This is a seriously fun summary of our current economic situation:

"If the Economy Is Shaky, Why Are Company Profits Still Strong?

Corporate optimism may seem at odds with the Fed’s grim determination to
hold back the economy to get inflation down, but earnings tell a story
that other data doesn’t.

By Peter Eavis
July 29, 2022, 11:54 a.m. ET

Consumers are gloomy, the economy is shrinking, the Federal Reserve
wants it to keep slowing and economists now say the whole world could be sliding toward recession.

At the same time, a lot of strong numbers are still coming out of many
large American companies, which have been releasing their quarterly
earnings reports and discussing their outlooks with Wall Street.

“We had an outstanding quarter,” Stephen Squeri, the chief executive of American Express, said after the company reported record revenue. “As
our second-quarter results demonstrate, we have a lot to be proud of,”
said Christopher Nassetta, chief executive of Hilton Worldwide, noting
that revenue per room in most major regions of the world was now above
2019 levels.

The blustery corporate optimism may seem at odds with the Fed’s grim determination to hold back the economy to get inflation down. But the
economy is both what the Fed does and how companies and consumers are
behaving. And the full picture of this strange economic moment is
perhaps better captured by considering both sides together, central
bankers and C.E.O.s, no matter how divergent they seem.

Some big companies — Meta, for example — have reported disappointing numbers, and their chief executives are downbeat about the future. Other
tech giants, Alphabet, Amazon, Apple and Microsoft included, all
released results that, while hardly stellar, were enough to persuade
investors that their businesses were not falling off a cliff.

Indeed, so far, with roughly half of all large companies having reported
their numbers, this earnings season has not provided much evidence that
the economy is entering a big crackup, and almost no chief executives
talked about doing mass layoffs on earnings calls.

The lack of really bad news in earnings in part explains why the S&P 500
stock index has bounced about 12 percent from its low point in June, and
why Wall Street analysts still predict that earnings for the companies
in the S&P 500 will grow 10 percent this year, according to data from
FactSet. Though much of that growth is expected to come from energy
companies, which have benefited from higher oil and gas prices, analysts
expect profits to rise in eight of the 11 industries represented in the
index.

It’s an awfully rosy picture when “recession” is on people’s minds. That’s why for some on Wall Street, that optimism is absurd. Michael
Burry, the investor who foresaw the 2008 mortgage meltdown, wrote on
Twitter on Tuesday that the earnings reports coming in felt like a “last hurrah.”

Not done with fighting inflation, central banks are expected to continue pushing up the cost of borrowing, which would make corporate investments
more expensive and dampen demand for companies’ products and services. Europe, a big market for U.S. corporations, could have a nightmare
winter if natural gas prices continue rising. And supply chains are
still dysfunctional for many companies, meaning they can’t even make and
sell products for which there is demand.

“All those headwinds that created the downturn, they’re still intact and arguably getting worse,” said Mike O’Rourke, chief market strategist at JonesTrading.

Things could go into reverse quickly, the pessimists say. Many companies
have for some time lived in a sort of nirvana in which they could keep
hoisting their prices and customers would keep paying them, creating
blowout profits.

Now there are signs that consumers are balking at what companies charge,
and if they pull back hard, their sales and earnings could take a big
hit and lead chief executives to lay off workers and slash investments
to protect profit margins and balance sheets. Early signs of this
dynamic are emerging, according to some analysts.

Home-building companies, for instance, have been able to sell homes at
ever higher prices over the past two years, but as the Fed has raised
interest rates, their senior executives say demand has fallen.

PulteGroup, a large home builder that reported earnings this past week,
said the average price of its homes in the second quarter was $531,000,
a 19 percent increase from a year earlier. The company forecast that the average would keep rising this year. At the same time, Pulte said, net
new orders plunged 23 percent from a year earlier, which the company
blamed on the increase in mortgage rates.

“We’ll have to see how well the sector is able to hold on to those price increases that they’ve accumulated over the last couple of years,” said Brian Barnhurst, co-head of credit research for PGIM Fixed Income, a
division of Prudential, referring to home builders.

Pulte did not respond to requests for comment.

While well-off consumers show few signs of cutting back, the
second-quarter earnings contain plenty of evidence that some households
are getting squeezed as inflation pushes up their bills.

AT&T said its customers were taking two days longer on average to pay
their bills, which caused a hit to the phone company’s second-quarter
cash flow of almost $1 billion. The company’s chief executive, John
Stankey, said on the earnings call that bad-debt levels were slightly
higher than before the pandemic. But he added, “We view this cycle no differently and still expect customers will pay their bills, albeit a
little less timely.”

On the earnings call for McDonald’s, the company’s chief financial
officer said some of its customers were choosing “value” offerings over others. On Chipotle’s earnings call, its chief executive, Brian Niccol,
said: “The low-income consumer definitely has pulled back their purchase frequency. Fortunately, for Chipotle, that is not the majority of our customers.”

Big retailers like Walmart have said their customers are spending so
much on must-have items like food and fuel that they’re eschewing
higher-cost merchandise, like clothes and home goods. Since shoppers are
still spending at Walmart for the staples, the company — and to a
certain extent, the economy — still benefits from their purchases,
though the shift has hit its profit margins and helped pummel its stock.

Banks earnings are a good place to get an early read on how consumers
are faring. Overall, there are few signs at lenders that borrowers are
having trouble repaying their loans, analysts say.

“You would have come away from the quarterly earnings thinking that the consumer was generally in good shape,” said Moshe Orenbuch, an analyst
who covers finance companies at Credit Suisse.

Because of pandemic stimulus payments, low unemployment and rising
wages, the levels of past-due loans and bad debt fell to historical
lows, but lenders have expected them to rise as borrowers reduce cash
holdings and their balance sheets look more like they did before the
pandemic. The finance industry has started calling that process “normalization.”

It appears to have begun among lower-income borrowers.

