Okay.

Right, uh, so just a little background information there.

So in France, it's been, um, uh, lots of protests, student protests, apparently over the last few years.

Maybe it's extended even longer than that.

The French government, they have been, more and more of their budget has been going towards providing, like, social assistance programs, right? Think about their pension program, healthcare, and the such, and kind of under-investing, and actually relative to the size of their economy, reducing spending on education.

And the students, you know, they're kind of tired of not having heat during the wintertime, air-conditioning during the summertime, rats and cockroaches all over the place, and so they've actually taken to the streets, and you're seeing some protests.

Now, one of the issues, obviously, it's the deficit spending and perhaps the direction as far as what's being prioritized by the government.

How much further are they gonna push this, and what is gonna be the effect overall to this?

Did that offer any insight?

Yeah.

A lot of times these auctions- so when the government, when they are issuing debt, they do it through this auction process, and it's very predictable, right? It's on the calendar, and they try to not make many big changes to what's being auctioned and how much.

This week has been really interesting because of what they have been auctioning, which are those 10-year notes.

And actually, today, earlier, they also auctioned some 30-year government bonds.

So if you've been watching the markets, you know a lot of the volatility has been on the bond side of, uh, the asset allocation spectrum because we've seen those yields move higher.

Now, yields are moving higher because of the amount of debt that the government has, and it needs to be financed, and the amount of debt from some of these bigger what we call hyperscalers, the companies that are investing in the data centers.

Explain.

It's not from the benevolence of the butcher, the brewer, or the baker that we expect our dinner, but their regard to their own interest.

Yes.

So that is a famous quote from Adam Smith, who is known as like the godfather of economics.

It was written all the way back in 1776 in his book, An Inquiry into the Nature and Causes of the Wealth of Nations, sometimes just known as Wealth of Nations.

And what he was really trying to point out is that when you go into the marketplace, right, you're not going there begging.

You're not saying, oh, you know, out of the goodness of your heart, can you give me this? It's about you're giving them something of value, right? You're buying it.

And in these transactions, it might seem heartless, but in a weird way, what his entire book and a lot of economics is about is how it is that when people transact like that, As long as it's fair competition, it's fully informed, you actually get good outcomes almost regardless of the motivation behind the person who's doing the transaction.

And I really think that's something that deserves a little attention here today, Brian.

The insurance companies make money on it,

right? I mean, that's the reason why they sell it.

But we were very blessed to have two purebred Bichons that we got as puppies.

Because my wife had experience having a Bichon, she kind of knew the high risk associated with certain health outcomes.

And as a result, we got the pet insurance when they were puppies.

where it was pretty reasonable.

And one of them, she ended up with an autoimmune disorder, which was very interesting.

Brian.

... depending on whatever President Trump would say or what tariffs have been levied, but is that still the case where the war is just impacting the stock market so much?

A, a little bit less than what it used to.

It's actually seems as though [clears throat] we've been able to get a lot of oil through the Strait of Hormuz despite the war going on.

In fact, some of the analysis suggests that, uh, the tankers that are going through are able to get more crude oil through that strait than even before the war.

Now, the problem is the distillates, the refined products, and so obviously you see high gasoline prices, high diesel prices especially.

So that's really where I think the market is more sensitive to the flow of traffic through the strait because we're not really seeing the flow of the refined products.

Most people, right, they don't want crude oil on its own.

Can you describe what that is, and do you think that that's accurate or inaccurate?

But is that still the case where the war is just impacting the stock market so much?

A little bit less than what it used to.

It actually seems as though we've been able to get a lot of oil through the Strait of Hormuz despite the war going on.

In fact, some of the analysis suggests that the tankers that are going through are able to get more crude oil through that strait than even before the war.

Now, the problem is the distillates, the refined products.

And so obviously you see high gasoline prices, high diesel prices especially.

So that's really where I think the market is more sensitive to the flow of traffic through the strait because we're not really seeing the flow of the refined products.

Can you describe what that is and do you think that that's accurate or inaccurate?

