How Much Debt Is Too Much Debt?

Yesterday, we received the quarterly Household Debt and Credit report from the NY Fed. [The Daily Peel... ](=) November 8, 2023 | Peel #581 Silver banana goes to... [CapLinked. ]( In this issue of the Peel: - Yesterday, we received the quarterly Household Debt and Credit report from the NY Fed. - Datadog and KKR Inc. saw share price increases, whereas Emerson Electric and AMC Entertainment suffered share price declines. - UBS reported its Q3 earnings, reporting results impacted by the Credit Suisse acquisition. Market Snapshot Happy Wednesday, apes. Alright, in the past three days, we’ve got the release of OpenAI’s latest version with GPT-Turbo along with Elon Musk’s release of his firm xAI’s chatbot Grok, and, well, we’re still clear. Something’s gotta be watching over us, but damn, it’s a fun simulation to be living in. Equities certainly had their fun on Tuesday, too. U.S. equities broadly gained, with the Russell 2k being the only hater-index that still fell on the day, losing just 0.35%. Energy, materials, and real estate took the biggest blows of the day while large cap and rich people dominated sectors like tech, communications, and consumer discretionary led. In the meantime, yields seemed nothing if not confused about exactly what to do. The 2-year yield rose mildly, staying above the 4.9% level but below the key 5% reading, too. The 10-year moved similarly but ended the day lower, closing at yields right around 4.58%. Let’s get into it. Forget Free Drinks. CapLinked is Hooking Clients Up with Big-time Bonuses. [image]( You know what’s better than going to happy hour with a VDR sales guy? Pretty much anything else. That’s why CapLinked will never ask you for drinks. 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Banana Bits - Uber missed expectations on its [latest report](, but you wouldn’t know it by the stock price. - When things might go bad in the banking sector, there’s an [easy solution](—add a ton of complexity and dump random sh*t on random counterparties. - It’s a tale of two cities in the industry that all of you apes are apparently willing to sacrifice a firstborn child to get into it as KKR crushes it while Carlyle (and their employees) [get crushed.]( - Homebuilder D.R. Horton showed us that, despite the utterly frozen U.S. housing market, you can [still make money.]() Macro Monkey Says Put It on the Plastic Remember when one of your friends in high school/college (hopefully college) was the first one to get a credit card? Felt like you were talking to a combination of Lil Wayne and Jeff Bezos—the coolest and the richest guy around. Well, nowadays, that friend (and hopefully you as well, by now) is helping contribute to some brand new economic records. Yesterday, we received the quarterly Household Debt and Credit report from the NY Fed, and yes, our suspicions have been confirmed—Americans love to put it on the plastic. To SpongeBob, the idea of buying one piece of plastic by swiping another piece of plastic was strange, as shown in [this X (Tweet?)]( that I couldn’t actually find a video for. But to Americans, especially since the C-19 wave rudely ruined our lives, it’s become second nature. "... we’ve officially set a new record for credit card debt levels at $1.08tn, a 4.7% jump." In fact, it’s become so second nature that we’ve officially set a new record for credit card debt levels at $1.08tn, a 4.7% jump. However, the report hits on much more than just what we swipe, with some of the highlights including: - Aggregate household debt balances jumped $228bn to $17.29tn, a 1.3% quarterly increase and a nearly 22% rise compared to Q4’19. - Mortgage originations fell slightly to $386bn, once well over $1tn back in the glory days of 2020/21, but mortgage balances increased by $126bn to $12.14tn. - Outstanding student loan debt increased by $30bn to $1.6tn. - Auto loan balances continued to climb to $1.6tn, as they’ve done since 2011, but 7.4% of these loans transitioned into delinquency. - Speaking of delinquencies, delinquency rates increased for all major debt categories except for student loans. And just FYI, when we say “delinquent,” we aren’t describing the kinds of trades I place in my brokerage account (although that is accurate). Instead, we’re referring to outstanding loans with at least one payment not made by a specified due date. Basically, debt levels are increasing at a relatively rapid clip compared to historical norms. That’s most true for credit card debt, which, unsurprisingly, has also seen their average rates hit an all-time high of 20%. So—at the same time—we have both the highest balances and highest rates of credit card debt in American history. Like government, like people, I guess. "... debt levels are increasing at a relatively rapid clip compared to historical norms." It appears that rather than change up their lifestyles now that government stimmy checks aren’t coming and our excess cash savings piles have deteriorated to almost nothing, Americans are instead choosing to simply… put it on the plastic! What could go wrong, right? A whole lot, presumably. And that’s likely why we’re seeing delinquency rates—particularly in credit cards—increase so staunchly. Millennials have been the primary demographic driving this change, but lower-income earners and those with higher-than-average balances are making their fair share of contributions as well. Even with stimmy checks and savings gone, this seems weird. The labor market has been way too resilient (not even being hyperbolic) while wage growth continues to outpace inflation, so the primary drivers of this increase in delinquencies could be on the supply side. Overextension of credit, along with deeper uncertainty about the economy’s path, could be responsible, but the last time something like that happened was with mortgages back in about 2006-2007. Thank god no major financial crisis happened immediately after that… right? What's Ripe Datadog (DDOG) ↑ 28.47% ↑ - Have you ever been going through a breakup, and all of a sudden, you realize that you were, in fact, the problem? That’s gotta be how Google is feeling right about now. - Although Datadog isn’t necessarily in exactly the same business, it is a cloud-drive company, and much like its larger rivals (minus Google), its cloud operations are doing