What Goes UpThere’s a lot of excitement around AI-focused stocks right now, but market veteran Art Hogan urges caution when it comes to companies that are just trying to take advantage of the hype without having true ties to the industry.
The chief market strategist at B. Riley Wealth joined the What Goes Up podcast to discuss how he views the artificial intelligence investment landscape, as well as other market trends.
“If we start to see the capital markets open, and we start to have a flood of newly minted companies that are AI-specific or adjacent, I would avoid that at all costs because they likely don’t have models,” he says.
Hello, and welcome to What Goes Up, a weekly markets podcast. My name is Mike Reagan. I'm a senior editor at Bloomberg.
And I'm Aldona Hirik, Across Asset reportered with Bloomberg.
And this week on the show, Well, this year's red hot stock market finally cooled off a bit in August. I followed a blistering rally that saw the S and P five hundred gain almost twenty percent and the Nasdaq one hundred climbed forty four percent through July. So what are we to make of the market running out of steam late in the summer. Is it just that typical seasonal weakness when investors were all at the beach or is there something more going on. We'll get into it with a veteran market strategist. First of about a summer's almost over, do you have a good summer?
Well, we know that. You think I was gallivanting around Europe, which I did for a little while. Yeah, that was fun. Otherwise it just went by really fast.
I'm ready for fall. I'm ready for the cooler weather.
I heard you're a big fan of pumpkin spice lattes. Not at all, Yeah, you love them. I heard Mike Reagan loves pumpkin flavored stuff PSL Pumpkin spice lattes.
Not at all, Not at all.
I wonder if our guest likes pumpkin spice lattes. He might. He's one of my favorite people to talk to. It's Art Hogan, chief market strategist at bet Riley Wealth Art. Thank you so much for coming back on the show.
Thanks so much for having me. I'm very excited to do this.
Do you like pumpkin spice lattes?
Not really a fan. I like a lot of pumpkin things, but not the coffee flavored pumpkin stuff.
I'm I'm going to spread the rumor that both of you like pumpkin flavored stuff. I'm going to tweet it.
He can't spreading spreading rumors, Vildonna. You're a you're a professional journalist. You've got to deal with the facts.
We need some controversy in our lives, so this, this can be it. But Art to start, Mike mentioned at the top of the show that we had had this blistering rally in the market. So I'm just wondering what you're expecting over the next couple of weeks. Do you think that we can continue to expect the market to digest the gains that we had seen coming into the fall.
Yeah. I think Mike made a really good point. And I think if you look back in history and say, what does the SP five hunder do when it gets off to a really solid start, And if you looked at the last twenty times that the spfif hunder was up ten percent or more going into the mid year, August and September I have been rough months. That's why we call it season lead. Sometimes it takes a little bit of a catalyst to remind us, but this year it didn't. We just flipped the calendar and August was just a bumpy road for all asset classes but certain life treasuries, and I think that was part of the problem. Yields backed up, but we saw some pretty quick draw downs. It was more noticeable and the seven largest AI darlings, the Magnicent seven, right, which were off a lot more than the index was. But I think that what happens is you do sort of look at this and say, Okay, these gains sustainable to me. The more important thing that happened sort of post Memorial Day and into this August the September time frame is the market's really broadening out and it's quietly getting some sponsorship for some of the underperforming sectors in the first six or seven months this year, and by that, I mean, you know, it was all about technology, communications services, and consumer discretionary in the first half of this year, and all of a sudden, posts memorl Day into August, we started to see energy pick up, which is great, right, So one of the biggest laggards in the SP five hundred is up seven hundred basis points over technology in the last month, right, And I think that's helpful. Industrials are up three hundred basis points or two hundred and seventy basis points above technology, So that catch up trade is really important. And I set it up that way because I think that's what the back end of this year looks like. We can continue to have markets grind higher. I really think the trade is going to be about, Hey, what didn't work in the first of this year. What should I be focusing on? And I think investors are looking for that now. The other piece of the puzzle that really worked well post Memorial Day and continues to out perform is the Russell two thousand small caps, big under performer in the front half of the year, and I suspect they're going to perform in the back half, you know.
