This is one of those “I told ya so” dispatches.
To be clear, though, this isn’t to pat myself on the back. Or to rub salt in a wound.
Instead, today’s words are a warning that all I’ve been writing to you about over the last many, many months is beginning to manifest—even as Fed and Treasury pooh-bahs whistle past the graveyard. By the way, that graveyard is filled with American consumers and U.S. businesses.
As TheStreet.com puts it:
Americans appear to be facing an “auto loan crisis.” According to new Google data, Americans are searching “give car back” at record-high levels
Sadly, we’ve landed at what was always going to be our terminus. I wrote months ago to expect this moment.
And, well, here we are…
End of the line.
Here’s an amazing statistic. And by “amazing” I mean, “No damn wonder Americans are struggling to simply live day-to-day.” The average new-car payment in America is $725 per month. Maybe I’m out of touch living here in Europe, but that seems beyond bonkers.
Mean income for a full-time wage earner in the Land of Debt is $53,490, assuming the Bureau of Labor Statistics statisticians are on the ball. That’s $4457.50 per month, before taxes.
After taxes (I’m assuming an effective tax rate of 16%) that’s $3,758 every month. That’s to spread across housing, food, insurance, healthcare, utilities, and transportation. At $725, that’s more than 19% of mean, post-tax income, well above the 10% to 15% threshold for financial prudence.
Throw in the overpriced McMansions, the insanity of U.S. health insurance costs, and the fact that food prices in America are beyond batshit crazy… and it’s easy to see why too many Americans complain that they suffer from too much month at the end of every paycheck.
But this really isn’t about the consumer per se.
It is, per se, about the U.S. economy.
A U.S. consumer increasingly asking Google “how do I give my car back” is clearly not a good sign of what’s in the offing.
The auto market is about to face a glut of used cars. And it’s about to face waning demand for new cars. That will flow through automaker employment numbers… meaning layoffs are coming. Same with new-car dealerships; we’ll probably see some employment downshifting there as well.
Both are bad for the economy.
But then there are these ingredients we have to toss into this salad:
Defaults of high-yield corporate bonds are accelerating and could bring a $46 billion wave of distressed debt in 2024, Bank of America says – Yahoo! Finance, Nov. 4.
U.S. business bankruptcies rose 30%, court stats show – Reuters, Oct. 26.
Small Business Bankruptcies Rising at Worst Pace Since Pandemic: New signs of economic distress signal no soft landing for many entrepreneurs – Wall Street Journal, Oct. 1.
US added 150,000 jobs in October as pace of growth slows sharply – The Guardian, Nov. 3
You ever picked up a bag of pre-mix salad at the Grub-n-Go that looked pretty good, until you noticed all the rotting lettuce at the bottom of the bag?
Yeah, that’s the U.S. economy in a bag-o’-salad analogy.
Looks OK at first glance, and then you start rootin’ around a bit and suddenly you see the nasty bits that tell you all is definitely not copacetic.
The one bright spot: Mortgage delinquency rates fell to an all-time low in August.
Why? Because the typical homebuyer is smarter than a Treasury Chairwoman.
By which I mean that, while Americans were locking in historically low mortgage rates when the Fed pushed interest rates to nothing, Treasury Chair Janet Yellen was selling short-term debt to fund the government, rather than selling 30-year paper and locking in historically low interest rates for Uncle Sam.
Easily one of the biggest swing-and-a-miss in Treasury history.
Avoid that misstep, and Uncle Sam’s interest expenses today would not be blowing up the federal budget, as they have been over the last year.
Of course, that’s billions under the bridge at this point, so what’cha gonna do?
Not much to do, really, other than wait for the recession to arrive.
Lots of pontificators, prognosticators, and newsletter writers say no recession is coming. They say the Fed has steered us toward a soft landing. Or even no landing… just nice, smooth sailing.
I mean, sure. For a hardcore crack addict, I can see how that delusion would make one happy.
For the rest of us, “preparation” is the word of the day.
I’d be watching so-called “risk on” assets. In the upside-down world of Wall Street, bad news is good news. And in this case, the bad news of a U.S. economy slip-sliding toward a potentially meaty recession will almost assuredly push the Fed to cut interest rates.
And when that happens stocks, bonds, and crypto are going to compete to see who can perform best in 2024.
I’ll be back at that point with another “I told ya so” dispatch. By then, though, my message will shift. The good news of higher asset prices will hide bad news that, because of the impact of the Fed’s rate-cut stimulus, America’s reckoning will be even more painful.
But that’s for a different day.
More to come…