So we had the unemployment tick a little bit higher, but did you think it was just right? Do you still think that there could be a strong jobs picture here when you look at this?

Yeah, thanks for having me.

I think that we do still have some positive indicators about where job growth is likely going to go over the rest of the year.

The ISM manufacturing employment index has been above 50 for about nine months in a row.

Thankfully, the employment subindex of that has also been positive.

We're seeing the ADP private sector payroll growth seeing positive low initial jobless claims.

So I think that really when I'm looking at the labor market as a whole, I can say that it's strong, even if it isn't strengthening.

Explain how so and what you expect for the next six months, or are you worried?

I'm just wondering, How are you thinking about this divergence between what we're seeing in the strength and the resilience of the economic data and consumer sentiment and inflation expectations right now?

Yeah, there's really that growing gap between what consumers are saying that they feel and what they're actually doing.

Now, in fairness, that S&P global PMI, I haven't seen that type of market reaction to that preliminary reading in a very long time because it is one of those things that, you know, next week it's going to be the first of the month.

And so as a result, we're going to start getting, obviously, the jobs number, the ISM manufacturing, and the following week, the ISM services.

The market oftentimes will move on those ISM numbers.

But I'm actually kind of glad that the market is responding to the S&P preliminary numbers because those have been a pretty good barometer of what to expect from growth going forward.

And it really is pointing towards strong growth, but unfortunately continued price pressure.

So can you break that down for us? What are you seeing here? I mean, are higher asset prices creating its own bifurcated economy for those who own stocks and those who are dealing with higher energy prices and borrowing costs?

So they're going to continuously do these from now on, and they're going to have some changes in the holding periods and the benefits and things like that, but...

Yeah.

So it seemed like with the first one, with the Tax Cuts and Jobs Act, it was almost like because it was expiring at the end of 2026, if you got in early, right, you got that deferral for a longer period of time.

Whereas if you waited until 2020 or 2021, that window to deferral.

defer was a lot shorter.

Right, exactly.

And that deferral, it is valuable.

And so you can defer it for five years, but can you sell these?

So what happens next? What do you think?

Yeah, I think that's contributing to the angst in the markets right now.

If we think about the story behind the expansion of market multiples, right? So like a price to earnings ratio.

A lot of it has been driven by the expansion in margins of businesses.

The fact that for every unit that they sell, whether it's a good or a service, they're able to have more accrue to shareholders on the bottom line.

So you have fat margins and act- also rapid growth.

Well, this weekend we got the story about possibly throttling back some of the development of these frontier models, so that draws into question about the growth rate that we can expect going forward.

... has been happening?

How much sway, I know it's a group decision, how much sway will the new Fed chair have, Kevin Warsh?

I think a little bit less than in the past, to be honest with you.

It just seems as though the presidents of the different districts.

So remember the structure of the committee.

You have seven people who are from the Board of Governors.

They all sit together in Washington, D.C.

I think that he has a real good feel about how they will vote and he can influence their decisions.

What could be what could help?

... what could happen, what could be, what could help?

help?A, a lot of it, I think, does stem from two things.

Number one, tariffs, the effect that that had on consumer good prices, uh, after the imposition of those.

We see that in the data.

It wasn't a huge effect, especially since, you know, about 70% of spending is on services, so it's not subject to tariffs.

But it does move the needle.

But then the number two is energy.

So logical.

What are you going to be watching?

Yeah, you set it up really well in terms of he's been playing his cards pretty close to the chest.

He maybe showed his hand just a little bit when he spoke at the end of August at Jackson Hole, Wyoming, where he basically was saying he wants to see inflation move towards the target fast enough.

And it's almost like it's not good enough for inflation to just kind of migrate there.

What we got with the most recent CPI, Consumer Price Index data, and Producer Price Index data as well, which came out on Thursday, is is a sign that maybe inflation is beginning to kind of plateau.

And if anything, if it is improving, it's not moving fast enough for their preferences.

So the market has been pricing in almost like a near 90% probability that they're going to hike in September.

