The American Consumer is DYING | Depression Warning

so we know consumers make up over

two-thirds of the economy and one of the

things I love paying attention to is

what's happening at the edges and the

fringes what's happening with poor

spending and what's happening with

richer spending because it gives us an

idea of where are people starting to cut

back and there are two areas we're

starting to see cutbacks where

ordinarily you don't want to see them to

keep a good boom bull market going and

in this case we're going to look

specifically at corporations and richer

household spending so let's jump in with

corporations then richer household

spending and then we're going to talk

about a CEO that lashes out about what's

going on in the market right now now

this is also related to the spending

sectors I'm talking about but I haven't

seen a CEO in my opinion in an earnings

call a professional earnings call lash

out the way this one does usually CEOs

are really respectful and uh you know

they they don't trash their competitors

uh all all bets were off this time

around uh and uh you're gonna see a

little bit of entertainment in an

earnings call which is usually the

opposite of what you would expect to get

in an earnings call but first let's

understand what Barons thinks is

happening in terms of corporate spending

take a look at this here's a piece on

company c a Slowdown ahead and this

figure tells the story so let's take a

look at the story that Barons is

suggesting so first companies are

tapping the brakes on Capital spending

as they anticipate cooling demand that's

not great they are conserving cash as

they prepare for a tougher economic

environment that might be prudent on

their part and good news for

shareholders after all good news for

shareholders when a corporation Cuts

back you temporarily see a boost to

operating profits right but what if

they're cutting the potential

investments in their business that

actually let them continue to seek

growth this is actually a very important

thing to consider when you're investing

in stocks is wait a minute it's

fantastic that the company I'm investing

in is cutting their SG a expenses

they're selling General and

administrative expenses but if they're

cutting selling are we potentially

robbing from the future growth of the

company to have a higher margin now

during potentially a weaker time and

often the answer is yes now in many

cases there are also companies that just

take advantage of the layoff cycle of a

recessionary environment to get rid of

poor performers this is very normal as

well after all think about it companies

don't want the reputation of firing poor

performers because if people regularly

get fired it makes it harder for a

company to promise job security to new

employees when they come

however if a company can throw up their

hands and say whoa recession sorry man

we gotta cut back we gotta you know we

can't even offer the food we used to

offer anymore sorry we gotta lay off a

bunch of people generally not always

okay not always but often the first

people to get laid off for the poor

performers that if a company had a

firing policy would probably be fired

anyway there are a lot of companies

where people would actually be really

hard workers in and they'd look around

and go this is so frustrating there are

other people putting in 10 the effort I

do if they get paid the same amount but

the companies don't have a policy where

they can actually fire people so they

wait for a recessionary cycle and then

they go through the weeding cycle it's

not not saying everybody who's laid off

is affected by that just saying it's a

very common thing that corporations do

so in this same weeding cycle what is

Barons telling us well they're actually

saying that companies may be cutting

back on cap X substantially based on the

charts Barons is looking at and that

could be a red flag for companies that

sell heavy equipment or Technologies and

systems used in capex now the first

thing that I think of when I think of

heavy equipment is I think of the

Investments that farmers were making

during the inflationary cycle after the

pandemic during the supply chain crises

for shipping but also for food like

Farmers for for even wheat after Russia

invaded Ukraine or other food products

that exploded after the pandemic such as

even chicken and so heavy equipment that

goes into farming or industrial

manufacturing or even the processing of

meats I think a lot of that heavy

equipment was purchased and invested in

during the pandemic or Commodities Bull

Run cycles and that may get rained in

now so I'm looking caterpillar John deer

is potential red flags here but I also

scratched my head and wonder what about

asml are they going to produce less chip

manufacturing equipment well Barons

actually gives us a little bit of

insight into this and stay tuned because

we still have to talk about that crazy

uh earnings call from uh from a

corporate CEO and it's a corporate CEO

you're all well aware of as well

so analysts expect aggregate capex for

companies on the S P 1500 index to rise

about seven percent just over one

trillion dollars this year according to

Citigroup that's down from a 21 increase

in 2022. that's about a one-third as

much growth and it really kind of

matches inflation it is expected to rise

just two percent in 2024. now this I

think is interesting one of the biggest

things that I personally have learned

during this cycle is that things take a

lot longer than normal to adjust it

takes a lot longer than you'd expect for

the market to bottom and for things like

inflation to actually go away that

patience is frustrating but it's also

good for planning because if we're at

