The Market Bull – February 12, 2020
Stocks closed at new record highs, on solid earnings reports. The Coronavirus rapidly fades from the headlines despite increasing infections and deaths in China.
The Mortgage Bankers Association reports that mortgage activity advanced 1.1% last week with refi’s up 5% and purchase apps slipping 5.8%. The 30-year contract rate for a jumbo loan increased slightly to 3.75%.
The National Association of Realtors reports that real estate prices gained 6.6% in the 4th quarter of 2019 on a year ago basis to $274,900. Month’s supply in the 4th quarter was a very low 3.5. Prices advanced broadly with 170 out of 180 metro areas reporting gains. While all major regions showed positive year ago price gains led by Los Angeles +7.2%, New York +6% and Miami +5.3%. On a quarterly basis the opposite is true with all major regions except Miami +1%, reporting price declines led by Chicago -5.6%, Los Angeles -5% and Boston -4.8%.
Despite an endless parade of stories extolling the great economy, labor market and record asset prices. Consumer debt levels continue to advance in an almost relentless manner as they have done since the nadir in consumer debt seen in early 2010. 4th quarter consumer debt including student loans, auto loans, and revolving credit such as credit cards and personal loans but excluding housing-related debts such as mortgages and HELOCs – jumped 4.7% or $187 billion in the fourth quarter 2019, compared to a year earlier to a record $4.2 trillion, according to Federal Reserve data. This debt growth is figured to have contributed .5% to the 2.3% total economic growth recorded last year. Meaning that absent the assumption of considerable debt the economy would have grown just 1.8% in 2019. Looking at it as a percentage of GDP or Gross Domestic Product and consumer debt reached a record 19.3% of GDP as 2019 came to a close. These figures contrast with the previous records set during the last crisis of 2.5 trillion in consumer debt in 2010. Expressed as a percentage of GDP it works out to about 16.5%. Just like the period leading up to the last crisis consumers clearly chose an unsustainable path of record debt encouraged by the Federal Reserve as they wanted to boost economic activity or GDP, something they succeeded at. The problem is that the ability to increase debt levels is finite as we saw in 2000 and again during the crisis period from 2007-2009. I sure hope it’s different this time, as it wasn’t a whole lot of fun last time.
Standard and Poors 500 Index closed at: 3,379.45 up 21.70
NASDAQ finished the day: 9,725.96 up 87.02
Gold ended trading at: $1,569.10 down $1.00