Wasserman: "No Relief in Sight" for Consumers, Fed Faces Political Tightrope

which of course, we'll keep watching throughout the day to see if it becomes their worst trading day on record. But I do want to broaden out our conversation. Joining us now, Max Wasserman, founder senior portfolio manager at Miramar Capital Max, great to have you on the show. I mean, what a difference a week makes here as we look at our setup now from a week ago, we've got lower than expected inflation data. We've got oil up near $80 a barrel. We have a cease fire that has essentially fallen apart. The strait is closed again. How are you looking at the market right now? Well, thank you for having me back on. But if you look at it, all this data about CPI and what's happened is in the rear view mirror. It was based on the fact that gasoline prices have basically dropped 10%. And we had an MOUA letter of understanding, if you will memo with Iran. Now we're seeing that's falling apart. And so you could see oil right back up. So that's going to have inflationary pressure. The other thing that you're looking at is hourly wage growth is actually not that great. So I think if you look in the rearview mirror, yeah, the number was good. But going forward, if oil spikes again, hourly wage growth is not growing that much, then the consumers are going to be pressed. And we're seeing that any cease fire that you have is really meaningless. And this could go on for some period of time, and that will put upward pressure on spending and upward pressure on costs for the consumer. And we think it's going to start to show in the next quarter or two. So if it's going to start to show here in the next in the next quarter or so, I mean, we've been having this conversation about the consumer, right? Sentiment is so low, but the consumer appears to still be spending is showing a lot of signs of resiliency, albeit in what still seems to be a bifurcated economy. How are you looking at the consumer as now we potentially have higher gas prices back on the table. I was talking to someone yesterday about the rocket and feather, which is the the the fast rise of gas prices. When oil goes up, they rise like a rocket, but they fall like a feather to come back down to normal levels. We were in that falling feather. Now we're back up again. We could potentially see that spike and not the relief that's sort of being priced in by the markets. Now. How are you looking at that? I know you said you expect to see some pressure on the consumer maybe showing up in the next couple of quarters here. But how much pressure are we talking about, Max. Well, think about it. There's no relief in sight. I mean, think think about a cost of living has gone up. Food costs, housing costs, right? You name it, it's higher. Not just oil. Oil is embedded in everything, but all the other embedded costs. Yes, we're in summer. It's travel time. Everybody's feeling good. Everybody's having the recreational experiences. But when that comes to an end and people start going into the fall months and we see interest rates are not going down, you're looking at about a 454 60, a fed that says they have embedded inflation. Everybody was anticipating rate cuts this year, and now they're talking about potential for rate rise, which I don't think is going to happen. But you're seeing a different fed. So I think people have to calm down their expectation. Margin debt is at an all time high. And yes, everybody is enjoying the summer. But if interest rates stay where they're at, the fed has a tightening bias and you have oil prices stabilizing to going up, the consumer is going to face that. But you know, they raise they spend their credit cards. I'll be interested to see what the credit card companies report and the regional banks. They'll tell us more what's happening there right now. Today, you're getting all the major banks earnings, but that's Wall Street. They're telling you about deals, capital formation. They're telling you about M&A. That's not telling me about middle America. And that's what I'm looking for the regional banks to tell me. And Max, you just said there that you don't expect the fed to hike at all this year. Now we got the data today, which you've already pointed out is backward looking. We did see the potential for a hike in the near term go down a little bit, but the street's still pricing in a 80% chance of a 81%. It is now by December. What is going to stop the fed from having to need that hike? Well, one, the street has been wrong. I mean, if you think about it, they've been predicting on the opposite end every single time of what the Fed's going to do. I just find it hard to believe that new fed chairman appointed by the President Trump is going to turn around and raise rates. I mean, that would be really a big thing. So I'm not sure he can do it. But the other areas he can run up the balance sheet. There's other ways of tightening without actually technically raising rates. Because if he raises rates, I think that's going to say something that the