the beginning of 2022 and we're thinking

all right recession's coming within the

next six months but it actually

potentially takes two years it would be

good to plan for that potential heads up

now weakness is expected in more

economically sensitive sectors although

those that see sales rise and fall with

demand economic demand the consumer

discretionary sector which includes

retail restaurants and hotels is likely

to see capex explain a drop rather by

three percent this year now that's

interesting because retail restaurants

hotels and the like which would include

Airlines would make you wonder wait a

minute is it possible that that booming

segment where jobs and wages are growing

so strongly in retail restaurants

Airlines hotels hospitality is it

possible that those companies are going

to rain back their expenditures on

coffee machines new stoves uh you know

new equipment for their airplanes

whatever as they try to maintain profit

margins and as they start seeing

competition at the top where they can't

raise prices anymore the answer to this

is likely yes consider for example what

Darden the company that runs Olive

Garden for example is doing their

talking almost solely about efficiency

and productivity and doing more with

less back a year ago all they were doing

was bragging about how they could raise

prices this conversation a narrative has

completely turned on its head now all of

a sudden this the companies are

realizing they're in a situation where

they're looking at the scoreboard and

they're going uh oh lost the lead that's

not good they don't want to lose a lead

they want to stay ahead but they don't

have BB anymore they're not pricing

power so what do they do they stop

investing in their business and new

equipment to try to maintain margins to

appease their shareholders

excuse me that is really borrowing from

the future and giving to today because

if you don't continue to reinvest in

your business your sales will probably

suffer in the future it's one of the

reasons I'm personally bearish on uh on

on retail and hospitality and travel I

understand there's a boom in that now

but I'm bearish on it because I don't

think it'll last in fact before we

continue with this Baron's piece I could

tell you that there are already red

flags that some of these sectors are

starting to get hit look at this here is

a piece from Bloomberg talking about

hotel rooms over 500 a night are too

much even for Rich Travelers and they

talk about here this may be a reflection

of diminishing consumer confidence that

inflated prices have not been

accompanied by a proportionate increase

in service quality see this actually

directly relates to the Barons piece and

the argument that I'm making where

companies are starting to cut back to

maintain whatever margins they have they

can't raise prices any more than they

already have but then people are going

what the hell I'm paying a premium and

you all aren't even keeping up with

expenditures and investments into your

own business the service is actually

getting worse in certain cases despite

you paying a premium for certain

products the results come during what

should be one of the busiest periods for

travel booking March is when people

start finalizing summer plans and early

birds get a jump on year-end holiday

reservations okay however some 69

percent of poll participants said their

maximum budget per hotel room was 500

while 24 were willing to spend a

thousand dollars still five percent set

their limit at two thousand and two

percent were willing to spend three

thousand respondents include Traders

portfolio managers senior managers and

Retail investors uh although 500 to 1000

might seem high the range eliminates the

fanciest hotels in major markets okay so

they kind of give a little bit of a

breakdown here of of this survey and

here is where they suggest a difference

I'm always interested in the Delta the

difference of what's going on the

results of the survey suggest that

luxury hotels restaurants and Airlines

will face increasingly irritated

customers or consumers this summer I

don't even want to talk about how

disgusting uh uh some hotels have gotten

in that it's kovid's over and they're

still saying yup tip sorry no room

service you know covert and I'm like

this is yeah it's crazy uh

anyway uh bank failures fast inflation

elevated mortgage payments and the

softening labor market especially in the

high income sector such as Tech could

see tourists keep discretionary spending

in check this is a shift we wrote a

little note here this is a shift uh from

what we heard from American Express

where individuals were still spending

through the recession that was in the

American Express last quarter earnings

club and American Express appeals

heavily to white collar and and higher

income individuals so what's important

about this well what's important is

we're starting to see complaints at the

margin at sort of the right side of the

right tail maybe the higher income tail

where people are starting to go okay

starting to run out of money here and

starting to have to pull back in my

opinion that's negative not just for the

companies that would be investing in

capex like we were talking about the

hotels or Airline manufacturers but it's

also a red flag that not only are we

going to start seeing some of that

softening at the lower consumer end

where we're probably going to see most

of the softening and most of the hip but

we're starting at the margin to see some

hit to that discretionary higher income

phase uh and that's something to pay

attention to as well this is why I

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but going back to this and wanting to