Richard Fairbank, the chief executive of Capital One, a big credit card
lender, said on the company’s earnings call that this normalization was
more evident in the bank’s subprime loans than in those made to
borrowers with stronger credit. But Capital One declined to provide
past-due loan numbers for its subprime loans, making it impossible to
chart the extent of any deterioration.

In its earnings report, Ally Bank, a big auto loan maker, provided data
on past-due auto loans in the second quarter for borrowers at a range of
income levels. Past-due loans were either at or close to prepandemic
levels for borrowers with lower incomes.

Ally declined to provide the same data for earlier quarters, making it impossible to know how quickly past-due loans might have risen. On its
earnings call, Jenn LaClair, Ally’s chief financial officer, said, “We
have continued to invest in talent and technology to enhance our
servicing and collection capabilities and remain confident in our
ability to effectively manage credit in a variety of environments.”

Some analysts think the pullback in spending could spread to wealthier households.

“You’re going to see it go up the income scale as the year unfolds with people sitting there, saying, ‘I’ll go without rather than spend this
much on that’ or ‘I’ll trade down to something more affordable,’” said
Mr. O’Rourke, the JonesTrading strategist. He added that he was waiting
for earnings from Macy’s and Nordstrom, which are scheduled to report in August, to see if that was happening.

The concern is that the heavy summer spending that has recently
bolstered the earnings of the hospitality industries and the airlines is
not sustainable. “There’s a faction of the market that’s quite convinced that when we get to the fall and the bills from the summer spending come
home to roost, the consumer will be in a much trickier spot,” Mr.
Barnhurst of PGIM said.

An exchange this earnings season reveals how chief executives and
companies can keep the economy going, even when they fear that a
downturn may be at hand.

Jamie Dimon, the chief executive of JPMorgan Chase, warned in May that
storm clouds were gathering over the economy. On JPMorgan’s
second-quarter earnings call, Mike Mayo, an analyst at Wells Fargo,
asked Mr. Dimon why the bank had committed to investing such large sums
this year if things could turn dire.

“It’s like you’re acting like there’s sunny skies ahead,” Mr. Mayo said,
“You’re out buying kayaks, surfboards, wave runners just before the
storm. So is it tough times or not?”

Mr. Dimon’s response: “We’ve always run the company consistently, investing, doing this stuff through storms.”"

https://www.nytimes.com/2022/07/29/business/strong-profits-shaky-economy.html

This was a fun read for me because Pete is essentially saying the
same thing I've been saying. Problems at the economic margins, while
life goes on, more or less, as normal. The sky is not falling or
seriously distorted in some way. No one here is going to
Venezuela--unless they really, reaaallllllly want to. Click your heels 3
times and all that.

Mark O'Connor/James Taylor/Yo-Yo Ma/Edgar Meyer - "Hard Times Come Again
No More"

https://www.youtube.com/watch?v=uv2AcfmvIuw

TB

--- SoupGate-Win32 v1.05
* Origin: fsxNet Usenet Gateway (21:1/5)

On 7/29/2022 2:25 PM, Technobarbarian wrote:

    This is a seriously fun summary of our current economic situation:

"If the Economy Is Shaky, Why Are Company Profits Still Strong?

Because you cut loose of some of that $8.7 million you saved on your
electric bill?

TB

--
--------
Progressives... holding back progress since the dawn of time.

--- SoupGate-Win32 v1.05
* Origin: fsxNet Usenet Gateway (21:1/5)

Technobarbarian wrote:

    This is a seriously fun summary of our current economic situation:

"If the Economy Is Shaky, Why Are Company Profits Still Strong?

Corporate optimism may seem at odds with the Fed’s grim
determination to hold back the economy to get inflation down, but
earnings tell a story that other data doesn’t.

By Peter Eavis
July 29, 2022, 11:54 a.m. ET

Consumers are gloomy, the economy is shrinking, the Federal Reserve
wants it to keep slowing and economists now say the whole world could
be sliding toward recession.

At the same time, a lot of strong numbers are still coming out of many
large American companies, which have been releasing their quarterly
earnings reports and discussing their outlooks with Wall Street.

“We had an outstanding quarter,” Stephen Squeri, the chief executive of American Express, said after the company reported record revenue. “As our second-quarter results demonstrate, we have a lot
to be proud of,” said Christopher Nassetta, chief executive of
Hilton Worldwide, noting that revenue per room in most major regions
of the world was now above 2019 levels.

The blustery corporate optimism may seem at odds with the Fed’s grim determination to hold back the economy to get inflation down. But the economy is both what the Fed does and how companies and consumers are behaving. And the full picture of this strange economic moment is
perhaps better captured by considering both sides together, central
bankers and C.E.O.s, no matter how divergent they seem.

Some big companies — Meta, for example — have reported disappointing numbers, and their chief executives are downbeat about
the future. Other tech giants, Alphabet, Amazon, Apple and Microsoft included, all released results that, while hardly stellar, were enough
to persuade investors that their businesses were not falling off a cliff.

Indeed, so far, with roughly half of all large companies having
reported their numbers, this earnings season has not provided much
evidence that the economy is entering a big crackup, and almost no
chief executives talked about doing mass layoffs on earnings calls.

The lack of really bad news in earnings in part explains why the S&P
500 stock index has bounced about 12 percent from its low point in
June, and why Wall Street analysts still predict that earnings for the companies in the S&P 500 will grow 10 percent this year, according to
data from FactSet. Though much of that growth is expected to come from
energy companies, which have benefited from higher oil and gas prices, analysts expect profits to rise in eight of the 11 industries
represented in the index.

It’s an awfully rosy picture when “recession” is on people’s
minds. That’s why for some on Wall Street, that optimism is absurd. Michael Burry, the investor who foresaw the 2008 mortgage meltdown,
wrote on Twitter on Tuesday that the earnings reports coming in felt
like a “last hurrah.”