market's not prepared to answer. Is it just a one time or is it a two time? What is really embedded in this economy. And I think he's hoping that oil prices do come down. And it's just given time that inflation will go back to that feather. You know, on the downside it will start to increase. But I find it politically I don't know how a new appointed fed by this president is going to raise rates without really a lot of political pressure. And another thing that Kevin Warsh has touched on is AI and how he views it as a net positive and thinks it will be beneficial for the labor market here. But as you look at the labor market and the growing uncertainty around AI and the employment picture, do you view that as starting to show up in our data? I mean, just this morning, we had Jamie Dimon talking about how they've cut 40% of the workforce. They've had a 40% reduction thanks to AI. So, I mean, these conversations are coming and they're coming from massive companies now. Well, you know, that's an old story of, you know, what's the difference in recession or depression? Recession, I lose, you lose your job, depression, I lose mine. But if you're a major, one of these big tech companies are laying off. Amazon is doing a big numbers. Microsoft, all the major tech companies are cutting back. Financial companies are cutting back and they're saying, you know what? There's going to be jobs, but that's a lot of high paying jobs that are going to start coming on the market. And how quickly are they being reabsorbed? AI is telling you don't need as many people to do the same number of jobs. It's just telling you and repetitive jobs are being eliminated. You have programmers that AI is replacing, so I'm a little reluctant to go with them. When a CEO tells me it's not a big deal, but they just lay off 4000 employees. So I don't place a lot of valid validity in their comments. When you lay that many people off, I think it's going to catch up a little bit and think about it. These are good paying jobs, so that's going to have a magnifying effect of what they can spend on the economy. So if you continue with these number of layoffs and the lack of new hiring, I think you're going to put more pressure out there. So Max, if this is our backdrop and we've got all these crosscurrents that we're dealing with right now, how are you structuring and positioning portfolios right now? Where are you seeing opportunity? Well, you know, I think there's definitely opportunities outside of technology in technology is just few that have been beaten up. I mean, software is looking interesting. You know, we like Microsoft here. We have investments in all the other large cap ones as well. But it's been beaten up a lot. And you see what IBM is reporting. But we like the financials. We like to see what the financials. JP Morgan we have an investment. We like CME. We like visa. You know these are companies like healthcare has been catching a nice bid lately. We think energy stocks are great hedge against technology. Because if you look at the seesaw really when energy's up tech is down and vice versa. That's a good way to sort of barbell strategy in your portfolio. Industrial stocks are doing really well. So we like a company like Snap-on tools. It's $20 billion out of Wisconsin. So we think there's value out there, but we think the market's going to spread. We think it's going to get a little bit better as people start pulling money just out of memory chips into the rest of the market. So we're actually optimistic on the overall market. But there's pockets that are just so rich and everybody's already there. It's hard to make money at these prices. And Max, I want to dive in a little on snap on incorporated because I have a segment called Overlooked Stocks in my other show, and I feel like this is a candidate for it, not one I've talked about. So what's the thesis on snap on? Well, you know, it's a $20 billion market cap out of Wisconsin. And basically they sell mobile tools, the mower franchise. They go directly to the consumers. They have the vans, they sell, they go to the mechanic shops, they go to engineering companies, they go to diesel repairs. So they sell directly to consumers. There's not a mass. They don't have to deal with the price discounts. And they have such embedded deep relationships. They have a return on capital of about 14%, margins of 50. Very little debt pays you a dividend yield of 2.4. And you know, we're dividend investors with a 13% growth rate. And we think this is a company that benefits for the fleets that are aging. Average age of a car is 13 years and more sophisticated, more diagnostics, their area to diagnose and repair engines for commercial, for defense. I mean, there are a lot of things, and we think a company like this is overlooked and it's really a strong return on capital, good company that we think will benefit in the cycle. Well trading higher today up about a percent for SNA. That's their ticker at 400 and 508. Max. Great to talk to you. Really appreciate you joining us again,