ETFs For Rising Consumer Debt

According to The New York Federal Reserve, consumer debt is at record highs.

At the end of 2022, U.S. consumer debt across all categories totaled $16.9 trillion. That was an increase of $1.3 trillion from one year ago. What's more alarming is that in 2019, the total U.S. consumer debt was $14.14 trillion.

So, while higher interest rates likely fueled some of the increase from 2021 to 2022, increasing consumer debt had occurred even before the Federal Reserve began its rate hikes.

What is concerning about the increasing consumer debt is what it says about the future of our economy. In 2017, the International Monetary Fund released a report that showed a correlation between rising consumer debt and the economy's health. The IMF concluded that rising consumer debt was good for the economy in the short term.

For example, the more consumers take out auto loans, the more the automotive industry, from the auto parts manufacturers to the big auto manufacturers to even the auto dealers, will experience an increase in labor needs. This increase reduces unemployment, which increases overall economic activity and spurs the economy.

Consumer debt rises related to the housing industry have the same effect but on an even larger scale. It's been reported that for every new home built in the U.S., 1.5 new jobs are created.

The IMF study clearly says that while consumer debt is increasing, there are economic benefits. But, in three to five years, those positive effects are reversed. The report states that growth is slower than it would have been if the debt had not increased, and more importantly, the odds of a financial crisis increased.

The IMF went into detail about how much consumer debt needs to grow in order to raise the likelihood of a financial crisis. Their calculations indicate that a five percent increase in the ratio of household debt to the gross domestic product over a three-year period forecasts a 1.25 percentage point decline in inflation-adjusted growth three years in the future. Continue reading "ETFs For Rising Consumer Debt"

Wishful Thinking

Relax, folks. There isn't going to be a long recession, if there is one at all, and you're probably not going to lose your job, and inflation will be down below 3% by next year. The Fed’s got your back.

That's the story from the Federal Reserve’s incredibly optimistic projections released after the end of Wednesday's interest rate-setting meeting. I use the word “incredibly” deliberately, because these projections seem anything but credible. But we can hope.

Somewhat lost in the release of the Fed's 75 basis-point hike in the federal funds rate last Wednesday is that U.S. GDP growth will remain fairly positive this year, next year, and into 2024, according to the Fed’s latest projections.

The Fed now forecasts U.S. GDP will grow by 1.7% this year as well as in 2023, rising to 1.9% in 2024. Now those are down from the Fed’s March projections, to be sure, but they still remain above recessionary (i.e., negative) levels.

Likewise, the Fed is projecting that the unemployment rate will end this year at 3.7% and 3.9% next year, before rising to 4.1% in 2024. Again, those are worse than the March projections but not overly so, considering all the scare talk about how the Fed’s newly hawkish rate-rising policy will inevitably cause a recession and a jump in unemployment.

Meanwhile the Fed is also projecting that the PCE inflation rate will end 2022 at 5.2% before dropping in half to 2.6% next year and to 2.3% in 2024, again higher than its March projections but dramatically lower than where we are today at more than 8%.

How does the Fed plan to manage all this, you ask? It sees the fed funds rate reaching 3.4% by the end of this year and 3.8% in 2022, again above its March projections but a lot lower than what you would have expected, given that the yield on the two-year Treasury note is already well above 3%.

In other words, the Fed is merely playing catch-up to where the market has already been for a while.

All in all, I would say, a pretty positive story, a lot better than what we had been expecting. But how much of it can be believed? What the Fed is telling us is that it believes it can really engineer a soft landing, meaning only a moderate rise in the unemployment rate and no recession, at the cost of just slightly higher interest rates, at least compared to today’s inflation rate and current bond market rates.

In other words, the Fed says it can tame inflation back down to less than 3% all while leaving interest rates five percentage points below the current 8% inflation rate. Is that possible?

Meanwhile, what is President Biden doing for his part in trying to drive down inflation? Other than not interfering with Fed policy, which he claims is basically all he can do, he is blaming oil executives for the high price of gasoline.

Short of charging them with getting in bed with Vladimir Putin, he's laying the blame for high energy prices on their failure to explore and drill for oil, leaving out his administration's role in basically forbidding them to do just that and putting pressure, through the Fed and other means, not to lend them money in order for them to do so.

You would think Biden would have been happy that they are not drilling for oil, contributing as they are to the blissful carbon-free future he imagines. But he seems to believe he can have it both ways, namely no new oil production and low gas prices. But I guess that’s the same type of logic the Fed is using in trying to convince us it can whip inflation with a few interest rate hikes with little harm to the overall economy.

