#13 – Bananas, McDonald’s, Krispy Kreme, and Broadening the Rally

Connor Miller [00:01:02]:
Thanks for having me.

Wes Moss [00:01:03]:
She would always say when we were doing dishes, which took forever. When I was a kid, and I don’t even remember if we had a dishwasher. I think we may not have, or eventually we did. It still took forever, but it was many hands make light work.

Connor Miller [00:01:18]:
You’ve said that before.

Wes Moss [00:01:19]:
Many hands make leg work. And April showers bring may flowers. And here we are, a day away from April, and we’ve already gotten the showers, and we’re already getting the flowers. So maybe it really should be march, and maybe it’s because we were in the north. In the south, it should be march showers bring April flowers. And the masters is coming up, and it’s green outside, and it’s an amazing time of the year. And I’m sure because we call you fody around the office, f o t y, father of the year, you’re usually planning something great for the girls, and I’m sure you’ve got a golden egg hunt ready to go later in the day.

Connor Miller [00:01:58]:
We know, like, it is the best time of year. Spring break for a lot of the school systems around Georgia. So we’re gonna spend a couple days at the lake. So, yeah, we’ll, you know, I’m sure we’ll get ourselves into an easter egg hunt later.

Wes Moss [00:02:11]:
But the. What is funny is that it was a couple weeks ago. It was St. Patty’s day. You were. We’ve had these holiday Sundays is what it’s been, and you’re always there to make it memorable.

Connor Miller [00:02:23]:
But first we gotta do money matters. Right?

Wes Moss [00:02:25]:
But first we gotta do money matters. Okay. So, good morning. Welcome to money matters. I wanted to talk about today, dog chasing tail investing. And I’m springing this on you, but Connor Miller you’re a very smart guy, so you know exactly what I’m talking about. But this kind of came to me. One of my teenagers this week literally said to me, why didn’t we just put everything in, fill in the blank, right? You can imagine what it probably was.

Wes Moss [00:02:52]:
It’s still. Nvidia is still the apple of the apple of the eye when it comes to the market. And if you’re a outsider by standard or just any other investor, it’s a totally normal reaction to always say, wait a minute, that’s doing amazingly well. Why am I not just doing that? Of course, we’re not saying it buy or sell Nvidia or anything we’re talking about specifically today. And then, of course, it leads to what we call dog chasing. Well, we just. I just came up with that this week. So dog chasing tail investing.

Wes Moss [00:03:25]:
But speaking of apple, and before we go to that, I wanted to talk about, I have two of my favorite headlines of the week. The first one has to do with Applebee’s, which Conor Miller, of course. I don’t know. Now this is one I know you did not end up with, which is the Applebee’s date night pass. Now really, this was a Valentine’s Day story that we missed. And I don’t know why, how we missed it or why we missed it. But what, what happened here with this Applebee’s date night pass is essentially like getting a $1500 Super bowl ticket for $200. So what, what am I talking about? I’m talking about the.

Wes Moss [00:04:04]:
The Applebee’s date night pass. So this is, this is a couple the Wall Street Journal profiled. And they’re Midwesterners and they say they love cheese. They say we’re Midwesterners, so of course we love cheese. By the way, I’ve spent 20 years in the Midwest and I don’t. Now, granted, it’s Michigan. I don’t know about the cheese obsession in Michigan. So maybe this is more Wisconsin.

Connor Miller [00:04:31]:
You know, I can’t say I’ve spent a ton of time in the Midwest, but yeah, it does seem to resonate as more of a Wisconsin.

Wes Moss [00:04:37]:
They do wear the packers fancy cheese heads. Cheese heads wear cheese on their heads. It’s this couple, Emily and William Brooks. They got one of these. They got one of these passes and it was a little bit like a lottery. It wasn’t as though everybody could buy them. I think there were only 1000 of these passes available. And they found out about it.

Wes Moss [00:04:56]:
They entered, really, for a drawing for the right to buy one of these things. Kind of like an option on a year long pass to go to Applebee’s. And they were selected, they paid $200, and they get a 52 week pass. And it’s a huge story. So the Wall Street Journal chronicles them going to Applebee’s. And when they grew up in cheese country, they had their first date at Applebee’s. Now they get to go every week for the rest of the year. But what is so interesting about it is that it is so emblematic of the times we are in, that a story about being able to go to Applebee’s and eat affordably makes the front page of the Wall Street Journal.

Wes Moss [00:05:41]:
It tells us about the times we’re living in. Why is a restaurant pass such a hot story? And it’s because of this massive food inflation that we’ve all been living through, really. It’s inflation on almost everything out there. But this one obviously hits home, right? The Federal Reserve, Fred, Federal Reserve economic database tracks food at home and food away from home. So we know exactly how much people are spending in restaurants. Restaurants. Not long ago, Connor Miller back, I went back ten years. So 2014 averaged about $40 billion a month in sales.

Wes Moss [00:06:19]:
$40 billion a month in sales, or about $500 billion a year. Called a half a trillion dollars a year, a decade we were spending at restaurants. Now, if you’re looking at the monthly data, and it’s actually very cool to see the pattern of how much we, when we eat out the most. And it tracks year after year after year, just the pattern of what months are popular, where we eat out at restaurants. That in itself is amazing, but it is now often over $80 billion a month eating out at restaurants. So 2023 last year came in at an estimated $997,000,000,000 Americans going out to restaurants. A trillion dollars. We spend a trillion dollars eating in restaurants.

Wes Moss [00:07:05]:
Now, speaking of Fred, or the Federal Reserve economic database, we went back and we looked at what prices have. So what have prices done? Well, food away from home, up about 50% over the past ten years. So it’s 48%, to be exact. But if you look at total restaurant sales and, quote, other eating places, and I don’t know exactly what that. I think that may even include, like, a Starbucks. So does a scone count there? I think it does. But again, we’re talking about total restaurant sales and, quote, other eating places have doubled, so prices are up 50%. But what we’re spending going out to eat is up 100%.

