Author Archives: Lenore Hawkins, Chief Macro Strategist

About Lenore Hawkins, Chief Macro Strategist

Lenore Hawkins serves as the Chief Macro Strategist for Tematica Research. With over 20 years of experience in finance, strategic planning, risk management, asset valuation and operations optimization, her focus is primarily on macroeconomic influences and identification of those long-term themes that create investing headwinds or tailwinds.
Q1 GDP . . . Don’t Break Out the Champagne Quite Yet

Q1 GDP . . . Don’t Break Out the Champagne Quite Yet

This morning we received the first estimate for Q1 2019 GDP, and it looked at first glance to be considerably better than was expected with the economy expanding at a 3.2% annual pace versus consensus expectations for 2.3% and growth of 2.2% in Q4 2018. Just don’t break out the champagne quite yet as right away we see reasons to dig deeper.

Net exports plus a build-up in inventories contributed 1.68% to GDP. That’s the biggest bump in 6 years and muddies the economic waters. We’ve now had three consecutive quarters of buildup in nonfarm inventories, likely in defense against further tariff increases. That buildup is a pull forward of growth from the future. The 103-basis point contribution from net exports in the face of ongoing cuts to global growth makes this unlikely to continue. The 46% annualized increase in food exports looks to be more about trade wars than sustainable improvements in trade. Despite the government shutdown, government spending, (primarily at the state and local level) contributed 41 basis points, driven primarily by 35 basis points at the state and local level in “Gross investment.” Given the condition of most government budgets, this isn’t sustainable.

Digging further into the details we find areas of weakness that are more in line with the weaker expectations:

  • Final sales to private domestic purchases fell to the weakest level since Q1 2016.
  • Disposable personal income was the weakest in 6 quarters.
  • Real consumer spending slowed to 1.2% on an annual basis, the weakest rate in a year with spending on those big ticket “durable goods” items falling -5.3%, the worst pace since the end of 2009.
  • Gross domestic purchases were the weakest in 3 years.

On the plus side, durable goods orders grew at the fastest pace in 7 months with a sign that business investment is rebounding. Perhaps on the hope that those China trade talks might actually get somewhere beyond hopeful sound bites that something wonderful is right around the corner? The bigger picture year-over-year factory orders data is less rosy, painting a picture of more slowing. Keep in mind that orders can be cancelled. Shipments for capital goods on a year-over-year basis is solid, but has been consistently slowing.

For a different view on the economy, we can look at how 3M (MMM) and Intel (INTC) have fared, both of whom are bellwether cyclicals. Both companies have seen their shares get pummeled recently thanks to their less-than-rosy outlook. Take a look at United Parcel Service (UPS) whose profits are down 17%. What can be more reflective of the economy than deliveries?

So far Q1 earnings are at a -3% year-over-year decline and Q2 forecasts are expected a -0.5% decline. At the start of the year, expectations were for both to be in positive territory. At the same time, the major market indices have managed to break through to new highs with the Nasdaq up 22% and enjoying its best year since 1991 and the S&P 500 up around 17% and enjoying the best performance since 1987. Then again, look at how 1987 ended. The market’s rally so far this year has been all about multiple expansion, rising from 16.5x to 18.7x on a trailing basis.

As the Federal Reserve once again indicates that it has the market’s back, the S&P 500 has decided that the economic data just isn’t all that relevant.

Yes, jobless claims are still exceptionally low by historical standards, but we always look for confirming data points and we aren’t finding them.

  • The Household Survey found that employment has contracted by 197k since the start of the years.
  • The nonfarm payroll report showed slowing of hiring at temporary employment agencies. This figure tends to be a leading indicator as companies often first fill a roll with a temp before committing to a full-time position.
  • The JOLTS (Job Openings Labor Turnover Survey) report for February was overall the weakest since 2013.
  • The latest Manpower report saw hiring intentions declined for the second quarter of 2019.
  • The Challenger, Gray and Christmas report found that announced job cuts are up 35.6% year-over-year for the first quarter and the worst first quarter since 2009.
  • Finally, while initial jobless claims do remain very low, this year they have risen above where they were the same time last year, possibly indicating a shift in momentum.

For a different look on how the consumer is faring, household formation declined in the first quarter – the kids are back to living at home with mom and dad. Mortgage originations at Wells Fargo (WFM), the nation’s fourth largest bank by assets, declined 23% year-over-year in the first quarter and 18% and JP Morgan (JPM), the nation’s largest bank by assets. In fact, revenues at Wells fell across all business lines with profits only coming as a result of cost reductions. Today’s GDP report saw residential construction decline -2.8% on an annual rate, the fifth consecutive quarterly decline.

Let’s keep this simple and just look at growth in the major parts of the private sector on an annual basis – consumer spending, housing, nonresidential construction, business capital spending:

  • Q2 2018 4.0%
  • Q3 2018 3.0%
  • Q3 2018 2.3%
  • Q1 2019 0.9%

Tell me again how the economy is growing like gangbusters?

The Datafication of Everything

The Datafication of Everything

Another aspect of our Connected Society is the datafication of nearly every aspect of our lives and the use of that data. As the cost of data storage and transmission rapidly slides towards zero and the cost of data collection devices also declines dramatically, more and more of our daily activities are being turned into opportunities for data collection.

A recent article on Bloomberg discussed how the aggregate number of mobile phone signals is being used to provide insight not just on consumer behavior, but on manufacturing plants and oil refineries.

While most geolocation data use has focused on consumer-facing businesses such as retailers, hotels and amusement parks, “valuable insights can be gleaned from the data by examining activity at specific manufacturing facilities,” said Octavio Marenzi, co-founder of Opimas LLC, a capital markets management consultant. Thasos Group has used the data to show increases in shifts at Tesla Inc.’s factory in Fremont, California, the Wall Street Journal reported.

As more and more data is produced from our every day activities and the devices that improve our lives, industries are developing to turn that data into actionable information. These are companies that sit at the intersection of our Connected Society and Disruptive Innovators investing themes.

Source: Oil Traders Are Now Watching Workers’ Phones to Spot Problems at Refineries

Airbnb outpaces Hilton

Airbnb outpaces Hilton

A recent post on Recode reported that,

US consumers spent more money on Airbnb last year than they did on Hilton and its subsidiary brands like DoubleTree and Embassy Suites, according to new data from Second Measure, a company that analyzes billions of dollars in anonymized debit and credit card purchases. Their Airbnb spending is even catching up to Marriott, the world’s largest hotel company, which added to its revenue by acquiring Starwood hotels in 2016.

