Notes, thoughts and observations - Compiled weekly
Wages are still going up for some and inflation continues to cool effects are sticky. Companies continue to cut costs and shut down money losing projects
Commercial real estate delinquencies are up but residential still looks OK.
Moody’s cuts United States credit outlook and precious metal are being pitched as a remedy to a calamity that may never materialize.
In the stock market retailers are seeing major drops in market value while shorts pile up on highflyers like TSLA and XOM. Meanwhile private equity that didn’t flee China is now stuck.
Finally, OpenAI is asking Microsoft for more money, Sam Altman stating “Training expenses are just huge.” Simultaneous Disney’s content well is running dry with consumers as “The Marvels” lowest opening for a Disney film in the MCU.'
Notes, thoughts and observations - Compiled weekly
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.
The percentage of loans in serious delinquency, 90+ days, is virtually flat across all categories save credit cards
Notes, thoughts and observations - Compiled weekly
A mixed bag of news this week. Inflation remains on the radar, as do future fed hikes. The labor market remains strong but finance continues to shed jobs.
Services remain higher likely to due to higher wages
Notes, thoughts and observations - Compiled weekly
Labor market continues to be tight, in places. Recent wage reports paint a picture of an oversupply of people with college degrees and undersupply of people without.
Inflation remains sticky with everything from drought driving water transport prices to gas prices at $4. It’s also obvious, to everyone except the conference board, that we are IN a recession.
The federal deficit balloons and the solar industry feels the slump of not being proped up by government spending.
Tech IPOs returned with Arm, Instacart and Klaviyo; while the cable industry reaches new lows as CNN has worst ratings weekend on record.
Notes, thoughts and observations - Compiled weekly
First the bad news: Real Estate continues to trouble everyone, but a couple of things to point out. The number of delinquencies and foreclosures isn’t high which is good. Add to this more loans are locked in below 6%, far better than 2013. Over time this will shift as folks move.
Unfortunately inflation is sticking around. Concern about energy prices driving further inflation as it increases costs throughout the value chain. Likewise job losses are continuing to spill over into non-tech areas specifically finance ,both Citi and Truist.
But again on the brighter side worker shortages will buoy the labor market for years. 47% of Gen Zs were interested in pursuing a career in a trade. It might mean fewer office workers, but more plumbers, electricians, etc.
Finally a bit of good news as McDonald’s announced it was getting rid of self-serve soda machines citing less dining room traffic and more mobile orders. This is probably a godsend for service workers but also a rising trend in order ahead, customer prepayment merchant solutions. We saw this technology blossom during the pandemic and it’s confirmed to be a long term trend
Notes, thoughts and observations - Compiled weekly
Rolling together two weeks of notes and noticing big trends in real estate, the impact of rising rates and the labor force. Realtor.com reports a record low number of listed homes for sale, which will put upward pressure on prices but also benefits services, home improvement and rental property.
Inflation numbers came in and continue to trend downward, but the consensus is that the Fed will continue to hike rates until it hurts (or YOY inflation goes negative as history indicates). Higher rates won’t make Wall Street happy for long but will have a real impact on both corporate and private debt. The former will impact the earnings bottom line, and the latter in the form of lower consumer spending.
The question everyone is asking “Are we having a recession or not?”. It’s less of “if” than “when” as all eyes fix on the still inverted yield curve. The real question is hard landing or soft landing. A lot of conjecture and uncertainty.
Finally, what does Gen Z want? More precisely, as they enter the workforce, what do they want from the work relationship? Gen X historically wanted to come in, work and go home. Millennials demanded more of their employers. But has Gen Z been in the workforce long enough to know what they truly want?
Credit cards issued by commercial banks have interest rates soaring close to 21% as of May, which is a record in Fed data going back to early 1970s
Notes, thoughts and observations - Compiled weekly
On top of mind this week is the real risk posed by commercial real estate. While single-family delinquencies declined, multi-family increased. Single-family inventory is at the lowest level on record (going back to 2012) based on Redfin. On the commercial side some estimates have only top ~10% of office buildings in NYC are not distressed.
The labor market continues to be strong, and workers confident despite manufacturing layoffs picking up. The wave of tech layoffs has slowed but higher than last year. On the flip side, the US has 2.4 million excess retirees and it’s likely causing labor shortages. No shortage of Hel Wanted signs around my town.
Finally, the stock market continues to prove bears wrong, but something isn’t right. Top winners in the S&P 500 are the largest, most institutionally owned names. Only 27% of companies in the index are beating the benchmark. Meanwhile BRICS countries have a growing share of the world economy but they’re not going to rival the G7 anytime soon.
Tech layoffs have driven nearly 2/3 of the layoffs so far, but that may be changing
Notes, thoughts and observations - Compiled weekly
The labor market looks weird with tech already well through massive layoffs, and job losses spilling over into other sectors with massive layoffs in already weak retail names.
While the energy industry works on renewables and synthetic fuels, bridge energy sources like natural gas are showing promise. While US based natural gas is beholden to regulation, developing regions in Mexico and South America are starting to pop up on the radar.
Rounding out the field we have somewhat of a pullback in real estate, but not the cataclysmic 2008 scenario some had predicted. Low inventory and higher mortgage rates will work against younger millennials.
Millennial homeownership rates badly trail other generations
Notes, thoughts and observations - Compiled weekly
A couple of takeaways for the week. First, we are seeing signs that the liquidity crisis may not be over, the huge draw down in deposits may still cause problems. Consumer debt is also a concern as it’s more difficult to get credit than one year ago.
Second, increasing number of economist speculating that we are in, or are entering a recession. Recessions are notoriously hard to identify until after the fact, and a lot of contributing factors that may make this one double difficult to spot. For example, the labor market is looking very peculiar with the prime-age employment recovering in record time.
Last, the hype cycle continues on both the end of oil and the end of the US dollar. In my opinion both are long term risks but can be mitigated. Beware of snake oil and fear mongering, it takes a long time to systemically change a global economy. Just as COVID was a challenge for the global supply chain, it did not end overnight.
Is long term demographic trend (boomers retiring) a contributing factor?
Notes, thoughts and observations - Compiled weekly
Are we going to see the first layoffless recession? Similar to stagflation, we could go into a recession while there is a worker shortage because due to an aging labor force due to a lack of immigration
We technically go into a recession but there are plenty of jobs - Kim Khan
The bubble repeated, for different underlying speculative reasons but effectively the same boom-bust cycle. What happens next to employment and the broad economy is likely a replay of the early 2000s.
@Prcwrites does a great job covering the technical aspects, I’d like to add some perspective from the employment.
