That Means You, Tommy Boy!

By Scott Poore, AIF, AWMA, APMA
Chief Investment Officer, Eudaimonia Group

The Fed is either confused or they are sowing confusion.  For the most part, equities seem to be shaking off the noise, but for how long?  It's a whacky, silly trading environment, which brings us to our inspiration for this week's musings.  The 1995 movie "Tommy Boy" was not a box office success, earning only $32 million on a $20 million budget.  However, the film has become sort of a cult classic and was widely successful in the DVD/Blue Ray after-market.  Here's some trivia to enjoy about one of my favorite movies:

• The filming of "Tommy Boy" did not go smoothly.  Chris Farley, David Spade, and writer Jim Downey had to travel back-and-forth from filming locations to New York, where the three were recording Saturday Night Live episodes.  This delayed the filming schedule of the movie.  In addition, Farley and Spade were known to get into disagreements, even physical fights, which also interrupted filming.  It was so egregious that director Peter Segal refused to work with Farley on his next film, "Black Sheep."
• In the movie, Tommy graduates (barely) from Marquette University and parties with his rugby teammates before he departs college.  Chris Farley actually played on the Marquette rugby team and earned a degree in 1986  from the same school.
• Spade refused to let the set's stylists work on his hair, which led to crew members joking about how tousled his hair looked, even comparing it to a toupee.  That's what led to the gag where Richard's hair flies back when a test engine is activated.
• Farley insisted on doing his own comedic stunts in the film, which is one of the reasons why so many people enjoyed his physical comedy.  The film crew wanted to get a stuntman to film Tommy crashing into a table at the fraternity party, but Farley said, "No way, I'll do it myself."  

Here's what we've seen so far this week...

What Are We Fighting - Inflation or Inflation?  The Fed continues to push the narrative that they are fighting "sticky" inflation.  So much so that they have been forecasting another rate hike in July, after pausing in June.  Well, the inflation numbers came out this week, and it's bad news for the Fed, good news for the consumer.  It reminds me of the scene in "Tommy Boy" when Richard and Tommy pretend to be airline stewards and Tommy nervously asks the real stewardess, "What are we having tonight - chicken or...chicken?"  (by the way, this dates the movie as airlines no longer serve full meals unless its an overseas flight)  Both the Consumer Price Index and the Producer Price Index recorded lower than expected readings for June.  The year-over-year number for the PPI is barely positive at 0.1%.  CPI is now less than its long-term historical average of 3.5%.  So, the question naturally should be, what inflation is the Fed fighting?  According to Arbor Data Science, supply chain issues have completely corrected from the bottleneck of the pandemic, which was one factor leading to higher inflation in 2021.  Remember the spike in used car prices in 2021?  That's come full circle as well as the Manheim Used Car Index is now at its 2nd lowest point in two decades.  If we look at the categories within the CPI, meats & poultry, used cars, gas, & airfare are all negative year-over-year.  Dairy products, vegetables, and apparel are all within normal ranges of inflation.  The only categories with considerable inflation still are vehicle repairs, rent, food away from home, and electricity.  The Fed's own Beige Book survey of the 12 U.S. regions indicates that companies are hesitant to raise costs any further due to consumers who are already sensitive to prices.  This would indicate that prices are likely to continue coming down over time.  So again, what inflation is the Fed fighting?  Futures are pointing to a 92% probability of a 25 basis point rate hike on July 26th, but that's not due to inflation.

Forge Ahead.  A pivotal scene in "Tommy Boy" is when Tommy wants to order some wings from a restaurant, but the waitress indicates the kitchen is closed.  Tommy goes through a lengthy discussion of why he's a terrible salesman. But, he changes the waitress' mind when he says, "That's when people like us have gotta forge ahead, Helen.  Am I right?" The market seems poised to forge ahead for the time being even with the information that the Fed may raise rates later this month. The NFIB Small Business Optimism reading for June came out this week higher than expected and is at a 6-month high.  In the numbers of that survey, Poor Sales ranked as the lowest concern and is currently at a multi-decade low.  So the consumer seems to be driving economic growth.  In fact, the Fed's estimate of 2nd quarter GDP has improved over the past few months from a low reading of +1.6% to the most recent reading of +2.3%.  This doesn't mean the consumer is out of the woods yet, especially if another rate hike does follow later this month.  Credit card interest rates are spiking, which may be why we saw a decline in total consumer credit for May earlier this week.  That number should be taken lightly at this point, as consumers could have been responding to higher interest rates or could have been saving up for summer vacations and putting less on credit temporarily. We'll wait and see if the consumer credit numbers for the following months show a slowing trend developing.  However, as prices drop and labor stays steady, consumers should continue driving growth.  In fact, the Fed's Beige Book showed that labor demand was healthy over the last couple of months.  However, businesses are more targeted and selective in their hiring.  Jobless Claims dropped this week, but we would like to see further declines as the JOLTs Job Openings also declined last month.  For now, the job cuts do not indicate any type of massive layoffs occurring.  In fact, June's Job Cuts were the lowest in 8 months.  For now, investors should not make irrational buy or sell decisions based on emotional or other reasons.  

Here's the famous scene where Tommy Boy describes his sales technique...

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