Airbnb, which is expected to go public next year, sits at the intersection of our Connected Society and Middle-Class Squeeze investing themes and illustrates that while we continue to point out why investors need to we aware of rising risk levels in the stock market, there are still plenty of areas that are experiencing significant growth.

According to data from Second Measure, Airbnb experience 30% growth in the US consumer market, with much of that growth coming from travels who live in the heartland area of the US with only a third of US consumers coming from the coastal states such as California and New York.

Even more impressive is that while many of these tech unicorns have failed to breakeven, Airbnb has reportedly generated positive EBITDA for two years.

While the overall markets look to be overpriced relative to fundamentals and if history is any teacher, the overall outlook for equity returns in the coming years is likely to be grim. That being said, there are still plenty of areas that will benefit from the long-term and powerful tailwinds in our investing themes.,

Source: Airbnb just beat Hilton in US consumer spending  – Recode

In the Midst of Rising Unknowns, Focus on What We Do Know

In the Midst of Rising Unknowns, Focus on What We Do Know

As someone famous (or infamous depending on your leanings) once said, “there are known knowns….there are known unknowns…but there are also unknown unknowns.”

We’ve got a whole lot of the second two going around these days and that is not good for growth. Life and investing requires dealing with uncertainty to be sure, but holy cow these days investors and businesses are facing a whole other level of who-the-hell-knows and that is a headwind to growth.

  • The bumbling battle over Brexit
  • China’s earnings recession
  • Slowing in Europe
  • Yield curve inversions
  • Record levels of frustration with Capital Hill
  • The Cost of Corporate Uncertainty
  • The battle over the GDP pie
  • Beware Reversion to the Mean


The United Kingdom, in or out? The mess that has become of Brexit is wholly unprecedented in modern history. As of March 29th, the day the UK was set to leave the EU, Brexit has never been more uncertain nor has the leadership of the UK in the coming months. This graphic pretty much sums it up.

Many Brits are unhappy with the state of their nation’s economy and are blaming those folks over in Brussels, as are many others in the western world – part of our Middle Class Squeeze investment theme.


Its economy is slowing, but just how bad it is and just how dire the debt situation in the nation is difficult to divine given the intentional opacity of the nation’s leadership. The ongoing trade negotiations with America run as hot and cold as Katy Perry depending on the day and when you last checked your Twitter feed.

Most recently China’s industrial profits fell 14% year-over-year in the January and February meaning we are witnessing an earnings recession in the world’s second largest economy.


Last week the markets ended in the red, driven in part by weaker than expected German manufacturing PMI from Markit with both output and new orders falling significantly – new orders were the weakest in February since the Financial Crisis.

Markit German Manufacturing PMI

It wasn’t just the Germans though as the French Markit Composite Index (Manufacturing and Services) dropped into contraction territory as well in February, coming in at 48.7 versus expectations for 50.7, (anything below 50 is in contraction). The French PMI output index is also in contraction territory.

This led to the largest one-day decline in the Citi Eurozone Economic Surprise Index in years, (hat tip TheDailyShot).

Yield Curve Inversion

This pushed the yield on the German 10-year Bund into negative territory for the first time since 2016 while in the US Treasury market, the 10-year to 3-month and 10-year to 1-year spreads went negative – an inverted yield curve which has been a fairly reliable predictor of US recessions. The 10-year 3-month inverted for the first time in 3,030 days – that is the longest period going back over 50 years. The Australian yield curve has also inverted at the short end.

No Love for Capital Hill

Americans’ view of their government is the worst on record – another manifestation of our Middle-Class Squeeze Investment theme. Gallup has been asking Americans what they felt was the most important problem facing the country since 1939 and has regularly compiled mentions of the government since 1964. Prior to 2001, the highest percentage mentioning government was 26% during the Watergate scandal. The current measure of 35% is the highest on record.

Few issues have every reached this level of importance to the American public: in October of 2001 46% mentioned terrorism; in February of 2007 38% mentioned the situation in Iraq, in November 2008 58% mentioned the economy and in September 2011 39% mentioned unemployment/jobs.

While America appears to be more and more polarized politically, the one thing that many agree upon, regardless of political leanings – government is the greatest problem.

It isn’t just the US that is having a tiff with its leaders. Last weekend over 1 million (yes, you read that right) people protested in London calling for a new Brexit referendum – likely the biggest demonstration in the UK’s history and then there are all the firey protests in France.

The Cost of Corporate Uncertainty

When companies face elevated levels of uncertainty, they scale back and defer growth plans and may choose to shore up the balance sheet and reduce overhead rather than invest in opportunities for growth. So how are companies feeling?

A recent Duke CFO Global Business Outlook Survey found that nearly have of the CFOs in the US believe that the nation will be in a recession by the end of this year and 82% believe a recession will have begun before the end of 2020.

It isn’t just in the US as CFOs across the world believe their country will be in a recession by the end of this year – 86% in Canada, 67% in Europe, 54% in Asia and 42% in Latin America.

All that uncertainty is hitting the bottom line. Global earnings revision ratio has plunged while returns have managed to hold up so far.

It isn’t just the CFO that is getting nervous as CEOs are quiting at the highest rates since the financial crisis – getting out at the top?

The GDP Pie

To sum it up, lots of unknowns of both the known and unknown variety and folks are seriously displeased with their political leaders.

So what do we actually know?

We know that US corporate profits after tax as a percent of GDP (say that five times fast) are at seriously elevated levels today, (nearly 40% above the 70+ year average) and have been since the end of the financial crisis. No wonder so many people are angry about the 1%ers.

Corporate profits have never before in modern history been able to command such a high portion of GDP. This is unlikely to continue both because of competition, which tends to push those numbers down and public-policy. If the corporate sector is going to command a bigger piece of GDP, that means either households or the government is going to have to settle for a smaller portion.

It isn’t just the corporate sector that has taken a bigger piece of the GDP pie. Federal government spending to GDP reached an all-time high of 25% in the aftermath of the financial crisis and has remained well above historical norms since then.

Given the level of dissatisfaction we discussed earlier concerning Capital Hill, it is highly unlikely that we will see a reduction in government deficit spending. When was the last time a politician said, “So you aren’t satisfied with what we are doing for you? Great, then we’ll just do less.”

That leaves the households with a smaller portion of the economic pie – evidence of which we can see in all the talk around how wage growth remains well below historical norms.

