. We want you to pay up if it's only made by us. So there's a lot of blame to go around with this situation here.

15:31Absolutely. Is there anything that you heard on the earnings call that was a surprise or a positive surprise or led you to believe that, at least from a sector perspective, that things were better than you thought? They're definitely, well, not necessarily that they're better, but But I did see some CEOs believing that certain parts of their business are troughing and that the second half of the year is going to be better. Even on the labor side, just as I'm seeing the labor market weaken, ZipRecruiter reported earnings yesterday. And they've been talking about slowness in their business for a year now.

16:11But now they think that they're seeing some signs of stabilization, just as I'm seeing signs of deterioration. So we'll have to see how that plays out. As I mentioned on the manufacturing side, you know, some are hoping for some from some bottoming and that maybe we're about to see some inventory stabilization after, you know, the drawdowns we've seen over the past year and a half. Some are more optimistic than others that we're going to see it. Also on the freight side, Expediter is reported this week, and they're more focused on air and sea in terms of transportation, less so trucks. But they're seeing some difficulties in that business because there's a lot of excess supply leading to lower prices.

16:56But then on the other hand, we're seeing the World Container Index reflecting another jump in container prices over the past week because the Houthis are expanding the areas at which they're attacking to create problems there. Aren't there many other reasons other than just the continued stress that lower and middle income consumers are feeling? And even just some pockets of things that we need to watch on even the upper income income consumer. Like even travel, for example, you know, most of the strength in travel actually is international. It's from Europe, it's from Asia. And while U.S. travel is actually slowing down, now that could just be a rate of change thing because things were so robust last year, and just the comparisons are more difficult.

17:46But, you know, one of the things in the confidence number today was the decline of confidence across all age and income groups was cited by University of Michigan. Yeah. I mean, anecdotally, I think anyone who's been trying to plan a vacation knows we've even had guests who come on who have to travel all over the country say, like the sticker shock from the hotels and the airfares is real every time. Like they never get used to it. And that's a lot, like that's saying a lot for people who are traveling frequently. So I think everybody probably has their own story of sort of looking at some of those prices and thinking, do I, should I?

18:23But that's worrying if it's so broad based. So Peter, it sounds like on the whole, there's not a lot of sort of enthusiasm. There's worry, there's outright weakness some places, there's hopes of bottoming in other places. But we've got stocks that are near record highs. Does that match up? Does that seem to make sense? Well, it does in a way, because the market just thinks that the Fed's going to cut rates and everything's going to be fine. The Fed's going to save us again. And I think that's the mentality. So yeah, give me a bad initial jobless claim number, fine. Then the Fed will cut rates.

18:57Give me a continued recession of manufacturing, fine. The Fed will cut rates. Give me a weak consumer spending data point, and it'll be fine. The Fed will cut rates. That's the mentality. Yeah. But does that - The markets have been brainwashed to think that the Fed is going to solve all of our problems all the time. We're going to take another quick break to hear a word from our partners. We'll be right back with more of the day's top analysis on the Real Vision Daily Briefing.

19:27Yeah. And I know, you know, we talk a lot about liquidity and what that might do in terms of liquidity. But talk to me from an earnings point of view. I mean, even if rates start to go down, does that offset any kind of drop in demand and hit to earnings from the real economy? No, a cut in the Fed funds rate to four and a half from five and a half is going to do absolutely nothing. Maybe it'll take some of the sort of the edge off if you're in commercial real estate. But what happens if the bond market is not happy with the Fed backing off from that inflation fight and the 10-year yield goes to 5.5 % while the Fed funds rate goes to 4.5%.

20:05Who's better off? Certainly not the person who wants to buy a house or someone in commercial real estate that has debt price to the longer end of the curve. So there are no free lunches here, but the markets just assume that there is. Does it seem possible that the bond market, I mean, we've been talking a lot about that risk, especially if you have these structural forces and you start getting bad prints and continued bad prints on inflation, the market just departing ways with the Fed and saying, well, you may be looking to ease for other reasons, and you may be concerned about things, but we're not going to go along with it, that sort of return of the bond vigilante.

20:44Does that seem feasible or plausible that that might happen? Yeah, I do think it's very possible. As I said, the long-end rates may go up if the Fed cuts short-term rates. Now, we'll have to see why the Fed is cutting short-term rates. I think Powell basically said it last week in the press conference that the reason why they will do it sooner rather than later is that the unemployment rate starts to rise rather than waiting for inflation to further decelerate. So that is definitely a possibility because what happens if they start cutting rates and the dollar starts to roll over? And oil prices then rally in response to that and other commodity prices.

