Inflation Showdown: Can We Win The Battle?

Bret Kenwell 0:00
I would say that we’ve made a lot of progress on inflation. The last couple of months have been frustrating just given how stubborn that number that those reports have been services have been super sticky shelter has been tough. And we I think we knew that that was going to be a tough one to break that the this final yard or this final inch however you want to. However you want to think about inflation, the fight with inflation, this last yard if you want to go back to football terms at the goal line is going to be the toughest one to crack right and we’re seeing that right now coming into 2024 You know, core PCE and PCE is the preferred inflation gauge for for the Fed core PCE actually on an annualized basis got back down to the 2% target that they’re looking for.

James Connor 0:47
Hi, and welcome to Wealthion, I’m James Caan and before we get on with the interview, I want to remind you that we’ll be on has a virtual conference coming up on June the first, we have some amazing speakers including Raoul, Paul, Lynn, Eldon, and Rick Rule, and many more, all of which will help you prepare for your financial future. Once again, that’s on June the first you can find more information on Wealthion.com.

And now on with our interview, my guest today is Bret Kenwell. Bret is an investment in auctions, analysts a trading and investment platform eToro. Bret, thank you very much for joining us today. How are things in the great state of Michigan?

Unknown Speaker 1:29
Things are going great, James, thanks for having me.

James Connor 1:31
So you and I are not too far from one another. I’m about a four hour drive from in arbor. Are you a Michigan fan?

Bret Kenwell 1:38
Yeah, big Michigan fan. I grew up about 20 to 30 minutes outside of Ann Arbor and I live a few hours north of there now but yeah, still a big fan.

James Connor 1:46
So I’ve been meaning to go to a Michigan game for a long time now and I have yet to do it. I hope it’s going to happen this coming fall. I want to go in September, October when the weather’s still nice. And the chicken tickets aren’t too expensive. Maybe you can help me out with some tickets.

Speaker 1 2:01
Yeah, maybe we can. Maybe we can have a Wealthion eToro meetup.

James Connor 2:05
And yeah, that would be a great idea. And what about the Detroit Lions? So you had an amazing year last year? Are you a big lions fan?

Bret Kenwell 2:14
Yeah, big lions fan, big football fan in general. But yeah, for the first time in a long time, I finally felt like it was Detroit’s year for football. So it was it was between them and them and you have them it was a pretty fun, pretty fun fall.

James Connor 2:28
Yeah, I’m looking forward to this upcoming football season. So let’s get on and discuss the markets and maybe even before we discuss the markets eToro is a social investment company. What do you mean when you say social investment? Yeah,

Bret Kenwell 2:42
so eToro has a has a social feed, invest? embedded right in the right in the trading platform. So investors can if they choose to share what they’re trading, buying and selling, other investors can see what they’re doing. And it’s not meant so much to be necessarily something you just blindly copy. But maybe it gives you a nudge in a direction that other people are looking or gives you some inspiration, when you’re looking maybe you sold something recently, you have some profits you’d like to put back to work and you take a look at the feed and see where other people are putting their money to work. And you can follow certain investors, if you have similar styles, or you tend to invest in the same assets, you can follow other investors. So you can you know, keep pace with what they’re doing. And you know, maybe they uncover a couple of stones for you that you maybe wouldn’t have noticed before.

James Connor 3:31
So there’s a lot happening in the world right now. And one of the noticeable trends that’s happened here in recent days, was the comeback of roaring Kittie. I’m just curious, are a lot of your investors or traders, investing in GameStop? Or AMC? Yeah,

Bret Kenwell 3:51
we definitely saw an uptick in volume, especially on the options front. Around that event, earlier in the week, for sure. We definitely did some some pretty heavy volume in those areas. But you know, it was interesting to see the buys and then the cells sort of come flowing pretty quickly after it was it showed that I think our investors were more just focused on sort of a short term catalyst versus thinking that this was some kind of, you know, long term, big fundamental change when, when really that wasn’t the case. So and seeing it on the option side was interesting, too, because it showed that, you know, versus doing it in common stock, that our investors were focused on the risk aspect in which yes, the premiums for those options were inflated because the volatility was so high, but at the same time, you know, they know that their risk is limited when they when they do it through options, so it was a smarter way to play it if if they did want to be involved in of course, plenty of investors didn’t want to be involved and it’s not hard to see why but yeah, some some great moves there if traders are active enough and can capitalize on that sort of thing.

