Buying Now, Paying Later

Holiday spending is strong... Put it on my tab... A signal from the labor market... The Fed still wants to cut rates... False confidence in the inflation Octagon... Have you heard?...

---

People are opening their wallets this holiday season...

With Thanksgiving behind us, the holiday-shopping season has officially begun. And while we're still early in the season, Americans are spending more than ever for the time of year.

E-commerce platform Shopify (SHOP) said that it saw a 22% increase in sales on Thanksgiving. And credit-card company Mastercard (MA) said that online shopping is already up 15% from last year – even higher than last year's 9% growth.

In total, Thanksgiving Day spending jumped 9% from last year to a record $6.1 billion. Then on Black Friday, it surged above $10 billion.

That wasn't the peak...

On Cyber Monday, folks spent another $13 billion – marking the biggest online-shopping day ever. According to Adobe Analytics, folks spent the most on Bluetooth headphones, TVs, and other electronics.

Given that observation, to say the threat of tariffs on Chinese goods doesn't matter would be a mistake... But here's why we're really bringing up early holiday-season spending trends...

A lot of this spending is going on credit cards...

While spending is this high, so is credit-card debt. According to the New York Federal Reserve, it hit a record $1.17 trillion in the third quarter. That's up about 8% year over year.

That debt growth becomes an issue when you consider that credit-card interest rates are at the highest level since the St. Louis Fed began tracking the data in 1994. Just take a look...

Record-high debt loads and interest rates is a bad combination for consumers. It means that folks are paying even more to just maintain their credit-card balances. And that means more of them will fall behind on their payments. We're seeing that as well...

At the end of the third quarter, 11.1% of credit-card balances were more than 90 days delinquent. Put another way – 1 in 10 Americans haven't paid their credit-card bills in more than three months.

That's the highest level for delinquencies since 2012, when Americans were recovering from the Great Recession.

Buying now, paying later...

Here's more evidence that folks are racking up debt...

On Cyber Monday, consumers spent a record $993 million in buy now, pay later ("BNPL") loans. And Adobe Analytics expects BNPL payments to jump 11% to $18.5 billion this holiday season.

BNPL is an installment plan that typically charges no interest and is easy to qualify for.

So while the overall spending numbers this holiday season may show the consumer is healthy, the debt picture shows that the party won't last forever. And soon, this mountain of debt is going to come back to bite the economy.

For now, though, there's more game to be played...

A labor-market rebound in the works?...

As I (Corey McLaughlin) mentioned yesterday, this week is a significant one for U.S. labor-market data, and today we got a look at jobs data from the Bureau of Labor Statistics' Job Openings and Labor Turnover Survey for October.

It showed 7.74 million openings for October, up about 370,000 from September and higher than Wall Street economists consensus estimate of 7.5 million openings. Hiring also slowed by about 270,000 jobs from September to October, consistent with a dip in "nonfarm payrolls" that had already been reported for October, largely due to hurricanes in the Southeast and a labor strike at Boeing (BA).

More than 1.6 million Americans were laid off in October, but that's a decrease of roughly 170,000 from September. And "quits" – when workers voluntarily leave and perhaps for better job opportunities – increased to 3.33 million... up almost 230,000 from September.

All in all, this jobs report suggests a labor market that strengthened overall in October.

Now, this is backward-looking data. We'll be curious to see more timely payroll data to come this week, including the government's latest unemployment rate for November due out on Friday.

But today's numbers – paired with a recent downward trend in initial jobless claims over the past month or so – don't scream that the labor market is cratering. If anything, it might be heating up again...

And as we've been saying (here and here)... so might inflation.

Despite these signals, though, the Fed still seems intent on cutting rates...

This week is also a big one before Fed members go into a media "blackout" on Friday, in which they won't speak publicly until after their next policy meeting on December 17 and 18.

And unless they change their minds in the next couple weeks, it looks like they're targeting what they consider a more "neutral" interest-rate level before the end of the year. That would mean another rate cut. 

Today, Fed Governor Adriana Kugler delivered a speech at the Detroit Economic Club and spoke directly about recent inflation readings.

"I still view those readings, as of now, as consistent with... a path to return to our 2% goal," Kugler said.

Still, she added, today's inflation numbers "also show the job is not yet done. Core inflation at 2.8% and our target at 2% means we're definitely not done yet."

Kugler said she's keeping an eye on "stubborn" housing inflation, global risk factors with the wars in the Middle East and Ukraine, and a potential slowdown in immigration to the U.S. (since fewer immigrants would mean fewer job openings, pushing up wages and – therefore – inflation).

If inflation falls off its "path" to 2%... Kugler may prove less interested in cutting rates further. But for now, she is telling us to expect the status quo on Fed policy even without inflation fully under control.

Yesterday, Fed Governor Chris Waller seemed more intent on cutting rates no matter what...

Speaking at a monetary-policy forum, Waller acknowledged that more progress on inflation may be "stalling," but also said he thinks the pace is still headed in the right direction...