Wes Moss [00:07:50]:
Now, we’re at a trillion dollars per year. When it comes to eating out. No wonder Emily and William Brooks are so excited with their, their Applebee’s pass. This is a bigger part of our lives. This is. This is actually from Dave Ramsey site. Average American spend 30, about 36, $3,700 a year per year. Eating outs $300 a month, and it just continues to go up.

Wes Moss [00:08:17]:
So, at first, Glenn, before I pulled the data, I thought, well, maybe restaurant sales are up just because of food inflation. But it’s really both. A, it’s more expensive to go out to eat, b, and I think part of the delivery comes into this, too, because Ramsey points this out. So we’re eating out roughly $300 per month per person, but we’re also getting order delivery four to five times a month on average. And I think that’s also boosts these numbers, too, because those are restaurant sales. Even though we’re eating it at home, it’s still coming from a restaurant.

Connor Miller [00:08:53]:
Well, and going back to your 2014 number. Yeah, that was before you had doordash and uber eats. And that just makes it so easy to order delivery, and you don’t even have to get in the car anymore.

Wes Moss [00:09:04]:
Especially if you live in the city where the majority of the population in America is. Think about this couple. Who is this touching story about something? It’s just so dear to our heart. And that’s both entertainment and food, which essentially is going to restaurants. And so, again, they’re midwesterners. They love cheese. And here are some of these top dishes. At Applebee’s.

Wes Moss [00:09:27]:
This is the. I don’t know if this is the number one dish, but I think the three cheese penne pasta is. Is like a top five when it comes to Applebee’s. And then you’ve got the grilled chicken breast. You’ve got the strawberry balsamic chicken salad. You’ve got the Tex Mex shrimp bowl with cheese. You’ve got the southwestern chicken bowl with cheese. You’ve got the blackened shrimp caesar salad with cheese.

Wes Moss [00:09:51]:
So maybe they’re right. Maybe this is, like the cheese destiny.

Connor Miller [00:09:55]:
So with this pass, you were just able to pick one of these for your meal or these.

Wes Moss [00:10:00]:
Anything on the menu?

Connor Miller [00:10:01]:
Anything on the menu. Get one entree once, once a week.

Wes Moss [00:10:04]:
Once a week at your. At your. Whatever your local Applebee’s is. But it’s a hot ticket because it hits home. And it’s, I guess, kind of romantic, too. It’s kind of a romantic story here on Easter Sunday. Here’s the other, I think, best. This is my favorite headline of the week.

Wes Moss [00:10:25]:
Inflation. And this is from the Guardian. Inflation is bananas. What are we talking about here? This has to do with, this is another food related story, and this is Trader Joe’s. Conor Miller, are you a trader Joe’s maven? I’ve never gotten totally locked in. I’ve been to Trader Joe’s many times, but I never, I’m not particularly obsessed with Trader Joe’s, even though I do like it.

Connor Miller [00:10:48]:
I do like Trader Joe’s, but there’s not one that’s super close to us. There are some whispers that there’s one going to be coming near us, which would be, you know, big news in the Miller household, but we’ll have to wait and see on that.

Wes Moss [00:10:59]:
So there’s some, this, I think this is within Reddit, but there’s a woman named Madeline Thompson. Her, her handle is at Trader Jolene. And so she’s, she’s, this is a quote from her. I’m deep in all the Grocery Subreddits. You don’t even know what. Can you explain what that means to our audience? Connor, what does it mean to be deep in the Grocery subreddits?

Connor Miller [00:11:27]:
I didn’t even know Grocery Subreddits were a thing.

Wes Moss [00:11:29]:
So a subreddit, of course, if you’re not on Reddit, which I’m not, I don’t use Reddit, really. There are just little forums and little, I guess, chat forums, and they are around very specific topics that people really care about. And I guess there are SeverAl around the PrIce of food. Trader Jolene makes headlines on the grocery sub Reddit, I guess, on Reddit. And here’s the big story of the week. It’s been 20 straight years that Trader Joe’s has kept their banana prices steady, locked in at 19. I was gonna say $19 a share. It’s nineteen cents per BanAna.

Wes Moss [00:12:12]:
And after 20 years, they broke, they broke that streak this week. They upped it by a whopping four cents, and it was topic number one. So $0.04. Now bananas are twenty three cents at Trader Joe’s after a 20 year stretch. And what is the, what’s the rate? What’s the increase on that percentage wise? Countermeasure?

Connor Miller [00:12:30]:
It doesn’t sound like a lot. $0.04. Right.

Wes Moss [00:12:32]:
Sounds like nothing.

Connor Miller [00:12:33]:
21% above where it was before, though.

Wes Moss [00:12:35]:
So you could, you could see where.

Connor Miller [00:12:36]:
Some of the outrage came from.

Wes Moss [00:12:39]:
That’s what it is. So the, which reminds me, and this goes back to the, the story around dividends, because dividends are priced in cents. Nobody pays attention to them. If you’ve got a dividend that’s nineteen cents. And then it jumps to 23. Nobody cares because it’s just a few cents. However, it’s a 21% increase in your payout. So it is, it’s, it’s just this, this, this interesting phenomenon that has to do with cents that people don’t care about anymore.

Wes Moss [00:13:09]:
And dividends are typically priced in cents or a dollar and a few cents. But just the math itself is a good reminder that a few cents could be a huge percentage in your pocket. This is another headline from this week. Maybe they are, because this is the headline. McDonald’s and Krispy Kreme sweetening up the battle for breakfast bucks by taking, by taking their partnership nationwide. They’ve been testing. They’ve been testing if Krispy Kreme donuts will sell it at McDonald’s, I think at 160 locations. Now it’s done so well, they’re going to roll it out nationwide.

