Weekly Reflection for August 18, 2023

The Week - An Update in Charts

The term "dog days of August" refers to the hottest and often most oppressive period of summer. 2023 is no exception in terms of heat. The stock and bond markets are not enjoying August either. Investors are worried about the U.S. government debt in light of the recent credit downgrade, worried still about U.S. banking health, worried about China's weak economic data for China and worried that the Federal Reserve might keep jacking up interest rates. Understandably, it is all a lot to digest.

For years now, the yield on the 10-year U.S. Treasury bond, considered a bellwether and proxy for other important rates like mortgages, has been trending down every since the onset of the 2008 financial crisis. Bank of America and BlackRock are now forecasting an uptrend that will see the 10-year return to yields closer to 5%.

Inflation has fallen steeply over the last 15 months but remains above the Federal Reserve's ideal 2% target. The next Fed meeting is in 32 days but the vast majority of analysts do not see another rate hike coming this year. Only 10% currently believe the Fed will raise rates 0.25% in September and 30%predict a rate hike will happen in November. You can follow the odds by clicking here.

Credit card debt currently totals over $1 trillion, the first time ever balances have crossed that milestone. Younger borrowers are having the most difficulty paying off balances. More on the ever-present woes that face Millennials below.

The number of homeowners with traditional TV viewing habits has been dropping for many years. And although Nielsen has only been tracking which platforms viewers use for the last two years, for the first time ever, Nielsen says the monthly viewership of broadcast and cable TV has fallen below 50%. Streaming, the use of independent platforms such as those on the chart above, continues to rise.

But streaming is not nearly as cheap as it used to be. The “golden age” of inexpensive online platforms is over as companies like Netflix increase monthly fees, add advertisements and cut down on freeloaders who share passwords.

Yes, you look fabulous! At $11 a day, you had better, right? That's how much women on the East Coast report spending every day on the facial products to complete their beauty routine.

SkinStore, an online-only skincare retailer, surveyed 3,000 women to get insight into their makeup routine and spending habits. It found that women spend an average of $300,000 on their face in a lifetime. Those faces on the East Coast cost 27% more than on the West Coast, where women spend closer to $8 a day.

Down on Luck, But Not Out

Millennials, typically defined as those born between 1981 and 1996, have so much going for them. They have grown up in a world of rapidly advancing technology. Access to more information has allowed them opportunities to develop more life skills at an earlier age. It has also pulled down previously intractable barriers between race, gender and religion providing more flexible and dynamic lifestyles than their older peers. And yet, Millennials have been called the “unluckiest generation”. It may be true as far as finances go.

Just take the news about the credit card debt breaching the $1 trillion mark. The data breaking down "who owes what" strongly suggests that it is Millennials, now

in their mid-20s to early 40s, who have the highest revolving credit card balances. Families with three or more household members and underage children at home have at least $6,000 in debt at interest rates of 15% - 20% in most cases.

Although the Federal Reserve, which is the source of the credit card data, says that delinquency rates are steady, that could change next month. Per the Fed, Millennials will lose 6.5% in spending power when they restart repaying their student loans, and perhaps fall behind on credit card payments as a result.

Then take child care expenses, especially with the increasing requirements for workers to go back to the office. Since last July the price of childcare and preschool has jumped a whopping 6%. And when childcare is not available, traditionally un-friendly kid spots are loosening the rules. Yelp has a “good forkids” search now as parents try to integrate their children into more grown-up events, like fancy restaurant dinners, spa dates and concerts. (As previously noted, Millennials are flexible and want their peers to be too!)

Despite all this, Millennials had been doing okay getting homeownership under their belts. Even though the average age of a new homeowner moved from 29 to 36 in the last 40 years, younger people had been the largest generation doing the buying and selling for the last 10 years. That has changed. Baby boomers, with their ample stashes of cash and home equity, have been the largest group of buyers and sellers in 2023. No wonder, given

the median U.S. home price near $416,100 and a 30-year mortgage rate near 7%. Buying a home, at least for now, is out of reach for many Millennials.

The unlucky title was around even before Covid-times. But despite their struggles with student loan debt, housing unaffordability and inflation, Millennials have shown that they are adept at navigating challenges and finding opportunities for growth. They are future-focused, too. An impressive 78% are actively saving for a retirement, which is a huge accomplishment.

Worry Warts

Those who are worried about the economic news out of China are not wrong. China has its work cut out for it.

Evergrande, the residential builder that rattled global markets when it missed interest payments on outstanding bonds in 2021 has just now filed for bankruptcy. Evergrande was the world’s canary in the coal mine back then when it exposed growing debt problems for both land developers and banks in China. Years of too many unnecessary infrastructure upgrades and massive residential overbuilding have been leading China’s government,

banks and institutional investors to the sad state they find themselves in today, with additional defaults and bankruptcies surely to come.

The timing could not be worse. Already the world’s economic heavyweights have not been playing well together. What economic prosperity that globalization brought to China for decades, Covid and legitimate worries about economic competition amongst nations has undone. Globalization has lost its luster, and developed nations are weary about working with China for large swaths of their production needs. China’s manufacturers and exporters are now considerably weakened.

Yet China needs some sort of win in order to dig out of its homemade errors. The government sees the solution to its economic malaise right under its nose - its

domestic population, which it wants to go out and spend money. However, retail sales, a terrific gauge of how well a population is feeling about its future, has been falling since December. Per Barron’s, the Chinese are not cash-strapped like their government and banks. They do have money. They just do not want to go out and buy things.

The young are penny pinchers, and apparently wildly unemployed; for 16-24 year olds the unemployment rate is some 20%. Their elders resist spending due to lack of confidence in the future. China is working on stimulus by lowering interest rates and infusing banks with cash.

It might be too soon to tell what will work. It may be that China has to take the lumps and clean up its debt problem before prosperity and growth will return.