Buffett's Recession Buys **BEFORE** Jackson Hole [Prepare for Fed]

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Jackson Hole on Friday. Well, this

Friday at 7 a.m. Pacific time, we hear

from Jerome Powell as he heads to

Jackson Hole to give the good old

Jackson Hole Symposium opening speech.

And markets are pretty tenuous for

figuring out what the heck is he going

to signal. Last time he spoke to us, he

talked about the potential of us needing

to be grateful that he wasn't hiking

interest rates while at the same time

saying that the labor market is a fine,

which both of those make us wonder, is

this guy just purely tonedeaf?

Does he not realize the pain that's

happening in the manufacturing space?

The pain that's happening in the retail

space, the pain that's happening in

parts of the economy affected by

immigration or just the soft labor

force. Anybody looking for a job right

now knows what that pain is like. Well,

Mark Xandandy from uh not Morgan

Stanley. Oh, where's he from? Uh Moody's

Moody's chief economist. He says that's

because onethird of our economy is only

expanding and the other two/3s are

either treading water or are in outright

decline. And this is interesting because

when you put these pieces of the puzzle

together, you do get a really confusing

picture for what we're going to get with

Jackson Hole this week. Last year at

Jackson Hole, Jerome Powell basically

set up for a 50 basis point cut after

the Japanese carry trade disaster and

the skyrocketing unemployment uh reads

the triggering of the SAM rule. And

yeah, conveniently the election was

around the corner. So, we happened to

get a 50 basis point cut, which of

course they deny had anything to do with

politics. Who knows, maybe they're

right. But point being, last year we had

a Jackson Hole that's set up for rate

cuts. This year we've got a Jerome

Powell who's potentially saying, "Hey,

y'all need to be grateful that we're not

raising rates and we don't want

inflation psychology to take over at the

same time as 2/3 of our actual

functional economy is either teetering

or declining." Now, I think Mark Xandy's

sheet here is actually quite interesting

because it also aligns with what Warren

Buffett just did. So, let's touch on

that and then we'll get back to Powell.

So, we'll go on a tangent here. Look at

this for a moment. Real estate at the

largest share of value added out of all

of this, even past healthc care services

and technology. Now, I personally found

this really interesting because I mean,

as you know, this isn't to be a pitch. I

started a real estate startup in 22

knowing that, you know, I like starting

businesses when it's really hard to do

it because there's like no competition.

So rates are skyrocketing in 2022.

Probably the worst time to start a real

estate company. I start a real estate

company, which is almost intentional

because you then set up a really strong

company for when the good comes ahead.

Now Mark is suggesting that the real

estate sector is actually next to see a

big set of expansion. And what I thought

was so interesting was in Warren

Buffett's recent 13F filings at

Berkshire Hathaway. Take a look at what

happened. First, look at the March 31st

filing in on March 31st. So, in the

first quarter of the year, Warren

Buffett added to his investments in the

Pool Corporation, which the pool

corporation is basically a wholesale

distributor of pool pumps, equipment,

cleaning supplies, tiles for pools,

pavers around pools, everything pool

related. They own like five different

distribution companies. And they

actually take a 30% margin, which is

really impressive. Now, they've got a

PEG ratio of 2.9. So, they're not

exactly cheap or value in my opinion.

Earnings per share are expected to grow

at about 10 uh% for the next few years,

but they're trading for nearly 30x on a

price to to earnings ratio. So, I'm not

exactly sure what Buffett is seeing here

in terms of value. I think Buffett when

it comes to pool is making more of a bet

just on the real estate industry in a

bit of a, you know, for Buffett

diversified way. We know Buffett isn't a

big fan of diversification, but the fact

that we've got pool and then new buys,

Lenar and Dr. Horton in Q1, and then you

go into Q2, which was just reported,

what did we find out in Q2? We find out

big ads increasing his position by 265%

in LAR, increasing his position in pool

by 136%

and then increasing his position

actually slightly shaving off of Dr.

Horton, excuse me, by about 1.79%. So,

sort of just rebalancing is really what

that feels like a Dr. Horton. It kind of

makes you wonder like, hm, what is

Warren Buffett seeing? And I think what

he's seeing is actually pretty

straightforward. What you have is an

environment where rates are going to

come down one way or another, right?

