Credit Tightening Takes The Main Headline Now

JOIN OUR LIVE SESSIONS! Our LIVE session starts when the big institutions and elite traders do before the opening bell. We'll look at real-time dark pool data as the market movers position themselves for the trading day in secret off-market exchanges. [JOIN OUR LIVE TRADING SESSION @ 6am PT / 9am ET]( [Shadow] Hello investor, A new survey of loan demand was released yesterday, and it showed signs of credit tightening. That is the ultimate worry on Wall Street. The central bank indicated that it could pause rate hikes, but a pullback in lending could tighten the economy even further than a rate hike. The Fed said in its twice-yearly financial stability report that worries about the “economic outlook, credit quality, and funding liquidity” could lead “banks and other financial institutions to further contract the supply of credit to the economy”. As a result, the contraction in the availability of credit could lead to a “slowdown in economy activity.” - “A sharp contraction in the availability of credit would drive up the cost of funding for businesses and households, potentially resulting in a slowdown in economic activity,” the central bank wrote. Notably, the Fed highlighted the risks in the commercial real estate sector, saying that a correction could be “sizeable.” - “...the magnitude of a correction in property values could be sizeable and therefore could lead to credit losses by holders of CRE debt”. The central bank doesn’t think that there will be any shock to the household financial system due to a good income to debt ratio and high credit scores among those debtholders. - “...shocks are less likely to propagate to the financial system through the household sector because household borrowing is moderate relative to income, and the majority of household debt is owed by those with higher credit scores”. The stock market has been stuck trading sideways since the start of April because strong corporate earnings made up for the concerns around an economic slowdown and troubles in regional banks. Marko Kolanovic of JPMorgan Chase expects the economy to go into a recession “gradually,” thus reducing the chance of a rate cut this year. - “US banking sector stress and a looming debt ceiling deadline elevate near-term recession risk,” Marko Kolanovic, JPMorgan Chase & Co.’s chief strategist said. “Absent a disruptive event, we expect a US recession dynamic will take hold gradually and won’t create space for pre-emptive Fed easing this year.” Marko Kolanovic, JPMorgan Chase & Co.’s chief strategist (Photo: Bloomberg) However, swap traders are betting on rate cuts will happen as soon as July. Seema Shah of Principal Asset Management dismissed this sentiment since it would require a very, very severe recession if the central bank were to cut rates this soon. - “Persistently strong economic data suggests that such a significant pivot in Federal Reserve sentiment is unlikely,” said Seema Shah, chief global strategist at Principal Asset Management. “The conditions necessary for the Fed to pivot and cut rates are dismal, requiring a desperately struggling economy or a financial crisis. Investors: be careful what you wish for.” We will get a new data on consumer-inflation on Wednesday, which could give another clue on the Fed’s future rate decision. - “Traders will be looking to see if this week’s inflation numbers will be able to push stocks out of their recent consolidation. The S&P 500 hasn’t had a weekly gain or loss of at least 1% since March—its longest stretch in nearly two years,” Chris Larkin, managing director of trading and investing at E*Trade Financial said. 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. FREE LIVE TRADING SESSIONS & TRAINING USING THE MOST COMPREHENSIVE DARK POOL MONITOR AVAILABLE TO THE RETAIL INVESTOR Join our LIVE Trading Sessions throughout the day where we will focus on how you can learn to master the markets through the use of advanced algorithms and AI to trade like the institutions. 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