Post 368: Energy Shock, Mortgage Shock, and a Stretched Consumer

• The fallout from the Iran war in terms of rising energy prices may just be beginning.
• US gas prices are up 45% from last year.
• Canadians renewing their 5-year fixed rate mortgages in 2026 will see the biggest shock yet to their monthly payments.
• More Americans are moving from California and New York to Texas and Florida.
• Wendy’s same-store sales have declined in the U.S. for five straight quarters.
  • Its share price is back to where it was in 1993.
• McDonald’s has had four straight quarters of positive comparable store US sales growth.
  • Although consumer sentiment is worsening and the next quarter will not be as strong.
    • And a look back.
• Walmart continues to drive impressive same-store sales growth in the U.S. although their most recent print is the lowest in two years.
  • And they too are seeing cracks in consumer sentiment.
• Lowe’s eeks out a comparable store sales gain.
  • But notes that this is the most difficult housing market since the Great Financial Crisis.
• Campbell’s Soup has only seen one quarter of adjusted sales growth out of the last ten.
  • It is walking back some price increases on chips and like Pepsi/Frito Lay, they will be surgical about it.
    • Its share price is back to 1994
• Core inflation in Canada (excluding energy) continues to tick lower.
  • The main risk is that it’s due to a struggling economy.
• The percentage of Americans making withdrawals from their pension plans for hardship reasons has tripled.
• In Financial Ructions:
  • The yield curve continues to increasingly uninvert.
    • It’s a bear steepener which doesn’t usually lead to a recession.
      • Although we had a nasty one in the early 1970s.
  • We look at the supply of base money relative to M2.
    • And why inflation soared in the early 2020s.
  • Judy Shelton makes the case for a shrinking Fed balance sheet and lower interest rates.
• Book Review
  • We complete the last two chapters of the great book False Dawn by George Selgin.
    • Monetary policy was highly accommodative during World War II.
      • But not after the war ended, despite yield curve control still being in effect.
    • We must learn the lessons of the Great Depression and resist resorting to the New Deal playbook.
      • And a shout out to Hayek.