Consumer is going to hell Now how do we stack this up with the potential for massive disinflation? The lack of Pp, the lack of pricing power consumers rushing back to get jobs. Whether it's that lift at Chipotle or Starbucks And yeah, I'm hoping you leave a comment correcting my pronunciation because we upped the engagement anytime we talk about PP But we've got to talk about the reality, which is a massive problem facing the consumer and what could potentially drag S P 500 earnings down in the toilet with it and that after all is the second phase of a recession. First you get multiple compression, then you get EPS fall earnings per share. Falling happens when the consumer spends less money.

and what did we just find out from the consumer? Well, total credit increased 11.6 7. sorry 11.6 billion dollars in January from the prior month, this is the smallest increase in two years, well below estimates. And it goes to show that even though in Prior months consumers have been supporting their spending with credit cards, we have had a massive decline of spending in January. It's almost like in January Consumers finally have hit a wall that potentially consumers have been supporting their lifestyle.

much like American Express Warns that the high income consumers are supporting their Lifestyles through this recession by spending more on credit cards and taking out more small business loans. We are saying what more spending going through December But what's happening in January Oh, consumers potentially finally hitting the wall as they have maxed out their ability to borrow on either credit cards or buy now Pay Later Now PayPal is bragging about Buy Now Pay Later rising in the Fourth Quarter for the forecasts. a little bit more murky, but where we could really see where the forecasts are murky are at a firm. Consider folks that a firm is a a company that bragged for months that they would do well in a recession.

A firm is a company that I have since the day I first looked at a firm said do not touch a firm with a 10-foot pole if you go into a recession I've said that a million times and I will stand by it. A firm has unfortunately changed their tune on the consumer though. Not only are they now talking about economic uncertainty and no longer talking about how great it is that a firm offers Buy Now Pay Later services in a recession. but all of a sudden when we actually look at their earnings, we see a giant.

L It is a bad. L Now we talked about some of this in the course member live stream yesterday because that's what we do. We talk fundamentals and business and Q A and our course member live streams every day. The market is open.

link down below for those. But what did we learn from a firm? We learned that their revenue increased 10.6 percent, but while their revenue increased 10.6 percent, their gross payment volume increased 27 percent. What does that tell us? It tells us they have a lack of pricing power. now.

Part of that lack of pricing power could be because Amazon now represents 20 percent effect of a firm's sales. and we've all been worried that Amazon would end up compressing a firm's margins, basically making a firm take all the risk without actually getting a lot of the dough. A lot of the profit. and that appears to be exactly what's happening.

Even though Grace gross payments are up 27, revenue for a firm is only up 10. That's bad. That means a third of their increase in payment volume went to revenue. Which means they're basically having to Discount how much they're able to charge to make these loans to convince people to actually make them.

That is a lack of peepee. In addition to having a lack of PB they are now having gross PP B and dirty PP because they have increased their allowance for credit losses twofold. So in other words, their revenue went up 10 percent and their credit losses doubled. Think about that for a moment.

Revenue Up 10 Loss projections doubling. That's what happens in a recession. You have the riskiest form of lending. Why would you touch a firm with a 10 football? I Don't know maybe to speculate in the short term that Rising Tides lift All Ships And sure, the the ship of, uh, you know, it's kind of like, uh, like the arc that carries all the animals right? even on profitable companies can lift up as the sea goes up, but that doesn't make it a quality ship.

Anyway, this was a big red flag and then their earnings call. They actually reiterated that they are lacking pricing power. They are vacating a portion of their San Francisco office. they're letting 19 of their staff go.

and what else are you seeing? Well, you're not just seeing weakness at a firm. Dell is laying off five percent of its Workforce lowest head count in six years as they continue to quote experience market conditions that erode with an uncertain future. and 55 percent of Dell's Revenue comes from PCS and we all know the PC market has been getting whacked. This comes at the same time as we know that 64 percent of individuals are living paycheck to paycheck and now we've had a nine percentage Point increase in those making over one hundred thousand dollars.

living paycheck to paycheck. Yes, even people making over six figures are living paycheck to paycheck much more today than last year. Appliance Demand is weakening even more substantially and is expected to weaken through 2025, which is absolutely insane. and this increases fears that maybe maybe we will end up hitting a recessionary environment.

