Month: January 2023

Back on January 9, despite a wave of raging pushback (putting it mildly) as the consensus bearish call was dead certain that the bottom was about to fall out of the market – after all, who in their right mind would fight the Fed when the Fed has clearly telegraphed that it wants risk lower – we warned that “We Are Setting Up For A Tech-led Squeeze Higher As Shorting Gets Extreme.”

What happened next was a historic tech-led squeeze as shorts got steamrolled over and over, and every attempt to push stocks lower was met with furious dip-buying (mostly by retail) which pushed S&P futs above all key resistance levels (50DMA, CTA trigger, 200DMA, descending channel) which sent it to a two month high of 4,100.

The bear-capitulating result, as Goldman’s Michael Nocerino puts it in his latest market note (available to pro subs), is that with just two trading days left in the month, “the January effect has come to fruition as the SPX is +6.02% and NDX is +11.2%, making this Nasdaq’s best start in over 20 years.”

As shorts were squeezed – with Goldman’s most shorted basket rising 23% since our Jan 9 post…

… and as markets melted up, here is what the bank’s clients were focused on this week: i) the pull forward of a soft landing; ii) better than feared earnings so far; iii) reduction in wages; iv) declining dollar; v) light positioning; vi) CTA demand resurgence and vi), retail returning.

Most importantly, this all comes as corporate are starting to exit their buyback blackout window (more on this shortly).

To be sure, the recent trend can still reverse – especially since much of the “real $” is still waiting for the big earnings week ahead (and risking to miss the train entirely if the rally accelerates), and next Wednesday is the Fed, followed by GOOGL, AMZN, and AAPL reporting on Thursday (+12%, 22%, 12% on the year), which to Nocerino “feels like a set up for a fade, but with the caveat that investors are not “full” and retail and technicals continuing to fuel price action.”

And speaking of technicals, the most important one by far this year, remains ever present. Here is how Goldman derivatives guru Brian Garrett describe market action 20 (long) sessions in 2023:

What we are talking about on the desk and seeing in markets 20 trading sessions down, and 232 trading sessions to go?

Bottom line… implied vols have retraced to 2 year lows and we yet not seen an increase in demand (in fact the desk has seen the opposite) …

… correlation is breaking down as stocks behave like individual corporations and factor vol decreases (nothing shows this better than the earnings surprise miss/beat chart we showed previously – even if trading “wrong way”) …

… the rest of the world is decoupling from the US in terms of both absolute return and positioning (PM survey suggests this could keep going).

Garrett’s bottom line: “US stock exposures are not set up for a continued rally and one could argue that if this squeeze continues, there is no shortage of single stock positions that would need to be covered (ie: potential for early innings).”

One final last chart from Garrett before we shift back to Nocerino, just because the numbers are – as the Goldman trader puts it, “staggering” –  the 50 day average $ notional traded in SPX options is remains above $1 trillion.

Meanwhile, for those who think that the shorts have had enough getting spanked and are finally covering, guess what: wrong. As Nocerino writes referencing the latest Goldman Prime data, “Gross and Net leverage for the overall Prime book increased on the week. Fundamental L/S Gross leverage increased while Net leverage finished slightly down.” Some more color:

Overall Prime book was modestly net sold, driven by risk-off flows with long sales outpacing short covers. Macro Products were net sold led by long sales, while Single Stocks were net bought for a 3rd straight week driven entirely by short covers. Hedge funds net bought Energy stocks amid continued optimism over China demand. Aggregate US Energy long/short ratio increased +3% week/week.

Ironically, so ingrained is the bearish mindset that pro investors would rather short any rip than buy any dip (that’s what retail has been doing for the past two weeks after 17 weeks of selling). As Brian Garrett states in his latest note, Positioning Remains Light, and notes that “the GS prime brokerage data shows that the professional investor community is not ready to chase this rally … chart below of the GS PB l/s ratio vs rolling SPX returns.”

And while this tactic served well in 2022, others at Goldman admit that everything has changed in just a few short weeks (see Goldman’s Biggest Bear Capitulates: “The Market Is In No Mood To Go Down Right Now“, Goldman Trader: Market Dynamics Have Shifted Dramatically Again, Here’s Why) and so institutions and hedge funds – who remain largely short – may soon be forced to chase the rally higher.

But it’s not just the relentless short squeeze that threatens the mental stability of bears (see Hartnett’s latest note: “Another 3-5% Will Feel Like Bathing In Lava If You’re A Bear“), there are many other bullish technicals on deck starting with…

CTAs: here is some more in depth color from Goldman’s Futures Strats Desk: the recap is that Equity positioning is still to BUY, but demand slowing as positioning is getting full.

CTAs are at a 100% rank for positioning on a 1-yr scale within our work. That is to say that positioning is at the highest it’s been on a rolling 1-yr basis. To round out the week, we estimate CTAs bought $34bn of equities this week bringing the total positioning to long $91bn. Of the simulated buying, purchasing was heaviest in TOPIX ($13.6bn), followed by SPX ($12.5bn), with continued N. America buying in other products like RTY and TSE. SPX has rebalanced decidedly long in our work where we now estimate CTAs are long $9.1bn. N. America, however, has not yet caught up to EMEA, which holds its title for heaviest long in our model.

Flows scenarios over the next week:

•  Baseline (flat prices and vols): $20bn of which 4.6bn is SPX, $11.2bn in TOPIX, $2.5bn in Nasdaq
•  Prices up 2s and vol down: $17.78bn of which $5.4bn in SPX, $11.7bn in TOPIX, $2.5bn in Nasdaq
•  Prices down 2.5s and vol up: -$14.4bn of which -$8.0bn SPX, +$5.0bn in TOPIX, -$3.4bn in FTSE

Threshold Levels (short/medium/long): SPX: 3937/3970.5/4073 … RTY: 1830/1841/1954

EARNINGS…As we first discussed last Thursday in “When Stocks Don’t Go Down On Bad News, That’s A Bullish Signal“, when the market/stocks dont go down on bad news (MSFT guide) typically a bullish signal. As Goldman wrote then, “we learned a lot from this price action today: this market is more resilient than most of us are giving it credit for (be very thoughtful/selective with your short positions as squeezes will be common this Q).” To this, Nocerino adds that we have been seeing weaker report being bought (ie: MSFT). And as we pointed out on Friday, “companies who miss earnings on EPS have outperformed at the largest pace on record.” Hardly a bearish signal.

