Empire State Manufacturing Survey: Activity Fell Sharply in May

The diffusion index for General Business Conditions fell 42.6 points from last month to -31.8, its biggest monthly decrease in 3 years. This morning’s reading was well below the Investing.com forecast of -3.7 and puts the index back into contraction territory for the fifth time in six months. (…)

• New orders and shipments plunged after rising significantly last month. (full NY Fed report)

Strangely, the NY Fed survey has been unusually volatile in the past year, much more so than other similar surveys.

US Households Show Signs of Stress as New Delinquencies Rise

Households added $148 billion in overall debt, bringing the total to $17.05 trillion, according to a report released by the Federal Reserve Bank of New York on Monday. Balances are now $2.9 trillion higher than just before the pandemic.

Consumers typically build up more credit-card debt at the end of the year, during the holiday season, and then reduce those balances at the start of the following year, sometimes with the help of tax refunds. But for the first time in 20 years, that wasn’t the case this year, suggesting some households are under strain from higher prices and may be relying on credit cards to maintain their spending.

“Credit card balances were flat in the first quarter, at $986 billion, bucking the typical trend of balance declines in first quarters,” researchers wrote in the report.

The overall delinquency rate remained low by historical levels, at 2.6%. But the share of debt that became delinquent — meaning it was at least 30 days late — is rising for most loan types, including credit cards and auto debt. (…)

In another sign that consumers are tapping into available credit: Balances on home equity lines of credit increased by $3 billion at the start of the year, rising for the fourth straight quarter after declining for nearly 13 years. Some borrowers who locked in lower mortgage rates may prefer to tap into their equity through a line of credit instead of refinancing their mortgages into a higher rate, New York Fed researchers said. (…)

(Bloomberg)

(Bespoke)

  Consumers with student loan debt were able to save, on average, more than $15,000 since March 2020 — and that’s about to end

Education Secretary Miguel Cardona said the student loan deferment program will end no later than June 30, 2023, and payments are expected to resume by Sept. 1, 2023. The amount of money we are talking about, in excess of a trillion dollars, is staggering. Student loans represent 7% of U.S. GDP.

Sixty-four percent of the $1.7 trillion in student loan debt remains in forbearance, amounting to $1.1 trillion. Many of the 25 million Americans who have deferred payments for student debt are aged 18-44 years old, one of the most important demographic groups that drive consumer spending.

According to a New York Federal Reserve Study, the average student loan payment is $393 per month. The original forbearance program was instituted by President Donald Trump at the beginning of COVID in March 2020.

For consumers taking advantage of the program, they have deferred 39 months worth of payments, resulting in more than $15,327 in additional discretionary income during the period, much larger than the amount most consumers received from other COVID stimulus programs.

The Biden administration has been working to forgive up to 30% of outstanding student loans, but that is currently in doubt, with the Supreme Court expected to rule within the next month that the president lacks the authority to cancel the debts.

Because the president has been signaling a desire to cancel student loans and consumers have not had to make payments for over three years, the resumption of payments will come as a personal cash flow shock to many households.

Look at the light green line on the BB chart above; it’s about to spike back up. Maybe this chart too:

Data: New York Fed (Credit-card balances delinquent by 90 days or more). Chart: Axios Visuals

• For ages 30-39, the rate was 6.27% — slightly higher than before COVID.

That said, let’s not forget there is an election in 18 months…

Meanwhile, bankruptcies filings are spiking:

JPM via The Market Ear

Workers Are Still Needed, but Many Small Businesses Have Slowed Hiring Entrepreneurs are being more cautious in response to shifts in the economy and rising wages.

