Inflation & Housing

The most recent CPI release was last Tuesday the 15^th, and it came in as expected at up 0.3 for the month of June.

We have discussed the different contributors before but wanted to revisit the largest single contributor from the services side, shelter.

Shelter contributes 36.3% to the total CPI number, or more than 50% of the total 61% contribution from the Services group.

Notice the trend in Shelter, from October at a contribution of 1.740 moving consistently lower into the most recent 1.355 for June.

This trend is occurring at the same time as overall affordability is becoming too far a stretch for the median US income.

Presently this is what median incomes look like on a state-by-state basis.

Meanwhile median home prices look like this:

And the combination of the 2 charts brings us to this:

Its not just housing taking an outsized chunk of median income, presently 41% of consumer spending now goes to housing, utilities, healthcare, medications, and insurance.

This was 16% in 1947, 30% in 1980, and 35% in 1990. Fewer consumer dollars are left for true discretionary spending.

Meanwhile real wages, on a weekly basis are moving lower.

The white line in the chart above is the JOLTS Index, or Job openings for a little extra perspective.

So, housing is the biggest contributor to headline inflation, the CPI, and according to the above charts there are less and less people that can afford one.

Median incomes are at the very least headed in the wrong direction.

If 36% of the CPI is in question, we wonder how inflation can keep an upward trajectory?

Utilities

Insiders have rarely been this bearish before: Only 11.1% of companies with insider activity are seeing more buying than selling by corporate officers and directors, the lowest share on record. Over the last decade, this figure has never fallen below 15%. This means insiders were net sellers in almost 90% of companies with recent transactions. Insiders were either neutral or negative in 10 of the 11 S&P 500 sectors, with utilities being the only sector to show positive sentiment. Selling was also broad-based across company sizes, from small to large-cap stocks. An interesting divergence.

At face value the above chart is both interesting and disturbing, but maybe the outlier should be the real focus, “utilities being the only sector to show positive sentiment”.

There was a Bloomberg article this week that also caught our eye regarding utilities.

https://blinks.bloomberg.com/news/stories/SZWMHHGPQQDT 

“Southern CEO Warns of Revolution If Power Bills Not Cheaper”

A few quotes:

“If we don’t get affordability right, there will be a

revolution in this country,” Chris Womack, Southern’s president

and chief executive officer, said at Chicago’s inaugural Global

Quantum Forum Tuesday. “We all have to make sure that as we move down the pipeline with these projects, that we figure out how to price them in a way that puts down the pressure on existing customer rates.”

“Womack, who spoke at a panel moderated by Bloomberg News,

said over the last 18 months demand for data centers and high

energy-projects has increased so much that companies have de- prioritized renewables and green energy.”

Feel free to read the entire article, but we think when CEO’s must “reprioritize” due to demand, its usually a good thing.

XLU recent performance:

Retail Buyers

This is a fascinating topic, because although we are certain BAML could easily define both a Retail Buyer and an Institutional Buyer, we wonder how it is not hard to draw the line these days.

Anyhow, they track, and we watch. Lately Institutions are selling to retail. Institutional Investors sold -$800 million in single stocks and ETFs last week, building on -$2.4 billion in the previous week. This marks their 10th week of selling out of the last 11. Over the last 4 weeks, institutional investors have sold -$8.5 billion in equities in total. On the other hand, corporations bought back +$1.2 billion of their own stock, while retail and hedge funds purchased +$1.2 billion and +$400 million, respectively. Retail investors have now been net buyers for 30 out of the last 32 weeks. Wall Street vs Main Street continues.

It will be interesting to see how this all plays out in the end.


AI applicable jobs

For those of us worried what type of jobs await are children, Microsoft was kind enough to publish these lists. Will be there:

Won’t be there:

Have a great weekend.