Reversion to the Mean

Given the current political climate, it is unlikely that government spending as a percent of GDP is going to decline in any material way, which leaves the battle between the corporate and household sector. Again, given the current political climate (hello congresswoman AOC) it is unlikely that the corporate sector is going to be able to maintain its current outsized share of GDP – the headlines abound with forces that are working to reduce corporate profit margins and as we’ve mentioned earlier, global earnings are being revised downward significantly. If the corporate sector’s portion of GDP falls to just its long-term average (recall today it is 40% above and has been above that average for about a decade), it would mean a significant decline in earnings.

The prices investors are willing to pay for those earnings are also well above historical norms.

Today the Cyclically Adjusted PE Ratio (CAPE) is 82% above the long-term mean and 93% above the long-term median. What is the likelihood that this premium pricing will continue indefinitely? My bets are it won’t.

The bottom line is that the level of both corporate profits and what investors are willing to pay for those profits are well outside historical norms. If just one of those factors moves towards their longer-term average, we will see a decline in prices. If both adjust towards historical norms, the fall will be quite profound.

Why Goldman Sachs Is Interested in a Small Bike Shop in Mexico – WSJ

Why Goldman Sachs Is Interested in a Small Bike Shop in Mexico – WSJ


Goldman Sach’s (GS) recent move into the more entrepreneurial side of Mexico via a credit line of up to $100 million to a four-year old fintech firm (Creditjusto) that specializes in making 3-year loans to small businesses is yet another aspect of our Rise of the New Middle Class. Advances in both technology and in finance are enabling individuals and small companies in emerging markets to access resources that had been previously completely unobtainable. This is allowing for access to the tools of wealth creation across a wider range of society, providing a tailwind for our Rise of the New Middle-Class Investing theme.

According to a recent WSJ article,

The bulk of lending by Mexican banks targets large corporations, home mortgages and consumers, according to the Bank of Mexico. More than 80% of Mexican small businesses rely primarily on supplier financing, not bank credit, Banxico said.

This is changing however, fueling the fires of innovation and entrepreneurship in countries in which such growth was limited.

A host of new online lending platforms and supply-chain financing services have popped up in recent years in Mexico to help fill the void, said Andres Fontao, a co-founder and managing partner of Finnovista, a firm that advises fintech startups.

As companies like Creditjusto expand, offering needed capital to fund growth, so will Mexico’s Middle Class. As the Wall Street Journal points out,

Goldman’s involvement is a reminder of how small fintech companies are challenging and reshaping the banking industry, especially in developing markets like Latin America.

Source: Why Goldman Sachs Is Interested in a Small Bike Shop in Mexico – WSJ

Markets Stalling Despite Central Banks’ Support

Markets Stalling Despite Central Banks’ Support


The early equity market strength in 2019 has many on financial television claiming we are off to the races yet again (shock) but taking a step back and looking at both the internals of the markets and the longer-term economic and geopolitical trends, we see more signs of weakness and rising risks.

  • Sideways Equity Markets Persist as First Quarter GDP Growth Expectations Remain Poor and Yields Fall
  • Brexit Uncertainty Worse Today with Just Two Week Until Brexit Day (March 29th)
  • Further Signs of Both Domestic and Global Slowing
  • Labor Market Concerns
  • The Impact of Record Levels of Corporate Debt


Equity and Fixed Income Markets Diverge

While the early part of 2019 the markets were going like gangbusters after the worst December in decades, the markets have been directionless in recent weeks.

For all the talk of an ongoing bull market that the prior chart would support, the total return for the index is basically flat since late January 2018 – nearly 14 months of nada. Not quite so exciting for the long-term investor when you take a step back even though the ups and downs have offered traders short-term opportunities.

During that same time, the yield on the 10-year US Treasury has fallen, after having risen to over 3.2% last November. Today it sits a mere 10 basis points above the high end of the Federal Reserve’s target Fed Funds rate, which means the bond market is pricing in negligible economic growth. That’s a cue for the Atlanta Fed GDPNow forecast for the current quarter that clocks in at all of 0.4%, well below the 1.4% consensus tallied by The Wall Street Journal. The 10-year Treasury yield is near its 2019 low while the S&P 500 hits a 2019 high – that ought to have your attention.

The biggest driver for equity markets lately has been expectations around the Federal Reserve’s next steps and the push-pull on a US-China trade deal. Rather than being in the midst of a rate hike cycle, as was the case towards the end of last year, the Fed funds futures market is pricing in 25% odds of a rate cut by year’s end versus just 7% odds a month ago. A very different outlook compared to this time last year, and one that suggests the market is increasingly concerned about the speed of the economy and the rising risk of the next recession.

The Russell 2000, a small cap index, whose constituent’s revenues are more domestically driven than the S&P 500 also reflects the markets low expectations for economic growth as the index remains nearly 11% below its August 2018 high and sits about where it was at the end of November of 2017. The message here is don’t be lulled into a false sense of security given the near 15% increase in that index thus far in 2019.

The Nasdaq Transportation Index paints a similar picture.


Bumbling Brexit

In this time of political polarization across much of the developed world, from riots in Paris to efforts to secede in Spain, I think there is one thing we can all agree upon – the UK’s Prime Minister Theresa May is having a bad year. Much of the developed world is facing a rise of populism, driven by the forces behind our Middle-Class Squeeze investment theme, as the countless promises political leaders have been making for decades are not being fulfilled and people, particularly those mounting financial pressures, are angry. In the UK that manifested itself in a desire for more autonomy with a side helping of anti-immigrant nationalism.

After Mrs. May suffered a record-breaking 230-margin rejection of her Brexit deal in January, she endured yet another defeat this week by a margin of 149 votes in the House of Commons. The uncertainty around Brexit has never been higher.

Confused by it all? You aren’t alone as I’m pretty sure many members of Parliament are as well! Here is the short(ish) version of what it all means.

The deal Mrs. May has worked out with the European Union has been utterly rejected and on March 13th Parliament voted that it will not exit the European Union without an agreement. So, they won’t agree to her deal – the only deal on the table – nor will they leave without some sort of deal. Eh? What this means is that now the UK has to go back to the EU leadership and ask for an extension to Article 50, the formal exit process which set the deadline for March 29.

EU leadership has indicated that they aren’t terribly excited about granting an extension if there is no clear reason to believe that an extension will actually be useful. If the same folks are just going to make the same arguments with the same non-negotiables, then what’s the point? Does your head hurt like mine?

