this is VERY bearish... be warned.

Feds Beige Book and a piece from Wells

Fargo put together give us a poopy dupy

picture. Now, what I've never seen

before is one of these research analysts

looking at data and then saying, "Hey,

look, we got to talk about confirmation

bias and how we don't want to look for

things that align with a bearish or

bullish thesis.

That said, this data that Wells talks

about here, not great. In fact, they say

it's the first time in 60 years that

we're seeing this recessionary red flag

fire. So, let's go through this in

detail and then we'll hit the Fed beige

book. Uh, I do want to mention that at

the same time this was published, UBS

did say that so far S&P 500 EPS is still

resilient. I made a little note Empire

Manufacturing was good. uh we should

expect to see a down shift in some of

the growth rates of stocks earnings that

we've seen. Uh but so far the data is

still healthy. Layoffs are stable and of

the 22 S&P 500 companies that have

already reported 68% of them have beat

on sales and EPS just shy of historic

estimates though they do say hey little

early to tell. Okay this is this is

fine. Hey, yeah, there are risks, you

know, are we gonna have a breather later

this year is what they talk about. They

do say, this is the bullish piece. Okay,

the bullish piece says over the past 50

years, valuations have only been higher

during the.com bubble in the late 1990s,

in a brief period in the aftermath of

the COVID pandemic when interest rates

were rock bottom and earnings growth was

surging. In other words, even the

bullish piece is like, "Yeah, guys, um,

the valuations are a little cooped up

right now." Okay, just saying. These are

the bullish bullish folks at UBS.

Now, we got to look at the poopy dupy

one. And I'm going to give a shout out

to our homies over here. Okay, if you

know Tim and Shannon, let them know your

boy Kevin said they did a great job. I

actually think they did a fantastic job

on this piece. And uh I think they were

very reasoned uh with with their

research. And uh even though I hate

Wells Fargo, I basically hate all the

big banks. I think the big banks are

kind of a scam. Uh but you know, it's

really a topic for a different video. I

have to say this piece was good. All

right, ready? You can't see me. My time

is now. All right, you ready for this?

The time is now. The details of consumer

spending and retail inventory data

already reveal some concrete evidence

that tariffs are undeniably hitting

consumers or impacting consumers. When

it comes to discretionary service

outlays, households are cutting back.

This becomes very important in a moment.

You'll see this uh in just a smidge

here. In terms of good spending, some

key tariff linked items show a

measurable pull forward, followed by an

air pocket in the months since

stockpiling by retailers has mitigated

the inflation impact for many goods.

When pre-tariff inventories have been

drawn down or when when those

inventories have been drawn down, the

costs cost pass through will be stark.

So, let's just clarify this for a

moment. In English, what they're saying

is,

"Hey yo, Americans buying stuff like

services, they cutting back." Uh-uh.

Less of that

goods, they bought lots right before

tariffs. But now they cut back on that,

too.

And the businesses,

well, they're just subsisting off the

inventory buildup. And things about to

hit the poopa dupa.

But wait a minute, Kevin, you said there

was some data in this about some really

bad 60-year data. What is that? Yes.

Coming up,

right here.

Okay.

It has never quite ranked true that

consumer spending was completely unfased

by a sudden implementation of tariffs.

This mirage, the MAGA mirage, that's a

good line actually. I just made that up.

The MAGA mirage

was sustained by initial estimates of

GDP growth that pegged the pace of

inflation adjusted Q1 consumer spending

at 1.8%. That's three times faster than

what it turned out to be at just.5%.

In other words, we overestimated uh

consumer spending by 3x more than 3x. We

more than 3x overestimated consumer

spending. This happened uh in 2007 as

well when GDP was way overestimated and

later revised down to negative

substantially.

Okay.