The portion of small-business owners who expect to expand their workforce over the next year was below 50% for the second month in a row in May, hitting the lowest level since June 2020, during the early months of the Covid-19 pandemic, according to a recent survey conducted for The Wall Street Journal. (…)

Forty-five percent of entrepreneurs said in May they expect to expand their workforces in the next 12 months, according to the survey of nearly 500 small-business owners by Vistage Worldwide, a business-coaching and peer-advisory firm. That’s down from 47% in April, 58% in March and 59% in May 2022. (…)

Small-business hiring plans have been weaker on only two occasions since the launch of the survey in 2012: during the early portion of the Covid shutdown from April to June 2020 and the federal fiscal cliff crisis in 2012. (…)

Hourly earnings grew at the slowest pace in April since December 2021, according to Paychex, a small-business payroll processor. The slowdown is particularly notable in retail and hospitality, which have been driving recent wage gains, said Paychex vice president Frank Fiorille. (…)

The BLS measure of job openings declined 1.6 million or 14.6% so far this year through March. But job postings on Indeed have flattened since the end of March (through May 4).

The Return to the Office Has Stalled Offices remain half empty as companies settle into a hybrid work strategy that shows little sign of fading.

Views of U.S. Housing Market Reach New Depths

Twenty-one percent of U.S. adults believe it is a good time to buy a house, down nine percentage points from the prior low recorded last year. The 2022 and 2023 readings are the only times that less than half of Americans have perceived the housing market as being good for buyers in Gallup’s trend since 1978. (…)

Opinions of the housing market are bleak and generally similar among all major subgroups, including by region, urbanicity, homeownership status, income, education and party identification. Subgroups in these categories range from 18% to 24% thinking it is a good time to buy a house.

• Home Prices Rebound in Canada as Spring Market Picks Up Speed

The benchmark price for a home in Canada rose to C$723,900 (about $536,000), up 1.6% from March on a seasonally adjusted basis. Transactions surged 11.3% from the month before, but new supply of homes is near a 20-year low, according to data from the Canadian Real Estate Association.

After an abrupt rise in borrowing costs triggered a sharp correction in home prices last year, the Bank of Canada’s decision to pause rate hikes seems to be helping spark a turnaround. It means the cost of variable-rate mortgages is holding steady, while longer-term fixed mortgage rates have edged down recently due to a rally in government bonds.

In addition, Canada’s population is swelling — more than a million newcomers arrived last year — bringing attention once again to a shortage of housing stock and prompting some buyers to make aggressive bids. (…)

In the two most expensive markets, Toronto and Vancouver, some of the hallmarks of the 2021 real estate frenzy are showing up again — such as bidding wars, crowds at open houses and homes selling well above the asking price. (…)

However, Canada’s benchmark price remains 12.3% below its level a year ago.

In the U.S., the S&P Case-Shiller price index is down 4.9% from its June 2022 peak.

China’s Youth Unemployment Tops 20% Amid Signs of Stalling Recovery Retail sales, factory activity and fixed-asset investment all fell short of expectations, fueling chatter of monetary stimulus

(…) the most dramatic data point was the unemployment rate for Chinese people aged between 16 and 24, which rose to a record of 20.4% last month. That figure stood at 16.7% at the end of last year. (…)

On Monday, the People’s Bank of China kept interest rates unchanged for a ninth consecutive month. At the same time, the central bank issued a statement saying the country wasn’t suffering from deflation, though it acknowledged that weak demand had kept inflation low. (…)

Exuberance from the sudden lifting of strict Covid regulations late last year uncorked a gusher of service sector spending. But that burst of activity already appeared to be losing steam in April.

While retail sales, a proxy for consumption, jumped 18.4% in April from a year earlier, the magnitude of the increase was mainly attributable to the comparison with the year-earlier period, when a monthslong citywide lockdown in Shanghai snarled supply chains and hammered consumer confidence across the country.

The result also undershot expectations for a 20.5% increase among economists surveyed by The Wall Street Journal. When compared with March, consumer spending rose a mere 0.5% in April, according to the statistics bureau.

Spending on services has been the main driver of the recovery while spending on goods is lagging. That divergence continued in April, with sales of home appliances, furniture and other goods remaining in the doldrums, even as spending in restaurants continued to gather momentum, Tuesday’s data showed.

