For those piling into certain stocks for the sole reason that AI was mentioned on their conference call a bunch of times, I found this Forbes cover from 1998. AI is an amazing step forward when it comes to technology and software and will hopefully make us even more efficient in the things we do. But AI has been evolving for decades, used by all of us and what we’re seeing now is just the next incredible iteration. The market cap gains in the stocks that are now considered ‘AI’ plays are swamping the revenue benefits they will see for years to come. Everyone should dust off the late 1990’s history books when we saw similar market behavior when ‘eye balls’ and ‘.com’ was mentioned. Love and fear the technology and what it can do for us but don’t get carried away in the stocks you buy on this one thing.
Here were some comments from Friday’s UoM consumer confidence index which fell to the lowest since last November. “Year ahead expectations for the economy plummeted 23% from last month. Long run expectations slid by 16% as well, indicating that consumers are worried that any economic downturn will not be brief.” To the rise in longer run inflation expectations to the highest since 2011, “Consumers anticipate that the era of high prices will continue for longer than previously expected. About 42% of consumers blamed high prices for eroding their living standards, up from 40% last month. Concerns over the high prices of cars and durable goods rose again as well.”
Here’s more of note, “when asked about news they heard about developments in the economy, consumers’ reports reached their most negative level in about a year, primarily due to unfavorable news about the government as well as unemployment. About 51% of consumers reported that the government is doing a poor job with economic policy, the worst reading since last July.”
With respect to the breadth of the consumer confidence drop, the Index of Consumer Expectations declined across age, income, education, and political party. In addition, the deterioration of expectations was apparent for multiple dimensions of the economy, reflecting the widespread risks consumer perceive.”
On inflation that eats away at one’s standard of living, I’m going to tweak the famous Milton Friedman inflation quote where he only blames the monetary side to instead read “Inflation is always and everywhere a monetary, fiscal and an ever growing regulatory state phenomenon.” We learned the influence of the fiscal side over the past few years, financed by the Fed in inflating prices but enough is not talked about when it comes to the ever growing regulatory state over decades that has raised the cost of doing anything and companies try their best to pass on those costs to the rest of us.
Seen late Friday, C&I loans outstanding for the week ended May 3rd declined by $6.2b to $2.768T and that is now retesting the post $2.756T low in the weeks after SVB. As seen in the loan officer survey last week, this is not just a reduced supply of credit but also slacking demand for it. Loans for CRE rose $2.2b and were higher too for real estate development. As for the latter, there are projects in queue that need to get finished but as for new construction where shovels haven’t entered the ground, pencils are down on that for many.
As for bank deposits, they declined by another $13.8b and in turn is less a source for bank lending and the buying of US Treasuries. At $17.15T, that’s the least since early July. This said, banks got overloaded with deposits over the past few years, particularly the big ones and the big ones don’t mind to see the deposits leave. The same of course can’t be said for the small and medium sized ones.
C&I Loans Outstanding
US Deposits
In March, Eurozone IP fell 4.1% m/o/m, more than the estimate of down 2.8% but we got a hint of this when German IP was pretty disappointing last week. The number is not market moving because it’s not so timely when reported. The euro is up as are most European markets.
While the Turkish election is headed for a run off, it’s truly shocking how many still voted for Erdogan after the damage to the standard of living of Turkish citizens he is responsible for over the past 9 years. Turkish stocks are down 4% today and the Turkish lira is weaker for the 12th day in the past 13. The Turkish lira has lost 89% of its value vs the US dollar over the past 9 years and Erdogan still has a chance to maintain his seat. Amazing. The only other currency that has done worse in the developing world over that time frame was the Argentine peso which is lower by 97%.
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