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[00:00:00] Welcome back to the What's Your More podcast. I'm your host, Quentin Harris. You're dialed in for episode 235. So, man, [00:00:05] this morning we're going to talk about consumers. Are they overextended or are they just done spending? Existing [00:00:10] home sales, how they are expected to improve over the year. This is a big one because we talk about it all the time.
[00:00:14] Signals [00:00:15] from the Federal Reserve members and from the Federal Reserve. Are they starting to create a clear picture for us of things to come? [00:00:20] And then five things I did last week so that I can answer Elon's email not to get fired. And finally, [00:00:25] what's up with this flu season? All this and more in the next episode of What's Your One More.
[00:00:28] [00:00:30] *Oh*
[00:00:33] All right, welcome back to the show. So let's [00:00:35] get on with this consumer overextended or is the consumer stop spending? You [00:00:40] know, I take a look at this because for me this is something we talk about quite frequently on the show [00:00:45] Uh credit card debt has been alarming to us um, and I don't think it's so much in the manner of like it's going [00:00:50] to create a a recession, but I have said, I thought this was the financial market that has cracks [00:00:55] in it.
[00:00:55] It's continuing to show those cracks is continuing to show up and it's not getting [00:01:00] any better. I mean, the most recent reading on the New York fed that comes out with the [00:01:05] quarterly economics and the consumer spending shows that, uh, uh, shows [00:01:10] recently that, um, the data from last quarter being Q4 of 2024 indicated that credit card debt is now [00:01:15] showing 1.
[00:01:15] 21. That's 1. 21 trillion with a T in credit card [00:01:20] debt. As well as increasing signs of delinquency that are up to 11 percent on [00:01:25] credit cards and also up to 5 percent on auto loans Some of those hitting new 10 year [00:01:30] highs And the reason that's interesting is because the bulk of those delinquencies are going to be between the [00:01:35] ages of 18 and 39 Now if you're an avid listener to the show, you know This graph i'm [00:01:40] about to pull up will be on our youtube channel at what's your one more with number one But if you're new to the show, please tune [00:01:45] into our youtube channel at what's your one more with number one Click that subscribe button Get these graphs you also get [00:01:50] any further presentations We put on there a lot of insightful things if you're listening to this that show up on the screen there [00:01:55] YouTube versus listening to It on Apple or on Spotify But in this graph one of the things I want to take a [00:02:00] look at on here is this this what they call transition into serious delinquencies That are for [00:02:05] credit cards by age types and this is one thing that the New York Fed continues to monitor and they put out but [00:02:10] What you'll see on here is that there is a distinctive difference between 18 and 29 year [00:02:15] olds and 30 and 39 year olds.
[00:02:17] Now, the reason I bring that up is those are the two leading, and it's not even [00:02:20] close, those two age groups. So, 18 to 39, as we know, are also Gen [00:02:25] Zs and Millennials. That is the leading of the pack of these delinquencies. [00:02:30] Let's go back to the presentation we did on our forecast. We talked about the new, uh, first time [00:02:35] 38 years old.
[00:02:35] So you could make an argument that most of these credit card [00:02:40] holders are not homeowners. And the reason I think that's important is because we've [00:02:45] consistently talked about on here plus with some guests like Logan Matsushami that the credit card debt issue is [00:02:50] not necessarily with homeowners right now.
[00:02:52] It's with those that are not homeowners. And I thought that was an [00:02:55] interesting thing because homeowners can absorb this. Not because they're homeowners, but because if they need to refinance, they [00:03:00] have equity in which they can refinance and pay off those credit cards. If you're not a homeowner, that's a [00:03:05] lot different.
[00:03:06] So in these retail sales that recently came out, what was interesting is [00:03:10] that they're showing signs that the consumer may be saying, Hey, I'm good. Pump the brakes. Or they're just tapped [00:03:15] out. Basically one of the two, because the new purchases have seen one of the lowest readings in two [00:03:20] years. Now we're a consumption.
[00:03:22] Economy, like we need consumers to [00:03:25] consume the product, right? We also need to make the product, but consuming the product drives the economy. And so if those [00:03:30] numbers are down, that's not a good sign. That's actually part of a weakening economy. And so it'll be interesting [00:03:35] to see coming out of the holidays.
[00:03:36] Was this just a one off or is this a sign of things to [00:03:40] come? And I would say that, uh, some argue that, hey, listen, maybe this reading [00:03:45] came from some of the wildfires in California where people just aren't spending right now, they're more worried about their homes and where they're going to [00:03:50] transition, where they're going to live.