get into what this CEO is saying as well

I do think it's worth wrapping up on

this piece right here before we

transition where there's this mention

here in Bloomberg that retail investors

see positive Airline share drivers but

institutional and professional investors

actually think the airlines are going to

get hit pretty hard based on a lack of

potential capex spending that we're

starting to see at some of the airlines

going back over here to Barons look at

this the reason companies are watching

their big ticket spending is because

they're preparing for more muted demand

and profits you know there used to be

this story uh that uh uh that my

father-in-law used to tell me he goes

Hey Kevin you know there's this uh

there's this story about uh this father

who ran an antique shop off the highway

and uh and the anti shop was doing very

very well it was like 2021 right the

antique shop is killing it it's got

growth its income is going up

everything's fantastic it's spending

money on Advertising it's growing it's

going great

and then the son whose college educated

says well Dad don't you realize we're

going into a recession you should cut

back and so the father-in-law says oh no

uh or the father said we're going into a

recession that's that's terrible well we

better cut our spending let's let's cut

our spending on that billboard that we

have at the corner of the freeway that

says Exit here to our antique store

let's let's not spend the thousand bucks

a month anymore on that billboard

because we need to prepare for the

recession and so they canceled the

billboard

sure enough people don't come to the

Antique store anymore because now the

billboard is gone and all of a sudden

income falls for the store The Father's

like my gosh son you were right we're

going into a recession

and the point of the story is to argue

that good Lord you know some of of the

recessionary impact of the economy that

we're in can very much be

self-fulfilling when businesses cut

their cap X spending they can induce

their own recession now this is exactly

why uh and I try to be really neutral

here I'm just going to put my cards on

the table and go the reason I selected

the cards that I did is because I think

the cards that I chose the stocks that I

chose are basically businesses that not

only have pricing power but are going to

continue to invest in capex and growing

their businesses during the recession

whereas other businesses are cutting so

I think Consumer Staples restaurant

retail Hospitality all of those uh and

even the Industrials like the Johnson

and Johnsons the 3ms I think they're all

looking at

all of them because their self inducing

basically their own recession whereas I

think the companies that are not are

first of all the ones getting the stemi

checks but second of all the ones that

are basically the growth companies of

the next decade the energies the chips

uh certain electric vehicle

manufacturers right those are the ones I

think have pricing power because first

of all they're getting massive stimmy

checks from uh the government that

really helps you continue to spend and

if you continue to spend you continue to

grow and you don't self-induce your

recession think about it for a moment if

you're that antique store except instead

of selling antiques you sell solar

inverters

and the government's like hey don't cut

back on spending here's billions of

dollars here's a fire hose of stemi

checks please keep investing in your

business and spending spending spending

those businesses can be like all right

[Laughter]