James Connor 5:00
And given that the markets making new highs every day or every other day, what other noticeable trends are you seeing from your investor base?

Bret Kenwell 5:08
You know, I think the most surprising thing to me was to see. So every quarter we do what we call, retail investor beat survey. We call it rip for short. But to see just how much investors were broadening out their investments from just the typical tack is usually such a heavy investment and especially in mega cap tech, your apples, your Nvidia’s Amazon’s those sort of names. And actually, when we did our ribs survey, we found that financial services so banks essentially were the most popular asset among buyers, which was that really surprised me I’m banks tend to be fairly boring and much less exciting than your Amazon’s, and you’re in videos and whatnot. But yeah, we’ve seen a lot of action around AI, we’ve seen a lot of action and chips and, and banks, as I mentioned, but just in general a broadening out in in their investments, which seems to kind of fit the narrative we’re seeing in the market. It’s no longer just tech driving things. It’s a number of sectors really power in the markets right now.

James Connor 6:15
So your firmware has been bullish for quite some time now. And I want to get your thoughts on the economy and the market going forward and what your thoughts are. So why don’t we just start with the US economy. We recently saw a weak q1 GDP number came in at 1.6% versus consensus of 2.4. Prior to that number, it has been very strong, and we were still seeing some very strong CPI PPI numbers. We’ve also had 25 consecutive quarters of the unemployment number coming in below 4%. Like I said earlier, the stock market continues to make new highs every day or every other day. So things look pretty good. What’s your take on the US economy here? You

Bret Kenwell 6:57
know, I think the economy continues to do pretty well. Um, we had the q4 print was incredibly strong. The q3 print was incredibly strong. q4 print was also strong. The Cupra q1 print for GDP was below expectations. I will say it will be subject to multiple revisions. So we could always see that number come back up, but it’s been kind of a an interesting start to 2024. I know we’re going to jump into some inflation report some inflation talk here in a few minutes. But you know, inflation came in pretty hot the first few months, GDP came in kind of soft. And now we’re starting to see some other little signs of softness in labor in the labor market and the consumer, whether that’s through the monthly jobs report, weekly jobless claims on retail sales. So we’re starting to see a little bit of softness, but overall, I think the economy continues to do pretty well. And it’s hard to make too much out of, you know, a few weeks worth of data points really need to see, you know, a few months of data points to draw a larger conclusion. But overall, I think the economy continues to do pretty well. And that’s reflected, I think, in the stock market as well.

James Connor 8:06
So let’s talk about inflation. The recent CPI number came in at 3.4%. That was in line with expectations, still seems very strong to me, core came in at 3.6%. Shelter was 5.5% year over year. That’s I think that’s extremely high. And these even though these numbers were in line with expectations, it still looks like it’s running very hot and the Fed and the government will lead us to believe Oh, no, we got inflation under control. Don’t worry about anything. What are your thoughts on inflation there?

Bret Kenwell 8:38
You know, I would say that we’ve made a lot of progress on inflation. The last couple of months have been frustrating, just given how stubborn that number that those reports have been services have been super sticky. Shelter has been tough. And we I think we knew that that was going to be a tough one to break that the this final yard or this final inch, however you want to however you want to think about inflation, the fight with inflation, this last yard, if you want to go back to football terms at the goal line is going to be the toughest one to crack, right. And we’re seeing that right now coming into 2024 You know, core PCE and PCE is the preferred inflation gauge for for the Fed core PCE, actually, on an annualized basis got back down to the 2% target that they were looking for. That was coming into the year. And obviously since then we’ve seen We’ve seen inflation pick back up. So I think right now everyone’s kind of this, maybe he’s getting a little doubtful, but everyone’s still waiting to see if this is more of a is this a three to four month, you know, bump the short term bump in the road to lower inflation or have we kind of has the Fed done what they can do with where they have rates now in terms of their fight with inflation, and now we’ve kind of plateaued. This latest inflation report was a positive development. It was relatively tame compared to the last few reports. That’s You mentioned core core CPI came in at 3.6. But it was also the lowest reading in three years. So there are some silver linings with inflation. But and I know the reaction to that has been largely positive on the assumption that now the Fed has the leeway to lower interest rates later this year. But, and I am optimistic. I’m bullish in general. And I do view that the I do view the progress and inflation as positive. But I would certainly argue the other side and say, it’s positive, but we’re not out of the woods yet.