Towards the end of the month. Obviously, we got Jerome Powell's speech at Jackson Hole, and the market really seemed to take that as a positive. You know, I'm not exactly sure what it was. He didn't seem to really break too much new ground. But is this sort of nascent rebound we've seen from the August folatility is that all due to pal Do you think just taking sort of the worst case scenario off the table when it comes to rates or what? Is it just a coincidence?
I think he had such an easy comp compared to last year. Right So, last year it was Jackson Hole j Powell who just crushed the market, came out with a comically short speech and talked about how much more work they had to do, right so, and looking back and say, well, how much has changed year over year, I think Jay Powell was a lot more comfortable. You know, we just don't know, and we're going to have to be careful about it because they're getting to that last mile getting headline inflation from three percent out of two percent, et cetera. And that's the tricky part because they don't want to overdo it and break something, which the Fed usually does. They don't want to underdo it and end up in a seventy situation where inflation comes rory back. So I think he delivered the right message. I don't think he made any news unnecessarily. I think navigating by the stars and the cloudy sky was kind of the highlight for me. But I think if you combine that with the path of economic data that we've seen of late and yields, finally these sort of calming down a bit, right, So if the Treasury curve calms down a bit and stills a bit more of a risk on attitude, I think that has been helpful for the last couple of days. But it's only been you know, two or three days in August where we've actually seen much of a rally, where most of the month we couldn't put two days together in a row. So I think it's you know, we continue to have a bit of a bumpy road in front of us, but I think the good news is we're going to put August in the rear view mirror in September is going to come around, and we'll get through that as well.
That's such a good point about having the two days in a row, which is a stat one of our Bloomberg colleague, Aliena Popina, actually ended up writing about the other day, and it was just so surprising to me just reflecting on that. So you mentioned the seasonality factor. I'm just wondering how much weight we really should be putting behind something like seasonality, where people just looking back at history say, okay, September tends to be choppy, October tends to be choppy. How much weight do we put behind those?
The way I think about it is, I think the seasonality piece of the puzzle is a good it's a good rule of thumb, but I don't think it's anything you change an investment decision for. I think it's important to know that historically there are months that are that are softer than others, and there's certainly cycles like the presidential election cycle that are important. I think in general, it's just it's more of a it's more of a guide post for you to say, Okay, this may be the reason why we're seeing softest, but it's all, it's never going to be the reason that you want to change your long term investment ws.
You know art you mentioned earlier Magnificent seven, you know, the big megacap text shares at the top of the S and P five hundred US waiting top of the Nazek one hundreds waiting to The whole frenzy towards AI has been kind of fascinating to me because, you know, we're used to seeing something like that built entirely on hype, but in this case, you know, the fundamentals seem to be coming in early, hand in hand with the hype. You know, every time in Video puts out a forecast or its earnings release, it's like wow, you know, it's like this is real here and now fundamental improvement based on this AI theme, at least for n Video, but I'm sure for others, you know, the cloud service providers and all that. So how are you thinking about that sort of separating the hype from the actual fundamentals in the AI plays and where do you see it going? Like to me, it almost feels like with stocks that big, market caps that big, and sort of this speculative frenzy around AI. It seems like kind of a dangerous combination for volatility potentially until we out the winners and losers of AI more completely and comprehensively. But I'm curious how you're thinking about sort of that that hype combined with actual fundamental improvement so quickly in the cycle of something that's being hyped.