Not done with fighting inflation, central banks are expected to
continue pushing up the cost of borrowing, which would make corporate investments more expensive and dampen demand for companies’ products and services. Europe, a big market for U.S. corporations, could have a nightmare winter if natural gas prices continue rising. And supply
chains are still dysfunctional for many companies, meaning they
can’t even make and sell products for which there is demand.

“All those headwinds that created the downturn, they’re still intact and arguably getting worse,” said Mike O’Rourke, chief market strategist at JonesTrading.

Things could go into reverse quickly, the pessimists say. Many
companies have for some time lived in a sort of nirvana in which they
could keep hoisting their prices and customers would keep paying them, creating blowout profits.

Now there are signs that consumers are balking at what companies
charge, and if they pull back hard, their sales and earnings could
take a big hit and lead chief executives to lay off workers and slash investments to protect profit margins and balance sheets. Early signs
of this dynamic are emerging, according to some analysts.

Home-building companies, for instance, have been able to sell homes at
ever higher prices over the past two years, but as the Fed has raised interest rates, their senior executives say demand has fallen.

PulteGroup, a large home builder that reported earnings this past
week, said the average price of its homes in the second quarter was $531,000, a 19 percent increase from a year earlier. The company
forecast that the average would keep rising this year. At the same
time, Pulte said, net new orders plunged 23 percent from a year
earlier, which the company blamed on the increase in mortgage rates.

“We’ll have to see how well the sector is able to hold on to those
price increases that they’ve accumulated over the last couple of years,” said Brian Barnhurst, co-head of credit research for PGIM Fixed Income, a division of Prudential, referring to home builders.

Pulte did not respond to requests for comment.

While well-off consumers show few signs of cutting back, the
second-quarter earnings contain plenty of evidence that some
households are getting squeezed as inflation pushes up their bills.

AT&T said its customers were taking two days longer on average to pay
their bills, which caused a hit to the phone company’s
second-quarter cash flow of almost $1 billion. The company’s chief executive, John Stankey, said on the earnings call that bad-debt
levels were slightly higher than before the pandemic. But he added, “We view this cycle no differently and still expect customers will
pay their bills, albeit a little less timely.”

On the earnings call for McDonald’s, the company’s chief financial
officer said some of its customers were choosing “value” offerings
over others. On Chipotle’s earnings call, its chief executive, Brian Niccol, said: “The low-income consumer definitely has pulled back their purchase frequency. Fortunately, for Chipotle, that is not the majority of our customers.”

Big retailers like Walmart have said their customers are spending so
much on must-have items like food and fuel that they’re eschewing higher-cost merchandise, like clothes and home goods. Since shoppers
are still spending at Walmart for the staples, the company — and to
a certain extent, the economy — still benefits from their purchases, though the shift has hit its profit margins and helped pummel its stock.

Banks earnings are a good place to get an early read on how consumers
are faring. Overall, there are few signs at lenders that borrowers are
having trouble repaying their loans, analysts say.

“You would have come away from the quarterly earnings thinking that the consumer was generally in good shape,” said Moshe Orenbuch, an analyst who covers finance companies at Credit Suisse.

Because of pandemic stimulus payments, low unemployment and rising
wages, the levels of past-due loans and bad debt fell to historical
lows, but lenders have expected them to rise as borrowers reduce cash holdings and their balance sheets look more like they did before the pandemic. The finance industry has started calling that process “normalization.”

It appears to have begun among lower-income borrowers.

Richard Fairbank, the chief executive of Capital One, a big credit
card lender, said on the company’s earnings call that this normalization was more evident in the bank’s subprime loans than in those made to borrowers with stronger credit. But Capital One declined
to provide past-due loan numbers for its subprime loans, making it impossible to chart the extent of any deterioration.

In its earnings report, Ally Bank, a big auto loan maker, provided
data on past-due auto loans in the second quarter for borrowers at a
range of income levels. Past-due loans were either at or close to prepandemic levels for borrowers with lower incomes.

Ally declined to provide the same data for earlier quarters, making it impossible to know how quickly past-due loans might have risen. On its earnings call, Jenn LaClair, Ally’s chief financial officer, said, “We have continued to invest in talent and technology to enhance our servicing and collection capabilities and remain confident in our
ability to effectively manage credit in a variety of environments.”

Some analysts think the pullback in spending could spread to wealthier households.

“You’re going to see it go up the income scale as the year unfolds
with people sitting there, saying, ‘I’ll go without rather than spend this much on that’ or ‘I’ll trade down to something more
affordable,’” said Mr. O’Rourke, the JonesTrading strategist. He
added that he was waiting for earnings from Macy’s and Nordstrom, which are scheduled to report in August, to see if that was happening.

The concern is that the heavy summer spending that has recently
bolstered the earnings of the hospitality industries and the airlines
is not sustainable. “There’s a faction of the market that’s
quite convinced that when we get to the fall and the bills from the
summer spending come home to roost, the consumer will be in a much
trickier spot,” Mr. Barnhurst of PGIM said.

An exchange this earnings season reveals how chief executives and
companies can keep the economy going, even when they fear that a
downturn may be at hand.

Jamie Dimon, the chief executive of JPMorgan Chase, warned in May that
storm clouds were gathering over the economy. On JPMorgan’s second-quarter earnings call, Mike Mayo, an analyst at Wells Fargo,
asked Mr. Dimon why the bank had committed to investing such large
sums this year if things could turn dire.

“It’s like you’re acting like there’s sunny skies ahead,”
Mr. Mayo said, “You’re out buying kayaks, surfboards, wave runners
just before the storm. So is it tough times or not?”

Mr. Dimon’s response: “We’ve always run the company consistently, investing, doing this stuff through storms.”"

https://www.nytimes.com/2022/07/29/business/strong-profits-shaky-economy.html

     This was a fun read for me because Pete is essentially saying
the same thing I've been saying. Problems at the economic margins,
while life goes on, more or less, as normal. The sky is not falling or seriously distorted in some way. No one here is going to
Venezuela--unless they really, reaaallllllly want to. Click your heels
3 times and all that.