Overall, I feel like an MMA fighter who keeps getting inflation in a choke hold, waiting for it to tap out, yet it keeps slipping out of my grasp at the last minute. But let me assure you that submission is inevitable – inflation isn't getting out of the Octagon.

He may think "submission is inevitable," but we're not so sure. And that's based on the data the Fed purports to rely on so much itself. Once again, this reminds me that Fed members rarely lack in confidence, even if it's more a misguided opinion.

Here's the point, though: Waller, a Fed vet, said he's still leaning toward voting for a rate cut in two weeks. The market is expecting it, too. Federal-funds futures traders are betting with close to 75% odds on a 25-basis-point cut at the central bank's next meeting.

Tomorrow, the big guy, Fed Chair Jerome Powell, will be part of a New York Times summit. He'll have a chance to send a different message. We doubt he will yet, but with two or three more months of "stronger than expected" labor and/or inflation data, a shift could – or should – come.

In the meantime, signals of getting closer to that point could move the markets.

Today, the major U.S. indexes were mixed again, with the Nasdaq Composite Index and S&P 500 Index up slightly to new all-time highs... the Dow Jones Industrial Average off 0.2%... and the small-cap Russell 2000 Index 0.8% lower.

Lastly, have you heard?...

Whitney Tilson, the lead editor of Stansberry's Investment Advisory, is running for mayor of New York City.

This is a statement that isn't as surprising to write as it might sound.

Whitney – a former hedge-fund manager and world traveler who took over as lead editor of our Investment Advisory newsletter last year – formally entered the New York mayoral race last week. He wrote to readers of his free daily newsletter last Wednesday...

You'll probably read about it at some point, especially if you live in the New York area (Bloomberg and the New York Post have already published articles). So I'd like to be the first to let you know... and answer a couple questions.

First of all... don't worry, I'm not going anywhere. I'm going to keep writing my daily e-mails (probably in the wee hours of the night), and my team and I are going to keep delivering insightful, profitable investment advice and ideas to you. (Of course, that would change if I win... Mayor is a full-time job, after all. But the election is still a year away.)

I'm running because I can see what has gone wrong in New York City... America's big cities in general... and our national politics. And I have a lot of ideas on how to turn things around.

In part, they are rooted in my background as an investor...

While the analogy isn't perfect, I think my city is ripe for a turnaround similar to the many I've seen in my career, in which a once-great company – laid low by mismanagement and/or external shocks – is restored to its former glory by a new CEO brought in to be a change agent.

The CEO hires a new senior management team... and together they develop a strategy to fix the problems, run the organization better, and develop and implement great new ideas. This is the playbook New York City needs, and I know it well.

You can read Whitney's full announcement here with more details or visit whitneyformayor.com... I grew up not far from New York City on Long Island and wish him all the best during his campaign.

New 52-week highs (as of 12/2/24): Air Products and Chemicals (APD), Alpha Architect 1-3 Month Box Fund (BOXX), CF Industries (CF), Costco Wholesale (COST), Kenvue (KVUE), Procter & Gamble (PG), Ryder System (R), RenaissanceRe (RNR), Invesco S&P 500 Equal Weight Technology Fund (RSPT), ProShares Ultra S&P 500 (SSO), The Trade Desk (TTD), Visa (V), Vanguard S&P 500 Fund (VOO), Westlake Chemical Partners (WLKP), and Zebra Technologies (ZBRA).

In today's mailbag, feedback on yesterday's edition, which included a discussion about Donald Trump taking aim at the BRICS nations... Do you have a comment or question? As always, e-mail us at feedback@stansberryresearch.com.

"Re your Trump v BRICS piece, you note Trump says:

We require a commitment from these Countries that they will neither create a new BRICS Currency, nor back any other Currency to replace the mighty U.S. Dollar or, they will face 100% Tariffs, and should expect to say goodbye to selling into the wonderful U.S. Economy.

"However, Russia and BRICS have already stated that they do not intend to create a new BRICS currency or even attempt to create a new BRICS currency or replace the U.S. dollar as the world's reserve currency. They merely want another payment option, while those who can and want, continue using the dollar. At present, therefore, Trump's comment seems irrelevant and inconsequential..." – Subscriber Chris L.

"Don't overlook the fact that a system is already in place that works for international payments excluded from SWIFT. It's gold. My understanding is that it's already being used by those excluded. Allowing the banned countries back into SWIFT pretty much mutes a lot of the BRICS agenda." – Subscriber George L.

"G'Day; I'm 86 years old. I have paid an average of $150,000 in taxes per year on required withdrawal of my IRA. Total of $2.9 million. I will have $1.75 million at the end of this year. Please ask Trump for help." – Subscriber Sam B.

Corey McLaughlin comment: I respect your request, Sam, and now would be the time to jump on the opportunity for changes to the tax code. I don't have a direct line, but maybe someone from his camp will read this.

You may want to consult a tax attorney, too, if you haven't already.

All the best,

Corey McLaughlin with Nick Koziol
Baltimore, Maryland
December 3, 2024