RenMac

RenMac Off-Script: Overconfident?

RenMac discusses the mismatch between housing data and consumer confidence, the motivations behind Trump’s initial tariff salvo, how seasonality and sentiment are likely to play out in equities and the vulnerability created by the weak Russian Ruble.

Duration:: 26m
Broadcast on:: 29 Nov 2024
Audio Format:: other

(upbeat music) - Welcome to Redneck Off Script. We're going to discuss market, economics, policy, history, and life. Today is the 29th of November, 2024. I'm Jeff D. Graff. - I'm Neil Detta. - And I'm Steve Pavler. - We're going to touch on tariffs. We're going to touch on seasonality for the market. We're going to touch on a slew of the economic data. But Neil, you are in undisclosed location, celebrating Thanksgiving. It looks like, how was the turkey day for you? - I'm in the battleground state of Arizona. No longer a battleground swung pretty hard to the right, like most everywhere else. But yeah, we're in Scottsdale. The coolest thing I have done so far, I must tell you, I went in a Waymo, self-driving Uber, basically. - Yeah. - The most amazing experience, I've got to say. I mean, my daughter was freaking out. She was like, "I want a car with someone driving." I'm like, "Look, little one." If you got into a car, a yellow taxi in New York City, this Waymo is safer than whoever's behind the wheel of that car. - Right. - No. - It could be worse, it could be your mother driving. (laughs) - But yeah. - Is that a steering wheel? - No, yeah, so basically it's like a, I mean, I guess it's like an electric Jaguar, like an E-Pace or something. And they basically retrofit it with all sorts of gadgets and gizmos. There's like a thing on top. There's like something on the front. And yeah, I mean, you can see the wheel, the steering wheel moving while you're in there. But yeah, I mean, there's nobody actually behind the wheel. - And what was your top speed? - 45 miles an hour. - Oh, it's pretty good. - But it was all on local roads. I mean, it's, you know, it's obviously, but I will tell you, like, if it sees a car in front of it that's going slower than the speed limit, it'll shift lanes and then pass if necessary. So it's kind of, I mean, it's like, it's all very safe and everything, but I mean, it's like, oh, it's switching lanes to make a pass. That's pretty cool, you know? - Well, we had a torrential downpour here for Thanksgiving. And worse than that is the Derry and football team got absolutely dismantled by the new Kane and football team. We were both eight and one or nine and one, I can't remember, but it was kind of a big deal to seating for the state finals, but it was absolutely torrential. I've never sat in rain like that before, but terrible outcome. Anyway, Turkey was good. How about you, Steve, all good? - All good in our own front, little guys, eating a lot of Turkey, nothing really bad. - There we go. Abraham Lyons fan now. Everybody's Lyons fan, especially Neil. All right, Neil, I'll take it. I'll take my boot off your neck here from a football perspective. But let's talk a little bit about last week 'cause there was a lot of stuff going on. You had housing, which was disappointing to say the least. You had confidence, which is running pretty hot. Philly Fed, Chicago, PMIs, all that stuff was relatively weak. I mean, how do we juxtapose these confidence numbers with some of this data that's coming in? And how does that resonate with, I think both of our calls, which has been for lower bond yields here most recently? - Well, so I think a couple of things. I mean, remember right now, I don't think the, I mean, I generally don't think that the incoming administration has that many levers to pull like they did last time, right? Because you mentioned interest rates. Interest rates aren't in the same place that they were eight years ago. Inflation isn't in the same place it was eight years ago. So that limits some of the options that they can do next year in terms of sort of big bang fiscal stimulus. So one of the levers I do think that they can pull is just animal spirits, like keeping the hope alive, so to speak, right? And, you know, we saw a pretty strong rally after the day after the election. You know, you saw, you mentioned it small tap stocks, for example, did well, and so forth. And, you know, sort of, you know, sort of that's, I think, going to be an important driver of how people feel, and keeping that going, I think, is important. Now, what I must tell you is, when you look at the data, that confidence bump was very obvious in November of 2016. It's not as obvious today. So you mentioned consumer confidence. You know, consumer confidence did improve in the latest month. That was a November data point. But it improved actually more in October. If you go back eight years ago, it was exactly the opposite. Consumer confidence rose a lot in November of that year. It didn't really rise all that much in October. So, so far, the Trump bump, if you will, has been pretty modest in terms of the reported confidence data. That's also true in the manufacturing sector. The New York Empire was sort of a knockout, but the data that's been released since then has been quite sluggish. You know, the Chicago PMI has been was soft. These are, again, November data points. Philly Fed was soft. And I think that's a reminder of the kind of economy that Trump is inheriting this time round versus last time. Last time, he was coming in at the start of a global synchronized manufacturing cycle. He was sort of