Signed in as:
filler@godaddy.com
A LOOK AT THE FINANCIAL MARKETS
High Interest Rates Increase Expenses
For Smart Investors that utilize debt to finance purchases, this will reduce the number of deals that make sense as an investment. When rates are rising, patience is rewarded as the prices typically drop.
Consumer Price Index and Shelter
If you separate the CPI from Shelter, you can see that prices have leveled off and a bubble remains in the housing sector. The 30 year fixed mortgages in the residential sector have delayed the bursting of this credit bubble. Just keep watching the consumer credit card debt. A high number of credit card defaults will lead to evictions and foreclosures.
Credit Card Debt
In 2023, outstanding credit card balances in the United States surpassed $1 trillion for the first time. This milestone has raised concerns about the health of household finances and the implications for consumer spending going forward. In total, the CPI rose 20% between May 2020 and October 2023, which is close to the growth in total credit card balances over this period.
Credit Card Scores
Many individuals who experienced a fast improvement in credit scores during the COVID-19 pandemic are not as financially stable as those who improved their credit scores after the 2007-2009 recession. The credit scores of these borrowers may have improved, but their long-term underlying ability to repay a loan in time did not. This is going to create the largest wave of credit card defaults that we have ever seen!
Credit Card Utilization
The problem is obvious if you look at the credit card balances. The "Green" group, uses an average of about 9% of their available credit limit. The "Red" group uses an average of 56% of their available credit limit. The "Blue" group nearly maxes out their available credit limit, at an average usage of 93%. The cost of housing has sky rocketed and it now consumes the majority of most consumers income. They are now utilizing their credit cards to pay for essentials like food, car payments, gas, health care, cell phones, and utilities.
Increasing Cost of Insurance
Owning a house as well as owning an apartment building has become more expensive which drives the cost of home ownership up for homeowners and renters that are staying in these homes and apartments. Interest rates have also driven up mortgage rates which further amplifies the problem. There will soon be a time where people are choosing between eating dinner and paying for their rent, mortgage, or insurance. In the mean time, they are just using their credit cards.
Increasing Cost of Credit Card Debt
Over the last 10 years, average APR on credit cards assessed interest have almost doubled from 12.9 percent in late 2013 to 22.8 percent in 2023 — the highest level recorded since the Federal Reserve began collecting this data in 1994. With credit card balances at an all time high, more money is being spent on credit card interest than ever. Credit card rates have risen faster than incomes which is a problem. Anytime you see costs rising faster than income, it is not sustainable. This is a credit bubble.
The Payment Hierarchy And Markets
Its important to know what consumers will pay first and what they will pay last when they start to run out of money. In this current market, the consumers income is being used to cover housing expenses which is why they are utilizing credit for food, transportation, and utilities. Here is a worksheet that shows the mindset of the consumer. Some indicators of problems will be a drop in consumer spending, drop in subscription services like Netflix, drop in high cost cell phone services from companies like Verizon. You will also see a drop in travel which effects the hospitality market, airlines, entertainment, and restaurants.
Consumer Credit And The Stock Market
The U.S. Stock Market has been on a run with many companies touting rapid earnings growth. But what if you remove the sales that would never had happened without credit. What will the earnings for cell phone companies like Verizon look like? How about Apple? When the credit bubble pops, so will the earnings for these companies and this will remove money from the economy for everyone holding these stocks. This includes pension and retirement funds. It also puts pressure on insurance companies that utilize the stock market to invest their cash they collect from premiums. If the stock market drops, premiums tend to go up.
Extended Stay Hotels - The Next Destination For Displaced Consumers
When consumers can not afford their house anymore or they cant afford their rent, they go to extended stays. If you go back in time the extended-stay model has stayed pretty consistent all the way through the other downturns.
Over the past decade, global hotel brands have expanded their extended-stay portfolios by more than 50 percent, a compound annual growth rate of 7.1% versus 3.2% for the U.S. market as a whole. The extended stay market is projected to experience rapid growth over the next 3 years and the Billionaires know it.