Fed Governors Agree Rates Should Move Higher… At their last meeting, the Federal Reserve governors noted that another rate hike would be appropriate if the economy continues to grow as expected. This sets up a rate hike at the next meeting in mid-September.
What it means – No one is surprised. With unemployment below 4%, quarterly GDP over 4%, and the stock market at all-time highs after marking the longest bull market in history, why shouldn’t overnight rates be higher than 1.75% to 2.00%?
The governors did mention some threats to the economy, notably the current trade wars.
What they didn’t discuss was the president’s dissatisfaction with the rate hikes. Many people have commented that presidents don’t interfere with monetary policy. That’s baloney. The Fed held interest rates artificially low from 1935 to 1951 specifically to help the government, and Fed President William Chesney McMartin had a nasty, public falling out with President Truman over when to end that arrangement. The affair is called the Fed-Treasury Accord. Incidentally, Truman appointed McMartin specifically to govern interest rates as the president saw fit. Truman had already run Marriner Eccles and then Thomas McCabe out of the job because they wouldn’t do his bidding.
Still, President Trump won’t get his way. Short-term rates are headed higher, with at least the one rate hike in September and another likely in December. The markets are a bit nervous because long-term rates are so low, with the 10-year Treasury at 2.80% and the 30-year Treasury at 2.98%. But those rates reflect central bank pressure from around the world. A flat yield curve won’t kill this market. We’ll leave that to the extraordinary amount of debt sloshing around the world.
Existing Home Sales Slip 0.7% in July, Down 1.5% Over Last Year… Existing home sales slowed to the lowest rate since early 2016.
What it means – Single family and condo sales both dipped last month, leading to the fourth monthly decline in a row. The West was the only region showing a modest increase at 4.4%. Slumping sales aren’t drawing out more sellers. Supply fell last month along with sales, so it remains unchanged at 4.3 months.
Even though there aren’t as many homes for sale, prices finally dipped a bit, down 1.5% from June at $269,600. But that’s still 4.5% higher than last year. This plateau has been a long time coming and is taking a long time to form.
We’ll have to wait and see if sales roll over convincingly or if this is just a lull as wages catch up to prices.
New Home Sales Fell 1.7% in July… The dip missed expectations of a 1.7% increase in sales.
What it means – Weak new home sales gave the markets pause, but there was good news inside the report. New home supply jumped 2%, the largest increase since 2009, and prices paid moved up 6% for the month to $328,700. That’s only 1.8% higher than the median price this time last year, but it’s still a win.
Apart from this report, Toll Brothers, the upscale homebuilder, posted a 30% increase in earnings and noted that clients are adding more than $100,000 in upgrades to their homes. Apparently, there’s a fair amount of interest at the high end of the market. Perhaps more supply will reinvigorate the market.
Durable Goods Orders Dipped 1.7% in July, Led Lower by Transportation… Excluding volatile transportation, orders rose 0.2%.
What it means – Under the hood, the numbers tell a good story. Orders for core capital goods, which is a proxy for business spending, rose 1.4%. Vehicle orders, up 3.5%, were a big part of the gains, which were also helped by computers and electronics as well as machinery. Business shipments rose 0.9%, matching the strong showing in June.
These figures will boost fixed investment in GDP, but as noted above, lackluster real estate activity will mute these gains.
Venezuela President Maduro Devalues the Bolivar More Than 90%… Last Saturday Maduro introduced the new currency, the Sovereign Bolivar, which is worth 100,000 times the current Strong Bolivar. The South American strongman essentially lopped five zeros off the current currency. The new note is worth about 1.5 cents, and its value dropped by 15% in its first day of use.
The Venezuelan government recently introduced a cryptocurrency, the petrocurrency, that is tied to the price that the national oil company, PDVSA, receives for a barrel of oil. No one is exactly sure how it works, and no one is using it.
So far, the government hasn’t done anything to slow the pace of inflation, which the IMF estimates will be 1,000,000% or more by the end of the year. As the government prints new currency to pay its bills, the value will drop, and the people will suffer.
Expect Venezuela to be in a full-blown humanitarian crisis by Christmas at the latest.
Data supplied by Dent Research/Delray Beach Publishing
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