The Data Detective

long bonds? And as always, will close out the episode with our tradition the Craziest Thing I Saw in Markets? This week, Sarah tell the people about our hotline. So we have this new hotline. It's the Bloomberg Podcast Hotline.

As you know, we always do our Craziest Thing I Ever Saw in Market segment at end of the show, but now you can become a part of it too, So call us, leave us a message, let us know what you saw that you thought was crazy, or even just ask us a question that numbers six four six three two four three for nine zero and we may even play a recording on the show. Sarah, before we introduce our guests. I I've got a crack pot theory I want to share with you. Youre ready, You're ready

for a crap I mean I'm ready for it. To be sure, I have several crack pots. I know you do, but let's hear the one for today. The one today is I think the way you make your name on Wall Street. I mean, sure, you can beat the market with your stock picks, you can be the best trader in the world, But the way I think you really make your name is if you have to be a good writer. I'll give you some example. Warren Buffett, I think is famous as much for his catchy writings in

his his letters to shareholders. Right Uh, Bill Gross, I don't know if you've ever read his month monthly commentary when he was still writing it, very very catchy stuff. Peter Lynch, the great fun manager of the eighties. Excellent writer. And this is all way of leading up to me saying one of my favorite writers here on, one of my favorite Wall Street writers is a guest on our

show today. He's a veteran of markets. Started out at Credit Swiss First Boston covering the auto industry as an analyst. Spent a few years with UH, the legendary hedge fund manager Steve Cohen. UH for about a decade he was the chief market strategist at converge X. But most excitingly, he started his own firm about two years ago called Data Trek Research. His name is Nick Cholas. Nick, welcome to the show, Thanks very much. And another good writer

on the show today. Good what a great one. Well you get your job is primarily writing, so and that is Emily Barrett from our Bonds and and f X team, And welcome to the show. Thanks for having me and Nick. I wanted to start with you. I we have all a stack of your research notes from the past month or so. We're gonna get into them a little bit, but I wanted to start this kind of high level

of sort of how you're thinking about the market these days. UM, I get the sense from some of your recent reports that you're I don't want to say barish, but cautious about the equity market right now. Is that is that safe? That's very fair. You know, we were positive on markets through the first part of the year and saw declining

rates and fairly stable earnings. Is a good backdrop for SMP performance and it was the next This month and the next couple of months will be a lot tougher though, And it's both the matter of seasonality and the basic trends going on now and more than anything, and I guess we'll talk about this is the fear of recession as being factored in by the yel curb and other things. So it's gonna be a choppier time, right, So what what's that? How could that manifest? Just more up and

down days like we saw in August? I mean, is that the sort of the new normal for the time being? It absolutely is. You know, we went a very very long stretch without seeing even one percent days on the SMP. I think we had a having a week stretch going in through July and early August where there were no one percent days, very unusual. So we'll see a lot more of those, a vix closer to normal, a lot more surn you know, if you look at the last couple of weeks with August, just expect as to continue

to September and October. And I'll add to that, we've seen eleven one percent days just this month. That's now more than December. So that just goes to show the swings that we have been seeing. Something that really stood out to me in your research, Nick, was that you look and track on Google trends the amount of searches for the word or the two words doubt Jones. Why is that, Why do you look for these searches and what are the implications for what that could potentially mean

for the economy and the markets. Yeah, I mean the issue with Dow Jones is people don't really google SMP five hundred when they want to see what the markets doing. When regular main street Americans want to see, hey, why is the market down today? They google Dow Jones. And it's a wonderful indicator of how much attention the public is paying on the volatility in the stock market. And we looked at that, and you can do this on your own Google trans just plug in Dow Jones, get

the data. And the troublesome thing is the volatility in August is now higher, showing higher Google trend searches for dal Jones than back in May when we had the last bout of volatility. Isn't quite back to where it was in December when we had that huge puke point in the year, but definitely people are paying attention to this volatility, and that's worrisome because even if you don't own stock, you know that if your company's stock prices down,