riding that wave. This time, manufacturing is still sluggish here in the US. We have issues with Boeing, auto producers cutting back there. Production schedules, because EV sales haven't been as strong. I mean, there's all sorts of little things going on. But broadly speaking, manufacturing haven't quite sluggish. And that's not just true in the US, it's also true globally, right? I mean, you have Germany, which has been sort of mired in a factory recession for years now. You know, the Chinese, there's been some enthusiasm around China, but, you know, the Chinese have a growing trade surplus, which means that their growth really isn't leaking abroad, right? Otherwise, they'd be running a smaller surplus. So it's not really doing much. I mean, maybe you can argue that some of their growth is coming at the expense of other people. You know, I mean, I think it's the orders of magnitude different. And that's still that's being reflected in the data. So it's good that there's been some revival in, I mean, I would argue that it's mostly a continuation of the previous trend, but good that that's still going. But the options are somewhat limited in scope in terms of what the incoming administration is doing. So what the incoming administration can do. So I think, as I said, keeping animal spirits going, doing things to kind of, you know, keep equities going. I think that that's going to be an important way that they can kind of influence the economy. - Yeah, well, certainly the confidence numbers seem to be higher. I mean, even, you know, we posted on Twitter this week, consumer conference board numbers, right, about stock prices and certainly-- - Right, I mean, so the stock price, right. So that's, I mentioned that. I mean, right? If you look at how people are feeling about equities, they've never been this bullish. Now you can do with that what you will. Maybe that's a bad thing, I don't know. But again, like keeping that going, I think it's, it's a, it's optimism, right? And animal spirit, and that's important. Now the headline conference number was not as strong. And then just finishing up with housing. I mean, you know, the housing market again is a complete mess. You know, if you look at new home sales, they fell. I mean, you can sort of talk some of that up to the weather, I guess, because a lot of the weakness of new home sales was centered in the South. But generally speaking, I mean, interest rates backed up in October. That's weighing on housing activity. It's just simple as that. And new home sales represents signed contracts. So that's the leading indicator for housing activity. And so, you know, I think the fact-- and you know, there's slack building in the single family market. I mean, if you look at new homes for sale that have been finished, I mean, that number's up about 50% against last year. So it's going to weigh on single family starts, I think, for a while. And, you know, I mean, we'll see. I mean, there's been some stabilization in purchase demand. But, you know, generally speaking, I think construction activity is going to remain quite weak for the foreseeable future. So we got our first taste of Trump talk in the last week. Tariffs and our good friends, both North and South. And I guess less friendly across the Pacific. More to come, Pavlik. Is this just the opening salvo, negotiating ploy? How are you viewing the tariff rhetoric here? I think it's some combination of all of the above. I mean, just go back to where we were last Friday. We were recording this last Friday. Trump hadn't named it a treasury secretary. He did later that day. And the markets reacted pretty favorably to it, which I think they should. Because I think he picked a really good one there. And Scott Bessent. And he said, equity markets responded favorably. Banios went down. But then that was sort of reflected on Monday's trading. And then what does he do after the market closes? He sort of, on his true social media, suggests the 25% tariffs against Mexico and Canadian imports and 10% additional tariff on Chinese imports. It's interesting levels because one, they're lower than what he had suggested in a during the campaign, significantly. And that might suggest more of a pragmatic phased approach, which was some of the, I think, genesis behind some of the optimism with a selection of Bessent. And then the thing that he also tweeted out around the same time as their threats was the strong market reaction stories being written about his treasury secretary suggestion. So if you look at how the markets reacted the next day, currency markets, obviously the Mexican peso and Canadian dollars sort of fell. But I think the indices broader index is largely just sort of dismissed them as threats. I think autos would be particularly harmed if they might have been hurt a little bit more. But that sort of suggests what the market's thinking. And they may be right, because on Wednesday, Trump tweeted out that he had a very productive conversation with the new Mexican president, their Claudia Schinebaum, suggesting that this is just sort of a negotiating tactic. So I think that's going to be the thing moving forward is sort of what we saw the last time, is a lot of threats, whether or not that he follows up on all of them, sort of remains to be seen. My guess is he will in some instances if these trading partners are willing to make some concessions. And if not, or get a little further down the year, we're looking for revenue to offset some of the tax cuts. And maybe he follows