Household debt and credit, plus October PPI, FTX's balance sheet, the year in headlines, and 8,000,000,000 people
The Sandbox Daily (11.15.2022)
Welcome, Sandbox friends.
Today’s Daily discusses the Quarterly Report on Household Debt and Credit from the New York Fed, the October producer price inflation (PPI) report, FTX’s leaked balance sheet, a review of the 2022’s headlines, and the UN projects the world’s population reached 8,000,000,000 people today.
Let’s dig in.
Markets in review
EQUITIES: Russell 2000 +1.50% | Nasdaq 100 +1.45% | S&P 500 +0.87% | Dow +0.17%
FIXED INCOME: Barclays Agg Bond +0.74% | High Yield +0.88% | 2yr UST 4.345% | 10yr UST 3.777%
COMMODITIES: Brent Crude +0.71% to $93.80/barrel. Gold +0.30% to $1,782.2/oz.
BITCOIN: +2.93% to $16,844
US DOLLAR INDEX: -3.63% to 106.548
CBOE EQUITY PUT/CALL RATIO: 0.61
VIX: +3.41% to 24.54
Household debt and credit report from the New York Fed
Total household debt jumped by $351 billion last quarter (3Q22), a 2.2% rise from 2Q22 and the largest quarterly increase since 2007. This puts total household debt at a record $16.5 trillion.
Aggregate delinquency rates were unchanged in the 3rd quarter of 2022 and remained very low, after declining sharply through the beginning of the pandemic. As of September, 2.7% of outstanding debt was in some stage of delinquency, a 2.1% decrease from the last quarter of 2019, just before the COVID-19 pandemic hit the United States.
The share of debt newly transitioning into delinquency increased for nearly all debt types, following two years of historically low delinquency transitions. Transition rates into early delinquency for credit cards and auto loans have increased by about a half of a percentage point, following similarly sized increases in the 2nd quarter.
Source: Federal Reserve Bank of New York
Producer price inflation moderates in October on heels of softer CPI data
U.S. stocks rose as fresh inflation data showed producer prices (PPI) rose less than expected last month, following through on softer consumer prices (CPI) we received last week. Perhaps inflation is rolling over and the general trend from here is down, even if the months ahead are choppy and mixed.
The Producer Price Index (PPI) for final demand increased +0.2% in October, the same as in the prior month, and below the consensus of +0.4%. The index was up +8.0% YoY, down from an annual rate of +8.4% the month before.
The core PPI rate, which excludes the volatile food and energy components, was flat – its weakest showing since November 2020 – and was up +6.7% YoY, moderating from +7.1% reported in September.
After peaking in March at 11.7% on an annual basis, producer price growth has moderated amid improving supply chains, softer demand and a weakening in many commodities prices. The Federal Reserve, which is watching all inflation data closely, is anticipated to soon slow the pace of interest rate hikes, though officials have emphasized they remain firmly committed to taming inflation.
Source: Ned Davis Research, Bloomberg
FTX’s leaked balance sheet
In a difficult year for the crypto space that has been full of hacks, failing funds, and decentralized stablecoins going to zero, nothing has compared to FTX and Sam Bankman-Fried’s (SBF) rapid implosion. After an astronomical rise in the crypto space over the past three years, crypto exchange FTX and its founder and CEO SBF have come crashing back down to earth, largely unraveled by their misuse of customer funds and illicit relationship with trading firm Alameda Research. This graphic visualizes FTX’s leaked balance sheet dated to November 10th and published by the Financial Times on November 12th.
The bankrupt crypto exchange had only ~$900mn of liquid assets, despite having ~$9bn of liabilities. Hence - the liquidity crunch.
Digging deeper, the balance sheet itself has triggered both disbelief and amazement among all those who see it. Assets include illiquid tokens that FTX conjured out of thin air, including $2.2 billion of “Serum” tokens and over $500 million of “FTT” tokens, as well as $7.3 million of a mysterious illiquid asset called TRUMPLOSE. And then there is a line for $8 billion of liabilities that is described on the spreadsheet as “Hidden, poorly internally labeled ‘fiat@’ account.” Huh?
Many are wondering how the best venture capitalists in the world were deceived by Sam Bankman-Fried. Here is a look at the due diligence process that Sequoia Capital, Softbank, Lightspeed Venture Partners, and Third Point, among many others, ran on FTX and their corporate financial statements:
The unwind is only just beginning and the path to recovery will be a long and messy road – given FTX and its affiliated portfolio of companies stretch over 130 overseas subsidiaries, its creditors in excess of 1,000,000, and the legal and regulatory oversight murky at best.
Source: Visual Capitalist, Matt Levine, Financial Times, Fortune, Bankruptcy Filing
S&P 500 price chart
What a year…
… it has been.
Source: Alliance Bernstein
8,000,000,000 people
Today, the population of Earth will reach the 8 billion milestone, according to United Nations projections. It’s the result of an epic growth spurt in the last century: There were just 2 billion humans in 1925, and 4 billion as recently as 1974—so we once again doubled our numbers in less than 50 years.
The world population is expected to peak in the 2080s at 10.4 billion people, hang there for a few decades, then fall at the dawn of the 22nd century. The reason: fertility rates are declining, and many countries are not producing enough babies to maintain growth. The populations of 61 countries are projected to drop by at least 1% by 2050, with Eastern Europe suffering the biggest losses.
Shrinking populations alarm economists. Fewer kids means fewer workers contributing to the economy, at the same time the growing ranks of older people will require financial support. Everything from our cities to our healthcare systems will need to be reimagined.
With peak human population on the horizon, we should expect demographic decline to become a more prominent policy issue. Per the UN, in 2050 the number of people 65 or over will be more than double the number of kids under five.
Source: United Nations, UN Department of Economic and Social Affairs, Morning Brew
That’s all for today.
Blake
Welcome to The Sandbox Daily, a daily curation of relevant research at the intersection of markets, economics, and lifestyle. We are committed to delivering high-quality and timely content to help investors make sense of capital markets.
Blake Millard is the Director of Investments at Sandbox Financial Partners, a Registered Investment Advisor. All opinions expressed here are solely his opinion and do not express or reflect the opinion of Sandbox Financial Partners. This Substack channel is for informational purposes only and should not be construed as investment advice. Clients of Sandbox Financial Partners may maintain positions in the markets, indexes, corporations, and/or securities discussed within The Sandbox Daily.