Major Escalation with IRAN

0:00Unfortunately, this morning we need to lead off with a major escalation in the Iran War conflict, whatever we are calling it. Apparently for the first time, at least the first time reported in the media, Iran has started sending missiles or bullets or whatever the heck they are at actual US warships. According to some articles I read this weekend, Iran went after an aircraft carrier and a destroyer. Thankfully none of these attacks landed. They were both intercepted or shot down or whatever the right were. Verbage is. But that is a major escalation. I want you to think about the horrible possibilities that one of these things gets through. And there is a major event in casualties. This is a major escalation.

1:00And this is not how this thing gets better. Again, it appears that Iran is doing this because they are upset about the naval blockade. Again the naval blockade seems to be strangling the economy. They can't get out, oil or other things and thus the cash or money is being turned off. This is exactly what happens or exactly what I feared would happen when an injured party starts to lash out. It gets very chaotic, very dangerous and this major escalation basically this morning appears to be continuing although the US has not confirmed this morning's or I guess it would be yesterday's attacks on more naval vessels. But it has been reported two days in a row which again is not good.

2:00This is bad. Bad. Moving on from that feels hard to do but what we got to do because we got to get through the daily news. Let's talk about earnings next week. Now Monday is Labor Day, the full end of summer I guess is typically seen as so again enjoy that extra day off. Wednesday we are going to get Chewy, Signet, Jewelers and American Eagle. For me that is going to be what is going on with the high in consumer. Again we had some interesting earnings. I think it was Lululemon who was a disaster last week. We are going to find out if that is an execution problem at Lululemon or if the top end of the K is also pulling back. We will get more retail earnings and see if it is a company problem, i.e. Lululemon or a consumer problem meaning broader based. Thursday we will get Macy's R.H. Oracle and Adobe. Oracle will be interesting for all the AI trade.

3:01Their debt is very close to junk status which can't be good. R.H. is that high in housing so again how bad is it out there? R.H. will tell us. Then Macy is what is middle America doing. Then Friday we will get a report from a supermarket croggers. I did read a lot articles last couple of days about what Wall Street expects because again the Fed is in a blackout period. I don't know if you know that but two weeks out the Fed goes into a blackout period. Crystal for Waller's talk last week was actually the last day or the last interview we will get until Fed day a week away or two weeks away. RJ Gallup chief investment officer says leaning into the direction of a Fed hike frankly raising the Fed rate might lower the long end. This is something I have tried to communicate. I have tried to share it with Taylor from Life Goal Investments.

4:03I have tried to share it with others. I actually think I really do think this. If the Fed raises rates 10 days from now or whatever that is, could the long end come down? I think the end. Now folks if you go back in the history books the last three times the Fed moved it was a cut and the long end went up. It should not be intellectually challenging to say, oh Fed up long end down. Now again most people think Fed rates, Fed raises everything must go higher. That's just not how the party goes folks. Again it is very interesting that I do think the Fed will raise and it thought that for months. And I actually do think the long end might come in because the Fed has a backbone or whatever whatever the bond vigilantes might be thinking they might go, okay this guy is serious instead

5:04of being a Trump puppet. Let me be clear. If he does not raise in September I expect the long end to move violently because again he will be seen as all bark no bite. He will be seen as a Trump puppet. He will be seen, frankly his entire Fed team will be seen as yielding to the president. And that's not what you want as a Fed chair. You want your independence. So next week will be interesting. I've got some recommendations from some of you out there to read some more stuff from Kathy Wood. So I've added her to my search and I saw a couple of things from her the last 48 hours. A couple of things I thought were interesting. One thing I had a question about. This thing she said that I thought was pretty cool was companies embracing AI are creating jobs faster. I actually agree with this. The data appears that the companies that get serious about AI are actually increasing total jobs.

6:05Now it is fair to say that some jobs like customer service or I don't know marketing or whatever are seeing reductions. But when you look at the total population of jobs, it appears at least at the moment that AI is a net job creator. That probably doesn't make anybody feel good if they lost a job because of AI. But again, when you step back and zoom out look at the economy in total. It appears and I think Kathy Wood is right that AI is currently creating more jobs than losing. One of the things just to get into it that I have to scratch my head at. But again, I'm willing to listen. She said global growth global worldwide growth could reach 15%. Now you may not understand what 15% on global stage means, but it's about 5x the 125 year trend.

7:10So yeah, there's that. Again, I think when you look at a trend of 125 years and then you think we are going to suddenly 5x it, it is to me, again to me, it is a reach. But this is why she thinks that again, I wanted to go deeper. I wanted to see what she was thinking. She thinks that the consensus, right, people like me, right, the people that look at the numbers in the model are pricing in the old economy. And I think that's fair. I think I have used my 30 years of economic theory and data and research and I'm putting everything I read today through that lens. So I think she has a point there. Kathy, again, being the AI and bleeding edge, I believe this is Kathy. She believes a new world or a new one is taking shape.

8:12Basically she believes that the economy will be fundamentally different and at the last 125 years data research, my 30 years will be irrelevant because the economy is fundamentally remorthing, rechanging, going from a caterpillar to a butterfly. And yeah, let's just say I don't agree. But again, it's interesting. It's thought provoking. It's something you got to put in your bag of tricks and you know, continually run through lenses. Again, I think it's fair to say that the economy may be very different in a decade or two, but will it be that different? Will it be five X? Oh, let's see. One of the things that was interesting also, Kathy Wood talked about the payroll numbers on Friday, which were blockbuster. She also went on to point out that the household survey had 500,000 more people working, which was a nice turn from the previous months where that number kept falling and falling.

