Money,. And with retail earning season about to kick off, we start off with potential to believe the death of the consumer has been greatly exaggerated. Bank of america upgrading the discretionary sector an overweight from an underweight, laying out a host of reasons growing hopes for a soft landing, no recession means more consumption, they say. Plus, consumers biggest debt burden, their mortgage, are in fixed low rates. So, not subject to moves and bond yields. Analysts highlighting rising real wages and earnings beats in the discretionary sector should this signal we are in for strong reports next week guy, maybe were just too worried about the consumer, everything is just fine in consumerland. I wake up for it, mel i know. I understand why theres reason for optimism without question u. S. Consumer will always spend if nothing bad is going on and i always view it through the lens of the stock market when theres an event in the stock market to the downside, thats when Consumer Behavior stops on a dime. 73 of our economy is driven by people buying things who is the winners its clear in terms of the stock, i think steeple had a report out, 71 of households in this country earning 100,000 or more shopped at walmart com paired to, like, 50 at target and 30 , i think, at home depot. Walmart wins, target loses walmarts an alltime high target is 3 away from a 52week low. Tjx on that side wins as well. Its obviously whats going on those retailers will do well in this environment the health of the consumer, i dont know trillion dollar in credit card fighting inflation, adding more debt that works until it doesnt. Interesting, you mentioned walmart, and again, truly magnificent performance, especially relative to some of its peers like target, cant get out of its own way i think that more of a consumer staple they were benefits when inflation is a big thing and now theyre benefitting with a mon raiding consumer we heard about the trade down, that sort of still if you look at the xly, sometimes you can its a bit of a mirage. Amazon, about 24 , tesla is about 18 , home depot, mcdonalds, lowes, then you start getting into something that maybe feels a bit more discretionary. The xly made a new 52week high, its come back a little bit. That largely has to do probably with tesla, so, when i think about amazon and the results they just gave us, they did tell us the consumer is pretty good that strength came in their retail business. But it had to do with their margin on their retail business. And at some point, might speak to their ability to pass forward certain costs at discount, right, to a cob schumer. Thats why this week is really important, because were going to get a wide swath of different retailers here what is the incentive of the retailers to be bullish . What is there incentive to be bullish when theres so many things on the horizon, like the repayment of Student Loans its really all about kind of managing those expectations. And i dont really see a whole lot of a reason for them to come out and be too bullish and run the risk of disappointing investors. That is the last thing you want to do. Weve had the cpi print and the ppi print, which seem to tell slightly two different stories weve had amazon that tells the situation with cloud and weve had some of the other smh components come out and not be as glowing as we would have expected there seems to be a kshaped recovery when it comes to the consumer we talked about the trade down you have people that have the Interest Rates, debt thats fueling asset purchases, and those assets are, you know, are being accretive in this environment, and you have a cohort that is debt thats fueling purchasing and i think thats the pocket we really need to focus on. If there are cracks, it will likely be that cohort. Julie, whats your take here . I feel like this desk overall has been fairly cautious negative when it comes to the u. S. Consumer including yourself so, what do you say to all these arguments put out today . I think there used to be a colleague as merrill lynch, so, im loathe to disagree with her, but i think there are some concerns i have, but it depends on who youre asking, right . So, if you look at real liquid assets, if you are in the bottom 99 , they have grown 2 , 3 since the beginning of covid if you are in the top 1 , theyve grown 23 . So, thats a pretty big i dense s differential in terms of liquid assets and what is Consumer Discretionary doing relative to income and it is at a high that it hasnt seen in 30 years. And in order for it to return to normalization, it would have to drop 10 so, i think, you know, theres the issue of the stocks, which i think is more what this stock call is really about, and then theres the issue of the fundamentals, and i think we should be concerned about some of these consumers, because were really clearly racking up a lot of debt and at some point, that has to come due part of the argument is that Fund Managers are extremely over excuse me, underweight Consumer Discretionary its the positioning that plays into this whole thing, in terms of the expected snap in the stock. And the stocks are interesting, because what we learned in q2 earnings season, there was a lot of dispersion. Names you want to put together here, a lot of stocks acting in different ways we mentioned walmart and target. And guy, maybe its a question for you, sorry, maybe its a question for guy, at some point, maybe is target so bad that its good if they come in line, lets say they dont even raise guidance and the margins are okay, stock trading at 13 1 2 times next years earnings seems reasonable, relative to a walmart that trades above a market multiple, you know, many turns versus a target or Something Like that. It almost seems like you want this stock in a messy market to sell off and buy it, rather than buying walmart at an alltime high the merchandise mix is not as cond conducive, guy, ill pose the question to you, thank you, dan. Is this a would you rather . When it comes to valuation yeah, do you think the sacrifices you make, in terms