Wes Moss [00:13:51]:
By the end of 2026. You may be able to get Krispy Kreme doughnuts at McDonald’s in something like 6000 locations. Now, when you think about innovation, you don’t think about what I just mentioned, but sometimes innovation is just a strategic partnership. Maybe it’s being a little bit smarter about selling a few more of what you like to sell. In this case, it’s donuts. Now, are we gonna, we gonna see a breakfast sandwich, a sausage, egg and cheese on a Krispy Kreme donut?

Connor Miller [00:14:24]:
I mean, that was my first thought, right? There’s gotta be some big collaboration coming where you’re gonna combine McDonald’s and Krispy Kreme. Not just, you know, selling, selling the donuts.

Wes Moss [00:14:33]:
We live in a world of ozempic, so if we really need to lose weight, I guess we have that. And so go ahead and just eat a 1500 calorie sugar breakfast lucky charms, snickers and skittles, or a Mc Krispy Kreme griddle. I don’t know what the name of that will be. The bottom line is this. Inflation is very real. It is the, it’s the dragon. To combat for the foreseeable future, investing in companies who produce products that can inflate along with inflation. That may just be the arrow in the quiver we all need the most.

Wes Moss [00:15:17]:
More money matters straight ahead. We keep hearing that inflation is coming down. By the past three years, the common man inflation gauge is still up over 20%. That’s necessities like food, gas, utilities and shelter. How can you possibly keep up? Well, one option is income investing. That’s using a combination of growing stock, dividends, bonds for more cash flow and other areas that can be a hedge against inflation. Look, inflation is tough. Let us help you overcome it.

Wes Moss [00:15:46]:
Schedule a time directly with our team@yourwealth.com. Dot that’s y o u rwealth.com dot we were just talking about bananas at Trader Joe’s. They were whopping price increase, four cents per banana, which. Twenty one cents. So it’s not nothing. The Applebee’s weekly pass. But really the reason we’re bringing all this up has to do with how important inflation and front and center inflation is. And here’s something near and dear to our heart, which is going out to eat in America, which is part entertainment and then part necessity.

Connor Miller [00:16:21]:
Right.

Wes Moss [00:16:21]:
We’ve got, and the numbers have just gone through the roof. Prices are up almost 50% over the past decade when it cost of going out to a restaurant, but sales have doubled. They’re up 100% over the past ten years. So not only is it more expensive, but it’s more frequent. Your point earlier in the show was that part of that could be delivery from restaurants. It makes it even easier to do so.

Connor Miller [00:16:42]:
And the other factor there too is it’s not just the price of food that’s going up. It’s everyone who’s preparing the food is getting paid higher wages as well.

Wes Moss [00:16:51]:
Which brings us to, and when I’m looking at these numbers and I see that overall we’re spending more as a nation. We’ve got personal consumption expenditures. Back in 2014, we’re around 12 trillion. Today it’s 19 trillion. That’s up 58%. It leads me to the unemployment rate. And if I look at where we stand today, the unemployment rate, and we’ll talk about the state of the economy a little bit here today as well. And you did a fantastic presentation this week, Conor Miller, around how this economy is doing.

Wes Moss [00:17:22]:
But one of the glaring pieces that you’ve got to put in the positive camp. So we think of it as negative, neutral and positive. There’s a few things that are negative. There’s a lot of neutrals and there’s a couple really heavy positives. The unemployment rate is clearly in the positive camp. We’re still only at 3.9% unemployment rate. You go back over the course of time, I went back to the 1950s. If you look where the unemployment rate usually is or where it has kind of averaged, it’s very easy to see that it hugs the 5% line above 5%.

Wes Moss [00:17:57]:
Things are kind of starting to get bad in the economy, anything below 5% is pretty darn good. Yeah.

Connor Miller [00:18:02]:
We’re really still at the point where most would consider the economy to be at full employment. Basically just meaning if you’re looking for a job, there likely is one out there for you. You just need to find it.

Wes Moss [00:18:14]:
Now, speaking of. And I want to get to dog chasing tail investing, and this is a conversation that one of my teenagers brought up, which is such a natural human investor question. Whether you’re twelve or 14 or 40, you’re going to have, or 60, you’re going to. You’re invariably going to ask yourself this question, which is, hey, why am I not invested in that? Because that is doing so well and I’m just doing okay. There’s always something better out there. And it leads to this really interesting investing phenomenon, which is we end up chasing our tail. Producer, Mallory, earlier we were talking about this concept and she’s like, well, I have a cat. Cats are too smart to chase their tail.

Wes Moss [00:18:54]:
And I’m thinking my dog is too lazy to chase his tail. But in general, we have this great visual of a puppy running around in circles chasing his tail. Where does he end up? Ultimately, nowhere. And that’s the problem with investing. But I go back to this unemployment rate. Here we are at 3.9%. That is what is in large part, I think, been able to fuel this massive number of personal consumption expenditures. It’s went from 1210 years ago, now it’s at 19 with a t trillion.

Wes Moss [00:19:27]:
We looked at restaurant sales were $500 billion a year ten years ago. Today they’re essentially, well, probably in 2024, we’ll see that number go over a trillion. So up over 100% over the past decade. But you wouldn’t see that. I don’t. At least, I don’t think we would be there a, with PCE again, overall consumption expenditures or restaurant sales, which is, which is a big number for Americans. If we didn’t see this unemployment rate so low and we still. If you look at those jolt.

Wes Moss [00:19:59]:
The jolts numbers, job opening, labor turnover survey, we’re still. What’s the ratio right now? What wasn’t it? We were at two to one, two openings per one job. Yeah.