9:14The last thing that Kathy said that I disagree with, Franklin, she thinks oil could fall all the way to $30. Yeah. Again, I'm looking at the old model. Kathy's absolutely right. I'm not sure why oil would be less interesting in an economy that's up 500%. Is that just thinking that EVs and wind and other things are churning out the energy? Maybe solar? I don't know. But yeah, I don't see oil going to 30, at least not in the near term. So interesting to think about though. So let's also congratulate two people for joining school. You guys are awesome rock stars. Make sure you introduce yourself. Make you will and mica for joining school. Don't forget it 8 a.m. or 20 minutes. You have the opportunity to ask me questions for an hour. We will go live in Zoom. It's on the calendar. Come have a party. Come ask questions. Come see what the fuss is all about. We usually have about 40 to 45 people on.

10:15So you have a great chance of getting your questions answered. Big news out of the largest sovereign wealth fund, if you guys don't know who that is, it's Norway. Norway's wealth fund wants out of US treasuries. Folks, this is a problem. We already have China cutting their stake. We have Japanese doing that. We have all these other parties. And oh, by the way, it doesn't help that President Trump is going on the war path with tariffs and things of that nature. It's causing others to walk away from US assets. So again, Norway is looking to get out of the US treasuries, which means interest rates go higher. This is not what Bessett wants to see. Bessett is fighting the long end. The fact that Norway wants out makes his job probably impossible, if not a lot harder. We get a lot of great economic numbers next week with a big number coming on Friday. So please buckle up Tuesday. Again, Monday, the stock market is closed for Labor Day.

11:17Tuesday we will get small business optimism. Thursday we will get PPI, which do PPI. Here you go. Last month, 4.7. Folks, that's not even close to 2%. Here's the bad news. It's forecast to raise or rise to 5.3. Yeah, you're not cutting rates when inflation is increasing by that magnitude. We also get existing home sales. And as expected, I told you, unfortunately, that these next six months, so last month will be the first month of the bad six. Existing home sales expected to fall to 3.9. Exactly the number I forecast is coming. So we'll see what actually happens on Thursday. And then the big number of the week, Friday, CPI, last, the headline was 3.4, expected to be 3.4. I don't know, given the base effect and what's going on, I think I would, I'll take the over.

12:17I will take the over. CPI core is actually expected to go down. Now again, core meaning X food, X energy was 2.5, now 2.4. Yeah, I'll just as well. Let's talk about what we talked about on Friday. Trump went nuclear, I think was the name of the video. And I just want to highlight what would happen if Trump enacted his policies of basically stop trading with any country who has a surplus. I just want you to understand what that means and why it is such a bad idea. Well, the first thing that would happen if America or US went isolation is, I don't know, half the companies would be destroyed almost overnight. Because again, we get supplies from other countries, right, to make our goods and services and things of that nature. So probably 50% of companies would disappear very quickly. The ones that did find other suppliers, inflation would jump through the roof.

13:21Inflation would likely go to 10, 12, maybe 15 or even 20%. This is not a joke, folks. If we go isolation and everything's made here, inflation could jump to 20%. We would see mass, mass layoffs. So this blackmail of the Fed, cut rates, or I'll do this is disastrous economic. There is no upside, zero upside to doing this. Now, I don't think he will. This is classic. Trump, but still blackmailing the Fed, threatening economic calamity for the US economy is not a good look. And I stand by my comments last Thursday or Friday or whatever that was. Wall Street, again, talking about the blowout jobs number. Rising treasury yields are sign the Fed has to raise rates to clamp down inflation. And then I've been seeing a lot of videos. So clearly I have told my YouTube algorithm I want to see this.

14:24So I think I have to go back and clean my YouTube algorithm. But we need to start asking what if open AI blows up? Yes, you know that I think that open AI is going to, you know, going to burn more cash than any company ever in history. I am not an open AI fan. I don't know that they will even make it to the IPO. So again, I think, you know, this is part of me going down a rabbit hole. So I need to pull myself out kind of self awareness. But yes, it is something that more and more people are talking about, given that AI seems to be holding up the US economy. That if one of the two big ones in open AI is clear, the weakest, I don't think there's any argument that an anthropic looks very strong in open AI looks weak. But again, need to ask ourselves what happens. And guess what happens? I think the United States government bails them out. That sucks.

15:26But anyways, the last thing I read again read a lot of articles about the jobs numbers on Friday, the chief economist for RSM says the Fed is a little behind the curve and must act. So again, folks, great numbers. Last week in the jobs numbers, we're going to get the big inflation print on Friday, which will be the really the last economic number before the Fed meets the following week. So we shall see. Don't forget, if you are a landlord that steadily is the sponsor of the daily financial news, it is your job. Yes, your job to get the best rate and the best coverage given them a shot. They saved us on about 60% of our portfolio a year ago. So they worked for us about 20 grand, which was awesome. And of course, hope to see you inside school. The link is on the screen right there. There come be around 560 other wealth builders. And I will see you in 13 minutes for our weekly live Q&A. Peace.