[00:03:51] But the, the counter to that could be that if you look at online sales, [00:03:55] they were down and off quite a bit as well. They were down 2%. Which kind [00:04:00] of combats the idea that the California fires, that's not what's causing this, it's [00:04:05] actually the consumers all over not spending money right now. And when you take a look at this, I [00:04:10] often say, like, is it the consumer tapping out, is it the limits that they're reaching, or could it be the [00:04:15] fact that credit card debt It's now at a higher interest rate than we've seen over the really the last [00:04:20] two years have been so high that we've seen prior to these two years, probably over a decade.
[00:04:23] And so [00:04:25] could it be the combination? They're not necessarily tapped out like they have limits because you know, in these, in this report from the fed, you [00:04:30] can see there's a lot of limit availability. It's just, can they, they just can't afford it anymore. You know, you're putting [00:04:35] money on these credit cards at 21 percent interest.
[00:04:37] That payment starts to become pretty extensive versus the [00:04:40] traditional, you know, 12 to 15%. So I think it's a combination of both, but I think it's [00:04:45] more of, Hey, listen, I can't afford to spend anymore. I can't afford to make these other purchases that [00:04:50] are, um, you know, basically luxury items or items that don't even mean it's, it's non, non [00:04:55] food, uh, you know, uh, basic necessities, et cetera.
[00:04:58] So I think that's interesting [00:05:00] and, uh, it's also a sign more and a more of a sign interesting because as the economy starts to [00:05:05] weaken, that's one of the concerns of the federal reserve. And I think this is just part one of this podcast [00:05:10] recipe as to why I think the clearing of the picture from the federal reserve to lower rates is coming.
[00:05:14] [00:05:15] Meanwhile, when you see an economy like that, we still have the naysayers out there talking about, I think I just saw a [00:05:20] podcast the other day where a guy was saying, 2008's back. It's not back. I wish people would quit saying that. [00:05:25] Mortgage delinquencies are still at all time lows. Bankruptcies and foreclosures are still [00:05:30] extremely low.
[00:05:30] Nowhere near the pre crash levels of [00:05:35] 8, 9, and 10. They're not even close. That same report that I'm indicating reflects [00:05:40] that. So it's interesting. The only thing that's up is that the credit card debt is 41 percent [00:05:45] higher than it was prior to COVID. That's the only thing that's currently up right now. So the 41 [00:05:50] percent credit card debt higher than pre COVID levels.
[00:05:52] So talking about the crash, right? [00:05:55] 2008. Another thing that I'm seeing on here that kind of is not irritating, but also like it's just, [00:06:00] it's, it's poor journalism. So you have a, uh, you have my father in law sent me an article [00:06:05] from MSNBC. And the headline was existing home sales [00:06:10] drop, um, you know, something about, could this be a turn for the real estate market?
[00:06:14] So then I [00:06:15] pull it up and I look at it and it's Diana Olick from MSNBC, who traditionally is a [00:06:20] negative Nelly on the market, but more importantly, it's just, it's not good journalism. I mean, [00:06:25] if she was sitting here across the table, I would tell her that because the manner in which that article was written was fear [00:06:30] mongering and not really 100 percent accurate.
[00:06:32] Existing home sales were down, right? They were [00:06:35] down. They're traditionally always down in the month of January. If you think about it, if the home [00:06:40] buyer is shopping for a home in January, they typically start that process in November and December. Well, what [00:06:45] else is taking place during November, December?
[00:06:47] Holidays. This is not abnormal to see [00:06:50] existing home sales down in January. There's just not a lot of people that want to buy a home or even sell a home during the [00:06:55] holidays. I mean, can you imagine, hey, I want to list my home. Oh yeah, let me, let me let you know where I got all the Christmas [00:07:00] gifts under the tree.
[00:07:00] Come take a look at it. Like no one wants to do that stuff. Like that, that's, that's not an [00:07:05] abnormal time to see that. And you typically, traditionally speaking, see a massive [00:07:10] rebound in February and March because once people put all that away and they've got settled back in, [00:07:15] like, okay, hey, it's time to buy or hey, guess what?
[00:07:17] I'm ready to move now. You start seeing it, March traditionally being [00:07:20] the major pop of that. So this is, this isn't to me unexpected. The one thing that was [00:07:25] left out of that article, and the one thing that I wanted to point out to my father in law, was that, hey, here's what's interesting. The [00:07:30] year over year sales are still up 2%.