Powell talks about, hey, we need to be

grateful that we're not raising rates,

but we know we're in a trajectory of

rates are going to come down. rates are

either going to come down slowly through

a normalization that is this setup that

hey uh you know Mark Xandandy was on

CNBC this morning and he said hey we you

know the Fed's going to prefer making

sure that we maintain growth because

inflation could be sort of more one-time

more of a one-time effect on inflation.

So we want to make sure we don't push

the economy into a recession. So they'll

set up a 25 basis point cut is

essentially what Mark is saying. Maybe

we'll see because you've also got this

other side of Powell, which we'll talk

more about in just a moment. But either

way, if you get a slow normalization of

rates, maybe you prop up the real estate

market pretty well. Not just mortgage

companies like now the behemoth Rocket

Mortgage, but also potentially the home

builders who right now rely pretty

heavily on incentives. This morning's

housing market report indicated about

64% reliance on incentives versus 62%

prior, suggesting basically homebuilders

need to throw in more icing on the cake

to get people to buy homes. Incentives,

by the way, are things like rate

buyowns, upgraded flooring for free,

upgraded kitchen countertops or crown

molding. Anything to kind of make you

just say by like if that's what it takes

for you to feel at home, honey, we'll

make it happen for you. There's such

huge margins on that stuff anyway, the

home builders don't really care. Point

is, Buffett jumping into pool and two

homebuilders

right now when it's unpopular to like

the home builders potentially because if

we're going into a normalization of

rates, mortgage companies through

refinances or home builders could do

really well as well as home suppliers.

You buy a new home, you want to build a

pool, great. more potential supply of

pool homer, you know, uh, pool owners or

new pool owners to supply tiling or pool

pumps or pool servicing equipment to.

Makes a lot of sense. Then you also have

the potential that if we do walk into a

recessionary environment, rates plummet,

which is probably also good for real

estate. So, at least from what we're

seeing here, Buffett seems to be

aligning with this idea of all right,

maybe we don't go all in on like AI and

and highly priced tech. Instead, where

is the market been suffering? Oh, it's

been suffering at the real estate side.

Why? Because of rates. Well, what's

about to happen at rates? Well, we're

probably going to see rates come down

either through a normalization or

through a recession. Both of which are,

guess what, good and supportive for real

estate, which is great for us at Alsac.

It's one of the reasons, and this isn't

a pitch, I'm just saying is it's one of

the reasons why, you know, when people

invest in house right now, we we

basically pay out a 5% yield plus 100%

of the upside in the stock. So, like you

get all the upside in the stock and you

get a 5% yield through the conversion.

you know, read the details obviously at

houseack.com because once the once the

the the 5% converts, you you hold the

stock and then of course the goal is we

get to IPO. That's all a different

topic. But the reason I say that is

because we're kind of like as a company

looking at it going why why do we

continue to pay up 5%. We should at some

point close that offering and and a

lot's going to be predicated on what

Powell does. You know, if Powell's like,

hey, we got to raise rates. All right,

maybe we keep offering the 5%. But if

Powell sets up for large rate cuts,

maybe we kind of align with this Buffett

strat of all right, let's just, you

know, let's instead of paying out all

uh, you know, this extra yield, let's

stop paying out extra yield, let's go

buy more real estate and just hodddle

because, you know, the real estate

market might be the next to boom, which

is the bet that Buffett is making here.

And it makes sense because interest

rates and the success of real estate are

pretty well correlated. That's why we

think it's great that we are so heavily

exposed to real estate during a really

high interest rate environment where we

have zero bank debt. Like it doesn't

really matter what mortgage rates are

right now because we don't have any bank

debt. But then when rates come down, we

could refinance and we could join the,

you know, basically really explode the

size of our company uh as rates come

down, which is pretty awesome. But

anyway, I thought this was so

fascinating to see, you know, Warren

Buffett's alignment here with real

estate. The question though is what if

Powell actually signals rate hikes,

right? If you look right here, take a

look at what's happening to the odds of

a 25 basis point cut. We had a 40%

chance of a cut before the Fed meeting.

