Debt and Destruction

Something’s off.  And it’s making life downright unpleasant for a broad cross section of Americans.

The average worker, after putting in his 40 hours a week, is coming up short.  Cash outflow consistently exceeds cash inflow.  Debits overwhelm credits.  How could this be?

The unemployment rate, according to the Bureau of Labor Statistics, is 3.5 percent.  This is near a record low.

With everyone working and earning an income, shouldn’t consumers be fat and happy?  Shouldn’t they be paying down their debts and paying off credit card balances each month?  Shouldn’t they be squirreling away a few nuts for the winter ahead?

In reality, consumers are struggling to make ends meet.  Households are spending more money than they’re bringing in.  Their finances are being stretched to the breaking point.

For example, seasonalized rates of severe delinquency for auto loans are the highest they’ve been in 17 years.  Severely delinquent loans, if you’re unfamiliar with the term, are loans that are more than 60 days past due.  Defaults are more than 90 days past due. Continue reading

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An Urgent Appeal for Duane “The Master of Disaster” Peters

Duane Peters worked really, really hard at being “The Master of Disaster” for over 40-years.  Day after day.  Year after year.  Decade after decade.  He gave it his all.

It was a tough job.  The broken bones.  The knocked-out teeth.  The many face pummelings.  But he was good at it.

When inducted into the skateboarding hall of fame in 2015, Peters delivered, what must be, without question, the greatest acceptance speech of all-time.  This was the high-water mark of a turbulent life and career.

The last several years haven’t been kind to Peters.  The Master of Disaster was never supposed to live into his 60s.

Yet, somehow, he did.  And like the rest of us, he’s trying to make the most out of life in America circa 2023.

This week, the yield on the 10-Year Treasury note eclipsed 4.3 percent.  A 15-year high.  If yields continue to rise, and credit markets continue to tighten, this one thing will change everything.

Where to begin? Continue reading

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Tasting the Forbidden Fruit

False price signals distorted by decades of extreme government intervention have compelled Americans into reckless spending, saving, and investment habits.  The wide range of mistakes that have taken place are irreversible.

Low-interest rates, courtesy of Federal Reserve balance sheet expansion, made people think they could borrow more money than they really could.

The yield on the 10-Year Treasury Note is currently at about 4.11 percent.  Apart from a brief moment last fall, the 10-Year Treasury yield hasn’t topped 4 percent since mid-2008.  In other words, borrowing costs haven’t been this high in over 15 years.

The direct consequences are obvious.  And should have been expected.

As the price of credit increases, debt servicing costs increase too.  This is no mystery.  Borrowers – including individuals, businesses, and governments – must now direct a greater share of their capital into paying their debts than they did a year ago.

For some, this is no big deal.  They didn’t take the bait of the Fed’s artificially cheap credit. Continue reading

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How the Fed Retarded the Residential Real Estate Market

The US economy and financial markets often behave in confounding ways.  Something that appears to be obvious never materializes.  And something of little apparent prospect becomes a major theme.

With little indication, for example, gross domestic product (GDP) may expand in the face of menacing economic fundamentals.  Similarly, an extended bear market rally may appear to be a new bull market.

What’s more, when central planners have a heavy hand in extreme market intervention the distortions and false signals are especially puzzling.  Prices may avoid logic for extended periods of time.

Will Fed Chair Jay Powell successfully pilot a soft economic landing?

That’s what Marriott CFO Leeny Oberg believes.  On the company’s earnings call this week she said, “it now seems more likely that the US economy could have a soft landing.”

“What you’ve seen lately is still really strong employment numbers, increased expectations for GDP growth.  You’re also seeing that inflation is calming down, which I think … helps everybody think, ‘Okay, you know what?  We could actually have kind of a soft landing without a huge downfall.’” Continue reading

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