Like this, right, such a great point, and I think you set it up perfectly. I think when you think about anything new, the best analog for me is going back to ninety five to two thousand when we think about the Internet, right, So, the Internet and dot com revolution, and that was going to change the world. And what's interesting to me is that going back to that timeframe and say, yes, ninety five companies started company public and then it really got a head of esteem into ninety seven, eight hundred and fifty three companies came public and most of them didn't even have business models, but they put dot com at the end of their name, and we can remember all of those and that virtually all of them are gone now, right, and virtually the winners in the Internet cycle, and you and I using it in our daily basis really didn't happen. Is so two thousand and five right, So that total adres market and that opportunity took the better part of a decade. So what's different now is, first and foremost, we haven't had just a flood of new, newly minted companies that are AI specific or have AI adjacency, or have AI attributes. And that's good. So there's not that sort of speculative bubble and newly minted companies. I think that's very powerful and a big difference, and I think that's healthy. I also think the time is going to be compressed between when companies adopt an AI strategy as part of their business model and may monetize it, So I don't think we wait a decade to see this happen. We've certainly seen Nvidia growing their revenues because they're making the only chip in town that really drives enough GPUs for companies to actually have that AI strategy. So I would say as an investor, the two things I would say early on here is to say, yes, this is new and exciting. We don't know how big this gets, but who are the obvious players? And Video is obviously the leader here and every time they report they raise their quarterly guidance in billions of and while there's still the only game in town, and they are right now and they've got the early, early lead. They will eventually get some competition, but for now, I think that's that's a safe place to be if you want to have some force near your portfolio there. And then the two incumbents are obvious, right that the you know, the hyperscalers that can actually use this right away and afford to develop an AI strategy. See that's obviously Google and in Microsoft right and every week there to come out with a different announcement and talk about about how much you're going to charge for it. But the difference that makes in the near term for those two companies is much smaller than the difference that it has made for in video. So you know, to me, there's three obvious players, but I would overweight the guys that are selling the picks and shovels to the gold rush. And that's in video right now, and clearly it's It's what's amazing to me is it's a lot cheaper than it was when they reported their earnings a week or so ago, and and you know, you might have some better opportunities here. So they sharpen your pencil, but don't jump in and never put on a full position at one time, and any of these things. But the biggest thing I'd be concerned about is if we start to see the capital markets open, we start to have a flood of newly minted companies that are AI specific or adjacent. I would avoid that at all costs because they likely don't have models. There's gonna be a lot of hype around them. They're going to get priced at twenty and litle bit at sixty, and that doesn't end well for anybody.
It's like when a couple of years ago a bunch of companies were adding just blockchain to their name. Right, I do have another question about the big tech companies for you. There was this really interesting report from Bloomberg Intelligence this week that said, looking over the past five, ten, fifteen years, there's only one equity mutual fund that has outperformed QQQ, which is the giant NAZAQ one hundred ETF. Just one has outperformed QQQ over that timeframe, and it's because they had a heavyweighting towards Tesla. Wondering what you make of something like that and just how difficult it's been to beat these giant, giant companies that have just been doing so well.
Yeah, anytime, friend that you look at it, you're always going to see a high percentage of active managers, whether they're running mutual funds or to tap asset management firms or have their own funds, beating the market, and especially a market that is driven at least over the course of the last call it two or three years, by the five or ten largest names in the SPF voter. Now, that's nothing new to us, right If you go back to the last fifty years or at least thirty years, you could pick every decade and say, what were the top five names of the SPFF voter. It's just the names change, but the size because of the way the SPF hutter is made up. But it's a market cap weighted index, they always have an outsize impact on the overall index. And it used to be companies like Exxon Mobile and General Electric and AT and T, and over the years, that's kind of obviously shifted over to companies like Apple and Alphabet and Facebook. And I think that that's going to change again, you know, ten years from now. But I think in general that the sort of active management versus passive management or active versus ETFs is a very difficult game to play, and it's a very few you know folks have had a long term record of beating right and and I'll ask you a question. Name for me a hero of viewers that is a long only fund manager, because what I was your age. I'm going to have five names for you.
This is a trick question because there aren't.
If you can't name any, then there's none in your life. Right So, you know, when I started the business, Peter Lynch was a rockstar type portfolio manager and had you know, outperformed for years, but nobody was invested in the market. Nobody could buy the Triple Cues or the Spiders. You know, we just didn't have as much passive back then. So it's made that role that much more difficult. Warren Buffett I Sposh falls into that category, but different investment style. But you know, four years and years you would you would have your favorite long only portfolio manager at the tip of your tongue. And right now I can't find anybody that just has that answer for me right away.