of the more beneficial mix walmart has for the valuation that target has ill stick with walmart, though ill play the game correctly they fired up the graphic. Would you rather you and the answer is walmart. People are shopping at walmart it is clear. When you have 100,000 and mar more, 71 of those people are shopping at walmart. They will win. Add to it, back to school, which walmart will win, as well, over target, because they have groceries and they have the people in their stores, so targets problems are partially the consumer, a lot of it is selfinflicted wounds, and the stocks are telling the story consumers might be spending the same amount, but they have to make it stretch because theyre getting less, you know when youre paying 20 more for a bag of doritos year on year, whatever the number is, its astronomical for snack food, youre going to look for the lowest price and that could be at walmart, bonawyn, so, its not necessarily the amount, but how the consumer is making that stretch. And its the offering of the private labels in the tradedown you know, one thing worth mentioning in this report is the val valuation of some of the staple names. And that, to me, really is the catalyst for the trade essentially, youre lookining se of the names that are trading a 24, 25, 26 times, and yes there is margin of safety there. But the question that this trade idea really poses is is at what point is there some relative value . And i think that if we get through these earnings season, if we get through this earnings season, we dont see the deterioration of the consumer, that might be what is at least the shortterm tail wind for that trade to work out what do you think of that staples are expensive. Uhhuh. No question about it listen, i think at a certain point, maybe that makes sense, but i think the differentiation is going to continue in this environment. People are you know, i understand the health of the consumer, money on the sidelines, balance sheet, all that stuff, but the reality is, Consumer Debt has never been higher in this country and, you know, as long as the stock market continues to grind higher, everything will be fine, but if something were to happen, like we saw in the fall of 2018, Consumer Spending stops on a dime heres a prediction next monday hot take. If youll have me back, next monday, ill bet you a pair short walmart, long target right here is going to make money week over week. Short walmart long target pairs trade all right, well see. Our next guest suggests apple and consumer are the reason stocks look strong. You are seeing firsthand what consumers are doing. Thats right. What are they doing yeah, so we deal with the consumer, the average everyday american, and theyre spending on staple goods like you just men mentioned, walmart, amazon, target, that spending is rock solid. It hasnt moved that much. And so, what they are doing is getting less for their money and so, for staple goods, thats obviously something thats new for americans, thats just happened and youre seeing that roll into retail sales coming lower, retail confidence, so, the confidence numbers are coming down on the indices. And so, from a consumer point of view, theyre saying, okay, ooij not getting as much money im not getting as many goods for my money, and then im having to spend more money through Credit Card Debt, we hit a trillion dollars on that, for the same goods. And so, for the average consumer, they are not exactly struggling, but they are struggling to make that money go as far as they traditionally well you guys have the debit card, and now you just introduced a credit product here. We did. Interesting when you think about the average consumer, and you think about the places in which theyre spending, are you starting to see some data that shows you mentioned a trillion dollars in consumer credit, are you starting to see any sorts of shift that would look, lead you to believe that were going to start getting to territory that feels uncomfortable for a consumer that maybe many in your demographic are going to start to repay Student Loans, that sort of thing. So, do you track that . We do track that. Were not seeing any were seeing mixed signs, as probably the tldr for us. For an affluence standpoint, which you guys have just mentioned, 22 of Credit Card Debt has been pulled down just now, so, youve still got 78 , if you want to take a bullish view, 78 . Affluent people with big credit lines, the average household has 8,000 on their credit car from 6,019 in 2020 theres still some way to go 90 of all Mortgage Rates are locked in below 6 and so, for many people, theyre not going to move house. Theyre not going to move jobs so, you want to take a bullish view, there is some dry powder there to go. For the average consumer, the average american who is trying to make those staples go as far as they can, i dont think theres that much breathing room for them and so, credit building is such an important part of and your credit score is such an important apy of how much money you spend on your debt, we never needed to look at that over the last ten years you have debt and its just been, like, whatever it is now, because you are sensitive to that Interest Rate, you are going to look at the input of that, your credit score, and so, weve got this product called build that helps people, every day americans, build their credit with their bank account what is your take on how consumers view that dry powder, that remaining credit line that they can still use, if the Interest Rate is 26 or whatever horrifying rate it is these days yeah, i think this is whats coming into the psyche of, whether you pull down or not so, definitely, when it comes to mortgages and auto loans, you are probably not going to look at them too often. When it comes to revolving credit, if it comes to staples, which is starting to happen now, you are going to pull down on that line. You are going to fooedeed your family over 22 on that apy. That credit building, maintaining a good credit score in this time for the people on 25k, 55k household