Economic Twists

Is American Debt Really That Bad? 🤔 February 8, 2024 | Peel #643 Silver Banana goes to... [CapLinked. ]() In this issue of the Peel: - 💳 American debt balances are bad… but are they really that bad? - 👻 Does anyone even still use Snapchat anymore? Check out their stock. - 🇨🇳 A top China securities regulator got sacked?! Market Snapshot 📸 = Banana Bits 🍌 - Major border measures failed in [Congress yesterday]() - Massive chip designer Arm knocks it out of the park with their [latest earnings]( - NYCB releases managed to chill out fears for round 2 of [last year’s regional banking tomfoolery]( - The [old man fight]( continues, and this time, we don’t mean Donnie T vs Joey B Open a Caplinked Enterprise VDR and Become a Coachella VIP What sounds better: drinks with a VDR salesman or your VDR provider sending you on an all-expenses paid VIP trip to Coachella? If you didn’t pick Coachella, there’s nothing we can do for you (except maybe judge you a little bit). For those who are into having a great time, CapLinked is literally sending you to Coachella. And not just some choke-on-dust tickets either. We’re talking the VIP package, with exclusive food and drink vendors, shaded lounges, and even air-conditioned restrooms. All you have to do is sign up for an Enterprise VDR and you’ll be out partying like (and maybe even with) a rockstar. [Here’s how to claim your wristbands.]() Macro Monkey Says 🐒 Freaks In The Balance Sheets The esteemed American artist and public intellectual Lil Tay once reminded us that she’s “the youngest flexer of the century.” Poetic stuff from the 9-year-old. But, with the way the U.S. economy—and specifically, household balance sheets—are looking today, she’s got a lot more competition. As if we didn’t already, Americans got bank in 2024. What’s Going On? Earlier this week, the New York Fed published its quarterly report on [Household Debt and Credit]( in the U.S. for the last 3 months of 2023. Spoiler alert: debt is spiking, but so is that “straight cash, homie,” as the legend Randy Moss would say. In total, U.S. consumers managed to rack up an additional $212bn in aggregate debt balances by the end of last year to a total of $17.5tn. That might sound egregious, but it’s actually only a 1.2% bump from Q3. [Source]( Making up 70% of the debt pie, mortgage balances—including both originations and refinancing—grew $394bn in Q4, right on pace with the rest of 2023. Credit card debt balances increased by $50bn at the same time, a 1.6% jump, bringing that total line item up to a record $1.13tn. Record credit card debt levels might sound like the boogeyman the U.S. economy has been waiting for, but most market prognosticators are all over it already: [Source](=) As we can see above, the ratio of credit card debt levels to actual money in the bank is still sitting near multi-decade lows and substantially below that of the GFC days in 2008. That should offer some solace to concerned macro followers, but the important thing to keep in mind is who exactly owns that debt. Consumers with hoards of cash in the bank likely aren’t diving into new credit accounts with >20% rates, so this will still be key to keep an eye on. But For Now… The U.S. is still “winning [the] world economic war,” according to [Axios](). Much of that credit card debt has likely already been spent, and logically, that spending will only help aggregate growth in the short term. Given that ~70% of U.S. GDP is tied to consumer spending, I think you get the idea. In 2023, the U.S. led the developed world in economic growth and, per the IMF, that trend is expected to continue in 2024: [Source](=) Debt-fueled growth, while not immediately clear as the primary driver of U.S. outperformance, clearly could come back to bite the economy as a whole if things go south. Fed officials, thanks to the market-wide depressant JPow prescribed us last week, aren’t looking to cut rates until much later this year. And already, delinquency rates are on the rise. 8.5% and 7.7% of credit card and auto loan balances, respectively, are in delinquency as of the end of 2023: [Source]( While not at extreme levels just yet, these delinquency trends certainly aren’t moving in the right direction. The eternal dance between cash and credit in the U.S. is starting to take up more and more of the spotlight, much like former White House Press Secretary Sean Spicer on [Dancing with the Stars](=). To Summarize U.S. debt balances are growing at faster rates than cash in the bank. But, since the hoarding of cash and the trillions of dollars that have airdropped onto the economy in 2020 and 2021, we’re starting from a particularly strong baseline of aggregate cash. Meanwhile, the U.S. economy has ridden that wave of easy cash to the forefront of developed economies, growing at the fastest rate with all expectations for that to continue in 2024. However, if debt-fueled growth really has been the primary driver of recent outperformance, a minor stumble could lead to outsized calamity down the line. Let’s just hope JPow, the Fed, and everyone else from sea to shining sea can hold their footing. What's Ripe 🤩 Roblox (RBLX) 📈10.2% - The kids on Roblox might be draining their parents' bank accounts, but they’re also carrying their stock portfolio. The gaming platform crushed Q4 earnings. - Daily active users and revenue-per-user are both back to growth mode in the last two quarters, with “bookings” (a.k.a. revenue) well past estimates for Q4 and the full year. - Losses narrowed in 2023, and