Listen to the full episode, here.
John Norris (00:30):
Well, hello again everybody. This is John Norris, a trading perspective. As always, we have a good friend, Sam Clements. Sam, say hello.
Sam Clement (00:36):
Hey John. How are you doing?
John Norris (00:37):
Sam, I’m doing fantastically, and I hope you are, too.
Sam Clement (00:40):
I am. It’s Christmas season.
John Norris (00:41):
Well, it’s Christmas season. Here we are at the end of 2024, and I thought it’d be a good thing…. we thought it’d be a good thing to take a look back over the last 24 months and see if we’ve learned anything, see what kind of surprised us, what didn’t surprise us, and take a full inventory of where we are here at the end of the year. What do you think?
Sam Clement (00:58):
I think that’s great.
John Norris (00:59):
All right. Now here we have it is at the end of 2024. I’m going, I’m exhausted, man. I mean this was an exhausting year in a lot of ways and I mean personally, professionally, but then just taking a look around me and just saying, what all have we been through?
(01:17):
And it’s been sort of a wild ride because when we started the year, we still, I mean, hey, we knew we were going to have a presidential election, but Joe Biden was still the democratic nominee or candidate for president. Everything looked like we were hitting on all cylinders in terms of the economy and what have you. And here we are at the end of the year and it seems as though a brand new page has been turned in the book. Economic data is still coming in pretty decent, pretty strong. But I got to tell you though, Sam, I’m beginning to call a lot of those data points into doubt.
Sam Clement (01:55):
Yeah, and I think you mentioned the last 24 months really. I think all of this goes back to COVID and this has all kind of been one cycle since then. And it’s crazy to think we’re coming up on almost five years since COVID kicked off, really.
John Norris (02:10):
Isn’t that crazy?
Sam Clement (02:11):
And so we’ve seen all these ebbs and flows. I mean we saw the real short, but significant contraction in the economy due to COVID. We saw the pretty robust expansion and for several reasons and the inflation that came after that, we’ve seen the conflicts in Ukraine. We’ve seen what’s gone on in the Middle East. 2022 was awful, 2023 had the mini banking crisis and the year ended up fine in the markets. All said and done, and then this year. So it’s really been so many more moving parts. At least it feels that way over this kind of last kind of mini-economic cycle.
John Norris (02:49):
Well, I agree with you on that and what I’d like to do is get your opinion on several different sort of broad buckets of issues and just see whether or not we’re in agreement. See in terms of what surprised us or didn’t surprise us. And I’m going to start off by just, I don’t know, I think it’s kind of low hanging fruit. What surprised you the most or what did you learn the most about the remainder of the world in 2024?
Sam Clement (03:16):
How, I guess this is kind of answering it kind of not, but how much better off the U.S. did?
John Norris (03:22):
Well with USA I think!
Sam Clement (03:23):
Yeah, we’ve seen this in a lot of G7 countries and we’ve talked about it when we’re talking about investing in foreign markets versus the U.S. what have you, currencies, all this kind of stuff. It’s a relative game and the U.S. is winning that relative game especially versus our developed peers.
John Norris (03:41):
Well, I would agree with you on that and I’ve told that to a number of different groups to whom I’ve spoken, probably politically incorrect, now you have to be careful with whatever you say, which is something that has changed dramatically since COVID.. In the land of the blind, the one-eyed man is king. And that’s kind of how I would say the United States is kind of propped up right now. It’s not necessarily that we have our entire house in order, it’s just compared to everyone else. Yeah, we’re doing a pretty good job. I would tell you though, what has surprised me about 2024 is just the realization, kind of alluding to this, is realization just how far behind the remainder of the G7, and I would say the remainder of the so-called West, with some possible exceptions, maybe Oz or what have you, that the rest of them have fallen in terms of just relative growth and really prospects for growth moving forward.
