The thing I find scarier than the rising cost of EVERYTHING, is how unequipped people are to stay afloat financially unless they are able to refinance their debts every 6 months.
There is a shocking expectation and dependency to finance and refinance lifestyle at least once a year.
What that says is people do not have enough discipline or capital to survive a full year. I see it and deal with it regularly, so it is not just conjecture.
The credit cycle timelines between rate hikes, yield curve inversion, and central bank open market operations (QE), keep getting shorter.
The Fed hasn’t even hiked the “Fed Funds Rate” once yet and the yield curve (2s/10s) is less than 30 BPS from inversion.
This suggests that investors believe the Fed is about to crash the short bus AGAIN, and with the “little guy” in their path.
Yield curve inversions like the 2s/10s have a near perfect record of predicting recession within 8 – 12 months after inversion.
If you don’t know the difference between the Fed Funds Rate and Treasury Bond Yields, or think that the Fed “raising rates” means higher mortgage rates (to the contrary) then read my report “The TRUTH About Mortgage Rates” to get up to speed.
Regardless of whether the Fed manages to get beyond one rate hike, let alone the predicted 7 hikes based on Fed Funds Futures, the flattening yield curve is warning us that we could be in a recession later this year.
This would likely mean rate cuts (not hikes) and even more “money printing” (quantitative easing), further expanding the Fed’s balance sheet.
As a result asset prices will rip higher and bond yields will be suppressed lower, furthering the wealth gap as we tumble into stagflation.
Never mind that though, most people don’t own any assets and the pittance they do have “loaned to a bank” (oops, I mean “savings”) will be returning a juicy double-digit NEGATIVE return in “real” terms (adjusted for inflation).
Wage growth has been stagnant for 40 years, so it’s not like they have anything left to save (or invest) after paying for food, fuel, and shelter … none of which were part of the “official” 7% inflation calculation (CPI).
Unfortunately most consumers are not being honest about their financial health.
Instead, like junkies, they simply crave their next fix of cheap credit so they can live that “American Dream” of keeping up with the Jones’ and dying broke.
Sadly, the timeline in which consumers can survive without tapping the vein for another credit “high” keeps getting shorter.
Although recession and the wave of cheap credit that will follow is occurring faster each time, the ponzi which is our credit based system will eventually flatline from a bad debt overdose.
The 10-year Treasury is 2% (200 basis points) roughly 0.25% higher than this time last year and yet the whole financial system feels like it wants to crumble under the weight of just 25 basis points.
Consumer Sentiment is also crashing again, the lowest since the depths of the 2009 Great Financial Crisis.
Is confidence falling because of a geriatric incoherent President? The War in Ukraine? Perhaps they really are freaked out about the rising cost of everything?
The financial system is a complex plumbing network, and when one pipe gets clogged it causes leaks in places no one expected to be faulty.
I’m not overlooking these complexities or the knock-on effects that “trickle” into the finances of the everyday person.
Yet, for most consumers, not being able to kick their own “ticking-time-bomb-can-of-debt” down the road leads to a lot more than just a leaky pipe.
The toilet is starting to overflow and there isn’t a mop big enough to clean up the shit-heap of debt.
It’s ok, right? Mortgage rates have room to go before they reach zero, and I think they might eventually go negative for a hot minute.
I guess this means you still have some time to dance around the musical chairs, but be warned … the music is eventually going to stop and we are quickly nearing the coda.
So, let me sing you a little ditty,
Bye bye “I missed my payment” guy, drove his Chevy to the bank hoping to refi, only to realize that rates are too high, singing this is the day they freeze my credit line…