All of these things matter, Brian.

And can you briefly talk about where the jobs numbers come from and who updates the previous month? Oh, yeah.

Yeah, great question, because there's two different surveys that are done.

So it's the Bureau of Labor Statistics and they send out a survey.

Well, technically, they work with people at the census to send out a survey to households.

Sixty thousand ish households receive a survey and they are asked to fill it out, go online, send it back in.

The response rate on that is probably close to about 60%.

So it's a pretty decent one, but it has actually declined over the years.

And the strong jobs report might reduce the urgency for the Fed rate cuts.

That covers a little bit more of a broad series when it comes to the markets.

It really does.

So the instant insights are supposed to be almost like kind of quick hit instant reaction after we've done lots of research on the topic about what does this specific thing mean? Whereas navigating the markets is really tying it all together as far as everything that we've seen, not just as far as jobs, the Fed and inflation, because that's the main focus of instant insight, because those are the.

biggest like market moving macroeconomic events.

But then it's about also what's going on with the fundamentals of the businesses that we can invest in.

So it's taking that perspective because markets isn't the economy, right? We invest, if you want to think about it in these terms, we invest in the S&P 500, not GDP, right? S&P versus GDP, they can be very different.

Now we look at the fundamentals, also taking stock of valuations.

So it was just constant fluctuation.

So why is it such a big deal in just simple terms of why the bond yields around the world are soaring?

I think that there's really two main reasons why those bond yields have gone up.

Number one, inflation concerns are still there, right? We know that inflation is high.

It's above the Fed's target.

It might be migrating towards their target, but not at a very rapid pace.

And so that's part of it.

And also, there's just a lot of issuance of bonds.

So if I'm 55, I have a 401k, a mortgage, some cash in the bank, and I'm planning to retire in 10 years, what should I be thinking about as I look at today's markets and kind of what you look at as you look out through that window?

So why is it such a big deal in just simple terms of why the bond yields around the world are soaring?

I think that there's really two main reasons why those bond yields have gone up.

Number one, inflation concerns are still there.

We know that inflation is high.

It's above the Fed's target.

It might be migrating towards their target, but not at a very rapid pace.

And so that's part of it.

So if I'm 55, I have a 401k, a mortgage, some cash in the bank, and I'm planning to retire in 10 years, what should I be thinking about as I look at today's markets and kind of what you look at as you look out through that window?

So why is it such a big deal in just simple terms of why the bond yields around the world are soaring?

I think that there's really two main reasons why those bond yields have gone up.

Number one, inflation concerns are still there, right? We know that inflation is high.

It's above the Fed's target.

It might be migrating towards their target, but not at a very rapid pace.

And so that's part of it.

And also, there's just a lot of issuance of bonds.

So if I'm 55, I have a 401k, a mortgage, some cash in the bank, and I'm planning to retire in 10 years, what should I be thinking about as I look at today's markets and kind of what you look at as you look out through that window?

Tell me about that, Brian.

Yeah.

Yeah, absolutely.

I think that, uh, really the message is inflation, it's better, but not great, but it might be good enough to keep the Fed on pause at least through the September meeting.

Of course, we'll have to wait and see what happens with the data after that.

But I think that really what this does is it sets up a situation where with some of the labor markets slowing, despite having a low unemployment rate, when it's, uh, going down because the labor force is shrinking, that's not a great thing.

So people will be able to point to that to say, "Maybe the labor market isn't quite as strong as we thought that it was." And then with inflation, as long as it's trending in the correct direction by the time they get to their September meeting, can say, "Well, let's just wait to see how things play out." Plus, I think that Kevin Warsh would be, uh, much more of an advocate for using a different tool to fight inflation than just adjusting the federal funds rate.

Do you think that's likely? Do you think he may actually do that, Brian?

Do we have an understanding of why the uptick is there?

Yeah, so when I dug into the details, that's part of the reason why the unemployment rate went down to 4.1%.

So on the face of it, that would look really good, but it was for a bad reason.