Connor Miller [00:20:10]:
So. And what you’re, what you’re referring to, we like to look at the ratio between how many job openings are there available and then how many people are there still out there that are unemployed. Basically the ratio would be okay, there’s 5 million unemployed people and there’s 10 million jobs out there. So you have two to one, two jobs for every one person looking for work. That was at the peak of some of the labor disconnect a couple of years ago.

Wes Moss [00:20:36]:
That was a year and a half after the heart of the pandemic. Then the labor market got really lopsided. Had we ever, if we go back, and I know I’ve pulled this, but at some point, but before COVID was there ever a time we had more openings than people looking, or is that only a post COVID phenomenon?

Connor Miller [00:20:57]:
So actually, right before the pandemic, there was about 1.2 openings for every person looking for work. But it’s more of a historical norm for there to be more of a balance of around one job per unemployed person, or maybe 5 million people looking.

Wes Moss [00:21:11]:
5 million open jobs. Historically, usually it’s been mostly a one to one or even, yeah, slightly less. And then it started to creep up and then it got really out of whack and we went two to one, which is amazing. Right? Imagine there are two jobs for every openings for every one person looking. And hence, of course, that leads to wages having to go up because employers are saying, wow, I’ve got all these jobs to fill and I’ve got not a whole lot of people to choose from. And those people looking are saying, well, I got a lot of demand for me, so I can up my compensation, my salary. So we’ve seen some wage inflation as well. Now, wage inflation, which again has led.

Connor Miller [00:21:53]:
To.

Wes Moss [00:21:56]:
People affording to be able to go out and spend more money at restaurants like they want to do now for, in 2020. Late three. Here we are, early 2024. We’re at least seeing real wage increases for the first time in a while.

Connor Miller [00:22:13]:
Yeah. So this is, this is one of the things that’s a lot more encouraging to us today is in 2022 and 2023, workers were getting raises, but they wasn’t keeping up with the pace of inflation.

Wes Moss [00:22:26]:
Inflation’s up six. Your wage increase was three.

Connor Miller [00:22:29]:
Yeah, so, yeah, exactly.

Wes Moss [00:22:31]:
Still a net falling behind.

Connor Miller [00:22:33]:
So you go to the grocery store, I’ve got more money in my pocket, but that dollar doesn’t go as far. And so now what we’ve seen over the last six months is that dynamic actually shift to where now I’m actually have more purchasing power, getting a higher wage increase than actually as prices are going up today, which is just a good sign overall for the consumer health.

Wes Moss [00:22:53]:
Which leads me back to this question. We’re trying to outpace inflation, so we’re investing for a reason. The primary reason is that we can protect our purchasing power and have economic freedom when we get into retirement. But along the way, there are all these distractions that are pulling us away from being able to be good at what we’re supposed to be doing. And so much of that is just human nature. We’re being pulled. And I think it’s probably harder today than ever, which, when you’ve got news headlines flashing at you, even if you’re not someone who cares all that much about business or investing, you still see headlines around cryptocurrency up 30%. You still see headlines around companies that have reached the trillion or 2 trillion or $3 trillion mark.

Wes Moss [00:23:43]:
The companies are doing really well. And it leads us to this sentiment that is very simple. Why don’t we just own Phil in the blank? Whatever’s doing great, whatever’s doing the best. And one of my teenagers this week said, dad, why wouldn’t everybody just own Nvidia? Again, we’re not saying go out and rush out and buy or sell any of these companies we talk about here, but it’s in the headlines. Teenagers see this and it’s this sentiment around, why would we just put all our money in whatever’s super popular? Because it’s getting lots of press and it’s getting almost shoved. It’s just in our face. So at any given moment, a natural tendency is to say, well, there’s, this is driving the market. I keep hearing about it.

Wes Moss [00:24:33]:
Shouldn’t I just do that? Two or three years ago, the Arc ETF’s got super popular. It was Cathie woods and her arc etf. Some of those were up. How much ETF’s in one year? How much were some of these up?

Connor Miller [00:24:45]:
A couple hundred percent. Look, it seems like it happens every couple of years where you have themes pop up, where today it’s AI, you had the electric vehicles and clean energy names. A couple years ago, you had marijuana stocks, you know, back five, six years ago where that’s just the most popular investing theme at the time. At the time. And the stocks rally a lot. And it’s like, well, duh, why don’t I just put all my money here? Because they’re only going to go up.

Wes Moss [00:25:13]:
It seems that simple, but it actually is what makes investing so hard. And last year, as an example, 2023, I think, tested good old fashioned dividend investors. So you may be thinking, well, I’ve got dividend ETF’s. It only holds companies that have grown the dividend for at least five years or 20 years in some cases. Some of the ETF’s that I use that we talk about here on the show. But s and P 500 up 25% last year. The iShare’s core dividend growth ETF only up 7.5%. So we start to get frustrated and we say, wait a minute, this isn’t doing as well.

Wes Moss [00:25:53]:
Why don’t we just do that? So then we get pulled away and our patience gets tested and we start chasing. This is where we’re starting to chase the tail. And then all of a sudden, in 2024, the market starts to broaden out. And now all of a sudden, and we really saw this, this week, we saw several days where the market in general didn’t do all that well. But dividend stocks had some pretty good days. It’s starting to have days better, which we didn’t see that at all last year. So they’re playing catch up. They’re broadening out just at a time when people have probably started to want to abandon them.

Wes Moss [00:26:31]:
I want to get to this, that you call it the macro scorecard, which is macro economy is the big picture economy, which I love. And when I was in school, there’s two parts of economics, obviously, you can carve off in a lot of different areas. I remember labor economics. You’ve got international economics. Then there’s micro and macro and there’s econometrics. I even took a, I took a course called the economics of the family foundation. It was almost like it wasn’t family. It wasn’t family economics.

