The Market Bull – November 28, 2018
Fed Chair Jerome Powell in an apparent bow to political pressure from Trump, stated in a speech that interest rates were essentially neutral. This is in stark contrast to his previous statements that in fact interest rates were way to low. Based on inflation and a number of other factors, the case for interest rates being too low is quite strong. But when your boss is busy blowing trillion Dollar plus deficits every year on top of a 21 trillion Dollar plus debt pile, the motivation for keeping rates low becomes obvious, never mind all the consumer, corporate, municipal, and other debts out there.
The Mortgage Bankers Association reports that mortgage activity increased 5.5% last week as refi’s snapped a string of declines with a .5% gain, purchase apps jumped 8.8%. The 30-year contract rate for a jumbo loan was unchanged at 4.88%.
Revised 3rd quarter Gross Domestic Product or GDP was unchanged at 3.5% as expected. Inventory building ahead of the jump to 25% tariffs on most Chinese goods come January 1, accounted for nearly 2/3’s of the of the reported 3.5% growth. Real disposable income advanced to a respectable 2.4%, while the savings rate slipped to 6.3%. Solid figures to be sure but the outsize contribution from inventories should not be ignored, and I expect inventories to be a real drag on this series come the beginning of 2019.
Wholesale and retail inventories advanced for a 4th consecutive month in October with a .7%, and .9% gain respectively. These figures definitely aren’t sustainable and are almost certainly being driven by tariffs and the threat of even more tariffs.
The trade deficit increased for a 5th month in October with a 1.2% advance to 77.2 billion. Exports slipped to 140.5 billion while imports advanced to 217.8 billion.
New home sales missed expectations in October falling a very noticeable 8.9% to 544,000 units annualized. Large declines were seen in the Midwest and Northeast after they fell 22.1 and 18.5 percent respectively. The Western region saw sales decline 3.2%. Inventory for sale jumped to 7.4 month’s while the median price fell for a 3rd month dropping 1.5% to $312,500.
The Richmond Fed regional index slipped a point to 14 in November on declines in new orders and employment.
Standard and Poors 500 Index closed at: 2,743.79 up 61.62
NASDAQ finished the day: 7,291.59 up 208.89
Gold ended trading at: $1,221.10 up $7.70
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