A Little Bit of Pain: Why Consumer Debt Signals a Coming Economic Storm

Over the past month, the economic landscape has shifted meaningfully. It’s become clear that the U.S. is fully willing to cut off a finger if it means forcing other countries to cut off an arm—or worse. That’s not a strategy without risk, and it seems foolish not to prepare our portfolios accordingly.

I moved into very defensive positions as the downturn began, and I’ve maintained that posture. The big question now is: how long will this economic cold front last?

Let’s take a step back. Below is a 20-year monthly chart of VTI, the Vanguard Total Stock Market ETF. The red line is the 50-period simple moving average—a well-watched technical level. Time and again, we see that the market likes to bounce off this support.

Below the chart is the Simple MACD (Moving Average Convergence Divergence) indicator.

Don’t outsmart your common sense: when the red and blue lines cross, market momentum tends to follow for months. Based on this, I wouldn’t expect the market to find meaningful technical support for at least another six months, give or take.

Now, let’s look beyond the charts and into real-world fundamentals. I asked ChatGPT to gather several consumer-related metrics. I believe consumers are the lifeblood of the economy, and their financial health is a strong bellwether of what’s to come.

Two metrics in particular have had my attention for a while now—long before the current administration took office:

• Rising credit card balances

• Falling personal savings rates

Don’t outsmart your common sense.
When people deplete their savings and rely on credit to maintain lifestyle spending, it’s just a matter of time before reality delivers a gut check. I think we’re right on that edge. Review the data below and you’ll likely come to the same conclusion.

So, what does all this mean?  Brace yourself.  We’re in for an economic roller coaster ride.