21:23I mean, commodity prices have already lifted. They're just off their highest level since August 2022. So there is no easy, simple sort of bond market response to, okay, the Fed's going to cut short rates and rates are going to fall across the curve. I don't necessarily think it's going to be so easy, but the market seems to think that that's going to happen. And certainly every real estate person has their fingers crossed that it will. Yeah, absolutely. Hard to know what looks attractive here, it sounds like. Yeah, you know, it's not easy. I've tried to focus my investments mostly in commodities, in energy stocks and uranium.

22:12So you do like that? Because that hasn't really, like, we haven't seen energy prices maybe go up the way people would have thought with the backdrop of geopolitics. So some people kind of wondering about that. Well, all oil has to do is hang around this 80 level, and these companies are going to do extraordinarily well. Buy back a lot of stock and pay a lot of dividends. Uranium prices have been very strong. And I've been warming up to agriculture-related stocks of late, too. But I also find interesting opportunities in Asia. One of my ideas, and I probably mentioned it here, and it really sucked wind in January, but with that, the Hang Seng was going to outperform the S &P this year.

22:55And that didn't really go on or met any agreements. And after falling 10 % in January, now the Hang Seng is neck and neck with the S &P this year. So I do think that there are opportunities out there in contrarian ways that investors should look at. I mean, we've been bullish on Japan. I mean, you've been bullish on Japan before anybody was watching it, before anything happened with the yen. You've been on this one for a while. Yeah, yeah, that one has worked out. And I do think that there's still more room. I think that investors need to widen their investing focus outside of, you know, NVIDIA, Microsoft, you know, Amazon and Google and Apple.

23:38There are more opportunities. I think those big stocks have the potential of just being a long term trading ranges for a while as they spend gargantuan amounts of money with an uncertain payoff related to AI. Are you bottom picking at all with Chinese stocks or is it something specific like Hong Kong over China for you? Well, I think you can buy Chinese stocks that trade in Hong Kong. We've owned the Macau casino stocks for a while. Las Vegas Sands definitely got beat up after they reported. But I do think Macau is on an upward path. AIA Group got beat up. We bought some more and it's since rallied.

24:17Trip.com has done very well as the Asia consumer travels again, and even the Chinese are traveling again as visa-free relationships get struck with other countries. And I just think that over the coming years, to me, that's still the growing middle class in Asia, and I've said this many times on the show, is the most exciting economic growth story over the next 10 years. So we want to be there in certain markets, not just Hong Kong, but stocks in Singapore, in Japan even, are ways of playing that too. Yeah, Singapore is very interesting. We'll have to talk about that more at another time. They've been really making a grab for the financial business to be the financial center of Asia after some of the wobbles of Hong Kong.

25:08They've done some really interesting things. they're hosting a lot of fintech and really, really, really kind of creative, but really focused on that financial sector in particular. When you look at those regions, Peter, do you look at, I mean, you do some deep diligence on individual stocks. I know that. But do you prefer that? Do you look at an ETF? Does that also work if you're comfortable with the underlying holdings? How do you approach those international? How do you advise people to approach if they feel like they might want to look internationally? So we'll do both. Like in Singapore, we own EWS, which is a Singapore ETF, but we're also along Singapore Telecom.

25:51And me personally, not for clients, I own a bunch of individual stocks that trade on the Singapore Straits, just names that I like. So I think it's a combination. I think with Hong Kong, too, where in China you can buy one of the ETFs that will benefit from owning the Tencents and the Alibabas and Pinduoduo and JD, whatever. And then you can also hone in on individual names as well. I know there's pushback about the geopolitics and all that. And my answer is that, you know, if there's a real ramp up of trouble with China and Taiwan and the U.S., we're all in trouble. Yeah. I can only imagine what's going to happen to Apple stock if there's trouble.

26:39And I just don't see it. I think at the end of the day, you know, dollar signs in economics are going to rule China's decision making. And, you know, the interesting thing is on a dollar basis, China imports more semis conductors from Taiwan than they import energy. So China plays a very difficult game if they try to invade Taiwan. Now, that stokes a whole broader conversation with this. But I do think that there are ways of investing in that region. I mean, even stocks in Hong Kong that benefit not just from growth in China, but just growth in that entire region. So I'm not afraid of investing there.

27:21Now, we don't do it in a massive way. We do it enough to be comfortable. Yeah, it's really fascinating. I was in a conversation recently with Rana Mitter of Harvard, who's also talking about don't discount the broader region as well, not just Taiwan, but further south throughout the Southeast Asian region. The Taiwanese stock markets are 15 % year to date. Yeah. Well, they've been living under that. There's so many eyes on it. It's very interesting, super, super complex, but interesting to see that you're willing to go there considering that overhang. We had a question. How is Peter positioning for the next six to eight months, given all the mixed signals in the economy and uncertainty?