Mike well Art, I'm glad you brought up Lynch. I actually have a Peter Lynch related question for you, because I was reading one of your notes and I found this interesting. He wrote, we foresee a path to S and P five hundred earnings of two hundred and thirty dollars for twenty twenty three and two point fifty in twenty twenty four. Now, this is what I found interesting. Using a twenty multiple on the blended earnings of two forty gets us to forty eight hundred for the SP five hundred. I'm curious how you got to that twenty multiple because I always think back to Peter Lynch and his rule of twenty. You know that the multiple plus the rate of inflation in a fair market should equal twenty. Now, there's plenty of examples of it being below and above that, but it does kind of average out to that interestingly.
So, unfortunately, for the last ten years, if you applied the rule of twenty, which is a discipline that I've always tried to use, you would have been out of You would have been out of the market for most of the time. Part of that was the fact that we have very low inflation, and then we shifted the very high inflation or a very short period of time. I think that what I tried to do is taken it and that twenty multiple is obviously a trailing multiple, not a not a forward multiple, so it's a you know, I think that makes it a little bit easier to sort of justify. And I said, what what does that multiple look like on the end of the year for the last five years, And that's ad her about where it is and my role as a strategy. You have to come up with a number, and I was at forty four hundred, and everyone thought I was crazy in January, you know, having to have something in print and not having people saying, oh, so you think the market's going down. I just kind of rolled out to what we think twenty four looks like. And we're confident in that estimates we have both this year and next year because after the second quarter earage reporting season, the estimates went up, not down, which is you know doesn't always happen. And we saw no degradation of the of the twenty four estimates, which is a positive. A lot of that can change. It is a moving target, but you're right. It's like it was difficult to type that number when I put it down, but I felt a little more confident was kind of looking out a bit further and using what the average was for the last five years.
Yeah, well that's the thing though, it does seem it does seem like a reasonable multiple in the state and age. You know, I guess I've been kind of surprised that this acceleration in inflation and interest rates hasn't knocked the multiple down further. You know, is there you know, is the multiple just you know, signaling that the market believes inflation and rates are going to normalize back to pre COVID levels, do you think?
I don't know if they believe that they're going to normalize back to pre COVID levels, but they certainly believe they're heading in that direction. Right, So you know, we headline CPI going from nine percent to three percent, obviously we're heading in the right direction. So no one's going to use, you know, what inflation was six months ago or three months ago. They're going to use what they think it's going to be in six months. And I believe it's going to have a two handle, especially if we start to get shelter costs in line with reality, right that the government uses something owner's equivalent rent, which has got a lag of six to twelve months because it's kind of survey, right, But if you look at you know, any of the other real time data, you know, like Zilo or redfin or any of the folks that give us that real time data, we know that that's off by a bit. So I think that the inflation numbers just naturally have more to come down, and I think that helps sort of justify a bit of a higher multiple than we normally would have if in fact you and I were sally using the rule of twenty and subtracting the current inflation rate. So I think it's I think that's where the difference lies. The other thing I think about two is, you know, we talked about the S and P five hundred and that multiple, but adding one of those five years, if you were to back out the top ten stocks, the multiple has been add or about fifteen between fifteen and fifteen and a half and it continues to be the case. So again that's the tricky part about having five hundred stocks where the ten of them have the most influence and are attributed much higher multiples because they have much higher growth rates in general.
So speaking of different ways, to look at valuations for the market. I actually had called you about this a couple of days ago because I was trying to find a different way of measuring the rally that we had seen in the s and P five hundred so far this year. So if we take the SMP five hundred market cap and we divide it by nominal GDP, or if we take it and divided by CPI, the gains just aren't as great as you know, whatever we had we had risen as much as twenty percent this year, nearing those all time highs that we had seen at the start of twenty twenty two. It's just not there's just much further to go to reclaim those highs.