[00:07:33] So even though January was [00:07:35] down, It's still up two percent in that reading from what it was last year And I thought [00:07:40] that was interesting and then core logic kind of jumped in on the back side of that later on earlier in the week And said hey [00:07:45] listen Home prices were actually up four and a half percent in 24, excuse me in [00:07:50] 2024 And then obviously right after that redfin says well, hey, we got to give a statistic They said that they thought the housing [00:07:55] market rose 2.
[00:07:56] 5 trillion to 50 trillion That the value of the housing market [00:08:00] rose from two and a half trillion to 50 trillion in 2024 That's that's my that's like [00:08:05] a 45 trillion dollar jump in equity over the course of one year How [00:08:10] can those home prices continue to keep doing that? It also means that um, if you [00:08:15] put that again, it's like a five percent increase of what they're saying on there Well ironically in our forecast if you go [00:08:20] back and look our appreciation for 2024 was right at five percent That's literally what we targeted [00:08:25] in the U.
[00:08:25] S. and in the Northeast Florida market. So I'm not saying we were right, but I'm saying that it fell in line. If you [00:08:30] recall, our forecast this year is 6%. So I do think that, um, it's kind of [00:08:35] countering that naysayer of that 2008 crash booms coming thing. It just continues to be more and more data that suggests [00:08:40] those individuals don't know what they're talking about, that that's clickbait, that's fear mongering, and that's an opinion that's [00:08:45] not factually driven.
[00:08:46] And so for me, the other thing I take a look at on here was some of the Fed members, [00:08:50] right? So we've been talking about. How it's frustrating when we get a podium [00:08:55] talk from Powell and he sets the tone for the next six weeks and then behind that we know we're [00:09:00] going to get additional reports for these other Fed members come out and they counter what he's saying and it was almost felt [00:09:05] like they were, you know, Hey, look at me, look at what I can say, put the attention light on me, but this has [00:09:10] been satori The first time I've seen consistent Fed members come out [00:09:15] behind Powell and emphasize what he said, the most recent one being Fed Governor [00:09:20] Waller coming out and saying, Hey, that's CPI reading that came out.
[00:09:23] As you recall, last week, it was [00:09:25] not favorable. It actually was kind of ugly, and, um, it didn't shock the [00:09:30] market because If you look over the last decade, it's traditionally speaking nine out of ten [00:09:35] times that reading in January is typically a hotter reading. So we're not too scared of that and we [00:09:40] do believe that that's going to continue to come down and that's not going to prevent us.
[00:09:43] This is the key, he said. It's [00:09:45] not going to prevent us from cutting rates going into the rest of the year. I felt that [00:09:50] was really important because we really needed to hear that. Mainly because we haven't heard that yet. [00:09:55] So for me that was exciting and beneficial. Also Clearing up the picture like we talked about just [00:10:00] continuing to clear up that picture of what's coming.
[00:10:02] Hey, and speaking of what's coming last episode I think [00:10:05] last episode. Yeah, I talked about scott bessant. Uh, the u. s treasury secretary is talking about hey, [00:10:10] we're going to revalue gold We're going to mark to market the gold thought that was a wonderful idea because if you recall in that [00:10:15] episode I talked about how gold hasn't been revalued since really 1973 the 42 dollars an ounce [00:10:20] Today, it's somewhere, you know, between 2890 and 2900 now.
[00:10:24] He came out. I [00:10:25] guess a lot of people, you know Really kind of gave their opinions asked a lot of questions and he [00:10:30] came out and said hey listen This isn't this isn't what I had in mind So basically he said [00:10:35] and I'm reading here He stated revaluing gold to help treasuries is not what I had in mind [00:10:40] and I think the whole concept was people thought that he would revalue that and It would create [00:10:45] this additional equity that you could now Revalue the u.
[00:10:48] s. Treasury to help bring [00:10:50] down treasury costs by not issuing so many of them He said that's not what I had in mind to me That was kind of a bummer because [00:10:55] I really thought this was kind of a forward thinking idea um I think a lot of people kind of got uh air out of the balloon [00:11:00] because it was something it was like a novel idea And it seemed pretty impressive Um, not to say they won't do it [00:11:05] But it's interesting to me that that came out and now the Now the new thing is we're gonna go to Fort Knox and [00:11:10] open up a Fort Knox and make sure the gold's there.
[00:11:12] Um, thought that was maybe those two things go together. Maybe [00:11:15] they don't, but there seems to be a push for that. But the highlight of those Fed minutes that came [00:11:20] out and were released was this, is that they're ending their balance sheet runoff. Now, if you recall, we've talked [00:11:25] about what that means as part of quantitative tightening, right?
