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Morning Commentary

Retail to the Rescue?
By Charles Payne, CEO & Principal Analyst
5/19/2017 9:31 AM

The market rebounded Thursday after the worst session in eight months, led by retail names, including Walmart (WMT), which is getting its Internet act together.

Retail was impressive all around with gains from Phillips Van-Heusen (PVH) to CarMax (KMX), making consumer discretionary the number one top-performing sector in the S&P 500.  After the close, Gap Stores (GPS) posted earnings that popped shares by 5%.

Financials also rebounded but it was led by regional banks, not big money center banks even after Steve Mnuchin firmly put to bed the notion of a return to the Glass-Steagall Act – even a modern version.

S&P 500 Index

+0.55%

Consumer Discretionary (XLY)

+0.79%

Consumer Staples (XLP)

+0.16%

Energy (XLE)

+0.07%

Financials (XLF)

+0.61%

Health Care (XLV)

+0.64%

Industrials (XLI)

+0.38%

Materials (XLB)

+0.23%

Real Estate (XLRE)

+0.35%

Technology (XLK)

+0.77%

Utilities (XLU)

+0.52%

U.S. Household Debt

Headlines can be misleading and often deliberately misleading to push certain narratives, but also there’s simply lazy reporting. This is the case over headlines that U.S. household debt is back to the all-time high level that precipitated the housing and stock market crash that precipitated the Great Recession.  

While the total debt has reached $12.73 trillion, its composition has changed and its threat to the economy has changed. The housing debt is significantly less as a percentage of the Gross Domestic Product (GDP) than it was on the cusp of the meltdown. There are a lot fewer exotic bets and exogenous risk to the financial system. 

When the recession began, the U.S. household debt was nearing 100% of the GDP. Currently, the total household debt is hovering around 80% of the GDP.

However, it is true the surge in student and auto loans present their own levels of potential risk to taxpayers. Nonetheless, it’s extraordinarily less than the sliced and diced and bundled loans and bonds that were a ticking time bomb back in the day.

US Household Debt

Outstanding

Housing Debt

Non- Housing

3Q 2008

$9.99 trillion

$2.69 trillion

1Q 2017

$9.08 trillion

$3.64 trillion

 
The story of debt in America has been mostly a story of student loan debt, which ballooned during the Obama administration after the middle man was kicked out of the process and the federal government rubber stamped most applications. Consequently, taxpayers are on the hook for more than $900 billion of the $1.44 trillion in outstanding student loans. 

A look at the chart below underscores that overall delinquencies aren’t red or even yellow flags beyond student loans.

 

Currently, the median monthly payment is $203.0 and yet, seriously delinquent student loan rate has climbed to 11%.  The good news is wages are beginning to move and millennials are moving up in the workplace.

I’ll keep an eye out for credit card debt, which made a noticeable quarter-to-quarter jump, although part of that would be explained by seasonal factors related to the holidays.

 

US Household Debt

90 –day Delinquent

4Q 2016

1Q 2017

Mortgage

1.6%

1.7%

HELOC

2.1%

2.1%

Student

11.2%

11.0%

Auto

3.8%

3.8%

Credit Card

7.15

7.5%

 
A closer look at the recent trajectory of U.S. household debt hints at increased consumer confidence.  That confidence, in turn, reflects the improved personal economic conditions. With that in mind, while there are limits on where we want to see debt levels; the spending we need to push the economy is partly because of reasonable borrowing and access to credit.

Conclusion

Headlines that equate today’s level of debt are misleading folks and fanning flames of fear and anxiety.  This is a new day with new circumstances. I think the development is a net positive-a big-time net positive development.

Today’s Session

Corporate earnings taking center stage.

  • Deere (DE) has a big beat driven by construction, allowing management to guide higher for the full year.
  • Autodesk (ADSK) opens at a new all-time high.  The company doesn’t get much coverage but it is a juggernaut
  • McKesson (MCK)  beat by $0.41 last night, the stock is up strongly at the open

It’s unlikely that the market will erase losses for the week. It’s poised to be a strong opening and session that should ease the sense of panic from 48 hours ago.

   

            


Comments
There are a bunch of smallish mail order companies that have an effective on-line presence ... you probably get them at home. Harbor Freight. Northern Tool. Some sell western and seasonal clothing. Excellent pricing and selection.


I can see some of them getting together with some bricks and mortar stores.


Sears really screwed the pooch when they got rid of the biggie Sears Catalog.

Best regards,

- Al M

Al M. on 5/19/2017 12:49:41 PM
 

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