The overshoot was even more pronounced

with services spending which was

initially reported to be growing at a

2.4% pace before being reduced down to

just 6. That's a 4x miss after revision,

which is when fewer people are paying

attention. The downward revisions were

not exactly shocking to anyone

struggling to reconcile strong spending

against the sharp deterioration in

various measures of consumer confidence.

The lackluster spending has not been

limited just to the first quarter,

though. With the first two months of

data now on hand for the second quarter,

that would be April and May, there is a

clear warning sign for consumer spending

that has gone largely overlooked. Clear

warning sign that households are

reducing their discretionary spending.

Early in the cycle, we noted that in

more than 60 years, there has never been

a recession without real discretionary

spending on falling on a year-over-year

basis. Until recently, the worst that

could be said of discretionary spending

is that it was growing at a slower pace.

Discretionary spending purchases slipped

in the first quarter while estimated

discretion was still up over 1.5%. So,

in other words, hey, like, you know, we

had these strong estimates and then

everybody's kind of like, all right,

things were just a little bit slower,

but it's still growing. Well, that might

be true for discretionary good spending,

but unfortunately, discretionary

services spending has had some major

issues. Look at this. Discretionary

services spending has not held up,

whereas good spending has held up on a

year-over-year basis, discretionary

service spending is down.3%

through May. That is admittedly a modest

decline. But what makes it scary is that

in 60 plus years, the measure has only

declined either during or immediately

after recessions. Okay. Now, what can we

do to potentially balance this this

bearishness? Because that that sounds

bad, right? So, uh what balances this

out? Sounds bad. But if and this is kind

of what we see with, you know, some of

the other uh Wall Street commentary

around this, but what if

people slowed uh let's do this.

people cut their services spending.

Okay, let's let's put this somewhere or

let's just make this smaller.

Uh, you know what?

Oh, I have nowhere to put this. There we

go. Sounds bad. But what if people cut

their services spending

uh because they wanted to pull forward

spending on a new car or new set of

appliances?

In that case, consumer goods uh would

hold up

and uh services spending would decline,

you know. So it in other words like this

time could be different is the argument.

So we should make a note of that. Aka

maybe this time is different which are

the most dangerous words in finance

because it's usually not different.

But hey, you know, it it's kind of a

reasonable argument. You know what? Like

I know a lot of people myself who

decided, hey, I'm gonna buy a car or I'm

gonna buy appliances or whatever because

I'm going to get in before tariffs. All

right. So, I'll make a note here. See

below.

So, then they get into saying if we are

hoping for a way to disqualify this

recession signal, we might point out

that the lost Oh, yeah. I mean, this is

a similar argument. So we we we talked

about this this morning as well, but

it's a similar argument. We might point

out to the lost wallet share at a time

when households were prioritizing goods.

Fine. Of the eight major

uh so then we look for additional

context. Of the eight major spending

categories, just three of them accounted

for 63 cents of every dollar spent. So

in other words, just three categories

out of eight represent

uh so what is that? 3 / 8 37% represents

about 63%.

Categories rep 63% spend

which basically imply that these three

categories are pretty large. Food

services is the largest of that with a

28% share recreational transportation.

So those are the three large ones. After

accounting for inflation, households are

spending just.9% more when they go out

to eat compared to a year ago. That's

after inflation, right? Remember Brian

Moyahan gave us the uh the the

non-inflation adjusted numbers.

All right. After accounting inflation,

households are spending just.9% more

when they go out to eat compared to a

year ago. Largest category of

discretionary spend is increasing, but

only incrementally. Recreational

services were up.2. transportation

spending down uh 1.1% over the past year

with this being automaintenance, taxi

and ride sharing, and the biggest

decline of all, air travel. The fact

that households are putting off auto

repair, taking fewer Uber Uber rides,

and cutting back or eliminating air

travel points to stretched household

budgets. Okay, let's write that down.

So, this is this is important. Uh Wells

argues this is not an issue of pull

forward for goods, but rather a warning

of very stretched household budgets

thanks to Ubers, car repairs, and travel

plummeting basically. Or well, I

shouldn't say plummeting. I should just

say falling.