BUYBACKS…Needless to say, this is the most important driver as we exit buyback blackout. We will have more to say on this shortly, but as Goldman calculates, the current blackout window ended Friday and the bank estimates that ~23% of the S&P 500 will be in open window. When the window is open Goldman estimates ~$4B/day in demand.

WHERE IS THE MONEY FLOWING… Net flows into global equity funds accelerated in the week ending January 25 (+$14bn vs +$8bn in the previous week)…a lot of this comes in Emerging Mkts, but importantly the outflows out of US turned positive and money market fund assets declined by $2bn.

Meanwhile, Money Market Funds just hit a new all-time high cash level. As Goldman points out, “5% cash yields make the bar higher for a re-allocation to risk assets; but if the Fed’s done, the incentive to reallocate is done.”

RETAIL…Last but not least, retail is back in full force and after selling for 17 straight weeks, retail investors have been buying aggressively for the past two. Here’s a good example: TSLA now accounts for roughly 7% of all options trading on an average day, with nearly 3mm contracts changing hands on an avg — up from 1.5 million a year ago and more than any other stock (WSJ). TSLA gained +33% last week, its best week in >10 years, largely thanks to an epic retail-driven gamma squeeze.

And as Vanda Research adds, “retail investor appetite returns as stocks recover from last week’s slump. Indeed, retail flows remained resilient and continued ticking higher, helping broad indices recover from a two-day dip last Wednesday and Thursday. Moreover, with the earnings calendar getting busier and some of retail’s favorite names beating expectations, flows into single names have kept climbing. The two charts below depict these dynamics, with the average daily inflow across all securities rebounding toward US$ 1.2bn/day…

… and with full-week flows into single stocks estimated to approach ~US$ 5.3bn.

Moreover, intraday action shows that retail traders gave a needed hand to US stocks after the initial dip post MSFT earnings. Beyond the usual flurry of buying at the open, retail crowds leaned against downward pressure on stocks – all of it coming from institutions – for the entire first two hours of trading while adding extra support on the way up in the early afternoon as well

Bottom line: if retail is once again a more powerful price setter than institutions and hedge funds (thank you zero market liquidity), and we are facing another Jan 2021-type meltup, then watch out above even if none of the abovementioned technicals go into play.

More in the full note available to pro subs.

A café shop in Portland, Oregon is one of just two locations in the United States where rich coffee snobs can imbibe a $150 cup of Australian coffee.

Just 22 cups will be available from Proud Mary Coffee Roasters, which has locations in Portland and Austin, Texas.

The coffee itself is the Black Jaguar Geisha blend, and comes from Hartmann Estate in Panama. It recently won first place in the 2022 Best of Panama competition – one of the premiere coffee competitions worldwide, KOIN reports.

The coffee company paid $2,000 for a pound of the beans, their most expensive coffee purchase to date.

Wonka time?

For those who don’t want to spend $150 on a cup of coffee, which is absurd, Proud Mary Coffee Roasters will give away a single cup of the coffee to a US customer who receives a golden ticket in their purchase of a Hartmann presale tin from the Proud Mary website.

The $34 tin includes 3.5 ounces of Hartmann Natural Geisha Coffee – and possibly a golden ticket.

Proud Mary will host a Hartmann Family takeover at its Portland cage throughout the month of February and will offer five additional coffees from the famed producer. Three options will be espressos and two natural Geisha coffees will be available as deluxe pours. -KOIN

Proud Mary’s Portland location was opened in 2017, before expanding to Austin last year. 

Authored by Wouter Schmit Jongbloed via ‘Money: Inside and Out’ blog,

Overnight, the sky over Iran was lit up by at least two explosions targeting military production facilities: one in Isfahan and one in Tabriz. Whether the two explosions are connected remains unclear as the Isfahan target appears to have been an “ammunitions” factory and the explosion in Tabriz occurred at a motor oil factory. Some sources (here) suggest the list of targets hit might be larger and include the Headquarters of the IRGC and some other military targets.

While no party has claimed direct responsibility for the explosions, Senior Ukrainian spokesperson Mykhailo Podolyak tweeted “War logic is inexorable & murderous. It bills the authors & accomplices strictly. Explosive night in Iran – drone & missile production, oil refineries. Did warn you.”

While drones can be launched from any platform without much infrastructure, it is worth noting that the most common Iranian suicide drones have a range of roughly 2500km and the distance between Kherson, Ukraine, and Isfahan, Iran, is approximately 2600km — so barely in tentative range.

The regime in Teheran is, somewhat predictably, down-playing the impact of the explosions, noting of the Isfahan attack that one drone was shot down “and the other two were caught in defense traps and blew up. [The attack] caused only minor damage to the roof of a workshop building. There were no casualties.”

At the start of the Asian open, oil markets might be primed to price higher risks to oil supplies out of concern that: (i) Ukraine war might be spilling over into Middle East, (ii) Iran might seek retaliation in the region, or (iii) general unrest in oil producing countries is bad news for supply.

As Iran seems to be downplaying the attacks and no clear culprit has been identified (despite Ukraine’s early response), any spike in oil prices could be driven initially by algorithmic trades immediately at the open and thus likely to fade as more information becomes available.