James Connor 10:32
Yeah, I would agree with 100%. It’s amazing, though, that we look at 3.6% inflation and think everything’s great. Now, I want to I know you’re based in Michigan. I’m curious, what are you paying for a gallon of gas?

Bret Kenwell 10:47
Gas? It seems to fluctuate quite a bit more than I would have thought it would fluctuate I think recently was about $3 a gallon, though.

James Connor 10:56
$3 a gallon. Now, that’s pretty damn cheap. Oh, my God, I’m paying in Toronto, we’re paying about six $6 a gallon. I kid you not

Bret Kenwell 11:06
that. That sounds about like California prices? Yeah.

James Connor 11:09
Is that what it goes for? In California? I

Bret Kenwell 11:13
think it’s like 575 at the moment. But yeah, it’s it’s pretty high compared to other parts of the country.

James Connor 11:18
Maybe I’m gonna have to start driving in Michigan and get my gas. So okay, so that’s a good overview of what’s happening with inflation. Now, let’s talk about interest rates. Interest rates have been on hold since July of 2023. Hard to believe that’s coming up to a year. But we’re, we still have the highest Fed funds rate in 23 years. And the move that we’ve seen in the markets, it’s all predicated on cuts in interest rates. And we started the year thinking we’re gonna get six interest rate cuts, then then went down to three, then to some are saying until we’re only going to see one cut this year. And some analysts are predicting we’re going to see no cuts this year. What’s your take? Yeah,

Bret Kenwell 12:03
I think it’s a it’s really interesting, especially if you look at it from a market psychology standpoint, with with investors, and if you want to call it the crowd, you know, go back, you know, maybe eight months ago, six, eight months ago, and the Fed came out and said, hey, you know, we’re going to pause our we’re pausing here on rates, and we think it’d be appropriate in the next year to lower rates. And investors took that opportunity to essentially front run the idea that rate cuts are coming in then like you mentioned, they priced in six cuts for 2024. And it’s it’s proven to be like a giant pendulum swinging back and forth. We went from six cuts to we got a few hot inflation reports, those expectations dial all the way down to and while the bond market never priced it in the rhetoric became, Hey, is it time for another rate hike? So and now, you know, of course, mellowed out a bit, and we’re back in the two cup camp, I believe is the new consensus. So I don’t know I think two cuts, one to two seems appropriate. Unfortunately, it is it is kind of a data dependent situations as the Fed always likes to say. But if we keep going, I think the expectation is that services inflation will soften in the back half of the year, especially as it relates to corps so that if we get that I do think two cuts is appropriate. And it will it will probably get the chatter going for three cuts only because the the Feds dotplot, both in December and in March was for for three cuts. So I think if we get a cut to a consensus of two cuts, it’d be reasonable for at least the chatter to start talking about three cuts.

James Connor 13:42
So let’s talk about the US consumer now and the health of the consumer. I recently had a discussion with Kyla Scanlon. She’s a young economist, and she coined a term called vibe session. Okay? And why that what she means is, even though the economy is doing very good, people aren’t feeling that good. And I get when I read a lot of the commentary when I like watch a lot of YouTube, that’s the sense I get right, the US consumer is not feeling good. And we recently saw numbers out of Starbucks, their global same store sales all across the US were down significantly, China, they were down significantly, and those two markets represent 60% of their revenues. But what’s your feeling about the US consumer here? How do you think they feel?

