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Pozsar: “We Could Be Looking At The Early Stages Of A Classic Liquidity Crisis”

Pozsar: "We Could Be Looking At The Early Stages Of A Classic Liquidity Crisis"

Last week, some on Wall Street were quietly gloating when…

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Pozsar: "We Could Be Looking At The Early Stages Of A Classic Liquidity Crisis"

Last week, some on Wall Street were quietly gloating when the "Lehman Weekend" consequences predicted by repo guru Zoltan Pozsar failed to materialize and central banks did not flood global markets with a torrent of liquidity, in a repeat of what happened in September 2008.

In his latest not published late on Friday, the Credit Suisse strategist admits that "Yes, we got central banks’ need to step in to calm funding market pressures this week wrong (still no need yet)" but he counters that "we got the direction of spreads right – on February 24th we warned about an imminent sentiment shift in funding markets. There was no premium last week but there is some funding premium now, and it feels that things can get worse still." So net-net, he concludes, "our call was absolutely right."

But how was he "absolutely right" if the funding squeeze he predicted did not materialize? Well, as Zoltan explains in the bulk of his note, what is happening right now is something that nobody really understands, and what is yet to happen may be a combination of the worst parts of the 2008, 2018 and 2020 crises, as a result of one thing: the collapse of commodity-based collateral (something China understands very well after it learned - on more than one occasion - that its thousands of tons of its commodity stockpile, especially copper and aluminum, had been rehypothecated, i.e., used as collateral repeatedly).

As the Hungarian writes, his point with the Lehman analogy last Sunday "was to underscore the point that just as the market didn’t realize the complexity and interconnectedness of the financial system then, it may not realize the same today. Again, we are not saying that we are about to have another Lehman moment, only that things can get much worse than you realize."

Underscoring the unknown unknowns of a global sanctions blockade against Russia launched not by central bankers but by politicians, Zoltan writes that "when you rip $500 billion of FX reserves from the system, sanction and de-SWIFT banks (which goes live March 12th), and force Western banks and commodity traders to self-police and not trade commodities from the single-largest commodity producer of the world (Russia), unforeseen things can happen and do happen."

He then writes something that all those pushing for an escalating conflict with Russia will hardly want to hear:

If you believe that the West can craft sanctions that maximize pain for Russia, while minimizing financial stability risks in the West, you could also believe in unicorns.

At this point the former NY Fed monetary plumbing expert pivots to what he failed to realize last weekend, and whose consequences will be more profound over the longer-term than a simple short-term plumbing block: "Yes we were also wrong on Sunday about the trigger of funding pressures – it’s not the Bank of Russia’s inability to roll FX swaps or de-SWIFTing that caused funding pressures to date, but rather the market’s self-imposed unwillingness to buy, move, or finance Russian commodities that’s driving the current massive bid for cash."

This translated into what Bloomberg called a “historic” commodities rally, manifesting itself in the biggest weekly increase in commodity prices on record...

... and so the margin calls must be historic too, according to Pozsar.

But who is getting the margin calls, the Credit Suisse strategist asks rhetorically, besides all those metals traders who got a barrage of "erroneous" margin calls last Wednesday and Thursday from the LME?

According to Pozsar, the answer is market participants that are long commodities either in the ground or in transit and want to lock in a price by shorting futures: "these include every commodity producer in the world including Russia, and every major commodity trading house, respectively."

While it is unknown (for now) if that is indeed the case, Pozsar suggest that it’s reasonable to wonder "if Russian commodity producers are experiencing margin calls now, and if they have the resources to pay – could they choose not to pay because their sovereign’s FX reserves were seized?" This is one risk the Credit Suisse strategist says the market needs to carefully consider.

"As for the commodity traders, which are suffering a correlated surge in commodity prices (Russia and Ukraine export pretty much everything imaginable), margin calls can be funded by drawing on credit lines from banks, issuing CP, or swapping FX", something that may already be happening as suggested by the sharp spike in the FRA-OIS funding stress indicator.

Here, instead of taking readers back to September 2008, Pozsar draws on one of the main lessons from the March 2020 liquidity crisis, which is that corporate credit lines (which have a low drawdown assumption according to Basel III) can be drawn across all industries and across all geographies at the same time in a pandemic, "and the lesson about the present crisis is that you can have a rally in all sorts of commodities from oil to gas, fertilizers, wheat, palladium, and neon during war, especially if the G7 force the world to self-police and boycott Russian stuff."

