JPMorgan Says Household Excess Savings Gone By October

Warren Buffett has donated another $4.64 billion of Berkshire Hathaway stock to five charities. This boosts his total giving since 2006 to more than $51 billion.

Market

Prices as of 4 pm EST, 6/22/23

Macro

New filings for unemployment benefits are hovering at the highest level since October 2021.

  • Initial jobless claims totaled 264,000 last week.

  • The figure was unchanged from the previous print but above market expectations of 260,000.

  • This points to a cooling labor market.

  • Continuing claims, on the other hand, dropped to 1.76 million from 1.77 million and suggest a tight market where laid-off workers are quickly finding new jobs.


Sales of existing US homes were flat in May, rising 0.2% from the previous month.

  • On an annual basis, sales posted their 21st consecutive decline, falling by over 20%.

  • The drop comes despite mortgage rates falling (slightly) for the 3rd consecutive week to 6.67%.

  • Median prices, meanwhile, experienced their largest annual drop since December 2011, falling by 3.1% in May to $396,100.


Even after May’s big drop, the median household would need to spend more than 40% of their income to afford today’s median-priced home.

  • Three years ago, that figure was just 28%.

  • Since the beginning of last year, the monthly mortgage payment for the average loan size has roughly doubled to nearly $3,000.

  • As households run down their excess savings, these payments will take a higher toll on the consumer and the housing market.

  • According to JPMorgan, those savings are likely to be drained before the end of the year:

JPMorgan

Stocks

The quality of new vehicles is getting worse, according to J.D. Power.

  • The firm’s latest Initial Quality Study revealed the number of problems per 100 vehicles increased by 12 to an average of 192.

  • Last year, the number of problems increased by 18.

  • Growing problems include advanced driver-assistance features as well as those related to other technologies like wireless charging pads.

  • EVs accounted for 7 of the top 10 worst autos, with Tesla ranking second-worst in vehicle quality.


The stock market is saying one thing while the bond market is saying another.

  • The recent rally in equities suggests investors are brushing off the possibility of further rate increases, even as the Fed signals a higher-for-longer environment.

  • Bond investors, meanwhile, are increasingly betting that the Fed’s rate increases will drive the US into a recession with the inversion on the yield curve dropping beyond 100bps for the first time since March.

  • Both can’t be right.

John Authers

Energy

US inventories of crude oil posted a surprise draw last week.

  • The drop in stocks was fueled by strong export demand and lower imports.

  • Together with a 1.7 million drain of the Strategic Petroleum Reserves (the 12th straight draw), overall crude inventories fell by the most in 4 weeks.

  • Oil prices fell, however, with the threat of hawkish central banks outweighing the drop in inventories.

Bloomberg/Zero Hedge

Earnings

Yesterday’s highlights:

Darden Restaurants DRI: $2.58 EPS (vs. 2.54 expected), $2.77 billion in sales (in-line).

  • Net sales rose 6.4% YoY but were dragged down by lower-than-expected same-store sales for Olive Garden.

  • Forecasted for adjusted earnings for FY24 disappointed.


What we’re watching today:

  • Carmax KMX

Top Headlines

  • Office space: Office building values in the US are expected to fall by 35% and are unlikely to recover to their peak values until at least 2040.

  • AI regulation: Current AI models are at risk of violating draft EU rules to govern the technology.

  • AI investment: Amazon Web Services is investing $100 million in a generative AI center to keep up with Microsoft and Google.

  • AI jobs: Generative AI-based job postings in the US rose by 20% in May.

  • Record loan: Ford’s joint venture with Soth Korean battery maker SK On has secured a record $9.2 billion loan from the Department of Energy.

  • TikTok resignation: The social media platform’s COO of 5 years is stepping down to focus on “entrepreneurial passions”.

  • Global trade shift: For the first time in almost 20 years, the US imported more goods from South Korea than China did.

  • Recession risk: US Treasury Secretary Janet Yellen said yesterday she sees diminishing risk of a US recession.

Crypto

Prices as of 4 pm EST, 6/22/23

  • Super-app: Coinbase CEO Brian Armstrong said he envisions the platform becoming a global “super-app”.

  • Deliberate action: Former CFTC Chair Chris Giancarlo said the agency’s move against Coinbase appears to have been “deliberate”.

  • Clawback: FTX is looking to claw back over $700 million from billionaires, celebrities, and politicians.

  • Relinquished: The SEC is postponing collection of a $30 million fine from BlockFi until investors are repaid.

  • Ethereum milestone: The number of staked ETH has more than doubled this year and now totals over $38 billion.

Deals

  • Retail auction: Overstock.com will buy Bed Bath & Beyond’s IP and digital assets for $21.5 million.

  • Smart home: Despite getting the green light from regulators in the UK, Amazon’s $1.6 billion iRobot deal is headed for an EU probe.

  • Gaming: In a court hearing, Microsoft portrayed Sony as the “complainer-in-chief” against its Activision acquisition.

  • Aviation: Bell helicopter and Cessna jet manufacturer Textron is looking to sell its +$1 billion fuel systems unit.

  • Media auction: Fortress Investment Group emerged as the winner for Vice Media with a $350 million bid.

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