This Is the Toughest Macro Environment You’ve Ever Seen

Taylor, Brewster and Carlisle discuss this is the toughest macro environment ever in their latest episode of VALUE: After Hours Podcast. Here is a portion of the episode:

Bill: I am not trying to unpack it. I think I underestimated the impact of Russia-Ukraine’s beginnings. I did not see Ukraine winning the hearts of people and the West being so united in its sanctions. If you are interested in the How much potash Russia makes and how many oil Russia exports, I recommend it. This commodity environment could be extremely messed-up for a long period. Add China COVID 2022 and you have the most difficult macro environment Ive ever seen. I don’t think macro is the way I would be paid. COVID 2020 was easy because everyone had the same risk. This is really weird to me.

I’m not sure. Three years of sustained inflation, food shortages, and global dislocations are fine. The leading economic indicators are strong for America, household networth is high, the upper end of Americas is doing well, and the people at the margin are about get waxed. $5.50 gas is still not available. I’m sure America will be capable of procuring food, but it will be more expensive. I feel terrible about emerging markets. I feel horrible for emerging markets.

Jake: Jake, other than that, how’s the play Mrs. Lincoln?

Tobias: [laughs]

Bill: The only thing that matters is, okay, so what are the prices? These are first-order thoughts that I have, but I am not a dip purchaser. It might cost me money in the long-term, but 2018 was easy for me. In 2015, it was pretty easy. I’m not sure what this one is.

Tobias: JT, where are you? You are quite bearish?

Jake: It’s a good question. I don’t know. I don’t know. [laughs]It’s not a duh. But it is possible to imagine a badly-organized supply chain that has yet to be unfurled from COVID.

Add in commodity shortages, higher prices for everything, plus the time it takes to get supply on line to match high prices. It can take time, which can make it difficult for anyone to bet on a profit margin expansion. It is hard to imagine something similar in the last decade being more than that. I don’t know but it seems like it. [crosstalk]

Bill: It will accelerate, but it won’t be in real terms.

Jake: Wow. Okay.

Bill: I believe heavily levered industries that have any pricing power will win relatively.

Jake:

Bill: I think so. [crosstalk]

Jake: [crosstalk]?

Tobias: What’s that?

Bill: Yes, that’s one of the solutions. I don’t have the answer, man. I am still working on it.

Earnings Recession Coming Up

Jake: We may feel that we are on the opposite side of peak globalization for some time. Maybe we were going backwards in that regard, which would then be inflationary in its own right. If you split the world into different markets and people aren’t trading with each other, that stuff is just going to be more expensive. It’s how it works. It is difficult to be optimistic about profit margins. I wouldn’t be surprised if we were in an earnings recession. This makes prices feel like it is inevitable that they will. I don’t know. It is not a bubbly, effervescent period. That’s for certain.

Tobias, John Battle made a comment. This is quite interesting. This is a very interesting phenomenon. I saw it when I was walking by the grocery store and saw a sign at the front listing 8 positions they are hiring for. I doubt that we will experience a recession if there is a labor shortage.

Bill: Yeah, I mean, maybe.

Jake: What if you can’t move as many product? What if there are labor shortages and the unit volumes are impacted?

Bill: This environment should allow it to have pricing power.

Learn more about the VALUE After Hours podcast here VALUE After Hours Podcast. You can also listen to this podcast on your favorite podcast platform here:

Apple Podcasts

Breaker