The market reaction to all this was fairly predictable. Right after the Fed rate announcement was greeted with euphoria on Wednesday, people woke up the next morning and said, “Hey, wait a minute. This can't possibly be true,” and the selling resumed with renewed fervor.

And why not? Can we take any comfort in what the Fed and our government are telling us, which is that after a dozen years of easy money, quantitative easing, artificially low interest rates, and massive fiscal and monetary stimulus, they can undo all that in a year or so without anyone being inconvenienced?

If only it worked that easily. If Powell wanted to be honest, he could have said, “Folks, there will be a lot of pain over the next couple of years to undo all we have done over the past decade, so brace yourselves for it.”

But people don’t want to hear that, especially in an election year. Although the market seems to know better.

Visit back to read my next article!

George Yacik Contributor

Disclosure: This article is the opinion of the contributor themselves. The above is a matter of opinion provided for general information purposes only and is not intended as investment advice. This contributor is not receiving compensation (other than from for their opinion.

FX Volatility To Pick Up With Growth

Lior Alkalay - Contributor - Forex

Despite the Federal Open Market Committee voting last week to maintain all of the Federal Reserve’s current rates, some market experts — including this one — are projecting that a rate hike is coming soon, and the Foreign Exchange market could see significant volatility because of it.

Indeed, as we suspected back on July 1, the Federal Reserve, in its release about the policy meeting held July 26-27, signaled that headwinds from Brexit are waning and pointed to diminishing near-term risks. But what does that mean, in practical terms? It means that the Fed is back in business: delivering mildly hawkish rhetoric, while preparing for the next rate hike. Continue reading "FX Volatility To Pick Up With Growth"

Can The ECB Learn From Its Own Mistakes?

Lior Alkalay - Contributor - Forex

This week, investors believe that they may have finally gotten the green light for ECB easing. With Eurozone inflation officially turning to deflation, investors believe that Mario Draghi and the ECB have been backed up into a corner with no escape, thus they will be forced to initiate a Quantitative Easing program that will balloon its balance sheet. In fact, the buildup towards this move started a few months back with Mario Draghi sending ever clearer signals of the ECB’s intent toward a full blown QE that will probably involve purchases of government bonds in a Federal Reserve-like manner.

If you will recall, Mario Draghi had also outlined the ECB’s intent to balloon its balance sheet back to its 2012 record of roughly €3.1 trillion. With the ECB’s current balance sheet at €2.216 trillion that means an estimated €884 billion in additional liquidity coming to the markets. As would be expected, the Euro has been in utter meltdown over the past few months, sliding to a low not seen in more than 9 years; of course, all this comes on the back of the impending liquidity injection and especially now as deflationary fears were confirmed with the Eurozone’s CPI at -0.2%. So far, this is par for the course, yet for me, this dredges up old memories of 2012.

The Big Mistake

Just by stating the obvious, that the ECB has to increase its balance sheet by a jaw-dropping €884 billion in order to increase its balance to the size it was a little more than two years ago, shows just how big a mistake the ECB has made in its policy since then. Across the “pond,” the Federal Reserve’s balance sheet has been growing since 2012 and its size has only now stabilized, as the US enjoys above-trend growth, a hair’s breadth of full employment and core inflation at a decent 1.7%. In the meanwhile, as the ECB was aggressively shrinking its own balance sheet, Eurozone growth came to a virtual standstill, unemployment remained stubbornly high, exports slowed, manufacturing weakened and, of course, the Eurozone moved into deflation. Continue reading "Can The ECB Learn From Its Own Mistakes?"

Don't Get Ruined by These 10 Popular Investment Myths (Part IX)

Interest rates, oil prices, earnings, GDP, wars, peace, terrorism, inflation, monetary policy, etc. -- NONE have a reliable effect on the stock market

By Elliott Wave International

You may remember that after the 2008-2009 crash, many called into question traditional economic models. Why did they fail?

And more importantly, will they warn us of a new approaching doomsday, should there be one?

This series gives you a well-researched answer. Here is Part IX; come back soon for Part X.

Myth #9: Inflation makes gold and silver go up.

By Robert Prechter (excerpted from the monthly Elliott Wave Theorist; published since 1979)

This one seems like a no-brainer. The government or the central bank prints more bonds, notes and bills, and prices for things go up in response. Gold is real money, so it must fluctuate along with the inflation rate.

Once again, it doesn't happen that way. Let's examine the history of inflation and the precious metals since the low of the Great Depression.

Inflation occurred relentlessly from 1933 to 1970, yet gold and silver remained unchanged over the entire time. True, the government fixed the price. But markets are more powerful than any government, and if the market had wanted precious metals prices higher, it would have made them go higher. Continue reading "Don't Get Ruined by These 10 Popular Investment Myths (Part IX)"