your risk of layoff goes up. And going into holiday season, that's another kind of worrisome thing. So to me, it's a transmission mechanism between the volatility the stock market and consumer spending. When these people see people paying attention to stock market volatility, you have to start worrying about consumer spending going into the fourth quarter. So the searches for dal jones recently were even higher than May, and and

was that almost as high as December. I wonder if the clustering of them so close together, you know, is is also worrisome. Um. You know, it's one thing to have one sort of a correction in a year, but to have have a couple back to back to back like this, Uh does that sort of sending on a sign going forward? It does, because if you look at the data from December of last year and then January

of this year, interest in Dow Jones just plummeted. Once the market began to recover, people said, okay, things are fine. If you do see another couple of months of volatility and still elevated Google searches. To my mind, it's a worrisome sign going into holiday because people might rightly think, Okay, if the stock markets volitgi and perhaps my jobs at risk and we gotta start spending a little bit less money.

I've got to say, you inspired me, and I looked up on Google trends searches for recession too, and I found that actually this month we're on pace to see the most Google Trends searches for recession since all the way back in on nine, which I thought was astounding. Did this does Let's go back to the discussion of talking yourself into a recession. People get worried, people talk themselves into being scared and then not going out and

spending potentially. Yeah, that is definitely the narrative. I'll tell you that I've never actually seen it work, and I mean I covered the autos in the nineties, so pickltality

was a major issue. I mean, you know, sort of to cut to the chase about this recession conversation, the yield curve is spooking everybody, and I guess we'll talk more about that, But to my mind, it's not the most important indicator for a future recession, and that the real important indicator is gasoline prices and oil prices even though we've never had a recession without an inverted y occur First, we haven't had a recession without oil prices doubling in a year since back in the ninety three.

So in order to see a recession, and this is a more logical conduit for me, in order to see a recession of believing recession, I think you've got to see gas prices spike, and they obviously haven't. So if we see Google searches for cheap gas, and then I'll look out. Believe it or not, we do that. We do look at that cheap gas, coupons, ammunition and can goods. And it's funny, prepping has actually declined in popularity in the last two years. Oh, you've been tracking that. We

track everything. That's great. Well. Emily as Nick said that the yield curve has a lot of people spooked avid listeners to this podcast. No, we've sort of beaten that topic to death. But um, you know, especially low long end yields. Uh this week, uh ten year yielded a little more than one and a half percent. I think Nick. According to one year reports, it's only been something like forty days in the past since the sixties that we've seen a lower yield than this. I mean, it's crazy.

And Emily, you've been writing about UM and reporting on this issue of the Treasury actually looking at long ultra long bonds now, so either fifty year or hundred year UH maturity treasuries. Tell us about that reporting is it? Does this sound like something that could possibly happen? Well, look, it would make a lot of sense for the Treasury to try and lock in record low funding for you know, a fifty or a hundred year bond at this point.

And surely, I mean some people have said, look, everybody's doing it, why wouldn't the US do it as well? Right? But I think that there are I mean, first of all, this is the second time this administration that this idea has been floated. So it was floated back in and at that point tea back, which are kind of the whispers to the Treasury about what the market wants and what the market can take. UM was very cool on the idea, and they don't seem to have really changed

their tone that much at this point. Although it's hard to say until we see them actually gather and comment on it. Um. But you know we've done some of my colleagues have done some fantastic reporting on this. Lea's Kevin McCormick, um, Alex Harris as well as written about this.

