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Speaker 1: We do have Aaron Gibbs with a senior partner and

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Speaker 1: ce IO at main Street Asset Management. I found the

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Speaker 1: comments from Jamie Diamond quite interesting, as I said a

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Speaker 1: few moments ago, if you take that along with Amazon's

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Speaker 1: a massive prime day, it's kind of hard to feel

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Speaker 1: the recession coming, Aaron. If there is a recession, maybe

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Speaker 1: it won't be consumer led. So two questions, who or

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Speaker 1: what is leading it? And secondly, is it not a

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Speaker 1: done deal that the market seem to think it is. Uh, well,

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Speaker 1: I'll aswer the second one, but yes, I don't think

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Speaker 1: it isn't done deal. You know, we're we're looking, we're

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Speaker 1: really predicting it because of this obviously yield curve and

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Speaker 1: version and and obviously those the yield current version is

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Speaker 1: very predictive of recessions. But it looks like, you know,

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Speaker 1: a recession could simply be two quarters of mild contraction,

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Speaker 1: uh not prolonged recession like we had during two thousand seven. Um,

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Speaker 1: so uh, you know, it doesn't it isn't predictor it

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Speaker 1: doesn't absolutely mean that we have to have a recession.

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Speaker 1: It could just slow down. So no, it's it's not

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Speaker 1: undad deal. And yet it is very hard to think

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Speaker 1: that it's going to come from the consumer when the

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Speaker 1: consumer is just proven to be more and more realilient

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Speaker 1: in their their willingness to keep spending. Uh. Despite what

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Speaker 1: what Diamond said was that liquidity is drying up, So

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Speaker 1: that sort of points to the central bank authorities, I suppose.

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Speaker 1: And then he said, you have war. War is unpredictable,

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Speaker 1: right Uh. And so you know, obviously, you know, if

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Speaker 1: you know, one of the things that we were we've

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Speaker 1: talked about is UM, you know, war is obviously unpredictable,

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Speaker 1: but UM loan growth and we're seeing that in the

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Speaker 1: banking reports and mortgage applications high your interest rates. So UM,

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Speaker 1: certainly that's the area where UM obviously going to liquidity. Uh.

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Speaker 1: If if loans are are drying up, UM, that could

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Speaker 1: be the recession. But and in particularly you know with

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Speaker 1: mortgage or you know, originations down. UM, that's certainly concerning.

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Speaker 1: UM if businesses stop borrowing as well as back, could

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Speaker 1: certainly be an area of the recession. But UH, you know,

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Speaker 1: we're really looking at how this earning season, particularly the

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Speaker 1: financial shapes up and just how much they expect the

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Speaker 1: loans to slow. Uh. And right, now though though they

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Speaker 1: are slowing, we're coming from such uh you know, at

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Speaker 1: such a high growth period, uh that you know, we're

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Speaker 1: it still does not look like it has to happen.

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Speaker 1: I'm looking at all these are in the I mean,

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Speaker 1: you know, whether it comes to the consumer, we is

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Speaker 1: what everybody thinks that, you know, the calamity that does

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Speaker 1: come is never the one that we've prepared ourselves for.

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Speaker 1: In the words of Mark Twain, So liquidity is drawing up,

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Speaker 1: and certainly, of course it's it's got it's going to

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Speaker 1: dry it even more because of the fact that the

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Speaker 1: bond market is going to be flooded with bonds. The

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Speaker 1: Federal Reserve reduces its balance sheet absolutely, and we've known that,

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Speaker 1: you know what, but this is you know, the whole

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Speaker 1: point is we need liquidity to dry up in order

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Speaker 1: to reduce the inflation. And when we talked about, you know,

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Speaker 1: some of the main causes of this particularly recent spike

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Speaker 1: of inflation, it's because of monetary supply. Uh. And so

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Speaker 1: this actually needs to happen in order to get inflation down.

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Speaker 1: So yes, it's it's it's a challenge, it's it's a

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Speaker 1: difficult situation to transition um I don't envy the reserve,

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Speaker 1: but that's like, you know, we've known that there's has

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Speaker 1: been too much money out there and that's why why

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Speaker 1: we're here in this in this position, right. But but

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Speaker 1: you have to pick, I mean, who's right. It is

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Speaker 1: a consumer right or the market signals right. And there

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Speaker 1: is a view out there that the CPI is lagging

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Speaker 1: and that we've had all these other indicators commodities and

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Speaker 1: such and housing information that inflation is heading lower. And

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Speaker 1: that view says the Fed is kind of clueless here

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Speaker 1: with talk of a hundred basis points and such. Yeah,

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Speaker 1: that's the trick. Well, I mean we've been blaming them

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Speaker 1: for being wrong for what the past year. So uh

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Speaker 1: but yeah, there's certainly you know that the always the

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Speaker 1: hope is that with the commodities, uh it would help

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Speaker 1: with the inflation. And as we know with the last

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Speaker 1: I report, you know about really you know, increase on