Factory activity also disappointed, falling 0.5% last month compared with March, reflecting softening export demand as retailers in the West dial back on new orders amid elevated inflation.

Growth in fixed-asset investments, including those in manufacturing, property and infrastructure, slowed unexpectedly in April, with investment made by private firms growing just 0.4% during the first four months of the year, slowing further from last year’s weak 0.9% rate.

Fixed-asset investment increased 4.7% from a year earlier in the January-to-April period, slowing from a 5.1% increase recorded in the first quarter and lower than the 5.3% growth anticipated by economists pulled by the Journal.

The drag from the real-estate sector, which suffered a sharp pullback through most of 2022, continued. Investment in China’s property market fell 6.2% in the first four months of the year compared with a year earlier, widening from a 5.8% decline in the first quarter.

In the labor market, China’s headline measure of joblessness—the surveyed urban unemployment rate—fell for a third straight month in April to 5.2%, the lowest level since late 2021. But that good news was overshadowed by a fourth straight month of rising joblessness among young people, who made up nearly 40% of service-sector employment before the pandemic, according to Louise Loo, China economist at Oxford Economics. (…)

China strongly benefitted from the U.S. Covid money shower since most goods consumed in the U.S are imported. It’s now paying the price for excess consumption and excess inventories.

Source: CEIC, ING

• Breaking up with China (Fortune)

In our new poll of Fortune 500 CEOs, we asked them which of the following three statements is true for their organization:

1. “We are reducing our exposure to the Chinese market because of concerns about political and reputational risk.”
2. “We are increasing our exposure to the Chinese market because of the business opportunity.”
3. “Our company is not involved with the Chinese market in a significant way.”

Forty-one percent answered No. 1, while only 20% answered No. 2 and 39% No. 3. That means companies with China exposure are now, by a factor of greater than two to one, trying to cut back. And their desire is only increasing over time: that 41% was 35% last year and 23% in 2021.

Divorce won’t be quick. Many Western companies have spent decades sourcing their manufacturing goods from China and increasing their investments there. Rebuilding supply chains and unwinding investments will take time. But it’s one more reason to think the 21st Century may not be the Chinese century after all.

China’s Demand for Oil Hits Record as IEA Raises Global Forecasts The outlook highlights widening divide between booming demand in the developing world and lackluster requirements in Europe and North America, the International Energy Agency said.

(…) In its closely watched monthly oil market report, the IEA raised its forecast for global oil demand growth this year by 200,000 barrels a day, to 2.2 million barrels a day. It said total demand would stand at 102 million barrels a day, 100,000 barrels a day more than it forecast last month.

China’s share of that increase, already expected to be large, appeared to be growing and “continues to surpass expectations,” the IEA said. The nation’s crude demand hit a record 16 million barrels a day in March while China will account for 60% of all oil demand growth this year, the IEA said. (…)

Oil demand in the developed nations that make up the Organization for Economic Cooperation and Development will grow by just 350,000 barrels a day this year, the IEA said—around 16% of the total expected oil demand growth. The rest, around 1.9 million barrels a day, will come from non-OECD nations, primarily in Asia.

As oil demand grows this year, the IEA expects the oil market to slip into a large deficit as oil producers struggle to keep pace. Demand is expected to exceed supply in the current quarter for the first time since early 2022, with that gap growing to around 2 million barrels a day by the end of the year.

For 2023, global supplies are expected to average 101.1 million barrels a day, 1.2 million barrels a day more than in 2022.

Recent steps by major oil producers have only added to that growing gap. A plan by some of the largest members of the Organization of the Petroleum Exporting Countries to cut production by more than a million barrels a day began this month. Meanwhile, oil producers in the U.S. have been reluctant to invest money in new production.