Bret Kenwell 14:33
You know, I think the consumer feels a little bit tired. And depending on where they fall in the income bracket, they could be pretty resilient, or they could be very, very tired. Inflation has put the pinch on I know we usually focus on inflation from the perspective of the Fed and what they’re going to do and interest rates but from a consumer standpoint, you know, inflation really pinches them by the time they pay their rent their health care there. Um, childcare, groceries, gas bills, I mean, they might not have anything left over at the end of the month, and they might even be in negative territory. You know, that’s a really draining feeling on somebody, emotionally and mentally. And it does drive this sense of, of being kind of fed up with it. And I think when you look at some of you mentioned, Starbucks, and McDonald’s and few other companies, some of those, I think, can be company specific issues, but largely, I think, we are seeing the especially the lower end of the consumer feeling tapped out. And it’s just one more reason I think, why we need to see, we need to see more progress on inflation, if not, for the interest rates, that that’s kind of, I don’t wanna say secondary, but speaking largely for just the population in general, I think we need to see progress on inflation so that the consumer ends up being okay. You know, when we look at some of the recent data, if we, if we zoom out for the year to date, so the consumer has been pretty resilient. You mentioned labor market, the top of the show has been very strong unemployment rate has stayed below 4%. But when you look at some of the recent data, whether that’s you know, the recent retail sales print was below expectations, the prior month was revised lower consumer sentiment, the latest reading from consumer sentiment was weak jobs report missed expectations. So we’re starting to sort of see that tiredness from the consumer manifests itself in the actual hard data of the economy. And while some softness is okay, we do kind of need some of that to soften. But it’s, it’s a delicate balance, you know, we need that softness for inflation to come down. But at the same time, we don’t want it to get so weak that it starts to cause economic strain. And that’s, I think, sort of the fear in the back of investor’s mind, and it should be the fear and back of investor’s mind. Yes,

James Connor 16:48
and I think the commentary out of both Starbucks and McDonald’s was that the consumer is not spending like they used to. And so that’s really, I think that’s really interesting to see. We’ve also seen weak numbers coming out of lvhn, and also the parent company of Gucci. So even at the high end, the consumer globally, is not spending the money that they were just a year ago, inflation

Bret Kenwell 17:11
has a way of chiseling you down both in your in your wallet and, and mentally, you know, a certain point you get fed up by it when you go to the pump your gas, or you go into the grocery store and maybe put some stuff back on the shelf, because the prices are just too high. So yeah, it’s definitely had a negative impact. But the The hope is that we can come out on the other side of this without sacrificing too much of the labor market and too much of the economy.

James Connor 17:36
Yeah, you want to talk about high prices come to Canada, or payroll taxes, or 50%. I am not lying to you. And then like I told you before, we’re paying $6 A gallon for gas. I don’t even want to tell you what, I’m spending a week on groceries now. It’s just insane. We’re gonna have to get a part time job as a Uber driver. Yeah,

Bret Kenwell 17:57
yeah. It’s, it’s been a tough stretch. But it’s it’s hard to believe where inflation was go back a couple of years to see some of those 8% 9% prints. It was those were very startling. So it’s we’ve had progress, but I think people are getting their patience is starting to run out on how long this how long, we’re going to have to wait to get back to a, you know, a normal level of inflation.

James Connor 18:21
So let’s put all of these elements together. Okay, we talked about the economy and the inflation, interest rate expectations. And let’s talk about the stock market, okay. The s&p, the NASDAQ, the Dow, the Dow just hit 40,000. all time record. s&p and the Nasdaq aren’t too far behind. But it’s like the markets going up every day and making new records. And it once again, this is all predicated on lower interest rates. What’s your feeling on the on the US stock market here? And do they continue to go higher as we go into year end? You know,

Bret Kenwell 18:55
I would make two main points and the first one being that the stock market is not the economy. And the second being that interest rates matter, but they’re not the only thing that matters and and I think it’s Case in point by the fact that we came into the year very strong, the s&p came into 2024 with a lot of momentum, but we also came in with the expectation of six rate cuts and in that first quarter, we saw those expectations drop really considerably as inflation kept coming in hot but the s&p continued to chug higher and higher and higher essentially into early you know into the end of end of the quarter. And when we came into April we had this pullback it was a five to 6% pullback and you know I think that really helped reset sentiment. I think a lot of people were getting a little too comfortable or used to just the I would say the easy gains but the easy money. We like he said we’re in such a strong uptrend and the s&p rallied for five straight months. It was up almost 30% from the October low. I think I’ve even put him Back to Back quarterly gains of 10%, which is really astounding amount of strength in such a short span. And so a reset made sense, it made sense to get a, you know, a five to 6%, pullback, even a 10% correction, I think wouldn’t have been an unhealthy development. So I think what we have here is a strong market and, and we see that strength even outside of the US, we see it in, in pockets of Europe, we see it in Japan. So, you know, global equities, as a whole had been doing really well. And I do expect that to continue in the, in the second half of the year. And, and the reason why is, you know, the market tends to be forward looking. So, you know, investor, investors might be, you know, chomping at the bit to get, you know, the latest inflation report or, you know, the PCE report in a couple of weeks. But in reality, the market is a discounting mechanism. And it looks ahead, you know, six months, nine months, 12 months, and when we look out we we see earnings as earnings in the US, or specifically with the s&p are expected to not only hold up but actually accelerate in the next over the next five quarters or so, you know, even q2 and q3 are expected to go to eight to 9% growth and q4 and the next several quarters beyond are expected to accelerate to a double digit growth. So I think, you know, the market sees earnings growth, it sees lower interest rates on the horizon, whether that’s two cuts in 2024 or less, or maybe one more, whatever, somewhere around two. And it sees cuts, you know, in 2025, as well. So there are positives on the horizon. It can be easy to get hung up in the day to day, but the bigger picture still remains pretty constructive, in my opinion.

