Video: Inflation Eases, But Are We on the Brink of a Debt Disaster or a Consumer Recession?

November 16, 2023

Core CPI (All items less food and energy) has significantly decelerated and is down to 4.0% year over year. COVID-19 bottlenecks have been resolved and stimulus check demand is over. The Fed will still have a difficult time getting CPI down to its 2.0% mandate in our opinion.

Unexpected inflation helps the federal deficit — and it needs a lot of help. We are running a nearly $1.7-2 trillion deficit, piling onto the $34 trillion in existing debt with $50 trillion in unfunded entitlement liabilities.

In the September quarter, the strongest part of economic expansion was government spending. Government spending is usually inefficient and misallocates capital so it does not increase the country’s economic output or productive capacity.

Consumers are hurting with spikes in credit card delinquency and will be pressured by the restart of student loan payments. In our opinion, 4Q23 will be significantly weaker on a GDP basis than 3Q23.

Banks, credit card companies, retailers and other companies with big exposure to consumer spending behavior could be in for a tough time ahead. Evidenced by the S&P500, in which the top 7 stocks have done well as investors have crowded into these great businesses, regardless of valuation. The rest of the index is relatively flat. There are opportunities outside of the big 7, profitless tech, banks, credit card companies, retailers, and office and retail real estate, but all of these need to be avoided in my opinion.