Then we got to a 97% chance after the

jobs report. And then after we got this

blowout PPI report, we went to just an

84% chance. That's roughly where it sits

now. I'm looking at the market right

now. We've got an 83.7% chance of a cut

in September. We've got a 50% chance of

another cut in October. And then by the

end of the year, we're only pricing in

2.1 rate cuts. So, unfortunately, that

darn PPI spike really hurt. We were

getting to where we were pricing in

three rate cuts until we got this, as

Bloomberg says here, the nasty inflation

surprise. And see, this is where a lot

of people get confused because they say,

"Hey, Powell's obviously going to be too

late because the labor market is

suffering and and inflation's going to

be transitory." But the question is,

what if inflation is not transitory like

it took 3 years to be transitory last

time or more? The that's the big problem

is Jerome Powell told us this in the

last meeting. If we end up allowing

inflation psychology to escape and

people get comfortable with this idea

that prices are going up and we're not

doing anything about it, in fact, we're

cutting as prices are shocking to the

upside, then maybe we should actually go

slower with rate cuts. Sure, maybe we

get a 25 in September, but maybe we're

only going to set up one and done.

That's also possible. So, it's basically

a hawkish cut for September he could set

up. And I don't know that markets will

be very happy about that because what

you have is markets that believe the

Federal Reserve cutting rates is going

to unleash this boom of liquidity and

stocks are just going to go even higher.

Folks, by definition, that is greed. It

is pure greed through and through.

That's all it is. And that is classic in

sort of a euphoric bubble. This idea

that, oh well, the Fed's going to cut

and then things are going to moon even

more. No. When the Fed cuts, especially

routinely, it's because the underlying

economy is falling apart. Markets don't

moon on the Fed cutting. Markets moon on

the unlimited bailout of the Fed. I

mean, you could even look at the narrow

subset of COVID. You could, I mean,

obviously you could look uh at 89, you

could look at uh 2003, the Fed's money

printing, you could look at February of

2009 with the Fed's money printing, and

then of course uh COVID with the Fed's

money printing. Every time the Fed goes

and runs the printer, that's when stocks

skyrocket. The Fed emergency cut rates

at the beginning of March of 2022 during

CO, that's not when markets moon.

Markets kept falling. Markets didn't

moon until the Fed promised an

everything bailout March 23rd of 2020.

That's when markets really mooned. So

markets want the money printer, not rate

cuts. But investors today think rate

cuts are good for the stock market. No,

rate cuts are good for real estate.

They're usually a sign of bad underlying

issues for corporate earnings and

corporate growth, unless of course we

get some kind of productivity boom. But

this is where, you know, we have this

like struggle of this balance. And I

think that's also where Mark Xandandy,

he put together an op-ed in the

Washington uh Post, which we'll look at.

You know, this idea about relying on a

productivity boom. We we'll go through

this in just a moment. This, you know,

the number is bad news for the economy.

This has to do with the jobs report and

the inflation reports, which we'll talk

about. But people believe that we're

going to get this productivity boom from

artificial intelligence. But I was

having this debate this morning with a

course member in the uh in in our alpha

report uh at least I you know I I

believe that this yeah there was this

morning we were just talking about this

this morning where there's a difference

between productivity and efficiency and

this is important for us to talk about.

Uh keep in mind we have coupon code

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that. Get in before the coupon expires

on Jackson Hole Day. So that's this

week. But understand this debate we were

having this morning was the debate

between productivity and efficiency.

Okay, productivity is getting things

done. So for example, if I needed to get

these two remote controls, okay, from

this side of the desk to this side of

the desk, what was the product of my

labor? Well, I moved two remotes from

one side of the desk to the other. Okay.

Now, let's imagine there's a conveyor

belt. Okay. And I don't know that took

me two calories, let's say, to move

those remotes. But if I push a button on

a conveyor belt, this conveyor belt

moves these remotes with one calorie.

So, it's 50% more efficient, right? What

was the productivity difference between

the example I just gave you. Well, let's

see what the result is. Two remotes move

from here to here. The productivity is

exactly the same. The product, that's

the root word of productivity. The

product is exactly the same. I end up

with two remotes on this side of the

desk when they were previously on this

side of the desk. Now, I did so with

half the calories because I used a

conveyor belt of AI or whatever you want

to call it. Cool.

So, ooh, uh, breaking news. Trump

administration in talks to acquire 10%

stake in Intel. 10% stake. I think

that's higher than what people were

anticipating, by the way, for Intel. So,

uh, that uh, maybe not. I mean, the

stock's kind of moving

initially up, but now down. Interesting.

We'll talk about that separately. But

the point is about this productivity

versus efficiency talk. You have to ask

yourself if artificial intelligence if

if markets are betting on a productivity

boom, but the reality is we're just

getting work done faster and then we

have more time to sit around, to sleep,

for leisure, or to do nothing. It

doesn't necessarily mean we're going to

go out to Cheesecake Factory twice as

many times or we're going to go on twice

as many vacations or that we're going to

employ many more people, which if we had

more productivity, we might do all those

things because more people could also do

those things. Uh if we could just get

our work done more efficiently, we just

have more time for leisure and not

necessarily economic productivity, at

least in the near term. So these are

going to be things that we have to

evaluate as as we look at this economy.

