Federal Reserve Chair Powell Provided Guidance, Will Taper Bond Purchases Before Raising Rates… When speaking to the Economic Club of Washington about reducing bond purchases, Powell said, “That would in all likelihood be before, well before, the tie to consider raising interest rates.”
What it means— Every banker in the U.S. just breathed a sigh of relief. While storied operations like Goldman Sachs earn gobs of profit from fixed-income, currency, and commodity trading, like most banks they still earn a lot of cash from borrowing short-term for almost nothing and lending long. Powell just gave bank executives explicit instructions to stay the course until they see the Fed reduce its monthly bond purchases.
While that might ease some tension in the short term, it still implies that when the Fed finally eases up on the monetary gas, the financial markets will shudder. Investors should pay close attention to Fed officials for any sign that lower bond purchases are on the horizon.
As Expected, Inflation Jumps to 2.6%… Consumer prices spiked to more than 2.5% in March over the same time last year, reflecting both rising prices last month and falling prices in the spring of 2020.
What it means— The biggest price movements were in energy: gasoline and fuel oil were up by more than 20% over last year. Used car prices and utility gas prices were both up more than 9%. These big gains will moderate over the summer, because prices rebounded quickly in the summer of 2020, which will provide higher comparisons. But we can’t totally dismiss current inflation. Gas prices rose 8.9% last month, and shelter prices, which account for more than one third of inflation, increased 0.3%. With states reopening their economies and consumers flush with cash, there could be a spending spree over the next several months that pushes prices higher than expected. Bond owners should pay careful attention, as any whiff of sustained inflation likely will lead to higher yields and lower bond prices.
Retail Sales Jumped 9.8% Last Month Based on Government Stimulus Checks and Easing Economic Restrictions… Analysts had predicted sales would rise by 6.1%. The sales increase was the second-largest gain on record, following only the 18% jump last May.
What it means— Speaking of higher sales as people rush to spend their extra cash… this is a trend that could drive inflation. We won’t see another jump this big in April because the stimulus bump will fade, but Americans still have plenty of savings left to put the economy in overdrive for months to come. Auto sales jumped 15% last month, even though dealerships are struggling with low inventory, and gasoline sales increased almost 11% as we began using our cars again. Without those two items, retail sales still expanded by 8.2%, with bar and restaurant sales up 13.4% and clothing sales up 18%. Sales of sporting goods and recreational items popped by 23.5% as we prepared for summer. Look for grills, boats, and pools to be next, as temperatures rise.
Housing Starts Increase 19.4% in March, Up 37% Over Last Year… Good weather in March after a freeze in February, along with surging demand, drove housing starts to a 15-year high.
What it means— Remote work is here to stay for a portion of the workforce, which is fueling red-hot demand for bigger homes further from city centers. The problem is that the Boomers are staying put, so existing home inventory remains at record lows. The only solution is to build more homes. On this front, we’re far behind. After the housing bust in the 2000s, home builders remained cautious and underbuilt for the rising adult population.
Freddie Mac just reported that we need more than three million more homes to accommodate all of the adults in the U.S. If the economy grows over the next two years as expected, this could keep the new housing market humming for a long time. The biggest problem is rising costs for inputs such as lumber, which is up 83.4% over last year. This will push builders to focus on more expensive homes and keep pressure on the entry-level market. Other difficulties may arise with rising interest rates.
Car Rental Companies Run Out of Vehicles… Car rental companies sold hundreds of thousands of vehicles to survive the economic lockdown and now find themselves without enough inventory to meet leisure travel demand.
What it means— For decades, leisure travelers have enjoyed low-cost car rentals because of one group, business travelers. Car rental companies tend to bank on business travelers during the week or even during high business-travel seasons and then offer their vehicles to leisure travelers at substantial discounts during the off season and weekends. With business travel in the cellar and not likely to return anytime soon, car rental companies don’t have much incentive to replenish their fleets. Even if they wanted to, auto production has been hobbled due to computer chip shortages, which makes bulk auto purchases difficult. Leisure travelers will have a tough time securing rental cars this summer in popular destinations like Denver.
If you’re looking for a solution, check out Turo, which essentially is Airbnb for cars. Individuals let other people use their cars… for a fee. Yes, it’s renting, but they don’t call it that, so why rock the boat? A word to the wise: pick a provider who has completed many trips, and verify pickup and drop-off information at the start.
Famous Quarterback Brett Favre Channels Many Americans, Wants Politics Out of Sports… Major League Baseball moved the all-star game out of Atlanta to protest the state’s new voting laws, which opened the league to criticism because it still cooperates with China and Cuba; neither country is known for upholding human rights, much less voting rights. This latest example of mixing politics with sports caught the attention of former Green Bay Packers quarterback Brett Favre, who thinks fans on both side of the political aisle are now frustrated with league officials.
“I think both sides, for the most part, want to see it just remain about the sport, not about politics. At least that’s my interpretation. I know when I turn on a game, I want to watch the game. I want to watch the players play and teams win and lose and come from behind. I want to watch all the important parts of the game, not what’s going on outside the game. I think the general fan feels the same way.”
Perhaps they should create different television channels for politics and sports. Oh, wait, they already have! Now if only we could get the commentators and hosts to stay in their lanes….
Data supplied by HS Dent Research
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