Wes Moss [00:27:11]:
But there’s a lot of different veins you can go down. But I think I’ve always liked macro the most. I like macroeconomics, which is to look at the big picture almost as though if you’re man on the moon looking down at earth, seeing that everything’s seeing what’s happening in a big picture perspective. And that’s, I think, what your outlook, and we can go over that today. And there are a couple of things that have started that had been negative in the negative column that have started to perk up a little bit. I think it’s worth pointing out from a market perspective, it’s been a really interesting year so far. As we just wrapped up the first quarter. I don’t know, the statistic is the best first quarter for stocks since, what, 2019?

Connor Miller [00:27:53]:
Yeah, it seems like it’s been a while. Market’s up about 1011 percent this quarter. So it’s been a really good start.

Wes Moss [00:28:01]:
And what I do wonder is that, and maybe this has died down just a little bit, because as you’ll talk about here in a minute, the market has broadened out. But if you go back to 2023, when the market was so incredibly narrow and it was only a few companies doing really well, there’s so much consternation of investors to say, that’s what I want to be doing. If I’m not doing that one sliver, then I’m missing out. And this is a conversation that I had. One of my kids asked me this week is, why wouldn’t we just put everything in? And this could be a question for any year. And it’s in fill in the blank. Now, this happened to be Nvidia, which has already had such a great run, but to a teenager. And really, investors in general, they’re very drawn to whatever the headlines are.

Wes Moss [00:28:52]:
And if this is something that is already done well, won’t it keep doing well? This is extrapolation, and we’re not saying that it won’t continue to do well. I’m not saying buy or sell any of these at this point, or a company like Nvidia, and this is clearly a very strong company, growing earnings. But it’s always a reflection of, is it an okay stock price? And we just don’t know at any given time, because so much emotion goes into the prices of stocks that can be disconnected from the value of said company. But this is always a question in any cycle, why don’t we just own x? Because there’s always something doing wrong. Maybe it’s crypto, maybe it’s the. It was the couple of years ago, it was Ark Cathie woods and her innovation ETF’s. It’s call it real estate in 2006. Here in the United States.

Wes Moss [00:29:44]:
It’s always something that is blowing the doors off when you are just sitting there as a diversified investor and you’re missing out. Why don’t we just own that? And I think dividend investors were tested, or have been tested, particularly in 2023, the S and P 500 was up around 25%. Many of the, I would call these core dividend ETF’s healthy companies, because they’ve continued to pay and raise dividends, healthy businesses, but kind of sat on the bench, didn’t do all that much. They lagged way behind the rest of the market, or the S and P 500, which was driven by the mag seven. And then you get this investor sentiment that says, gosh, shouldn’t we just be doing that? Shouldn’t it all go into the AI tech names? And then what tends to happen is that the minute the world shifts, the majority of the world starts to shift to what has been hot, then other things that have kind of lagged behind. Then they perk up and then we’ve missed out. And then what had been doing exceedingly well. Takes a backseat, maybe.

Wes Moss [00:30:58]:
It’s like traffic. You think you’ve got this lane that’s wide open. I’m going to hop into that lane and you finally, you wait, you wait and you do it. And then all of a sudden the lane stops and everybody that in the lane where you were in, they’re going to fast forward. So you end up in what I would call dog chasing tail investment spin circle to nowhere. And that is one of many reasons why investing is so hard. It’s real easy to find out what has done well and investors like to jump ship. Now this year, though, we’ve started to see a lot of those laggards from last year have really had a, a really good start to 2023.

Wes Moss [00:31:39]:
We were talking a little bit about the first hour, about broadening out. Explain what you’re seeing from a stock perspective.

Connor Miller [00:31:46]:
Right. You hit on it. So last year it was really, the market was driven by seven names and really only three sectors. So in the S and P 500 there’s eleven sectors, really. Only three of them led the market and outpaced it to the tune of the S and P 500 was up.

Wes Moss [00:32:05]:
26% last year with dividends, with its whopping 1% dividend.

Connor Miller [00:32:09]:
Right. Whereas the average stock, the median stock, was up like ten. So there was a massive divergence between the two so far year to date, the picture is much more broad. So instead of just tech stocks working or tech related stocks that are kind of at the epicenter of the, the AI innovation movement is now you’re having financials work and healthcare and industrials.

Wes Moss [00:32:38]:
There were some great days this past week for utilities. I can’t remember the last time I saw utilities way outpaced the S and P 500.

Connor Miller [00:32:45]:
Right.

Wes Moss [00:32:46]:
There were, I don’t know, maybe it was Tuesday or Wednesday, maybe Wednesday where the market was barely up and utilities were up over 1%, which is just.

Connor Miller [00:32:54]:
A good sign because there are more companies out there that may use AI eventually, but they’re just really solid companies that are relying on, they’re in other businesses.

Wes Moss [00:33:09]:
Well, we talked a lot about how restaurants have been in the news this week from the trader Joe Bananas going from nineteen cents to twenty three cents. That was a huge food headline. McDonald’s is teaming up with Krispy Kreme to make maybe the most unhealthy breakfast sandwich in the history of the world. The McGriddle, Krispy Kreme. I don’t think they have a name for it yet. But we looked at restaurant sales and they’ve gone, prices are up 50% from ten years ago, but Americans are spending double because not only is it more expensive, but they’re attending more meals out and they’re doing more delivery from restaurants. And how can we keep powering this with all this inflation? Well, we’re trying to protect against it by investing in companies that provide products and services that can inflate along with inflation. They can pass on the cost and continue to grow earnings.

Wes Moss [00:34:03]:
But if it weren’t for some of the macro economic tailwinds right now in the United States, or have been in the last several years, we wouldn’t see what’s happening in the restaurant space. We wouldn’t see personal consumption expenditures continuing to expand. It means that people still have money in their pocket and they’re able to continue spending. And that goes back to this macro view, big picture view. How’s the US really doing? And you break this down into a couple of areas. I call it good, bad, ugly. It’s really negatives, neutral and positives. Maybe.