All right. Then they say consumers

pulled forward some vehicle purchases.

Vehicle sales rose at a level not

sustained since prior to the pandemic.

Consumer prices of major household

appliances rose 4.3% in May, marking the

second highest monthly gain on record

after COVID. And the third highest gain

was in 2018 after Trump tariffs 1.0.

Trump tariff 1.0 also pulled forward

appliance demand. Also very logical,

right? But while we've seen isolated

potential tariff effects like higher

appliance prices, auto prices remain

tame and inflation remains in check.

Part of the reason we haven't seen this

pass through yet is because of

inventories. More inventory on hands

hand means firms can still mitigate the

initial pass through of higher prices

stemming from tariffs, particularly if

sales slow. The on and off again trade

policy could also be a mitigating factor

for now.

If you look for trouble, you'll find it.

And this is where they give a caution

about confirmation bias. They say,

"We're doing our best not to, but the

downward revisions to consumer spending

numbers this year have justified a

degree of skepticism. Consumer spending

is simply not as sturdy as we previously

thought it was or even as it was

reported to be, right? Cuz we saw a 3 to

4x miss.

Huge. Okay. Consumer spending is simply

not as sturdy as we previously thought.

And it may still be true that we would

prevent a recession, but consumers have

shifted in the wake of tariffs.

Consumers are undeniably cutting back.

And when the pre-tariff inventories are

drawn down, the cost pass through will

be stark. Okay? aka consumers are

pulling back

and when the poop

hits the fan, it's going to suck and

it's coming. We've already seen the

start of the coming

uh at my only fans. Okay. No. uh at um

uh uh you know at the PPI and CPI

reports

and the goodies

uh at the meet Kevin alpha report. Use

coupon code Mr. Too late to make sure

you're part of the alpha report. Let's

see how open door is going. This has

been one of our big calls the last uh

last couple weeks here and it's just

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go. So, use coupon code Mr. Too late.

You pay once and you're in it forever.

Forever.

Which is kind of cool. Okay. But so now

that's Wells Fargo, but how does that

reconcile with the Fed Beige Book,

right? Because if we go over here

to the Fed beige book,

what we really have is a beige book that

talks about this stability and like

modest growth to slight declines. But I

want you to see where the declines are.

Look at this. This actually echoes what

Wells Fargo says. And this is data that

goes through July 7th. So that's why

they say economic activity late May

through July 7th when they say early. I

think that extra context is useful.

Nonauto consumer spending declined in

most districts softening slightly

overall. Okay. Construction activity

also slowed. I think this is a good

thing for house hack because it's then

cheaper for us to build our accessory

dwelling units or eventually, you know,

we're we're working on developing uh

lots in the future. We'll do little

tracks. So, we're really excited about

kind of competing with like the LAR or

the likes in the future depending

obviously on how our uh AI launch goes

because that if that little side project

takes over and makes lots of money, well

then we'll just throw more into real

estate. It's just really like an

accelerant to what we're doing. But

anyway, uh, labor markets. Hey, you

learn more about House Hack at

househack.com. We got a fund open, uh,

to nonacredited investors. You could get

a 5% yield while you're in it, uh,

through conversion, uh, and then you get

all upside in the stock. So, it's it's a

cool preferred round. You can learn more

about it at househack.com. Anyway, they

say, okay, every district has a little

bit of a different POV on what's going

on here on labor, but I want you to see

this theme. Boston guardedly optimistic.

New York declines modestly. Philadelphia

declines modestly, Cleveland flat.

Richmond moderately weaker uh modest

growth in consumer spending. And then in

Atlanta, consumer spending softened,

slight increase in Chicago. Uh

employment levels unchanged. Economic

activity unchanged in St. Louis, flat in

Minneapolis, unchanged in Kansas, Dallas

up slightly. San Francisco largely

stable. So, what you're really finding

is the market's sort of like in the

stasis right now. We're just sort of

floating like, oh my gosh, there's so

much Trump news every day. Like, when

are we going to get the final clarity?

