Latest Inflation Numbers and Discussion

[jldavid47]

The data does not support an overextended consumer.

Factoring in a strong job market and high inflation rate, total debt in the US showed little increase in 4Q22, and while credit card debt rose faster than total debt, real PCE was practically flat. So, the increase in CC debt was likely not the result of a strong increase in spending.

Auto loans showed a modest increase, below the rate of inflation, so mo increase in real auto sales.

See the NY Fed report on Household Debt and Credit, here

Your conclusion may be correct, but the way you went about it is not. The PCE chart you show is in real terms while the debt chart is in nominal terms. What you want to look at is both in nominal terms (PCE nominal is there on the FRED website).

If you look at both in nominal terms, PCE increased by $1.458 trillion in 2022 while credit card debt increased by $0.13 trillion. Personal income (nominal) increased by $0.511 trillion, so the $0.814 trillion shortfall is barely touched by credit card debt. Where did the money come from? Looks like personal savings which dropped by a staggering $1.588 trillion in 2022 (according to FRED). (Which begs the question "Where did the rest of the money from personal savings go?").

Again, in terms of credit card debt the consumer is probably not overextended. As a percentage of income (which is a proxy for the ability to service debt), EOY credit card debt went from 0.40% of annual income in 2021 to 0.45% in 2022. That doesn't seem particularly extended to me, but who knows?

 

[bobandsherry]

There is certainly some evidence of an overextended consumer.
Serious delinquencies have risen sharply year over year for all except student loans, according to this table, also from the NYFed.


https://www.newyorkfed.org/newsevents/news/research/2023/20230216
View attachment 45343

It's all relative. Base period compared is during the pandemic, when loan forgiveness given as well as lots of money just given away/pumped into the economy. Q4/22 is higher, but is still low in comparison to periods prior to the pandemic (delinquency rate for all loans was 1.8% Q1/2018) and historically. Are we therefore getting back to a "norm"?

 

[Koolau]

Just out of curiosity, why would you be paying off your 2.87% mortgage when you could also put that money into a 5% CD and come out ahead? Seems like you are losing money by doing so. Unless it's just one of those "sleep better without a mortgage" things.

I wondered the same thing. I consider a cheap mortgage to be one of the few work-arounds for inflation. You not only get to reinvest the money you don't pay back (yet) and when you do pay back, you pay it back with inflated (less valuable) dollars. Almost wish I had such a mortgage - almost.

 

[bobandsherry]

There is certainly some evidence of an overextended consumer.
Serious delinquencies have risen sharply year over year for all except student loans, according to this table, also from the NYFed.


https://www.newyorkfed.org/newsevents/news/research/2023/20230216
View attachment 45343

Interestingly, St Louis Fed shows different rates. SLF shows lower delinquency rate for Q4/22 vs Q4/21, and definitely different rates. Perhaps difference in definition of "delinquency"?

https://fred.stlouisfed.org/release/tables?rid=231&eid=148470&od=#

 

[MichaelB]

There is certainly some evidence of an overextended consumer.
Serious delinquencies have risen sharply year over year for all except student loans, according to this table, also from the NYFed.

True, delinquencies are rising, and that is always reason for caution. Still, they are below the pre-pandemic levels of 4Q ‘19 https://www.newyorkfed.org/newsevents/news/research/2020/20200211

 

[Montecfo]

Agreed. Trend moving quickly.

Consumer confidence also declining.

 

[Markola]

And some banks are wobbling:

“SVB, which does business as Silicon Valley Bank, launched a $1.75 billion share sale on Wednesday to shore up its balance sheet. It said in an investor prospectus it needed the proceeds to plug a $1.8 billion hole caused by the sale of a $21 billion loss-making bond portfolio consisting mostly of U.S. Treasuries. The portfolio was yielding it an average 1.79% return, far below the current 10-year Treasury yield of around 3.9%.”

https://www.reuters.com/business/fi...nk-sell-stock-cope-with-cash-burn-2023-03-09/

 

[Montecfo]

Apparently, some view that SVB's troubles (can't raise financing, now looking to sell itself) pushes the market more toward a 25 bp hike here in 12 days or so.

