Quandary: Okay, Bull and Bear, I’ve called you in today because the first-quarter earnings season is over but instead of companies having provided clarity, I’m as uncertain as ever.
Bull: Well, Quandary, you can relax. We might not have certainty but we had consensus and it was reassuring. Healthy business trends are holding up and, despite all of the hand-wringing and worry, advance bookings for room reservations and conventions are, too.
Bear: Bull, that’s nice, but that’s still the past, as in what was reported when those quarterly investor calls were held. Look into the future. You’ll see total uncertainty. Nobody can plan. You want statistics that mean something, look at freight activity. It always leads the economy, and freight traffic is down, as in way down.
Bull: Freight activity. That’s a late 19th century measure, mid 20th century at best. We’re a service and knowledge economy today.
Bear: That’s bull, Bull. Companies aren’t buying products because they don’t know what the costs, or the economy, will be tomorrow. That’s why shipments are down, and that’s a real problem for the near-term future of the economy.
Want one very specific example in gaming? Wynn Resorts is postponing $375 million in capital projects, including a renovation of the Encore hotel tower in Las Vegas, because they don’t know what construction costs will be.
Quandary: But isn’t this a temporary problem until tariffs are settled?
Bear: Well, if it throws the economy into a recession, that isn’t going to be good for consumer discretionary stocks whether tariffs settle down or not.
And if the politicians of both parties continue running up the federal deficit even further, that will present a dilemma for the Fed. Does it cut rates to spur the economy and risk higher inflation or does it hold the line or even raise rates and risk an even greater recession?
By the way, even without those stark choices, interest rates don’t seem to be going down in any meaningful way. Check mortgage rates. Believe me, this whole thing is a mess and it isn’t going to get better because Donald Trump threatens or insults somebody.
Bull: Before you get too carried away, keep the fundamentals in mind. The economy is doing well. People are spending. All of the anguish over higher costs is fear and speculation. Costs where it matters, like gasoline, are down.
And those advance hotel and convention bookings are still holding strong. That’s hard data.
Bear: You’re right. That’s hard data. Now, consider some very pertinent and important soft data. The University of Michigan consumer sentiment survey has dropped to its second-lowest reading – EVER.
And Bull, I think you will agree with me, gaming remains a consumer-dependent industry and worried consumers cut back discretionary spending before they stop buying new shoes for Junior.
Bull: You’re right. But with the underlying economy still strong, I think we can have confidence in the long run.
Bear: Well, Bull, to quote one of your favorite economists, John Maynard Keynes, in the long run we’re all dead.
Quandary: Thanks, guys. Now I have something else to worry about.
