This Week in Summary 6/24/2022

Jun 24, 2022 | Bubble Monitor

6/23 Bubble Monitor

The capital markets roller-coaster gave us an exciting ride-up for the week ending Thursday, June 23, 2022, after a harrowing drop the previous week. Not much seemed to change over the week which is why some commentators are calling this a dead cat bounce, a bear market rally. Better to judge by YTD results which show that we are still in a bear market territory with things like the NASDAQ down -28% and the S&P 500 down -20% (right at the brink of the definition of a bear market). Part of the roller-coaster fun is the hope that energy and food prices are actually falling back to normal, but without a valid reason to explain why supply is increasing or, why demand is shrinking (more likely). In any case, our friends at the Fed are talking about more rate hikes, and this translated into higher real estate prices (VNQ) for the week – go figure. Maybe we can attribute this backwardness to the Summer Solstice, as time shifts over the horizon to shorter days.

Weekly Spotlight

As if this brutal economic climate isn’t bad enough, it seems like there is a mental health crisis for men. Drug overdose numbers are skyrocketing, and male labor participation is dropping. To add to the depression, mortgage rates have doubled in a short amount of time. We can’t help but draw comparisons to 2008 and wonder how this will affect the huge mortgage-backed securities market. The Fed & administration say that spiking interest rates won’t necessarily cause a recession, but consumer spending is now dropping as covid savings seem to be drying up for many consumers who are struggling to keep their heads above the water. Finally, while everyone is focused on astronomical oil prices, not many know that coal prices are up nearly 3x over the past year, dwarfing oil’s price inflation.

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Powell Faults an Overheated Labor Market for the Need to Hike Rates Again

Despite growing evidence of systematic bank risks associated with the Fed’s aggressive rate hikes over the last year, Powell hikes another 25 bps anyhow, citing labor pressure as the culprit. However, in the real world, labor conditions are already improving.

Fixed-Income Issuance Says a Lot About Economy

Total U.S. fixed income (FI) issuance declined -34% y/y to $8.8 trillion during 2022 as interest rates ramped up.

Bank Deposits Growing Much Faster than Business Loan Demand

Banks have been parking excess deposits in various forms of government debt that are subject to interest rate risk & in some cases, risky crypto bets. This is causing systematic risk.

Nerdwallet Survey Shows an Indebted & Very Stressed Consumer

Consumers are combating the higher price of living & higher interest rates by driving less, buying store brands & taking on more debt.

The United States of America is Worth Saving

Americans need to be reminded about our heritage as the single most productive nation as measured by GDP/person with a unique capability to bless the entire world if we can simply get back to business.

Should Private Banks Go Extinct?

Since the 2008 Great Recession, 134 banks with assets of $1.25 Trillion have been closed by regulators. At the same time, the Fed’s ballooning balance sheet now amounts to nearly 50% of total domestic bank deposits.

What Happened to Silicon Valley Bank?

Don’t assume that SVB’s difficulties are symbolic of the entire banking industry.

What Does the End of the Petrodollar Mean?

The Saudi minister of finance announced that the Kingdom was ending the petrodollar. “There are no issues with discussing how we settle our trade arrangements, whether it is in the US dollar, whether it is the euro, whether it is the Saudi riyal”. Yikes!

Senator Kennedy Schools Country on Economics 101

We have a choice of how to tame inflation, cut government spending, or throw people out of work.

Inflation is Marginalizing Purchasing Power from the Lower-Income Demo

As households with annual incomes >$70k drive 62% of total food-away-from-home sales, it is more important than ever to focus on this demo especially as spending from the lower-income demo slows.

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