through with them. What's interesting about the three players, like Canadian Prime Minister Justin Trudeau, Chinese President Xi Jinping, they dealt with Trump in the past. I think he may have been testing the waters there to sort of what he could get away with with the Schinebaum, because that's somebody who is not familiar with negotiating directly with Trump. And I think it could also make the case that he's probably looking to accelerate this negotiation on the USMCA head at 2026. I mean, strategically, it might make sense to sort of shore up the situation here with Canada and Mexico, before maybe pivoting stronger to China. I know it's something he tried to do the first time, but he just looks sequentially with USMCA before the terrorist ratchet it up. So I think one thing that was notable too is Trump made this announcement before he named the USTR. And he ended up naming Jameson Greer, who was his former USTR Bob Leidizer's Chief of Staff. And I just wonder, being somebody who works for the person is different than being the person. Leidizer is somebody who got a lot of clout within the administration and down Capitol Hill. And obviously, their viewers are going to align with Leidizer, but would you going to have the same sway within the administration? Not sure the fact that Trump also tapped Kevin Hassett, who worked from before as chair of CEA, now to be chair of the NEC National Economic Council, I think is encouraging. So the absence of Leidizer right now, from having a defined role in the administration, the absence of Peter Nabara, from having a defined role within the administration as we're recording this, that may suggest a softer approach to tariffs than some of the more, I don't see Draconian, but the more stringent policy suggests on the campaign trail. Are there positions for them to fill that? I mean, it doesn't sound that the prominent positions are there. Is it, you know, I don't-- Well, it's been suggested that Leidizer would come to the White House as sort of a trades art position. But it's sort of interesting because USTR is actually out of the White House that does require Senate confirmation. Leidizer would have a prominent Senate kick firm. So I mean, she just holding out to get this sort of trades art position. So you can sit a little closer in proximity to the president, which approximately is powered. I'll get yourself real estate is very important here in Washington. But that's what it remains to be seen absent at, I'm not sure. True story, you like this one. A rising NYU student, a rising NYU senior once worked with-- as a research assistant on Kevin Hasett, for Kevin Hasett at the American Enterprise Institute on a piece. You want to hear it? Media bias of reporting economic news. That rising NYU senior was me. What were the conclusions of the report? What do you think? I think hovering NYSE student would have been probably the more appropriate moniker. But I worked on-- I was a research assistant for Kevin Hasett when he was director of eCon at the American Enterprise Institute, among many. But one of the pieces that we worked on was a piece about media bias and how the media reports economic news. A good person to work for now? I mean, I was actually working with him and another economist who I dealt with actually more. But yeah, I mean, he was very friendly, you know? I mean, it wasn't-- What year? I think that was 2000 and-- or I'm going to say. So well before, well before, I mean, the whole crumbling of the media's integrity. Well, I mean, I think the media has a tendency of playing up bad information. You know? That's, I think, natural. They just happen to do it more under one party, more so than the other. That's what the piece found. Is that, you know, for the same sort of set of data, the-- I mean, it was basically a coding of headlines. I mean, that was the analysis. I mean, I don't want to get too into it. So for example, it would be like, jobs growth surged by 200,000. That would be the headline for one party. For the other party, it might be, job growth surged by just 200,000. But unemployment ticks up. Right, right, right, right. Yeah, still good. So let me throw this grenade out there, guys, because I think it's interesting. And we'll see how this plays into the global chess match. But have you been following this decline in the ruble, you know, over the last three or four days? You know, just wondering, Steve, maybe this is in your-- up your alley from a strategic standpoint with what's happening, you know, obviously with the war in Ukraine. Does this force potential negotiations cease fire? Is it, you know, why don't you get something done? Because, you know, of these sanctions and some of the other-- obviously impacts that it's having on the currency. I mean, look, when the leader of the country comes out and says, "There's nothing to see here." It's usually a sign there's something to see here, right? So I'm just really curious as to whether or not-- and this kind of seems to be flying under the radar. And, you know, I'm always looking for kind of those dislocations that are potentially large in impact, but are small in terms of the attention. What are your thoughts there, if any? Well, I just think of what the election impact may have to the negotiating position for both Russian President Vladimir Putin, Ukrainian President Vladimir Zelensky. I mean, I think it's pretty clear under a unified public in Congress that you shouldn't expect much continuation in the amount of aid, arms, as well