What to do amid a slowing economy; Get your ticket for the upcoming Stansberry Research conference

1) A number of data points over the past week have convinced me that the U.S. economy is slowing...

First, last Tuesday – when I discussed discount retailer Five Below (FIVE) – I wrote that one of the reasons its business has slowed is because "many retailers are reporting that low-income Americans are feeling pressure and cutting back on spending."

I've also been seeing an increasing number of articles about this. Here's one from just last week from the Wall Street Journal: The Hottest Job Market in a Generation Is Over:

The unemployment rate ticked up to 4.1% last month – the first time it has crossed above 4% since 2021. That's still low by historical measures, but it's up from 3.4% early last year. Workers have stopped quitting jobs at a frenzied pace, and college grads are having a hard time breaking into the market at all. The number of open positions for every unemployed person is back to the prepandemic level of 1.2, down from over 2 in 2022.

And while the risk of getting laid off is still low, hiring has fallen beneath its pre-Covid level.

Many economists see a job market that has come back into balance, though some worry that conditions could continue worsening.

And here's another one from yesterday in the WSJ: America's Post-Covid Factory Boom Is Running Out of Steam. Excerpt:

Higher interest rates, rising operating costs, a strengthening U.S. dollar and lower selling prices for commodities are dampening activity at factories across the country. Executives for the makers of long-lasting items such as cars, crop-harvesting combines and washing machines are projecting challenging business conditions for the remainder of the year.

Deere & Co., the world's largest manufacturer of farm equipment by sales, has shed about 2,100 production workers since November, or 15% of its hourly workforce. Rival equipment maker Agco said in June it would cut 6% of its salaried workforce worldwide, or about 800 people, by the end of the year.

Recreational vehicle maker Polaris said it would adjust production to cut back on shipments to dealers. The disclosure came as it reported a 49% drop in quarterly income on Tuesday and noted that sales of its motorcycles, boats and off-road vehicles all dropped as consumers pulled back on discretionary purchases.

You might think that McDonald's (MCD), with its low price points and value offerings, would be immune, but it hasn't been...

Yesterday, in its second-quarter earnings release, the company reported that same-store sales declined by about 1% year over year – the first decline since 2020 – and adjusted earnings per share fell 6% year over year. Here's a WSJ article with more details: McDonald's Sales Soften, Sounding Alarm for Restaurants as Diners Curb Visits. Excerpt:

McDonald's said its sales last quarter sputtered as the burger giant grappled with consumers reining in their spending, sounding a warning for the restaurant sector...

The fast-food giant said U.S. same-store sales in the June quarter were down nearly 1%, the first such decline since 2020. Analysts had expected the metric reflecting sales at stores open at least 13 months to be flat. The company also reported declines globally, with conflict in the Middle East and a weaker performance in France...

While higher prices in the U.S. helped offset weaker sales volumes, the company said further increases would be muted this year.

McDonald's has boosted revenues and profits with steady price increases, but I suspect its ability to do so going forward will be limited given that the company has doubled prices in the past decade – more than triple inflation and far more than its fast-food peers, as you can see in this chart a friend sent me from FinanceBuzz:

To get some more insight on what's happening out there economically, I called two old friends over the weekend and had hourlong conversations with both.

The first is an investor in many private companies across the country. As he told me bluntly:

The economy is rolling over. Our really good businesses are doing fine, but many of the others are in real trouble.

And as he elaborated:

In the last six weeks, we've had three portfolio companies that we thought were doing OK blindside us by saying, "We're running out of money." And a fourth company warned us as well, though it's not as bad.

One supplies products to the life-sciences industry, two are retailers serving middle-class American families with kids, and the fourth is in the "fulfillment by Amazon" business, meaning they've developed more than a dozen products that they sell primarily through Amazon. 

These are big companies with positive EBITDA [earnings before interest, taxes, depreciation, and amortization] – one of them has $40 million of annual EBITDA! – but all have leveraged balance sheets, so midyear interest payments hit them right as their businesses were slowing.

The company that supplies the life-sciences industry isn't seeing volumes decline, but it's being forced to cut prices due to competitive pressure, plus their customers are taking longer to pay their bills.

The two retailers have simply seen sales go down, which means they don't have the cash flow to pay for the products they need to buy now for the holiday season.

My other friend runs a wholesale distribution business that serves thousands of customers that, in turn, directly serve millions of Americans all over the country every day.

He told me that there's definitely a slowdown – for example, he's now seeing his customers' businesses down 8% year over year in recent months, except for a few that are executing superbly and/or serving high-income customers.

He said that the businesses he supplies raised prices a lot as inflation spiked, but now their customers are pushing back – they simply can't afford the higher prices. All the while, the businesses' labor and other costs are still going up... But they can't pass along these costs anymore.

Overall, my friend's customers are "worried and scared."

A slowing economy naturally raises the big questions: What's ultimately going to happen economically? And what are the implications for investors?

Keep in mind that this softness is coming after the economy was white-hot, which the Federal Reserve deliberately cooled by raising rates rapidly to bring down inflation. Whether the Fed will be able to engineer a soft landing or whether we're heading into a recession is unknown.

For what it's worth, neither of my two friends are predicting a big recession – nor am I.

Though the Fed isn't likely to cut rates at its meeting tomorrow, it almost certainly will do so at its subsequent meeting in September, which should give stocks a boost. (As the saying goes, "Don't fight the Fed.")

So my general message to investors is: If you own the stocks of quality companies or index funds and have a long-term (at least three years and ideally five or more) investment horizon, don't do anything.

But if you're overinvested in stocks – let's say your portfolio is 90% stocks and it really should be 75% – or are hanging on to some stocks in which you have low conviction, it's probably not a bad idea to trim a little bit.

Just make sure, as I've written previously, that you're earning the maximum interest rate on your cash. I like shorter-duration Treasurys (or the equivalent), such as the two-year, which yields about 4.4%.

2) Regular readers know how much I enjoy attending investment conferences...

I always look forward to conferences like the Consumer Electronics Show in Las Vegas, the ICR retail and restaurant conference in Florida, Guy Spier's VALUEx conference in Switzerland, my own Value Investing Seminar in Italy, the Robin Hood Investors Conference in New York City, etc.

Not only do I enjoy catching up with old friends and making new ones, I also get loads of new ideas.

And looking ahead to later this year, our company's own Stansberry Research Conference & Alliance Meeting in Las Vegas is coming up in a few months...

This year, we're featuring guest speakers like bestselling author Michael Lewis (best known for The Big Short)... former Texas Governor Rick Perry... former CIA Chief of Disguise Jonna Mendez... Pulitzer Prize-winning columnist Dave Barry... artificial-intelligence expert Zack Kass... and more.

Of course, my friends and colleagues Porter Stansberry, Dr. David "Doc" Eifrig, Eric Wade, Dan Ferris, Greg Diamond, Altimetry's Joel Litman, Chaikin Analytics' Marc Chaikin, and others will also take the stage. (Yours truly will also be speaking!)

And amid this year's market environment, what better time to get some perspective from folks like these?

This is Stansberry Research's most popular event of the year... and as you would expect, tickets are going fast. In fact, for the past few years' events, in-person tickets have sold out!

So if you haven't gotten a ticket yet, don't delay – you can learn more about the conference and get your ticket right here.

I hope to see you there!

Best regards,

Whitney

P.S. I welcome your feedback – send me an e-mail by clicking here.