James Connor 21:37
So just to summarize, you are bullish on the US economy, you’re bullish on the US stock market. Yeah,

Bret Kenwell 21:43
I’m cautiously bullish, bullish on on both fronts. In April, our tagline became, we’re optimistic but realistic, so realistic, in the sense, we’ve gotten very far very fast. And that some maybe some sideways price action or lower price action would be reasonable, but optimistic in the back half of the year and 12 months out.

James Connor 22:06
You’re sounding like a politician now.

Bret Kenwell 22:11
I try not to

James Connor 22:13
Okay, so one of the things that’s interesting about eToro is you cover both gold and Bitcoin, why don’t you give us your views on both of those assets?

Bret Kenwell 22:25
Well, gold has been doing really well. And if you if you take a more zoomed out look on Bitcoin, it also has done really well. It’s kind of lost a little bit of its luster some of its shine might have gone to gold over the last few months. But Bitcoin in general continues to do well. I mean, when we zoom out and look at the year to date and the 12 year or 12 month performance, it could’ve done really, really well. But it needs it needs a new catalyst. And I think at the moment the idea of lower interest rates sometime this year is acting as that catalyst we saw Bitcoin rally believe is over 7% Yesterday alone, far outpacing the s&p and, and the NASDAQ. So I think it still looks good. To me, it seems like it’s just an sort of a holding pattern, kind of looking for that either enough rest to resume the uptrend or waiting for that next catalyst to go higher. And

James Connor 23:18
so right now it’s just con consolidating what would be the catalyst to take it higher.

Bret Kenwell 23:22
Well, Bitcoin just had its its halving event, which has every four years, and that’s typically a pretty pot, or at least historically has been a very positive catalyst. And I think we might have seen a little bit of, you know, investors are smart. So I think we think we’ve seen a little bit of a front run on that. Bitcoin rallied really hard into into the January ETF decision by the SEC. And then we saw a period where it cooled off, and then it broke back out again, and it ran to new highs into the having event. And now it’s cooled back off again. So to me, the trend still looks okay, especially when, like I said, when we zoom out to a larger time horizon, it still looks pretty constructive. But I don’t know when that next move comes higher, but consolidation is healthy. It does help provide the energy for the next move.

James Connor 24:09
And I’m sorry, what are your views on gold?

Bret Kenwell 24:13
We remain constructive on gold as well. It has moved it quite a bit. I believe it’s still outpacing the s&p on the year. I would have to check the numbers one more time. But we remain constructive on I don’t we don’t have we don’t do price targets. But we do remain positive on it.

James Connor 24:30
Well, that was a great discussion, Bret. And I want to thank you very much for spending time with us today. If someone would like to learn more about you and your various services, where can they go?

Bret Kenwell 24:39
Yeah, I’m on LinkedIn. And both are Twitter X, whichever you prefer to call it these days. And it’s just my name, Brett kenwa at either either side, and you publish on a regular basis. I do publish on a regular basis. Yeah, it will usually be my Twitter feed on the most consistently. Once again, thank you. Thanks so much for having me. James had a great Time. Well, I

James Connor 25:01
hope you enjoyed that discussion with Brent Ken Well, and it provides you with some insights on what to expect in the coming months. And to provide you with even more insights. We’ve organized the virtual conference coming up on June the first, we have some amazing speakers, including Raul, Paul Linnell, and Rick Rule and many more, all of which will help you navigate these uncertain times. Once again, that’s June the first and you can find more information on our website. Well failing.com I want to thank you very much for spending time with us today and I look forward to seeing you again soon.