In Time?

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Includes: AAPL, BAC, CSCO, F, FB, GE, GOOG, GOOGL, IBM, INTC, MSFT, SPY, T, TSLA, XOM
by: The Nattering Naybob

Summary

Discussion of the potential effects on equity, bond, commodity, capital and asset markets regarding:

Student Loans; Unemployment.

Labor Participation; Retail Sales.

Total Revolving Credit; Borrowed Time?

One of my all time favorites, "In Time", a 2011 American dystopian science fiction action thriller film. When this film is done with you, the next time someone asks, "got a spare moment?" or "do you have the time?"; the hair on the back of your neck stands up, you get a shiver and think twice "what am I doing?".

In 2169, people are genetically engineered with perfect health and appearance. Each has a digital clock on their forearm; when they turn 25, they stop aging and their clock begins counting down from 1 year. When the clock reaches zero, that person "times out" and dies. Time has become the universal currency; it is used to pay for daily expenses and can be transferred between people or to "time capsules" - the equivalent of wallets. The country has been divided into "time zones" based on the wealth of the population. The film focuses on two specific zones: Dayton - a poor manufacturing area where people generally have 24 hours or less on their clock at any given time - and New Greenwich - the wealthiest time zone, where people have enough time on their clock to live for centuries.

Student Loans and Unemployment

Between September 2006 and January 2011, unemployment amongst 16-24 year olds swelled 58% (+1.4M) from 2.4M to 3.8M. Over the same period, post secondary enrollment swelled 20% (+2.9M) from 15.2M to 18.1M. Aside from the adult students or parents taking on the debt load, who extended the bulk of any necessary credit?

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Above note, $945B listed as assets by the government (Sallie Mae), and since the great crisis, $800B in parabolic fashion. Total student loans are $1.3T, putting taxpayers on the hook for 75% of the outstanding "seat time" experience tab.

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Above note, between May 2008-July 2011, labor force participation rate amongst 16-24 year olds declined 6% while student loan debt ramps up 4X. Note the convergence date in December 2009.

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Above note, between May 2008-July 2011, unemployment level (population) in yoy % change vs. federal student loans. Note the convergence date, January 2010, look at the chart above this once again. Voila! X marks the spot twice, coincidence?

So we've racked up $1.3T in debt putting "students" in chairs, on the periphery or out of the "best job market in decades". What happens when that "credit life line" runs out and those "professional" students must seek gainful employment? Makes one wonder what the MSM (main streak media) unemployment number would look like if all of these "furloughed" workers were counted as "in the workforce" and/or "actively seeking"? IMHO, it would smear the lipstick right off that ugly fat pig's face, snort. Moving quickly to expedite...

Retail Sales and Revolving Credit

Remember those charts in The Toilet? that showed a relationship between total revolving credit, personal consumption expenditures and personal savings?

When we posted those charts, we noted: "since Q3 2014 PCE growth yoy had declined five consecutive quarters". Now, a follow up which I am certain will bring cheer to many.

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Above note since February 2015 - the divergence in the blue line - yoy growth in retail sales ex-auto (on the left axis), anything below 3% is considered recessionary and the red line - total revolving consumer credit - yoy change in billions (on the right axis).

What does that red tide of consumer credit growth and this divergence mean? It's NOT just a confirmation of our previous observations, consumer spending is down, savings had been up, now drawing down while consumer borrowing is way up.

The subtlety can be found if one reads between the lines - the blue and the red which clearly tells us that credit card borrowing was obviously NOT spent on retail sales. Confirmed by $65B additional outstanding in the 11 months since February 2015, which is almost DOUBLE the $36B additional outstanding in the prior 24 months, and yet sales growth, which started to plummet September 2014, has remained mired in sub -3% or recessionary territory. Tastes like lots of spending, but less sales...

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Above note, confirmed in a different manner, yoy % change (left axis) vs. yoy change in billions FLOW (right axis), again a notable divergence commencing in February 2015. Begging the question, where's the money?

Borrowed Time?

So if that $65B increase in revolving credit was not spent on retail sales and food (ex-auto), which it is obvious after "having another look down there", it was not... then where oh where did that borrowed money go and whatever for? And who can afford to make those revolving credit payments at 22% fixed? I dunno, but I'll tell you, I really don't care at this point. Why?

The continuing global economic contraction must reverse soon, which by all indications is becoming worse by the day, and in a self reinforcing manner. Otherwise, demand as expressed by not only our "means of payment" or cash on hand, but also credit, will probably fall off a collective cliff. How? What would be the mechanism?

First, what happens when that $1.3T "credit life line" starts running out on those "professional" students, who must then actively seek gainful employment, in the lipstick smeared pig the MSM is calling "the best jobs market in decades"?

Second, as for the mysterious disposition of $65B in CC spending, I DID NOT write the paragraph below, but perhaps it explains the great divergence in credit debt incurred vs. spending since February 2015... and perhaps a certain sound is very apropos, as in tick-tock-tick-tock....

VISA CARD: "ZERO 0% Introductory APR for EIGHTEEN (18) billing cycles for balance transfers made in the first 60 days, then 11.24%-21.24% Variable APR."

That eighteen (18) month at ZERO% grace period could be the only thing holding the consumer credit tidal wave up for the time being (humor me, take another gander at the magnitude of the red line TWO charts above again).

Using February 2015 as a starting point, perhaps in the next 6-12 months, that 18-month tsunami wave might break and the student loan typhoon could hit land. The phrases "being on borrowed time" and "how much time do you have?" suddenly begin to take on a whole new meaning? TBD.

This is the 22nd in a series of thematically related missives which will attempt to identify the macroeconomic forces with potential to adversely effect capital, commodity, equity, bond and asset markets.

I wish to dedicate this missive to one of my mentors, Salmo Trutta, who is a prolific commenter on SA. Without Salmo's tutelage, and insistence in not masticating and spoon feeding the baby ducks, as in learning the hard way by doing the leg work and earning it, this missive would not have been possible. To you "Proximo"... "win the crowd and win your freedom" - Spaniard

Since the market potential is broad in both scope and scale, our conclusion: more grief in the dollar "short" or squeeze and its associated liquidity issues, with the potential to adversely effect capital, commodity, equity, bond and asset markets. Will it happen? TBD, and forewarned is forearmed.

As for how all of the above ties into the potential and partial list of market plays below... the market as a whole could be influenced, and this would tie into any list of investments or assets. Those listed below happen to influence the indices more than most.

Would like to thank you folks fer kindly droppin in. You're all invited back again to this locality. To have a heapin helpin of Nattering hospitality. Naybob that is. Set a spell, take your shoes off. Y'all come back now, y'hear!

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Disclosure: I/we have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours.

I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article.