The Heretic Speculator November Month End Newsletter
Closing thoughts on a ridiculous November, a look at the financial health of the US consumer, and ways to play the forthcoming solvency crisis.
Did you guys enjoy November 2022? A month that started out without much issue. Then a week into it FTX happened. As the details of the FTX/Alameda relations emerged it became increasingly clear just how scuzzy Sam Bankman-Fried has always been. His relationships: problematic at best and blatant cronyism at worst. Whether he realizes it or not, Sam stole billions of dollars from people. Somehow, he’s still a free man.
Maybe because the outcry from the press has been largely missing. Sam has been handled with kid gloves from mainstream media outlets like the New York Times, Wall Street Journal and Vox - outlets that presumably admire his “effective altruism” costume. Hey, it doesn’t matter that it was all a ruse, right? We care more about intentions and he meant well with his political donations and regulatory capture attempts. Yes, he meant well when he siphoned customer funds and bought his parents a multi-milli spot in the Bahamas. He meant well when the ship was clearly going down and somehow roughly $400 million managed to escape from the control of the liquidation team. But I digress…
Perhaps a fitting end then to this clownshow of a month was NYT times columnist Andrew Ross Sorkin quite literally thanking Sam while the audience showered SBF with applause…
WHAT. PLANET. ARE WE ON RIGHT NOW? Hello? Clap for Sam?! Thank him? Why? Because he had the berries to face some softballs through an internet connection?
F*** that. Sam should be in jail. End of story.
Healthy Consumers?
The trillion dollar mystery in finance right now is whether consumer price inflation peaked already. But that’s really only half of the picture. Recognizing that supply chains and energy costs play a part in CPI, so too does average hourly earnings. When comparing the year over year rate of change in both CPI and hourly earnings, we can see the “flip” in April 2021, since then wage growth has simply not kept up with inflation.
This raises a bigger question; is the consumer tapped out? Because if that’s the case, we’re going to see widespread problems throughout the entire economy. Layoffs, bankruptcies, you name it. I think it’s worth pointing out at this juncture that the US consumer appears to be out of cash. Let’s look first at the personal saving rate:
At just 2.3%, this is the lowest reading on personal saving rate since 2005. With a CPI still very elevated compared to recent history and the Fed’s target 2% rate, consumers need wages to keep up with inflation or they’re unable to save money. Instead, they may actually have to dip into savings accounts to make ends meet. And it certainly looks like that is what is happening:
The percent change from a year ago in commercial bank deposits is now negative for the first time since the mid 1990’s. And that’s not even the worst part. The consumer is so tapped out at this point that they’re simply borrowing to live:
This chart shows both the personal saving rate, which we already know is terrible, with year ago change in revolving credit outstanding. You can see clear as day how savings spiked and revolving credit declined when everyone was getting stimmy checks - another major CPI input but admitting that would mean the central bank has to admit money printing has consequences and that’s unlikely to happen. Since the money spigot has been turned off and wages haven’t kept up with prices, the credit cards are getting swiped once again.
At least so far, we’re not seeing delinquencies on credit cards yet. With a 2.08% delinquency rate, credit defaults are still well below the pre-lockdown levels of 2.5-2.6%. But this is something to keep an eye on. The pain hasn’t even started yet. But it’s coming. Consumer sentiment is still awful. They know. Things are not well. How do we position for this? Cash? Maybe. But if inflation hasn’t actually peaked, that’s a poor place to be as well. As you can probably expect, I have thoughts…
Keep reading with a 7-day free trial
Subscribe to Heretic Speculator to keep reading this post and get 7 days of free access to the full post archives.