Which takes us to the crux of today's note: the role of commodities as collateral, which is critical because as Pozsar puts it, "every crisis occurs at the intersection of funding and collateral markets."

Take Urals spot, which Zoltan writes "is trading at a discount to WTI is like subprime CDOs going from AAA to junk" and prompts him to ask if "all commodities sourced from Russia trade at a significant discount?" We put it somewhat differently last week, when we said that while Russian oil is trading bidless, non-Russian oil feels like it will soon go offerless.

Taking the analogy to CDOs further, Pozsar asks if it is possible that the Western boycott of Russian commodities is turning AAA commodities to junk (or bidless): "Does going from AAA to junk trigger margin calls? You bet!"

Besides collateral, the repo guru also reminds us that leverage and liquidity are also important, and takes us on a brief walk down the not too distant memory lane:

  • In 1998, we had Russian bonds and a leveraged LTCM.
  • In 2008, we had mortgages and leveraged banks and shadow banks.
  • In March 2020, we had leveraged bond basis trades.

The pattern Pozsar points to is the following: "Collateral, leverage, funding" - in 1998 and 2008, collateral went bad and a funding crisis hit as a consequence. In 2020, corporations drew on credit lines, which sucked funding away from leveraged bond RV trades, which then triggered a forced sale of good collateral. As he summarizes it, "crises happen either because collateral goes bad or funding is pulled away – that’s been the central lesson in every crisis since 1998."

Now on to today.

Pozsar points to Glencore's iconic - if criminal  - founder, whose Marc Rich’s legacy in the annals of global finance was to introduce the concept of leverage and borrowed money into commodity trading. It’s simple: a bank lends you the money to lease ships and buy commodities to deliver them sometime and someplace in the future at a locked-in price (via short futures).

The pattern should ring a bell.

Consider your typical, highly levered bond RV fund, such as Millennium and Citadel, is long the bond, short the future, and funds the package in the repo market. It was this bond basis trade that was behind the repo market crash of 2019 and then blew up just a few months later in March 2020; it's also why hedge funds with regulatory leverage as high as 8x were begging for a Fed bailout when their RV trades blew up, similar to what happened to LTCM in 1998. 

That analogy, Pozsar argues, is the same as a commodity trader moving stuff around. But if collateral spoils, funding is impossible to come by and spot price spikes are triggering margin calls, or as he puts it "March 2020 all over again?" While it probably is not the same size, the repo guru advises readers to "be mindful of the parallels and the funding and collateral linkages."

Which brings us to the punchline of Pozsar's note:

We could be looking at the early stages of a classic liquidity crisis that has elements of both collateral and liquidity problems (1998 and 2008), where some players – commodity traders – are not regulated and have no HQLA, and some players – state-linked commodity producers – are not liquid enough because their backstop – the Bank of Russia’s FX reserves – has been seized.

The Hungarian then goes on a historical tangent looking at sudden stops in the financial system, or as we call them, repo breaks.

In 1997, we broke some FX pegs because FX reserves we thought were there weren’t, and capital stopped flowing in.

In the present context, we clearly are not worried about funding because “o/n RRP is at $1.5 trillion and banks have reserves coming out of their ears”.

We will note that it is rewarding to see that one of the biggest minds in finance agrees with what we have pointed out previously, namely that the blowout in the FRA-OIS when there is still $1.5 trillion in the overnight repo, is quite a remarkable achievement and suggests that not everything is as smooth as so many self-proclaimed Polyannish financial experts would lead you to believe. Furthermore, as Zoltan notes, "you should worry about a sudden stop of commodity flows for three potential reasons."

  • First, gas gets turned off “at the top”.
  • Second, there is an accident – lots of pipes run through Ukraine and it’s a war.
  • Third, sabotage in Ukraine to kick-start Nordstream 2.

Reverting again to his analogy on RV pair trades, Pozsar asks "what happens to the gas bit of the commodity derivatives market when there is a sudden stop of physical commodity flows, and what does that do to dealers’ matched books? There is the potential for some exposure there Will it happen? We don’t know, but again, the question itself is worth a spread."

* * *

Summarizing his latest, mostly stream of consciousness note, Pozsar says that "we have bases creeping in and commodities, like collateral in 2008, are becoming bifurcated." Meanwhile, spot prices are staging a historic and correlated surge that is driving demand for cash at a time of excessive leverage in the system both overt and covert - think “commodity RV trades” (as an analogue to bond RV trades) - and a lack of FX liquidity because of seized FX reserves.