I think that's such a great exercise because what it tells you is two things. In my mind. I forget, it tells you that the Fed that has, you know, a thousand economists looking at markets probably feel a whole lot more comfortable with how far we've come during What they've been trying to do is kind of tighten financial conditions because they can live in a nominal world. Right they say, Okay, the market's up, but not not when you factor in GDP, or if you factor in inflation. Now, you and I and the rest of the investing world likely get our wealth effect from the notional gains that we have. Right, So you know, if I bought Apple at fifty dollars in the cell where it closed, I don't factor in inflation there, right, factor in my gains and say, okay, I feel this much more wealthy. So the wealth effect can actually be in place for the games that the market have had notionally, while the FED can rest a little easier as they look at the games nominally. And I think that's that's the difference. When you look at that exercise, I thought, I thought it was a great question, and and and believe me, when I think about this more and more, I think it helps the FED feel more comfortable. The financial conditions aren't quite as tight as or as loose as they feel like they are. You know, everyone has this feeling. It's this is all make an analogy for you. So everyone thinks the FED thinks about the stock market more than they actually do. Right, we all believe it's like, oh, the Fed, if the Fed sees the market go up as much as it has, they're going to keep tightening. I don't think they give it as much thought. And then then I always try to equate that with I'm a Red Sox fan, and I assume no, I assume everyone in the York hates the Red Sox as much as we hate the Yankees, Right, But I think that the same way the FED looks at this, Right, So, I think that the Feds like, yeah, whatever, that's the market over. I think the Yankees fans are like, yeah, it's just the Red Sox.
We don't think about you guys.
Right exactly. You're not that passionate about about how you feel about us. And I think the I think the FED thinks the same way as Yankee fans do about the Red Sox about the market, and especially if they can use that, Hey, if I compare this to inflation or GDP, I feel like the market's actually gone up less.
You know, Art, you've written that you favor a quote unquote Barbell approach to investing with one end focused on things we need versus things we want. To talk to us a little bit about what you mean by that. That's an interesting concept.
Yeah, so things appreciate for it, the things we need healthcare, right, things we need energy, things we need staples, right, those types of things, and I think about that in that bucket, and if you were to balance that off with things that you want, typically you're going to find that in a lot of the growthier names for a lot of reason. And when you set this up at the beginning of the year, it's not a set out and forget it. So you've got an equal waiting on either side of that barbell. And every quarter when you rebalance, you're literally selling some of your winners and buying some of your losers. And if you were to take that, and we did, we ran the numbers last year and in the six months of this year, you kind of look at us. It's kind of a discipline way of staying diversified and balanced. And you actually put money into energy at a great time, and you took some profits and technology at a very good time. So it's very much of those You know, I want the Apple fifteen. I don't need it because I've got an eleven right here, but I want it. Those are the things that I want. Things that I need. I certainly need healthcare, and I certainly need energy, and to a certain extent, which has it worked yet, but I believe it's going to as I look at one of the other laggards, I think financials fall into that category. But there's so much noise around you know, what new regulation is going to look like, and when netager's income improves and all of that. But I think that's probably one of the cheapest spaces in the S and P five. That's one of our three in that basket. It's energy, healthcare. Financials used to be stables, but they got too expensive. They're getting better now. But on the other side, it's pretty obvious, you know where we be on the on the growth of your side.
Well, how does the FED play into what we can expect from the market going forward? Like what how high is the bar for a September hike and what else do you expect from the Fed.