Those OPEC cuts could see output from the group and its allied producers—known collectively as OPEC+—fall by 850,000 barrels a day between April and the end of the year, the IEA expects. Meanwhile, output from non-OPEC+ nations is expected to rise by 710,000 barrels a day in that time. (…)

Meanwhile, supplies from Russia have remained stronger than expected, helping to further depress prices. Russian oil exports hit 8.3 million barrels a day in April, their highest level since the invasion of Ukraine in February 2022, as Moscow doesn’t appear to have fully followed through on a plan to slash output by 500,000 barrels a day, the IEA said. (…)

• Russian oil exports hit post-invasion high Almost 80% of country’s crude shipments flow to China and India, says IEA
• EU urged to crack down on imports of Indian fuels made with Russian oil

Investors Most Pessimistic So Far This Year, BofA Survey Shows A majority expect a downturn in the economy, the survey found.

The sentiment among fund managers deteriorated to the most bearish this year, with 65% of survey participants now expecting a weaker economy, BofA’s poll showed. At the same time, almost two thirds of investors see a soft landing as the most likely scenario for global economic growth and expect only a small contraction in earnings.

While cash levels rose to 5.6% in May, exposure to equities also climbed to the highest this year, while bond allocations are now the biggest since 2009, according to BofA. In a “flight to safety,” allocation to technology shares saw the biggest two-month increase since the global financial crisis and being long big tech is the most crowded trade.

• Bank credit crunch and global recession are seen as top tail risks, followed by high inflation keeping central banks hawkish, worsening geopolitics and systemic credit event

BACK TO REALITY

Led by CEO Masayoshi Son, the Vision Fund — anchored by $45bn from Saudi Arabia’s PIF — immediately became the world’s largest venture capital fund, hunting for, and often creating, the next “unicorns” (companies valued at more than $1bn) around the world. All told, the fund launched with more than $100bn, and through aggressive investments in companies like WeWork, Uber, DoorDash, Klarna, Flexport, Grab and many others, it quickly became a kingmaker for any company looking to raise investment and “blitz scale”.

At its peak, SoftBank’s funds had gained more than $66bn in value — gains that have since been wiped out despite a modest resurgence in tech stocks this year.

In order to cover these substantial losses, the company has resorted to selling its most profitable and notable holdings, going into “defense mode” in the last year. Last August, it announced the sale of its remaining stake in Uber and offloaded approximately $29 billion worth of its Alibaba shares last year as well. Indeed, the Japanese conglomerate confessed that it had “effectively” used all of its remaining shares in Alibaba for financing.

SoftBank now pins its hopes on the forthcoming Arm IPO, where it holds a 25% stake, as a potential source of additional funds, as it begins to aggressively pursue investments in AI.

And

• Tiger Global Wants to Sell Portions of its Empire

You can’t put a price tag on how badly some of Tiger Global’s big technology bets are performing — and therein lies the problem.

This weekend, the Financial Times reported that the massive hedge fund that collects tech startups like baseball cards is exploring opportunities to offer portions of its $40 billion portfolio to the so-called secondary market of private equity players. Figuring out how to value all that is going to be the tricky part.

Last year’s epic stock market tech rout is still pounding Tiger, long a true believer in Silicon Valley’s infinite-scalability hype cycles. Last year, Tiger marked down the value of its private company investments across all its venture-capital funds by an entire 33%, sources recently told The Wall Street Journal, reportedly erasing some $23 billion in value.

Meanwhile, Tiger’s flagship fund saw its value slashed by more than half in 2022 — amounting to its worst-ever annual loss. The slippage is even easier to explain on a more granular, case-by-case basis. A prime example: While raising capital for a new $5 billion venture fund last fall, Tiger told investors that its stake in Stripe, one of the manager’s marquee bets, was worth $1.6 billion as of June 2022. But when Stripe finalized a $6.5 fundraising deal just this March, it came in at a valuation of nearly half of what the company had raised at before — seemingly dooming, for now, a public debut once deemed fait accompli.

Plus many, many more under the radar…

Plus ça change…

Consumer Watch: Higher-income pullback

From the moderation seen last month, there were further signs of a slowdown in consumer spending in April. Bank of America aggregated credit and debit card spending per household slowed further to -1.2% year-over-year (YoY) in April, the first negative monthly YoY reading since February 2021.