Anything is possible now from a hard-Brexit in which the UK is forced to exit the EU under Article 50 without any deal because the EU won’t grant an extension to an extension that leads to a new referendum that results in the UK remaining in the EU.

The bottom line is that the market has absolutely no idea how to price in anything about this mess. Depending on what happens in the next few days, the markets could get suddenly quite volatile as we get closer to that deadline without any resolution.


Domestic and Global Slowing

Last week the European Central Bank cuts its guess estimate for 2019 GDP growth to 1.1% from 1.7% with ECB President Mario Draghi shifting towards easier monetary policy by reviving the “Targeted Longer-Term Refinancing Operations,” which is a lending program with favorable interest rates that props up the weak and weakening banking system  supports liquidity in the region. In a testament to his own genius, Draghi stated that negative rates “have been very successful for the ECB and were a powerful instrument in fostering a recovery.” For a discussion on just how destructive helpful this policy has been in the region, listen to this Tematica’s Cocktail Investing podcast late last year to hear boots on the ground stories of the havoc stimulus these policies provide.

On the plus side, Eurozone Industrial Production surprised to the upside at 1.4% versus 1% with the Citibank Economic Surprise Index for the region showing signs of improvement after having been in negative territory for over two years with the exception of a brief foray above zero in the August/September period in 2018.

Forecasts for US growth in the first quarter from the Atlanta Fed have ranged from 0.2% to 0.5% during the month to sit at 0.4% as of March 13th. The range of estimates from the Blue Chip survey is between slightly over 2% to 0.7%.

The stalling out trade talks with China provide an additional headwind to a domestic economy that is already forced to contend with weakening global growth.

The utter mess of Brexit provides even more headwinds.

Taking a step back to look at the world’s major economies, if we look at the US, Canada, Brazil, Italy, Germany, the UK, France, India, China, and Japan, 9 out of those 10 were experiencing growth in the last quarter of 2018. The one exception being Italy. The problem is that growth was weaker than the prior year. The only country that saw acceleration was the US, and the tailwinds for that are fading.

A full 8 of the 10 experienced slower real year-over-year GDP last quarter and Italy is in official recession territory. In Canada final domestic demand has fallen for two consecutive quarters – the last time we saw this the Bank of Canada cut rates twice for the year.

How long can the US fight off the slowing of the rest of the world?


Labor Market – Should We Worry?

Payroll reports in February reverse the January contradiction which we discussed in this prior issue of Context and Perspectives. In January the Payroll report was quite strong while the Household Survey was weak – for February the two reversed rolls and we saw some obvious impacts from weather and the end of the government shutdown. Taking a step back we get a broader, longer-term picture of the two. Of the 255k added to the Household survey payrolls in January, 90% held just a high-school education. In February that 255k gain reversed to a 251k loss. On a bright note, those working part-time for economic reasons fell 837k, the single biggest decline in that metric since January 1994 – great! But then on the downside, the 25-54 years-old cohort has seen its payroll ranks decline by 52k in the past four months – not so great.

While the February headline payroll number saw just a gain of 20k versus expectations for 180k – the weakest gain since September 2017 – January’s numbers were revised up from 304k to 311k and December’s were also revised up from 222k to 227k. Those are solid numbers. But then (you knew this was coming, right?) aggregate hours worked decline -0.3% in February to the lowest level in 3 months. Rising hours worked indicate future payroll growth while falling hours, not so much.

Overall the labor market looks like growth has been or is topping out. Employers are feeling the pressure, which isn’t necessarily a good thing for households as Jonathan Pain points out on Twitter.

Corporate Margins Under Pressure

Wage growth in February hit 3.4% year-over-year in February, which means pressure on corporate margins, but that isn’t the only thing pressuring margins. A recent OECD report revealed that over $4 trillion in non-financial corporate debt will be rolling over in the next three years out of the total $13 trillion outstanding (31%). Net issuance of non-financial corporate debt fell to the lowest volume since 20008 and the net issuance of non-investment grade turned negative in 2018. The only other time this has happened in the past 20 years was in 2000. The overall share of BBB rated bonds has reached 54%, the highest ever on record going back to 1980.

So, what does that all mean? That at a point of slowing global growth, companies are facing higher labor costs and are having to roll over some 31% of total outstanding debt in the next few years at higher rates – further pressuring margins.


The Bottom Line – Details Matter

The bottom line is the prevailing narrative is that the recent “soft patch” of economic data is temporary and that what really matters to the economy and the markets is the Federal Reserve. While the S&P 500 has pushed through 2,800 again (just barely) the first time it did so in early 2018 one quarter of the stocks in the index were making new 52-week highs. Today less than 9% are in that territory. Back then the average S&P 500 stock was 5% below its high. Today it is 14% below.

Not convinced? Last week’s Fed Beige Book reported that Broadway ticket prices, one of the most reliable leading indicators, “were down 5-6 percent from a year earlier.” The last time a drop of this magnitude happened was December 2007 when “Average ticket prices for Broadway shows rose less than usual this past December and were down more than 5 percent from a year earlier.”

Still thinking this is a temporary patch of weakness? How about the Federal Reserve’s Lael Brainard speech on March 7th which she concluded with, “The most likely path for the economy appears to have softened against a backdrop of greater downside risks.”

To paraphrase Eric Clapton, not even Lael will ease my worried mind.

Liquidity Trumps Fundamentals

Liquidity Trumps Fundamentals


The market has been back in risk-on mode but with some strange internals as well as an ongoing disconnect with fundamentals. It has priced in a joyous cornucopia of Goldilocks assumptions:

  • A return to global central bank liquidity and price supports
  • A reversal of China’s deleveraging campaign with an abundance of stimulus measures
  • A peaceful and prosperous end to global trade wars
  • An elegant resolution to Brexit
  • Never mind India and Pakistan


The Party is Back On, But the Music Sounds Off

Heading into the last month of the quarter, let’s review what we’ve seen over the past few months. Just over 50 days ago the Nasdaq was in a bear market, but in the past two months it has shot up over 21% to sit about 7% below the September high and is currently above both its 50-day and 200-day moving averages which is typically viewed as being in a solid uptrend. As of the US market’s close on Thursday the Dow Jones Industrial Average was up nearly 19% from the December low (3.4% below its high), the S&P 500 up nearly 19% (5.0% below its high) and the broader NYSE Composite Index up just under 18% (4.5% below its high).