The good news is this time of year, the Fed's had a couple of long breaks in between meetings, right, So you got July meeting, September meeting, no October meeting, and a November meeting, right, So you've got that sort of you know, on again, off again Fed. So it's less of a concern. So we put less attention on every single data point, which I think is always a mistake, So nobody is going to use any one single data point and say, oh, this means the FED has to do this, right. I think the consensus has it about right that there's about a twenty percent chance that they might raise by twenty five basis points in September. I don't think they're going to, but then they've got this whole plethora of data that they get to see before they meet again in November, and I think that's a real positive. I think that there's a you know, a chance that the path of inflation continues apace, that they will feel that they've made significant progress towards their symmetric two percent target, and we may have seen the last of the rate hikes. Now another rate hike if they do go and November, is not going to sort of break the market. But I certainly think they've already gone far enough. I think there's there's really long lags of monetary policy. Typically. I think that the lags are much longer right now in the here and now. The reason I say that is the majority of consumer debt is tied up in mortgages, and the majority of that's below four percent, So nobody has felt the bite of higher mortgage rates unless you're one of the new home buyers, right, so you know you haven't really felt this. Of the SP five hundred's debt doesn't have to be repaid until twenty thirty, So Corporate America is not feeling the bite either. I think everyone sort of looked at this, like you refinancing lower. Corporate America looked at this and said, Okay, I'm pushing my duration out at these low rates. So both the consumer and Corporate America haven't really felt the bite of all of the monetary policy that we put in place now all around the edges. Obviously everyone has and than a new home buyer, I said, pay seven point four percent for a thirty year fixed. That's taking a bite, but it's not taking a bite on the majority, right, the majority of consumers that have debt that they're probably not going to roll over. So I think that causes an even longer lag in this monetary policy process. I think we've seen the last of the hikes, and I think the market celebrates that we can get to pause in the September. That's consensus, that's not a surprise. If we don't get a radio in November. I feel like that's going to signal that they're getting closer where they need to be. The real question won't be how high anymore to be how long And consensus now has it way out to the second half of next year. I think there's a small number of people think June there might be a cut, And I think that the talk about when they cut really has to do more with are they overrestrictive now?
Right?
So, if we start to see the path of inflation come down at the pace that it's been coming down, and they're sitting at five and a half in the FED funds rate and there's a two hundred basis point delta between the current inflation rate, that's going to be overlad that's going to be overly restricted. And the reason that they'd want to cut is to get that somewhere between a D and fifty underd and seventy five basis points. Doesn't have to mean the wheels are coming off the cart because they're cutting it. It just means that, hey, we're restricted enough. And the j Paltton was the last presser, not Jacksonville, but at the last meeting even said we wait till we get to two percent. We've waited too long. We have to start adjusting policy and become less restrictive to normalized rates. So I think that happens in the back half of next year. The market is kind of sniffed that out, and I think that, you know, we're setting up in my mind, this August in September period is really setting up nicely for a year round rally. And why do I say that? If you look at all the survey data, So whether it's the AAII, the first time it's been Parish in twelve weeks was this week. People are waking up and saying, Okay, you know something's going on here. Is the individual Investor survey outrageously low, the lowest we've seen it for the year. So sentiment is starting to wind that. We're starting to wind down a lot of the positioning, the bull is positioning that we sort of exited July with, and the sentiment is rolling over nicely as well. So it's it's funny how a sloty August can kind of change that mindset and and kind of get us reset back to, you know, something more realistic. So the more the more these surveys start to read Parish, the more confident I feel that we're setting up nicely for a run into the end of the year.
Well, or does you know? Life is full surprises? Who would have thought we'd ever be looking at the Red Sox and Yankees battling for last place in the allis I hate to throw that out. You do have bragging rights over the Yikees this year at least, though, I think you still got about ten games up with the Yankees. If I were to summarize your outlook, I would say you're pretty bullish, kind of in the soft landing camp. The market set up for a nice year end rally. But what what worries you? You know, what's your main risk that you would be either surprised or not by. But we know what's sort of the surprise that would sort of turn your sentiment around.
China becomes Japan and goes through a last decade, right, So, China went through a different sort of pandemic experience. Most of the developed world went through this sort of longer than we expected, but locked down, reopening process, a lot of stimulus, and we're able to sort of go through a very very much of a v shape recovery. And China just hasn't experienced that, so you know, after three years of onig and off again, they're trying to reopen, never stimulated the consumer, and they're really you know, turning into a consumer driven economy. So it's not as though there's a big savings rate by the Chinese consumer. That's important. Their demographics are getting older. That's difficult. And what we haven't seen yet is the typical China state government stepping in is stimulating. We do with some things around the edges that that aren't really effective. But without them fixing some stimulus and driving their economy to get anywhere close to their five percent GDP goals, the global economy's not going to have the kind of recovery that we're anticipating. Right The reopening of China is going to drive demand for goods and services globally, and it just hasn't happened yet, So that would be the biggest thing. I don't think they have a lost decade, and I do think they get back to the normal patterns, but they've got a lot of things they have to deal with. Pilot debt, really bad real estate puldings all across the board, on again off again relationships with the United States, so we'll have to wait and see. That's probably you know, the closest to a black swan that kind of is out there, I think. Yeah, And then anything else that sort of significantly disrupts the supply of energy because the blind demand dynamics are really pretty tight right now. Right so Russia's pumping as much as they can and they're not sort of operating with Opek. But Opek wants to keep prices at are about, you know, one hundred bucks and here we are at eighty bucks. So if Opek really gets religion and decides to really crank it down, and we don't see an increase in the US supply, which we are, I mean, we're gradually pumping more every every week. We'll probably be at a record in the first quarter this year. But if something we're to disrupt that, you know, that'd be the second thing that would be out there, because that, you know, that hurts everybody.
