John Rubino is a former Wall Street financial analyst and author or co-author of five books, including The Money Bubble: What to Do Before It Pops and Clean Money: Picking Winners in the Green-Tech Boom. He founded the popular financial website DollarCollapse.com in 2004, sold it in 2022, and now publishes John Rubino’s Substack newsletter.
This first thing isn’t supposed to happen: When the Federal Reserve cuts short-term interest rates, long-term rates generally fall in tandem. But since the Fed’s “shock and awe” 50-basis point cut in September, bond yields have spiked:
Bond traders appear to doubt the Fed’s ability to lower rates and hold inflation in check. That’s bad in the long run since the only thing that gives value to a fiat currency is the market’s belief in central bank omnipotence.
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But it’s also a problem in the here-and-now, because today’s overleveraged economy really, really needs lower interest rates. Existing home sales, for instance, have fallen back to Great Recession levels:
And sales of big toys like boats and RVs — which are frequently financed — are cratering:
Polaris shares fell in premarket trading after the company, known for selling ATVs, UTVs, jet skis, and snowmobiles, posted disappointing third-quarter earnings. The company also cut its full-year earnings per share and sales forecast, citing sagging demand for outdoor vehicles due to elevated interest rates.
Polaris reported sales of $1.72 billion, down 23% YoY, missing the Bloomberg estimate of $1.77 billion. Sales were down modestly in off-road vehicles, motorcycles, and pontoons.
Here’s a snapshot of third-quarter earnings (courtesy of Bloomberg):
Off Road sales $1.40 billion, -24% y/y, estimate $1.41 billion
On Road sales $236.5 million, -13% y/y, estimate $241.6 million
Marine sales $85.9 million, -36% y/y, estimate $133.7 million
Visualizing Polaris’ quarterly revenues… The cheap money era of Covid, plus folks moving out of cities to resort towns and or just rural America, sparked a massive demand for outdoor vehicles. As the Federal Reserve tightened monetary policy, which sent interest rates to the moon, affordability for these outdoor grown-up toys worsened, thus curbing demand.
Zero Savings
The above is happening while consumers are running out of money. From the Kobeissi Letter:
US net savings as a % of GDP by households, businesses, and the government have been negative for 6 consecutive quarters. In other words, Americans are producing much less than they consume. Since 1947, there were only two other times when savings were negative, in 2008 and 2020. This comes after the US government’s deficit hit $2.1 trillion over the last 12 months with spending reaching $6.9 trillion. At the same time, the personal savings rate fell to 2.9%, the second lowest since 2008. National savings are at crisis levels.
Last but possibly not least, commercial real estate is tanking:
(Wolf Street) – The glut of vacant offices on the market for lease, as depicted by availability rates, rose to new records in many major office markets in Q3, despite pronouncements by landlords that the office glut has bottomed out. The availability rate is the office space on the market for lease either by the landlord directly or by a tenant as a sublease, expressed as a percentage of the total office market.
Back to “Higher for Longer …”?
The fear that high interest rates would eventually break the economy was the Fed’s rationale for easing. With long rates rising again, the specter of bursting bubbles has returned. So expect some panic moves from the Fed, including another round of QE to go with those $2 trillion annual deficits.
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