This week we saw continued concern about the resiliency of consumer spend and the impact of growing debt on households. Credit card debt hit a record $1.08T and the largest increase since the NY Fed began tracking in 1999. Likewise household ability to cover a $400 emergency expense continues to decline.

Labor and recession talk still circulates but opinions are mixed on the implications. On the one hand “quits” are down to pre-COVID levels but we’re seeing a weird trend line in jobs due to shifting demographics. October numbers would have been 262,000 if the birth/death wasn’t negative. Likewise, where some see strength in the economy others are reporting slowdowns that will cause a future recession.

I guess it depends on whether you think we are in a recession, just came out of a recession, or are headed for the next recession. We are seeing layoffs and manufacturing is on the cusp of contraction. It may not be clear the casual observer as companies like Citigroup are disguising layoffs as special projects and others like BoFA have instituted hiring freezes to control labor costs.

Not all gloom and doom as several companies have announced that they will build their own proprietary large language models. Amazon announced Olympus and Titan despite also partnering with Anthropic. It’s clear that major companies are placing LOTS of bets with AI to leapfrog competition.

TOPICS

• Labor Market
• Consumer Debt
• Recession
• Profitability
• AI and ML

Commercial real estate seems to be stabilizing, while the housing market has gone cold. Meanwhile in China, Country Garden issues a dire warning and has missed loan payments. This could unlock a fresh hell of financial worries.

The speculative bubble in use cars continues to unwind and is shaking out weak companies like Shift Technologies who filed for Chapter 11 this week. Meanwhile Tesla continues to lower prices to both chase higher volumes and to also compete with BYD.

As soon as the Fed stopped raising rates everyone began speculating when rate cuts would begin. Some think higher for longer and others believe that history indicates cuts sooner. Either way a rate cut will be a temporary boost for borrowing. Long term, near-zero rates are gone, and the economy needs to adjust its risk-reward equation.

Profitability and debt reduction among companies is a high priority. Rising rates will ensure that weak and heavily indebted companies meet an end. Likewise high valued scaleups like Airtable need to mind the bottom line and show significant revenue to justify their valuations. All in all, the number of shutdown startups is rising as companies begin running out of money and are unable to raise.

TOPICS

• Real Estate
• Automotive
• Bankruptcy
• Fed Rate
• Profitability
• Corporate Debt
• Stock Market

This week illustrated the disconnect between big business CEOs and everyone else. Whether it’s Moynihan’s recession denial or Dimon trotting out a classic Warren Buffet trope it’s clear than small and medium size business are seeing a completely different reality.

In the opposing corner we have big box retail on the decline and hard times hitting bottom lines indicating we’re already in recession. Meanwhile everyone is dealing with the painful unwinding of artificially low interest rates. The fed finally paused, but what does it mean?

A major force in small business is the push toward profitability. Most everyone knows money is about to get tight and small companies need to get lean. Meanwhile everyone is paying the price of the unprecedented decline in demand during COVID. Organizations like OPEC are still whip-saw trying to deal with fluctuating demand plus the lingering impact of Russian oil embargo.

Despite the gloom, at a high level the consumer debt to net worth ratio paints a different picture. Americans are still far better off as net worth climbs faster than debt and that’s good for everyone. On the flip side of high lending rates, the lack of new home construction will continue to prop up residential real estate prices. Supply and demand still alive and well.

TOPICS

• Recession
• Fed Rate
• Consumer Debt
• Real Estate
• Bankruptcy
• Profitability
• Energy

More bad news for residential real estate; profitability in focus; national debt balloons; weird energy ideas in UK and sticky gas prices; platform consolidation; econ cycle nears end, what’s next;

The residential real estate market continues to suffer from perceived higher interest rates. Historically not above average, but relatively higher given the long low/no interest rates of recent memory. Housing supply continues to prop up prices which means home sales will certainly slow.

As fundraising and investment has become harder to find companies are now focused on improving profitability. AI companies are not alone, and the once hot tech sector is in the same boat raising prices and cutting costs. This will put pressure on SaaS contracts and employment and belt tightening continues.

The US debt continues to climb and will become prohibitive at some point due to higher interest rates. Meanwhile the UK mulls the idea of natural gas-powered heat pumps which is a weird idea given the Russian embargo and supply shortages. Oil supply tightening will continue to keep fuel prices high

Finally, streaming platforms continue to consolidate as Comcast looks for an exit on Hulu. It is worth noting that Comcast and Disney are still fighting over broadcasting contracts. And is the cycle nearly done? Whether you believe the economy was in recession the historical indicators say we’re nearing the end.

TOPICS

• Real Estate
• Profitability
• Debt
• Energy
• M and A
• Stock Market