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Predictable Non-Residual Seasonality

Jeffrey Snider profile picture
Jeffrey Snider

Our contention behind "residual seasonality" has always been that there is no residual, but to some extent an understandable and easily explainable, seasonal issue. Each Q1 appears to be unusually weak because, well, it is unusually weak. The reason is simply Christmas. Americans splurge for the holiday and then spend the first several months of the following year to some degree regretting it.

It's all the worse given that the splurge part has since 2011 been stretching the word to a significant extent. It pertains only to the degree which consumers spend with respect to their individual budgets, these constraints that are tied to non-existent income growth. That's what makes the backlash each Q1 so frustratingly weak.

The influence and appeal of revolving credit in this process is a relative latecomer. Starting in the middle of 2015, aggregate reported revolving credit balances began to rise just in time for that Christmas. A data discontinuity in December 2015 renders any analysis along these lines for that particular year moot.

There was in November 2016, however, a large increase in revolving balances, followed by a smaller one the following month. Starting in January 2017, however, revolving credit balances plummeted, and for a second month last February, therefore suggesting that our arguments for residual seasonality may have held for the very weak Q1 last year.

As noted over the past several months, the Federal Reserve reported massive increases in revolving credit for both November and December 2017 - just in time for last year's holiday shopping period. Given that income growth has been continuously weak since the 2015-16 downturn, those historically large increases would appear to have been in response to lack of wage gains and income growth in still keeping with the intent to splurge as much as possible for Christmas - and the inability to do so

This article was written by

Jeffrey Snider profile picture
As Head of Global Investment Research for Alhambra Investment Partners, Jeff spearheads the investment research efforts while providing close contact to Alhambra’s client base. Jeff joined Atlantic Capital Management, Inc., in Buffalo, NY, as an intern while completing studies at Canisius College. After graduating in 1996 with a Bachelor’s degree in Finance, Jeff took over the operations of that firm while adding to the portfolio management and stock research process. In 2000, Jeff moved to West Palm Beach to join Tom Nolan with Atlantic Capital Management of Florida, Inc. During the early part of the 2000′s he began to develop the research capability that ACM is known for. As part of the portfolio management team, Jeff was an integral part in growing ACM and building the comprehensive research/management services, and then turning that investment research into outstanding investment performance. As part of that research effort, Jeff authored and published numerous in-depth investment reports that ran contrary to established opinion. In the nearly year and a half run-up to the panic in 2008, Jeff analyzed and reported on the deteriorating state of the economy and markets. In early 2009, while conventional wisdom focused on near-perpetual gloom, his next series of reports provided insight into the formative ending process of the economic contraction and a comprehensive review of factors that were leading to the market’s resurrection. In 2012, after the merger between ACM and Alhambra Investment Partners, Jeff came on board Alhambra as Head of Global Investment Research. Currently, Jeff is published nationally at RealClearMarkets, ZeroHedge, Minyanville and Yahoo!Finance. Jeff holds a FINRA Series 65 Investment Advisor License.

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Comments (2)

Salmo trutta profile picture
I don't think Wells Fargo is solvent.
Aricool profile picture
tight money policies as credit debt soars along with overdue/default rates increasing along with corporations pocketing tax breaks....then add trade war.... hard to see how this ends well... the stock bears may rise from the Phoenix if wake up to discover these risks are not priced into the market...

Overdue US Card Debt Hits 7-Year High
According to sector data, consumers more than three months behind on their bills or considered otherwise in distress were behind on nearly $12 billion in credit card debt as of the beginning of the year — an 11.5 percent increase during Q4 alone.

And it’s not just the credit card debt — mortgage problem debt is up as well, 5.2 percent to $56.7 billion.

S&P/Experian Consumer Credit Default Indices Show Bank Card Default Rates Driving Composite Rate Higher In January 2018

The indices represent a comprehensive measure of changes in consumer credit defaults and show that the composite rate increased four basis points from last month to 0.95%. The bank card default rate rose 13 basis points to 3.57%. The auto loan default rate fell three basis point from December to 1.07%. The first mortgage default rate increased four basis points to 0.72%


0% Interest Credit Cards May Soon Come to an End

However, there is evidence to suggest these special offers are drying up, as banks begin to curb these types of promotions. Citibank—one of the nation's largest credit card issuers—has historically offered some of the longest 0% APR periods in the industry. However, during a call with investors, John Gerspach, Citi's chief financial officer, suggested the business may curtail these types of benefits, in light of rising interest rates. This includes "shortening or eliminating the promotional period on certain offers." Indeed, several of Citi's products—including the Citi Simplicity and the Citi Diamond Preferred—have already cut their 0% offers down from where they were just last month.
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