Pozsar then gives one more thing to think about: "Is the reason why we’ve cocooned energy and other commodity flows and related payments and institutions from sanctions to protect the consumer at the pump, or to protect the commodity derivatives ecosystem? Clearly, the West does not want to turn off the flow of energy, but there are growing risks – more sanctions, more self-policing, and the Russian leadership can act as well."

Having found himself in his prime, where he is connecting dots and observing causal linkages between his favorite financial topics and seemingly disparate corners of the financial system - in this case the commodity collateral sector  - Pozsar is only just warming up, and next writes that "there are links between all this and headline inflation and interest rate hikes, and links between the seizure of Russia’s FX reserves and the dollar and demand for long-term Treasuries", and asks readers to consider a quote from George Soros carved into the wall of the CEU (Central European University)...

“Thinking can never quite catch up with reality; reality is always richer than our comprehension. Reality has the power to surprise thinking, and thinking has the power to create reality. But we must remember the unintended consequences – the outcome always differs from expectations”.

... and to think about that both in the present context, and in the context of ABN Amro freezing redemptions from its funds in August of 2007 – a year before Lehman: did markets think it would get that bad back then?

Putting it all together, Pozsar writes that while this time systematically important banks won’t fail, some other traders might fold, and losses, even if not lethal, can curb balance sheet provision (see Archegos) for all other stuff that the buy side needs – repo, FX, and equity derivatives.

Pozsar concludes with another quote, this time from Larry Summers (from a speech he delivered in Toronto at an INET event about the lessons learned during the 2008 crisis):

"crises are not about estimating their economic impact and estimating to the decimal point the GDP impact of a shock. Crises are about fear and greed…"

Going back to the spark behind Pozsar's latest stream of consciousness, commodity collateral, he writes that Russia and Ukraine are the single-largest commodity exporters in the world. And while Russia accounts for just 5% of the world’s GDP, it is financially deeply interlinked – it used to have $500 billion of FX reserves, and owes about as much in debt to the rest of the world, not to mention “off balance sheet” debt that it owes to the world through derivatives when spot commodity prices rally, like they do now.

His parting words are a warning to all those who think that it will be easy to sever all financial ties to Russia:

It’s a bit more complex to de-SWIFT Russia than it was to de-SWIFT Iran… To be clear – your correspondent is a funding expert, not a commodity expert, but I see a link between the two markets at the present, and parallels to 2008. I wasn’t an expert in CDOs in 2007 either, but started to dig the day after Paul McCulley coined the term “shadow banking” at Jackson Hole and I wrote this. My interest was piqued by the legendary Paul McCulley, and current events piqued my interest in the opaque world of the commodity derivatives complex.

The books about 1997, 1998, and 2008 have FX pegs, default and leverage, and collateral and leverage as their central themes, respectively. The books about today’s market events will have commodities as collateral as the central theme.

It's this "commodity as collateral" theme that Pozsar believes will spark the next liquidity crisis.

Pozsar's full note is available to pro subs in the usual place.

Tyler Durden Sun, 03/06/2022 - 18:00

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Mistakes Were Made

Mistakes Were Made

Authored by C.J.Hopkins via The Consent Factory,

Make fun of the Germans all you want, and I’ve certainly done that…

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March 17, 2024

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Mistakes Were Made

Authored by C.J.Hopkins via The Consent Factory,

Make fun of the Germans all you want, and I’ve certainly done that a bit during these past few years, but, if there’s one thing they’re exceptionally good at, it’s taking responsibility for their mistakes. Seriously, when it comes to acknowledging one’s mistakes, and not rationalizing, or minimizing, or attempting to deny them, and any discomfort they may have allegedly caused, no one does it quite like the Germans.

Take this Covid mess, for example. Just last week, the German authorities confessed that they made a few minor mistakes during their management of the “Covid pandemic.” According to Karl Lauterbach, the Minister of Health, “we were sometimes too strict with the children and probably started easing the restrictions a little too late.” Horst Seehofer, the former Interior Minister, admitted that he would no longer agree to some of the Covid restrictions today, for example, nationwide nighttime curfews. “One must be very careful with calls for compulsory vaccination,” he added. Helge Braun, Head of the Chancellery and Minister for Special Affairs under Merkel, agreed that there had been “misjudgments,” for example, “overestimating the effectiveness of the vaccines.”