Is there an insignificant number of people "at the economic margins"? -------------------------------------------------
While well-off consumers show few signs of cutting back, the
second-quarter earnings contain plenty of evidence that some
households are getting squeezed as inflation pushes up their bills. ----------------------------------------------------
The well-offs are doing fine, so screw the marginals?

Mark O'Connor/James Taylor/Yo-Yo Ma/Edgar Meyer - "Hard Times Come
Again No More"

https://www.youtube.com/watch?v=uv2AcfmvIuw

TB

--
bill
Theory don't mean squat if it don't work.

--- SoupGate-Win32 v1.05
* Origin: fsxNet Usenet Gateway (21:1/5)

On 7/29/2022 4:50 PM, bfh wrote:

Technobarbarian wrote:

     This is a seriously fun summary of our current economic situation: >>
"If the Economy Is Shaky, Why Are Company Profits Still Strong?

Corporate optimism may seem at odds with the Fed’s grim
determination to hold back the economy to get inflation down, but
earnings tell a story that other data doesn’t.

By Peter Eavis
July 29, 2022, 11:54 a.m. ET

Consumers are gloomy, the economy is shrinking, the Federal Reserve
wants it to keep slowing and economists now say the whole world could
be sliding toward recession.

At the same time, a lot of strong numbers are still coming out of many
large American companies, which have been releasing their quarterly
earnings reports and discussing their outlooks with Wall Street.

“We had an outstanding quarter,” Stephen Squeri, the chief
executive of American Express, said after the company reported record
revenue. “As our second-quarter results demonstrate, we have a lot
to be proud of,” said Christopher Nassetta, chief executive of
Hilton Worldwide, noting that revenue per room in most major regions
of the world was now above 2019 levels.

The blustery corporate optimism may seem at odds with the Fed’s grim >> determination to hold back the economy to get inflation down. But the
economy is both what the Fed does and how companies and consumers are
behaving. And the full picture of this strange economic moment is
perhaps better captured by considering both sides together, central
bankers and C.E.O.s, no matter how divergent they seem.

Some big companies — Meta, for example — have reported
disappointing numbers, and their chief executives are downbeat about
the future. Other tech giants, Alphabet, Amazon, Apple and Microsoft
included, all released results that, while hardly stellar, were enough
to persuade investors that their businesses were not falling off a cliff.

Indeed, so far, with roughly half of all large companies having
reported their numbers, this earnings season has not provided much
evidence that the economy is entering a big crackup, and almost no
chief executives talked about doing mass layoffs on earnings calls.

The lack of really bad news in earnings in part explains why the S&P
500 stock index has bounced about 12 percent from its low point in
June, and why Wall Street analysts still predict that earnings for the
companies in the S&P 500 will grow 10 percent this year, according to
data from FactSet. Though much of that growth is expected to come from
energy companies, which have benefited from higher oil and gas prices,
analysts expect profits to rise in eight of the 11 industries
represented in the index.

It’s an awfully rosy picture when “recession” is on people’s
minds. That’s why for some on Wall Street, that optimism is absurd. >> Michael Burry, the investor who foresaw the 2008 mortgage meltdown,
wrote on Twitter on Tuesday that the earnings reports coming in felt
like a “last hurrah.”

Not done with fighting inflation, central banks are expected to
continue pushing up the cost of borrowing, which would make corporate
investments more expensive and dampen demand for companies’ products >> and services. Europe, a big market for U.S. corporations, could have a
nightmare winter if natural gas prices continue rising. And supply
chains are still dysfunctional for many companies, meaning they
can’t even make and sell products for which there is demand.

“All those headwinds that created the downturn, they’re still >> intact and arguably getting worse,” said Mike O’Rourke, chief >> market strategist at JonesTrading.

Things could go into reverse quickly, the pessimists say. Many
companies have for some time lived in a sort of nirvana in which they
could keep hoisting their prices and customers would keep paying them,
creating blowout profits.

Now there are signs that consumers are balking at what companies
charge, and if they pull back hard, their sales and earnings could
take a big hit and lead chief executives to lay off workers and slash
investments to protect profit margins and balance sheets. Early signs
of this dynamic are emerging, according to some analysts.

Home-building companies, for instance, have been able to sell homes at
ever higher prices over the past two years, but as the Fed has raised
interest rates, their senior executives say demand has fallen.

PulteGroup, a large home builder that reported earnings this past
week, said the average price of its homes in the second quarter was
$531,000, a 19 percent increase from a year earlier. The company
forecast that the average would keep rising this year. At the same
time, Pulte said, net new orders plunged 23 percent from a year
earlier, which the company blamed on the increase in mortgage rates.

“We’ll have to see how well the sector is able to hold on to those
price increases that they’ve accumulated over the last couple of
years,” said Brian Barnhurst, co-head of credit research for PGIM
Fixed Income, a division of Prudential, referring to home builders.

Pulte did not respond to requests for comment.

While well-off consumers show few signs of cutting back, the
second-quarter earnings contain plenty of evidence that some
households are getting squeezed as inflation pushes up their bills.

AT&T said its customers were taking two days longer on average to pay
their bills, which caused a hit to the phone company’s
second-quarter cash flow of almost $1 billion. The company’s chief
executive, John Stankey, said on the earnings call that bad-debt
levels were slightly higher than before the pandemic. But he added,
“We view this cycle no differently and still expect customers will
pay their bills, albeit a little less timely.”

On the earnings call for McDonald’s, the company’s chief financial
officer said some of its customers were choosing “value” offerings
over others. On Chipotle’s earnings call, its chief executive, Brian >> Niccol, said: “The low-income consumer definitely has pulled back
their purchase frequency. Fortunately, for Chipotle, that is not the
majority of our customers.”

Big retailers like Walmart have said their customers are spending so
much on must-have items like food and fuel that they’re eschewing
higher-cost merchandise, like clothes and home goods. Since shoppers
are still spending at Walmart for the staples, the company — and to >> a certain extent, the economy — still benefits from their purchases, >> though the shift has hit its profit margins and helped pummel its stock.