And some suggesting Fed may need to cut sooner than previously thought in order to ease pressure on regional banks.

Adding now: SVB has failed and is now controlled by regulators.

 

[Montecfo]

Other banks plunging/halted:

First Republic (halted)
PacWest (halted: venture bank like SVB)
Signature Bank (halted: a crypto bank)

 

[Bigdawg]

Apparently, some view that SVB's troubles (can't raise financing, now looking to sell itself) pushes the market more toward a 25 bp hike here in 12 days or so.

And some suggesting Fed may need to cut sooner than previously thought in order to ease pressure on regional banks.

Adding now: SVB has failed and is now controlled by regulators.

"Congress explicitly stated the Fed's goals should be "maximum employment, stable prices, and moderate long-term interest rates." It is these goals that came to be known as the Fed's "dual mandate" and remain today."-Investopedia

How is easing pressure on regional banks part of the Fed's dual mandate? Sorry if it's obvious. Fed decisions baffle me all the time.

 

[Montecfo]

"Congress explicitly stated the Fed's goals should be "maximum employment, stable prices, and moderate long-term interest rates." It is these goals that came to be known as the Fed's "dual mandate" and remain today."-Investopedia

How is easing pressure on regional banks part of the Fed's dual mandate? Sorry if it's obvious. Fed decisions baffle me all the time.

Because of pressure on the banking system from the rapid hike in rates.

 

[jldavid47]

"Congress explicitly stated the Fed's goals should be "maximum employment, stable prices, and moderate long-term interest rates." It is these goals that came to be known as the Fed's "dual mandate" and remain today."-Investopedia

How is easing pressure on regional banks part of the Fed's dual mandate? Sorry if it's obvious. Fed decisions baffle me all the time.

Well, the Fed also has a role in helping maintain the stability of the banking system even if it is not explicitly stated in its charter. There were some this morning blaming SVBs problems on the Fed raising rates. I disagree. SVBs problem arose from clueless MBAs not being able to assess risk properly. Looking at a recent financial environment and extrapolating it out 30 years then buying long-term bonds at historically low interest rates when you borrow short (i.e. deposits) is not only ignoring history, it's plug stupid.

 

[explanade]

Apparently, some view that SVB's troubles (can't raise financing, now looking to sell itself) pushes the market more toward a 25 bp hike here in 12 days or so.

And some suggesting Fed may need to cut sooner than previously thought in order to ease pressure on regional banks.

Adding now: SVB has failed and is now controlled by regulators.

Other banks plunging/halted:

First Republic (halted)
PacWest (halted: venture bank like SVB)
Signature Bank (halted: a crypto bank)

"Congress explicitly stated the Fed's goals should be "maximum employment, stable prices, and moderate long-term interest rates." It is these goals that came to be known as the Fed's "dual mandate" and remain today."-Investopedia

How is easing pressure on regional banks part of the Fed's dual mandate? Sorry if it's obvious. Fed decisions baffle me all the time.

CNBC has been talking about how this one bank’ troubles could be related to the very fast rate increases by the Fed the past year. Their bond portfolio may have had less than 2% yield.

Then the suggestion is that other regional banks may be in similar situations, caught flat footed by the rapid increase in rates.

Fed is suppose to stabilize the banking system.

I have deposits at First Republic — they don’t offer the highest rates in fact their standard duration CDs are 1% or lower than the rates we’ve been discussing in this thread. But they will have nonstandard durations like a 5 month or 11 month special rate, which is way more competitive.

 

[pb4uski]

If that bank had reasonable asset-liability management then a rise or decline in rates shouldn't be anything to worry about.

 

[MichaelB]

If that bank had reasonable asset-liability management then a rise or decline in rates shouldn't be anything to worry about.

This sums it up perfectly.