But anyway, looking at Mark Xandi's

piece here. Okay, Mark Xandandy tells us

that if it weren't for the changes in

immigration or the changes in the labor

force participation rate, we would be

heading towards 5% unemployment. This is

true. We would be re-triggering the SAM

rule if it were not for uh uh labor

force participation, right? Kind of a

big deal. So,

the labor market has flatlined so far

this year. This is true. The

unemployment rate is basically

flatlining at about 4.2%.

And part of that is because our labor

force that once grew over 2 and a half

million workers a year or two years ago,

a million workers a year ago now is

basically flat. And it's our the

foreignb born portion of our labor force

is in decline where it usually grew at

5% per year. we start wondering, all

right, so our labor market's not really

growing. So, is this a good thing? And

this is where I think I personally have

a lot of frustration with Jerome Powell

because I look at Jerome Powell and I

want to kind of shake him by the

shoulders. I'm going to grab him by the

shoulders and shake him and go, "Bro,

JPL,

you told us the labor market matters a

lot." And now

or and and you've told us for years that

the 3month average of the unemployment

growth is what matters or or the labor

markets growth is what matters. 3month

growth has gone from around 200,000 to

150,000 of 3 month average labor force

growth down to just 33,000

jobs. And now you still have the balls

to tell us that the labor market is

strong.

And that's because he's redefining how

he measures the labor market. Now he's

like, "Well, the unemployment rate

matters more than the three-month

average employment rate." Oh my gosh,

JPL changing the definitions on us. The

reason he's doing this is simple. He

wants to fight our inflation psychology.

He wants to prevent us from accepting

tariff price increases,

which we broadly are. If we look at core

consumer goods, core super core goods or

we look at producer price inflation,

both of these are rising at rates

between 5.9 and 10% annualized

inflation. That's really bad. And that's

at the margin. The reason we look at the

margin and annualize it is because

that's where we're getting the change,

right? Like we don't we don't want to

average out over the last year. What we

want to do is really understand that the

spikes we're seeing right here in

producer prices at the margin right now

are potentially just now getting started

and that we might have a lot more tariff

inflation in the pipeline. That is a

risk factor. Now consumer prices

Bloomberg here shows consumer prices

overall

but and this is how Donald Trump gets

see my average inflation rate annualizes

out to 1.9% just by taking ignoring this

big bar from January and just taking

this that's how Trump gets his math but

the problem is this includes all goods

energy housing food if you just look at

super uh core this bar would actually be

up here right under 6%. Now, why do we

do that? Because super core, that's

where we're looking at clothing, that's

where we're looking at toys, that's

where we're looking at things people are

buying on a regular basis, appliances,

cars, obviously not appliances, cars on

a regular basis, but those are things

that consumers in aggregate buy on a

regular basis, not every individual

household. Uh, and the point of that is

those things are very visible and those

visible things are what JPL is nervous

about. He's worried that if we become

accepting of those higher prices, we

will sustain higher inflation for the

next decade, we'll actually have higher

rates, not lower rates in the long term.

Now, I think that's unlikely because I

think Jerome Powell is so concerned

about being wrong on inflation again and

ruining his I will fight inflation to

the death legacy that he'll actually end

up pushing us into a labor market

recession. And I think that's exactly

what Xandandy is worried about. He says

that you're actually going to see costs

continue to increase because of a lack

of workers. I don't really see that part

happening. I think you're more likely to

actually see workers fired, but

whatever.

uh then you'll see um you know basically

we both agree a declining labor market

and with the labor market stuck in place

unless productivity ramps up which we

don't think it will the economy's growth

will fall well short of the pace we've

come to expect or price in in markets

which is problematic because then we

might end up looking like a Germany or

Japan where we're constantly

really low growth or on the edge of a

recession

and He actually say like his bottom line

is it seems increasingly unlikely that

the labor force that's that's so you

know slogish and dead right now will

come back to life soon and instead it's

more likely that a recession is dead

ahead. Now remember Mark's argument is

the labor force is so weak that a

recession is likely ahead. JPA is, oh

well, we have so many inflation

concerns. We need to make sure we don't

have some kind of surge of inflation

expectations. Forget about the labor

market. Part of that is because JPA

believes that he can cut rates to zero

and turn the money printer on and save

the day. Which is partly true. It's not

just rate cuts, though. Remember that.

