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A few months ago, I raised concerns about what would happen to this economy on the other side of Q4. "Is a credit bubble forming in the United States?" I asked.
No shortage of people had opinions to the contrary. I've been told that the U.S. consumer is "well capitalized." I've heard from politicians and from the mainstream, "serious" economists that they have about five to six months of cash thanks to the largesse of stimulus money from the last few years.
Then... if that is the case....
How do they explain what I'm about to show you?
Credit Problems
Yesterday, the Federal Reserve Bank of New York released a report on U.S. credit usage. The report tracks new and existing household debt - primarily in the form of new auto, housing, and credit card costs.
Total U.S. household debt surpassed $16 trillion. That's now $2 trillion more than where we sat at the end of 2019 before the pandemic.
From a macro-perspective, why are Americans now $2 trillion more in the hole?
I've warned that inflation is forcing people to pay more for everything - and they're mortgaging the future to do so. Credit card balances jumped another $46 billion in June, while APRs rose and inflation became entrenched.
Auto loans increased by $33 billion - as the average cost of a vehicle loan surged to unsustainable levels.
Consumer loans surged by $25 billion.
Non-housing loans increased by a staggering $103 billion.
That's the highest jump since 2016.
So... inflation is entrenched...
Real wages are declining, according to the recent Census report...
And credit is ballooning...
What is the end game here?
A possible credit bubble... and one that Black Swan traders are salivating at.
Today's Momentum Reading
Momentum is Green.
Chart of the Day
Look at this chart. This is real market capitalization compared to GDP.
We're in Alice in Wonderland, and people keep trying to justify these valuations right now. More than 30% of companies trading today are unprofitable... I see hundreds trading at nosebleed multiples based on an insane amount of projected growth. Where is the growth, though?
Reversion to the mean is one of the strongest forces in global finance - and history proves that we eventually get there. Eventually.
I mean... are we this delusional to pretend that a correction isn't inevitable?
Can we stop pretending... Thanks to Real Investment Advice for this chart.
Wednesday's Schedule
- OPEC+ leaders will hold a conference to discuss production targets and quotas. Watch oil prices closely because we are facing a global supply shortage in the years ahead, and we're depleting our Strategic Petroleum Reserve at a borderline destructive level. I'll explain more today.
- Headline earnings reports come from Walt Disney (NYSE: DIS), CRISPR Technologies (NASDAQ: CRSP), Aerie Pharmaceuticals (NASDAQ: AERI), and Landec (NASDAQ: LNDC).
We will discuss all this and more at Midday Momentum at 12:30 pm eastern. Then it's off to trade with the Globetrotters in the World's Biggest Trade room at 1pm. I hope you'll come and hang.
To catch an episode of Midday Momentum you may have missed click here to watch a REPLAY.
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About the Author
Garrett Baldwin is a globally recognized research economist, financial writer, consultant, and political risk analyst with decades of trading experience and degrees in economics, cybersecurity, and business from Johns Hopkins, Purdue, Indiana University, and Northwestern.