(04:36):
When I take a look really at the remainder of the world, I see a lack of real leadership, a lack of ingenuity, in some ways. I mean, this is a broad brush, I mean very broad brush and stereotypical, and it’s not fair to everyone. It’s not, I get it. However, when taken just in aggregate, I just don’t see any real threat, at least from the western world to American hegemony over geopolitical events, over the economy. Obviously the U.S. is huge and much bigger than anything else. But I will take a look at the European Union. I take a look at the individual countries in the European Union. I take a look at what’s going on in Canada, what’s going on in South Korea, what’s going on in Japan. And it’s all basically the same story. It’s a crisis of lack of confidence, a crisis of really, dare I say, lack of effective leadership. And we’re starting to see a lot of those countries turn their back on, for lack of a better phrase, maybe the status, maybe the at least sort of like what we’re doing here in the United States. However, I don’t think they’re doing as much as perhaps we are in that regard.
Sam Clement (05:48):
No, I think to point to a couple examples, the UK..
John Norris (05:54):
Got rid of…
Sam Clement (05:55):
Kicked Sunak out and they said, all right, this is great. And then that lasted like a week before Starmer’s polling was, I think even worse than Sunak a was before.
John Norris (06:03):
I mean, the thing is you got rid of Sunak and replaced with a Starmer and it’s the same person. It’s the same person, they just look different.
Sam Clement (06:12):
And we’ve seen what’s happened in Canada of late, there’s been talk of Trudeau resigning possibly, and
John Norris (06:19):
I don’t think he wants to, but he’s going to be run out of town on a rail.
Sam Clement (06:23):
And so we’re seeing it there.
John Norris (06:25):
Schultz got essentially kicked out. Macron is,
Sam Clement (06:29):
Should have been kicked out.
John Norris (06:29):
It’s toothless. Whatever’s going on with the Japanese prime minister right now, Soeul is, I mean the darn PM over there tried to stage a coup.
Sam Clement (06:38):
I think South Korea…. That’s a great example of why some still consider them emerging markets considering that every leader except one since South Korea was a country, was either impeached or assassinated or imprisoned. Literally all but one of them.
John Norris (06:55):
When you put it like that, Sam.
Sam Clement (06:56):
We’ve reached a point though where Maloney in Italy, which is not necessarily an economic powerhouse and has huge headwinds ahead of it, seems to be the most stable of the G7.
John Norris (07:12):
It certainly does. And crazily enough right now, Italy seems to be the most unified country in Europe, which is something I never would’ve thought that would’ve said in terms of individual leaders in the G7, with the exception of the United States. Maloney really is the most appealing, I would say Macron would be to a degree, but he is very much “my way of the highway” and probably a pretty unlikeable guy. He’s trying really hard to be that leader that France needs him to be, but people aren’t buying him. I’ll tell you though… Maloney though, have you ever heard her speak? Yeah, I have. Very effective, passionate, very effective, incredibly effective. Maybe not the most educated in terms of elitist type schools, obviously very intelligent. Plus I think she’s cute. All right, well there you have it. So when you’re taking a look at the remainder of the world, I see a real crisis of confidence leadership and a lot of stuff going on in the Western world while I take a look to the Eastern world, if you will, take a look at China. And what surprised me was just how transparent, if that’s the right word, that Beijing has been really acknowledging its economic weakness. Now, I would tell you that if Beijing is doing all of this stimulus and at least acknowledging that,
(08:30):
I think the problem’s probably a hell of a lot worse than what they’re letting on.
Sam Clement (08:33):
I think that was going to be my next comment about things abroad is how weak it really feels like the Chinese economy is becoming. And this, we talked about it for a while with the stimulus packages that really didn’t do a whole lot.
John Norris (08:50):
Because their whole banking system’s on verge of collapsing.
Sam Clement (08:53):
Yeah. And we talked about these headwinds there that cannot be solved.
