Friday, September 9, 2022

Morning Note: Consumers' Hanging In...

As we've stated numerous times herein, and in our video updates, of late, our general conditions assessment has it that odds presently favor recession over continued expansion in the coming months. However, we -- at this juncture -- anticipate that it will be what we'll call your garden variety (if not historically mild) contraction.

Our opinion has much to do with the present overall state of the US consumer (consumption accounts for roughly 2/3rds of the US economy). 

In a sense, BCA Research shares our presently sanguine view... I say "in a sense" as, in fact, their strategists actually see the US "averting recession" this year.

While we're not that sanguine at this point (but we remain open to all possibilities), we are reading between the often-bearish-sounding lines and are concurring with the following from their latest commentary: 

"...our US investment strategists have highlighted that the aggregate American consumer is in good shape. The labor market is remarkably tight, and all-but-the-lowest income cohorts still benefit from pandemic-savings buffers. Household balance sheets are very robust thanks to the household deleveraging cycle that occurred since the GFC.

Second, consumers have extensively paid down their credit card balances over the first year of the pandemic. The more recent rise in credit card borrowings therefore marks a normalization in credit card balances.

Third, according to New York Fed data, credit card loans account for under 10% of total household debt balances. This share has remained relatively stable over time, providing no evidence of distress.

Higher gasoline and grocery bills are likely the reason behind the rise in credit card balances over the past year, especially when strong fundamentals allow consumers to unlock unused credit capability. Going forward, easing inflationary pressures will support real wage growth and consumers’ purchasing power.

The resilience in aggregate US consumption is one of the reasons underpinning our bullish colleagues’ view that the US will be able to avert a recession this year..."
We'll dig deeper into present conditions in this week's economic snapshot; coming your way later today...

Asian equities rallied overnight, with 13 of the 16 markets we track closing higher.

Europe's solidly green so far this morning as well, with 18 of the 19 bourses we follow trading up as I type.

US stocks are rising to start the session: Dow up 197 points (0.62%), SP500 up 0.74%, SP500 Equal Weight up 0.72%, Nasdaq 100 up 1.17%, Nasdaq Comp up 1.04%, Russell 2000 up 0.99%.

The VIX sits at 22.86, down 3.18%.

Oil futures are up 2.29%, gold's up 0.30%, silver's up 0.40%, copper futures are up 0.67% and the ag complex (DBA) is up 0.79%.

The 10-year treasury is down (yield up) and the dollar is down 0.66%.

Among our 35 core positions (excluding options hedges, cash and short-term bond ETF), 32 -- led by oil services stocks, Sweden equities, MP Materials, Eurozone equities and base metals futures -- are in the green so far this morning. The losers are long-term treasuries, utilities stocks and intermediate-term treasuries.

Contrary to what I presume many believe about central bank intervention:
" cannot create more wealth simply by creating more money and credit. To create more wealth, you have to be more productive. The relationship between the creation of money and credit and the creation of wealth is often confused, yet it is the biggest driver of economic cycles."

--Dalio, Ray. Principles for Dealing with the Changing World Order

Have a great day!


  1. Thanks for the updates! Take care and Have a great weekend!