1. Opposite Outcomes - The economy continues to send mixed signals. GDP growth is good, but GDI shows none. The Establishment survey shows strong payroll growth, but the Household survey shows little and total hours worked in the U.S. are flat. Additionally, part-time employment is up Y-o-Y, but full-time employment is flat and temp-help employment is declining. Lastly, household wealth is high, but credit card and auto loan default rates are quickly rising (Source: Rosenberg Research)
2. Commission Consequences - While the long-term impact of NAR’s agreement to settle litigation related to broker commissions is TBD, the first fallout hit very quickly. The day the agreement was announced, the stock price for RE/MAX declined 3.1%, Redfin 4.9%, Zillow 13%, Compass 14.3%, and Douglas Elliman, 16.2%, suggesting that brokerage profits will be lessened (sources: Quartz and NAR).
3. Interest Impacts - Although many households have low mortgage rates locked-in, overall household interest expenses are skyrocketing. In 00Q4, the peak of the dot.com boom, interest expenses/GDP hit an all-time high of 2.2%. In 07Q2, shortly before the Housing Bust, interest expenses/GDP cyclically peaked at 2.04%. As recently as 22Q1 they were 1.1%, their lowest since 59Q4. However, in 23Q4, interest expenses/GDP were a shocking 2.02% and rising rapidly (sources: Federal Reserve and BEA).
4. Mortgage Misery - A mortgage lender’s cost to complete a residential loan in 23Q4 was $12,485, up from $11,441 in 23Q3. Unfortunately, revenue per loan barely rose. As a result, each mortgage resulted in a loss of 73bps, up from 34bps in 23Q3 (source: MBA).
5. Treasury Troubles - Pre-Covid, the average interest rate on U.S. Treasury securities was 2.4%, and the 12-month sum (12MS) of interest payments was about $375 billion. The 12MS of interest payments troughed in April 2021 at about $315 billion, and the average rate bottomed out in January 2022 at slightly below 1.6%. Since then both metrics have jumped. The average rate is now 3.2%, and the 12MS is $775 billion (source: Oxford Economics).
6. Private Performance - After dominating corporate finance over the past decade, private equity is now focused on financing household debt like credit cards, auto loans, and home mortgages. This entails a massive shift away from banks and public view and is beyond the purview of traditional regulation. What could possibly go wrong? (source: WSJ)
7. Happy Housing - February existing home sales rose to a seasonally adjusted annualized rate of 4.38 million, although still down 3.3% Y-o-Y. Moreover, inventory is 1.07 million, up 100,000 Y-o-Y, and months of inventory is now 2.9, up 0.3 months Y-o-Y. The median home price in February was $384,500, up from $363,600 Y-o-Y (source: NAR).
8. Chip Costs - In 2006, designing a 65 nanometer (nm) chip cost $28 million, and the fabrication plant to produce them cost $400 million. But semiconductors keep shrinking and designing a 16nm chip cost $104 million while the fabrication facility was $1.3 billion. A 10nm chip cost $174 million to design and $1.7 billion to fabricate. Now, designing a 5nm chip costs $540 million and the fabrication plant costs $5.4 billion (source: Financial Times).
9. Retail Regeneration - Retailers closed 5,000 net stores in 2019, 6,000 during pandemic-plagued 2020, and several hundred in 2021. Things have shifted since then. In 2022, 1,500 net stores opened, in 2023 almost 500 opened, and YTD 750 have opened. In combination with almost no new retail construction and booming suburban demand, the vacancy rate is below 4.8%, a record low (sources: Coresight Research and CBRE).
10. Tax Totals - During FY2022, individual income taxes comprised 53.8% of all tax revenues collected by Treasury. Social insurance taxes were next at 30.3%. Third were corporate taxes at 8.7%, followed by other receipts at 4.8%, then excise taxes at 1.8%, and estate taxes at 0.7%. Raising meaningful revenues requires raising income and/or social insurance taxes (source: Joint Committee on Taxation).
11. Argentine Angst - For the third month in a row, Argentina has the world’s highest inflation rate, 13%/month, equating to an annual rate of 276%. While there are many reasons, the most recent is an intentional, dramatic devaluation in the peso, bringing it in line with its black-market value. Still, it’s not close to the March 1990 Argentine all-time high of 20,263% (source: Trading Economics).
12. Abortion Activity - Abortions are at their highest level since 2011. A key factor is the rise in medicated abortions, now 63% of the total, made possible by the rise of tele-medicine during Covid and January 2023 FDA regulatory changes (source: The Economist).
13. Astonishing Amazon - As recently as CY2019, Amazon delivered 1.9 billion U.S. packages or 19.8% of the total, while FedEx delivered 3 billion and UPS handled 4.7 billion. By comparison, in CY2023, Amazon delivered 5.89 billion packages, UPS was virtually unchanged at 4.8 billion, while FedEx volume was flat at 3 billion. Amazon absorbed all of the growth and their share of the total doubled to 42.4% (source: WSJ).
14. Baseball Batting - The Fun Finale: In the 1870s, the percentage of plate appearances that ended in a strikeout was about 2% and the percentage that ended in a hit was around 28%. Over time, the number of strikeouts has steadily risen while the number of hits declined and now both are roughly the same at about 22% (source: Baseball Reference). Play Ball!