John Norris (08:58):
Demographics, residential, real estate banking woes, I mean just all of it. If China’s going to be weak saying that means Vietnam’s going to be weak. And if Vietnam’s going to be weak, that means Indonesia’s going to have headwinds. So when that big engine over there is weak, a lot of the other people are going to feel the pain. And so we take a look at it and take a look at India, the old Hindu rate of growth. I mean, we will just have to see, I mean this could be, between now and the end of the century, this could be India’s turn to shine and we’ll just have to see whether or not Modi and whoever follows Modi actually takes the bull by the horns, does the necessary reforms that they need to in their bureaucracy and their economy and the world could be their oyster. I don’t see a lot of evidence of that yet.
Sam Clement (09:45):
I don’t either, but we talk about potential energy and that seems to be the place with the most potential energy.
John Norris (09:50):
The most potential energy. I’d say one last thing before we hit on something else is when I take a look at the remainder of the Western hemisphere, take a look at really from the Rio Grande, South. I’m not encouraged by a whole bunch, Lula, I mean not Lula, but AMLO is gone and his handpicked assessor is there and we’ll just have to see how she does. But I think she’s even more to the left than AMLO was and he was pretty doggone bad and just, hey, U.S. businesses aren’t going to make a whole bunch of a new investment down there if you nationalize or expropriate property. And here locally here in town, Vulcan Materials knows what happens when Mexico City decides it wants your quarry, if you catch my drift. Take a look going further down, Lula down in Brazil. It wasn’t great the first time. It’s not great this time. We’ll just have to see how that interesting fellow down in Argentina makes out.
Sam Clement (10:44):
Seems to be the one bright spot or the biggest bright spot.
John Norris (10:47):
I just wish he’d cut off the mutton chops. That’s the look though. It’s not a good look. That might be his look, but it’s not a good one. All right. So we have settled all the world’s problems. Obviously noticeably very apparent that we skipped over Eastern Europe. That’s maybe a podcast of its own at a later day. So we take a look at that. Let’s go and talk a little bit about U.S. society as a whole, whether or not you feel as though we’re more fractured, more unified. What do you think some of the causes of our current societal malaise are and what we continue to change that?
Sam Clement (11:26):
Well, I think my answer has been and continues to be that social media is a large driver of a lot of this.
John Norris (11:33):
Yes.
Sam Clement (11:33):
We’ve talked about how you used to have to think through your opinions before you use had an avenue to post them versus now it takes less than a split second to get your opinion out there. And you can do it behind a screen.
John Norris (11:49):
Where you have a phony name…
Sam Clement (11:52):
And the increase of information. I am swinging to the other side where I think it’s almost not a good thing.
John Norris (12:00):
Yes.
Sam Clement (12:01):
I see people so passionate about politics and I get it and I get there’s issues that are important, but for the most part, people get so passionate due to social media due to the constant information that you’re being force fed to have opinions on things that frankly don’t impact your day-to-day life. And I think that is so detrimental to focus on things that… I have a handful in mind of people that if I said, how has this last four years impacted your life. politically? And the answer for, and I get for serious issues, that’s not the case for everybody. But I know so many people passionate that it has not impacted their life one way or another. Who’s in the administration, whether it’s 2016 to 2020 or 2020 to 2024, the presidential administration did not change your life significantly.
John Norris (12:52):
Well, I’ve always said politicians get too much credit for the good times and too much blame for the bad. And I’ve yet to be proven completely wrong on that, in my estimation. And I think that’s very much the case. I mean, you take a look at really the last four years and even the four years before that, it’s just, oh my gosh, I can’t believe blah, blah, blah. And really what day in and day out has changed in your life, for real? I mean not terribly much Washington for all of its money and all of its power doesn’t really hold a lot of power on my day in and day out activities.
Sam Clement (13:28):
And it seems like if you had to weight the importance of things that actually impacted your life versus the importance you put on them psychologically, those seem to be extremely skewed for most people.
John Norris (13:43):
Without a doubt. And going back to your comment about social media, give my thoughts about society just in general. Social media, I think ultimately while it’s kind of fun at first when you first get into it is detrimental, it leads you to believe that people were living lifestyles or lives that are completely different and ordinarily better than yours. It allows people to go out there and have ridiculous thoughts on just about anything. It allows people who are trolls to go out there and just spew nonsense and of which they don’t believe, just in order to get people riled up and cause people to think that this is a little bit more prevalent than what it actually is.
