Shake It Up, Shake It Down

Shake it up, shake it down.  Stocks pulsed higher yesterday as investors decided that the virus outbreak no longer concerned them.  The budget deficit continues to rise but this is not the 1980’s, so investors shrug it off.

N O T E W O R T H Y

• I’ll gladly pay you Tuesday for a hamburger today…  OK, so I have just aged myself.  Some of my regular readers might recognize that line from the old Popeye cartoon where Wimpy, on an eternal quest for hamburgers, was constantly willing to even borrow money to get his beloved hamburger.  Popeye The Sailor made its debut as an animated cartoon in 1933 and became a household favorite for many years.  J. Welling Wimpy is his real name and he first uttered his famous phrase in the 1931 comic strip.  In 1931, the credit that Wimpy sought was not very common.  It was smack in the middle of the Great Depression and Pawn Brokers were the main providers of loans in the US leading up to that period. Soon after the Depression, the Federal Reserve began to track all sorts of things, including household debt levels as they recognized the impact it would have on not only economic growth, but also potential collapse.  Total household debt in the US was around $19 billion and grew steadily up until the 1990 recession at which time it leveled out.  After the 1990 recession things really took off and by the financial crisis, household debt was $12.6 trillion!  This includes mortgages, revolving credit, auto loans, credit cards and student loans.  Oh it gets even better.  Since pulling back a bit in the wake of the recession, household debt came back with a roar and now stands at $14.15 trillion! Debt rose by +1.4% in the 4th quarter of 2019 making it the 22nd consecutive quarter of growth.  The big jump came from mortgages and credit card debt, according to the New York Fed.  Debt allows consumers to spend more than they take in with their income.  So if you make $100 you can spend an additional $100 and buy $200 worth of goods.  That is a positive thing for the economy… more buying right?  Right… when things are good, but when things get bad and consumers can’t afford to pay back the debt, it is not good. Remember 2008?  These numbers come from the New York Fed quarterly report on household debt (you can read it here, if you are inclined: https://www.newyorkfed.org/newsevents/news/research/2020/20200211?utm_source=market-sum&utm_campaign=www.investopedia.com&utm_term=19419932&utm_medium=email  ), out just a few days ago. Owe the growth to a long period of low interest rates, which is the intention of the easy Fed Monetary policy. How long can the debt-induced growth continue? That is the big question but as long as employment remains solid things should stay status quo. Unemployment remains near record lows, but wait… the same Fed release reports that payment delinquency is on the rise.
• Keep those pumps a-pump'n.  A small news item caught my attention yesterday and didn’t seem to make it to the big leagues but I thought I would share it with you.  Yesterday an energy industry lobby group met the Administration and warned that the industry would have a hard time producing the amount of oil and gas to meet the agreed upon purchases by China.  They also warned that the shipping infrastructure would be strained by the increase in production and delivery.  This, as the IEA reported last night, WHILE YOU SLEPT, that global oil demand will drop for the first time in more than 10 years!  The reason?  COVID-19.  That is the outbreak formerly known as the Coronavirus.

THE MARKETS

Stocks hopped up to new highs yesterday as it appeared that newly reported Coronavirus cases were slowing… for now. Aggressive Chinese financial countermeasures were also applauded in a stock rally.  The S&P500 climbed by +0.65%, the Dow Jones Industrial Average jumped by +0.94%, the Russell 2000 traded up by +0.71%, and the NASDAQ Composite Index advanced by +0.9%.  Bonds pulled back and 10-year treasury yields climbed by +3 basis points to 1.63%.  Crude oil had a bit of a comeback climbing by 2.46% back over the $50 mark, though this was before the breaking news above and more news that Coronavirus cases unexpectedly jumped by +45% to over 50,000 cases, also WHILE YOU SLEPT.

NXT UP

- CPI Excluding Food and Energy is expected to come in at 2.2% compared to last month’s 2.3%

- A Senate Panel will begin hearings on 2 Trump Fed nominees.  Judy Shelton and Christopher Waller will be questioned by Senators.  They are both, expectedly, known to be doves.

- Dallas Fed President Robert Kaplan and New York Fed President John Williams will both speak today.

- This morning PepsiCo, Waste Management, and Zoetis beat while Huntsman, Duke Energy, and Kraft Heinz missed expectations.

daily chartbook 2020-02-13