The Recession is Cancelled | Warning.

the recession is canceled or is it and

that's the big question we've got to

talk about now because now there's a big

debate going on on Wall Street about are

we going to experience a hard Landing a

soft Landing or no landing at all that's

what's being debated by economists now

and the fed's mouthpiece Nikki T is

adding some insight and some commentary

into it and we'll analyze that as well

as providing more perspective but first

we got to look at what JP Morgan has to

say and JP Morgan isn't very excited JP

Morgan suggests that disinflation that

we are seeing in markets now might end

up just being transitory which this is

basically egg in the face of the Federal

Reserve it's the idea that hey Federal

Reserve y'all thought that inflation

going up was going to be transitory and

what ended up happening it ended up

skyrocketing and Lasting a whole lot

longer and being being a whole lot

bigger than you thought it was going to

be and while that might be what every

woman in America wants to hear it's not

what we want to hear in economies now

you've got folks like Marco klonovac

over at JPM suggesting hey hey wait a

minute now you're arguing we're seeing

disinflation Mr jpow yeah well we think

your disinflation might end up being

transitory in this next upcoming CPI

report could show us how transitory it

ends up being that disinflation in other

words right back to inflation and JP

Morgan of course picks up on this idea

that jobs growth is pouring cold water

on the idea of a soft Landing uh that uh

ultimately jobs growth is reheating the

economy they also suggest that at 68 of

s p 500 companies have beat EPS

estimates now while that's lower than

the long term term average of 75 percent

it's still pretty good it shows things

aren't actually as bad as it seems and

wage growth while it seems to be

tentatively moderating because of higher

job openings PMI starting to rotate back

up again and uh reports from uh from

earnings showing that maybe things

aren't that bad maybe we might end up

having to crimp the economy

substantially further which this is

basically JPM arguing hey you know

you've got a situation right now where

look you might end up having a fad that

has to tight tighten a lot more than

they think while at the same time

companies are choosing well do we lay

off people or continue to see margins

suffer because margins are the big

buffer right now and JP Morgan suggests

in their belief the stock market is

going to end up hitting an air pocket in

Q2 or Q3 this is all in reference to

kind of like the the soft Landing idea

and it's basically suggesting hey if the

plane comes in for a soft Landing that's

one thing JP Morgan thinks we're still

flying but we're gonna hit an air pocket

and kind of fall in like a sort of

turbulent pattern in Q2 and Q3 and the

reason we're going to do that in their

opinion is because the Federal Reserve

is likely to hike more aggressively and

that is going to end up hitting earnings

and especially stocks a lot more than

individuals are expecting in fact JP

Morgan throws cold water on this idea

that hey look we broke the 200-day

moving average there's a golden cross

we've got all these technicals

suggesting to potentially the beginning

of a new business cycle what does JP

Morgan say no we are not at the

beginning of a new business cycle or or

you know economic cycle we are actually

at the tail end of the current crash and

that actually means there's more pain to

come and this idea of a soft Landing is

nonsense well to counter this sort of

bearish view from JP Morgan that the

soft Landing is nonsense and that things

are going to get worse and if anything

we should actually be looking at a hard

Landing now to counter that you actually

have this idea of well maybe we

shouldn't be talking about a landing at

all and this is what Nikki T has been

tweeting he posted this article being

published in today's print uh actually

my newspaper should be sitting on my

front lawn right now I'm a big fan by

the way of reading print but I I'm also

a fan of reading digital I do both uh

and the print is great because you don't

miss anything right I actually saw

Charlie munger's op-ed in print and I'm

like this is so cool just because it

feels old school but anyway uh so hard

or soft Landing some economists say

neither if growth accelerates now this

is very interesting because you have JP