To reiterate:

1/ it doesn’t seem oil production facilities were the target;

2/ even past attacks on Saudi oil infrastructure such as by Yemeni militants (with Iranian backing) in 2019 had a limited impact on oil prices beyond the very short term. 3/ Iran is a marginal producer (though admittedly the market is petty tight)

Will Oil Prices Spike as Markets Price Increased Destabilization?

Previous episodes of violence and explosions involving oil producing countries has led markets to price supply concerns. In somewhat comparable situations, such as Yemen’s missile strikes against Saudi Arabia for instance in March 2022, the oil price reaction function seemed driven in large part out of concern for escalation.

In the current circumstances, three risk avenues could drive market concern:

(i) Ukraine War Spill Over to Middle East

As we do not have a clear sense of responsibility for the explosions in Iran, it’s too early to assume Iran is being targeted as a function of the War in Ukraine; other possible agents include domestic groups behind recent protests and, of course, Israel — though the type of relatively unsophisticated and ineffectual strike makes direct Israeli involvement less likely.

Spill-over risks from the war in Ukraine are real, with the risk-vector Iran stepping up its overt support for Russia, adding its military and industrial capabilities (such as they are) to that of Russia in the production of drones and missiles.

Considering Iran is already suspected of providing material aid to Russia and the seeming determination by Teheran to minimize the explosions this morning, the risks of spill-over seem contained.

(ii) Iranian Retaliation in the Region

While the risk of direct involvement by Iran in the War in Ukraine does not present a central case scenario, elevated risks are present for Iran to seek to lash out regionally to emphasize its continued ability to project force (in the face of being hit domestically).

Of concern to markets could be the increased risk of Iranian attempts to sabotage or derail the energy supply to Europe. Considering Saudi Arabia’s non-confrontational attitude toward Russia lately, an Iranian threat in retaliation against the Kingdom is not likely at this time. Energy transits however could be targeted if the regime feels particularly vulnerable due to this morning’s explosions.

(iii) Elevated General Unrest in Oil Producing Countries

Markets generally respond poorly to upheaval in oil producing countries, especially when global demand is expected to respond to China’s reopening post Zero-Covid. These nebulous concerns are often short-lived though and price reactions fade.

Implications: Pushing Iran Further into Russia’s Camp? JCPOA?

The longer term implications of heightened “homeland” insecurity in Iran might well be a drive in Teheran to consolidate its alliances with Russia and China. The more Iran depends on Russia and China, the fewer diplomatic stepping stones are available to the West to present Iran with credible incentives not to develop a nuclear capability.

As US NSC official Admiral Kirby noted in December: “Russia is offering Iran an unprecedented level of military and technical support that is transforming their relationship.” Such support could include expertise in crowed control measures, but might also involve the delivery of fighter planes (Su-35), air-defense capabilities and potentially helicopters.

Russian support for Iran in nuclear matters is likely more fraught, with Moscow remaining wary of providing Iran with obvious pathways to a nuclear break-out moment. Its disastrous invasion of Ukraine could however marginally reshape Russia’s strategic calculus, making an alliance with Iran more palatable.

Last week, the US, UK and EU imposed fresh sanctions on dozens of Iranian officials and are actively considering designating the Islamic Revolutionary Guard Corps a terrorist organization. With relations between the West and Iran at a low point, the future of the JCPOA remains unclear and in “the deep freeze,” with all blocks satisfied that the nuclear status quo is acceptable (for now).

*  *  *

Money: Inside and Out is a reader-supported publication. To receive new posts and support my work, consider becoming a free or paid subscriber.

By Seth Carpenter of Morgan Stanley

Predicting with Precision Is Hard

A key concern we hear from clients is that the labor market is tight and wage inflation is high, which means that the fall in inflation witnessed so far could stall, largely because of services inflation. You can probably move that fear further down on your list of concerns.

Few things can be predicted with precision, but I will bet you have heard about wage-price spirals in the media, from colleagues, or in econ classes.

welcome to 2023 pic.twitter.com/t1yf0OEO6n

— Kenny Lay (Parody) (@EnronChairman) January 28, 2023

Both headline and core inflation in the US have peaked and are falling. But with a tight labor market and wage inflation still elevated, the story goes, inflation’s descent could stall, and we are likely to see sticky, high inflation. The story is intuitive, because labor is roughly 60% of total value added in the US and therefore should be key to production costs. This inflation fear is a common concern among clients, but here are some thoughts to put things in perspective.

Core goods inflation has been negative for a couple of months now, and the disinflationary force accompanying it will last for some time. And the fact is, most consumer goods are imported, so the “cost-push” narrative is not so relevant. As for rents – which constitute 40% of core CPI – we know that new contract lease inflation has already fallen sharply, so the CPI component of shelter inflation will almost mechanically come down. And of course, rents are charged for existing units, so there is no “production function” with labor as an input driving up the price. Consequently, any wage inflation fears have to focus on “other” services, which represent roughly 35% of core PCE and 25% of core CPI. Indeed, Chair Powell has emphasized this component, saying it is “really a function of the labor market and is likely to take a substantial period to get down.”

There are several reasons why we do not worry about this particular mechanism, illustrated by the charts below. First, the lion’s share of the acceleration in other services was in transportation. Other services inflation went from about 1%Y in January 2021 to roughly 6%Y in December 2022, and roughly 4 percentage points of the increase is explained by transportation. Within transportation, airline fares are the key component, but the recent surge in airline fares was more a function of fuel prices and pent-up demand for travel amid capacity restrictions … not a rise in wages. Moreover, nominal wage acceleration has been widespread across services industries, but only transportation CPI inflation has increased. Indeed, because wage inflation has been generally lower than price inflation, real wage growth has been negative, pointing away from a cost-push story. Taking a longer-run view, over the past 35 years, the consumer price inflation we have now is unknown, but the peak in wage inflation is not particularly exceptional.