Banks earnings are a good place to get an early read on how consumers
are faring. Overall, there are few signs at lenders that borrowers are
having trouble repaying their loans, analysts say.

“You would have come away from the quarterly earnings thinking that
the consumer was generally in good shape,” said Moshe Orenbuch, an
analyst who covers finance companies at Credit Suisse.

Because of pandemic stimulus payments, low unemployment and rising
wages, the levels of past-due loans and bad debt fell to historical
lows, but lenders have expected them to rise as borrowers reduce cash
holdings and their balance sheets look more like they did before the
pandemic. The finance industry has started calling that process
“normalization.”

It appears to have begun among lower-income borrowers.

Richard Fairbank, the chief executive of Capital One, a big credit
card lender, said on the company’s earnings call that this
normalization was more evident in the bank’s subprime loans than in >> those made to borrowers with stronger credit. But Capital One declined
to provide past-due loan numbers for its subprime loans, making it
impossible to chart the extent of any deterioration.

In its earnings report, Ally Bank, a big auto loan maker, provided
data on past-due auto loans in the second quarter for borrowers at a
range of income levels. Past-due loans were either at or close to
prepandemic levels for borrowers with lower incomes.

Ally declined to provide the same data for earlier quarters, making it
impossible to know how quickly past-due loans might have risen. On its
earnings call, Jenn LaClair, Ally’s chief financial officer, said,
“We have continued to invest in talent and technology to enhance our >> servicing and collection capabilities and remain confident in our
ability to effectively manage credit in a variety of environments.”

Some analysts think the pullback in spending could spread to wealthier
households.

“You’re going to see it go up the income scale as the year unfolds
with people sitting there, saying, ‘I’ll go without rather than >> spend this much on that’ or ‘I’ll trade down to something more
affordable,’” said Mr. O’Rourke, the JonesTrading strategist. He
added that he was waiting for earnings from Macy’s and Nordstrom,
which are scheduled to report in August, to see if that was happening.

The concern is that the heavy summer spending that has recently
bolstered the earnings of the hospitality industries and the airlines
is not sustainable. “There’s a faction of the market that’s
quite convinced that when we get to the fall and the bills from the
summer spending come home to roost, the consumer will be in a much
trickier spot,” Mr. Barnhurst of PGIM said.

An exchange this earnings season reveals how chief executives and
companies can keep the economy going, even when they fear that a
downturn may be at hand.

Jamie Dimon, the chief executive of JPMorgan Chase, warned in May that
storm clouds were gathering over the economy. On JPMorgan’s
second-quarter earnings call, Mike Mayo, an analyst at Wells Fargo,
asked Mr. Dimon why the bank had committed to investing such large
sums this year if things could turn dire.

“It’s like you’re acting like there’s sunny skies ahead,”
Mr. Mayo said, “You’re out buying kayaks, surfboards, wave runners
just before the storm. So is it tough times or not?”

Mr. Dimon’s response: “We’ve always run the company
consistently, investing, doing this stuff through storms.”"

https://www.nytimes.com/2022/07/29/business/strong-profits-shaky-economy.html


      This was a fun read for me because Pete is essentially saying
the same thing I've been saying. Problems at the economic margins,
while life goes on, more or less, as normal. The sky is not falling or
seriously distorted in some way. No one here is going to
Venezuela--unless they really, reaaallllllly want to. Click your heels
3 times and all that.

Is there an insignificant number of people "at the economic margins"? -------------------------------------------------
While well-off consumers show few signs of cutting back, the
second-quarter earnings contain plenty of evidence that some households
are getting squeezed as inflation pushes up their bills. ----------------------------------------------------
The well-offs are doing fine, so screw the marginals?

Isn't that the retrumplican way?

Mark O'Connor/James Taylor/Yo-Yo Ma/Edgar Meyer - "Hard Times Come
Again No More"

https://www.youtube.com/watch?v=uv2AcfmvIuw

TB

--- SoupGate-Win32 v1.05
* Origin: fsxNet Usenet Gateway (21:1/5)

kmiller wrote:

On 7/29/2022 4:50 PM, bfh wrote:

Technobarbarian wrote:

     This is a seriously fun summary of our current economic >>> situation:

"If the Economy Is Shaky, Why Are Company Profits Still Strong?

Corporate optimism may seem at odds with the Fed’s grim >>> determination to hold back the economy to get inflation down, but
earnings tell a story that other data doesn’t.

By Peter Eavis
July 29, 2022, 11:54 a.m. ET

Consumers are gloomy, the economy is shrinking, the Federal Reserve
wants it to keep slowing and economists now say the whole world
could be sliding toward recession.

At the same time, a lot of strong numbers are still coming out of
many large American companies, which have been releasing their
quarterly earnings reports and discussing their outlooks with Wall
Street.

“We had an outstanding quarter,” Stephen Squeri, the
chief executive of American Express, said after the company
reported record revenue. “As our second-quarter results
demonstrate, we have a lot to be proud of,” said Christopher >>> Nassetta, chief executive of Hilton Worldwide, noting that revenue
per room in most major regions of the world was now above 2019 levels.

The blustery corporate optimism may seem at odds with the
Fed’s grim determination to hold back the economy to get >>> inflation down. But the economy is both what the Fed does and how
companies and consumers are behaving. And the full picture of this
strange economic moment is perhaps better captured by considering
both sides together, central bankers and C.E.O.s, no matter how
divergent they seem.

Some big companies — Meta, for example — have
reported disappointing numbers, and their chief executives are
downbeat about the future. Other tech giants, Alphabet, Amazon,
Apple and Microsoft included, all released results that, while
hardly stellar, were enough to persuade investors that their
businesses were not falling off a cliff.

Indeed, so far, with roughly half of all large companies having
reported their numbers, this earnings season has not provided much
evidence that the economy is entering a big crackup, and almost no
chief executives talked about doing mass layoffs on earnings calls.

