The Central Bankers Talked and the Markets Fell… Several Federal Reserve Bank presidents and governors as well as Fed Chair Powell spoke this week. Their comments centered around the need for more stimulus spending, which doesn’t appear to be forthcoming.
What it means— Fed bankers, including Kaplan, Brainard, Williams, Bostic, Evans, Barkin, Clarida, Mester, Rosengren, Quarles, and Powell, spoke this week. The Chair testified in Congress and the others spoke at various engagements. You didn’t have to listen too long to get the message. Inflation won’t be coming back anytime soon. When it does, the Fed won’t react for a long time. Interest rates will remain low for years.
The Fed has done its job by propping up assets. Congress and the administration should do their jobs and give away more cash.
Some politicians have challenged the Fed to do more. Powell and others have addressed this by pointing out that the Fed doesn’t lend money it expects to lose; that’s the job of people who give grants and aid, namely, Congress.
Investors got the message but didn’t like it very much. With the chance of a new relief package from Congress fading, investors sold off just about everything and the big tech names fell hard. But don’t count out the markets just yet. This is also the end of the third quarter, and institutional investors, the kind who adhere to allocations by asset class, have made a bundle on stocks over the last 90 days. Part of selloff could be just normal reshuffling.
Existing Home Sales Increased 2.4% in August…Sales of pre-existing homes, which make up about 90% of the market, expanded again last month and are now 10.6% higher than at this time last year.
What it means— Home sales are still on a tear. Existing home sales last month reached an annualized rate of 6 million units, the highest sales rate since December 2006. Sales in the Northeast, where urban dwellers are fleeing to the suburbs, jumped 13.8%. In addition to selling at a faster pace, homes also sold at higher prices. The median existing home price reached a record high of $310,600. The big story in housing continues to be the lack of supply. At the current sales pace, the market has about a 3.1-month supply, which is less than the 4-month supply we had last year and way below the 7-month supply that’s considered a balanced market.
New Home Sales Up 4.8% in August… New home sales increased to an annual rate of 1.011 million units. Like existing home sales, these sales were at their fastest pace since 2006.
What it means— New home sales are now up 43% over last year, which is fabulous for that industry. The median sale price reached $312,800. Like existing home sales, the market suffers from low inventory. Home builders have been a bit of a haven in this market, as tech stocks have been falling back to earth.
Durable Goods Orders Rose 0.4% in August, Short of the 1.5% Expectation… Excluding transportation, orders also rose 0.4%. The gains come after an 11.7% rise in July and a 7.7% increase in June.
What it means— The headline number and the ex-transports figure were both sort of “meh,” but deeper in the report, core capital goods orders rose 1.8% last month after gaining 2.5% in August. Those numbers don’t show the same blistering pace as the headline figures, but they continue to move in the right direction. Overall, the report shows that we’re still in recovery mode, and after the first few months of zooming higher we’re now settling in for the long, uneven slog of working out which businesses and sectors will thrive and which ones will never return to their prior levels.
Alignable Business Networking Site Finds 32% of Firms Did Not Pay Full Rent in August… The company started surveying businesses about rent payments in April. It found that 48% of businesses didn’t pay full rent that month, followed by 40% in May. The number has plateaued around 33% for the past four months.
What it means— One man’s payment is another man’s income. The Alignable survey covers more than 5,500 businesses giving us a pretty good look at the trouble at small firms, and the results imply that a lot of landlords aren’t getting what they expected and might have trouble paying the mortgage on their properties. The mortgages are owed to lenders, often banks and/or investors, through collateralized mortgage-backed securities (CMBS).
If landlords can’t make their payments, then the loans and bonds become impaired, which can cause disruptions in the credit markets. We’re still in the early stretch of the economic shakeout after the pandemic. The problems in the credit market are likely to show up in the first quarter of 2021.
Playboy Enterprises Expected to Go Public Again… Playboy? Like old rockers such as Boz Scaggs and Bob Seger, Playboy is one of those things that you might mistakenly have thought was dead after decades of university feminism courses.
What it means— The company went private in 2011 and ended the print edition earlier this year. Now the firm is considering going public again through a reverse merger with a special purpose acquisition company (SPAC). While young (and old) men across the nation won’t be able to stash print editions around the house, they might be able to buy shares. Perhaps they can petition the company to make physical stock certificates available… and to adorn them with pictures.
Data supplied by HS Dent Research
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