It's um. You know what we need to see is despite the fact that there is this global Hunger Federation and for yield wherever it shows up, you just still find that people are saying, well, we don't need to disrupt kind of the regular and reliable performance of Treasury issuance. We don't want to see the Treasury doing something that is kind of opportunistic um to try and hit a low yield at this point in time that might end

up being disruptive for the rest of the market. Well, you know, I can only imagine uh, groups of pension fund managers and insurance companies, you know, hiring a marching band ago performed at Stephen Nutchem's house to say we want the right I mean, so what what would be the downside? Why? Why would the Treasury not necessarily want to provide these securities I mean and correct me if

I'm wrong. Wouldn't wouldn't you assume the pensions and the and the insurance companies would be would be all over an ultra law. I mean you would to a certain extent because their buy and hold investors, they want to match their liabilities. They want to make sure that they have enough money to pay out when people retire. And obviously PIMCO did a great piece not so long ago about that being a driver of negative yields globally. Right, this insane demand the Treasury wants to I mean, look,

you can't really say that. There was a great interview by by one of our colleagues and in d C Sila who actually spoke to munition and uh and you know, they say they're seriously considering this, and but it's clear that the Treasury wants to keep raising this as an issue. Right. This is there's it's compelling um for investors in it. You know, it seems like it would be a great match.

It seems like you would see global investors want to pour and global investors don't tend to be huge participants and sort of uh US long duration you know that they're kind of a portion of the buyers, but they also have to satisfy asset managers here in the US.

Which is a sort of a compelling market as well, and so you know why it might be great for buying hold investors, it's just difficult to always rely on you know, for instance, they may have their funding levels sorted out at this point in time, but they're not later on. There's this cyclicality element that might sort of disturb demand and make it less different. And the problem is if there isn't demand sufficient demand for this, it

ends up on dealer balance sheets. Dealer balance sheets don't have a lot of room on them at the moment. And it also means that you know, sort of costs across the curve could rise for taxpayers. So you know that's one thing. I mean, where yet to see We're doing some reporting to time and see what what global investors really think about this um, you know, so we'll see what happens neck you buying Well obviously personally, no, it is an interesting question because opportunistically it does make

it kind of sense. But you know, the dollars reserve currency for a reason. It's because this system is extremely stable and if you look at the folks that have done hundred year bonds, not exactly a great set of cops. Well, I have to ask. You mentioned the dollar, and I want to bring it to actually dollar price action that we have seen. And I feel like we discussed this every single week because it seems like everyone is or many people are always calling to find a bump in

the dollar rally. But yet again this week you see the dollar rallying, the Bloomberg Dollar Spot Index touching the hyacinth. Do you see this relentless dollar rally just continuing from here? Yes? The short answer is yes, there's no reason why it shouldn't. If the economies of the world are slowing down and you're looking for risk free assets or a more stable place to invest, the U S is it, The dollar

is it? And the reserve currency status at lea seems rock solid and there's no viable competitor for the next ten years at least, So yes, no reason why not. N I wanted to run through a few of some of the factulids from some of your recent research because some some really fascinating stuff and I love the way you sort of look at uh data points that the

rest of us, the rest of us have missed. The one I'm really fascinated with is you look at the proportion of households in the country that are one person households, and how it affects then the average home size being built. Walk us through this research and sort of how you apply what you found out in these stats to investment ideas. Yeah, so this is a very long term kind of analysis,

and it basically those like this. The beginning anything sixties, the average household America had roughly three point three people according to the Census, and the average household size was roughly seventeen hundred square feet a little bit less. And over the last fifty sixty years, the number of people per household has declined from three point three to two point five, the biggest single factor being people who live alone. It used to be thirteen percent back in the sixties.