Most noteworthy is a softening in spending on services to just +0.9% YoY. Until recently, services had been driving overall spending growth. The moderation last month, however, was broad based led by spending on airlines dropping by 4.5 percentage points to +0.9% YoY in April.

Despite the weak YoY growth rate, sequentially, total spending actually increased by 0.3% month-over-month (MoM) seasonally-adjusted (SA). Two factors to keep in mind are that spending was strong last April, an unfavorable base effect for this year’s YoY comparison, and the timing of Easter may also have been impactful. Easter Sunday was April 9th this year, compared to April 17th in 2022. Nonetheless, daily spending data following Easter looks softer.

The BofA analysis sees signs that the changing labor environment is having an impact on spending. Recall that recent data on unemployment claims through May 6 now exceed pre-pandemic levels:

We identified households receiving unemployment benefits through direct deposit and detected changes in trends across income cohorts. The number of unemployment benefits recipients among higher-income households increased over 40% in April from the fairly low levels a year ago. This was the fastest increase among all cohorts and five times more than the %YoY increase for lower-income recipients.

(…) The signs of weakness in the higher-income cohort claiming unemployment benefits is paralleled by a softening in wages and salaries data in this cohort as well. Exhibit 5 shows higher-income households saw after-tax wages contract by 1.3% YoY in April 2023 on a three-month rolling basis, the second consecutive month of negative growth.

Note that our wage data seems to be weaker than the average hourly earnings (AHE) from the Bureau of Labor Statistics’ nonfarm payrolls report. Besides sample differences, one possible explanation is that workers may not be experiencing the magnitude of wage inflation suggested by AHE because their work hours are also lower than a year ago.

Another factor is that our wage data includes bonuses, which could be driving the %YoY comparison for higher-income households lower as bonuses tend to see bigger fluctuations than base pay.

  

This weakening in the higher-income labor market, both in jobs and pay growth, appears to be driving some divergence in spending patterns across income groups. Exhibit 6, which shows the % change for discretionary spending per household on credit and debit cards relative to October 2022 and March 2023, confirms that higher-income household discretionary spending has remained below lower- and middle-income households. Moreover, higher-income households spent less in April compared with one year ago.

Why does this matter? The highest 40% of the households by income account for over 60% of overall consumer spending. So, a labor market slowdown driven by the higher end of the income scale could have an outsized impact on the overall economy.

As of now, the labor market is beginning to soften from a very buoyant initial position, so it will likely take quite some time before the full impact on consumer spending comes through.

Against the backdrop of softer spending, one positive for consumers is that their deposit balances remain elevated. Bank of America internal data on household savings and checking balances shows the median balance remains 40 to 70% higher than the average in 2019 across all income cohorts (Exhibit 8). (…)

Note that inflation has eroded savings’ purchasing power by 17% since 2019, 19% when only considering “essentials” (food, energy and shelter), which proportionately impact lower income households more.

The “good news” is that the gap between inflation on CPI-Essentials and core inflation is closing. The bad news is that core inflation has not fallen much.

BANKING WATCH

Crescat Capital warns:

Commercial and industrial loans just had one of their worst 2-month contractions in history. The only other times we have experienced a similar problem was during the three last economic recessions. While the annual growth of business loans remains positive, it’s crucial to emphasize the short-term changes given the developments of the recent banking crisis.

At a time when corporate fundamentals are weakening and the risk of a recession is looming, financial institutions are being compelled to tighten their lending conditions.

However:

• bank loans declined post SVB but are up since mid-April through last Friday, even at small banks. Deposits have also stabilized:

• “corporate fundamentals” seem to have stopped weakening per their earnings trends.

EARNINGS WATCH

Through May. 12, 457 companies in the S&P 500 Index have reported earnings for Q1 2023. Of these companies, 76.6% reported earnings above analyst expectations and 18.6% reported earnings below analyst expectations. In a typical quarter (since 1994), 66% of companies beat estimates and 20% miss estimates. Over the past four quarters, 74% of companies beat the estimates and 22% missed estimates.