as financial assistance from the U.S. I think probably not a coincidence that the Biden administration is trying to accelerate the weapons use, that, you know, a lot of these weapons that they held back before the election. I don't know that that's catching Trump off guard. I think that's probably one of the things they talked about when they met after the election, because I don't see Trump being critical of that. I think Trump appreciates leverage in my guesses. He wants to make sure that the Ukrainians have some form of leverage coming in here, because I don't think he wants to deal with the cons. He's going to have enough things to deal with domestically, and also another trade front. So it's one thing he'd probably prefer not to have to focus a lot of time on candidly. And I don't know that he wants to sort of enter office as he's seeing some big capitulation to Putin right off the bat, and perhaps Putin sort of seeing the writing on the walls. The topics go on a lot of time. They're having trouble retaining their forces, dealing with this war of attrition, and Trump may have something to offer Putin in terms of a relaxation here, some of the financial sanctions, maybe now they're being a little worse, more dramatically. We'll send those back. There's a potential way for a quicker conflict here. At the end of the day, we always thought that this is going to be a negotiated settlement. There can be some territorial concessions on behalf of Ukraine, and usually the generals fight the wars, the politicians are the ones that declare victory. And my guess is we're probably moving more towards the latter there. So I don't know maybe that's sort of what's impacting the situation there with the ruble, but it surprised me that there could be ceasefire in the cards relatively soon. No, I think it's sort of in both sides interest to come to the table here. And I think they're sort of recognizing that whether or not that's going to be durable, whether or not the US is going to provide some sort of NATO assurance to come to the assistance of Ukraine, maybe indirectly through that, to try to prevent Putin from seizing more territory in the future. I think it's sort of the outstanding question to sort of help thinking about it. Yeah, I mean, you always worry about dislocations in currency markets. And I say that for those who don't have a lot of experience in our world, oftentimes the currency markets are kind of the first safety valve, and volatility in the currency markets are often the early indication that there's something, something amiss. So, you know, we saw it, it didn't follow through, frankly, shockingly, with the yen back in the summer. But certainly it has happened with the ruble before. Happens oftentimes with Argentinian pesos and Rial and the like tie-bots, etc. So currencies are often a focal point for us because that volatility is a sign of bigger dislocations and things that might need to come back into line, including our good friend Scott Bessin, who was famous for helping to orchestrate the breaking of the Bank of England with the pound because they were on an unsustainable track, right? And that's the way it works. So let's talk a little bit about seasonality because we are entering this period for the markets in December. And I know fourth quarter is generally strong anyway, but I think what gets missed is just how strong December is. You know, roughly median returns of about 150 basis points for the month of December, average returns about 130 basis points. That's important because, you know, you want your mean and your median to be close. When they're close, what it implies is that the significance, the predictability of that relationship is likely to hold. So December tends to be a good month. Importantly, though, January also tends to be a good month with about the same, about the same return. So we're staring down the barrel of the next two months, seasonally being very, very important. That does not guarantee anything by any means for all of you who play in the financial markets world. But, you know, what I would have likened it to is a blackjack game or a hand of blackjack. And, you know, if you're looking at, you know, holding a 19 and the dealer has a 6, historically, you've got about a 70% probability of winning that hand. And it's exactly the same here for December and for January. So the difference, which I think is important in people miss, in blackjack, if you put up a dollar, you're going to win a dollar, in the markets, oftentimes there'll be a symmetric skew to that. In other words, if you put up a dollar, you can win a $1.25 or $1.50. And so when you get those probabilities that are in your favor, but you also have that payoff skew, it can really end up being a home run. So like what we're seeing there from a factor perspective, interestingly enough, beta also tends to have a very similar trademark in that December is strong. January, not as much, but it certainly still suggests that there should be risk on. You talked about the conference board and people's confidence around, around equities. It's one of the things that we actually follow. It tends to be a little bit more contrarian than not. So I think one of the things that we're going to have to watch as we get into 2025 is going to be this elevated bullishness in the market and in sentiment. It's not as good at tops as it is at bottoms, no doubt about that. But the whole notion or idea is that if everybody is bullish and they've committed who's left to be a