 

[copyright1997reloaded]

Not paying it off. Just paying some extra principal. We owe 489K on a 900K value. 3 years into a 30 yr fixed at 2.87%. Over 34 months we have paid an additional $33,600 on the principal. Each month when I have an extra 1,2,3 K I make decisions on where to deploy that $. Some months I will put all 3 k into equities. Some months I'll throw a k or 2 against the mortgage principal. It all depends on which way the wind is blowing. This month I see the 5% CD as the best option for an extra $. I think (have no idea) that the market will tank by another 10-20% this year. When/if that happens, I will deploy any extra $ to the market. This is all play account $ anyway. Doesn't move the needle. The only time I would pay off the mortgage would be when it get's below say 100K. Until then I will play these market timing games.

Sorry for the thread drift. Now back to our regularly scheduled inflation topic.

I wouldn't be putting a single extra cent against a 2.87% mortgage with CD's and short term treasuries near and/or over 5% or even in a treasury MM fund at 4+ %. If/when rates fall considerably, then start doing additional principal paydown (which lowers the mortgage duration).

 

[Koolau]

If that bank had reasonable asset-liability management then a rise or decline in rates shouldn't be anything to worry about.

I don't know how that is done but I'm sure you are correct. To me, it seems as simple as committing too much of their assets to one asset class. IOW lack of diversification but YMMV.

 

[Gumby]

You can use interest rate swaps to better match assets to liabilities.

 

[Koolau]

You can use interest rate swaps to better match assets to liabilities.

Yeah, that's complicated to me, but should be child's play to a huge bank. Wonder who was in charge (heh, heh, IOW who gets to take credit for the failure?) I'm sure they sold their stock before the collapse. THAT is what I would go after if I were a regulator.

 

[Winemaker]

Yeah, that's complicated to me, but should be child's play to a huge bank. Wonder who was in charge (heh, heh, IOW who gets to take credit for the failure?) I'm sure they sold their stock before the collapse. THAT is what I would go after if I were a regulator.

Higher ups have only limited times they can purchase or sell company stock, to avoid any impropriety. And sometimes it is taken too far. A church fellow and former higher up in my mega corp, sold stock every year at a certain week in August to pay college tuition. Our mega corp made an announcement on week before his pre scheduled sale, he then in turn went to the legal department to determine whether he should cancel his sale, as not to be in violation. They gave him the green light, saying that he had set a previous pattern of sales 3 years prior. The SEC tagged him, notified mega corp, and they cleared the matter up to not press charges, provided that he resign.

 

[audreyh1]

Maybe the SVB discussion can move back to the SVB thread.
https://www.early-retirement.org/fo...ey-bank-sivb-270-to-30-a-117333-new-post.html

 

[Gumby]

CPI Release for Feb 2023

CPI = 300.84

Year over year inflation = 6.035%
Inflation since Jun 2022 annualized = 2.29%
Inflation since Aug 2022 annualized = 3.15%
Inflation since Sep 2022 annualized = 2.71%
Inflation since Jan 2023 annualized = 6.7% raw. With seasonal adjustment = 4.8%

May 2023 I-Bond inflation component if no change next month = 2.71%

https://www.bls.gov/news.release/cpi.nr0.htm

 

[Montecfo]

CPI Release for Feb 2023

CPI = 300.84

Year over year inflation = 6.035%
Inflation since Jun 2022 annualized = 2.29%
Inflation since Aug 2022 annualized = 3.15%
Inflation since Sep 2022 annualized = 2.71%
Inflation since Jan 2023 annualized = 6.7% raw. With seasonal adjustment = 4.8%

May 2023 I-Bond inflation component if no change next month = 2.71%

https://www.bls.gov/news.release/cpi.nr0.htm

It seemed like a fairly good report. No big surprises. It appears inflation is continuing to come under control.

So called supercore inflation, including services but net of the lagging housing sector, was 0.2 pct for the month and 3.7 pct for the year. A good sign.

Fed watches services costs closely for indications that inflation is becoming entrenched. Not seeing that from those readings.

 

[statsman]

6% doesn't appear to be close to reality, at least based on what we've paid for the past year and what we've seen in cost increases so far in 2023.

 

[yhoomajor]

6% inflation is not under control.

All the gimmicks of if you exclude food, energy (and new one lately - housing), then inflation is only this can't hide the reality.