But of course, there is still some connection. In a recent publication, we used historical data to calculate the wage-price passthrough for other services. Our results are aligned with Chair Powell’s comments suggesting that other services have the highest wage-price passthrough of all CPI components. Historically, on average, the recent increase in nominal wages would be associated with 140bp more other services inflation one year ahead. But with other services’ relatively low share of the overall index, the boost to core inflation is only 35-50bp – hardly the stuff of nightmares, but the reason why wringing the last bit of inflation out could be hard. More detailed analysis shows that the highest historical correlations are with medical care and education inflation, so we know which data to track.

Why is the link so much weaker than intuition suggests? Partially, there has been a clear upward trend in market concentration across all industries since 1990, which means higher profit margins and more room to let margins shrink after wage upswings. Indeed, from 2000 to 2015, the labor share of income fell sharply, and has not recovered its previous long-term level. Also, lower unionization rates compared to the 1980s means reduced wage inertia. In the 1980s, wage increases in one industry were used as benchmarks for other negotiations, leading to wage-wage spirals that are now largely gone.

But as I said at the start, few things can be predicted with precision, and other services inflation has been particularly hard to predict recently. We might be wrong, but all the information at hand simply points to a low probability that current wage inflation is a critical issue – even within services.

Authored by Allen Zhong via The Epoch Times,

Millions of Americans who are in the Supplemental Nutrition Assistance Program (SNAP) will see decreases in payments after February, a federal agency said.

The decreases in payments are driven by two main factors, Food and Nutrition Service (FNS) said in an update in early January.

FNS is an agency under the U.S. Department of Agriculture (USDA).

Firstly, the temporary increase to SNAP benefits during the COVID-19 pandemic – also known as emergency allotments – will end after the February 2023 payment.

The emergency allotments gave most SNAP households approximately $95 in extra payment, the agency said.

“All SNAP households have or will see a decrease to the SNAP benefits they receive when emergency allotments end. Some SNAP households already experienced that change; others will in February or March 2023,” FNS said in the announcement.

The extra payments have ended in 17 states including Alaska, Arizona, Arkansas, Florida, Georgia, Idaho, Indiana, Iowa, Kentucky, Mississippi, Missouri, Montana, Nebraska, North Dakota, South Dakota, Tennessee, and Wyoming.

SNAP households in South Carolina will see emergency allotments end after the January payment.

For the remaining 32 states, the District of Columbia, Guam, and the U.S. Virgin Islands, the SNAP benefits amount will return to the pre-pandemic level.

Another factor that could cause SNAP benefits to go down is increases in Social Security benefits.

The social security payments have increased since Jan. 1 because of substantial increases in costs of living adjustment (COLA).

“Households that receive SNAP and Social Security benefits will see a decrease in their SNAP benefits as early as January 2023 because of a significant increase to their Social Security benefits to reflect the cost of living,” FNS said.

However, the SNAP households will still see a net gain because the decrease in SNAP payments is smaller than the increase in Social Security benefits.

According to governmental data (pdf), almost 42 million persons or 22 million households have registered in the SNAP as of October 2022.

SNAP Costs Reach Record $119 Billion

The cost of the SNAP increased to a record $119.5 billion in 2022, according to data released by USDA.

SNAP costs increased from $60.3 billion in 2019, the last year before the pandemic, to a record-setting $119.5 billion in 2022. The number of participants had increased from 35.7 million in 2019 to almost 42 million in 2022.

The increased costs can be attributed partly to a higher monthly benefit during the pandemic. States offered additional money throughout the pandemic.

According to USDA data, the average monthly per-person benefit was $129.83 in 2019. It increased by 78 percent to $230.88 in 2022.

The Center on Budget and Policy Priorities reported the 2018 farm bill also increased the maximum SNAP benefits by 21 percent effective October 2021. That increase was to “accurately reflect the cost of a healthy diet,” the Center on Budget and Policy Priorities stated.

For over a year, we have been dutifully tracking several key datasets within the auto sector to find the critical inflection point in this perhaps most leading of economic indicators which will presage not only a crushing auto loan crisis, but also signal the arrival of a full-blown recession, one which even the NBER won’t be able to ignore, as the US consumers are once again tapped out. A month ago we said that in our view “that moment has now arrived”; the latest data from Fitch confirms as much.

But first, for those readers who are unfamiliar with the space, we urge you to read some of our recent articles on the topic of car prices – which alongside housing, has been the biggest driver of inflation in the past 18 months – and more specifically how these are funded by the US middle class, i.e., car loans, and last but not least, the interest rate paid for said loans. Here are a few places to start:

• Are We Headed For An “Auto Loan Crisis” As Delinquencies Begin To Rise? – July 7

• A Flood Of Repossessed Vehicles Poised To Hit The Used-Car Market – July 25

• American Drivers Go Deeper Into Debt As Inflation Pushes Car Loans To Record Highs – Aug 29

• Credit Card Rates Just Hit A Record As The Average Car Loan Rises To Fresh All Time High – Oct 9

• New-Car Loan-Rates Set To Hit 14-Year High As Affordability Crisis Worsens – Nov 3

• Perfect Storm Arrives: “Massive Wave” Of Car Repossessions And Loan Defaults To Trigger Auto Market Disaster, Cripple US Economy – Dec 18

So while the big picture is clear – Americans are using ever more debt to fund record new car prices – fast-forwarding to today, we have observed two ominous new developments: the latest consumer credit report from the Fed revealed a dramatic spike in the amount of new car loans, which increased by more than $2,000 in one quarter, from just over $38,000 (a record), to $40,155 (a new record).

Now this shouldn’t come as a shock: a simple reason why new car loans have hit record highs is simply because new car prices have also soared to all time highs, as the next chart shows.

Here we will ignore for the time being cause and effect, or “chicken or egg” questions – i.e., whether record new car prices are the result of easy record credit, or whether record new car loans are simply tracking the explosive surge in car prices, and instead focus on something even more ominous: the explosion in the average interest rate on a new 60 month auto loans: according to Bankrate, as of Jan 27, the number is just over 6.67%, almost doubling since the start of 2022, and the highest in 12 years.