All the major indices remain below their Fall 2018 highs but are within range. However, upward momentum has stalled recently with the majority of the major US indices relatively flat or down since last Friday. This looks to be the fourth failed attempt by the S&P 500 to break 2,800 in the past four months indicating a significant overhead resistance level.

As we can observe in the chart above, the domestic stock market indices experienced the worst December since 1931 followed by the best January since 1987, leaving many with a general sense of unease. Let me be clear, these moves are not indicative of market normalcy. Something is very different, and it doesn’t feel quite right to me or to Tematica’ Chief Investment Officer Chris Versace. For example, it doesn’t feel like a normal bull market when Utilities have outperformed transports over the past year by over 15%. It doesn’t feel like a normal market when a growing number of companies are slashing their dividends while share prices continue to move upwards.

Then there is the disconnect with earnings and yields. As of the end of last week, 89% of companies in the S&P 500 had reported results for the December quarter with 69% reporting EPS above estimates, below the 5-year average. Analyst expectations for 2019 are for a decline in first quarter earnings of -2.7% with a meager 0.7% increase in the second quarter and just 2.2% growth in the third. For 2019 in full, the S&P 500 group of companies are now only expected to grow their collective EPS by 4.7%, more than 50% below forecasted levels at the start of the December quarter, yet share prices are rising.

We’ll also just have to ignore that the Citi Global Economic Surprise Index is right around where it was at the December market lows and has now been below zero for over 230 days, a record exceeded only during the financial crisis. The nominal manufacturing and non-manufacturing ISM has declined for the past 3 consecutive months and sits 13% below where it was when the 2008 recession began and is 19% below the 2000 recession.

In the battle between fundamentals and central bank liquidity so far, the bankers are winning big.

While this last one is certainly utterly useless as far an indicator of when a market may turn, it does put the current state of the stock market into perspective. The last time the market was in such heady territory the overall, (in the dotcom mania of 1999-2000) returns for the stock market for the following decade were quite grim with positive returns more dependent on specific asset selection than overall market bullishness – one of the reasons we are so focused on powerful long-term investment themes driven by structural changes.

The stock market rally thus far in 2019 hasn’t been just in the US as European stocks are enjoying their best start to a year since 2015, despite slowing economies and the mess of Brexit. The Stoxx Europe 600 has gained over 10% so far this year, gaining nearly as much as the S&P 500. We’ll also just have to ignore that Europe’s largest bank, HSBC, reported results earlier this month that missed analysts’ expectations with the bank’s CEO stating that revenues “collapsed” at the end of the year. There I go again with fundamentals!


Taking a Dip Back in that Central Bank Pool

While the markets have cheered the Fed’s cessation of its rate hike plans, it is worth keeping in mind that the US Federal Reserve has never stopped tightening with a funds rate this low. More than 10 years after the depths of the financial crisis and the economy cannot withstand getting near normal interest rates.

“And so, you know, when I think about the projection, I’m projecting 2 percent growth right now for 2019. That’s a number that is quite a bit slower than last year, which looks like – you know, barring any big surprises in the fourth quarter looks to come in around 3 percent. So that would be a percentage point difference in last year and 2019. That’s a pretty substantial slowdown…..If the economy evolves as I just said I expect it to – 2% growth, 1.9 % inflation, no sense that it’s going up, no sense that we have any acceleration – then I think the case for rate increases is not there. “

– Mary Daly, head of San Francisco Fed in WSJ interview


The markets are embracing the Fed’s far more dovish view on rate hikes that is driven by the Fed’s concern the US economy will return to its significantly weaker growth rate. That doesn’t sound like a great reason to break out the bubbly. We will be watching for signs that the better-than-expected fourth quarter GDP growth of 2.6% gives the Fed reason to believe higher rates are possible knowing that they’d like to get rates up higher to have more arrows in the quiver for the inevitable downturn. Given the data of late, however, the odds at least in the near-term for an additional rate hike seem rather low.

One of the major challenges facing the Fed when it comes to raising rates is part of our Aging of the Population investing theme – the reality that Social Security is expected to run out of money in 12 years, according to the Congressional Budget Office. The problem with raising rates is that the US is running exceptionally large fiscal deficits. Higher rates mean more of the budget goes to interest expense, bringing the problems with Social Security even more quickly.

Central banks around the world continue to feel the need to support asset prices after one of the longest bull markets in history and one of the longest periods in history without a recession, (in part because of the rampant levels of deficit spending and unfunded payables to their nation’s retirees). Call me crazy, but that doesn’t sound fundamentally bullish.

“There might be scope for another TLTRO.”

– European Central Bank Board member (and one of Mario Draghi’s possible successors when the latter’s term runs out on October 31) when discussing the idea of issuing new multi-year cheap loans to banks when the current Targeted Long-Term Refinancing Operation (TLTRO) nears its repayment date in 2020.

Once again investors have been taught that dips are a buying opportunity and implementing portfolio protection can go very wrong. Investors have been getting this lesson pounded into them for over 10 years now with many in the markets never having experienced a sustained market downturn. That is worrisome if you believe at all in reversion to the mean. Equity price growth has grossly outpaced economic growth – how long can that last? In today’s market to not participate is to seriously risk missing out, but just when do we pay the piper and are enough market participants paying attention to the rising risks?

While investors are keeping their eyes on the markets, our Middle-Class Squeeze investment theme continues to illustrate that all is not rosy for many as is evidenced by the rising populism around the world.


China’s Policy Shifts into Reverse

Last year China was working to deleverage its highly leveraged economy, just how highly leveraged is up for debate as its leadership isn’t exactly keen on transparency. China’s leadership is eternally under pressure to keep economic growth robust, making the nation one of the participants in our New Global Middle-Class investment themes.

The deleveraging efforts, the trade war with the US and the overall slowing global economy led to China’s economy growing at the slowest pace in nearly 30 years in 2018. China’s February manufacturing PMI fell to its weakest level since early 2016 and was the third consecutive month of contraction. Export orders are now slowing at the fastest pace since the global financial crisis and imports PMI is at the lowest level in over a decade.

With all that weakness China has reversed course on its deleveraging, but not everyone is on board with efforts that led to record lending of $530 billion in new loans in January alone. We saw a rare public row between the central bank and Premier Li Keqiang with the former stating clearly that it will continue efforts to deleverage while the latter argued that a sharp rise in rates creates new potential risks.

Both China and the US, the two largest economies in the world, have witnessed public rows between national leaders and central banks concerning risks around leverage and economic weakness.

