Good Tuesday AM from your Hometown Lender,

Today is another reminder of why it is not a great idea to float into big economic data releases.

Yesterday was a quiet day for the economic calendar, but today brings another round of inflation data with the release of January CPI. The headline reading was +.3% for January on expectations of .2%, +3.1% year-over-year, down from 3.4% but nowhere near 2%. Core inflation, however, remained elevated, at +.4% on expectations of .3% for the month and 3.9% year over year.

Markets do not like this stronger inflation data and have written off a March Fed rate cut almost completely, have dialed back bets for a May cut and are now dialing back the total number of cuts in 2024 to four (from six). This report was the first one using the new math calculating seasonality which is where the difference in expectations vs report lie but at the moment, the reasons don’t matter, just the headline numbers. Inflation data blinded the markets this morning so much that when we received NFIB small business optimism for January which dropped to its lowest level in a year, there was no reaction. As I type, the 10-yr is at 4.28% and well through support into the next trading channel, mortgage bonds are off 35bps.

Don’t float into big data reports. Enough on the markets for now…

Moving on, there are a lot of commercial property loans coming due, maybe. Nearly 20% of outstanding debt on US commercial and multifamily real estate — $929 billion — will mature this year, requiring refinancing or property sales. That’s far higher than an earlier estimate by the Mortgage Bankers Association, a surge attributed to loan extensions and other delays. About $4.7 trillion of debt from all sources is backed by US commercial real estate, ratcheting up concern among regulators because building values are sliding. Increasing defaults and write-downs have hit lenders like NYCB, as well as KKR’s commercial mortgage real estate investment trust and holders of commercial mortgage-backed securities. Will banks kick the cans down the road again to stave off any foreclosures/losses (yes, banks/lenders can and will extend current loans in lieu of having to take back properties until they have no choice), yes, they will. This is finance.. If you are interested in commercial property at liquidation prices, you may not get what you’re hoping for and may have to settle for just a good deal.

And last, on the consumer, In 23Q4, consumer debt rose $212 billion.

Mortgage balances increased $112 billion, HELOCs rose $11 billion, credit card balances added $50 billion, auto loans were up $12 billion, and other balances such as retail cards and consumer loans increased $25 billion. In 23Q4, consumer spending was up $208 billion, meaning that over 100% of the rise in consumer spending was debt-financed, not a sign of healthy households.

Please remain safe, stay healthy, and make today great!