It is this surge in nominal auto debt as well as the unprecedented spike in new auto loan rates, that we believe has finally pushed the US car sector to the infamous Wile Coyote point of no return.

But first lets back up a bit. Recall, on Friday American Express reported blowout earnings, and forecast that revenue and earnings for 2023 will surge well above what analysts estimated after the company saw customer spending on its cards soar to a record in the final three months of the year, a time when the US economy was rapidly sliding into contraction.

This is hardly a shock: targeting mostly the wealthiest tier of U.S. society, the future is bright for AmEx and its customers who – let’s face it – are not seeing a huge hit to their standard of living as a result of soaring prices and interest rates. It is everyone else that is getting hit hard, and it is everyone else that is using cards like Capital One and Discover (which target FICO score about 40-60 lower than AmEx). And readers will recall that it was Discover which two weeks reported that its projected charge off rate for 2023 would more than double from its current 1.82% to as much as 3.90%!

The news hit the stock like a lead balloon, and sparked renewed fears that the bottom and middle-classes are already in recession.

Then again, for those keeping a tab on the latest development in the US car market – where the bulk of consumers use Discover, not AmEx – that’s not exactly a shock.

Consider the following: as we first reported a month ago, a soaring number of consumers are falling behind on their car payments – a trend which will only accelerate – in a sign of the strain soaring car prices and prolonged inflation are having on household budgets.

Citing a NBC report, we reported that whereas repossessions tumbled at the start of the pandemic when Americans got a boost from stimulus checks and lenders were more willing to accommodate those behind on their payments, in recent months, the number of people behind on their car payments has been approaching prepandemic levels, and for the lowest-income consumers, the rate of loan defaults is now exceeding where it was in 2019, according to a recent report from Fitch.

Fast forward to today, when a newer report from Fitch has laid out an even more startling milestone: more Americans are falling behind on their car payments than during the financial crisis. As Bloomberg first observed after skimming the Fitch note, in December the percentage of subprime auto borrowers who were at least 60 days late on their bills rose to 5.67%, up from a seven-year low of 2.58% in April 2021. That compares to 5.04% in January 2009, the peak during the Great Recession, and just a few weeks before the Fed was about to start QE1.

The result, Bloomberg reports extending on our observation from December, is that the number of car repossessions is soaring. Take the case of 21-year-old Kobe Hatch, who walked outside his Chicago home in December and couldn’t find his 2013 Dodge Journey; he immediately knew it had been repossessed for a simple reason: he hadn’t made the car payment months.

Without a car, Kobe couldn’t do his job as a delivery driver for Amazon and got fired. Now, he’s struggling to make his rent payments and can’t afford groceries, even with food stamps.

“It’s been very stressful for the past few months,” he said. “Inflation has really taken a toll on people.” And it certainly has, although that doesn’t explain why Kobe didn’t make his car payments in the first place. Maybe he should have bought a care he could – gasp – afford even in a worst-case scenario. He didn’t, but instead of blaming himself it is of course easier to blame inflation.

Hatch is part of a growing cohort of Americans facing auto repossessions, an ominous sign for the US economy. As we first explained in December, during the pandemic, a surge in used car prices forced buyers to take out bigger loans for their vehicles. The monthly payments seemed doable in an era of stimulus checks, a tight labor market and surging stocks, but that’s changed for many people as inflation eats into their budgets and the job market cools.

While few bothered to budget how they would pay for that new car purchased just one year ago at all time high prices, even fewer anticipated a world where spiking rates would make payment on the monthly auto payment virtually impossible. The average new auto loan rate was 8.02% in December, up from 5.15% a year earlier, according to Cox Automotive. The rate is usually much higher for subprime borrowers.

For Hatch, who is subprime, the total monthly bill for his car reached about $1,000, including the cost of insurance, thanks to a whopping 26% interest rate. Even if he can manage to save up enough to get the car back –  about $1,100 for the repossession fee – there’s a strong chance he won’t be able to make the payments in subsequent months, especially now that he’s unemployed. Again, maybe Hatch should have bought a used clunker he could afford at the time and make a one time payment instead of diluting his future cash flow stream. Then again, there were iPhones to be bought and countless trinkets that were urgently in need of purchase by Hatch, who looked at that stimmy gravy train and assumed it would never end… well, oops. And in any case this is not an article about personal responsibility which in the US no longer exists but, well, economics 101.

And speaking of economics, the good news is that while the number of vehicle repossessions is still below pre-pandemic levels –  at Manheim, the auto auction company, the number of repossessed cars increased 11% in 2022 compared to the prior year, which was still down 26% from 2019 – it is soaring fast and unless something major changes, it will soon overtake most recessionary benchmarks. 

When exactly a lender can repossess a car varies by state, but it can happen in many cases as soon as a borrower is in default — often when a payment is not made on time, according to the Federal Trade Commission. Usually, though, it takes two or three consecutive missed payments for a repossession to happen. Once the vehicle is seized, the repossession can affect the borrower’s credit score for as long as it stays on the credit report, usually about seven years, according to Experian.

One such borrower is Josef Fields of Forth Worth, Texas: he, too, fell behind on his car payments and now faces a hit to his credit score. With his monthly bill at $556 for his 2021 Subaru WRX, the 25-year-old was having a hard time figuring out which costs to prioritize. He wouldn’t have such a hard time if instead of buying a car which according to carmax costs around $35K now, and cost even more new, had instead purchased, say, a 1998 Hyundai. But, again, this is sadly not an article about personal responsibility and Americans’ inability to budget for a downside case. So instead of settling for a cheaper car, Josef is now trying to apply for a hardship program through his bank, but it is too late: he too woke up to an empty driveway a week before Christmas.