Wes Moss [00:34:38]:
Let’s start with what is not looking good right now. And I’m okay to start out negative here. Conor Miller.

Connor Miller [00:34:43]:
Well, the good news is there’s really not many things that I would consider a negative at this point.

Wes Moss [00:34:50]:
Well, you had, it wasn’t long ago you had six negatives. Now we’re down to four. So we’ve crossed out two negatives.

Connor Miller [00:34:56]:
That’s right. And so starting off the list is we consider the yield curve, the inverted yield curve, meaning that short term interest rates are higher than long term interest rates, which historically has signaled economic slowdown. In the future that the Fed’s going to have to cut. Still in.

Wes Moss [00:35:16]:
I’m going to translate that just for a second. You sounded like some smart investment guy for a minute. The reality here is it’s an upside down yield curve. What is the yield curve? It’s interest rates. So remember the good old fashioned days when a one year CD was 2% and a five year CD was 5% because you locked up your money. Longer it’s upside down. Now it’s the short term CD where you get the most, and longer term CDs actually pay less. Make intuitive sense, except for this inversion may mean that in the future rates may be down, which may be bad because that means that the Fed would have to lower rates, but they’d only do that because the economy’s not good.

Wes Moss [00:35:55]:
That’s this upside down nature of the inverted yield curve. But that still remains. We still have.

Connor Miller [00:36:00]:
That still remains and beautifully said.

Wes Moss [00:36:02]:
Yeah.

Connor Miller [00:36:02]:
The other thing, the manufacturing sector, which is not a huge piece of the economy anymore, at one point it was.

Wes Moss [00:36:09]:
Manufacturing is what, still around twelve?

Connor Miller [00:36:11]:
Yeah, I’d say somewhere, yeah, somewhere in the ten to 20% range. That’s still in contraction territory, but hopefully on the upswing. The other thing is really just when you look at the broader market, the s and P 500, because it is so top heavy, because there are so much of the weight, comes from the magnificent seven. It does look a little bit rich in terms of valuation. And really the saying is valuation is a poor timing tool. It’s not a great predictor of short term returns, but over the long run it does matter. And so you want that to support you over the long run.

Wes Moss [00:36:53]:
What if we stripped out? What if we were to look at the part of the market that is, that mag seven area is relative to, if you were to take that out, look at the rest of the market, isn’t it more fairly valued minus that group of richly valued companies?

Connor Miller [00:37:11]:
So let’s just say on a diversified portfolio, a properly diversified portfolio, the average stock valuation is kind of right in line with average historical average. Historical average. So I would consider that a neutral. Again, that’s not saying that it’s going to have better returns, it’s just saying over the long run, the price you’re paying for those companies seems to make a little bit more sense.

Wes Moss [00:37:35]:
So where are we? If we were to exclude mag seven, where’s the multiple, where’s the price relative to what companies are earning for the market?

Connor Miller [00:37:43]:
Approximately right around 17 or 18 times.

Wes Moss [00:37:46]:
Earnings, which is very much in line with history. So not overly expensive, but not cheap either. So that’s the valuation portion of the market you have listed here. Fed funds rate greater than 5% as a negative. Yeah.

Connor Miller [00:38:04]:
And really, that just means the higher the Fed funds rate, that’s the base interest rate for everything. And so for auto loans, for credit cards, even mortgages, to a certain extent, higher interest rates just mean that your interest cost is more, which means you have less money to spend on other things.

Wes Moss [00:38:24]:
More economic friction.

Connor Miller [00:38:26]:
Exactly. So all that stays high, it could potentially drag on other things.

Wes Moss [00:38:30]:
Well, in no other place have we seen it more impactful than housing. So we have mortgage rates that still keep hovering right around that 7% level. And it’s just been hard for people to adjust to. And not only do we have to deal with higher mortgage rates, we’re dealing with much higher home values at the same time. So it’s made it really tough for new homebuyers, great for most of America. Refinance to a really low rate. If you owned a home, it’s really just tough. It’s really tough now if you aren’t in that camp to be a first time home buyer, first time homebuyer, imagine how tough that is and imagine those people not being able to invest in a home.

Wes Moss [00:39:14]:
Of course that’s not great for the economy. So that is part of the macroscore card. These are the tough areas. These are the, the negatives. And there’s a lot more to this picture, though. There’s several areas that are very, I’d say decidedly neutral and then a couple of areas that are really, really positive in this economy. We’re going to get to those more money matters straight ahead. You’re in a corn hole league.

Connor Miller [00:39:42]:
I am, yeah. Every Thursday.

Wes Moss [00:39:44]:
How good are you? Like are you on a scale one to ten, where would you put yourself?

Connor Miller [00:39:48]:
Average.

Wes Moss [00:39:49]:
Average.

Connor Miller [00:39:50]:
Straight up average. Have my good days in my.

Wes Moss [00:39:52]:
So you’re not going to be sponsored on ESPN? Three cornhole.

Connor Miller [00:39:56]:
No. Be a tough road to get there for me.

Wes Moss [00:40:00]:
Chuck’s barbecue. I remember it’s, I remember it was the big, I think it was a big barbecue companies that I remember being the sponsors so like they’re like race car drivers. Remember Ricky Bobby with the white racing suit and he’s got wonderbread Kitkat and he’s got, he’s the ultimate walking billboard. But again you tune into some of these cornhole leagues again I’m not Cornhole on ESPN. If you have not. Maybe not ESPN.

Connor Miller [00:40:28]:
Maybe ESPN two I think or three or U.

Wes Moss [00:40:31]:
There’s like, I think there’s ESPN U. It’s we’re, and we’re a long way from tailgating season. We’re a long way.

