Squeeze

The violence of the moves across asset prices post the ever-so-slightly-softer CPI print last week, reeked of a squeeze; a classic bear market rally as nostrils flared and the shiny faces on CNBC talked up the famously misguided narrative of the ‘Santa Claus rally’. That the data may be in for a few months respite, might fan the coals, but there remains a lingering fear that delayed effect of the super-sized rate hikes are going to cobble corporate earnings. Forecasts, whilst pared, remain too high. The impact comes with an eighteen month delay. For a real-time glimpse into an economy that is weathering a Muhammed Ali-sized one-two on the cost of living, listen to what companies are saying. Wendy’s head chef, one Todd Penegor, spoke of a strapped consumer, a consumer eating more meals at home, glassy eyed in front of Wheel of Fortune. Through the lens of Upstart, a company that uses AI to provide affordable credit to those that need it, the message is much the same. To make ends meet, many households are raiding the college fund. The personal savings rate has down-ticked to a level “not seen since the great financial crisis”. To make matters worse, CFO Sanjay Datta went on explain that consumers have slapped it all on the credit card. He then blinked several times. Such stark warnings on the current financial mojo of suburban America are brutally laid bare in the readings of consumer sentiment. Whilst the implosion of the crypto world has caught the headlines, the University of Michigan’s consumer sentiment gauge just printed a sub-55 month. During economic expansions the average reading is 88; during recessions its about 70. So a sub-55 reading sort of explains where the consumer is at, more so in the context that it has been below 60 for seven consecutive months. Seven. The prior record was four months. Any Santa-led rally is for renting, for this bear the lows are not yet in.