Now, the repossession and tow fee will cost him $1,600 — about the total sum he owes in back payments as well. He’s trying to save up for another car but it will likely take a while (just a guess here, but his next car won’t be a 1998 Hyundai either, and it won’t be too long before it too is repossessed). One positive is that he can walk to his job at the local post office. But whenever he needs to go to the grocery store, he has to ask a friend or take an expensive Uber. We can only assume his net worth will have to get deeply negative before he discovers mass transport.

Fields is worried about how this will affect his financial future, especially his dream to buy a house one day (judging by his track record, any house Josef buys will be greatly overvalued and he will default shortly after). He estimates that the repossession shaved about 40 points off his credit score.

“When it comes to people my age and younger our credit is still new, so it’s more difficult, and then when stuff like this happens, it screws us over for the long run,” he said. Of course, it is always easier to blame “credit” or anything else for that matter, than looking in the mirror and taking responsibility your own sequence of poor choices and decisions, which will have a far more adverse impact “for the long run.” But maybe if the lessons is harsh enough there is hope…

For some, however, the only lesson is to try and outsmart the repo man: hardly the best long-term strategy. Take San Antonio native Zhea Zarecor who is currently trying to negotiate with her lender so her 2013 Honda Fit won’t get repossessed. In the meantime, she’s hiding it.

The 53-year-old, who is currently in school for her bachelor’s in information technology (and raking up massive student loans for an education she should have had some 35 years ago) splits the monthly bill for the car — about $178 — with her roommate. But then the roommate lost his job, and with prices for groceries and everyday items increasing, there just wasn’t enough for the car payments.

Zarecor is trying to make extra money with odd jobs like contract secretarial work and participation in medical studies, but it often feels hopeless, she said. “Our money doesn’t go as far as it used to,” she said. “I don’t see prices going down, so the only relief I see is when I get my degree.”

* * *

So what happens next? Well, some, like Cox Automotive, remain optimistic: their analysts (who just may be a little conflicted) forecast that while loan defaults and repossessions will increase from their pandemic lows, long-term through 2025 they predict overall defaults and repossessions will remain at or below historic norms.

Still, the financial squeeze has been particularly difficult for lower-income consumers looking for budget vehicles, which have been particularly hard to find. While in the past, those car buyers would have purchased a used car for $7,000 to $15,000 they are now having to spend $20,000 to $25,000 for the same type of vehicle. Among dealers that cater to subprime and deep subprime consumers, the average listing price on their cars has almost doubled since the beginning of the pandemic, according to the CFPB.

“That near prime and subprime group of consumers, they’re getting hit very, very hard by inflation. That group of people did not have much disposable income. They had to finance a more expensive car and then they got hit with prices going up overall. There’s just a lot of stress,” said Kelly.

Ally Financial, which has a significant share of loans to subprime borrowers, said in its October earnings report that it expects delinquencies to increase to as much as 3.8% compared with 3.1% in 2019. One month ago we said that estimate will prove to be overly optimistic, and today we are getting further confirmation of our skepticism.

As twitter’s CarDealershipGuy – who claims to be an anonymous auto-industry CEO and whose analysis has been featured in places like the NY Post and who frequently Tweets about the state of the auto market – laid out a recent blog post, Capital One released its Q4’22 earnings on Tuesday. The company missed revenue targets ($9.04 billion instead of $9.07 billion) and reported a net income of $1.2 billion, which is half of what it was a year ago. Adjusted per-share earnings are at $2.82, which is significantly below analysts’ expectation of $3.87.

Along with other banks that are anticipating a downturn in the economy, Capital One has been bulking up their reserves for losses. Banks set aside these funds when credit quality begins to deteriorate, which occurs when past-due accounts or charge-offs start increasing. Capital One’s provision for credit losses increased $747 million to $2.4 billion, which is up $1.4 billion year over year.

One look at the auto lending section of the report, should answer why.

The trends I talked about in my previous newsletters (here and here), credit tightening and rising defaults are all evident. The net charge-off rate for auto loans was 1.7%, up from 0.6% last year. Auto loan originations were at $6.6 billion, down 20% year over year.

 From what I see on my dealership floor, I believe that Capital One has taken the most drastic turn in tightening the credit, compared to Ally, Santander, and others.

Our volume with Capital One is down 50% quarter over quarter. To put it simply, we are not putting any business through Capital One because its offerings are not competitive anymore. It feels like the bank intentionally turned off the spigot with originations. Either it is preparing to face significant losses, or the company is just being extra cautious.

The anonymous auto dealer dug deeper and here is what he found out after speaking with a few insiders:

There’s a lot of internal turmoil happening inside the bank. In the words of the person familiar with the situation, never has there been so many high performers moved between divisions. Not just any divisions! Turns out that many leaders are moved from the dealer technology and products division to the “help me catch up” division. This division’s purpose is to work with delinquent customers.

This department has been largely neglected in the past, so why would Capital One suddenly decide to stifle innovation and reshuffle its workforce?

I see it as another affirmation of what to expect from the market in the coming year. Significantly propping the services division by the top automotive lender tells me that delinquencies are rising as consumers are struggling to manage their auto loan payments.

Cox Automotive’s data also supports my thinking: auto loan performance in December deteriorated with loans delinquent by more than 60 days increased by 5.3% and were up 26.7% from a year ago.

Finally, while the existing loan pipeline is bracing for soaring delinquencies and default and catastrophic writedowns, new loan originations have collapsed not only because of higher loan standards but because most Americans suddenly realize they can’t afford monthly payments at these rates. “I dare think what happens to people who are signing up for new loans today,” said Ivan Drury, director of insights at car buying website Edmunds. “It’s not going to be better when we see these payments so high.”

As for the repo men, now that is one industry that will be booming all throughout the coming recession. “These repossessions are occurring on people who could afford that $500 or $600 a month payment two years ago, but now everything else in their life is more expensive,” said Drury, “That’s where we’re starting to see the repossessions happen because it’s just everything else starting to pin you down.”