You're also seeing a massive inventory overhang Under Armor is cutting prices like crazy to get their goods sold, which is actually putting pressures on companies like Lululemon who basically lost their PP Lululemon Bragged that one of the reasons they didn't have to cut prices was because they didn't raise prices as much as the competitors. which is insane because that's your first red flag that they don't have Be any more pricing power, right? They didn't raise prices like the competitors did. But then guess what's happening now now, even though the competitors raise prices and Lulu didn't raise prices and Lulu's like, see, we won't have to cut prices because we didn't raise prices, everybody else is cutting prices. Under Armor is slashing prices.

What's happening at Lulu now? Oh no. Lulu is also discounting. Oh dear lord, and they're discounting from a lower base. Consumers have hit a wall and this is bad news.

This is exactly why we are seeing a Slowdown uh in spend look at. for example: Newell Brands Newell Brands just reported new All Brands You don't have to even look at the report to know how they did because you could just look at their stock. Their stock in pre-market is down six percent at the time of this recording after they reported they actually fell as much as 12 instantly because their forecast was so bad on the consumer. Newell Brands is a company that makes company or that that owns Brands like Rubbermaid or crock pot.

I mean they got a ton of goods for babies and household goods and that and you're seeing a massive slowdown not only because of an inventory build up. I mean even Energizer Batteries Was complaining that companies like Targeted Walmart are buying as many new batteries because they're looking at all the shelves and trying to find where all the batteries are. And instead of having batteries on every damn aisle at Targeted Walmart, they're starting to take the batteries and consolidate them to fewer places because they're just running through their inventory. They don't want to spend the money, they don't want to burn the cash on getting more inventory.

You are also seeing a Slowdown in Warehouse construction because people are buying less junk and you have an inventory pile up. not at warehouses which is in transit Goods but instead at actual stores. Amazon is now reportedly subleasing some of its warehouse space because of a Slowdown in logistics and ordering. E-commerce Software provider Inventory Planner says 50 percent of survey respondents from their survey are having trouble getting inventory even after post Christmas and January discounting.

Sixty percent of companies that were surveyed by inventory planners say they are worried they need to liquidate excess stock. Which means prices go down, folks if you watch my channel. I Don't know how how you could possibly make the argument that inflation is still going up. Okay, like we've talked about wages on the path to plummeting, We've talked about goods and services on the path to plummeting.

Yes, there are Embers but show me prices actually still going up somewhere other than lagging data. It's so freaking obvious. but but whatever. I'll just keep pounding the table and and people can do whatever they want anyway.

Baby and toddler Retail sector most impacted by excess inventory with 92 percent of respondents complaining about baby and toddler, uh, inventory 55 Complaining that luxury is getting hit, that's bad for William Sonoma 50 Complaining that homeware and gardening is doing poorly. That's what we just saw with Newell Brands 44 Complaining about retail and retailers are now having trouble projecting their required inventory because there's so much liquidating and so many price Cuts Going on that they're freaking out and they don't even know what the hell to do. Part of this could be because you're seeing people run out of money and you've seen less borrowing, which is exactly what we've seen. You're also seeing substantially more price competition, right? Consider again, lower prices at Lyft lower prices at a firm? what's happening at Disney Disney Every quarter bragged bragged about how per capita spend at the parks and cruise lines was going up and they would give you a percentage.

They would say oh, it's up 50 Oh, it's up 40. They always gave you a percentage this time. Yeah, it went up yeah, probably because it only went up a few percentage points, you didn't actually give us the data point anymore. And in my opinion, when you read earnings calls because this is what I do all day long I Think that's why you come here to get a Consolidated set of all the information I Read the earnings calls and I'm like hmm.

the stuff you're not saying anymore is generally a red flag. This is exactly what we've seen at many other companies before: Google is seeing their PP for ads fall? Almost every single advertising sector is seeing ads fall. Yahoo is laying off 50 of their ad business staff because the ad business is turning to crap Amazon AWS complaining about falling PP Unilever Can't keep up with all of the increasing uh, it costs that they've had over the past year for Commodities and other things that have sort of already been baked into inflation reports. but they can't raise prices anymore because people ain't buying anymore.

