Jack welcome to barrons roundtable where we get behind the headlines and prepare you for the week ahead. I am jack otter. Were heading into the fall season and my guest is cautious about the market for the end of this year i will ask head of Investment Strategy liz young why she is wary. Mohammed michigan 13000 autoworkers from the uaw walking out in a historic strike against the three carmakers in more troubles ahead for ford mgm, later almost anyone can buy an investment restricted to the rich, that does not mean that you actually should read we begin with three things investors should be thinking about right now. Markets ended the week mixed ahead of the fed rate hike decision on wednesday and new inflation showing prices rose slightly slower than wall street expected, the ipo market chip designer arm is the biggest ipo in nearly two years with a 25 pop in the first day of trading retirees are expecting a smaller raise in Social Security benefits in 2024 compared to last years historic increase should the payments better reflect healthcare cost. On the barrons roundtable elizabeth obrien, carleton english and jacob. Carleton, stocks ended mixed a little bit down more than up, what was motivating the sellers. If you look over the last two months the stock market has been in a range bound level a lot of anticipation of what the fed is going to do Going Forward basically we got the inflation data that had some of the moves we saw earlier this week. Utilities, a big bank also did what is my favorite sector. One sector and keeping an ion ended the week flat but upside with energy. Jack energy has pleased investors and drivers at the pump not so much. What are our friends at opecs say for gas prices this fall. Going to get good news for drivers, we have Higher Energy prices, opec plus announcing production cuts and we had changes in the midwest with refineries, the pricing should come back down accordingly. Gas prices on average are 3. 85 densa galvan across the country. That is higher that it was a year ago in our team is saying most likely gas prices closer to 3. 50 and 4 read ill take the good news. Jack quickly the fed meeting this week but no real fireworks back no real fireworks. Everyone expects is a pause even looking at some of the meetings later this year, not expecting a much moving rates. Jack jacob, something we havent seen recently in ipo this week, chip designer arm a British Company went public at a lost evaluation and went even higher spinnaker massive ipo. Arm holdings went 55 billion but within minutes the stock soared as you mention, it ended the week at 65 billion that sounds like a big number let me put that in context, 2. 7 billion sales fiscal year 2024 a little rebound for the chipmaker like a lot of other chipmakers, 3 billion of ford sales, that is in over 20 times sales multiple, this is a market where the nasdaq is it three times sales, four times sales this is a market where tech stocks have moved in favor but the thing nvidia, microsoft have run up and traded richly so people are clamoring into other things that they hope the growth will be there in the three get the crazy evaluation for arm. A funny thing about investor psychology that something is smashing success but you look from the broader perspective john said bull market die on euphoria. This sounds like euphoria to me. The arm ipo was euphoric innotech market. I dont think tech is euphoric and is not to boast putin if you put money to work today and a lot of doubledigit on the nasdaq is supporting multiples outside of arm the arm is crazy. Jack lets switch to something that is not euphoric but a steady paycheck, seniors can expect a 3. 2 increase in their costofliving adjustment and Social Security checks that is down from last years huge jump. The current year that raises 8. 7 in next year estimated to be 3. 2 percent, we will not know the exact number that costofliving increase until next month when september inflation data comes out, for now we have a good estimate thanks to the Senior Citizens and a lot of older adults are saying 3. 2 is not going to cut it. Inflation is going to be really persistent the average Social Security retirement check is 1800 a month, 3. 2 raise is shy of 60 extra, last year a lot of people had to dip deeper and can take on debt. Everyone wants a bigger paycheck and inflation feels very strong, is there a mathematical case to be made for why the checks might be bigger. There is talk of a different benchmark to calculate the cola and it wouldve delivered increase on the order of 4. 2 next year as opposed to 3. 2 percent and the alternate index weights that seniors spend more heavily on healthcare and it does not wait things like gasoline so heavily, when youre retired you know youre not driving to work every day but youre going to the doctor more than you did when you were younger. There is talk of changing the benchmark. Jack thank you. As the september marke explore endless design possibilities. To find your personal style. Endless hardie® siding colors. Textures and styles. Its possible. With james hardie™. Is it possible to fall in love with your home. Before you even step inside . Discover the Magnolia Home james hardie collection. Available now in siding colors, styles and textures. 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Thank you for coming on the show. Thank you for having me. Jack in a recent report you point out rate hikes can take 18 months to be felt in the economy and the yield curve inversion is a strong sign that says recession may occur in the next 14 or 15 months. If that pattern holds were right in the danger zone right now are you feeling like things are dangerous . That is right when you look at history obviously we take averages and we look only as a guide but the averages would tell you at a certain point into a rate hike cycle we are 17 months and right now somewhere between 12 and 18 months is what we usually refer to as the lag time sober in the middle of the window of where the lag time catches up with us and usually shows cracks in the economy, that has not happened clearly in the data as of yet and certainly we had a tough time in the market due to rate hikes but the Economic Data has not reflected yet. When you look at yield curve inversion particularly at the 210, once the yield curve inverts decisively, which it has, usually on average takes about 14 months before you start to see a contraction in the economy, were right at the 14 month mark, the reason i make some of those points, you hear this time is different, its taken so long its probably not going to happen, hasnt really been that much longer than the historical averages. I dont want to have anybody declare premature victory when this is the time we see more definitive issues pop up. Jack 17 months from the very first rate hike. We have a lot more after that and obviously being felt. Another late cycle sign that you point to, large caps outperforming small caps. You added this