Nathan Thurm was a brilliant SNL character played by Martin Short in the 1980s. Nathan was a very slippery attorney who had a habit of responding to questions with questions and obfuscating at all costs. It's a great sketch.
I believe Nathan is the poster boy for the US economy, and the con artists and grifters on Wall Street and in the Biden Administration who are trying to spin the constant stream of terrible macro data into something positive. We are clearly in a recession now, as confirmed by this morning's revised GDP report from the BEA, which showed US GDP contracted 0.6% in the second quarter. Two consecutive quarters of GDP contraction is a recession. Period. Ignore anyone who says otherwise.
Or go to my site for a constant barrage of the truth. I find it refreshing. That's why I write it.
More evidence comes from the sectoral data, which compose the building blocks of the final GDP calculation. For instance, the US vehicle sales SAAR fell from 15.1 million units in July 2021 to 13.8 mm units in July 2022. I spent my formative years on Wall Street calculating US vehicle sales Seasonally Adjusted Annual Rates, and while this technique smooths out seasonal patterns in sales, one should not miss the forest for the trees.
A 13.8 mm SAAR is an extraordinarily low level of sales, and except for the post-pandemic era, you would have to go back to December 2011 to find a monthly US vehicle sales SAAR reading below 14.0 mm units. Yet we have been repeatedly below that level for most of 2022.
Cars are the second most important purchases most consumers will make and US consumers just aren't buying them. Those sales are total industry figures, and include medium- and heavy-duty trucks, which are corporate purchases. The outlook for that segment is even worse than that for consumer purchases.
That covers purchase number two, but what's your most important purchase? Your home, of course. The latest National Association of Realtors' reading for the US existing home sales for July was 4.81 million units. This is by far the lowest reading in the past year and well below the pre-pandemic figure for full-year 2019, which was 5.34 million units sold.
People aren't buying houses and cars, so how can the economy be considered "strong?" As Nathan would say, "why are you asking me this question?" Because it's our job, collectively, as the market to value companies by calculating their earnings power and discounting it back. If people aren't buying as much "stuff," Corporate America will earn lower profits. In 2Q that was the case, as John Butters' excellent FactSet Earnings Insight showed that S&P 500 profits ex-energy fell 4% y-o-y in 2Q22.
Overall - thanks to Exxon (XOM) and Chevron (CVX) - Corporate America produced profit growth in 2Q22, but high energy prices and negative growth are the worst of all possible worlds for the consumer. It's a bitches' brew, as Miles Davis would say, of ESG-mania causing underinvestment in hydrocarbon development, and that inflation in hydrocarbon prices feeding through to every other part of the global economy, as it always does.
That's why I started my HOAX model portfolio (free, archival version is here; real-time version is behind the paywall at www.excelsiorcapitalpartners.com) because energy is the only investable sector in a stagflationary macro environment.
I really don't care what Jerome "Nathan Thurm" Powell has to say with his Jackson Hole buddies this week. The economic numbers don't lie. They are terrible right now. Higher interest rates will only exacerbate that problem, as they increase the monthly payments on houses and cars, which, as noted, people aren't buying these days, anyway.
As Nathan would say, "I'm not being defensive, you're being defensive!" Names like Procter & Gamble (PG) and Colgate-Palmolive (CL) do have defensive characteristics, but the only effective way to play defense against this macro backdrop (Europe is actually worse than the US - I will cover that in a future column) is to play offense by owning energy. That's the truth, not obfuscation.