guidance for 2024 beat estimates, too, largely on growth in the +13-year-old user base. Like Facebook circa 2014, the boomers are coming! Ford (F) 📈6.1% - Despite the fiasco that is the F-150 Lightning, Ford still managed to drive itself to a solid Q4. Hybrid vehicles and 2024 guidance got Wall Street hyped, too. - EPS of $0.29/sh more than doubled the $0.14/sh expected, thanks to cost cuts during the quarter and full year. Meanwhile, Q4 auto sales beat by >$3bn. - The popularity of the firm’s BlueCruise highway self-driving feature and a 43% jump in hybrid vehicle sales last month are already revving investor engines for a strong 2024. What's Rotten 🤮 Snap Inc (SNAP) 📉34.6% - CEO Evan Spiegel and the rest of the Snapchat team are gonna want to delete this Story and remove it from their Memories as soon as possible. Just… wow. - It was the firm’s 3rd worst performance of all time, owing the suffering to garbage earnings and disappointing guidance. Losses were wider, and sales were shorter than expected. - The real problem, however, is that the tide has finally been pulled out, and we can confirm Snap has been swimming naked. The ad dollars simply aren’t there as they are for others like Meta, Google, and even Pinterest. Alibaba (BABA) 📉5.9% - As the Chinese stock market craters, Alibaba is leading the way lower. Founder Jack Ma’s recent purchase of $50mn in shares couldn’t help on Wednesday. - The firm missed revenue estimates in the last quarter of 2023 just slightly, but net income fell a not-nice 69% annually in the fourth quarter. - The recent violence against Chinese stocks doesn’t help either, with investor confidence lower than the odds of Bill Belichick landing a new head coach role. = Thought Banana 🤔 Firing the Weatherman Rainy days suck, but the head of NBC isn’t gonna fire GOATed weatherman Al Roker because he couldn’t play golf that weekend. But, if our boy Al had been saying, “Nah, don’t worry, it’s the perfect day to hit the links!” then the hapless head of NBC might change his or her mind. Unfortunately, Xi Jinping doesn’t appear as understanding as Roker’s boss would be. What Else is Getting Chopped? After an 11% decline in equities in 2023, marking the 4th-year in a row of losses, Chinese President Xi Jinping has had it with (former) securities regulator Yi Huiman. On Wednesday, Yi was officially replaced as the head of the China Securities Regulatory Commission (CSRC) for failing to get markets back moving in the right direction. In other words—he couldn’t get the rain to stop. While U.S. and global equities have been on fire coming into 2024, China—the world’s 4th largest equity market in 2023—hasn’t gotten the memo. = [Source]() Fears of real estate debt bubbles, regulatory drags, draconian industry laws, an overall underperforming economy, and much more have left the world’s now second-most populated country out from all the fun. For months, Li had been promising market participants and his higher-ups in the CCP (namely, Xi Jinping) that he’d be able to revive confidence in the country’s financial markets… but clearly, that hasn’t worked out. What’s Next? Yi, who used to run the world’s largest bank by revenue—the Industrial & Commercial Bank of China—is shaking in his boots following the ousting. The last time a head of the CSRC got the boot, he immediately faced charges of “corruption.” Don’t be surprised if Yi sees a similar fate… Much more importantly, if you’re not Yi or his family, Chinese stocks need a shot of confidence, and regulators hope the new CSRC head, Wu Qing, can get the job done. State-sponsored purchases of domestic ETFs in China’s sovereign wealth fund and other measures have yet to offer any assistance, but maybe this replacement will be the equivalent of watching David Goggins for the nation’s stock market. Or, maybe increasing the earnings of the country’s largest companies could help, too? Just an idea… 💭 The Big Question 💭: Will Chinese stocks see a rebound and join the rest of the world on the upside in 2024? What will it take to get them to join the party? What kind of fate will Yi face now? Banana Brain Teaser 💡 Yesterday 🗓 A garden center sells a certain grass seed in 5-pound bags at $13.85 per bag, 10-pound bags at $20.43 per bag, and 25-pound bags at $32.25 per bag. If a customer is to buy at least 65 pounds of the grass seed, but no more than 80 pounds, what is the least possible cost of the grass seed that the customer will buy? Answer: It’s actually cheaper to buy 75 pounds rather than 70 pounds or 65 pounds. Therefore, the answer is $96.75 Today 🕐 Of all the students in a certain dormitory, ½ are first-year students and the rest are second-year students. If ⅘ of the first-year students have not declared a major and if the fraction of second-year students who have declared a major is 3 times the fraction of first-year students who have declared a major, what fraction of all the students in the dormitory are second-year students who have not declared a major? Send your guesses to vyomesh@wallstreetoasis.com Wise Investor Says 🤓 “Investing is about intellectual honesty. You want to know what you know. You want to know, mostly, what you don't know.” — Li Lu How Would You Rate Today's Peel? 😁[All the bananas]() 😐[Meh]() 😩[Rotten AF]() Happy Investing, David, Vyom, Jasper & Patrick [ADVERTISE]() // [WSO ALPHA]( // [ACADEMY]() // [COURSES]( // [LEGAL]( [Unsubscribe]( IB Oasis Corp. (aka "Wall Street Oasis") 20705 Saint Charles St Saratoga, California 95070 United States (617) 337-3353