Now it's well over twenty and you're more likely to walk into a house in Americans see one person than four people, which is sort of the traditional nuclear family versus the person living alone. At the same time, the size of houses has increased from seventeen hundred square feet to twenty seven hundred square feet at the peak in two thousand fifteen, And to me, it's like the American

consumption story. Bigger houses, lower household densities, and since people living together tend to share assets, the less sharing, the more consumption we need. So it's been a huge tail went for the American consumer in the American economy for the last fifty sixty years, basically the entire post World

War two expansion. But now it's beginning to change because land prices have gotten so high that new houses are now actually getting smaller again, and they typically only gets smaller in recessions as home builders shift to smaller homes. But if you think about the aging the population, this propensity to live alone, and a bunch of other factors, to me, it's kind of a cautionary tale about what the American economy can grow at over the next ten twenty thirty years if we no longer have this tail

wind of fewer people in bigger houses. Right, And that's a trend that you think should keep going for a while, is homes, you know, fewer, fewer people in the household. If you look at populations in Europe and Japan, for example, there are a couple of years of us in terms of average age of a citizen, they're already seeing higher levels in Japan. I think a thirty five percent of households or one person households, and it's about I want

to say, thirty five in Europe, both trending higher. So we're a little bit behind, but seems like we're going to catch up if for another reason than the average mortality of a man is five years less than every mortality of woman. Something I find really interesting to that point, though, is that this year we've seen home builder stocks really just take off. I mean, you look at the SMP home Building Index, It's up something like this year, and yes, a large part of that is due to falling interest

rates as well. Would you say that people who are really buying into this story or maybe missing out on a big part of the picture now, because I think the you know, you have to look at what the fundamentals are, and for home bowlders, it's interest rates, and that's totally fine. And that group got creamed over the past couple of years, so it should have had a

bounce back. Look, there still will always be a home building industry, and I think that industry has done a good job more than anything of managing their cost structures and managing their buying of land to be sustainably profitable because they obviously got destroyed during the crisis. And so the number one thing that that's those companies have to do to improve their valuations, which are so quite low,

is proved profitability through a downturn. And they're doing a very good job of managing cost structures and building plans and growth plans so that when the next recession comes, they don't have to, um, you know, go to banks or go to the credit markets. They can stell be self sustaining and over time that I'll earn a higher valuation as a cyclical as analyst, that really resonates with me. That's how you earn a higher valuation over the next ten, fifteen,

twenty years. Yea, Emily. It all gets back to the interest rates, doesn't it. And absolutely when did you refinance? I wish, I wish I had just done this. I know it's getting temping again. So you you talked to UH fixed income investors all day? Um, what is the mood out there? Are people coming around to the idea that rates are low forever? Now? I mean, the whole market seemed to be on the wrong foot when the

year began. Everyone was expecting the Fed to hike and rates to be you know, ten year yield to be above three percent. Maybe what's sort of the temperature on the street now. I mean, I'm kind of really interested. We always see this very different sort of glass off empty, glass of full full attitude between equities and fixed income investors.

And I have to say a lot of the people I speak to are very down in the mouth about what's happening at the moment in terms of the prospect of high yields, of volatility, like volatility is obviously coming back in the market, but they just don't see that much opportunity for yields to lift from where they are now. And so there's been more and more of that sort of drumbeat of well, how low can it go? You keep asking this question. It keeps breaking through every single

barrier that people have been talking about. But the interesting thing about this is, you know, now we've got the FED cutting rates again, you would think people would be emboldened, you know, heading out into Okay, we've got some yielding stuff out there, we've got some emerging markets, and I'm really interested to hear so many people saying, yeah, it's close to the end of the cycle, and it's been close to the end of cycle for the last it's it is really hard I think for a lot of

investors out of bits and a where to step next? Nick, what's your view? Obviously it's very difficult to time the markets. And as Emily said, many people are looking at this saying, well, it has to come to an end sometime soon. We're at the end of the cycle. Do you believe that? Well, the way I look at it is just you know. So I'll give you an example. Look at what the

ten year bond has done for the last year. As of last week, it was about three teaen point three percent after inflation over the last since n the treasury, then your treasury has returned two after inflation on average through that time frame, and the sanentiviation of those returns is roughly nine points. So we are well above one senor viation in terms of trailing one year returns and that inflation and typically, and if you go back and look at the history, you don't make much more money