like I hate to call it like stupid proof

because obviously I can't guarantee it

but I'm just saying if I could shake

people and go come on it's obvious go

where the stimmy chicks are going

uh anyway so let's keep going with this

Barons piece here and then we got to get

to that corporate Lasha the reason

companies are watching Big Ticket

spending is because they're preparing

for muted demand and profits the federal

reserve's interest rate hike started

last year but usually reduced demand and

inflation with a delay so companies have

only begun responding as they reduce

large Investments once they see the

beginnings of Destruction to demand and

sales in fact city data shows that in

the past few months banks have tightened

their belts on lending as a result of

consumer and business credit worsening

which should curb demand now I'm

actually surprised that we've actually

started seeing some tightening on this

because the banking crisis according to

NatWest and many banks hasn't really

started yet but then again they're

talking about the past few months so it

is it is true that we have seen if if

the line is down like if I invert this

usually tightening credit standards is

an upline but if you invert it it just

psychologically makes a little bit more

sense like less availability of credit

the credit tightening has kind of been

doing this anyway I think there's this

anticipate that the bank crisis would

lead to more of a drop off but that

hasn't happened yet but yes overall

larger bags have been uh tightening over

the last year uh okay so this reinforces

stagnating earnings growth concerns

stagnation is oftentimes what leads the

stock market to turn red the good news

though is according to Barons the stock

market has already reflected much of the

economic challenges and the s p 1500

while above its low of the bear Market

is still down 14 from late 2021's record

high the other good piece of news for

stock investors is that lower capex

means companies have more flexibility as

to what they can do with their cash they

can return more cash to shareholders

through dividends and BuyBacks this by

the way I think is a mistake

I really think it's a mistake for

corporations to give more dividends

right now they should be investing more

of their businesses but that's okay I

still invest in some businesses that do

BuyBacks as well look at end face for

example which amplify shareholder

Returns the s p 1500 free cash flow is

expected to gain nine percent this year

because of reduced capex that's fine but

what's that going to do to return to

earnings next year the point is that

investors should expect weak demand

going forward but that doesn't mean

completely shy away from the stock

market fine but what do we want to keep

in mind going forward and where's the

CEO lash out well the first thing that I

would keep in mind is and it meant I

alluded to it earlier and I wanted to

give you my opinion on I was initially

thinking okay caterpillar John Deere but

what about asml I think because of the

chips Act and the massive amount of

factories that are going to be built in

the next few years and the fact that

there's like a two-year wait to get a

lot of this industrial equipment I think

companies like asml are actually going

to be just fine thanks to this this

massive inflationary stimulus checks uh

that are coming to not only electric

vehicles solar and such but chips

specifically so

now we have to get to

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channel if you go to metcaven.com

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if you sign up anyway but we now have to