income, its an important thing to do in a former life, stuart was a trader at Morgan Stanley great to have him on here. What do you make of the bond market moves and the currency moves that were seeing . Obviously, no impact on the stock market, but is it just sort of inevitability with that . I think when it comes to the retail stocks, youre going to i think you will see earnings beats and Revenue Misses but overarchingly, what were going to see is liquidity training the bond market it looks like its happening all right, and so, well see this sort of volatile to sideways move. Were all going to make bets, you heard you make a pairs bet just now were all going to be making these bets, and im sure theyre smart, but i think over the next two, three months, the overarching theme will bely liquidity train. The japanese market is in turmoil, though the boj is doing a good job, i think, and that will be the dominating factor over the summer, until we get back until everyones back from labor day all right, stuart, great to see you. Thank you for putting your trader cap on. Bonawyn, what is your take on, you know, where the consumer is based on what stuart said . I think he brings up some very interesting points. If you are tapping credit to source purchase of consumer staples, to me, i dont i dont know you cant trade down, you doubt have an alternative, we can talk about fixed rates on mortgages, but how costly is it for you to tap into that equity to use that to propel purchasing power anyway that raised the hairs on the back of my neck. I think that is a telltale sign, coming from a company that specializes in parsing that data and, you know, julie, remember last quarter, we heard from Dollar General that said a lot of the customers are trading down to food banks and you got to wonder if thats still happening at this point. I mean, its probably is. Yeah, i would imagine that its still happening i think some of the good news is that if you look at the where the wage growth is really happening, its more so in the lower income, but you still are seeing a lot of diver jens among the retailers, and generally speaking, going back to our previous point, it really pays to Pay Attention to who is executing well and who isnt, right . Target versus walmart, but Dollar General, dollar tree, youre seeing a huge diver jens between these two names, and its about their execution and their ability to deliver something. Its not even like a wage effect i think you can find names in retail that are pretty oversold, but that are showing the ability to execute well, and i think theyll do okay. Its interesting, stuart mentioned that the percentage of home owners who have these low Mortgage Rates and then also when you think about where unemployment is, and he used this term a couple times, if you want to make the bullish argument i think thats what i get it, it doesnt mean it has to translate back into the stock market this is that soft landing scenario and as far as the stoshgt market is concerned, you know, we are pricing soft landing we are there right now and so, if you think about the stock market as a forwardlooking discounting mechanism, its discounting a lot of good news at the moment if retailers come in and they have terrible forecasts, is soft landing soft of less likely or does it not change would retailers say, its separate from what the economists see i think that thats a fascinating question i dont think its going to change the narrative i dont think so, either, which is fascinating, right . Yes i agree with that 100 i dont necessarily think it matters what they say. You made the point earlier, why wouldnt they sort of sandbag in this environment because you can. The reality is, to me, at least, i understand the soft landing through the lens of the stock market, but the lens through a lot of other things, to me, gets more and more difficult. Weve got a news alert here on 13f filings. Leslie picker has the details. Hey, mel. Managers here appear to be doubling down on big tech during the runup in the second quarter. Others crystallized their gains. Tiger global in the latter camp here, pearing back amazon, microsoft, they dissolved apple, but it boosted its stake in meta, to hold 2. 5 billion worth of that company at quarter end and it bought a lot more nvidia, as well. Other managers actually buying into the rally third points dan lobe telling investors in a letter at the end of july that its exposure to microsoft, amd, amazon, and google were, quote, undersized and the profits from those positions were offset by losses elsewhere during the quarter we can see from todays filings that third point boosted its stake in amd and took a new position in amazon, worth about half a billion dollars at quarter end and actually sold more than half of its stake in alphabet, which is googles Parent Company apple broadly bullish, boosting stakes in alphabet, amazon, microsoft, and adding to chinese tech names, as well, where as weve seen a lot of other managers really kind of exit that exexposure, mel less l leslessley leslie, thank you. Julie, what stood out to you yeah, you know, i think its interesting noting where people are positioning themselves in big tech and i think, to me, theres just so much more opportunity in names that are maybe a little bit less heavily traded and hotly followed i think theres obviously opportunities that are very specific to nvidia, but the rest of the names, its still a real challenge to understand exactly how a. I. Plays out, and they wont really tell us how they think its going to trickle through their Business Model other than to say, it makings it better so, i think overall, its pretty expensive place to be yo, and t expectations are extremely high, and that makes me uneasy. Coming up, a sought after steal. A new allcash offer for u. S. Steel. More on the potential deal and how its impacting the options markets, next. Plus, some fast movers in the Financial Services space paypal naming a new chief, as w haub gich gives back its gain. 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