Fed Governors Say It’s Almost Time for Talking About Tapering… In several speeches, different Federal Reserve governors noted that the pace of economic growth would lead to discussions on tapering bond purchases at a future Fed meeting.
What it means— This is more of the same thing we read in the minutes of the last Fed meeting that were released last week. The initial news sent the markets lower, but investors have calmed down since then. The equity markets were rising and bond rates falling before stabilizing. Everyone knows what the Fed will do—reduce bond purchases—we just don’t know when. Given their history, the current conversation about eventually having a conversation about buying fewer bonds puts off such a move until at least the fall, if not until early 2022. In the meantime, investors have to put their money somewhere. With negative real rates on 10-year and even 30-year bonds, equities are still preferred.
April New Home Sales Fall 6%, March Sales Revised 10% Lower… New-home sales missed expectations, but were 14% higher than in January 2020, before the pandemic.
What it means— People were quick to blame high prices, but that might not be the case. The median sale price was $372,400, just $1,000 less than the record high, in January of this year, so people weren’t demanding (or getting) discounts. The number of homes started, but not sold, soared. This implies that home builders are holding back inventory, hoping to push prices even higher before accepting offers. The inventory of new homes fell from a 4.6-month supply to just 3.8 months’ worth. It looks like home builders are doing their best to squeeze as much revenue as possible out of the current supply-demand imbalance.
Activists Win Exxon Board Seats and Royal Dutch Shell Loses a Court Case… Hedge fund activists who want ExxonMobil to move quickly to renewable energy won board seats. A judge ordered Royal Dutch Shell to methodically reduce its greenhouse gas emissions for both the company and its clients.
What it means— If you can’t win at the ballot box, try something else. For years, people have tried to get the U.S. government to create a carbon cap-and-trade program and to increase fuel taxes to spur a move to renewable energy and zero-emission vehicles. It hasn’t worked. The latest moves successfully took the fight to corporate boardrooms and courthouses. The problem is that consumers around the globe will use fossil fuels for years into the future. Renewable energy can’t fill all the gaps, and we can’t build the necessary infrastructure quickly. If activists push Western oil and gas companies out of the business, then control of the fossil fuel markets, as well as the profits, will move back to the Middle East and Russia. An oil embargo threat will have renewed meaning.
While both houses of Congress have held hearings on the lack of copper and rare metal mining, no proposal have been issued. Specifically, mining for metals to make batteries is insufficient for massive e-vehicle adoption. Globally, no new mines are proposed. Even if one was in an application process, it is sixteen years to significant production.
Durable Goods Orders Fell 1.3% in April… Durable goods orders missed an expected gain of 0.9%. Much of the fall is attributable to the semiconductor chip shortage.
What it means— If the cars aren’t available, we can’t order them. New car orders fell 6.2%. Autos are a big part of durable goods orders, so the chip shortage that’s crimping the car market put a big dent (pun intended) in durable goods orders. Excluding transports, orders rose 1.1%, keeping the one-year winning streak alive, and there’s more good news. Non-defense orders excluding aircraft, which is a proxy for business spending, rose 2.3%, which shows that businesses are putting money into the economy as we reopen and suggests that the current growth rate will continue.
A Guy Chooses Snacks Over His Amorous Partner … Well, he’s not exactly a guy, but he is a male. A male panda bear, that is. The Denmark Zoo paired a female panda in heat, which only lasts for 12 to 36 hours, with a male. The female made her intentions known, but the male chose to sit and eat bamboo shoots instead. The female insisted, but to no avail. The guy kept sitting there eating snacks instead, oblivious to the female panda. As one commenter noted, there could be a good reason the species is endangered.
Data supplied by HS Dent Research
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