than that over the next year. So if you're buying treasuries here statistically historically says you're not going to make a whole lot more going forward. And there have been rafts of people that have died on the hill of calling the you know, the top and the treasury markets. I'm not trying to do that, but just statistically speaking, if you own long bonds here, history says you are not going to make a whole lot more for the

next twelve months. You might not lose very much. But this has been a dot com size rally in treasuries, and you have to sort of put that in perspective, and and and and really respect the fact that if you're hanging on here, your best case scenario is flat, right, especially when you look at money market funds are practically yielding more than the thirty year right now, It's like, why wouldn't you hang out in cash basically and see what happens I guess or dumbbell it and say the

SMP deals more than the right right and and by the way, dividends never go negative, right right? Good. I wanted to ask you Nick Lasts as a segue into our craziest thing I ever saw on markets. Earlier on in the show, you said that you guys pretty much track everything. What would be the craziest thing that you guys say that you track? Well, we do a quarterly thing we call off the Great Economic Indicators, where we

try to go as far afield as possible. And I'd say that two or three that sort of get the most attention. One is our Bacon Cheeseburger Index, which looks at the price through the CPI data of how much it costs to make the bacon cheeseburger, and it's actually been a kind of a reliable leading indicator of where inflation goes, and it does actually point to some deflation

coming up, so does support that basic narrative. Um. The other one is pickup truck sales large pickup trucks, and those are bought by mostly small businesses and some individuals and heavily reliant on gasolene prices. But when you see that start to roll over, you know that there's some worry among small businesses about capital investments, and thankfully, so far small you know, large pickup truck sales have been

pretty good. So you know, one of those things that tells us we could talk ourselves into our recession, as we talked about earlier, but the actual data doesn't support that we're about to roll over, you know, into the next recession. Well, I think that brings us to our traditional segment. The craziest thing I saw in markets this week. Unfortunately, Emily had to run. She's got a hot scoop she's working on, So stand by your terminal to find out

what that is. But Sarah, let's start with you. I trust that you have surely seen something crazy this week. I'll try to make it crazy enough for both me and Emily, and I do think it is pretty crazy. So it went viral in certain areas of the Internet. But this week there was a Steve Jobs look alike found in Egypt and someone took a picture of him.

They posted it on the Internet, and they put it next to a picture of Steve Jobs himself from back in the glory days, and they actually look very much alike. And people are really spewing conspiracy theories saying, oh my gosh, is Steve Jobs back? Is he alive? Now? Obvious as all conspiracy theories on the internet. Um, but if you google it, you look it up, you will certainly find some of them, and they're very interesting. That is that

is my favorite place for conspiracy theories the Internet. Yeah, I'm'm surprised Apple didn' rise like five that then they're actually up this week now. I mean we could say that it's correlated. All right, Dick, that's toff the top, you guys, can you top that one for the craziest thing you saw on markets this week? I did see a guy that looked like Elvis in Cairo about a decade ago. Well, a lot of people are joking around because supposedly in the back of the photo there was

someone that looks like Elvis. And now they're saying, Oh, they're in cahoots, They're in this together in Egypt, Steve Jobs and Elvis. Anything's possible. No, my my weirdest thing is prosaic, But I really I think it merits it.

This rally and treasuries is something absolutely historic, like we are going to look back on this period and either say it was literally the beginning of the end because rates are all going to zero and this is when the world realized it, or we're gonna look back in a couple of years and say, what the hell were we thinking? I I think that's a safe safe only two extremes nowhere in the middle. No, they're not staying here, I think. And we did get a call into the hotline.