This display of the German authorities’ unwavering commitment to transparency and honesty, and the principle of personal honor that guides the German authorities in all their affairs, and that is deeply ingrained in the German character, was published in a piece called “The Divisive Virus” in Der Spiegel, and immediately widely disseminated by the rest of the German state and corporate media in a totally organic manner which did not in any way resemble one enormous Goebbelsian keyboard instrument pumping out official propaganda in perfect synchronization, or anything creepy and fascistic like that.

Germany, after all, is “an extremely democratic state,” with freedom of speech and the press and all that, not some kind of totalitarian country where the masses are inundated with official propaganda and critics of the government are dragged into criminal court and prosecuted on trumped-up “hate crime” charges.

OK, sure, in a non-democratic totalitarian system, such public “admissions of mistakes” — and the synchronized dissemination thereof by the media — would just be a part of the process of whitewashing the authorities’ fascistic behavior during some particularly totalitarian phase of transforming society into whatever totalitarian dystopia they were trying to transform it into (for example, a three-year-long “state of emergency,” which they declared to keep the masses terrorized and cooperative while they stripped them of their democratic rights, i.e., the ones they hadn’t already stripped them of, and conditioned them to mindlessly follow orders, and robotically repeat nonsensical official slogans, and vent their impotent hatred and fear at the new “Untermenschen” or “counter-revolutionaries”), but that is obviously not the case here.

No, this is definitely not the German authorities staging a public “accountability” spectacle in order to memory-hole what happened during 2020-2023 and enshrine the official narrative in history. There’s going to be a formal “Inquiry Commission” — conducted by the same German authorities that managed the “crisis” — which will get to the bottom of all the regrettable but completely understandable “mistakes” that were made in the heat of the heroic battle against The Divisive Virus!

OK, calm down, all you “conspiracy theorists,” “Covid deniers,” and “anti-vaxxers.” This isn’t going to be like the Nuremberg Trials. No one is going to get taken out and hanged. It’s about identifying and acknowledging mistakes, and learning from them, so that the authorities can manage everything better during the next “pandemic,” or “climate emergency,” or “terrorist attack,” or “insurrection,” or whatever.

For example, the Inquiry Commission will want to look into how the government accidentally declared a Nationwide State of Pandemic Emergency and revised the Infection Protection Act, suspending the German constitution and granting the government the power to rule by decree, on account of a respiratory virus that clearly posed no threat to society at large, and then unleashed police goon squads on the thousands of people who gathered outside the Reichstag to protest the revocation of their constitutional rights.

Once they do, I’m sure they’ll find that that “mistake” bears absolutely no resemblance to the Enabling Act of 1933, which suspended the German constitution and granted the government the power to rule by decree, after the Nazis declared a nationwide “state of emergency.”

Another thing the Commission will probably want to look into is how the German authorities accidentally banned any further demonstrations against their arbitrary decrees, and ordered the police to brutalize anyone participating in such “illegal demonstrations.”

And, while the Commission is inquiring into the possibly slightly inappropriate behavior of their law enforcement officials, they might want to also take a look at the behavior of their unofficial goon squads, like Antifa, which they accidentally encouraged to attack the “anti-vaxxers,” the “Covid deniers,” and anyone brandishing a copy of the German constitution.

Come to think of it, the Inquiry Commission might also want to look into how the German authorities, and the overwhelming majority of the state and corporate media, accidentally systematically fomented mass hatred of anyone who dared to question the government’s arbitrary and nonsensical decrees or who refused to submit to “vaccination,” and publicly demonized us as “Corona deniers,” “conspiracy theorists,” “anti-vaxxers,” “far-right anti-Semites,” etc., to the point where mainstream German celebrities like Sarah Bosetti were literally describing us as the inessential “appendix” in the body of the nation, quoting an infamous Nazi almost verbatim.

And then there’s the whole “vaccination” business. The Commission will certainly want to inquire into that. They will probably want to start their inquiry with Karl Lauterbach, and determine exactly how he accidentally lied to the public, over and over, and over again …

And whipped people up into a mass hysteria over “KILLER VARIANTS” …

And “LONG COVID BRAIN ATTACKS” …

And how “THE UNVACCINATED ARE HOLDING THE WHOLE COUNTRY HOSTAGE, SO WE NEED TO FORCIBLY VACCINATE EVERYONE!”

