”Complacency is a state of mind that exists only in retrospective: it has to be shattered before being ascertained.”
— Vladimir Nabokov
Given our penchant for hyperbole, we couldn’t help but spin up a story out of today’s lack thereof. We began this morning when Bloomberg’s Question of the Day asked us: “Where’s The Biggest Disconnect?”
Hmn. Where indeed?
Is it the disconnect between an historic rise in consumer debt—racking up credit card bills, at the heart of the problem—and a post-pandemic crash in personal savings?
Last week, you may recall we wrote about the spike in Carnival Cruise lines stock price. Weird right? I guess everyone is just blowing through their savings.
Over the weekend, Zero Hedge highlighted something which might hint at lurking personal finance trends: a recent uptick in Google searches reading “pawn shops near me.”
“Consumers, who’ve endured more than two years of negative real wage growth,” writes Tyler Durden (sic) observes, “while depleting savings and racking up record amounts of credit card debt in the highest interest rate in a generation, are tapping new lifelines by panic selling items for cash.”
Another candidate for the disconnect: sticky inflation v. an ever-buoyant stock market.
The International Monetary Fund (IMF) warned on June 26 that the global banking system is still facing substantial structural problems stemming from inflation. Inflation in England, for example, continues to rise despite the Bank of England’s own rate hike scheme. “This was supposed to be the year that higher interest rates started to bite,” writes James Mackintosh in the Wall Street Journal, “taking down dodgy borrowers who had loaded up on too much debt. Some are now in trouble. But investors don’t expect problems to spread far.”
On this side of the pond, the Fed also has to factor in a hot labor market. According to numbers released Friday, the market is “cooling” but is still warm enough to warrant another rate hike come July 25.
Most analysts are forecasting another 25 point hike, which is weighing heavily on the broad market indexes… right before the July earnings season. Tech stocks, in particular, have some ‘splainin to do after a record first half of 2023.
Or how about this one: tightening lending conditions v. banking system solvency.
The Powell Fed, hellbent on glory, is still intent on bringing the US dollar to a stable and liveable level—the all-heralded 2% inflation rate—without completely triggering a hard landing for the US economy.
The Fed has given lip service to Quantitative Tightening (QT), the more burly cousin of Quantitative Easing (QE). Meaning higher interests and tightening lending conditions at the same time. That is, of course, if Jerome and Co. can find buyers for the assets sitting on their balance sheet.
Either way, tightening credit conditions and an increased investor awareness of poor loan quality will be an issue for all of the banking sector. We’ll see how JPMorgan, that giant-gobbler of regional banks, fares this Friday when their own quarterly earnings report is released to the public. JPM serves as a proxy for the other “too big” banks—Bank of America, Citigroup, Wells Fargo and Goldman Sachs.
For those following the debt, credit and currency markets, it’s hard to pick a winner for today’s biggest disconnect. The headlines read like a slow motion train wreck… but who cares? That’s probably the biggest disconnect. Nobody seems to care!
For now, the unbearable lightness of a slow news cycle allows for, uh, complacency. We note that the term ‘The Great Depression’ wasn’t referred to officially with capital letters until Keynes’ book of the same title came out in 1934, five years after the stock market crash of ‘29.
Just to be on the safe side, we’re going to call this era we’re in The Great Complacency (with all caps) to denote an extended period of blissful thinking on Wall Street, the national balance sheet and consumer sentiment.
But beware. As the alliterative hedge funder Hugh Hendry quipped on Twitter last week: “Macro is slooow, until it isn’t. Then it happens all at once.”
Like love… or bankruptcy… we suppose.
Follow your own bliss,
Addison Wiggin,
The Wiggin Sessions
P.S. This week, I’ll be heading to Freedom Fest in Memphis, Tennessee, hosted by Mark Skousen, a member of the famed Mont Pelerin Society and a Wiggin Sessions alum.
The event’s theme: “The Soul of Liberty.” A host of interesting characters will take the stage from Wednesday to Saturday this week, including but not nearly limited to: democratic presidential candidate Robert F. Kennedy, Jr., Steve Forbes, former United States representative Tulsi Gabbard, performance artist Joseph “Afroman” Foreman, and the TV celebrity Mike Rowe, host of the Discovery Channel’s “Dirty Jobs”.
We’ve been following an interesting thread on Twitter suggesting Donald Trump ask Robert Kennedy to be his running mate in 2024. A quick google search on the idea also reveals a budding media bromance between the two. Kennedy speaks at Freedom Fest on Saturday.
Addison Wiggin
Addison Wiggin is an American writer, publisher, and filmmaker. He was the founder of Agora Financial and publisher for 18 years. An acclaimed New York Times best-selling author, his books include: Financial Reckoning Day, Empire of Debt, The Demise of the Dollar, and The Little Book of the Shrinking Dollar. Addison is also the writer and executive producer of the documentary I.O.U.S.A., an exposé on the national debt, shortlisted for an Academy Award in 2008. He lives in Baltimore, Maryland with his family. Addison started his latest project, The Wiggin Sessions, powered by Consilience Financial, in March 2020. He films from a homegrown studio in his basement.