To really bail the market out, you have

to run the money printer. So, this idea

that, oh, we're going to boom on rate

cuts is is misleading. Big rate cuts

mean weak economy.

So where does that put us now as

investors? Well, it puts us nervous and

on edge for Jackson. Understandably so,

because JPAL can go in a few different

directions. He could set up a 25 basis

point cut, which the markets broadly

expect,

but it could be hawkish. If it's a

hawkish setup and he sets up only maybe

one rate cut this year, we might be in a

place that

JPAL walks us into a recession within

the next 6 months because the labor

market rolls over. We'll obviously get

labor market data again in September.

We'll also get our QCEW revisions the

first week of September. We won't

actually have the QC the quarterly

revisions uh which which will help us

understand the beginning of the year a

little bit better uh until September

this year. Previously, we got those in

uh August. So, unfortunately, it comes

after Jackson hold now. So, that means

it's increasingly likely that JPAL is

going to continue to set up this

pressure of well, we'll just be data

dependent. We'll wait and see. I don't

know. That's what markets are going to

be looking for right now. We'll see.

We'll keep you informed not only on the

channel. Make sure to subscribe, but

also in the alpha reports. Uh in

addition this this hawkish 25 setup

which which I think is probably the most

likely direction. I think JPA is also

going to hint around this idea of hey if

inflation expectations get away from us

we're going to have to hike rates. And

he's going to do that solely to try to

get people to get frustrated about

inflation and to reject higher prices.

If people stop buying stuff from

wholesalers or from stores because

prices go up in then then companies

can't increase prices and they take it

in the margin. The downside of that is

you're playing with fire because if

companies take it in the margin they end

up having to lay off workers. So either

way either way you slice it you're

you're definitely in a soft spot right

now and you got a hawkish Powell. Best

case scenario, Powell sets up for rate

cuts and we get a rebound in jobs in in

September for the August report. Best

case scenario, hey, we're going to start

with 25. We'll remain data dependent for

the rest. Everything looks good. Then

you get a big rebound in the labor

report. That would be fantastic. You

know, you get a a 200 Let me see what

the labor report is looking for right

now. You get a 200,000 jobs gain or

whatever report for next month. That

would be awesome.

That's when you could really rally to

all-time highs again. So, let's go look

at the labor report. So, labor for

September,

which will be going into Labor Day. Uh

let's get to

Okay. Jolts

stable where ADP is expecting to be. Uh

the survey is not out yet for ADP.

Non-farm payrolls current estimate is at

88,000.

Well, that would be okay. We could take

that.

That would be acceptable.

Uh survey of 88,000 above the 73 of last

time.

So, really, you have to beat that in in

the next report. That's what you're

looking for. Uh and that report will

come out on September 5th, on Friday,

September 5th. So, obviously, we'll

we'll cover that very closely. Uh yeah.

So, so that gives you kind of a setup as

to where Warren Buffett's head is. Rates

are coming down either way. Go long real

estate. That's what my positioning's

been with house hack. Go long real

estate. Rates come down, we're going to

be huge beneficiaries without any bank

debt. That's why like mega bullish on

house hack no matter what. Like rates

slowly down or rates rapidly down, we're

positioned great. You know, 14 15

million bucks in the bank. Uh you know,

we're ready to crank. plus what we can

refinance without bank debt, which is

awesome. Uh then you need this next jobs

report on September 5th to come in

bullish and Powell to set up rate cuts

to really get to new all-time highs.

If we get a weak labor report in the

next real estate still wins, but you

probably will start to see more

compression in in the stock market as

markets get worried about uh-oh, we're

going off a cliff here. Now, in

fairness, between now and then, markets

really love overreacting to unemployment

claims. These weekly unemployment claims

are really lagging data, and I highly

caution those, but it is something that

markets like paying attention to anyway.

And so, we'll see that this Thursday as

well. Uh, so anyway, with that said,

make sure you go to meet Kevin.com, get

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>> Why not advertise these things that you

told us here? I feel like nobody else

knows about this.

>> We'll we'll try a little advertising and

see how it goes.

>> Congratulations, man. You have done so

much. People love you. People look up to

you.

>> Kevin Praath there, financial analyst

and YouTuber. Meet Kevin. Always great

to get your take.