I'm glad you brought up China. Is it surprising at all to you to watch all these credit issues in China? Country Garden, Evergrand All the developers are basically underwater on all these construction projects, very aggressive development projects. They were engaged in Is it surprising to you that that's not a bigger theme in the US and global markets right now? I mean, you know, not too long ago, any hint of weakness in China would really trigger some risk off mood in the US market. Is it surprising to you where have we sort of decoupled enough do all the deglobalization that's going on, that China is not as big of a catalyst as it once was.
Yeah, I would say, yes, I am surprised. I think that We've got a strong enough muscle memory for China to always step in and do something that helps drive their economy, and I think that's what we're counting on now. So I think they got sort of a mulligan for the pandemic for three years. It's like, okay, being hyper vigilant, not reopening that's really hurting everybody. At the same time, we realized how fragile our supply chains were, as did everyone else, and started finding other places to get supplies from. So they're losing that, but they're still in the middle of this sort of generational change from bringing folks from farms into cities, and they overdid what they built, right, So that's where their real estate problems got into Imagine moving over an eight year period, six hundred million people into a city the size of Boston that you just built a month ago, and I'm finding them all jobs and then shutting the economy down but not sending them checks. Right, So that's kind of the difference when we think about what they're going through. I think the world is waiting for that announcement. They're waiting for China to say, oh, and we're going to do this, and we're going to do this because that's just what we're used to. If this is a different type of China and they're willing to say, you know, we don't have a five percent GDP growth goal and we're not going to stimulate anymore. We are, and we try to do a workout of all this commercial real estate. That's a disaster. Yeah, I think that's a big dent. You can't imagine that the second largest economy in the world doesn't have an impact if they're going to go into a recession or have very slow growth over the next few years.
Art Hogan, chief market strategists at b Riley Wealth, aret, such an honor and a privilege to hear your thoughts. Can't let you go just yet. Art. We do have a tradition here on what goes up where we've got to get your craziest thing of the week. Hold on, let's start with you though.
Okay, mine is a Bloomberg. Sorry, that was I think very well read. The headline is Citadelvet's sixty nine thousand intern applicants to find the next math geniuses. So they have sixty nine thousand applications and guess how many people they actually accept per intern class two hundred it's so tiny twenty fourteen.
We easier to get into Harvard than it is to get into Citadel.
That was the craziest thing I saw. I mean, like you just stand no chance.
Yeah, there's got to be some AI involved there and stipping through all those opp.
Probably Apparently there was a story out earlier in the week that said that they make one hundred and twenty thousand dollars fly business class and stay and forced our hotels not bed right out of college.
Yeah, it does sound really nice.
That's pretty good. I right, Well, that's a good one built on a right How about you you seed anything crazy in the last week or so?
Craziest chart that continue to float around the street this past week and continues to bother me. A touch was that the total credit card debt was at a record high and no one ever put a denominator on it. Everyone's like, okay, alarm bells, it's a trillion dollars. And you know, we never say what the US debt is without saying to GDP, but it's okay to say consumers have this much step and not put a denominator on as compared to what their total savings are. And if you just use that, no one would ever read the story because it sounds so much better to say there's a trillion dollars in credit card debt. But oh, by the way, the alinguanc's art not even back to where they were in twenty nineteen, and as a percentage of total savings, they are completely average. So it's just it's the frustrating chart that comes out here. We call that a chart crime, and it was one of the chart crimes of the week.