look at this earnings call where I have

to say I feel like this guy is totally

depressed I initially talked about this

earnings called in a course member live

stream and we only briefly looked at it

because we had multiple other analyzes

to do I really enjoy doing the

fundamental analysis with all the course

members uh but this one I went into a

little bit more detail and I just want

to read you some of the segments here

I'm going to read you some of the

segments here of this business because I

want you to see the sentiment change

remember what happened when we went into

this crisis in 2022. everybody's talking

about how they can raise prices and how

great everything is right well now what

I want you to see is the sentiment of

the CEO of none other than Restoration

Hardware yes restoration Hardware so

Steven Forbes an analyst ask the CEO can

you talk about an inflection point

within the business and here is are some

of his responses

sure I think based on the times we're in

and uncertainty we're facing whether

it's the continued rise of interest

rates or the next bank or two that get

hit it's hard to be anything but

conservative right now I think it would

be foolish to be not just from the

perspective of disappointing investors

but disappointing ourselves and possibly

making decisions and investments before

we could see around the next corner you

hear this reign in don't spend more on

capex reign in get small get scared is

what he's saying because we haven't seen

around the corner yet because instead he

talks about it's a very unsettling

feeling it's like the days of Bear

Sterns and Lehman Brothers and we're

just waiting for the next shoe to drop

it's very unknown right now so we

believe that there will be an inflection

point in the second half notice he

doesn't say good

we don't know what it is what will what

will the economic environment be in the

second half what would be the condition

of the banking industry in the second

half where will interest rates what

would be what if inflation is persisted

all one has to do is Google the history

of the fed's funds rate and zoom into

the 70s and 80 80s and look how many

times the federal resolve Reserve

brought inflation under control yes yes

Mr CEO let's completely ignore that in

the 70s we left the gold standard and we

let inflation expectations on anchor and

the FED had a start stop mentality that

led to a lack of confidence for the

Federal Reserve let's completely ignore

those things and let's just talk about

the fear of the 70s and 80s how

basically we have to not spend money

anymore because we don't know what's

around the corner this is literally a

CEO that wakes up it probably loses

sleep at night and then wakes up in the

morning trembling that this company is

going to poopsie doopsy this is

Restoration Hardware by the way and I

mean if you just look at their earnings

uh right here you can see their margins

are starting to get hit now over here on

the right side you've got uh their past

margins and their income from operations

at 14.5 percent way down from the over

20 percent we used to uh see their net

income is down about an average of about

three percentage points over here

compared to the Past reporting quarters

so you could tell there's probably

there's a numbers reason why as well but

let's keep going with what he's saying

because he starts getting a little

angrier

there's not there's not oh my God hello

grammar uh there are not many people do

you know they should really have a word

thereer right like it should be there

like that that should be a word it

should be pronounced there there are not

many people on the planet see that would

be good grammar a shortening of there

are but that's how it should be written

but that doesn't exist instead people

get lazy and then they just say theirs

because there's no contraction for their

R that's kind of weird isn't it uh

anyway uh in in this context okay so

continuing uh I don't know why we go on

these grammar tangents there's

there are not many people on the planet

in levels of authority and

responsibility that we're old enough to

experience those times and I think

having a conservative View and being

prepared having a strong balance sheet

and trying to see the whole board and

all of the moves is basically prudent

okay that's fine it's always making the

argument that we're so scared at

Restoration Hardware we're gonna

basically compare this to the 70s and

80s and and try to buckle up as much as

possible which is not a bad idea it is

not a bad idea to say uh hey let's let's

pause uh and let's make sure we can

reign in to make sure we're not running

away and spending all of our money and

not being conservative to where then we

have to get emergency that debt right

that would be very bad I'm sorry if

you're sending me promotional emails

every day uh if not every day multiple

times a day calling them different

things you want to call your promotion

something different that's interesting

he's starting his little lash out right

now we're not pushing the Panic buttons

on promotion I wouldn't call it Panic

kind of promotions it's really trying to

hang on to the illusion of where the

business was in the pandemic right so in

other words he's starting to elude to

how they are different from other

businesses they're saying we're not

going to do promotions because we're

Restoration Hardware and we're fancy and

better than promotions and then he's

starting to compare to other businesses

that are sending promotional emails

every day sometimes multiple times a day

he could smell the fear at other

companies because they're freaking out

and they got to get more sales well take

a look at this I have never ever seen a

CEO pull this one so listen to this

so and that's even in this environment

and the product that's on its way is by

far the best work we've done talking up

their business okay great how they're

not how they have a value proposition

and they don't have to send all these

disruptive promotions to people that are

below us uh it is wait what and I think

that will be disruptive not only to the

high end it's going to be disruptive to

the people that are below us in the

market just because we have the scale to

buy in stock inventory and many people

don't in other words you really have a

CEO who's literally like we don't spam

people with promotions we aren't going

to be suffer like the people who are

below us because we're the high-end

Corporation and then listen to this

literally goes on

to name a company by name and bag on

them you ready for this here we go

the platforms that are out there today

whether it's a Wayfair or others again I

understand they don't take the position

we have on inventory so they can't

really Buy in volume because they're the

poppers they're the poor normies so

continuing with the quote here so they

because they can't buy in volume they

can't drive efficiency so a lot of

people say well aren't you worried about

platform so I think platforms ought to

be worried about us you know like those

website platforms they should be worried

about Restoration Hardware there's not a

lot there's not a platform that made a

dollar yet or anything I mean Wayfair

made money during the peak of the

pandemic for God's sake no and look May

Wayfair be able to hike their prices and

make it I don't know all I know is we've

got a really great model we've got I

think the most compelling Vision in the

industry

the guy is literally dumping on Wayfair

saying they only made money

during the pandemic and basically

Restoration Hardware is so much better

because they have scale and and they

have a reputation and they have a brand

and uh but at the same time we're

worried about the 1970s recession and

we're worried that listen to this I

think it's more uncertain today than

2008 and 2009. if you didn't have the

inflation problem that we had today and

you didn't have the political unrest

maybe it would be interesting but but

you do and so uh if there isn't a

complete crash uh which a complete crash

would look like the 70s or 80s which

would ultimately mean it would take over

a decade to recover from the recession

uh then then maybe we could pray for not

a complete crash but this is what we

want to prepare for so I kid you not

Restorations Hardware CEO is losing his

sh9t he is literally losing it lashing

out at the competition lashing out at

promotional emails and lashing out that

basically we're walking into the 70s and

80s and as a result they're going to

pull back on spending that's crazy

so look at this in a typical environment

in a slowing Market there's usually one

thing to hit us at once but multiple

things are hitting us at once now look

at this listen to this

yeah I think you've got you've got about

a 20 margin floor not in the worst

housing market though right now we're in

the worst luxury housing market I've

ever seen the one of the worst housing

markets anybody has ever seen I think in

the third quarter luxury housing fourth

quarter luxury if you think about where

luxury housing has been it was down 18

of the first quarter down 28 in the

second quarter down 38 in the third

quarter and now reportedly down 45

percent in the fourth quarter which

means because you're talking about

months they're kind of going down it

probably means the last month of the

fourth quarter was down close to 50

percent

damn

[Music]