Connor Miller [00:40:39]:
It’s a year round sport now.

Wes Moss [00:40:41]:
Cornhole is.

Connor Miller [00:40:42]:
Cornhole is. Yeah.

Wes Moss [00:40:43]:
It pretty soon. In fact, in fact didn’t the US, the Xfl. What’s the new football league? I think the new football league started this weekend too.

Connor Miller [00:40:56]:
XFL or AFL?

Wes Moss [00:40:58]:
Look at, I think, I think that’s this weekend where. Because I was thinking right, football is not year round yet. Maybe it’s getting closer to being year round. Maybe this is. They’re trying to bridge this spring so you don’t have such a long way to get to college football season. And then NFL which I know we’re home of the dogs here on WSB radio and we’re talking about how, how’s this economy doing? Conor Miller, what’s the name of that? Let me see, let me see this just for a second here. The, the UFL. Yeah.

Wes Moss [00:41:32]:
What to know about the rebranded spring football season XFL and the USFL merge to form the new UFL spring season. And I guess it starts this weekend. Yeah, it started yesterday. Still haven’t seen anything about it, but, well, I’ve obviously seen commercials. I haven’t seen a game.

Connor Miller [00:41:52]:
So, relating to the economy, I think to compare it to the, to the UFL, the economy is probably doing a little bit better than the UFL will probably do.

Wes Moss [00:42:02]:
Whoa.

Connor Miller [00:42:04]:
Not to take shots here on Sunday morning.

Wes Moss [00:42:06]:
Wow. So you think it’s gonna be a bust?

Connor Miller [00:42:09]:
I mean, the NFL dominates and so nothing’s really been able to compete with it.

Wes Moss [00:42:15]:
Is, is there so much spillover demand, which I don’t know if that’s an actual economic term. It may be. There’s pent up demand. There’s, I think there, I think there should be something called spillover demand. There’s so much demand for NFL football that something that’s 80% as good still may get some love. I would have never, I remember it was the USFL. It was her. Remember it was Herschel Walker.

Wes Moss [00:42:44]:
And that was going to be, and that didn’t work out. But I don’t know, in today’s world. Then again, the G League never really did much for basketball.

Connor Miller [00:42:53]:
Yeah. There hasn’t been, I mean, in years, there hasn’t been a, a major competition to the big sports.

Wes Moss [00:43:00]:
We’ll see. All right, so your prediction is the UFL is going to do worse than this US economy over the course of.

Connor Miller [00:43:09]:
The year, which is not to diminish the UFL. It’s really just to say of how strong this Us economy is.

Wes Moss [00:43:15]:
It’s so funny. We live in a world where you literally, you don’t want to say anything that is even remotely bad. So of course I love the UFL. Right. Never would say, of course it’s gonna be great. All right, what’s neutral right now in this economy?

Connor Miller [00:43:30]:
Conor Miller look, so I’d say the consumer is definitely neutral right now just because of still getting wage increases, but inflation is still an issue that most households are having to deal with. And so I’d say that’s a solid neutral.

Wes Moss [00:43:47]:
So it’s not bad, but it’s not good.

Connor Miller [00:43:48]:
That’s right. Yeah. Housing, to a certain extent, its activity is still lower than it was. Prices are higher. Again, not bad, but not great by any stretch, I’d say, where, like we talked about, the average stock valuation, core inflation has come down a lot, still not to the level that the Fed would like to see. And then just really, overall inflation, I’d say, is a neutral. 2023 was the year of this immaculate disinflation.

Wes Moss [00:44:23]:
Every report, better and better and better. Lower inflation. Lower inflation. It was over and over and over.

Connor Miller [00:44:29]:
And for the last six months, it’s kind of stalled out in that three to three and a half percent range.

Wes Moss [00:44:33]:
So it’s stalling. Headline inflation, not bad, necessarily. It’s just not great. We haven’t continued to see it come down. And then I do like, it is interesting that we’re seeing Lei, or leading economic indicators, which in itself itself is a basket of. We’ve used to talk a lot about Lei here. It’s a basket of economic indicators that do hint towards what may be happening over the course of the next three to six months. It’s not a lagger.

Wes Moss [00:44:59]:
A lagging, lagging economic indicator would be GDP. What did GDP do last quarter? Takes a month to calculate. By the time you get the number, it’s kind of irrelevant. Elliot, leading, though, is just started to do what?

Connor Miller [00:45:15]:
So this is a number that the conference board puts out. And they’ve looked at. It’s about ten different metrics that have historically led economic growth. And so they look at stock prices, they look at manufacturing hours, work, they look at the housing market, they look at where interest rates are, and in combination, they come up with a number and say, okay, in positive territory, we expect the economy to grow, and negative, we expect the economy to contract. And for the last two years, that’s been negative.

Wes Moss [00:45:48]:
Yet the economy hasn’t contracted.

Connor Miller [00:45:50]:
Yet it hasn’t contracted.

Wes Moss [00:45:52]:
How can Lei be so wrong?

Connor Miller [00:45:54]:
So leis are a little bit more manufacturing heavy. And manufacturing, as we talked about, has been slowing down. The other thing is, we just came through a pandemic that distorted so many different industries. And maybe what was once reliable indicators may not be as relevant today. You know, you hate to say this time is different, but maybe the pandemic skewed some of the statistics that work in the past, but may not be as relevant.

Wes Moss [00:46:27]:
This go around and you think about with the bridge collapse this week, too, you think of there was such a focus on cargo ships and supply chain disruptions and the backing up at ports, and then you get this thought. Then we see what happened in Baltimore, and you think, wait a minute now, are we going to have another supply chain disruption? Is that going to lead to inflation. And I don’t think this will. I think there’s already been plenty of commentary around how things are getting rerouted and there are other ports to be able to pick up the kind of the space to deliver, et cetera. But we are so sensitive to that because we lived through the supply chain disruption. But we’ve seen leaning economic indicators perk up, though a little bit.