The lack of really bad news in earnings in part explains why the
S&P 500 stock index has bounced about 12 percent from its low point
in June, and why Wall Street analysts still predict that earnings
for the companies in the S&P 500 will grow 10 percent this year,
according to data from FactSet. Though much of that growth is
expected to come from energy companies, which have benefited from
higher oil and gas prices, analysts expect profits to rise in eight
of the 11 industries represented in the index.

It’s an awfully rosy picture when “recession” is
on people’s minds. That’s why for some on Wall
Street, that optimism is absurd. Michael Burry, the investor who
foresaw the 2008 mortgage meltdown, wrote on Twitter on Tuesday
that the earnings reports coming in felt like a “last
hurrah.”

Not done with fighting inflation, central banks are expected to
continue pushing up the cost of borrowing, which would make
corporate investments more expensive and dampen demand for
companies’ products and services. Europe, a big market for
U.S. corporations, could have a nightmare winter if natural gas
prices continue rising. And supply chains are still dysfunctional
for many companies, meaning they can’t even make and sell >>> products for which there is demand.

“All those headwinds that created the downturn,
they’re still intact and arguably getting worse,” said
Mike O’Rourke, chief market strategist at JonesTrading. >>>
Things could go into reverse quickly, the pessimists say. Many
companies have for some time lived in a sort of nirvana in which
they could keep hoisting their prices and customers would keep
paying them, creating blowout profits.

Now there are signs that consumers are balking at what companies
charge, and if they pull back hard, their sales and earnings could
take a big hit and lead chief executives to lay off workers and
slash investments to protect profit margins and balance sheets.
Early signs of this dynamic are emerging, according to some analysts.

Home-building companies, for instance, have been able to sell homes
at ever higher prices over the past two years, but as the Fed has
raised interest rates, their senior executives say demand has fallen.

PulteGroup, a large home builder that reported earnings this past
week, said the average price of its homes in the second quarter was
$531,000, a 19 percent increase from a year earlier. The company
forecast that the average would keep rising this year. At the same
time, Pulte said, net new orders plunged 23 percent from a year
earlier, which the company blamed on the increase in mortgage rates.

“We’ll have to see how well the sector is able to hold
on to those price increases that they’ve accumulated over >>> the last couple of years,” said Brian Barnhurst, co-head of >>> credit research for PGIM Fixed Income, a division of Prudential,
referring to home builders.

Pulte did not respond to requests for comment.

While well-off consumers show few signs of cutting back, the
second-quarter earnings contain plenty of evidence that some
households are getting squeezed as inflation pushes up their bills.

AT&T said its customers were taking two days longer on average to
pay their bills, which caused a hit to the phone company’s
second-quarter cash flow of almost $1 billion. The company’s
chief executive, John Stankey, said on the earnings call that
bad-debt levels were slightly higher than before the pandemic. But
he added, “We view this cycle no differently and still expect
customers will pay their bills, albeit a little less timely.” >>>
On the earnings call for McDonald’s, the company’s
chief financial officer said some of its customers were choosing
“value” offerings over others. On Chipotle’s
earnings call, its chief executive, Brian Niccol, said: “The
low-income consumer definitely has pulled back their purchase
frequency. Fortunately, for Chipotle, that is not the majority of
our customers.”

Big retailers like Walmart have said their customers are spending
so much on must-have items like food and fuel that they’re
eschewing higher-cost merchandise, like clothes and home goods.
Since shoppers are still spending at Walmart for the staples, the
company — and to a certain extent, the economy —
still benefits from their purchases, though the shift has hit its
profit margins and helped pummel its stock.

Banks earnings are a good place to get an early read on how
consumers are faring. Overall, there are few signs at lenders that
borrowers are having trouble repaying their loans, analysts say.

“You would have come away from the quarterly earnings
thinking that the consumer was generally in good shape,” said
Moshe Orenbuch, an analyst who covers finance companies at Credit
Suisse.

Because of pandemic stimulus payments, low unemployment and rising
wages, the levels of past-due loans and bad debt fell to historical
lows, but lenders have expected them to rise as borrowers reduce
cash holdings and their balance sheets look more like they did
before the pandemic. The finance industry has started calling that
process “normalization.”

It appears to have begun among lower-income borrowers.

Richard Fairbank, the chief executive of Capital One, a big credit
card lender, said on the company’s earnings call that this
normalization was more evident in the bank’s subprime loans
than in those made to borrowers with stronger credit. But Capital
One declined to provide past-due loan numbers for its subprime
loans, making it impossible to chart the extent of any deterioration.

In its earnings report, Ally Bank, a big auto loan maker, provided
data on past-due auto loans in the second quarter for borrowers at
a range of income levels. Past-due loans were either at or close to
prepandemic levels for borrowers with lower incomes.

Ally declined to provide the same data for earlier quarters, making
it impossible to know how quickly past-due loans might have risen.
On its earnings call, Jenn LaClair, Ally’s chief financial
officer, said, “We have continued to invest in talent and >>> technology to enhance our servicing and collection capabilities and
remain confident in our ability to effectively manage credit in a
variety of environments.”

Some analysts think the pullback in spending could spread to
wealthier households.

“You’re going to see it go up the income scale as the
year unfolds with people sitting there, saying, ‘I’ll
go without rather than spend this much on that’ or
‘I’ll trade down to something more
affordable,’” said Mr. O’Rourke, the
JonesTrading strategist. He added that he was waiting for earnings
from Macy’s and Nordstrom, which are scheduled to report in
August, to see if that was happening.

The concern is that the heavy summer spending that has recently
bolstered the earnings of the hospitality industries and the
airlines is not sustainable. “There’s a faction of the
market that’s quite convinced that when we get to the fall
and the bills from the summer spending come home to roost, the
consumer will be in a much trickier spot,” Mr. Barnhurst of >>> PGIM said.