And so on. I could go on with this all day, but it will be much easier to just refer you, and the Commission, to this documentary film by Aya Velázquez. Non-German readers may want to skip to the second half, unless they’re interested in the German “Corona Expert Council” …

Look, the point is, everybody makes “mistakes,” especially during a “state of emergency,” or a war, or some other type of global “crisis.” At least we can always count on the Germans to step up and take responsibility for theirs, and not claim that they didn’t know what was happening, or that they were “just following orders,” or that “the science changed.”

Plus, all this Covid stuff is ancient history, and, as Olaf, an editor at Der Spiegel, reminds us, it’s time to put the “The Divisive Pandemic” behind us …

… and click heels, and heil the New Normal Democracy!

Tyler Durden Sat, 03/16/2024 - 23:20

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“Extreme Events”: US Cancer Deaths Spiked In 2021 And 2022 In “Large Excess Over Trend”

"Extreme Events": US Cancer Deaths Spiked In 2021 And 2022 In "Large Excess Over Trend"

Cancer deaths in the United States spiked in 2021…

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March 16, 2024

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"Extreme Events": US Cancer Deaths Spiked In 2021 And 2022 In "Large Excess Over Trend"

Cancer deaths in the United States spiked in 2021 and 2022 among 15-44 year-olds "in large excess over trend," marking jumps of 5.6% and 7.9% respectively vs. a rise of 1.7% in 2020, according to a new preprint study from deep-dive research firm, Phinance Technologies.

Algeria, Carlos et. al "US -Death Trends for Neoplasms ICD codes: C00-D48, Ages 15-44", ResearchGate, March. 2024 P. 7

Extreme Events

The report, which relies on data from the CDC, paints a troubling picture.

"We show a rise in excess mortality from neoplasms reported as underlying cause of death, which started in 2020 (1.7%) and accelerated substantially in 2021 (5.6%) and 2022 (7.9%). The increase in excess mortality in both 2021 (Z-score of 11.8) and 2022 (Z-score of 16.5) are highly statistically significant (extreme events)," according to the authors.

That said, co-author, David Wiseman, PhD (who has 86 publications to his name), leaves the cause an open question - suggesting it could either be a "novel phenomenon," Covid-19, or the Covid-19 vaccine.

"The results indicate that from 2021 a novel phenomenon leading to increased neoplasm deaths appears to be present in individuals aged 15 to 44 in the US," reads the report.

The authors suggest that the cause may be the result of "an unexpected rise in the incidence of rapidly growing fatal cancers," and/or "a reduction in survival in existing cancer cases."

They also address the possibility that "access to utilization of cancer screening and treatment" may be a factor - the notion that pandemic-era lockdowns resulted in fewer visits to the doctor. Also noted is that "Cancers tend to be slowly-developing diseases with remarkably stable death rates and only small variations over time," which makes "any temporal association between a possible explanatory factor (such as COVID-19, the novel COVID-19 vaccines, or other factor(s)) difficult to establish."

That said, a ZeroHedge review of the CDC data reveals that it does not provide information on duration of illness prior to death - so while it's not mentioned in the preprint, it can't rule out so-called 'turbo cancers' - reportedly rapidly developing cancers, the existence of which has been largely anecdotal (and widely refuted by the usual suspects).

While the Phinance report is extremely careful not to draw conclusions, researcher "Ethical Skeptic" kicked the barn door open in a Thursday post on X - showing a strong correlation between "cancer incidence & mortality" coinciding with the rollout of the Covid mRNA vaccine.

Phinance principal Ed Dowd commented on the post, noting that "Cancer is suddenly an accelerating growth industry!"

Continued:

Bottom line - hard data is showing alarming trends, which the CDC and other agencies have a requirement to explore and answer truthfully - and people are asking #WhereIsTheCDC.

We aren't holding our breath.

Wiseman, meanwhile, points out that Pfizer and several other companies are making "significant investments in cancer drugs, post COVID."

Phinance

We've featured several of Phinance's self-funded deep dives into pandemic data that nobody else is doing. If you'd like to support them, click here.