And in the meantime, we're just going to

burn through our inventories and we're

going to survive, right? We're going to

be okay, right? That's one of the

reasons I think we haven't seen the

spike in layoffs yet, which is good. But

Wells Fargo's right. Like the the flip

on the consumer is starting to happen.

Even the Fed Beige book talks about it

which came out after the the Wells piece

here. But anyh who, and when we talk

about layoffs in some markets, you see

uh in the Boston markets for example,

you see no indications that firms are

planning a bunch of layoffs. Again,

people are in stasis because they're not

planning a bunch of layoffs, but they're

also not planning significant hiring.

Over here, this is in the New York

district. You have layoffs remained

limited in the region. Some businesses

reported postponing hiring and layoff

decisions until uncertainty results.

Stasis

some had canled plans to add staff due

to low demand and a few had institated

instituted layoffs in Chicago.

Then we have here uh some contract

contacts reported layoffs due to federal

government spending cuts. Others cited

weak demand although some energy

contacts said hey fewer layoffs because

oil prices went up. But that's not

highly sustainable because oil prices

plummet as consumer spending weakens. So

that might not last very long. Uh oil

prices may have popped up heavily

because of the Iran stuff is my opinion.

Employment levels slightly lower on net

employers using attrition and layoffs to

reduce headcounts. That's in San

Francisco. Uh we've got manufacturing

and entertainment sectors noting layoffs

in California.

And then we have uh although reports

were limited this is oh this is the

national right uh there were somewhat

more common they were somewhat more cons

common among manufacturers and many

wanted to postpone those layoff

decisions until we got more this is back

to sort of the nationwide summary. So,

yeah. Like, what do we what do you take

from this? Because really, if you put

all this together, what you have is

you've got UBS saying, "Bro, valuations

are at 50-year highs, you know, that we

haven't seen until the heights of

the.com bubble and the immediate

aftermath of the COVID pandemic." You've

got Wells Fargo saying the data is

literally in your face. We have not seen

these declines in data in 60 years. And

the Federal Reserve isn't telling you

that the economy is booming like Trump

says it's booming. The Fed's actually

saying everybody's sort of like on this

precipice like are we going to run or

are we going to crash? Like what are we

doing here? Are we going to go run the

marathon or are we going to go to bed?

Okay, it's it's fine. We're doing a

course member marathon um when are we

doing that? Yeah, we're doing a course

member marathon in in New York uh

towards the end of August. Half

marathon. I'm I'm too much of a weenie

to get to do a full marathon. Uh

although I've never done even a half

marathon, so that's going to be

interesting. But anyway, that'll be

cool. Uh but I mean it's kind of like

that. It's like, "Hey Lauren, you know,

are we going to go are we going to go on

a run or or should I just go take a

nap?" You know, like who cares? Like

just just tell me which way we're going

to go, okay? With lie down or or go run,

put the shoes on. And that kind of is

what the economy feels like. That's why,

you know, with House Hack, we're

positioned like, "All right, we can go

either way. You tell us economy, we we

going to run or we going to go for a

nap. We're good either way. We're going

to make money in either scenario. We'll

just kind of wait and see which scenario

it's going to be." Uh, learn more at

houseack.com. Uh, and then of course on

a daily basis you can kind of get my POV

on what you know what what short-term

trade ideas are or perspectives. You

know, hopefully you can make lots of

money and you make all your money back

and way more. Obviously, I can't

guarantee it. Uh, because ultimately

you're the one who pulls the trigger on

on how to do stuff, but um hopefully you

can use those insights if you join in

the meet Kevin Alpha Report. Uh, you can

get it through the Meet Kevin app as

well, which is really convenient. A lot

of people seem to like that.

>> 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.