It's because the labor force is continuing to shrink, and it has been shrinking basically since the beginning of the year.

A lot of that has been driven by a change in the foreign-born population.

So when the Bureau of Labor Statistics, they do their household survey, and they ask, are you native-born, foreign-born, and they ask all sorts of other characteristics, and that's where we get the unemployment rate from.

A lot of the decline has been due to a reduction in the number of the foreign-born population in the labor force.

What functionally could happen to bring prices down besides a recession?

Do we have an understanding of why the uptick is there?

Yeah.

Uh, so when I dug into the details, then that's part of the reason why the unemployment rate went down to 4.1%.

So on the face of it, that would look really good, but it was for a bad reason.

It's because the labor force is continuing to shrink, and it has been shrinking basically since the beginning of the year.

A lot of that has been driven by a change in the foreign-born population.

So when the Bureau of Labor Statistics, they do their household survey, and they ask, "Are you native-born, foreign born?" And they ask all sorts of other characteristics, and that's where we get the unemployment rate from.

... besides a recession?

Manufacturing for now.

That's right.

Yeah, manufacturing has actually been making some decent gains over the last few months.

If we look at what happened last week, the Institute of Supply Management, they released their manufacturing index and the employment sub-index.

So they always have these different parts like prices, new orders.

The employment one, that had been in contraction territory.

Anything below 50 is saying kind of on net contraction.

So are we still fearing the Fed? What is the vibe with the new chair Warsh?

Do you think, um, the first move made sense, or do you think where we are now is the proper reaction?

I think that where we are now is probably the proper reaction.

The first move was probably just the shock associated with seeing a negative number with that headline, minus 23,000.

But it didn't really take all that long to figure out why it was a negative.

We had more than, you know, around 50,000 jobs lost at the local level, especially with education, probably related to seasonal factors with, uh, schools, summer schools.

Also, we do know that there are a number of municipalities that are under some budget constraints, and they have actually cut some of the headcount unfortunately.

Then you have the leisure and hospitality number.

When you look at, uh, fixed income as a part of the portfolio and maybe some of the uncertainties around what the Fed may do, the inflation picture and such, does that make it, uh, more attractive to look to things like investment grade at the moment given all the AI debt that's out there and some more attractive yields?

I do wanna get into some situations where responsibility extends beyond just the person directly involved in the accident.

Sure.

Uh, the, the other way, or some of the other ways, one would be v- what they call vicarious liability.

Again, that's a legal doctrine, but it just means that one party is gonna be held responsible for the unlawful or negligent actions of another.

And again, going back to negligence, but that's just, they failed to, um, do their duty of care, and, and they've acted unreasonably in some manner.

Um, usually what that takes is a, a special type of relationship, um, maybe a, a boss-employee type of a thing.

Um, if you're, um, I hate to do this, but let's say you're an Amazon driver, and, uh, you crash into somebody.

... defect- defective products or equipment, uh, play in determining responsibility?

Is this the peak for margins? Is this the peak for net interest income? How are you looking at, at these numbers?

Yeah, that is one of the risks, especially when we're looking at the banks, the different business models, the extent to which do they really get their money, th- make their money from lending to Main Street, or is it more the Wall Street? And it's really the Wall Street picture where I think that is much more cyclical, much more driven by what we saw with some of these blockbuster IPOs.

I'm still optimistic about not just the equity side with initial public offerings, but also debt issuance.

You know, there's tons of tax incentives for businesses of all sizes to invest in property, plant, and equipment.

That needs to be financed.

Is it going to be done through issuing bonds or taking out a loan from a bank or by issuing equity? And so, so far it seems like it's really been driven by the bigger companies, the bigger banks that more are focused on investment banking.

And I'm much more interested in some of the smaller banks, even super-regional banks, that it's a little bit more fee income and then also that net interest margin.

I'm looking at oil holding pretty firm above 80 right now, and I had a conversation earlier saying they expect it to be in triple digits in the near term if we don't get some sort of resolution.