Connor Miller [00:47:17]:
That’s right. You can look at it on a year over year basis. So February of this year versus February of last year or a month over month basis. And that month over month number is what actually just ticked higher for the first time in about two years in a while.

Wes Moss [00:47:32]:
All right, before we get to the positives, I want to ask about stalling inflation because you made some really good points this week around what inflation has looked like over the course of the last couple of years and almost thinking about inflation in this new regime over the course of the, let’s call it the foreseeable future.

Connor Miller [00:47:58]:
So this is what we’ve been talking about a lot for the last couple of years is we came off this period of really, really low inflation where it averaged less than 2% from 2009 to 2020, and then it went up a lot, as we know, in summer of 2022, hit 9%. We knew that it wasn’t going to stay there, but our thesis had been when the plane lands, it’s going to land at a higher altitude than where it had been before.

Wes Moss [00:48:24]:
The inflation plane.

Connor Miller [00:48:25]:
That’s right.

Wes Moss [00:48:26]:
And so instead of pricing inflation, airways.

Connor Miller [00:48:30]:
Hopefully they’re flying the Airbus jets out there anyway. Yeah. So that instead of averaging a 2% growth per year, maybe it would be a little bit higher, maybe it would be 3%, which doesn’t sound like a lot, but is substantial when you’re talking about such a big economy and big consumer driven economy.

Wes Moss [00:48:51]:
So you get a higher Runway elevation. We’re getting used to what, 1.8% for a decade plus. Now are we going to continue to be on this three plus percent? So kind of double. Still not 1970s style inflation, still not dramatically higher, but relative to what we got used to for over a decade, still the elevation of the inflation Runway is still a lot higher. And that I guess you put in still the neutral camp, though. What about positives? Couple of. We’ve got to have some, gotta have some positives.

Connor Miller [00:49:31]:
So this is the fun stuff. And then look, there’s a lot of positives out there, right. You know, look no further than the labor market. People are largely employed for the most part. You look at the stock market, like we’ve talked about all today is the rally is much more broad today than it was a year ago, which is overall a sign of health for the overall stock market. This is a reelection year, which might not sound great, but from a market standpoint is actually really positive. You haven’t had a negative reelection year cycle for stocks.

Wes Moss [00:50:06]:
Come back. I think it’s also important to note that let’s not skip over re election. It’s not every election year so much as it is re election.

Connor Miller [00:50:14]:
That re election year specifically are actually have produced better returns and are less volatile than an open election year because the market is more familiar with the candidates.

Wes Moss [00:50:23]:
And here we have a market that’s entirely familiar because both of them have, it’s both sides are running for re election. There’s a long, long list of positives. And of course, one of the standouts of course, is the labor market. And Connor Miller, who’s. Thank you by the way, for joining us here on this Easter Sunday. The ratio around openings, vacancies. Hey, we’re hiring, we’re hiring. To people looking, that’s been so distorted over the last couple of years and is getting a little bit closer to equilibrium.

Wes Moss [00:51:04]:
Yeah. So where is that number right now?

Connor Miller [00:51:06]:
Right now we’re right around 1.4 job openings to unemployed workers, which is just slightly higher than where we were prior to the pandemic, but a lot lower.

Wes Moss [00:51:17]:
Than two to one. And that’s what the Fed has wanted to do. They wanted to crush job openings without crushing jobs. How do you bring down job openings? Which means that we’re putting our brake on this, the economy, but we don’t have to. We’re not creating a whole lot of layoffs and we’re not increasing the unemployment rate by all that much. Now the unemployment rate has ticked up just a little bit, still under 4%, which is incredible relative to history. But we’re seeing that number get a little closer to equilibrium. I don’t know if I’d put that in.

Wes Moss [00:51:54]:
I’d still put that in neutral. You could put that in negative. Neutral or positive, I think getting towards equilibrium is a good thing because it also is taking its foot off the inflation pedal as well. You have three job openings for everyone looking. You’re going to have wages have to go way up. If you get back to equilibrium, the wage increases can slow down a little bit. Hence we maybe try to get over this. You call this the inflation’s last mile is pretty rough.

Connor Miller [00:52:26]:
That’s right. Last mile of inflation seems like the.

Wes Moss [00:52:28]:
Steepest part of the race.

Connor Miller [00:52:29]:
It’s just familiar with shipping. That’s the toughest part of the route. It’s more expensive, most expensive, and so just could take longer than the journey that we came on from summer of 2022 all the way through. Now.

Wes Moss [00:52:42]:
There’s a lot more that we talked about this week that I want to cover here on money matters, so we’ll have to do this another weekend. But we can talk about consumer finances and how the consumer is doing. There’s an interesting point we can make about the Fed and what happens when the Fed starts cutting interest rates, which expectations for that have been tempered for the year. Another item I want to cover with you is this question, why money markets aren’t necessarily better than investing in bonds. When you see a similar rate today, that’s a whole nother discussion for another day. And we’ll get to that because we don’t have time for it today. There’s an awful lot that we still need to talk about here. Connor Miller but I’ve got to let you get to Easter Sunday with the girls and then you’ve got spring break.

Wes Moss [00:53:37]:
So you’re going to be doing a little bit of traveling this week and we thank you for being here, my friend.

Connor Miller [00:53:43]:
Thank you for having me, as always.

Wes Moss [00:53:44]:
Always a pleasure. You can find Connor Miller me and Connor Miller easy to do. So@yourwealth.com. That’s y o u rwealth.com. Have a wonderful rest of your day.

Mallory Boggs [00:53:59]:
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Mallory Boggs [00:54:47]:
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