Inflation Is Class Warfare | The Acquirer's Multiple®

In their latest episode of the VALUE: After Hours Podcast, Taylor, Carlisle, and Travis discussed Inflation Is Class Warfare. Here’s an excerpt from the episode:

Tobias: Can we ask you a slightly different question just before we keep going? If commercial credit is not going to be an issue going into a recession, then what do you think will be the issue in this–? Can we have a recession without commercial credit being impacted?

Tim: I think it’s going to be interesting. I think you’re going to have a bifurcated consumer and I think we’re already seeing that. On a real basis, they’re going to be impacted by the inflation and their wages not growing as fast as inflation in a way more serious way. I think you saw that with Walmart. People are spending more money. If you look at credit card spending, it’s all high double digits for all of the banks like, 20%– 18% year over year and quarter over quarter.

Jake: Yikes.

Tim: But there’s a mix, where it’s like, “Okay, if I can only afford gas and food, I’m going to cut back on clothes expenditures that I don’t necessarily need.” And so, I think that that’s really what you’re seeing. It’s unfortunate, of course. But very, very much a bifurcated economy for Ally Financial, which is a company we follow closely and have positions in. Credit is still way better than it was pre-pandemic. Even though, charge offs are up a bit and delinquencies are up a bit from last year when you had all the stimulus, it’s still far superior to 2019. People still have more money in their savings accounts.

But where they are seeing more rapid degradation is on the lower end, which seems pretty rational. They’re mostly prime auto, but the subprime securitizations, they’re seeing degradation as well. So, definitely like the millennials, the Generation Z, they might have been off a little that they can chew in some of these really expensive automobile payments. I think that’s a trend you’ll see continue.

Jake: This is why Rudy would say that, “Inflation is class warfare.”

Tim: 100%, it is. It absolutely is. Yeah. When you look at credit, for instance, like JPMorgan, they still predict that consumer credit charge offs are going to be less than 2%. So, that’s still a really low number. And now, they’re able to tighten up on underwriting and things like that. I just don’t think this is going to be a credit led recession. I think there’re similarities to 2000. In that there you had the NASDAQ down 80%, you had the other indices down quite a bit. But the actual recession wasn’t that steep. And so, knock on wood, hopefully, we see a situation like that. That would probably be a positive scenario if that were to occur.

Jake: Need to get that up. We got to get another bubble going to pull us out of this. Housing bubble took help for it.

Tobias: We’re in the everything bubble. So, what’s left?

Jake: Oh, shit. What’s left on the table? [laughs]

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