Lots of charts and live links at discussion.fool.com - Control panel household financial statements

Corporate financial statements have separate Balance Sheets (Assets/ Liabilities) and Income Statements (income minus expenses = Free Cash Flow). Households do, too.

The K-shaped economy usually refers to incomes but the GINI or wealth disparity is also extreme. In the U.S., older generations have built up assets that include values inflated by the current stock market bubble and home values.

S&P Cotality Case-Shiller U.S. National Home Price Index

Affordability has become a key issue since inflation is rising. This hits the elderly hard because the expenses of older people (e.g. medical care) are inflating faster than the CPI-U which is based on working people’s expenses.

nytimes.com - Economy midterm elections



3 Charts That Explain the Economy as Voters Head to the Polls

Inflation is high, consumer spending is strong and seemingly everything depends on what happens with artificial intelligence.
By Ben Casselman, The New York Times, 10/18/26

...
Higher inflation has forced the Federal Reserve to reverse course and begin raising interest rates again, which is making it more expensive to borrow money as many Americans are relying on debt to make ends meet. Mortgage rates have jumped this year, dashing hopes of a rebound in the housing market and pushing homeownership further out of reach for many families...

Strong retail sales data last week was the latest evidence that Americans are spending despite their dour mood. Consumer spending, adjusted for inflation, grew at a 3.8 percent annual rate in the second quarter, and most forecasters expect strong numbers for the third quarter as well...

A growing number of economists and technologists, including leaders of the A.I. companies themselves, are warning the technology could lead to widespread job losses. To many workers, that has created the impression that A.I. portends something of a Catch-22 for their well-being: If A.I. achieves its promise, it could put them out of work. If it falls short, the bursting bubble could wipe out their retirement portfolios and cause a recession...

[end quote]

Bureau of Labor Statistics
CPI Home : U.S. Bureau of Labor Statistics

In September, the Consumer Price Index for All Urban Consumers rose 0.6 percent, seasonally adjusted (SA), and rose 3.7 percent over the year, not seasonally adjusted (NSA). From September 2025 to September 2026, prices for gasoline increased 34.2 percent. Over the same period, prices for fuel oil rose 74.2 percent, and airline fares were up 22.4 percent. Piped natural gas prices increased 5.0 percent, and electricity prices grew 4.4 percent over the year. Prices for all items increased 3.7 percent.

Anyone who buys groceries, heats their home and drives a gas-powered car is constantly reminded of the high inflation rate, even though the “core” inflation (which omits food and fuel) was only 2.6%, which is still higher than the Federal Reserve’s target of 2.0%.

The Atlanta Fed’s Inflation Nowcast is even higher.

High household expenses impact the income statement. Families are going into debt while interest rates are rising. It’s no wonder that the University of Michigan Consumer Sentiment survey has dropped from last year. This has hit the poorest hardest, but even people with stock wealth have lower confidence.

Several articles recently discussed the mind-boggling expenditures of the AI segment and the absurdly huge profits that would be necessary to pay for them - such as 10% of GDP being spent on AI services from real endusers outside of the AI circular ecosystem. This has finally begun to pierce through the AI-driven speculative frenzy.

wsj.com - The AI stock market wobble is a reminder this time isnt different


The AI Stock Market Wobble Is a Reminder: This Time Isn’t Different
The artificial intelligence build-out hasn’t shown it can avoid the problems of past massive capital projects, such as railways and the internet

By James Mackintosh, The Wall Street Journal, Oct. 18, 2026

...
The AI build-out hasn’t yet shown it can avoid the problems of past massive capital projects, such as railways and the internet. At least so far, this time isn’t different.

Start with the profits. Capital expenditure, or capex, by one company generates revenue for other companies. The data-center boom is creating massive revenue elsewhere. Makers of everything AI needs have been able to jack up prices for chips, cooling equipment, cables, backup generators, turbines and a host of other supplies, boosting profit margins as sales soar...

Investors know much of the profit is temporary.

The result is that while prices have gone up, valuations, measured as the price-to-forecast-earnings ratio, have gone down. Investors are paying less per dollar of the earnings coming up in the next year, because they know it won’t last. ...

For this to work out for investors, we have to get past the temporary capex-related profits to generate sustainable AI profits. That means finding worthwhile uses that increase productivity enough that customers are willing to pay the full cost of developing and using the technology. If it disappoints, much of that $9 trillion will have been wasted.
The lessons from historical capital-spending booms offer both good and bad news. The good news is that mostly they delivered as much as or more than expected, with huge benefits for society. The bad news is that, from the canal mania of 1790s England, the British railway bubble of the 1840s, its American equivalent in the 1880s, electrification, radio, television and up to the fiber build-out of the dot-com bubble, investors were sorely disappointed... [end quote]

The bottom half of American households hold no stock at all. The top half, especially the top 10% whose balance sheets are driven by stock valuation increases, are sitting pretty now but they are at risk. This is especially true of buy-and-hold SPX index funds which are now 40% AI-related stocks.

Last week, the SPX and NAZ dropped while the DJIA rose. NAZ Bullish Percent fell to 40%. NAX NH_NL is deeply negative and has been falling for weeks. VIX spiked to 20 which is moderate. The bubble is still intact.

The Fear & Greed Index is in Extreme Fear. The trade is risk-off as stock and junk bond traders turned to Treasuries. Treasury yields backed down from their recent highs.

Junk bond yields are rising into a level characteristic of previous crises. This is a rising trend and concerning because it is hitting the AI borrowers hard.

Anyone who remembers the Global Crossing fiasco remembers that lenders were stiffed. Global Crossing went bankrupt and lenders lost everything. Demand for the dark cables didn’t show up until years later. I wouldn’t touch AI debt from custom GPU clusters or specialized data center real estate with a 10 foot pole. The junk bond CCC yield is 17.5% showing how speculative it is. If end-users paying hard cash don’t show up FAST, these borrowers won’t be able to make their interest payments. The lenders may offer PIK (lending more to cover the interest payments) but the death spiral is a real danger. Stock investors may not be aware because this is buried deep in the bond side. But it’s a flashing red light.

ICE BofA CCC & Lower US High Yield Index Effective Yield

Oil and natgas are trending higher. Gold and silver are still trending lower. USD dropped a little in correlation with the dropping UST yield.

The METAR for next week is cloudy with periods of rain. The stock market is nervous but I don’t see a crisis next week...probably.

Wendy
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