up with the other sides and you said its more of the green day market then in earth, wind and fire market. Can you explain that and i expect you to answer in solemn of course. I dont think you want me to sing on the program but when you think about earth wind and fire song, september talks about dancing under cloudless skies. Refer to that to the bulls this month and then you have green day song called wake me up when september ends which is more of the bears anthem. When we are looking at the signals that a been here for a long time not just in september but the signals say late cycle by conflation be in high, we are in a hiking cycle, with contractions and manufacturing data, usually the labor market is tight. I reckon eyes inflation has come down certainly but there are also market signals that say were late cycle as well, heating the morning from the market and the economy and knowing if large caps outperforming small caps that is a market signal that usually says we have grown, we have gone to the late cycle. In this year large caps outperform small caps by doubledigit. I think we are right there and if we look back on hindsight, six months, one year down the road we will say all of the data was there and it makes sense we were a late cycle and we would see a slowdown after that. Jack one more data point, that was margins contracting, they went from 13 down to 10 , that is a big move although historically 10 margins are fantastic. If the trend continues, what sectors do you like and what are more dangerous with the ability to maintain the margins. As you correctly point out the margins were fat to begin with which is a lot of white earnings have held up reasonably well and why i think the cycle feels longer than prior cycles or longer than we expected it to feel, margins were padded with inflation and with pricing pass throughs and Pricing Power what i would expect to continue to happen which is begun happening. As inflation comes down, companies dont have the justification to pass through into prices anymore and margins still get maintain. The idea into 2024 we will see Something Like 9 Earnings Growth is tough for me to understand the math because of revenue is coming data were not cutting labor or anymore cost its good to be difficult to see earnings expand by that much. I would expect margins to continue compressing. I think the consumer is going to be more stressed then we seen in things that will bake through is like spending being pulled back, we were using the Retail Stocks hit the skids in the last couple of months, that could be a precursor to softening consumer data. I would be careful particularly consumer discretionary. Nondiscretionary sound like the place to be. Thank you for coming on the show. Big automakers are hitting roadblocks with a costly strike as the my relationship with my credit cards wasnt good. I got into debt in college and, no matter how much i paid, it followed me everywhere. Between the high interest, the fees. I felt trapped. 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Ford and gm are behind the curve when it comes to the ev business struggling to catch up to tesla, here is the cover story written by bering Senior Writer al root who joins the panel now all the way from canada. Thank you for coming on the show. A really interesting story. I think you can have a better weekend then mary barra and sean faseanfain. They never struck all at once now they take a different strategy and tried to strike individual plans which makes running a business a little harder. I mix that the big three in detroit are spending literally tens of billions of dollars to try to develop evs, we have the Biggest Technology transition maybe since we went from horses to cars and generationally high inflation which created an incredible amount of labor friction and now we have a strike. Jack to put into perspective tesla has 60 of the ev market, ford and gm are 11 . I remember 15 years ago when gm had to be rescued by the government frankly it seems worse is this an accidental threat to the big three carmakers . It is an interesting point that you make. Since the rescue and the financial crisis, they have done a tremendous amount of work on the balance sheet, on the income statement, becoming profitable at lower levels of auto production. They are actually in really good shape. I dont necessarily think it is a crisis for them, the transition that electric vehicles. Its more a question can they do this profitably and if they cannot do it profitably it is a problem for the stocks. Both companies are starting the process in better shape than they were ten or 15 years ago. It is a good thing, tesla is dominating and having trouble catching up. And ev sales grow government incentives disappear in the coming years . A question elizabeth. We have always had incentives and incentives on the purchase side are usually intended to equalize the cost of ev versus a traditional vehicle. As battery prices come down and as the cars get better it really should not be dependent on incentives anymore. Adoption should continue as long as they are good cars available in multiple segments of the market. Jack, you remember jim farley told you in many cases the ev is a better car and that is what will drive the adoption more than the incentives. Incentives will dwindle over time and it should not be an issue for growth of electric vehicles. You talking about adoption and it seems to be slower in the u. S. That we may be hope for. Is there potential that some of these companies over spending expected adoption to be faster than approved to be. Is the milliondollar question. This is what we wanted to dig into this week when we were reporting this article. The penetration of newcar sales is about 7 . It does not feel like it should be that low given the spending of the models. One thing that we found basically everybody decided to copy tesla so the introduces expensive car in the introduced a model why so were way over saturated in the midsize suv crossover market. There are too many cars there and i think it is a failure of early strategy which is hurting adoption at the moment so what the Car Companies need to do they need to get more cars, not to tesla directly but make sure ford and gm who are driving gasoline powered cars when they turn the leases, we have to make sure those buyers are considering. As they tried to do the are they potentially disadvantaged because they have to deal with higher labor costs while tesla and rivian are unionized. I like to be the devils advocate on this one. I like to point out to some extent the uaw is doing the work of all autoworkers. I go back to a 22 tweet from elon musk when he said a couple of things, we have to pay topnotch wages to attract talent and we also have to pay good wages and offer good benefits to make sure the union does not unionize or plant. Yes wages are going up at ford and General Motors and stellantis, itll go up at tesla two. I agree that yo