you've got the refinance Market which

nobody's refinancing so nobody's able to

buy new furniture and that means the

Market's really down like 80 or 90 or 70

or 80 percent

oh man this is by far the most comical

but also kind of scary earnings call

I've ever seen this is the CEO of

Restoration Hardware but then but then

listen to this

we're cutting through the noise that's

what we're doing we're not panicked

we're not nervous

joke ever and that then he even he even

goes on to say this

do I wish yelling we'll just tell

everybody we're gonna backstop

everybody's savings and dance in other

words do I wish we could just go back to

the stimulus days of course

but I think instead we might be facing

more of the 1970s

this is by far uh

uh the uh I don't know whether to be to

be scared uh or or to think the guy has

just lost it but uh you're definitely

seeing a CEO here that's a lot more

nervous uh than I I've really seen

anywhere and I have to say

first of all anybody buying Restoration

Hardware stuff in this market

probably needs to look at themselves in

the mirror and go why am I not buying

stocks right now and instead spending it

like why am I spending money on this

expensive furniture anyway so first

things first you shouldn't be buying

crop at Restoration Hardware in this

market do the save that for a bull run

when you trim some of your highly

profitable stocks and then go splurge on

stupid furniture

in a bear Market is now the time to go

shopping at Restoration Hardware first

of all my advice second of all

I think the CEO is seeing a

disproportionate impact because I think

people are smart and realize the worst

thing to do is spend money like this at

Restoration Hardware and so he's seeing

the writing on the wall that this

company is going poopy doopsies uh and

it's probably going to be a while before

recovers part of me after that fear is

is almost tempted to short the stock uh

now In fairness the stock has already

come down

substantially and maybe that's why he's

freaking out let's go over here to

Weeble which is the platform that I like

using whether it's for trading or

looking at the charts if you go to

Weeble and you look at the pandemic low

of 2020 we're at 73 bucks we're way up

from that right we're 3x from then but

look at what we're down from 744 and we

hit a low of what 208 roughly so we're

sitting in the bottom section here of

the Fibonacci and frankly this company

might actually break lower it's had a

very rapid decline already so I don't

know how much is left to squeeze out of

this lemon in terms of a short but if

you're looking for a CEO that's

panicking I'll tell you I don't think

there's any company that is more fearful

right now than Restoration Hardware and

unfortunately it's kind of a slap in the

face to what American Express was

bragging about and maybe it's a leading

indicator that American Express is next

which some businesses by the way have

you ever heard of this they call

American Express American surprise

uh yeah anyway uh so

um I think that's when small businesses

kind of get frustrated at the fees they

get charged but anyway so American

Express talks about people spending

through the recession well if people are

using American Express at uh

Restoration Hardware then you might have

a reason to say maybe American Express

might be next so American Express is axp

stock and you can see they might have a

little bit more on the FIB retracements

to go down so if I adjust the phoebees

over here let's do a quick adjustment uh

keep in mind we talk about fundamental

analysis uh every single day in the

courses on building your wealth link

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take a look at this for Russ or for

American Express we've definitely come

off some of the highs following the

banking crisis over here this is the

week chart as well by the way so we've

been teetering around this 162 level it

is possible in my opinion that American

Express could go right back to these

about 145 levels if not even I actually

don't think we're going to test the 129

but 145 would be a reasonable so if I

was looking for a short it'd probably be

more likely to hit American Express as

opposed to Restoration Hardware if I

thought at the margin we were going to

see reduced spending by rich people

because really that's what matters it's

that discretionary credit card style

spend at the margin I think businesses

uh or or like chip companies or or

otherwise they're still going to spend

money on chips but I don't know if

they're using American Express or

Restoration Hardware as much anymore so

in my opinion you're starting to see the

cracks not just on the lower end but now

you're finally starting to see the upper

end cracks and I'll tell you I it like

look I'm a licensed financial advisor

every single day I try to read earnings

calls this isn't personal financial

advice but I try to read an earnings

call a day and I have never seen a CEO

lash out like this I have seen pessimism

and on certainty but this wild I have

not seen this before so anyway with that

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