An exchange this earnings season reveals how chief executives and
companies can keep the economy going, even when they fear that a
downturn may be at hand.

Jamie Dimon, the chief executive of JPMorgan Chase, warned in May
that storm clouds were gathering over the economy. On
JPMorgan’s second-quarter earnings call, Mike Mayo, an >>> analyst at Wells Fargo, asked Mr. Dimon why the bank had committed
to investing such large sums this year if things could turn dire.

“It’s like you’re acting like there’s
sunny skies ahead,” Mr. Mayo said, “You’re out
buying kayaks, surfboards, wave runners just before the storm. So
is it tough times or not?”

Mr. Dimon’s response: “We’ve always run the
company consistently, investing, doing this stuff through
storms.”"

https://www.nytimes.com/2022/07/29/business/strong-profits-shaky-economy.html


      This was a fun read for me because Pete is essentially
saying the same thing I've been saying. Problems at the economic
margins, while life goes on, more or less, as normal. The sky is
not falling or seriously distorted in some way. No one here is
going to Venezuela--unless they really, reaaallllllly want to.
Click your heels 3 times and all that.

Is there an insignificant number of people "at the economic margins"?
-------------------------------------------------
While well-off consumers show few signs of cutting back, the
second-quarter earnings contain plenty of evidence that some
households are getting squeezed as inflation pushes up their bills.
----------------------------------------------------
The well-offs are doing fine, so screw the marginals?

Isn't that the retrumplican way?

Apparently not. He's not the person driving the boat right now.

Mark O'Connor/James Taylor/Yo-Yo Ma/Edgar Meyer - "Hard Times Come
Again No More"

https://www.youtube.com/watch?v=uv2AcfmvIuw

TB

--
bill
Theory don't mean squat if it don't work.

--- SoupGate-Win32 v1.05
* Origin: fsxNet Usenet Gateway (21:1/5)

On 7/29/2022 5:42 PM, kmiller wrote:

On 7/29/2022 4:50 PM, bfh wrote:

Technobarbarian wrote:

     This is a seriously fun summary of our current economic situation: >>>
"If the Economy Is Shaky, Why Are Company Profits Still Strong?

Corporate optimism may seem at odds with the Fed’s grim
determination to hold back the economy to get inflation down, but
earnings tell a story that other data doesn’t.

By Peter Eavis
July 29, 2022, 11:54 a.m. ET

Consumers are gloomy, the economy is shrinking, the Federal Reserve
wants it to keep slowing and economists now say the whole world could
be sliding toward recession.

At the same time, a lot of strong numbers are still coming out of
many large American companies, which have been releasing their
quarterly earnings reports and discussing their outlooks with Wall
Street.

“We had an outstanding quarter,” Stephen Squeri, the chief
executive of American Express, said after the company reported record
revenue. “As our second-quarter results demonstrate, we have a lot >>> to be proud of,” said Christopher Nassetta, chief executive of
Hilton Worldwide, noting that revenue per room in most major regions
of the world was now above 2019 levels.

The blustery corporate optimism may seem at odds with the Fed’s
grim determination to hold back the economy to get inflation down.
But the economy is both what the Fed does and how companies and
consumers are behaving. And the full picture of this strange economic
moment is perhaps better captured by considering both sides together,
central bankers and C.E.O.s, no matter how divergent they seem.

Some big companies — Meta, for example — have reported
disappointing numbers, and their chief executives are downbeat about
the future. Other tech giants, Alphabet, Amazon, Apple and Microsoft
included, all released results that, while hardly stellar, were
enough to persuade investors that their businesses were not falling
off a cliff.

Indeed, so far, with roughly half of all large companies having
reported their numbers, this earnings season has not provided much
evidence that the economy is entering a big crackup, and almost no
chief executives talked about doing mass layoffs on earnings calls.

The lack of really bad news in earnings in part explains why the S&P
500 stock index has bounced about 12 percent from its low point in
June, and why Wall Street analysts still predict that earnings for
the companies in the S&P 500 will grow 10 percent this year,
according to data from FactSet. Though much of that growth is
expected to come from energy companies, which have benefited from
higher oil and gas prices, analysts expect profits to rise in eight
of the 11 industries represented in the index.

It’s an awfully rosy picture when “recession” is on people’s
minds. That’s why for some on Wall Street, that optimism is absurd. >>> Michael Burry, the investor who foresaw the 2008 mortgage meltdown,
wrote on Twitter on Tuesday that the earnings reports coming in felt
like a “last hurrah.”

Not done with fighting inflation, central banks are expected to
continue pushing up the cost of borrowing, which would make corporate
investments more expensive and dampen demand for companies’
products and services. Europe, a big market for U.S. corporations,
could have a nightmare winter if natural gas prices continue rising.
And supply chains are still dysfunctional for many companies, meaning
they can’t even make and sell products for which there is demand. >>>
“All those headwinds that created the downturn, they’re still >>> intact and arguably getting worse,” said Mike O’Rourke, chief >>> market strategist at JonesTrading.

Things could go into reverse quickly, the pessimists say. Many
companies have for some time lived in a sort of nirvana in which they
could keep hoisting their prices and customers would keep paying
them, creating blowout profits.

Now there are signs that consumers are balking at what companies
charge, and if they pull back hard, their sales and earnings could
take a big hit and lead chief executives to lay off workers and slash
investments to protect profit margins and balance sheets. Early signs
of this dynamic are emerging, according to some analysts.

Home-building companies, for instance, have been able to sell homes
at ever higher prices over the past two years, but as the Fed has
raised interest rates, their senior executives say demand has fallen.

PulteGroup, a large home builder that reported earnings this past
week, said the average price of its homes in the second quarter was
$531,000, a 19 percent increase from a year earlier. The company
forecast that the average would keep rising this year. At the same
time, Pulte said, net new orders plunged 23 percent from a year
earlier, which the company blamed on the increase in mortgage rates.

