Weekly Market Update by Retirement Lifestyle Advocates

Banks Now Writing Off Credit Card Delinquencies at Near Record Rate

         Credit card debt defaults have now reached the highest level since 2008, at the peak of the financial crisis.  (Source: https://www.zerohedge.com/markets/us-credit-card-defaults-soar-2010-levels-inflation-storm-financially-crushes-working-poor)

          Data from BankRegData revealed that credit card companies wrote off $46 billion in seriously delinquent loan balances during the first nine months of 2024.  Bad debt write-offs of that magnitude mark a 50% increase over the first nine months of the prior year and the highest level in 14 years.        

         Despite the write-offs, credit card companies are allowing credit card debt to continue to grow; presently, credit card debt exceeds $1 trillion.  As credit card debt grows, interest charged on outstanding credit card debt balances is also rising reaching a record high of more than 23% at the end of the third quarter.

         In a move that wasn’t all that surprising given that we are now in an era of reporting bad economic data only to later revise that data to what we are assuming is a more accurate number, the Department of Commerce recently revised personal savings data radically downward.  Seems that the original personal savings rate reported for October and November was off by more than $140 billion.

         For the record, that’s more than a slight miss.

         I expect that as 2025 unfolds, debt will be the big story and the biggest economic headwind.

Stockman on Debt

         David Stockman, former US Representative and former Director of the Office of Management and Budget in the Reagan administration, recently commented on public sector debt.  I discuss his perspective in detail during this week’s “Headline Roundup” newscast which can be found at www.RetirementLifestyleAdvocates.com beginning tomorrow, January 7.  If you don’t already have a free login to access the resources on this site, I encourage you to visit the site and set up your free login.

         Stockman points out that during the Paul Volcker era at the Fed, there was no US Government debt monetization which caused interest rates to rise should the Washington politicians engage in reckless spending.  Stockman puts it this way (Source:  https://internationalman.com/articles/david-stockman-on-the-brewing-us-debt-ceiling-crisis/):

Back then the deficit had immediate ramifications on main street because the Fed was not yet monetizing the flow of Treasury paper. Accordingly, the Treasury Department’s sharp elbows in the bond pits caused interest rates to materially rise and private sector borrowers to be “crowded out”.

Needless to say, representing a typical “town and country” district in Michigan, as we did, our political support base was especially attuned to the effects of Uncle Sam sucking up the available supply of private savings. Among these supporters, for instance, were car dealers, whose floor plan financing costs got jacked-up by rising interest rates, and Savings and Loan executives, whose book of fixed rate mortgages got nailed by sharply higher funding costs. There were also farmers, who suffered ballooning financing costs for fuel, fertilizer, tractors etc. and small manufacturers, who needed to finance inventories and equipment—among countless other productive citizens immediately and adversely impacted by Federal deficits.

         When Alan Greenspan took over at the Fed, this system of checks and balances went away and the Federal debt has grown exponentially ever since, rising from about 30% of Gross Domestic Product in the early 1980’s to nearly 130% of GDP today.

Auto Sales Slumping

         Wolf Richter published a piece that provided some interesting insights on the state of the automobile business.

         I found it astonishing that automobile sales last year were lower than in 1986, nearly 40 years ago.  Sales in 2024 were 9% lower than in calendar year 2000 despite the fact that the population of the United States has seen a population increase of about 20% over that period!

         Some highlights from the piece include:

-Stellantis, manufacturer of Ram pickups and Jeeps saw sales decline by 42% from the 2015 peak.  The company is currently looking for new leadership as the prior Chief Executive Officer resigned under pressure from dealers.

-Honda moved into the number five slot in 2024, taking the place of Stellantis.  Honda’s sales increased by nearly 9% in 2024 from the prior year but are still down 13% from the company’s 2017 peak

-General Motors is still the number one vehicle manufacturer.  The company saw its 2024 sales increase by 4.3%.  But, those sales numbers still represent a 15% decline from the peak in 2015.

-Toyota is holding the number two spot among car manufacturers.  Toyota and its luxury vehicle, Lexus, saw sales increase 3.7% last year, but sales were still down 7% from the 2015 sales peak.

-Ford, in the number three spot, saw vehicle sales increase 4.2% in 2024, but those numbers were still down a whopping 20% from the 2015 peak.

         Why the big declines across the board from nine years ago?

         Probably price.

         The average transaction price for a new car in 2015 was $30,000.  Last year it stood at $46,000.  Prices up nearly 54% in nine years and inflation eating into the discretionary income of many prospective car buyers over that same time frame is the most plausible reason.

Mortgage Demand Plummets at Year-End

         Mortgage demand fell about 22% to the end of 2024 as interest rates increased.  (Source:  https://www.cnbc.com/2025/01/02/mortgage-demand-dives-nearly-22percent-to-end-2024-.html)

         The average interest rate on a 30-year mortgage was about 7% to end 2024.  As I have been stating since the Fed began to cut the Fed Funds rate, I don’t think that mortgage interest rates will decline significantly.  It’s more likely, in my view, that higher interest rates lie ahead.

         This week’s RLA radio program features a ‘best-of’ interview that I did with the Head of Global Research at Elliott Wave International, Murray Gunn.  The interview is posted and available by clicking on the "Podcast" tab at the top of this page.

"Worrying is like a rocking chair.  It gives you something to do, but it gets you nowhere.”

                                             -Glenn Turner