Vanguard Economist: We Cannot Avoid A Recession

[CLICK HERE JOIN OUR LIVE TRADING & TRAINING SESSIONS]( Hello investor, Vanguard Economist: We Cannot Avoid A Recession Wall Street is now forecasting a soft landing. Everything feels so good. Is there another point of view about the soft landing? Joe David, Vanguard’s global chief economist and head of its Investment Strategy Group, said that it would be difficult for the Fed Reserve to reach its 2% inflation target without experiencing some kind of an economic slowdown. He was asked about Jerome Powell’s comment that he thought it would take the economy until 2025 to reach its 2% inflation target. That’s a long way from now. We’ve witnessed a steep drop from 9% to 3% in the last print, so would the final mile be the hardest part? Joe David thought so. He pointed to a tight labor market the reason why it will be tough to bring down to 2% without a significant cooling. - “The primary reason for that is the tightness in the labor market. And so we have been of the view — I’ve had strong conviction for some time — that we were going to need to see some material cooling in the labor market to get to 2% in any near-term horizon, because it is in the wage dynamics,” said David. And he said the labor market must weaken to reach the 2% target. - “...it’s going to take some labor market weakness to go that last yard, as many call it, from 3% trend inflation down to 2%.” Joe Davis (Photo: Bloomberg) He pointed out that the ratio of job openings versus unemployment is now at 1.5. That’s a big imbalance. Meaning? Vacancies must drop along with rising unemployment to bring the labor market in balance. - “But the ratio right now is 1.5 vacancies to unemployment of one. So 1.5 is above one, it’s imbalanced, demand exceeds supply. We’re starting to enter the territory where any further drop in vacancies starts to be associated with a modest increase in unemployment. And there hasn’t been an exception to that for a hundred years.” Let’s say that if the labor market rises to 4.5%, it would require 100 basis points of increase in unemployment. That would mean a recession, said David. What’s more, he said if anybody who thinks we will have a soft landing is “spitting in the face of 150 years of history.” - “The data’s been a little bit stronger than expected, but ultimately our view has been you can’t have your cake and eat it too — which means to get inflation down that last yard to 2%, you have to see a modest weakening in the labor market, which means the unemployment rate’s going to rise, although hopefully not drastically,” said David. - “Let’s say, let’s say four-and-a-half percent over the next year. Well, that’s a 100 basis-point rise. So by definition, that is a recession. Now, anyone who thinks that that’s a soft landing is spitting in the face of 150 years of history. I’m just saying that that’s categorically wrong.”  This Stock May Be The Safest Stock In The Market Today’s Stock Pick: HEICO Corporation ([HEI]() The pandemic was a nightmare for airlines. Yes, many other industries suffered but most of them weren’t as capital-intensive as airlines. It is insanely expensive to run an airline business, and if you cannot fill up planes, you are going to bleed dry FAST. As a result, many airlines are drowning in debt. Take Delta. Its debt ballooned during the pandemic years, and the company has a long way to go before getting debt down to its previous level. (Source: MacroTrends) Here’s the good thing: The demand for flying has boomed. During recent earnings, virtually all airline companies saw little change in demand despite inflation and an economic slowdown. This is good news for the health of the industry. At the same time, airlines still need to tighten their purses to work off their debt. Hence the opportunity for Heico. It is the world’s largest manufacturer of FAA-approved jet engine and aircraft component replacement parts – besides the original equipment manufacturers (OEMs) and their subcontractors. Heico offers a massive competitive advantage because it can offer parts at lower prices than OEMs. This is extremely attractive to airlines that are looking to cut costs. Adding to its advantage is how notoriously difficult it is for any company to get FAA-certified for any parts it manufactures. Obviously, the margin of error for aircraft parts is virtually zero. So, the barrier of entry may be as high as the China Wall. That sounds like a perfect storm for Heico’s future business prospects, right? You don’t need to “gamble” on it. Why? The company has decades of proven track record of producing results for shareholders. Its net sales grew consistently for three decades since 1990s, and its sales nearly tripled in one decade between 2010 to 2020: (Source: Heico Corporation) As software stocks are finding out right now, investors are emphasizing cash. Those stocks with high cash flow are likely to do very well over the next few quarters. Heico may be one of them. After all, it grew its operating cash flow for three decades: (Source: Heico Corporation) Financial fortress: Best of all, the company has a current ratio of 2.91. Its debt to equity is solid at 25%. What does this mean? The company will “aggressively pursue high-quality acquisitions," said CEO Laurans Mendelsohn. And this would be following the company’s growth blueprint for many years. Strong returns: The company also has a long track record of growing its stock price. It consistently outperformed the NYSE for many decades. If you invested in the stock back in 1990, you would have gotten more than 6x higher returns than the benchmark. (Source: Heico Corporation) Bottom line: It is extremely difficult for any competitor to penetrate Heico’s competitive moat because of the nature of the industry. Parts must be FAA-certified, and a rookie cannot just enter and get certified immediately. As the largest manufacturer of jet engine and aircraft component replacement parts (besides OEMs), the company’s size and scale advantage will be attractive to airlines as they look to cut costs with cheaper replacement parts. All in all, Heico’s three-decade history of generating returns offers a safe pick during a chaotic market.   [CLICK HERE JOIN OUR LIVE TRADING & TRAINING SESSIONS](     © All Rights Reserved, Trade Alliance  If you no longer want to receive these messages, you may [click here]( to unsubscribe.