In aggregate, companies are reporting earnings that are 7.0% above estimates, which compares to a long-term (since 1994) average surprise factor of 4.1% and the average surprise factor over the prior four quarters of 4.2%.

Of these companies, 74.1% reported revenue above analyst expectations and 25.9% reported revenue below analyst expectations. In a typical quarter (since 2002), 62% of companies beat estimates and 38% miss estimates. Over the past four quarters, 71% of companies beat the estimates and 29% missed estimates.

In aggregate, companies are reporting revenues that are 2.4% above estimates, which compares to a long-term (since 2002) average surprise factor of 1.3% and the average surprise factor over the prior four quarters of 2.3%.

The estimated earnings growth rate for the S&P 500 for 23Q1 is -0.6%. If the energy sector is excluded, the growth rate declines to -2.2%.

The estimated earnings growth rate for the S&P 500 for 23Q2 is -5.6%. If the energy sector is excluded, the growth rate improves to -0.3%.

Trailing EPS are now $219.77. Full year 2023: $220.09e ($220.87 last week). Forward EPS: $224.61e ($226.28).

Significantly, guidance has been very strong:

If analysts are right, the “earnings recession” will end next in Q2, having lasted 3 quarters and shaved S&P 500 EPS 8.0% in total, a little longer and a little worse for ex-Energy earnings.

More from Refinitiv:

Q1 saw a ‘semi-v’ shaped pattern in aggregate earnings over the last three months, which saw earnings growth reach a trough of -5.2% at the start of earnings season and has since dramatically improved to -0.7%.  If the remaining companies report an aggregate earnings surprise of at least 5.6%, the Q1 growth rate will turn into positive territory.  If this happens, it will be the first time since 2020 Q4 where the index went from a negative growth rate at the start of earnings season and ended in the green.

Exhibit 3 displays Q1 earnings growth in terms of earnings growth contribution, which provides a clearer way to understand which sectors were driving earnings growth this quarter.

Heading into the quarter, only four sectors were expected to deliver positive earnings growth contribution which was offset by Health Care and Information Technology – this can be seen in the blue bars.

The black bars (current values) show that all sectors except for Utilities delivered stronger earnings growth this quarter.  Information Technology saw the largest relative increase, followed by Consumer Discretionary and Health Care.

Exhibit 3: S&P 500 Earnings Contribution

On an absolute basis, we also show a list of the individual companies that had the largest positive (negative) earnings growth contribution this quarter (Exhibit 4).

Exhibit 4: Earnings Growth Contribution by Individual Company

Net profit margins peaked in 2021 Q2 (12.9%) and declined for six consecutive quarters to 10.7% last quarter.

The 2023 Q1 blended net profit margin (combining estimates and actuals) is currently forecasted at 11.1%, a slight tick-up from the 10.8% estimate at the start of earnings season (Exhibit 6).

Materials saw the largest increase in profit margin expectations this quarter (150 bps), followed by Information Technology (90 bps), and Consumer Discretionary (70 bps).  Utilities was the only sector to see its margin decline vs. the start of earnings season (-330 bps).

At an Industry Group, Banks (180 bps) saw the largest increase this quarter, followed by Materials (150 bps), Automobile & Components (120 bps), Software & Services (120 bps), and Consumer Services (110 bps).

Utilities (-330 bps) saw the largest decrease this quarter, followed by Insurance (-130 bps), and Financial Services (-40 bps) (Exhibit 7).

Full-year 2023 expectations have remained stable since April at 11.2%, while the forward four-quarter margin has modestly improved by 10 bps to 11.3%.