 

Tyler Durden Sat, 03/16/2024 - 16:55

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Gen Z, The Most Pessimistic Generation In History, May Decide The Election

Gen Z, The Most Pessimistic Generation In History, May Decide The Election

Authored by Mike Shedlock via MishTalk.com,

Young adults are more…

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March 16, 2024

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Gen Z, The Most Pessimistic Generation In History, May Decide The Election

Authored by Mike Shedlock via MishTalk.com,

Young adults are more skeptical of government and pessimistic about the future than any living generation before them.

This is with reason, and it’s likely to decide the election.

Rough Years and the Most Pessimism Ever

The Wall Street Journal has an interesting article on The Rough Years That Turned Gen Z Into America’s Most Disillusioned Voters.

Young adults in Generation Z—those born in 1997 or after—have emerged from the pandemic feeling more disillusioned than any living generation before them, according to long-running surveys and interviews with dozens of young people around the country. They worry they’ll never make enough money to attain the security previous generations have achieved, citing their delayed launch into adulthood, an impenetrable housing market and loads of student debt.

And they’re fed up with policymakers from both parties.

Washington is moving closer to passing legislation that would ban or force the sale of TikTok, a platform beloved by millions of young people in the U.S. Several young people interviewed by The Wall Street Journal said they spend hours each day on the app and use it as their main source of news.

“It’s funny how they quickly pass this bill about this TikTok situation. What about schools that are getting shot up? We’re not going to pass a bill about that?” Gaddie asked. “No, we’re going to worry about TikTok and that just shows you where their head is…. I feel like they don’t really care about what’s going on with humanity.”

Gen Z’s widespread gloominess is manifesting in unparalleled skepticism of Washington and a feeling of despair that leaders of either party can help. Young Americans’ entire political memories are subsumed by intense partisanship and warnings about the looming end of everything from U.S. democracy to the planet. When the darkest days of the pandemic started to end, inflation reached 40-year highs. The right to an abortion was overturned. Wars in Ukraine and the Middle East raged.

Dissatisfaction is pushing some young voters to third-party candidates in this year’s presidential race and causing others to consider staying home on Election Day or leaving the top of the ticket blank. While young people typically vote at lower rates, a small number of Gen Z voters could make the difference in the election, which four years ago was decided by tens of thousands of votes in several swing states.

Roughly 41 million Gen Z Americans—ages 18 to 27—will be eligible to vote this year, according to Tufts University.

Gen Z is among the most liberal segments of the electorate, according to surveys, but recent polling shows them favoring Biden by only a slim margin. Some are unmoved by those who warn that a vote against Biden is effectively a vote for Trump, arguing that isn’t enough to earn their support.

Confidence

When asked if they had confidence in a range of public institutions, Gen Z’s faith in them was generally below that of the older cohorts at the same point in their lives. 

One-third of Gen Z Americans described themselves as conservative, according to NORC’s 2022 General Social Survey. That is a larger share identifying as conservative than when millennials, Gen X and baby boomers took the survey when they were the same age, though some of the differences were small and within the survey’s margin of error.

More young people now say they find it hard to have hope for the world than at any time since at least 1976, according to a University of Michigan survey that has tracked public sentiment among 12th-graders for nearly five decades. Young people today are less optimistic than any generation in decades that they’ll get a professional job or surpass the success of their parents, the long-running survey has found. They increasingly believe the system is stacked against them and support major changes to the way the country operates.

Gen Z future Outcome

“It’s the starkest difference I’ve documented in 20 years of doing this research,” said Twenge, the author of the book “Generations.” The pandemic, she said, amplified trends among Gen Z that have existed for years: chronic isolation, a lack of social interaction and a propensity to spend large amounts of time online.

A 2020 study found past epidemics have left a lasting impression on young people around the world, creating a lack of confidence in political institutions and their leaders. The study, which analyzed decades of Gallup World polling from dozens of countries, found the decline in trust among young people typically persists for two decades.

Young people are more likely than older voters to have a pessimistic view of the economy and disapprove of Biden’s handling of inflation, according to the recent Journal poll. Among people under 30, Biden leads Trump by 3 percentage points, 35% to 32%, with 14% undecided and the remaining shares going to third-party candidates, including 10% to independent Robert F. Kennedy Jr.

Economic Reality

Gen Z may be the first generation in US history that is not better off than their parents.

Many have given up on the idea they will ever be able to afford a home.

The economy is allegedly booming (I disagree). Regardless, stress over debt is high with younger millennials and zoomers.

This has been a constant theme of mine for many months.