The markets are unsurprisingly placing their bets with rising liquidity as Chinese stocks enjoyed their best day since 2015 earlier this week. The biggest concern regarding financial stability and future economic growth potential is China’s ballooning debt. Its official corporate debt level is among the highest in the world and its public debt is equally astounding.

But then who cares about debt these days…


Trade Wars Running Hot and Cold

On the China trade front, things are looking better as this week US Trade Representative Robert Lighthizer stated that the US is (at least for now) shelving its threat to raise tariffs to 25% on $200 billion of Chinese good. President Trump’s willingness to walk out on talks with North Korea’s Kim Jung Un this week may have been a signal to China that he could also walk out on President Xi if he doesn’t get what he wants. I wouldn’t want to place too many bets on this one working out smoothly from this point onwards. And let’s remember that should we get a trade deal in the coming days or weeks, investors will need to look past the headlines and dig into the details of the agreement to ascertain its true impact.

While the upcoming talks between the US and China are getting most of the headlines, as the Wall Street Journal put it, “America car buyers are facing sticker shock as President Trump weights new tariffs on imported vehicles and auto parts.” Even buyers of domestically produced cars would be affected as between 40% and 50% of the average US-built car uses imported components, according to the Center for Automotive Research. Potentially a second shoe to drop for auto companies following the data concerning falling auto loan demand that I shared just a few weeks ago.

The reality is that thousands and thousands of companies in Europe alone have been bracing themselves, (which means for many cost-cutting programs) for the ongoing impacts of the US-China trade war, fallout from rising populism in the Eu and the mind-boggling mess that Brexit has become. In Germany, long the economic engine of the EU, the government expected GDP growth to slow to just 1% in 2019.


Brexit A Mess of Historical Proportions

When it comes to Brexit, the mess just keeps growing. Long, long, long story short, essentially the divorce technically has a hard and fast move-out date at the end of March yet there has been no agreement on the terms of the divorce. There is talk of another referendum which could possibly reverse the 2016 vote, but that would be so very un-British to go back on a decision like that and Prime Minister Theresa May has said this is a no-go for her. This mess has left companies from the tiny local grocer to the major multi-national without any guidance on how their businesses will be affected in just one month’s time. The impact has the potential to be brutal with estimates that the UK’s economy, with a hard exit, could contract on the order of nearly 10%. This is something without any precedent in modern global politics and is a serious headwind to growth in the region. Perhaps the Brits will be wooed back into the European Union by the Breunion Boys – do yourself a favor and click on that link, you’ll thank me.

While we are on the topic of messes in Europe, an aspect of our Safety and Security investing theme is on display as Facebook (FB) faces yet another privacy investigation, this time 10 investigations lead by Ireland’s privacy regulator concerning potential violations of European Union privacy law.


India and Pakistan Ignite

A tailwind for our Safety and Security investing theme is rising global tensions as economies around the world struggle to maintain growth rates necessary to keep their populations feeling good about the future. When people have little hope for a better economic future, violence tends to follow whether it be against a neighboring nation or other members of their own society.

The US this week urged India and Pakistan to refrain from further military action as international pressure is building to de-escalate the most serious flare-up between the long-standing rivals in decades with fighter jets from both nations being shot down. We have not had such tit-for-tat air strikes between the two nations since 1971. We’ll continue to watch this potential powder keg of a situation, which if it escalates further it could very well move to the forefront of investor concerns.


The Bottom Line

Equity markets have once again diverged materially from fundamentals as the perception of the central bank put from the world’s biggest economies overrides fundamentals. I’ve been admittedly surprised by how long this has been going on and how wide the divergence has become, but we are seeing now seeing substantial overhead resistance level for the S&P 500 at a time when challenging fundamentals are growing.


Mexico pushes mobile payments to help unbanked consumers ditch cash | Reuters

Mexico pushes mobile payments to help unbanked consumers ditch cash | Reuters


The evolution of mobile payments in emerging economies sits right at the intersection of our Digital Lifestyle and New Global Middle Class investing themes. Just as we saw emerging economies able to leapfrog with communication infrastructure thanks to the advent of the mobile phone, so are we now seeing them leapfrog with retail banking options. A recent article on Reuters describes what is happening just south of the border where “Mexico’s new leftist government is betting on financial technology to help lift people out of poverty.”

“In the future, it will no longer be necessary to have a bank in the sense of a traditional, established bank,” said Arturo Herrera, Mexico’s deputy finance minister. “Mobile phones will become banks.”Phone-based banking has proven a hit among the poor in other emerging markets such as China, India and Kenya. Those efforts have been driven by private sector companies that offer user-friendly, affordable apps.

This is similar to what we are seeing in India as that nation also looks to take advantage of mobile technology to provide banking services to the hundreds of millions of its citizens that are currently unbanked, giving them an ability to work their way out of poverty that would have otherwise been impossible.

Our investing themes look towards those companies providing the technology that allows for such implementations and those companies that will benefit as these implementations are rolled out.

Source: Mexico pushes mobile payments to help unbanked consumers ditch cash | Reuters

Signs of Slowing Economy Continue to Mount

Signs of Slowing Economy Continue to Mount


The market is now back in a bullish mood that is driven primarily by the “not gonna happen” news flow hopes. Rate hike? Not gonna happen. Government shutdown repeat? Not gonna happen. China trade war escalation? Not gonna happen. The question is, just how long can the “not gonna happen” hopes keep pumping hot air into a market when we are staring down a likely earnings recession amidst a global economic slowdown?

  • Housing remains a miserable mess – just look on Zillow at the breadth of the price reductions.
  • The employment picture isn’t quite what the headlines would lead one to believe.
  • Consumer confidence looks to have peaked and is falling.
  • Consumer credit trends and retail sales are flashing warning signals.
  • Corporate earnings and loan demand are also flashing warning signs as are shipping rates.
  • Geopolitical risks are profuse and profound ranging from no-deal Brexit fallout to Italy’s ongoing battles in the EU to US-China trade relations to rising military tensions between the US and Russia to relations between Italy and France at lows not seen since WWII.
  • The level of bullish sentiment is no longer a contrarian positive with the AAII poll of individual investors putting the bull camp at 40% versus 32% last week and the highest level in the past three months. Bears are down to an 8-month low of 23% versus 50% back in December. Even the CNN Money Fear & Greed index is back in greed mode after hitting fear one month ago.