Sam Clement (14:19):
And in the intentional skewing of information and facts. And I think we’ve seen that in the medical industry, people coming out fearmongering with things and it is just, all in all, I think there’s benefits to it in the sense that yes, I know more about what’s going on in Eastern Europe and the Middle East and quicker than I would in a traditional news outlet by being on social media, but I think the negatives are pretty much there to the point where they outweigh the positives of it. And I think I see people that I know that are so off the grid in terms of social media and I think the positives outweigh the negatives of maybe not knowing what’s going on.
John Norris (15:05):
Well, I would tell you this, I mean, it hasn’t been that long ago and perhaps I was just horribly naive into believing this, but when I got something off the news or I got something off the newspaper or what have you, when I read something on the Associated Press, or even when I heard Tom Brokaw or someone like that talk about it, I generally accepted it to be reasonably well thought out, reasonably researched, and I believe that it was probably at least directionally accurate. Of course, you’re going to have news outlets that have always had a bias in their op-eds and what have you. New York Times has always been left of center. We all know that Wall Street Journal’s typically been right of center, but now it’s kind of like you have to question just about everything. Understanding that the way the whole media works now is by likes, clicks, shares and what have you, which only leads these media outlets to go, this is what our base clientele wants. We’re going to give them more of this. And as a result, the objectivity, which might come from responsible journalism has been thrown out the door both on the few remaining right of center media outlets, but then certainly the mainstream media. I mean it is just like I not sure I believe anything that they have to say.
Sam Clement (16:23):
Even I see stuff posted on Facebook and people just take it as fact and it’s on both sides. It’s not even worth getting into specifics, but you’ll see something and go, where did you get that information? The answer is, I saw a picture of someone stating this on Facebook and it takes 30 seconds to research to say that’s actually not true. Not even in the slightest, but people take this stuff as fact. They repost it. What’s the saying about a lie can go halfway around the world before the truth can get ready or put it pants on or something like that.
John Norris (17:00):
That’s a lot of truth. I think I know what you’re saying if I can’t remember the exact wording of the adage, but I would tell you and how this pertains to 2024 is – it was a problem before 2024. And I think thanks to our election cycle, and really I would argue the media trying to influence votes one way or the other. You go to Fox and certainly Wall Street Journal, or maybe I should say Wall Street Journal and certainly Fox, they’re certainly pulling for the Republican candidate. Most other mainstream media outlets were pulling for the Democratic candidate. I get that. However, it was almost hyperbolic everything that was going on this year. And really it seems as though everything that I saw in the media, social media, really with what our politicians were saying, were more of an effort to divide us even further than we already have been, as opposed to try to unite us. And I would say that this has been a problem really for a while, but it became just really…
Sam Clement (17:59):
Front and center.
John Norris (17:59):
Front and center in your face here in 2024.
Sam Clement (18:03):
I agree.
John Norris (18:03):
Alright, now let’s talk a little bit about the economy. According to all the data that we have gotten out of the BLS, the BEA, a number of different sort of Washington sort of bureaucracies, the economic data is pretty good. This morning, the BEA announced that the third quarter and the third quarter, 2024, the economy grew to 3.1% annualized clip 2% during the second quarter. If you had told me at the beginning of the year, the economy is going to be that robust with everything, with all the headwinds against, in my estimation, I would’ve told you you were crazy. And I’ve got to ask the question, is the economy as strong as Washington is telling us? They’re telling us it is.
Sam Clement (18:43):
I think probably not, but I think it’s also not been that worst-case scenario that I think people have forecasted for frankly several years. And so I think we’re probably somewhere in the middle. I mean the labor market being a large part of the economy –
John Norris (19:00):
We’re going to see some major revisions in data next year.