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Speaker 1: energy uh was was the main driver of that. So

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Speaker 1: you know, you know, even just reducing on energy and

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Speaker 1: some of the metals would really help on the on

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Speaker 1: the manufacturing side, Aaron, is there something out there that

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Speaker 1: people are just not giving enough credit to or missing altogether,

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Speaker 1: which think you can think could really come and slap us. Oh,

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Speaker 1: you know, I think one of the things that is

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Speaker 1: UM interesting though, you know, we're obviously there are a

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Speaker 1: lot of people who trying to reassure us, but it

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Speaker 1: is the possibility that UM, with this really strong negative

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Speaker 1: sentiment UM, and we're seeing that on the consumer side,

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Speaker 1: that uh, that might really start on the consumer side.

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Speaker 1: So you know, though Jamie Dimon is saying, you know,

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Speaker 1: we're seeing things very strongly. When the sentiment readings are

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Speaker 1: so so negative, UM, that does tend to be predictive

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Speaker 1: of consumers slowing down on their purchases. Now, we haven't

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Speaker 1: seen any evidence of that yet UM. And obviously get

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Speaker 1: with the Delta with their report saying that they're they're seeing,

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Speaker 1: you know, increased spending and travel UM. But I think

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Speaker 1: it's something to watch because it is something that if

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Speaker 1: people are feeling so glam uh and and you know

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Speaker 1: that that could be where some of the recessions could

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Speaker 1: actually be hiding. It would seem that the consumer would

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Speaker 1: crack somewhere in here, and and that would have a

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Speaker 1: big implications for a lot of retail oriented companies. Right. UM.

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Speaker 1: So far, consumers have had a job, so they've paid

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Speaker 1: the higher prices. And so you see a company like PepsiCo,

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Speaker 1: the numbers look really good, but a lot of it

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Speaker 1: is just higher prices inflation. That's kind of you know,

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Speaker 1: feeding that that sort of bullish sales number, but that

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Speaker 1: that that probably is going to run out, right, So

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Speaker 1: sell those kind of companies. Yeah, So I'm I'm very cautious,

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Speaker 1: particularly when getting into anything consumer discretionary um and and

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Speaker 1: and even you know, for example of Pepsi, but some

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Speaker 1: of your staples, that's a good point. It's it's more

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Speaker 1: the discretionary consumer discretionaries than the consumer staples. So maybe Pepsco,

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Speaker 1: right and a good example you but nonetheless, uh, you know,

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Speaker 1: people can still switch to cheaper brands and and some

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Speaker 1: some uh, some of those staples are going to be

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Speaker 1: more vulnerable than others. Uh. You know, I think one

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Speaker 1: area that I think is is still safe um and

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Speaker 1: and I've seen this is anything to do with home Uh,

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Speaker 1: in the consumer discretionary space still has been doing well. Uh.

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Speaker 1: And so you know lows home depot great companies. Uh.

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Speaker 1: And even on the services side, there's a company called

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Speaker 1: front Door. Uh it's it's a small cap but it's

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Speaker 1: been coming off of loads and still holding up really well.

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Speaker 1: It handles all the services as a homeowner that you

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Speaker 1: might have to do, like your electric and plumbing. Uh.

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Speaker 1: And so I think those types of themes are still

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Speaker 1: one area that just consumers are are still willing to

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Speaker 1: spend on versus obviously the sharp decline that we're seeing

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Speaker 1: more so on the apparel side. I think those are

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Speaker 1: really the you know, the places that you really want

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Speaker 1: to avoid because it's just uh, you know, it's treated

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Speaker 1: people are obviously clearly if they're going to spend, it's

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Speaker 1: more on travel these days. Yeah, I mean, this is it,

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Speaker 1: isn't it. I mean you've got to get things which

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Speaker 1: have demand in elasticity, and you've got to look for

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Speaker 1: good credit profiles on top of that, free cash flow,

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Speaker 1: defensive stocks in essence, right, Yes, And so those are

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Speaker 1: like I said them, the two dimension Lows and front

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Speaker 1: door really strong balance sheets, strong cash flows, as well

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Speaker 1: as you know, positive outlooks for growth. Yeah. So the

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Speaker 1: outperformers today is interesting. You had utilities and and consumer

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Speaker 1: staples and technology. Uh, and note that the semis were

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Speaker 1: up two percent today. Kind of interesting. Yeah, it was

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Speaker 1: such a wild day. Um really is sort of you know,

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Speaker 1: an opposite day in essence, with technology up one percent

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Speaker 1: and energy down two percent uh in the S and

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Speaker 1: P five hundreds, so um and even you know, growth

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Speaker 1: outperforming value, which had very few days this year where

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Speaker 1: gross stocks have been doing better than value. It's been

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Speaker 1: pretty consistent. Aaron, thank you so much. So don't we

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Speaker 1: have time for Aaron Gibbs there, CIO at Main Street

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Speaker 1: Asset Management. This is Bloomberg