Rate Hikes Starting to Weigh in On Consumers
We all know that in today’s immediate gratification society, the absolute lack of attention span for the majority, leaves many with a perception that leads to what should be obvious, to go vastly unnoticed. We are relating this to the fact that rate hikes tend to have about a 12 to 18 month lag before reality starts to settle in yet investors continue to believe that these hikes will not lead to any form of negative growth or full fledged slowdown.
Given the fact that this is the fastest rate hiking cycle that todays investors have ever known, it sure seems like complacent consumers are beginning to see the real life effects of such monetary policy action. the latest consumer spending number out of the US consumer doesn’t look good, in fact we have seen the first decline in household spending in over two years:
This coupled with increased unemployment benefits and overall total credit card usage seems to suggest that the US consumer is starting to crack.
Not only is the consumer cracking, but as we all know the debt ceiling is approaching and just last week the CBO reported that the deficit is going to be over $1.5T:
We know that Defense spending and spending on Interest alone are going to start to eat over 50% of the U.S. total revenues…this is not a good thing, nor is it sustainable. The rest of the world has obviously woken up to all of this and its only a matter of time before geopolitics becomes the true center of attention.
We have said this in previous posts, but what if the U.S. is raising rates not only for inflation, which we know was transitory on the heels of record fiscal spending, but what if the FRB knows that in order to sustain foreign investment, higher rates may be absolutely necessary? If this is the case, then we would suspect the higher for longer mantra to stick around for awhile and that the FRB will instead use what it always uses, its balance sheet to plug all the holes!
With this thought it seems as if investors are discounting the reversal a bit of this cycle and continue to take a few chips off of the steeper trade that has been seen lately.
On Friday we saw continued selling of the US front end with a flattening of the yield curve as the 2Y was the weakest link along the curve:
For all of those still parking funds with JPMChase and earning pittance, you might want to create a TreasuryDirect account and take some responsibility into your own hands. The over reach of these GSIBs is astounding and no they are not immune from MTM losses, in fact, its most likely the case that the FRB is forcibly letting the regionals dump so that their deposits can fund these pigs. Think about it, if Regionals are MTM losers, then it would only make sense that the GSIBs are by factors in a similar position. Whatever the case maybe, you owe it to yourself to seek proper yields and counterparty risk will always be there.
As you know we are now putting out our MEGACAP Tracker to see when the tide begins to shift out of this AI frenzy. I think what many have failed to realize is the absolute deflationary scenario that AI presents, not only from the job elimination front, but from the productivity front and that is what’s probably the more scarier thought. That is what will future employment look like given the assistance AI will be able to provide to workers in the future?
With that said, we saw SpotGamma put out a nice piece on twitter stating:
Who knows how long the concentration of wealth can continue and that is why we want to track it for you here. We also have thrown in a bit of a trading style to it by hedging with calls to the overall scheme of the long MEGACAP positioning. What interests us most is the fact that we chose now to unleash this data and viewpoint, meaning the trend has become so entrenched, that it might be darn near foolish to think it will continue now, as in trading, once a trend is spotted main stream, it generally unleashes max pain!
Anyway here is how the MEGACAP Tracker:
As always this exercise is not an invitation to invest in these companies or in this manner, rather an illustration that may present us with an opportunity to spot a change in the current “All In” concentration of wealth that so many investors have obviously bought in to.
We leave you with a link to a video posted by @Watcherguru on Twitter of Research Director, Peter Van Valkenburgh of Coin Center. This is a great explanation of Bitcoin and why we believe the future of all payment systems is a decentralized blockchain system like Bitcoin: Bitcoin Explained tweet from @WatcherGuru
Alright, we will be back with more tomorrow. Silver is on our minds, Oil is on our minds, the Yield Curve and obviously the Nasdaq, so hopefully we continue to explore these topics and bring you more insight so that you can formulate your own opinions on these things. Please like, share and subscribe!
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