Sam Clement (19:03):
So things are probably weaker there. And again, the data we get should never be taken as fully concrete and factual because these are estimates, largely. I mean we’ve talked about how they even come up with these jobs, reports, data and
John Norris (19:17):
The methodology’s flawed.
Sam Clement (19:18):
It is terrible. The CPI methodology has tons of flaw to it. I mean every metric we get in terms of saying how the economy is doing, it’s not fact. It’s best guess I think is the best way to put it. And so I think that it’s never should be taken as fact. But all said and done, the markets are at all time highs. The credit spreads are not widening significantly. We’re not seeing these huge cracks. But we’re also not seeing in companies earnings and mainstream retail companies saying, Hey, everyone is coming and blowing money. I mean, we’re not seeing that. We’re seeing consumers getting tired of higher prices remaining high. We’re seeing companies have to start competing for the same dollar more than they had in the past. And so I think that is a sign that, hey, things aren’t terrible. I mean, companies can still make money, companies can still get people in the stores, but the fact that you have to compete more for the same dollar is something that is absent when things are kicking on all cylinders.
John Norris (20:22):
Well, I would tell you this, that really starting probably about 18 months ago, I really stopped having as much faith in the economic data, as released by Washington, as I used to have. I’ve really truly believe that it was when they reported the jobs numbers first Friday of every month, I go, okay, this is what it was. I understand the methodologies, it’s not going to be perfect, but it’s going to be directionally accurate. The same thing with the GDP report. I would tell you that I really don’t have as much faith in the data now here at the end of 2024 than I did at the end of 2023. And at the end of 2023. I didn’t have as much faith in it as I had at the end of 2022. I would say it really became, it really accelerated in 2024 when all the old data sets, which I used to really put a lot of faith into… things, are like the ISM report.
(21:11):
You’ve heard me talk about the ISM reports on business manufacturing and services. I don’t even know if anyone else even reads this stuff any longer. I mean, I go through that report every month. Take a look at the conference boards, the leading economic indicators, National Federation of Independent Business, Small Business Optimism Index, things like the slope of the yield curve, growth in the money supply. All of these things have, I mean, taking a look at the data this year, all of these non-government sort of release reports, ISM’s not a government entity. Conference Board is not a government entity. Yield curve obviously is not a government entity. Growth of the money supply is not a government entity, although it is released by the Federal Reserve, that sort of type thing. You take a look at all these type things and going, okay, the economy’s not collapsing. To your point, it’s not that worst-case scenario, but it’s far from a 3%, a 3.1% sort of type number. I’m going, I’m taking a look at it going ISM report on business manufacturing suggests that the U.S. manufacturing base right now is in a slight contraction. Services aren’t in a slight expansion. You add the two together, you’re looking at an economy growing 2%.
(22:17):
Yeah, I mean 1.8, 2.2 around that type of stuff. Certainly not 3%, certainly not 3.1%. Take a look at all the various labor market reports. We’re not shedding 300,000 jobs per month, clearly, but we’re also not creating 200,000 jobs per month either. I’d say really take a look at- juxtapose the establishment data with the household data. I’m going… very flat job growth. And then I’m going to take a look at slope of the yield curve. We’re now steepening, but it had been inverted for such a long period of time that has historically always slowed down the economy, not this go around leading economic indicators. Negative for what? 20, I mean 20 now out of the last 30 months?
(22:59):
Historically always been a good gauge for future economic activity, not this go around. So all these correlations with all this stuff is just not as strong. So I would say what we’re getting out of the BEA, the BLS is sort of that best case scenario is far, it’s as far out to the right as we can be with our margin of error. And so we’re being fed that. But it’s not that doom and gloom that people who were alt-right and off the grid would have you believe either. I’m just saying it’s a little bit slower than what we are being told, but it’s not off either.
Sam Clement (23:29):
A lot of this makes sense and through the lens of: we are more of a service economy than we are a manufacturing economy. I mean we’ve talked about, I’ve mentioned how the leading economic indicators point to a lot of manufacturing and no services. There’s no service indicator.