Housing Headwind

More than 12 years after the US housing market started an epic crash in 2007, an unprecedented number of homes are still underwater (meaning the outstanding mortgage on the home is at least 25% above the home’s current market value), according to a real-estate market report from ATTOM Data Solutions. This is clearly a consumer headwind that is part of our Middle-Class Squeeze investment theme. The states with the highest share of mortgages include Louisiana (21%), Mississippi (17%), Arkansas (16%) and Iowa (15%). Of the over 7,500 zip codes having a minimum of 2,500 properties examined in the report, 27 had more than half of all properties underwater including zip codes in cities such as Chicago, Cleveland, Trenton, Memphis, Saint Louis, Virginia Beach and Detroit. If you’re a real estate investor, you should be taking note and as is often said with stocks, you should be building your shopping list.


Job Picture Not So Rosy

This week we received the Job Openings and Labor Turnover Summary for December from the Bureau of Labor Statistics (BLS) which revealed a record high 7.335 million job openings. The unemployment rate has risen from the November low of 3.7% to 3.9% in December and 4.0% in January – possibly indicating that we are now on an uptrend. There are now 1.17 job openings for every job seeker, with December slightly below November’s all-time record high of 1.19 job openings.

We are also seeing a record high length of time to hire someone, which is derived by taking the number of job openings and dividing it by the number of hires. Prior to the financial crisis, this metric was always less than one month, but in August 2014 it broke above a month for the first time in recorded history and has been rising ever since then to a new high in December of 1.24 months. We see this as confirming that employers are having an increasingly difficult time finding the right talent for the position.

This would make one think that the consumer is doing great, but as always, digging below the surface reveals a different picture. At the start of February, the January Payroll report got a lot of attention as job growth utterly blew away estimates, coming in at 304,000 new jobs versus expectations for just 170,000. However, the other employment survey from the Bureau of Labor Statistics (BLS), the Household Survey, rather than providing confirming view of the labor market revealed a very different picture, click here to read about how the two differ in the data they track.

The Household Survey found that employment dropped 251,000 in January, the first such decline in five months, some of which can be attributed to the government shutdown. But employment for the prime working-age population declined 46,000 in January after an 11,000 drop in December and 48,000 in November – more of that Middle-Class Squeeze investment theme at work.

The last time we saw employment in this demographic decline for three consecutive months was in October 2009. The number of full-time jobs declined 76,000 while the number of people working part-time for economic reasons rose 10.5% to 5.145 million which is a 16-month high. The number who are working part-time because of “slack work business conditions” rose a whopping 19.4% to 3.45 million which is a 23-month high. For both metrics this was the biggest one-month change since September of 2001 – a month no one can forget – and before that February 1982, both times the economy was in a recession. The Household Survey also revealed that the largest category of hiring was for those with a high-school education or less, which may explain why average hourly earnings rose the smallest amount since October 2017 at just 0.1%.


Consumer Credit Warning Signs

The latest Senior Loan Office Survey found that demand for auto loans, credit card loans, GSE-eligible mortgage loans, qualified jumbo mortgage loans, non-qualified mortgage jumbo loans, non-qualified mortgage non-jumbo mortgage loans, government mortgage loans, and consumer loans ex-credit card and ex-auto all are in contraction mode. In a nutshell – folks are not interested in borrowing any more than they already have. That is not what we typically see during economic expansion. We are also seeing a record high 7 million Americans are 90-days or more behind on their auto loan payments – yet more Middle-Class Squeeze.


Consumer Confidence Falling

With the job market not quite as rosy as the headlines would suggest coupled with the trends in consumer credit, it wasn’t a big surprise to see the Conference Board’s Consumer Confidence index fall to an 18-month low in January, dropping to 120.2 from 126.6 in December versus expectations for 124.0. The January reading also marked the third consecutive decline after hitting an 18-year high of 137.8 in October. Gluskin Sheff’s David Rosenberg summed up the results quite succinctly in his tweet.

Retail Sales Take Biggest Hit Since 2009

US Retail sales saw the biggest one-month drop in December since September 2009 with even ecommerce sales suffering as retail sales fell -1.3% month-over-month and up just 2.1% year-over-year. Retail sales ex-gasoline stations fell -0.9% in December and even the typically strong non-store retailers, which includes mail-order and ecommerce as are part of our Digital Lifestyle investment theme, saw sales decline -3.9%. However online players such as Amazon (AMZN) – a Tematica Research all-star – and eBay (EBAY) still enjoyed strong sales gains through the holiday season.

That’s the sequential comparison. On a year over year basis, retail sales in December 2018 rose 2.1% year over year with stronger gains registered at Clothing & Clothing Accessories Stores (+4.7%), Food Services & Drinking Places (+4.0%), Nonstore retailers (+3.7%) and Auto & other motor vehicles (+3.4%). That’s not to say there weren’t some sore spots in the report – there were, but they are also the ones that have been taking lumps for most of 2018. Sporting goods, hobby, musical instrument, & bookstores fell 13% year over year in December, bringing the December quarter drop to 11% overall. Department Stores also took it on the chin in December as their retail sales fell 2.8% year over year.

While that’s a more favorable view, the reality is December Retail Sales came in weaker than expected. Between the government shutdown, falling equity prices, global trade wars and ballooning debt levels, folks opted to keep their wallets in their pockets this past holiday season. In keeping with our Middle-Class squeeze investing theme, consumers looked to stretch the dollars they had to spend, which helps explains Costco Wholesale’s (COST) eye-popping, by comparison, December 2018 same-store sales of 7.5% in December (7.1% excluding gasoline prices and foreign exchange). Those consumer wallet share gains, which likely continued into January with Costco’s same-store sales of 6.6% (7.3% excluding gasoline prices and foreign exchange), and its expanding warehouse footprint are why Costco is Tematica’s Middle-class Squeeze leader.


Corporate Earnings and Confidence Weakening

The earnings outlook for companies in the S&P 500 continues to deteriorate with expectations down to 1% year-over-year growth for 2019 versus 5% just a few months ago. The last Federal Reserve Beige Book found that 25% of the US is in contraction with the remaining 75% expanding at only a modest to moderate pace. The corporate outlook isn’t all that rosy either as venture capital investors are advising their start-ups to hold onto more cash. For example, Index Ventures is reportedly telling their entrepreneurs they need 18 to 24 months’ of coverage versus 9 to 12 months’ worth a year ago according to an article in the Financial Times.