I believe from our pal lup Kawa on the Cross Asset team, Let's hear what he had to say. We we all know that Jerome Powell, he's he faces a lot of critics both punching up and punching down when it comes to the job he's doing at the FED. I might interest you to know that he's not the

only person in his household that feels this way. His wife is actually the chair of the Chevy Chase Village and right now is The Washington Post reports there's a very, very fierce debate over the dog park there, and apparently Alyssa Leonard, which is the name of Powell's wife, is just getting it from all sides, from neighbors who are on the adjacent to the park and are just seeing

that the dogs are there too early barking. They're having meeting after meeting over it, and there's really no solution of this problem that fits all side. So you know, when the Powells are sitting around the dinner table, they've got a lot of complaints, uh, pretty much coming at them from all sides on how they're doing their jobs. This is a couple that has to have skin that's right that's right. Jay pals like you wouldn't believe what Trump said to me today, and she's like you wouldn't

believe what happened at the dog park. As a frequenter of dog parks, I I will say there's there can be a lot of drama there, maybe because my dog's at Jark and he's always picking fights, but there there's certainly a lot of trauma. Maybe Bill Dudley has a point of view on the dog park and he'll be very vocal about it. Yes, that's right. No one brought up Bill Dudley basically saying the Fed should try to stop President Trump and getting reed. That is a crazy

thing for the ages, I think. Let me just give you two of the submissions of her Twitter for the craziest thing of the week. Uh one is uh this character Tweegy Sunday Sarah. He's a avid listener of the podcast. He says the Buys Chicken sandwich is the craziest thing he's seen. Like, I gotta agree, that's pretty crazy to hype over that thing. It is pretty unbelievable. I have to say. I I know many people who have gone out and bought both Popeye chicken sandwiches and Chick fil

A chicken sandwiches over the past weeks. They can actually do a taste test themselves. Next, probably got some kind of chicken sandwich. And I like the bacon cheese in indicator though it's more diverse than the big Mac indicator because you got you got your hot prices. Chicken is a huge issue. The average American eats a chicken every two weeks. I think about that. So think about how many chickens you know are slaughter for food in the

US every year. There's three, There's three Americans. Do the math. That's seven hundred million chickens a month. Usually, we talked about vegan meat on the show a lot of beyond meat lately, so we're really going the opposite direction this time. One more from Twitter Keian Salahida um and I hope I'll pronouncing that right. But he says it's a close tie between Trump calling Drome pal and enemy of the state and the SMP yield beating the thirty year yield.

And I that to your point, that is pretty crazy that the SMP dividend yield is is higher than the thirty year treasury yield. UM. So a good, good contribution there from Keian and I'll give you mine, Uh, Sarah, we we have to confess that both of our craziest things came from our friend, uh Bill Donna Hirich, whose girl stays up at night looking for crazy. I'm convinced. Yeah, we're gonna have to have her back on the show for just an all craziest thing we've seen in markets episode.

But she points out the story Tracy Alloway wrote, she found these holders of hundred year old Chinese debt uh that was defaulted upon. I think these were issued in like nineteen eleven, so before the founding of the Communist People's Republic of China. UM. Something like a trillion dollars worth of this debt was in the market. UM, and it's defaulted on. But there are holders of these old certificates who are lobbying the Trump White House to make

trying to pay up on this hundred year old von certificates. UM. I don't think I a lot of much luck, but they certainly had luck in getting into the craziest thing of the week. We'll bring it up in the next call, in the next talk. That'll be a point of contention. But With that said, so many crazy things this week. Nic Pole is thank you so much for joining the show, and of course we have to thank our very own Emily Barrett as well What Goes Out. We'll be back

next week. Until then, you can find us on the Bloomberg Terminal website and app, or wherever you get your podcasts. We love it if you took the time to rate interview the show on Apple Podcasts, so more listeners can find us, and you can find us on Twitter, follow me at at Sara Pontzack, Mike is at Rea Anonymous, Data Trek Research is at data trek MB, and Emily Barrett is at not That ECB. You can also follow Bloomberg Podcasts at podcasts. What Fills Up is produced by

Tobrah Foreheads. The head of Bloomberg podcast is Francesca Levi. Thanks for listening, See you next time.