[00:11:27] The QT as it's called. So the Federal Reserve [00:11:30] is getting more and more less restrictive. They're still restrictive, but the quantitative tightening is important [00:11:35] because the quantitative tightening says, Hey, Every month we have, [00:11:40] um, mortgage backed securities that pay off in the form of either loans being paid off, loans being [00:11:45] refinanced, or loans maturing.
[00:11:46] Okay? They're paying off though. And every time they pay off, [00:11:50] the profitability from that or the portion of the mortgage backed security is paid back to the balance sheet. [00:11:55] And typically, the Federal Reserve would reinvest that back into more, more mortgage backed securities. Well, when [00:12:00] they let it run off, it's because they want their balance sheet to go down.
[00:12:03] Meaning they just let that money run off and the, and [00:12:05] the, Balance sheets deducted by that amount. So the combination of treasuries and the combination of [00:12:10] mortgage-backed securities equates to roughly about 40, 40, uh, billion dollars a [00:12:15] month. So there's $40 billion a month of runoff that's happening. And so, [00:12:20] um, currently speaking, they've been letting that runoff and not reinvesting that.
[00:12:24] [00:12:25] By them saying that they're going to middle of the year, which is just a few months away. We're at the end of February right [00:12:30] now, that they're going to stop. That indicates that they're going to start reentering the [00:12:35] market and buying back mortgage backed securities and U. S. treasuries. Why is that important?
[00:12:39] Well, that's creating [00:12:40] additional demand. Now, if you've been a long time listener, I'll show, you know, the largest buyer of U. S. [00:12:45] treasuries and mortgage backed securities, typically speaking, is the federal reserve. That buyer has been gone [00:12:50] for over two years now. So it's easy to see that when that buyer has been gone from the [00:12:55] market, you're depending on other people to help buy that, but you lost the largest buyer.
[00:12:59] So imagine [00:13:00] like running a business and your largest customer leaves the business [00:13:05] and they're no longer buying your product. That's probably gonna cause one, a little bit of [00:13:10] panic, two, where am I gonna get other buyers from, and three, what am I gonna do to my prices? Well, in [00:13:15] this particular case, if no one's buying, the price goes up.
[00:13:18] It's very different than retail sales. [00:13:20] In retail sales, if, you know, if I'm going to buy this cup that I have here and no one's buying this cup, we slash the [00:13:25] prices of the cup to where we attract more buyers. In the secondary market for bonds [00:13:30] and for mortgage backed securities, you have to increase the attractiveness by making the [00:13:35] yield greater, thus making the product more attractive because now I want to buy it because I'm getting a greater return.[00:13:40]
[00:13:40] So as this largest buyer has left the market, these prices have naturally gone up in [00:13:45] combination with everything else from risk to market volatility that we've talked about on the show. It's [00:13:50] been a challenge. This goes back to what I've been talking about. The Federal Reserve does not have to lower [00:13:55] rates.
[00:13:55] If this is If they just reenter the market as the number one buyer again, on a monthly [00:14:00] basis, that is going to drive down the yields and drive down the less, uh, [00:14:05] basically the less attractiveness of that where more people essentially are [00:14:10] buying it, but the, the, the treasury is going to have to lower that yield, right?
[00:14:13] It's naturally going to happen because [00:14:15] you got more buyers in the market. And so that's going to bring down the 10 year treasury. As that [00:14:20] brings down the 10 year treasury, we know mortgage rates will naturally follow that as well. And I think that's really [00:14:25] important because we have not seen this buyer in quite some time.
[00:14:27] And they're saying mid year. Mid year is when this is going to [00:14:30] happen from their meeting notes. So mid 2025, I mean, that could be anywhere from May to June. Maybe you [00:14:35] could argue July, but it's right around the corner any way you look at it. This also adds to my forecast why I said [00:14:40] at the end of Q2, early Q3, we could see a 5 handle on the mortgage rate.[00:14:45]
[00:14:45] So if you got the Federal Reserve saying, Hey, listen, we're not worried about inflation. That report that came out of the [00:14:50] CPI. And now remember, we get PCE here on Friday. This episode is dropping on Wednesday. So two days after [00:14:55] this episode drops, we get the PCE reading. There's indications that that's going to come in either [00:15:00] at or below expectations.
