It’s shocking how broke people are, including those earning $100,000+. Take a look…

May 9 (King World News) – Peter Boockvar:  It’s clear where commercial real estate construction is not much taking place in, that being for office buildings, multi family, industrial, for example, as all deal with excess supply. It’s also clear where it is taking place, for government incentivized chip and battery plants, among other things but also for data centers. The April Dodge Momentum Index (measuring construction) rose to 173.9 from 164 in March and they said it “saw positive progress in April alongside a deluge of data center projects that entered the planning stage. Outsized demand to build Cloud and AI infrastructure is supporting above average activity in the sector.”

On the flip side, “Most other categories, however, faced slower growth over the month. Across these industries, it’s likely that owners and developers are grappling with uncertainty around interest rates and lending standards, thus delaying their decisions to push projects into the planning queue.”

I’ll argue again, from what I’m seeing, the US economy is remarkably mixed and uneven. 

Broke & Desperate Consumers Using Buy Now, Pay Later
Let’s talk Buy Now, Pay Later in light of the Affirm earnings yesterday and this Bloomberg article I read yesterday talking about a Harris Poll of users of BNPL. “A recent survey conducted by Bloomberg News by Harris Poll found that 43% of those who owe money to BNPL services said they were behind on payments, while 28% said they were delinquent on other debt because of spending on the platforms.”

Also, “More than half of respondents who use BNPL said it allowed them to purchase more than they could afford, while nearly a quarter agreed with the statement that their BNPL spending was ‘out of control.’ Harris also found that 23% of users said they couldn’t afford the majority of what they bought without splitting payments, while more than a third turned to the services after maxing out credit cards. The findings also show that the spending, which for more than a third of users has exceeded $1,000, isn’t entirely on big-ticket items. Almost half of those using BNPL say they’ve started, or have considered, using it to pay bills or buy essential items, including groceries.”

$100,000+ Earners Can’t Pay
Finally of note, “About 42% of those with household income of more than $100,000 report being behind or delinquent on BNPL payments.” So now impacting middle income consumers. 

Bottom line, this doesn’t read well, these are big numbers and I was pretty shocked by them.

Now to the Affirm conference call, and whose stock was down 9.5% yesterday after a 3% fall on Tuesday, maybe after this article came out, as well as in sympathy with the Shopify numbers. Business though seems ok at least right now.

They said their Q4 fiscal quarter “… Funding capacity increased slightly q/o/q.” (from their shareholder letter, which also said, “Our consumers love Affirm.” I’m sure they do…

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Bottom Line
Bottom line, trends in BNPL are really important to be watching and we can see that it is clearly a growing driver of consumer spending decisions for lower income buyers.

Sticking with the consumer, this was from Dine Brands, the owner of Applebee’s and IHOP:

Increasing Numbers Of Diners Using Promotions
“During the first quarter, like others in our industry, we saw large areas of the country experienced poor weather, impacting sales and traffic. And consumer caution with respect to economic conditions persisted in the post-holiday period. As a result, the consumer has become more price sensitive, as indicated by the response to our limited time promotions. For example, at Applebee’s 28% of our transactions were tied to a limited time offer or promotion, which was up from 19% in the previous quarter as well as the prior year.”

“We also continue to see guests trade down from higher prices items at both IHOP and Applebee’s, another indicator that guests are managing their wallet.”

Uber & Lyft Booming Because People Can’t Afford A Car
Uber was happy with their traffic trends. “Demand for the products remains strong.”

Lyft said “Total rides grew 23% y/o/y, reflecting strong demand across use cases. Growth in early morning commute and weekend evening trips was particularly strong, which is a continuation of the trends we saw in the back half of 2023.”

Reynolds Consumer Products, the maker of tin foil and Hefty garbage bags among other things, and who benefits from more eating at home rather than out, and a stock we own, said this:

“When we reported results in February, I spoke to volume as being under pressure across the consumer staple sector. During the quarter, demand was modestly better than expected in some of our categories, and share gains also contributed to our retail performance…However, factors including reduced consumer savings, increasing credit card debt, continued inflationary pressure, and elevated interest rates continue to pressure consumption in our categories.”

Bank of England
The Bank of England left their cash rate unchanged as expected at 5.25%. The vote was 7-2 with those 2 wanting to cut rates by 25 bps. After reading the statement from them I didn’t get a sense that they are looking to cut rates anytime soon as a committee (until Bailey spoke). They did say “Key indicators of inflation persistence are moderating broadly as expected, although they remain elevated.” 

Also, “Monetary policy will need to remain restrictive for sufficiently long to return inflation to the 2% target sustainably in the medium term in line with the MPC’s remit.” They use the word ‘sustainably’ too. The seemingly noncommittal stance on the statement here had the 2 yr gilt yield little changed, down 1 bp and the pound a touch weaker vs the US dollar. However, post statement, Governor Bailey is saying that rates may fall “more sharply than markets expect…it is likely we will need to cut bank rate” but no “preconception about how fast or far to cut.” The 2 yr gilt yield is now lower and the pound is further softer. 

In Asia, China reported April exports that rose 1.5% y/o/y, about as expected while imports grew by 8.4%, about double what was anticipated. Tech products and autos were particularly strong on the export side. Higher commodity imports drove that side of trade. 

China To Devalue Yuan?
I keep hearing some argue that the Chinese should devalue the yuan and it makes no sense to me. They already have a huge trade surplus and a weaker yuan is not something Xi wants I believe. 

Inflation Hitting Japan
Lastly of note, in Japan in March base pay rose 1.7% y/o/y, which matches the February pace and is the best since 1997.

Take note too that the 10 yr JGB yield jumped almost 4 bps overnight to .92%, the highest since November. The 2 yr yield was up 2.5 bps to .31%, the highest since 2009. 

While the yen is weaker again, just maybe this yield move was in response to the minutes that came out from the last BoJ meeting. One member said “If underlying inflation continues to deviate upward from the baseline scenario against the backdrop of a weaker yen, it is quite possible that the pace of monetary policy normalization will accelerate.” Another member said “If the outlook shown in our April quarterly report is realized, our 2% inflation target will be sustainably and stably achieved in about two years and the output gap will be positive. Therefore, there’s a chance our policy interest rate will be higher than the path currently priced in by the market.”

This follows Ueda yesterday to parliament saying they could hike rates to stem the yen weakness. This is a big watch here as it matters for global bond yields. I think long yen could be a trade here. 

Nomi Prins Correctly Predicted $2,400 Gold, But Her Next Prediction Will Shock You
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To listen to one of the greatest interviews ever with the man who oversees $150 billion globally

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