Morgan suggesting we're going for the

hard Landing you've got technical

analysts suggesting no we're going for a

soft Landing because we broke the

200-day moving average and the numbers

just aren't that bad you know companies

aren't missing that terribly so well

what does Nick T say in his article and

where can we add some perspective well

he says the following surprising

strength in hiring and consumer spending

last month together with signs that

demand for Autos in the housing market

might be stabilizing after a decline now

have some economists pointing to a third

scenario that seemed improbable just a

few weeks ago an actual economic growth

upturn in other words a no Landing

scenario now that's really interesting

because everybody's been talking about a

landing and now let's talk about what if

there's just no landing at all what if

we don't actually have to land the

economy what if we just keep on flying

could be fantastic now Auto prices have

moved up but it's worth noting that

mortgage rates uh which which somewhat

potentially signals a bottom in the used

auto market but this idea that the

housing market is picking up I think is

a little bit of Click bait because

unfortunately even though mortgage rate

rates fell in December look just on

screen now here at the tick up that

we're seeing in mortgage rates going

into February they're taking right back

up at a 740 credit score you're still

sitting at nearly six and a half percent

at 6.44 for a 30-year fixed rate

mortgage that's not necessarily

conducive with the housing market that's

going to pick up again if anything it's

conducive with a housing market that's

going to fall again but anyway let's

keep going and add some perspective for

this idea of a hard or soft Landing so

here's an individual who talks about

there's a huge reluctance to admit the

obvious which is this idea that the

economy is re-accelerating full stop

says this particular individual from the

research firm Renaissance macro now this

is the idea that look people gaining

jobs is actually a good thing remember

Jerome Powell's dual mandate his dual

Band-Aid is stable prices and maximum

employment if we have stable prices he

does not need to force a recession that

is very important to remember drum

Powell does not need to force a

recession and create unemployment as

long as we do not have the symptoms of a

wage price spiral which so far it

doesn't look like we have the symptoms

of a wage price spiral if anything it's

becoming easier for companies like

Starbucks and Walmart and chipotle to

hire individuals and as you saw with

Lyft and Uber there's been a massive

rise in the number of people willing to

drive 36 percent increase at uh at Uber

and as Lyft calls it an extreme increase

in the availability of labor at Lyft

leading to a reduction of prices leading

to a reduction in Peak pricing leading

to a reduction in margins for companies

like Lyft now moving on there's some

talk about here how the Federal Reserve

has raised rates at the fastest Pace

since the 80s and while wage growth

slowed in January there was an increase

in hourly hours worked which kind of

implies this idea that hey maybe no wage

price spiral but you're actually having

an economy that's recovering a bit which

is good now I think this so calls for

patients and real estate because of the

the uh pick up again in raids but you

know you've got this idea now that what

if we have no landing at all now some

people like folks over at Morgan Stanley

respond and they say well you know uh

the longer we fly the longer we have a

risk that we run out of fuel and we

break something I personally actually

think sure it's possible we could have a

Black Swan but I actually think this

analogy is kind of flawed this idea that

we have to come in for a landing at all

and it's true you know if maybe maybe we

were coming in for a landing but now

we're doing a go around or where you

know what we're like we don't want to

land anymore we're just going to hit the

gas and fly again you know planes that

are coming in for a landing they can

just hit the gas and take off again like

they don't actually have to touch the

ground at all I think it's it's easy to

forget that uh and and so this idea of

of constantly comparing the economy to a

plane it kind of suggests that well why

didn't we run out of fuel in 2014 or 15

or 16 or 17 or 18 or 19 when the economy

