• Bull.




Below is a chart and brief excerpt from today’s Market Situation Report written by Tier 1 Alpha. If you’re interested in learning more about the Hedgeye-Tier 1 Alpha partnership, there’s more information here.

We thought it'd be discerning to spotlight this bonus chart over the upcoming six months. When the Fed began hiking rates some time ago, back when we were younger and had fewer grey strands, we often discussed how interest rates served as a rather crude tool for the Fed. It's more of a broad stroke than a fine-tuned approach. The main point? The impact of interest rates truly kicks in once the bills arrive.

Tier 1 Alpha: C.C. Delinquencies Surge Amid Troubling Landscape - 9.8.23MSR

Expect this chart to make frequent appearances with student loan repayments just 22 days away. Both credit card and auto loan delinquencies have surged. Credit card delinquencies have practically doubled, albeit from very very low historical levels—moving from 1.5% in Q3 2021, amidst the warmth of fiscal stimulus, to 2.77% now.

For some context, during the 2008 recession, the seasonally adjusted unemployment rate moved from 5% in December 2007 to 9.5% by June 2009. Concurrently, seasonally adjusted credit card delinquency rates rose from 4.6% in the last quarter of 2007 to 6.8% in Q2 2009. As employment dwindled, revolving credit delinquencies grew. It's not exactly rocket surgery.

We rarely utter, "It's different this time," because it often isn't. However, there are notable distinctions now, and they're not favorable. Unlike 2008, we're emerging from an era marked by significant fiscal stimulus and inflation levels reminiscent of the 70s. In 2008, the median home price was 360% of household income; now, it hovers around 560%. Granted, this metric mainly concerns those currently entering the housing market.

As ProfPlum aptly noted before, recessions can be likened to basement fires in a house. They might remain contained, but you never know if they will engulf the entire structure. Monitoring employment, corporate bankruptcies, and consumer delinquencies will be decisive in the coming days.

Learn more about the Market Situation Report written by Tier 1 Alpha.