It isn’t just the big guys that are struggling. Economic confidence for small companies declined during most of 2018 and in January reached its lowest level since President Trump was elected according to a monthly survey for the Wall Street Journal by Vistage Worldwide. The report noted that for the first time since the presidential election, small firms were more pessimistic about their own financial prospects than they were a year earlier, including plans for hiring and investment. In January 2018, 83% of the firms surveyed expected to grow revenues over the coming year versus 66% by January 2019. This decline was affirmed by the ISM non-manufacturing PMI report which found that the share with growth dropped from 94.4% last September to 50% today – the lowest since January 2016. The share contracting rose to 44.4%, the highest level since January 2016.


Corporate Loan Demand Echoing Consumer Weakness

Just as we saw demand for consumer credit declining, so has demand for corporate credit been on the wane. Demand for commercial and industrial loans from large and middle-market firms has been flat or in contraction in 10 of the past 13 quarters. For smaller firms, demand has been flat or in contraction in 9 of the past 13 quarters. Demand for commercial real estate loans for construction and land development has been in contraction since the first quarter of 2017.


No Love in the Eurozone

On Valentine’s Day we learned that economic growth in the eurozone was a meager 0.2% quarter over quarter in the fourth quarter of 2018 – so basically flat. Year-over-year growth stood at just 1.2% for the final quarter of 2018. This came after news that the eurozone economic powerhouse Germany had no growth itself in the fourth quarter after a contraction of -0.2% in the third quarter – narrowly missing a recession. Italy experienced its second consecutive quarter of economic contraction, putting it in a technical recession. All this put further downward pressure on the euro versus the US dollar.

Another major headwind in the Eurozone that has consequences far beyond the region is the lack of any Brexit deal. To put the situation in perspective, nations in the Eurozone have been trading with the United Kingdom for 30 years, resulting in highly integrated economies and corporations. Imagine being a grocery store manager in Edinburgh, Scotland and not knowing how your near-daily imports of fruits and vegetables from France are going to be affected or being a Swede working in London, who owns a home there and having no idea how your residency or work situation may be altered.

Without a long-term free trade agreement between the UK and the EU, new trade barriers will have to be introduced at borders and the prospect of different rules on standards and safety could make it harder and more expensive for companies to import and export. The cost of a no-deal Brexit will also affect consumers. The UK imports 30% of its food from within the EU. While companies can build up inventories in advance, there is a limit to what can be done given the shelf-life of some products and raw materials and limits to storage capacity. On top of that, all the additional storage and inventory represents additional business costs, diverting resources from investment in the company and its employees.

There is also no love lost these days between France and Italy, with relations between the two nations at levels not seen since the end of WWII. Italy’s relationship with the Eurozone, in general, has been challenging as its per capita GDP has grown all of 1% in the nearly two decades since it joined the unified currency while France has enjoyed 17% growth, Spain 23% and Germany 29%. For reference, the United States has seen per capita GDP grow 25% during this time.

Relations between the two traditionally close allies that are France and Italy have been degrading since mid-2018 when Italy’s Deputy Prime Minister Luigi Di Maio and Matteo Salvini of the League part starting firing pot-shots at Macron and France over immigration policies. Macron has occasionally fired back, for example, to criticize Salvini when he refused to allow a boatful of migrants rescued in the Mediterranean to step on Italian soil, forcing them to remain on the boat while it was docked. The group has since been moved out of Italy and Salvini has been sued by the court of Catania (where the ship was docked) for the kidnapping of minors. Good times.

Earlier this month France recalled its ambassador to Italy, something it last did in 1945 after Italy’s Deputy Prime Minister Luigi Di Maio – who is also the head of the anti-establishment 5-Star Movement (Cinque Stelle) – met with members of France’s Gilet Jaune (Yellow Jacket) movement. These are the folks who have been protesting in France and amongst other acts of violence, have set fires in cities all across the nation including Paris. To say they have been vexing France’s President Macron would be a massive understatement.

This tension could not be coming at a worse time when the no-deal Brexit crisis looming.


Global Shipping Confirms Weaker Growth

The Baltic Dry Index (BDI), which tracks the cost of moving bulk commodities and is considered a leading indicator of global trade, is down more than 50% since the start of the year. Shipping brokers in Singapore and London have reported capsized vessels, the largest ships that move bulk commodities like iron ore, coal and aluminum, had been chartered in the spot market for as low as $8,200 a day last week. Break-even costs for carriers can be as high as $15,000 a day, and daily rates in the capesize market hovered above $20,000 last year. That’s a serious drop-off in demand, and the BDI tends to be a leading indicators investors and traders watch closely much the way we also watch rail traffic and truck tonnage data.


The Bottom Line

Signs of slowing continue to mount both domestically and internationally, alongside rising geopolitical risks and excessive bullishness in domestic equity markets. This is a good time for investors to put together a shopping list of those stocks that will enjoy long-term tailwinds despite global economic slowing and add them to your portfolio when they reach an attractive price point as we are likely to see a pullback in the markets soon.


Late Car Payments Hit Record High

Late Car Payments Hit Record High

Today the Washington Post featured a piece that highlights what we at Tematica have been saying for months and is highlighted in our Middle-Class Squeeze investment theme. All is not well in many American households at a time when unemployment is at a 50-year low, there are more job openings than there are job seekers and the powers that be keep telling us how great things are. The Post article noted:

A record 7 million Americans are 90 days or more behind on their auto loan payments, the Federal Reserve Bank of New York reported Tuesday, even more than during the wake of the financial crisis era.

This is particularly concerning given that a car is often more important than even making a mortgage payment or a credit card minimum payment as it is how most people get to work.

A car loan is typically the first payment people make because a vehicle is critical to getting to work and someone can live in a car if all else fails. When car loan delinquencies rise, it’s a sign of significant duress among low-income and working-class Americans.

Given that the population has increased since the Financial Crisis, the actual percent of auto loan borrowers that were 3-months or more behind on their payments is at 4.5% versus the peak of 5.3% in late 2010, but the record high number is concerning at a time when the economy is supposedly firing on all cylinders. What happens when it really does slow?

We are seeing similar worrying signs in the recent Federal Reserve Senior Loan Officer Survey which found that demand for consumer loans is in full-on contraction. This is not something you see when the economy is strong and people are confident about their financial future.

We will be discussing this and much more in our Context and Perspectives piece to be released later this week.

Source: A record 7 million Americans are 3 months behind on their car payments, a red flag for the economy – The Washington Post