This Might Not End Well - InvestingChannel

This Might Not End Well

Proprietary Data Insights

Top Large Cap Packaged Foods Stock Searches This Month

#1Beyond Meat19,319
#2General Mills8,553
#3Kraft Heinz Company7,912
#4Kellogg Company6,348
#5Campbell Soup Company4,585

Good News And Bad News On Inflation 

We’ve got some good news that could quickly turn into bad news on housing in a moment. But first, the good news and bad news from Tuesday’s inflation report. 

The Juice likes to let the dust settle on the stories the media rushes to cover and floods your newsfeed with (super annoying). Then, we make sense of what matters most in your day to day.  

For example:

  • Overall inflation remained relatively steady in August, up 8.3% year-over-year (it was 8.5% in July). You can credit this wimpy decline in the pace of inflation to nothing other than decreased energy costs. 
  • Gas prices came down 10.6% between July and August, but are still up 25.6% year-over-year. 
  • Expect another decrease in September if the current trend holds. The national average for a gallon of gas sits around $3.70. That’s down almost a dime from last week and approximately a quarter from last month. 

That’s some good news. 

Bad news – the cost of food at home continues to increase, up 0.7% month over month and 13.5% annually. Likewise on food away from home – up 0.9% between July and August and 8.0% compared to this time last year. 

Similar story on rents. In an environment where one in five millennials say they’ll likely rent forever due to the already soared and still soaring cost of home ownership, rent posted a 0.7% increase between July and August. Same as between June and July. So no relief there. 

But, damn dude, if you’re lucky enough to have owned your home for more than a couple years, there’s a solid chance you’re sitting pretty. In an update to a story The Juice squeezed last month, we deliver the good news, but humbly warn against getting too confident. 

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This Might Not End Well

Key Takeaways:

  • If you’ve owned your home for more than a minute, there’s a good chance you’re in good, if not excellent shape. 
  • You might be sitting on a pile of cash. Lots of cash. 
  • However, proceed with caution on what you decide to do from here. 



Source: CalculatedRisk

That’s a somewhat fancy, but pretty straightforward chart from our friend, Bill McBride at the CalculatedRisk housing newsletter. 

Here’s what it means. 

As of Q2, homeowners are sitting on a record $11.5 trillion of tappable home equity (we define what means here). That’s not in Bill’s chart. But what is probably matters more. 

That upward sloping red line indicates that, yes, homeowners are tapping more of the equity they have in their homes. However, it’s nowhere close to the level we witnessed ahead of the 2008 housing crash. 

Relative to disposable personal income (the amount of money you have left after paying taxes), home equity extraction equals just 3.65%. So homeowners are taking out home equity loans and lines of credit that total just 3.65% of their after tax earnings. Heading into the bubble bust that number was routinely higher than 8%. 

Looks like responsible use of home equity. Sounds fabulous. 

However, a word of caution. 


This graph shows a rapid decrease in people refinancing their mortgages (due, obviously, to super high interest rates) and a rapid increase in home equity loans. People are flocking to the latter to turn their home equity into cold hard cash. 

Who knows what they’re doing with it? 

Making renovations. Going to Vegas and putting it all on red. Paying for groceries if they’re in one of those tough house rich, cash poor situations. 

Ultimately, it doesn’t matter as long as they’re paying back their debt. 

The concern – that we’ll see that red line slope even higher up in Q3. And some of these new borrowers won’t be quite as responsible as the current crop. And, from the current crop, a meaningful handful start to fall behind. A situation that looks so good right could turn bad with the proverbial flick of a domino. 

The Bottom Line: Stay tuned. 

Mañana, The Juice will hit up our Trackstar database of the tickers investors search for most and look at consumer defensive stocks. Like we did by highlighting the top packaged foods stocks today (see top of the page). These tickers can help give us a read on the economy as many of the companies deal in the staple items cash-strapped consumers focus their spending on during times of high inflation. 

So we’ll use a look at the consumer space, via Trackstar, to take an investment angle on inflation. Even as prices soar, which consumer stocks could be good buys? That’s tomorrow. Thanks for reading today.



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