Minutes of Last Federal Reserve Meeting Show No Significant Changes Ahead… The detailed minutes revealed that most participants felt rates are consistent with the economy – for now. Some thought rates might drift higher near the end of the year, but only if the economy picks up.
What it means – Goldilocks, at least for Fed policy. Thing’s aren’t too hot or too cold. But it’s hard to call them “just right.” Interest rates are appropriate at incredibly low levels because economic growth is hard to find. First-quarter growth might clock in at 2%, following 2.2% for the fourth quarter, but that’s a far cry from the 4% pace we were peddled to support tax reform.
There is another possible narrative. It’s not that things are at equilibrium; it’s that the central bankers aren’t sure what’s next. With the trade wars, Brexit, and slowing economic growth around the world they would be right to worry about sudden economic shifts. But for now, don’t expect any sudden moves by the Fed, which suits the markets just fine.
Weak Factory Orders Confirm Weak Durable Goods Orders… Factory orders dipped 0.5% in February, following a flat January and a modest 0.1% gain in December.
What it means – Core capital goods (non-defense excluding aircraft) eased 0.1% in February, but that came on the heels of a 0.9% gain in January. Overall, contracting orders reflected the weakness in durable goods orders reported last week.
We need to see how Boeing’s troubles flow through these numbers in the months ahead. This report is for February, so it doesn’t include any ramifications from the plane tragedies.
Consumer Prices Up 0.4% in March… Excluding food and energy, prices rose 0.1%.
What it means – The annual rate of inflation rose from 1.5% in February to 1.9% last month but dipped 0.1% for core inflation down to 2.0%. The difference is the price of oil and gas, which have been on a tear this year. Housing and medical care, which comprise almost half of the inflation index, increased 0.3% in March, and were up 2.9% and 1.7% respectively for the year.
It’s worth noting that core inflation has remained remarkably steady near 2% even as the economy ran higher last year and now eased a bit. If prices keep marching higher as the economy loses steam, we could be looking at a bit of stagflation, which is never good.
However, the Fed has multiple inflation measures. The Underlying Inflation Gauge developed by the NY Fed “captures sustained movements in inflation from information contained in a broad set of price, real activity and financial data.” It currently reads 2.91%. The Atlanta Fed tracks a “weighted basket of items that change price relatively slowly” and reads 2.7%. This data is higher than GDP and the ten-year Treasury. Rising corporate profits will be hard to come by.
Organization for Economic Cooperation and Development (OECD) Reports the Global Middle Class is Shrinking… Over the past 30 years, the number of households in the middle class in developed nations has contracted from 64% to 61%.
What it means – The OECD defines the middle class as those earning between 75% and 200% of the median income for the nation.
In its report, “Under Pressure: The Squeezed Middle Class,” the organization notes that incomes are rising slower than costs, pushing people out of the group. In particular, health care and education are eating up more of their income. The OECD pointed out that more than 20% of the middle class live beyond their means, using debt to finance their lifestyle.
The EU Throws Britain a Brexit Lifeline… The European Union agreed to give Britain an extension to October 31 to find a way to extricate itself from the economic bloc.
What it means – The deadlines are falling like flies. First Britain was to leave the EU by March 29, then by April 12 or May 22 depending on certain votes, and now the deadline is lightyears away, October 31. Given that the British Parliament has shot down every Brexit proposal presented, it’s hard to see what will change in the next six months. A hard Brexit could still happen, even though that’s the only thing Parliament agrees on… they don’t want it.
The extended deadline means investors will have to deal with uncertainty for several more months, and that businesses affected by the decision will have to decide if they want to wait it out or move out of the U.K. now so that they have clarity over their futures.
Lyft Stock Falls, Clouding Future of Uber IPO… Lyft went public on March 29 at $72, and reached a high of $88.60 that day before dropping to the upper $70s. On the following Monday April 1, the stock closed at $69. This week, the stock dipped below $60, a full 32% below its high mark.
What it means – Lyft is the also-ran, controlling less than 30% of the ride hailing market. Uber is the 800 lb. gorilla, and until Lyft went public, Uber was expected to be valued near $120 billion.
Now that number is closer to $100 billion. But even though Lyft exists in Uber’s shadow, they do share one big trait… they both lose money, and lots of it. While they generate billions of dollars in revenue, they also have combined losses over $1 billion, and no path to profitability. While the apps are popular, to make money they must raise prices or pay drivers less, neither of which will sit well.
Now that the genie of paid ride-sharing is out of the bottle, it’s probably not going away, but it’s hard to see how these companies command market shares anywhere near current valuations if they can’t show investors how they will get their money back.
Knock.com Estimates 75% of Home Sales in Major U.S. Markets in the Second Quarter Will Be At Discounts… For homeowners wanting to move, the company offers to buy their next house for cash, then help them move and sell the first home.
Part of the process requires extensive knowledge of the current market. Knock.com reports that 72% of homes in major markets sold at a discount in the first quarter, 7% higher than the same quarter last year. They expect that number to climb to 75%, with Miami leading the way at 89%. In those markets, the discounts are expected to be between 1% and 7%.
Data supplied by Dent Research/Delray Beach Publishing
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What do you do, sir?” ~ John Maynard Keynes
Our plan is “the plan will change.”
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