From a breadth perspective, we calculate the following datapoints (of the 419 constituents that have reported earnings):

• 48.9% of constituents saw their net margin increase vs. the prior quarter.
• 13.1% of constituents saw their net margin increase for two consecutive quarters.
• 3.6% of constituents saw their net margin increase for three consecutive quarters.
• 50.6% of constituents saw their net margin decrease vs. the prior quarter.
• 26.0% of constituents saw their net margin decrease for two consecutive quarters.
• 11.2% of constituents saw their net margin decrease for three consecutive quarters.
• 4.1% of constituents saw their net margin decrease for four consecutive quarters. (…)

Exhibit 6: S&P 500 Net Profit Margin

• Positive earnings surprises of this magnitude are rarely seen when you enter a recession. (The Market Ear)

Macrobond

TECHNICALS WATCH

• The 13-34-week EMA trend:

• The 200d moving average is now rising and its 50dma has risen above it. Ned Davis Research data says that, since 1929, the S&P 500 averaged +7.35% per annum when the 200dma was rising and +2.66% when it was falling. When the 50dma is above the 200dma, the average annual gain is 8.77% vs +0.16% when it is below.

• However, the equal-weighted S&P 500 (RSP) is not showing quite the same trends:

• Since March 8 (SVB) through Friday’s close, the S&P 500 is up 3.3% while the equal-weighted index is down 3.4%.
• The Russell-to-NASDAQ 100 ratio is back to COVID crash lows

@Mayhem4Markets

• Another area of weakness/vulnerability (in contrast to the big tech stocks — which have driven $QQQ up almost 23% YTD), has been the smallest part of the market: micro cap stocks. Basically another sign that outside of the big tech passive-flow perma-strength, all is not well. (Callum Thomas)

Source:  @TimmerFidelity

POLITICAL PARALYSIS

In his recent Thoughts from the Frontline, John Mauldin wrote:

If I had to summarize US politics and policy in one word, it would be “paralyzed.” (…) This paralysis is a function of our divided opinions, or perhaps our inability to make up our collective minds. To some degree this has always been the case, but to us it seems worse. (…)

Here’s an illustration Bruce Mehlman shared at SIC. The circles are election years since 1960 in which voters handed the House, Senate, and/or White House to a different party.

Source: Bruce Mehlman

In the 20 election years from 1960‒1998, the same party kept control of all three branches in all but 7 times. But in this century, at least one branch changed control in all but two.

Constantly changing leadership means constantly changing plans and priorities. It’s no wonder nothing is getting done, but also a problem because we have important challenges. Failure to address them means they get worse, making people even more dissatisfied. This leads nowhere good.

Using real GDP per capita, we see that the growth rate of the U.S. economy resumed its previous pace after every recessionary setback since 1960 except after the GFC. Is it just a coincidence that 9 of the last 11 elections resulted in a change in management, 7 of the last 8?

True, the 2008-09 recession was worse than the 1974-75 recession, -5.1% vs -4.2% from peak to trough, but the monetary and fiscal responses were much stronger after the GFC, which should have allowed for a swift and powerful recovery.

Some may argue that the medicine was ill-conceived, inappropriate and actually counter productive, but Mehlman’s point of a lack of vision and direction due to constant management changes is certainly not without merit, is it?

Every American is directly and personally impacted: real GDP per capita, which measures the wealth of the average citizen, has grown 1.7% per year between 2010 and 2019, 26% slower than the 2.3% consistent CAGR achieved between 1960 and 2007.

Were USA Inc. a listed stock, its P/E would merit a discount.

Per Gallup, only 16% of Americans currently approve the way Congress is handling its job, down from 47% at the trough of the 1974 recession.

To another question, “How much trust and confidence do you have at this time in the legislative branch, consisting of the U.S. Senate and House of Representatives — a great deal, a fair amount, not very much or none at all?”, 62% answered “not very much” (39%) or “none at all” (23%). That compares with 35% at the trough of the 2001 recession.

The American public knows there is a problem…but can’t seem to effectively deal with.

• Howard Marks: “Now, we are faced with the possibility of having an election where the majority of Democrats don’t want Biden, the majority of the Republicans don’t want Trump, and the majority of Americans don’t want a Biden-Trump election.”