he's just continuing to grow the in my

opinion we have to remember that work is

basically fuel for the analogy of the

plane so the more the economy functions

and grows the more fuel it actually has

so this idea that we have to force a

recession uh or land the economy I I

think is actually a fair one to say that

we don't need to it is fair to say that

maybe there is a no Landing scenario at

all uh and that really we are seeing the

biggest cushion come into play from uh

margins at companies and we'll talk

about that in just a moment but

regarding the economy itself we're now

sitting at a 90 chance that we're going

to hike rates to five percent by June

that's double that odd from a 45 uh from

45 percent ago uh just a month ago and

we're seeing more spending right we saw

retail sales rebound consumer spending

rebound Visa Mastercard all reiterating

this uh Nick t apparently forgot that

mortgage rates have already moved back

up and now this is an interesting one

because Nick T doesn't provide all of

the color that he should hear and this

is where I always like to provide

additional perspective see Nick T here

mentions that Unilever the maker of Dove

and Ben and Jerry's ice cream mentioned

that Revenue was up nine percent in the

fourth term even as volumes fell and

Prices rose 11

Pepsi talks about increasing sales

prices as well well fortunately I

actually have those earnings calls and

one of the things that I noticed going

through these earnings calls that's very

very clear is that these companies while

the yes they do talk about increasing

prices they talk about no longer being

able to increase prices suggesting that

the consumer is burned out of price

increases let's look at Unilever a

little bit in detail and let's look at

Pepsi a little bit in detail so what do

we have over here

so uh we have uh we have volume being

impacted more than expected volume was

less than they would have modeled at

these levels of price growths and that's

because they have experienced

extraordinary inflation this is Unilever

so it's important to know that yes these

companies have experienced uh inflation

and there is still inflation in the

pipeline and that yes as China comes

back we should see potentially some

pressure on Commodities but what does

Unilever say here gross margin was down

210 basis points reflecting the fact

that the fact that despite stepping up

pricing and Landing higher delivery from

our savings programs we were very

mindful of the pressure on consumers and

chose not to fully offset the

extraordinary level of inflation through

pricing in other words they didn't have

the big enough PP to pass on all of the

price increases this actually shows you

that even though oh even though you

still have inflationary pressures

companies are realizing we can't keep

raising prices we can't keep raising

prices because we don't have that big of

a PP and this in my opinion is not a

sign as Nick T implies in his article

that oh my gosh these companies are

raising all this pricing that's where he

stops in the article but Nick bro you

gotta go a step further man you got to

go a step further and analyze is it

possible that those price increases are

done or that they're not actually a full

price increase that could be made and

the answer to that is absolutely yes the

companies themselves are telling you

that even with the increases we are

getting hit with margin we are not able

to fully cover the price increases

currently and even though we were able

to cover a lot of them we are not going

to be able to continue doing that in

2023. in fact Unilever is now talking

basically about scamming people okay I'm

being a little facetious with that but

they're basically talking about yeah

we're looking into our architecture for

how we package products to basically try

to pass on higher pricing while giving

less product right when they talk about

price pack architecture that's what

they're talking about it's like your

beer that was ten dollars used to be 12

ounces now it's 10.9 ounces right that's

basically shrinkflation uh and and

they're they're frustrated because

they're realizing their margins are

getting crimped listen to this quote

right here I'm I'm literally reading it

from the horse's mouth here so that's a

bit of a comprehensive Tour on the last

year characterized by high levels of

pricing and pack price architecture and

lower levels of promotion that's 2022.