The same exact thing is what we're seeing at companies across the United States Look at Mattel down 12 on worse than expected toy sales, massive slowdown in toy sales even end phase is going from massive quarter over quarter growth to potentially contraction in spending. That's why they got hit. Uber Gave you the warning about Lyft you have 34 more drivers at Uber That's because people are going to work because they're out of freaking money now Simon Property Group Also complains about the same thing. Even though they're seeing positive rent spreads and renewals, they're seeing a lot of their customers complain about a softening economy and lower revenues.

Now keep in mind that when consumers spend less money. Simon Property Group makes less money because Simon Property Group actually takes a royalty fee off of the earnings of companies in their malls. That's a way of them basically incentive being incentivized to actually keep the malls looking nice because if they don't keep the balls looking nice, then what happens? Well, then people don't come. And if people don't come, then the revenues and stores go down.

So you kind of sort of like align incentives that way, right? But it's not just that it's also that we are seeing a reduction in people's pent-up savings. And that's another potential issue now. JP Morgan Thinks people aren't actually going to go through their uh, post pandemic savings until probably the second half of the year, but you're actually seeing a more of a burn through I think than JP Morgan is projecting uh, happening. Based on articles like this, this is the Wall Street Journal Households burn through pandemic savings.

The cushions of savings many built up during the pandemic is thinning out. Americans have spent down about 35 percent of the excess savings they've accumulated as of mid-January according to Goldman Sachs by the end of this year. So they kind of a line actually here with JPM by the end of the year, forecasts estimate that pandemic savings will be roughly 65 gone today. Some people are having to cut back on their spending or add to credit card balances.

except we've already added so much to credit card balances. at the end of last year. then now even you're seeing credit card balances go down. The government's pause on student loan payments helps a little bit, but the point is, what are you seeing? You're seeing scaled back household spending.

People are dining out less often actually. Uh, Chipotle Having like this is a little weird because it seems contradictory, but it basically aligns. When people dine out less often, they spend less money on food. Obviously, dining out is very expensive, but in addition to that, listen to this.

Chipotle actually sees that wealthier people are coming in store more because they are downgrading from restaurants or from ordering at home. So they eat the crap they have at home because it's cheaper. The delivery fees are expensive so they go into Chipotle or they don't they. They don't go to a restaurant and they go to like a Chipotle which obviously a 14 burrito is less expensive than a 25 miso salmon at uh at the Cheesecake Factory Uh and uh, Chipotle can still sell you beer, so if you're into that, you could still go to Chipotle Just make sure you wait at least 24 hours after having a beer.

uh before you drive because obviously nobody in their right mind would ever have a single sip of alcohol. uh and then drive. That's very bad. Never, ever drink and then drive.

Very bad anyway. So uh, look the the numbers here are very Very convincing. It's very obvious that people's disposable income is evaporating. It's very, very obvious that consumer spending is plummeting.

but the decline of consumer spending leads to the decline of PP and many companies. And so your goal in my opinion as an investor is trying to figure out where do you invest. Do you just stay in cash? Where do you invest? In my opinion, you look for PP Massive PP Massive Pricing Power stocks. And in my opinion, where those pricing power stocks are is very simple.

They're companies that can demand a high margin margin. That's important. Not necessarily saying prices don't come down, but they can demand a high margin even in the face of a recession. Those are companies you want to look for personally.

I Think that's mostly in the chip sector, away from memory. so you have to get away from memory and then look at the ship sector. Advanced Microchips three nanometers, Four nanometers, Five nanometers Advanced chip makers, ship equipment manufacturers. Yes, Tesla's in there as well as a chip in robotics manufacturer, but also a company that has substantial margins in the Auto industry.

Apple has preservation of substantial margins even though they too are starting to cut the price of iPhones in China because there's even a lack of pp in China. So folks, these are things to pay attention to, but in my opinion, you've got lots of deflation coming. This is not going to be a disinflation story in a few years anymore. I Think you've gotten massive disinflation coming.

At least that's what the data is saying now. Is it possible data starts coming in bad? and maybe one day I'll actually wake up and read a single earnings call this quarter that says prices are going up which I have not yet seen? Oh damn then I'll tell you about it, but that's where I'm sitting right now. I Think the consumer is screwed and because the consumer is mostly screwed Price Is Gonna Come Down.