The Bank of England (BoE) Intervenes to Buy U.K. Government Bonds… After the British pound sterling fell to its lowest level since 1792 and U.K. government bond yields marched higher, the BoE bought government bonds and stated it would do whatever it takes to bring long bond rates under control.
What it means— The actions and statements by the BoE gave equity markets a one-day pop, but then they rolled back over. The problem isn’t England’s big tax cut on top of deficit spending, Japan’s intervention, or even inflation in the euro zone. The problem is uncoordinated actions by the central banks. With the Fed raising rates much faster than other central banks, capital is leaving other jurisdictions and currencies and flooding into the greenback.
As the U.S. dollar strengthens, commodities priced in dollars, like food and energy, become even more expensive in other currencies, creating a vicious cycle. This will stop when the central banks coordinate, other central banks ramp up rate hikes, or the Fed becomes less hawkish.
Durable Goods Orders Down 0.2% in August, but Core Capital Goods Orders Up 1.3%… Durable goods orders fell, along with demand for airplanes. Excluding military spending, auto, and aerospace, the remaining core capital goods orders rose.
What it means— Rising core capital goods orders show that manufacturers are still trying to catch up with clients, which is a good economic sign. The question is whether this trend will end as the economy slows down. The Fed is doing its best to destroy demand but can affect only areas that rely on credit, such as real estate, autos, and, to a lesser extent, items purchased on credit cards. If consumers and businesses still want or need stuff and are using cash, there’s not much the Fed can do. With unemployment below 4%, people have money to spend. The Atlanta Fed GDPNow model forecasts third-quarter real GDP growth at 0.3%. With inflation at 8.3%, that’s nominal growth of 8.6%, which isn’t terrible. Unfortunately, steady growth gives the Fed more room to raise rates at its next meeting in early November, which is weighing on the markets.
New-Home Sales Jump 28.8% in August After Falling 8.6% in July… New-home sales rose to an annualized level of 685,000 last month, far outpacing the consensus estimate of 500,000. New-home sales are off by 0.1% over last year.
What it means— The median new-home sale price eased from the record of $458,200 in April to $436,800 in August, a drop of 4.6%, which isn’t huge. We wonder if builders aren’t loading homes with perks to get them out the door as they check mortgage lenders and see 30-year fixed home loans hovering near 7%. Builders aren’t stupid. They don’t want to be left holding the bag if the market dries up due to rising rates, so it would make sense for them to sell everything they can while applying for fewer permits, as reported last week. While it’s doubtful that builders can keep up this sales pace, it’s worth noting that the supply of new homes for sale dropped 22.1% last month, to an 8.1-month supply.
Initial Jobless Claims Back Below 200,000, at 193,000… That is the lowest level of initial jobless claims since April. The number of people collecting continued claims also fell by 29,000 to 1.35 million.
What it means— The strong labor market, like the steady economy, is good for the worker and consumer, but it also gives the central bankers cover to push rates higher. If there is a choice to be made, low unemployment is better, because it allows households to remain current on most of their bills and prioritize how they spend. No one wants to go backward in their standard of living but dealing with a job loss makes it that much worse.
Massachusetts Governor Charlie Baker Sent a Traffic Law Back to Legislature Because It Required Drivers To Do Too Much Math… The state bill, called An Act to Reduce Traffic Fatalities, requires drivers traveling at 30 miles per hour (mph) or less to put at least three feet of distance between themselves and vulnerable operators of other vehicles, such as those stopped on the side of the road. Drivers also must increase the distance by an additional foot for every 10 mph above 30 mph that they are traveling. To get rid of the pesky math problems this might cause, Governor Baker wants a simple three-foot buffer that does not adjust for higher speeds. He also wants the legislation to clarify that the law does not require drivers to cross the center line, which brings up a different problem. If a stalled motorist is positioned as to not allow a three-foot buffer when passing without crossing the center line, will the entire roadway shut down?
Data supplied by HS Dent Research
“When the facts change, I change my mind.
What do you do?” ~ John Maynard Keynes
Our plan is “the plan will change.”
What is your plan?
Relative strength measures the price performance of a stock against a market average, a selected universe of stocks or a single alternative holding. Relative strength improves if it rises faster in an uptrend, or falls less in a downtrend. It is easily applied to individual positions in your portfolio and to sectors and asset classes.
A copy of our form ADV Part 2 is available online.
Please remember that past performance may not be indicative of future results. Different types of investments involve varying degrees of risk, and there can be no assurance that the future performance of any specific investment, investment strategy, or product (including the investments and/or investment strategies recommended or undertaken by Investor Resources, Inc. (“Investor Resources”), or any non-investment related content, made reference to directly or indirectly in this newsletter will be profitable, equal any corresponding indicated historical performance level(s), be suitable for your portfolio or individual situation, or prove successful. Due to various factors, including changing market conditions and/or applicable laws, the content may no longer be reflective of current opinions or positions. Moreover, you should not assume that any discussion or information contained in this newsletter serves as the receipt of, or as a substitute for, personalized investment advice from Investor Resources. Please remember to contact Investor Resources, in writing, if there are any changes in your personal/financial situation or investment objectives for the purpose of reviewing/evaluating/revising our previous recommendations and/or services, or if you would like to impose, add, or to modify any reasonable restrictions to our investment advisory services. Investor Resources shall continue to rely on the accuracy of information that you have provided. Investor Resources is neither a law firm, nor a certified public accounting firm, and no portion of the newsletter content should be construed as legal or accounting advice. A copy of Investor Resources’ current written disclosure Brochure discussing our advisory services and fees continues to remain available upon request or at https://www.investorresourcesinc.com/. Clients Please Note: Advise us if you have not been receiving account statements (at least quarterly) from Charles Schwab & Co.™