“We’ll have to see how well the sector is able to hold on to >>> those price increases that they’ve accumulated over the last
couple of years,” said Brian Barnhurst, co-head of credit research >>> for PGIM Fixed Income, a division of Prudential, referring to home
builders.

Pulte did not respond to requests for comment.

While well-off consumers show few signs of cutting back, the
second-quarter earnings contain plenty of evidence that some
households are getting squeezed as inflation pushes up their bills.

AT&T said its customers were taking two days longer on average to pay
their bills, which caused a hit to the phone company’s
second-quarter cash flow of almost $1 billion. The company’s chief >>> executive, John Stankey, said on the earnings call that bad-debt
levels were slightly higher than before the pandemic. But he added,
“We view this cycle no differently and still expect customers will >>> pay their bills, albeit a little less timely.”

On the earnings call for McDonald’s, the company’s chief
financial officer said some of its customers were choosing
“value” offerings over others. On Chipotle’s earnings call, its
chief executive, Brian Niccol, said: “The low-income consumer
definitely has pulled back their purchase frequency. Fortunately, for
Chipotle, that is not the majority of our customers.”

Big retailers like Walmart have said their customers are spending so
much on must-have items like food and fuel that they’re eschewing >>> higher-cost merchandise, like clothes and home goods. Since shoppers
are still spending at Walmart for the staples, the company — and to >>> a certain extent, the economy — still benefits from their
purchases, though the shift has hit its profit margins and helped
pummel its stock.

Banks earnings are a good place to get an early read on how consumers
are faring. Overall, there are few signs at lenders that borrowers
are having trouble repaying their loans, analysts say.

“You would have come away from the quarterly earnings thinking that >>> the consumer was generally in good shape,” said Moshe Orenbuch, an >>> analyst who covers finance companies at Credit Suisse.

Because of pandemic stimulus payments, low unemployment and rising
wages, the levels of past-due loans and bad debt fell to historical
lows, but lenders have expected them to rise as borrowers reduce cash
holdings and their balance sheets look more like they did before the
pandemic. The finance industry has started calling that process
“normalization.”

It appears to have begun among lower-income borrowers.

Richard Fairbank, the chief executive of Capital One, a big credit
card lender, said on the company’s earnings call that this
normalization was more evident in the bank’s subprime loans than in >>> those made to borrowers with stronger credit. But Capital One
declined to provide past-due loan numbers for its subprime loans,
making it impossible to chart the extent of any deterioration.

In its earnings report, Ally Bank, a big auto loan maker, provided
data on past-due auto loans in the second quarter for borrowers at a
range of income levels. Past-due loans were either at or close to
prepandemic levels for borrowers with lower incomes.

Ally declined to provide the same data for earlier quarters, making
it impossible to know how quickly past-due loans might have risen. On
its earnings call, Jenn LaClair, Ally’s chief financial officer,
said, “We have continued to invest in talent and technology to
enhance our servicing and collection capabilities and remain
confident in our ability to effectively manage credit in a variety
of environments.”

Some analysts think the pullback in spending could spread to
wealthier households.

“You’re going to see it go up the income scale as the year
unfolds with people sitting there, saying, ‘I’ll go without >>> rather than spend this much on that’ or ‘I’ll trade down to
something more affordable,’” said Mr. O’Rourke, the
JonesTrading strategist. He added that he was waiting for earnings
from Macy’s and Nordstrom, which are scheduled to report in August, >>> to see if that was happening.

The concern is that the heavy summer spending that has recently
bolstered the earnings of the hospitality industries and the airlines
is not sustainable. “There’s a faction of the market that’s
quite convinced that when we get to the fall and the bills from the
summer spending come home to roost, the consumer will be in a much
trickier spot,” Mr. Barnhurst of PGIM said.

An exchange this earnings season reveals how chief executives and
companies can keep the economy going, even when they fear that a
downturn may be at hand.

Jamie Dimon, the chief executive of JPMorgan Chase, warned in May
that storm clouds were gathering over the economy. On JPMorgan’s
second-quarter earnings call, Mike Mayo, an analyst at Wells Fargo,
asked Mr. Dimon why the bank had committed to investing such large
sums this year if things could turn dire.

“It’s like you’re acting like there’s sunny skies ahead,”
Mr. Mayo said, “You’re out buying kayaks, surfboards, wave
runners just before the storm. So is it tough times or not?”

Mr. Dimon’s response: “We’ve always run the company
consistently, investing, doing this stuff through storms.”"

https://www.nytimes.com/2022/07/29/business/strong-profits-shaky-economy.html


      This was a fun read for me because Pete is essentially saying >>> the same thing I've been saying. Problems at the economic margins,
while life goes on, more or less, as normal. The sky is not falling
or seriously distorted in some way. No one here is going to
Venezuela--unless they really, reaaallllllly want to. Click your
heels 3 times and all that.

Is there an insignificant number of people "at the economic margins"?
-------------------------------------------------
While well-off consumers show few signs of cutting back, the
second-quarter earnings contain plenty of evidence that some
households are getting squeezed as inflation pushes up their bills.
----------------------------------------------------
The well-offs are doing fine, so screw the marginals?

Isn't that the retrumplican way?

LOL Yep! Precisely. "There's a storm coming." Who is going to get
wet? The people most exposed--as always and forever. Who are the people
who are least likely to hand out umbrellas and most likely to help the rich?

I am not saying "screw the marginals", even though that it precisely
what I expect to see happen. What I'm saying is that your economic
boogie man is pretty damn wimpy. I expect to see the marginal people get screwed because the retrumplicans won't want to give President Potato
Head any more legislative victories. All of a sudden they're going to be deficit hawks again. Big surprise. Targeted help for the people at the
economic margins will be out of the question or very limited. I think
it's a hoot that they expect economic suffering to increase the power of
the retrumplican cult. A lot of their followers are people on the
economic margins.

TB

--- SoupGate-Win32 v1.05
* Origin: fsxNet Usenet Gateway (21:1/5)