11/22/23 09:43 AM EST

CC Debt Eviscerating Personal Savings

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.

It’s easy to lose sight of the affordability issue for the middle class in our K-shaped economy. Ironically, today’s bonus chart is also a K-shape: credit card usage is up and to the right, and personal savings rates are down.

This week, we have been giving some thought to what higher for longer actually means. We’ve mainly concentrated on government; the chickens will return to roost shortly. We are running a deficit of 6% of GDP in a “good” economy. Jeff Gundlach submits that the deficit can rise to 9% of GDP in a recession. If rates average 6%, then in 5 years from now, as much as 50% of tax receipts will go toward debt service. 70% of the budget is mandatory spending. It’s problematic.

The financial outlook for individuals is similarly formidable. Rates on auto loans are reaching unprecedented levels. Credit card rates are 25%, used cars 14%, and new cars 10%. We’ve surpassed $1.1 trillion in credit card debt, $1.6 trillion in auto debt, and household debt has expanded to $17.3 trillion. Servicing debts for just a car, home, and student loans for the median household could now eat up 70% of their pre-tax income. On a brighter note, credit card delinquency rates have nearly doubled since Q3 of 2021 but remain relatively low at 2.98%, compared to the 2008 GFC peak of 6.77%.

The 2008 crisis was a Wall Street crash with secondary effects on Main Street. Today’s predicament is rooted in widespread affordability issues that, while they have yet to impact the S&P 500 significantly and Nasdaq, show potential for serious consequences. The metaphorical bowling ball above our heads is becoming heavier to hold up.

A very happy Thanksgiving to one and all. We are eternally grateful for your support of Tier1.

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