Credit Card and Auto Delinquencies Soar

Credit card debt surged to a record high in the fourth quarter. Even more troubling is a steep climb in 90 day or longer delinquencies.

Record High Credit Card Debt

Credit card debt rose to a new record high of $1.13 trillion, up $50 billion in the quarter. Even more troubling is the surge in serious delinquencies, defined as 90 days or more past due.

For nearly all age groups, serious delinquencies are the highest since 2011.

Auto Loan Delinquencies

Serious delinquencies on auto loans have jumped from under 3 percent in mid-2021 to to 5 percent at the end of 2023 for age group 18-29.Age group 30-39 is also troubling. Serious delinquencies for age groups 18-29 and 30-39 are at the highest levels since 2010.

For further discussion please see Credit Card and Auto Delinquencies Soar, Especially Age Group 18 to 39

Generational Homeownership Rates

Home ownership rates courtesy of Apartment List

The above chart is from the Apartment List’s 2023 Millennial Homeownership Report

Those struggling with rent are more likely to be Millennials and Zoomers than Generation X, Baby Boomers, or members of the Silent Generation.

The same age groups struggling with credit card and auto delinquencies.

On Average Everything is Great

Average it up, and things look pretty good. This is why we have seen countless stories attempting to explain why people should be happy.

Krugman Blames Partisanship

OK, there is a fair amount of partisanship in the polls.

However, Biden isn’t struggling from partisanship alone. If that was the reason, Biden would not be polling so miserably with Democrats in general, blacks, and younger voters.

OK, there is a fair amount of partisanship in the polls.

However, Biden isn’t struggling from partisanship alone. If that was the reason, Biden would not be polling so miserably with Democrats in general, blacks, and younger voters.

This allegedly booming economy left behind the renters and everyone under the age of 40 struggling to make ends meet.

Many Are Addicted to “Buy Now, Pay Later” Plans

Buy Now Pay Later, BNPL, plans are increasingly popular. It’s another sign of consumer credit stress.

For discussion, please see Many Are Addicted to “Buy Now, Pay Later” Plans, It’s a Big Trap

The study did not break things down by home owners vs renters, but I strongly suspect most of the BNPL use is by renters.

What About Jobs?

Another seemingly strong jobs headline falls apart on closer scrutiny. The massive divergence between jobs and employment continued into February.

Nonfarm payrolls and employment levels from the BLS, chart by Mish.

Payrolls vs Employment Gains Since March 2023

  • Nonfarm Payrolls: 2,602,000

  • Employment Level: +144,000

  • Full Time Employment: -284,000

For more details of the weakening labor markets, please see Jobs Up 275,000 Employment Down 184,000

CPI Hot Again

CPI Data from the BLS, chart by Mish.

For discussion of the CPI inflation data for February, please see CPI Hot Again, Rent Up at Least 0.4 Percent for 30 Straight Months

Also note the Producer Price Index (PPI) Much Hotter Than Expected in February

Major Economic Cracks

There are economic cracks in spending, cracks in employment, and cracks in delinquencies.

But there are no cracks in the CPI. It’s coming down much slower than expected. And the PPI appears to have bottomed.

Add it up: Inflation + Recession = Stagflation.

Election Impact

In 2020, younger voters turned out in the biggest wave in history. And they voted for Biden.

Younger voters are not as likely to vote in 2024, and they are less likely to vote for Biden.

Millions of voters will not vote for either Trump or Biden. Net, this will impact Biden more. The base will not decide the election, but the Trump base is far more energized than the Biden base.

If Biden signs a TikTok ban, that alone could tip the election.

If No Labels ever gets its act together, I suspect it will siphon more votes from Biden than Trump. But many will just sit it out.

“We’re just kind of over it,” Noemi Peña, 20, a Tucson, Ariz., resident who works in a juice bar, said of her generation’s attitude toward politics. “We don’t even want to hear about it anymore.” Peña said she might not vote because she thinks it won’t change anything and “there’s just gonna be more fighting.” Biden won Arizona in 2020 by just over 10,000 votes. 

The Journal noted nearly one-third of voters under 30 have an unfavorable view of both Biden and Trump, a higher number than all older voters. Sixty-three percent of young voters think neither party adequately represents them.

Young voters in 2020 were energized to vote against Trump. Now they have thrown in the towel.

And Biden telling everyone how great the economy is only rubs salt in the wound.

Tyler Durden Sat, 03/16/2024 - 11:40

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