[00:15:01] And that could be a win as well. It's another windfall going into this meeting. [00:15:05] So a combination of that, you've got a combination of the, uh, the QT kind of going [00:15:10] away, the balance sheet runoff going away. And then the combination of. [00:15:15] Um, of the, the economy, retail sales, ISM data, all the production data, all of these [00:15:20] things are coming in.
[00:15:20] All the economic indicators are coming in that, Hey, listen, you might want to start about cutting rates. You might [00:15:25] want to start doing it now. And so even though we don't see a favorable market watch saying, Hey, listen, I [00:15:30] think it's going to happen. I bet by Friday, if that PCE comes in at or below expectations, [00:15:35] the switches to almost from about 8 percent chance to I bet a 50 percent chance, and it won't take much to do [00:15:40] this.
[00:15:40] Big news is this. By mid year, we know the biggest buyers of treasuries are coming back to the [00:15:45] market and the biggest buyer of mortgage backed securities is coming to the market. That is a massive win for the consumer [00:15:50] because that will bring those lower interest rates and the affordability that we've been talking about.
[00:15:54] [00:15:55] And so, um, I think very excited about this. And if you talk about affordability, you know, I think there was a comment in there [00:16:00] about You know, going back to what I said again in the show about five things I did last week. If you go to [00:16:05] the premise of that, the premise of that is the, uh, the commentary from [00:16:10] Musk sending out an email saying, Hey, listen, just tell us the five things as a government position you did last week [00:16:15] for your job.
[00:16:15] That's it. A lot of uproar about that. A lot of people were insulted by that because at the end of that [00:16:20] statement, he said, if I don't have something by 1159, we'll consider your resignation. I don't know how legal that is. I don't know if [00:16:25] that's even plausible, but I think what he's trying to do here is he's trying to identify.
[00:16:28] Are some of these emails real? [00:16:30] Are we paying for positions that don't exist? He said this is just the most basic of emails. You could say I did this, [00:16:35] I did this, I did this, I did this. Five bullet points. It doesn't have to be well written. Just five bullet points. They're just wanting [00:16:40] to make sure you're a heartbeat and a person doing that job because there is a belief there's people getting paid that have [00:16:45] emails that there's no one sitting there.
[00:16:46] And so they're trying to clarify that. But in the In the, I guess the [00:16:50] byproduct of that is they're saying any money they find, or any money that is considered fraud [00:16:55] money, they would like, and this is not a guarantee, but they're suggesting that they could issue checks back to the American [00:17:00] taxpayers who paid for this and are entitled to have that money back, up to the tune of [00:17:05] 5, 000.
[00:17:05] I think, um, I think there's a lot to be said before that's done, but the interesting concept behind that is [00:17:10] 5, 000 is a lot of money. That could help a lot of people. I mean, it was some of the insurance problems that we're having across the [00:17:15] nation with homeowners insurance that could help with that. I don't necessarily think it's going to help with affordability to go buy a [00:17:20] home, but I think it can help a lot of people that are potentially struggling and it can help a lot of people that are kind of getting [00:17:25] blindsided by some bills that are coming in like insurance and homeowners insurance that we've discussed.
[00:17:29] Will it [00:17:30] happen? I don't know. Lots to be said about that. A lot to come of that. But it is interesting. And it also, on [00:17:35] the flip side of that coin, if you want to, it also bodes the question of, is that helping inflation? Because [00:17:40] if we give 5, 000 to people, they're probably going to spend it, and rightfully so in this [00:17:45] economy.
[00:17:45] But are we pumping more money back into the system? Because one of the things to counter inflation is [00:17:50] actually taking money out. out of the system. So, um, some may argue, well, you shoot that money to pay down the deficit. [00:17:55] It's a, it's a nominal amount compared to what we're looking at at 38 trillion. I don't think this is going to [00:18:00] really put a crack in that, but putting that money back in the American people could be a win from like a Robin Hood [00:18:05] complex.
[00:18:05] If you think about it. But it also could actually end up hurting the form of inflation So it'll be interesting to see [00:18:10] how that works. We will be following that but more importantly let's stay tuned for these interest rates because uh [00:18:15] Again, everything's lining up just as we discussed and you're going to see it happen here And again mid [00:18:20] year could be the big big hit for all of us here.
[00:18:21] So we'll stay tuned We'll watch if you like what you're hearing Please share this [00:18:25] podcast give us five star review on apple or spotify And also check us out our youtube channel at what's your one more with number one [00:18:30] That's at what's your one more with number one and until next time we'll see the next episode of what's your one more? [00:18:35] [00:18:40] [00:18:45] [00:18:50]