Yeah, I mean that excess savings from the pandemic has really been the story for the last few years. It is sort of normalizing though, right, I mean, how big of a headwind is that do you think.
Well, I'll tell you this. So just to put some context around, if you went back for the last twenty five years and said, what's the per capita GDP per capita at personal savings rate, it's always similar about five percent, between five and five and a percent twenty five year average always has got to eighteen percent during the pandemic, So not only are you getting money, but there was nothing to gets fedded on. Right. There was virtually nothing you could do, so obviously that had to work down. And guess where it is now. It's five percent. So the fact that we're back to normal now. If we went from eighteen to three percent and credit card as a as a relationship to personal savings was some percentage that we haven't seen forever, then I'd be more concerned. But I think we're normalizing some post pandemic abnormalities and I think the personal savings rate is one of those. So as a headwind is think I would focus more on the fact that wages for the last two months have increased more than inflation, and it took until two months ago for that to happen, So that likely is the silver lighting and what could otherwise be a cloud there.
It all sort of reverts back to just that job market staying strong. It seems to me it's always the most important variable, right, you know, as long as we're seeing this unemployment claims, low rate of unemployment, solid growth every month. I mean, that seems to be the whole story these days when it comes to the economy.
Yeah, we as an Americans since World War Two, spend our income statement, not our balance sheet, right, so if we have a job, that's what we spend.
Right.
We don't think about necessarily value of our house, or we don't necessarily think about those are things we put into confidence, but we really do. I have a job, where could I get one if I needed one? And that still feels like a relatively high number. And you know, when I started the business, any think low five percent on employment was full employment. So we've ratchet that down to four percent, I guess now, and you know, to look at that, it's hard to predict some terrible things happening at three and a eight percent right now?
All right, good stuff, I'll give you my crazy thing. This is courtesy of the Independent Newspaper, the British newspaper. In the commodities market. If you will Vildana. I think this counts. The world record for the most expensive cheese has been broken. Wow, the most expensive cheese is Cabrales blue cheese from northern Spain. Well, let me tell you a little bit about this cheese. It's aged in a cave, wow, fourteen hundred meters for like eight months. It could be cow's milk or a mixture of cows, sheep and goat's milk. And they put it up in a cave at fourteen hundred meters pretty high up there, at a temperature of seven degrees celsius, and it needs to spend a minimum of eight months there, and then they bring it down and they auction it off. So you're now a game show contestant on our little game show here. The price is precise two point two kilogram wheel of Umbrellas blue cheese from northern Spain. Most expensive cheese ever sold. Guy who owns a restaurant, body, what do you suppose the price was for two point two.
Kilograms fifteen thousand dollars.
Fifteen thousand dollars, so that would be what about twelve Of course, this is the independence, so they give it in British pounds, so that's like twelve thousand, stuff like that.
Twelve thousand and one.
Ah, you're going one, you're one dollar over.
Yeah, because I was gonna say twenty thousand originally.
But yeah, thirty thousand pounds for this wheel of cheese.
It's worth it. I'm sure it's worth this cheese sounds wonderful.
I did not have this on my bingo card. Mic that was.
It's the same restaurant owner had bought the previous record holder for most expensive cheese. Sometimes I wonder if there's a little publicity stunt going on with some of these. Know, I've come to my restaurant, I've got the world's most expensive.
That's a pr stunt. It's a pretty cheesy one, Mike, I think, all.
Right, all right, gets the joke of the show. I guess we'll see that one comment down Fifth Avenue boat but still got me. Art Hogan from b Riley Wealth. Such a great time as always, Art, we appreciate it and hope we can talk to you again soon.
Sounds great, Thanks guys, Thank you.
Art.
What Goes Up will be back next week. Until then, you can find us on the Bloomberg Terminal website and app or wherever you get your podcasts. We'd love it if you took the time to rate and review the show on Apple Podcasts so more listeners can find us. And you can find us on Twitter, follow me at breag Anonymous. Wildna Hirich is at Bildona Hirich. You can also follow Bloomberg Podcasts at podcasts. What Goes Up is produced by Stacey Wong. Thanks for listening, See you next time.