Indeed, for those in the repossession business, it’s been almost impossible to keep up with the surge in, well, “new business.” Jeremy Cross, the president of International Recovery Systems in Pennsylvania, said he can’t find enough repo men to meet the demand or space to hold all the cars his company has been tasked with repossessing. With the holidays approaching, he’s been particularly busy as people prioritize spending elsewhere, and he’s expecting business to keep up throughout next year and 2024.

“Right now, it’s really the perfect storm,” said Cross. “Over the last two years, vehicle prices were inflated because there was no new car supply, people were still buying like crazy because they had a lot of stay-at-home cash, they had inflated credit scores, so it was like a recipe for disaster.”

Bitcoin is up 55% from its November cycle lows, trading up near $24,000…

…its highest since mid-August, erasing all the FUD from FTX…

Ethereum is also soaring but has notably underperformed Bitcoin in the last few weeks, with the ratio of ETH to BTC now back to significant support levels…

Bitcoin bulls have everything to play for as the weekly and monthly closes decide what could be Bitcoin’s best January in ten years.

As CoinTelegraph reports, as of Jan. 27, resistance was stacked at $23,200, $24,500 and $25,000, with the latter nonetheless still on traders’ radar as a potential next target.

“$25,000 target in sight,” a confident Crypto Tony told Twitter followers in comments on the day.

Additionally, Dylan LeClair writes at Bitcoin Magazine that across bitcoin’s short history, many on-chain cyclical indicators are currently pointing to what looks to be a classic bottom in bitcoin price. Market extremes — potential tops and bottoms — are where these indicators have proven to be the most useful. 

On-chain indicators overlaid with previous bitcoin price bottoms.

However, these indicators need to be considered alongside many other macroeconomic factors and readers should consider the possibility that this could be another bear market rally — as we still sit below the 200-week moving average price of around $24,600. That being said, if price can sustain above $20,000 in the short-term, the bullish metrics paint a compelling sign for more long-term accumulation here.

A major tail risk is a possible market-wide selloff in risk assets that are currently pricing a “soft landing” style scenario along with the potentially incorrect expectations of a Federal Reserve policy pivot in the second half of this year. Many economic indicators and data still point to the likelihood that we’re in the midst of a bear market similar to 2000-2002 or 2007-2008 and the worst has yet to unfold. This secular bear market is what’s different about this bitcoin cycle compared to any other in the past and what makes it that much harder to use historical bitcoin cycles after 2012 as perfect analogues for today.

All that being said, from a bitcoin-native perspective, the story is clear: Capitulation has clearly unfolded, and HODLers held the line.

Given the transparent nature of bitcoin ownership, we can view various cohorts of bitcoin holders with extreme clarity. In this case, we are viewing the realized price for the average bitcoin holder as well as the same metric for both long-term holders (LTH) and short-term holders (STH).

The realized price, STH realized price and LTH realized price can give us an understanding of where various cohorts of the market are in profit or underwater. 

A look at realized price for short- and long-term holders.

On a monthly basis, realized losses have flipped to realized profits for the first time since last April. 

The #Bitcoin market has stopped bleeding.

Realized P/L ratio (30d MA), a ratio between all coins moved at a profit and a loss (at the price last moved on chain), has flipped positive. pic.twitter.com/lm9EIX5EBr

— Dylan LeClair 🟠 (@DylanLeClair_) January 26, 2023

Capitulation and loss taking has flipped to profit realization across the network, which is a very healthy sign of thorough capitulation.

There is a strong case to be made that given the current elasticity of bitcoin’s supply — as evidenced by the historically small number of short-term holders or rather the large number of long-term holders — it will be challenging to shake out current market participants. Especially considering the gauntlet endured over the previous 12 months.

Statistically, long-term bitcoin holders are usually unfazed in the face of bitcoin price volatility. The data shows a healthy amount of accumulation throughout 2022, despite a massive risk-off event in both the bitcoin and legacy market.

While liquidity dynamics in legacy markets should be noted, the supply-side dynamics for bitcoin look to be as strong as ever. All it will take for a significant price appreciation will be a small influx of newfound demand.

Dozens of food processing plants were destroyed and/or damaged last year by “accidental fires.” After several months of a lull in mysterious fires rippling through the food industry, the first major one of the new year was reported by NBC Connecticut on Saturday. 

More than 100 firefighters battled a massive fire at a commercial egg farm in Bozrah, Connecticut, on Saturday afternoon.

According to Epoch Times, firefighters spent hours extinguishing a 150-foot-by-400-foot chicken coop at Hillandale Farms, which contained about 100,000 chickens. 

A Salvation Army canteen truck was on the scene, providing food. According to the Salvation Army, about 100,000 chickens may have died in the fire. It also said that no injuries had been reported.

Here’s the video of the fire: 

Hillandale Farms is one of the largest suppliers of chicken eggs in the US. 

Their eggs are found in major supermarkets. 

It’s unclear what the fire-damaged Bozrah location will mean for Hallandale Farms’ national egg supply chain. The fire comes at a time when the US suffers from a severe shortage of eggs due to bird flu wiping out tens of millions of egg-laying hens. 

Egg shortages have been reported at supermarkets nationwide. 

Prices of a dozen Grade A eggs at the supermarket have jumped to astronomical levels. 

This could be the start of another string of suspicious fires at food plants. Citing Bloomberg data, news stories for “food plant fire” jumped the most in a decade last year. Odd right?

Some have speculated ‘food processing plants don’t just “accidentally”‘ catch on fire at the rate seen last year. Others are asking: Is the US food supply chain under attack? 

Authored by Steve Watson via Summit News,

Senator Rand Paul has slammed ‘doomsday’ talk regarding the debt ceiling and a potential default, saying that such rhetoric is “completely dishonest.”

Appearing on Fox Business with Larry Kudlow, Paul noted that such alarmism will “worry the markets, and is bad for the country and bad for all of us,” further explaining that “There is absolutely no reason for us to default.”

