Happy Sunday!

I’m digging in deep in the research on the probability of a rate drop and recession. I’ll try to get out a video this week giving my impression of the data, and my speculations on what may happen the next 3 months. In this newsletter I’m sharing a ton of the highlights from what I found. Please email me and let me know if you like me sharing this research, or prefer to only see it in my video. The bankruptcy numbers shocked me, and I’m surprised more people aren’t talking about it.

Just a heads up that I may not have many videos the next 2-3 weeks because my kids (aged 6 and 9) are out of camps, and school starts after the holiday.

On a fun note - I’m working on a collaboration with Professor G (Nolan at Investing Simplified) for September. Feel free to email any hot topics you’d like covered. We’re thinking of either hitting our Top Dividend ETFs, or our top 6 growth stocks. I’m leaning towards our top 6 growth stocks. Any other YouTubers I should try to collaborate with?

Thanks,

Brian

What changed this month

• Jobs: +73,000 nonfarm payrolls in July; unemployment 4.2%. May/June revisions −258,000. Average hourly earnings +0.3% m/m, +3.9% y/y.

• Inflation: CPI +0.2% m/m, +2.7% y/y; core CPI +3.1% y/y (Jul). Core PCE (the Fed’s gauge) +0.3% m/m, +2.8% y/y (Jun).

• Wholesale & import prices: PPI +0.9% m/m (Jul); core PPI +0.6% m/m, +2.8% y/y. Import prices +0.4% m/m, −0.2% y/y (Jul)—tariff‑exposed categories (apparel, metals, capital/consumer goods) rose.

• Bankruptcies: 71 large-company filings in July (highest month since July 2020); 446 YTD (highest Jan–Jul since 2010). Commercial Chapter 11s: 911 in July, +78% y/y.

• Policy: Fed held 4.25%–4.50% on Jul 30 with two dissents favoring a 25 bp cut.

• Tariffs & inflation math: The CBO estimates 2025 tariffs add ~0.4 percentage points to annual inflation in 2025–26 (non‑trivial but not dominant).

What it likely means (next 3–6 months)

• Base case: Labor cools (unemployment ~4.2–4.4%), inflation drifts sideways to slightly lower (core PCE ~2.6–2.8% y/y). Fed cuts once in the fall if monthly core readings average ≤0.2–0.25%. Stocks: range‑bound, leadership tilts to quality balance sheets, cash‑rich, lower import intensity.

• Downside risk: PPI/import prices stay hot (≥0.3–0.5% m/m), services stay sticky; Fed delays cuts; HY OAS >4.5%, bankruptcies broaden; equities correct 8–15%.

• Upside risk: Shelter/services cool faster; import prices roll over; Fed signals a clean easing path; spreads stay <3.5%; equities grind +5–10% with better breadth.

Where tariffs fit today

• Tariffs are raising goods/input costs at the margin (import prices +0.4% m/m), helping drive the PPI +0.9% m/m surprise. But services/shelter remain the larger share of consumer inflation (core CPI +3.1% y/y; shelter +3.7% y/y).

• Translation: tariffs are meaningful but secondary in current CPI; they could matter more if import price gains persist. And I believe they will.

Bankruptcies

• Large-company bankruptcies: 71 in July (highest monthly total in 5 years), 446 YTD (Jan–Jul)—highest since 2010.

• Commercial Chapter 11s (all sizes): 911 in July, +78% y/y; total commercial filings 2,997 (+26% y/y).

• Implication: Stress is rising in tariff‑exposed, rate‑sensitive corners (industrials, consumer discretionary), but credit spreads remain tight—so markets aren’t yet pricing a broad credit event.

What to watch (simple triggers)

• Inflation: Core PCE ≤0.2% m/m for 3 months → higher odds of a cut; ≥0.3% → higher‑for‑longer.

• Labor: Unemployment ≥4.5% or continuing claims >2.1–2.2m → recession risk rises.

• Prices at the source: PPI ≥0.5% m/m again or import prices ≥0.3% m/m → tariff pass‑through intensifies.

• Credit: HY OAS >4.5% → equity downside; ≤3.0% → risk appetite intact.

• Sentiment/Activity: ISM mfg <48 & services <50 → growth wobble; NFIB ≥100 with falling price plans → resilience.

Glossary (plain English)

• CPI (Consumer Price Index): Prices paid by consumers for a basket of goods/services.

• Core CPI: CPI excluding food & energy (less volatile).

• PCE (Personal Consumption Expenditures): The Fed’s preferred inflation gauge; covers a broader set of spending than CPI.

• Core PCE: PCE excluding food & energy.

• PPI (Producer Price Index): Wholesale prices paid to producers (“pipeline” inflation).

• Import Price Index: Prices of goods the U.S. imports; sensitive to tariffs and currency.

• ISM PMI (Manufacturing/Services): Purchasing manager surveys; 50 is the expansion/contraction line.

• High‑Yield OAS: Extra yield investors demand versus Treasuries to hold risky corporate bonds (a credit stress gauge).

• U‑3 Unemployment: Headline unemployment rate.

• m/m, y/y: Month‑over‑month, year‑over‑year changes.

• Capex: Capital expenditures (business investment).

👍 This Week’s Video: Recession or Market Boom? Let’s Break it Down!

👍 My wife and I are mapping out a 90 day health challenge. I call it the “Sweet 90’s HIITs” where we’ll go 90 days with no sugar, no alcohol, and 5 days a week of HIIT workouts, 1 yoga, 1 rest day. It’s not consecutive days because of birthdays and vacations, but 90 days within 110. Any takers? I say that jokingly, but I was going to try to make a medal for my wife, since she’ll do any challenge for a medal. This is also a test to see if she reads my newsletter :-)

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