buyer, we'll see if that ends up playing itself out or not. But certainly I like what we're seeing from a momentum standpoint. I don't think sentiment really has tipped into that danger zone yet, but I do think it might be something that comes out in the early part of 2025. Did you learn anything from the minutes this week? I felt like maybe because it was a short week that they got short shifted in terms of what the minutes stated. Were there any surprises from the Fed in the minutes this week? Not really. I think the markets are still pricing in a December rate cut. I think the odds are, to me, the Fed is basically forecast and data dependent. It's not just about the data as it's coming in. It's also about how they're thinking about the outlook. If I had to guess, I would basically say they cut in December, but they erase several cuts for next year, like those because the economy has done a little bit better than they thought since September. They have four in now. Maybe they go to two. That would be the hawkish outcome, I think. We had some questions on our China call. Obviously, the momentum has not followed through as much as we would have preferred. The whole basis, or I should say, one of the pillars of the China call was the improvement in trend. The momentum was strong enough that it pushed the trends from negative to positive. Now, it's just retracing some of that momentum. I don't look at it as a problem. I think it's the 2008 moment for Xi Jinping and the leadership there. If you look, you'll see that bond yields. We actually put this on Twitter. We'll put it here on the YouTube channel as well. Chinese bond yields are sliding, now approaching 2%. You've got these policy initiatives. Very similar. Tell us if you've heard this one before. 111 billion reserve repos being purchased. 25 billion dealer purchases from banks of foreign bonds in November of potential 25 to 50 basis point reduction in reserve requirements likely in the coming months. Obviously, they're leaning into it. I know people talk about central banks out of bullets. There's nothing you can do, et cetera. But look at the relative performance of financials. They are part of the leadership pact of China. That's not something that was happening here in the States in 2008, 2009. In other words, the idea that there's these massive black holes, and we don't really know what's happening, you would not expect to see that type of weakness in Chinese financials, if in fact that was the case. Keep in mind, from 2008 in the first quarter of 2009, financials were leading to the downside of that. Clearly, our situation was more continuous than than what they're seeing. Any thoughts, Neil? No, no thoughts. How about next week? What do you have for data? Jobs. Jobs, jobs, jobs. Next week is, we'll see. I mean, the markets are looking for 200,000 on payrolls. A lot of that's going to be a undoing of some of the things that were depressing employment in the month prior, right? Like, so you had the Boeing strike, you had hurricanes, so we'll see what's going on. Do the starboard show up yet? Are they on the jobless report? The one thing I would say is that initial claims are down, continuing claims are going up. That tells you that the hiring rate is very weak. It's hard for people to find work, which is really how the weakness in the labor market is showing up. We'll also get ISM, which will be, again, important. We talked about some of those regional manufacturing data. They've generally been on the weaker side with the exception of the empire index, but it all signs a point to another sub-50 ISM. Steve, what's happening next week in Washington? Congress returns next week, got a three-week sprint here until the December 20th government funding deadline. There had been talks that they would do some sort of omnibus spending package to get through September next year. Don't think that's going to happen. We would have seen the text by now, I think, for Speaker Johnson. He's preferring a stopgap into probably into February, March timeframe at the continuing levels, because he has to win his speaker's vote on January 3rd, when the new Congress starts. I don't think he wants to anger the fiscal conservatives here at the end of December, when he's going to need their votes a few weeks later, and recall the situation beginning of this current Congress, where we took several rounds for Speaker McCarthy, then Speaker McCarthy, to get the gavel. I'd be surprised if that was really going on here. We'll still see the defense bill move that's moved the last six decades, so that could be potential catalysts for some of those other things to ride, like compound investment screens and the likes. Excellent. Well, from the market perspective, we'll be watching some key levels. Yes, and P5832 is the important tactical support level. We'll be watching that one. We're right now approaching the first support level for yield, which is roughly 420, we're at 419. 75 right now, so right in that zone. I suspect we're going back to 4%. We've taken some heat for that, I know, but it is what it is. I mean, the charts are the charts. 450 is the upside and the resistance level there on guilds, but again, we think that trajectory is likely lower. Joining us again next week will be one week older, one week wiser. Don't forget to follow us on Twitter and YouTube if you want to see some of the stuff that we're talking about. Until then, I'm Jeffty Graf. I'm Neil Detta. Namaste, paladin. We'll see you. [Music] [Music] [BLANK_AUDIO]