just dandy. - Revenue grew 25% annually to $547.5mn, much better than the $524.1mn expected, while EPS of $0.45/sh cleaned the clock of the $0.34/sh analysts estimated. - Full-year guidance was raised as well, along with other cloud names like Snowflake (SNOW, +10.66%) and MongoDB (MDB, +11.02%). KKR Inc. (KKR) ↑ 4.98% ↑ - Not to be a hater or anything, but all you apes looking for a quick buy side jump must be pretty disappointed as a result of last year… and for expectations next year… and really for any kind of hope. Maybe KKR can help. - Sadly, I don’t have authorization to give you a full-time offer to join them (yet), but what I can tell is that they had a solid quarter. It’s not necessarily on the PE side of the business, but insurance is looking golden. - Distributable earnings, a key metric for private equity players, fell 6.6% from a year ago, but the insurance unit’s 24% operating income jump more than helped cover that. The firm’s portfolio of private investments gained 5% as well. - What garnered a lot of attention for the report was the 6.5% jump in AUM to $528bn after raising $14bn and holding final closes for some hallmark funds like the latest Next Gen Tech and Global Impact groups. What's Rotten Emerson Electric (EMR) ↓ 7.41% ↓ - We can’t all be OpenAI or Nvidia, but Emerson Electric sure tried its hardest by claiming that the completion of its recent acquisition made it “into an automation leader.” Sorry, what do these guys do again? - Oh yeah, they sell the most boring sh*t you could ever imagine, like valves, process control systems, analytical instruments, etc. I’d keep going, but I’m about to fall asleep. Regardless, the firm reported earnings just a smidge below expectations at $1.29/sh vs $1.30/sh expected. - Sales growth wasn’t terrible, rising to $4.09bn, but still managed to fall short of expectations. - The company is looking to lead the charge in the Internet of Things and other such buzzwords, so maybe “leader in automation” isn’t a total lie. It’s just a little early. Place your bets now, apes. AMC Entertainment (AMC) ↓ 6.67% ↓ - Does this really need an explanation for why it went down? The $2bn movie theater chain ostensibly being operated by [these guys](=) tumbled once again, and literally, not a single person was surprised. - Earnings are scheduled to come out today after market close, so can you really blame the homies for trying to get out before that monstrosity? Of course, you never know how things could shake out, and Taylor Swift did just release a movie, so maybe she saved the firm in addition to the entire U.S. economy. Thought Banana Reaffirming (Arranged) Marriage Vows It’s been 233 days since the Swiss government forcefully arranged a marriage between its two biggest knuckleheads, so let’s take a look at how the two (un)willing lovers are making out (pun intended). As of June 12th (148 days ago), UBS had completed its acquisition of Credit Suisse on paper, creating one of the largest banks in the world and the planet’s 3rd largest asset manager, after only BlackRock and Vanguard, with an estimated ~$5tn in AUM. Yesterday, UBS reported its Q3 earnings, so let’s take a look at the arranged lovefest. Let’s start with the bad news because that’s always more fun. The combined entity of UBS and Credit Suisse recorded $2bn in fees related to the integration of Credit Suisse onto its big brother's platform, leading to a loss for the quarter of $785mn. "The combined entity of UBS and Credit Suisse recorded $2bn in fees related to the integration of Credit Suisse ..." Analysts were expecting a loss similar to the title of a phenomenal Jay-Z album at $444mn, but that was where the real bad news ended. Underlying profit, however, came in way above expectations at $844mn. This excludes those acquisition fees, taxes, and other things that absolutely should matter, but analysts were still glad to see that nothing’s broken (yet). On the really bright side, CEO Sergio Ermotti went on CNBC and detailed how he and the rest of the management team were “pleasantly surprised” to see net money inflows into Credit Suisse Wealth Management. I gotta say, we might be even more surprised, but with BTC prices still down almost 50% from their peak, I guess investors need somewhere else to launder their money. "... the firm is far from the risk of completely falling apart thanks to the integration of its smaller rival." Revenue soared 23% to $11.7bn, also beating expectations. The all-important CET1 ratio remained unchanged in the meantime, suggesting the firm is far from the risk of completely falling apart thanks to the integration of its smaller rival. Still, things are far from over. The notoriously secretive bank in a notoriously secretive country hasn’t given a whole lot of guidance as it pertains to branding and other elements of the deal, but if they keep moving in this direction, they actually might not need that $10 billy the Swiss government has promised them. How nice. The big question: Will UBS consolidate all things Credit Suisse under the UBS umbrella? When will this deal be actually finalized in the company’s operations and not just on paper? Are you buying this stock? Banana Brain Teaser Yesterday — Some say I'm their worst enemy, Some say I'm their best friend. Some use me in brevity, You'll still pay for what I lend. There's proof that I can even kill, Too many take that path. There's claim also that I can heal, You'll have to do the math. Yes, uses for me do abound, You'll see me often; look around. Answer Alcohol Today — I occur twice in January, once each in February, March, April, and May. But when you get into June, I just fade away. It isn't until August that I reappear, And that's the very last time that I occur all year. What am I? Shoot us your guesses at vyomesh@wallstreetoasis.com Wise Investor Says “The lack of money is the root of all evil.” — Mark Twain How would you rate today’s Peel? [All the bananas]() [Decent](=) [Rotten AF]( Happy Investing, Patrick & The Daily Peel Team Was this email forwarded to you? [Be smart like your friend.](=) [ADVERTISE]( // [WSO ALPHA](=) // [COURSES]( // [LEGAL]() Don't want The Daily Peel? [Unsubscribe here](). Click to [Unsubscribe]( from ALL WSO content IB Oasis Corp. (aka "Wall Street Oasis") 20705 Saint Charles St Saratoga, California 95070 United States