John Norris (23:47):
Hey – At ease, at ease.
Sam Clement (23:47):
But we are a consumer driven economy in a largely services consumer driven economy. I mean, that’s over 70% of the 70% that the SEA makes up in GDP, so
John Norris (24:00):
70%.
Sam Clement (24:01):
So it’s a significant driver of us, and that should have less of a cyclicality to it than a heavy manufacturing, a heavy Chinese economy that is driven largely on manufacturing and exports. And so that should lead us to an economy. I mean, services doesn’t really contract that often. We’ve had two major corrections and services in the last 70 years,
(24:25):
2008 and COVID. So that should lead us to, hey, even when services aren’t as strong, the consumer is weakening a little bit. But this is something that tends to just continue to grow. And I think that’s where we are with an economy that leans more heavily on services is : hey, yeah, the consumer’s not in the best spot ever. Their savings rate is dwindled, but they’re still going to go out; they’re still heavy spenders. They’re still heavy spenders on services, which doesn’t have that boom and bust cycle. So that leads to, hey, when the consumer’s kind of weaker, yeah, we’re probably still more likely than not going to grow the economy, just not at a robust level.
John Norris (25:04):
A very good point. You bring up a real good point about services because in the most recent GDP report, third quarter, 2024, I think something like healthcare added like 79 basis points to 3.1% overall number, and that’s an enormous amount for healthcare. Would you consider healthcare an inelastic or an elastic good or service?
Sam Clement (25:23):
I mean, it’s largely inelastic.
John Norris (25:25):
Yeah, I mean, without a doubt. I mean, you’re sick. You go to the doctor. So when I’m sitting there taking a look at a report going, Hey, healthcare expenditures grew by 80 basis, I mean added 80 basis points to the equation, I’m not slapping high fives around there. That means that there’s less money to be spent elsewhere. Well, what’s weird about this last report is we spent a lot more on inelastic services in the third quarter, and yet we spent a ton of money on elastic goods and services as well, according to the BEA. And the numbers elsewhere just don’t suggest the consumer was as strong as that. And so when I take a look at all of it and kind of add it all up, take a look at just where the remainder of the world was in 2024, where we were as a society in 2024 and where the economy was in 2024. I come to one conclusion, I’m glad this year’s coming to an end.
Sam Clement (26:25):
I am too.
John Norris (26:26):
Listen, our investors, our clients have had a great year in a lot of ways. We’ve made a lot of right calls in our investment strategies. We’ve gotten it mostly right. And I would tell you, as great as that has been, I would love to get to a period of time if I can, before I die, before I’m in an even older man where I have a little bit of faith in our institutions where I have a little bit of faith that we’re all pulling in the same general direction in our society and where I can believe stuff if someone tells me, and right now I can’t really feel that strongly about those threes
Sam Clement (27:01):
Something to hope for,
John Norris (27:03):
Something to hope for. That’s my New Year’s wish, if you will. My Christmas wish, a Christmas miracle, New Year’s Wish, all that good stuff. Well, guys, thank you all so much for always listening to us. We always love to hear from you all. So if you have any comments or questions, please by all means, let us know. You can drop us an email at or you can leave us a review on the podcast outlet of your choice. Of course, if you’re interested in reading more or hearing more of what we got to say or how we think, you can go to oakworth.com, O-A-K-W-O-R-T H.com. Take a look underneath the thought leadership tab and find links to all kinds of exciting information, including previous Trading Perspectives podcast, links to our blog / newsletter Common Cents, as well as other articles including our quarterly analysis, macro and market, and all the individual components there, as well as just pieces from some of our client advisors. Richard Literall and Janet Ball are working on some stuff right now. Mac Frasier and the advisory services team always has a little something out there unless they’ll be looking for them. Alright, with that being said, Sam, you got anything else to talk about in terms of 2024? That’s all I’ve got. That’s all I’ve got today too. Y’all take care.