“Our interest payments are about 400 billion,” Paul continued, adding “We bring in about five trillion, so we have plenty of money to pay our interest payments. We have plenty of money to pay our soldiers, to pay our social security and to pay for Medicare.”

Paul went on to explain that spending has to be trimmed, but over time.

“We’re about a third overdrawn, so there’s an enormous amount of government we’d have to trim,” Paul asserted, adding “if you do it over a five-year period, what I proposed recently, you bring the baseline down, you cut $100 billion immediately and then you freeze spending for about four or five years. Guess what? You actually achieve balance through growth, and so it can be done and it can be done with very small amounts.”

Watch:

Earlier this week, Paul pointed out that the current back and forth between Democrats and Republicans over the debt ceiling should make it clear that fiscal reform is necessary.

“If we were to have a $100 billion cut — which would still have us spending way more than we spent before COVID — $100 billion cut and free spending,” Paul said at a press conference, noting “We would balance our budget in just four years.”

“We have an opportunity here. It could be done. But it would take compromise between both parties,” he continued.

“Republicans would have to give up the sacred cow that says we will never touch a dollar in military, and the Democrats would have to give up the sacred cow that they will never touch a dollar in welfare.”

“President Biden needs to know absolutely he will negotiate and it’s better to start now,” Paul urged Wednesday.

Watch:

*  *  *

Brand new merch now available! Get it at https://www.pjwshop.com/

In the age of mass Silicon Valley censorship It is crucial that we stay in touch. We need you to sign up for our free newsletter here. Support our sponsor – Turbo Force – a supercharged boost of clean energy without the comedown. Also, we urgently need your financial support here.

Authored by Frank Fang via The Epoch Times,

Former President Donald Trump visited two early-voting states New Hampshire and South Carolina on Jan. 28, hitting the campaign trail for the first time since announcing his 2024 bid for the White House in November last year.

“The 2024 election is our one shot to save our country, and we need a leader who is ready to do that on day one,” Trump said in a speech in Columbia, South Carolina.

“We need a fighter who can stand up to the left, who can stand up to the swamp, stand up to the media, stand up to the deep state.”

“Am I allowed to say stand up to the RINOs?” Trump continued, referring to an acronym for “Republican in Name Only.”

“To stand up to the globalists and China, and stand up for America. And that’s what we do, we stand up for America,” Trump added.

“You need a president who can take on the whole system and a president that can win.”

The former president added, “Together we will complete the unfinished business of making America great again.”

Trump also unveiled his South Carolina leadership team, which is to be headed by South Carolina Gov. Henry McMaster. Others named to the leadership team include the state’s Lt. Gov. Pamela Evette, Sen. Lindsey Graham (R-S.C.), Rep. Russel Fry (R-S.C.), Rep. William Timmons (R-S.C.), Rep. Joe Wilson (R-S.C.), former U.S. Attorney Peter McCoy, and Trump’s former ambassador to Switzerland Ed McMullen.

“This campaign will be about the future. This campaign will be about issues,” Trump added, before criticizing President Joe Biden and his administration’s policies, such as border control, the drug crisis, and the economy.

“Joe Biden has put America on the fast track to ruin and destruction, and we will ensure that he does not receive four more years,” Trump added.

‘Marxist Hands Off of Our Children’

One particular issue that Trump said he will address if elected is education.

“We’re going to stop the left-wing radical racists and perverts who are trying to indoctrinate our youth. And we’re going to get their Marxist hands off of our children,” Trump said.

“We’re going to defeat the cult of gender ideology and reaffirm that God created two genders, called men and women.”

“We’re not going to allow men to play in women’s sports,” he added. “We’re going to save the dignity of women and we’re going to save women’s sports itself.”

Trump also said he will work to keep South Carolina’s presidential primary as the “first in the South,” which has taken place on Super Tuesday.

“It’s a very important state, first in the South,” Trump said. “And there were people wanting to move it. I said, ‘we’re not moving South Carolina.’”

Former President Donald Trump speaks at the New Hampshire Republican State Committee’s annual meeting in Salem, N.H., on Jan. 28, 2023. (Scott Eisen/Getty Images)

‘More Committed Now’

Before his speech in Columbia, Trump spoke at the New Hampshire Republican State Committee’s annual meeting in Salem, New Hampshire. He dismissed suggestions that he was off to a slow start in his campaign since announcing his third bid for the presidency.

“They said, ‘He’s not doing rallies, he’s not campaigning. Maybe he’s lost that step,’” Trump said in Salem.

However, Trump said, “I’m more angry now and I’m more committed now than I ever was.”

Trump announced Stephen Stepanek, the outgoing chairman of the New Hampshire Republican Party, would be joining his team as a senior advisor for his campaign in the Granite State. Chris Ager, a Republican National Committee member, has been elected the new chairman to replace Stepanek.

Primary Calendar

The former President criticized the Democrats’ efforts to change their primary calendar.

“From the very beginning, I’ve strongly defended New Hampshire’s first-in-the-nation primary status. I have been your defender,” Trump said. “I refuse to let any Republican, and there are some you know who they are. even think about taking that cherished status away.”

Honoring Biden’s wishes, the Democratic National Committee’s (DNC) Rules and Bylaws Committee passed a proposal in December making South Carolina the first vote in the party’s presidential nominating calendar. Under the proposal, South Carolina’s primary would be held on Feb. 3, followed by Nevada and New Hampshire on Feb. 6, Georgia on Feb. 13, and Michigan on Feb. 27.

Iowa is historically the first state to have a closed caucus, followed by New Hampshire with the first primary.

“Ｗe will root out the deep state and stop the weaponization of federal agencies because there’s a weaponization like nobody’s ever seen,” Trump added.

“We are going to take back our country, and we’ll take back the White House, and we’re going to straighten out the United States of America.”