this year there will need some we will

need some level or some list pricing and

probably use mix more in 2023 than we

have historically in English

peepee down we can't raise prices as

much anymore volume is expected to be

negative going into the next year

because of price elasticity being

limited people have a limit to how much

they are able to pay and so you are

seeing that limit show up over here

you're seeing PP falling that is

Unilever but Nikki T didn't just mention

Unilever He also mentioned Pepsi so what

does Pepsi tell us because after all

Pepsi raise prices a lot right well

let's go over to Pepsi and let's just

briefly look at what Pepsi has to say

for us okay first thing we have right

here is on inflation

I have a couple of comments on that

number one obviously inflation is still

out there as a factor for us partly the

fact that inflation is still high it's

not as high as it was before but then

the numbers are still relatively high so

we know this in the food and beverages

space and Aerospace space space you

still have lingering Embers of inflation

we know that we know that with certainty

but what do they talk about instead of

raising prices what does Pepsi talk

about yeah

um this year we really want to grow

productivity they literally say that

we're looking to drive a lot of

productivity this year and put

Investments back into the business and

consumers are responding positively to

this but our expectation is to hopefully

have margins in line with 2022. so

listen to that for a moment they're

going to increase productivity in 2022

but have margins in line with 2022. in

other words

their costs might be going up but

they're not able to pass those costs on

to their consumers instead they're going

to increase productivity to preserve

their margins think about that visually

for a moment okay

if the red line is pricing and the

orange line is cost on the left it's 22

on the right it's 2023. if the company

is saying hey we want to have the same

bottom line which is the X we want the

bottom line to be at the same level

margin if we want margin to be at the

same level and we're not increasing

pricing instead we're going to increase

productivity to absorb uh the the orange

increase here

then we are preserving margin through

more productivity not by raising prices

that's what they're talking about here

we're not raising prices anymore uh or

we're not able to anymore because people

are starting to react negatively right

that's a problem

so I wanna so here's somebody who wants

to ask about pricing and the higher

range and stuff they're or they're

talking about winning uh uh winning

uh winning market share they talk about

how in the last two years there's been

more pricing increases in the last two

years uh obviously we know that we've

had a lot of inflation the last two

years so that's not a surprise and then

over here we have uh Revenue growth

still growing at a healthy rate and we

feel good about that guide uh and

volumes yeah volumes might go down a

little bit but let's see how the year

plays out so and they say right now the

consumer is still quite good but we're

planning for multiple scenarios so what

do you have when you actually read the

entire Pepsi earnings call you don't

have a company that same thing at

Unilever you don't actually have a

company that is saying hey we're going

to keep raising prices that's not what

you have at all so Nick T in his article

is like basically ending the article by

saying uh well you know I have still

inflation uh but the reality is these

companies are out of steam these

companies I'm going to write it down are

out of steam to raise prices instead

they're talking about productivity and

volumes going down that's what they're

talking about productivity to preserve

margins and volumes going down they're

also talking about packaging

uh stuff differently

to basically trick the consumer I mean

that's just what shrinkflation is right

it's a trick of the consumer uh and so

even though there might be higher input

costs they realize the ability to pass

that on to Consumers is limited and I

think this is something very important

to remember is that the Federal Reserve

right now cares about c p lie oh sorry I

meant to say CPI there we go the Federal

Reserve right now cares about CPI

they do not as much care about b p i and

the fed's version of CPI is p c e

personal consumption expenditures anyway

this is important because these are very

different

consumer and personal is very different

because it's the end product price the

end product price at companies even like

Unilever and Pepsi

or other companies like Starbucks and

chipotle and Whole Foods uh at the

clothing companies all of the companies

that I'm reading about that sell stuff

to Consumers are like we are tapped we

can't raise prices anymore the only

places I'm actually seeing price

increases are like in Aerospace or

Industrials and in some of these raw

material impact inputs for producers so

we could be in a situation where yes you

still have producer price inflation but

you don't have as much CPI or pce so

what does that mean because you might

ask yourself but Kevin but Kevin if

input costs go up so in other words if

costs go up the PPI goes up how is it

possible that CPI doesn't go up what's

simple it's the elasticity of demand

puts a limit there's a ceiling and that

ceiling is measured by CPI but Cavett if

the producer price goes up doesn't the a

ceiling have to go up no because people

stop demanding the goods or the services

if it goes up so then who pays for it

Kevin simple

margin margin go down profit at

companies goes down let me make that

even more simple

earnings

go down and so this is where you can

actually potentially go back to this JP

Morgan article where they talk about

seeing equities hitting an air pocket

during Q3 and Q2 why because earnings go

down earnings go down not inflation go

up for consumers that could actually

potentially lead to the no Landing

scenario so what is a potential no

Landing recession is canceled scenario

look like well here's what it looks like

throw that up on screen a no Landing

scenario looks like the following it

looks like basically uh job growth

wage stability so in other words more

people employed but wage stability it

looks like Consumer Price stability it

looks like Embers of inflation still

coming through but new Embers not

forming it means earnings down

especially at food and Staples this is a

red flag because if you are if you have

been investing in Staples in 2022 you're

probably going to see the margin impact

in 2023 so that's something to keep in

mind so how do you potentially avoid

that impact well potentially you look

for pricing power stocks where could

those be maybe and it depends how the

economy moves this could flip-flop but

maybe that could end up being uh in

Renewables if the economy does well if

the economy does poorly uh then and you

actually do go into recession Renewables

would probably do poorly uh it's

potentially in uh uh in tech and and AI

in in stocks that have substantially uh

been burdened but now these companies

have hopefully

streamlined their margin a little bit by

laying off and maybe we go back to uh

economic growth and then generally these

companies that have sold off over the

last year would be the beneficiaries of

that maybe right but it depends so these

Renewables of tech AI would be great in

a re-acceleration environment if we

actually do go into recession

environment this is the the the riskiest

scenario because this is where you just

ultimately have a selldown of everything

right as we've seen over the last year

but anyway the no Landing scenario is

actually bullish in my opinion for for

growth Renewables sort of a

re-acceleration in that area and not so

great for restaurants and uh your uh

your your more uh price sensitive uh

areas so uh you know again you're

looking at uh uh evidence of this this

cap on pricing even coming from Tyson

Foods right price and foods like yeah

look some of our costs are going up but

we we just can't raise prices anymore

because our PP is getting small

something important to keep in mind very

very very important