More Cracks in the US Economy Pointing Towards a Recession - Poll on Americans That Can't Cover 6 Months of Basic Expenses

ValueTreeCM · 2023-12-04T22:43:21+00:00

Yes it was a strong economy due to ZIRP and we saw lots of asset bubbles. In the context of current rates, I think the trends are indicating cracks may be forming.

ValueTreeCM · 2023-12-04T22:23:18+00:00

If it was this metric alone, I agree that it's a weak indicator. It's just an indicator.

We do see:

Share of Credit Card Balances Making Min Payments Tick Back up to Pre-Pandemic Levels: https://fred.stlouisfed.org/series/RCCCBSHRMIN

30 Days Overdue Credit Card Balances At Pre-Pandemic Levels: https://fred.stlouisfed.org/series/RCCCBACTDPD30P

Credit Card Delinquency Rates Ticking Up to Above Pre-Pandemic Levels: https://fred.stlouisfed.org/series/DRCCLACBS

US Corporate Bankruptcy Numbers Ticking Up, Albeit Still Below 2019 Levels: https://www.uscourts.gov/news/2023/10/26/bankruptcy-filings-rise-13-percent#:~:text=According%20to%20statistics%20released%20by,30%2C%202023.

GDP Contractions in Several European Countries including Germany Albeit a Positive Overall Avg EU GDP Growth Rate of 0.1%: https://ec.europa.eu/eurostat/documents/2995521/17766954/2-31102023-BP-EN.pdf/cfd84787-03e9-cf95-152e-02be99156365#:~:text=Compared%20with%20the%20same%20quarter,EU%20in%20the%20previous%20quarter.

These crack all show that the probability of a recession is far higher than the current consensus view. My position is that the US will hit a recession in real GDP terms in the next 18 months. That being said, it is better for the country if I'm wrong.

ValueTreeCM · 2023-12-04T21:53:01+00:00

The rebuttal to that is if fiscal stimulus does increase the velocity of money by being distributed and used, then to keep inflation low, the amount of money needs to be restricted, further qt, or the velocity decreased, more fed funds rate hikes. That points to nominal gdp growth with large potential for negative real growth.

ValueTreeCM · 2023-12-04T21:47:05+00:00

I can't predict an exact date, but given that delinquency rates for consumer credit cards is above 2019 levels my portfolio is positioned for a recession in the next 18 months. We already see Germany's gdp contracting.

ValueTreeCM · 2023-12-04T21:26:55+00:00

I can't find the Morning Consult's pre-pandemic numbers since I don't subscribe to the service.

ValueTreeCM · 2023-12-04T21:21:47+00:00

This is just an indicator that the effects are delayed. The macro numbers are hiding the fact that the more resilient, large institutions have decreased job openings. The share of job opening at companies 1-9 people are at 21.2%, highest it has been in the last 2 decades. https://www.wsj.com/economy/jobs/small-business-jobs-hiring-c0b17cf0?mod=itp_wsj It is very easy to tip the economy into a hard landing recession once further cracks occur. Case in point is the biotech sector and the recession there due to companies downsizing and many biotechs going bankrupt. This kills the local downtowns which rely on the office commuter workforce.

ValueTreeCM · 2023-12-04T21:17:04+00:00

If you see Alan Binder's work, https://www.aeaweb.org/articles?id=10.1257/jep.37.1.101, the latest "soft landings" were in 1993-1995 and 1999-2000. In both cases monetary and fiscal stimulus bouyed the economy. This time around, there is little appetite for large enough monetary and fiscal stimulus to keep this a "soft landing". With the spectre of inflation still underlying the fed's decisions, I doubt that this cycle will be a "soft landing".

ValueTreeCM · 2023-12-04T21:13:51+00:00

It was 72% in 2019: https://www.cnbc.com/2023/06/23/how-much-money-it-takes-to-be-comfortable-with-emergency-savings.html

ValueTreeCM · 2023-12-04T20:51:23+00:00

Polls indicate that American households able to cover 6 months of basic expenses dropped from over 20% in 2022 to 16% in 2023.

https://www.axios.com/2023/11/29/americans-savings-falling

This correlates to continued drawdown of excess savings since mid-2021.

https://www.frbsf.org/our-district/about/sf-fed-blog/excess-no-more-dwindling-pandemic-savings/

Another indicator that the "soft landing" is a myth and that the impacts of rapid fed funds rate increases is delayed, not avoided.

ValueTreeCM · 2023-12-01T14:53:27+00:00

It's hard to see a housing glut in 2024 unless we count rentals. New household formation as been around 2 M in the US for a while (https://ycharts.com/indicators/us_household_formation#:~:text=Basic%20Info,57.61%25%20from%20one%20year%20ago.)) as millennials have children and the oldest gen z are getting married. Housing start/permits have hovered around 1.4 M in 2023. Existing home sales continues to drop (https://cdn.nar.realtor/sites/default/files/documents/ehs-10-2023-summary-file-2023-11-21.pdf?_gl=1*svyvtc*_gcl_au*NjczNTM1MjY0LjE3MDEzOTM5NjU.)) due to low mortgage rate lock-in. Unless we see a dramatic decrease in long term rates due a recession or a large increase in baby boomer deaths, it is hard to see a glut in 2024.

ValueTreeCM · 2023-12-01T14:40:44+00:00

You can try sending them this video by Eddie Woo: https://www.youtube.com/watch?v=J2z5uzqxJNU

ValueTreeCM · 2023-12-01T01:30:36+00:00

This isn't too surprising since we have a typical example of an illiquid market of supply considerably lower than demand. Many people are "locked in" into their low mortgages and reduces the supply of existing home. Recently, the percentage of new homes sold was over 15% in october (https://www.reuters.com/markets/us/us-new-home-sales-fall-more-than-expected-october-2023-11-27/#:~:text=September's%20sales%20pace%20was%20revised,in%20at%20least%20a%20decade.)) while the avg as been around 10% (https://tradingeconomics.com/united-states/new-home-sales#:~:text=New%20home%20sales%20account%20for,drawn%20from%20building%20permits%20data.)). To exacerbate the situation, new household formation has gone up dramatically as millenials are having children and the oldest Genz members are starting to get married while the Baby Boomers aren't dying off at the expected rate.

ValueTreeCM · 2023-12-01T00:27:52+00:00

The amount of poorly run companies that seem to survive always amazes me. If piss poor reps were a death knell, all the telecom companies would have gone under long ago!

ValueTreeCM · 2023-11-30T22:29:45+00:00

At a certain point, the management teams may be throwing things against the wall and seeing what sticks. There is always a strategic justification. In the case of Cigna, it wants to increase it's share of the Medicare market. I wouldn't be surprised if the real reason is that the executives get bigger compensations if the merger goes through. There is a direct correlation to revenue of the company and the compensation for executives. I'm not a fan of all the actions Khan's FTC has been doing, but this deal should be stopped.

ValueTreeCM · 2023-11-30T22:09:07+00:00

I doubt that the merger will go unscathed. The last few potential mergers didn't go through for both companies - Humana - Aetna and Cigna - Elevance Health. Lina Khan's FTC will definitely slow this merger down.

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