Thrice The Fun
Issue 340
By Jeffrey Trusheim, Chief Financial Officer, Mortgage Solutions of Colorado, LLC DBA, Mortgage Solutions Financial .
Mortgage Solutions presents Issue 340 of Market Pulse. This commentary will provide Trusheim's perspective of the economic, political, and technical considerations that will have an impact on the global & domestic financial marketplace. The report will provide a recap of the previous week's activity as well as a look at the important market-moving factors in the week ahead.
Our nation’s government debt has surged nearly 50% since the beginning of the pandemic and is finally elevating levels of worry both on Wall Street and in Washington. The federal debt has swelled to $34.5 trillion, or about $11 trillion higher than where it stood in March 2020. Sadly, our government’s debt has now risen to a staggering 120% of our nation’s GDP (total U.S. economy).
Federal Reserve Chairman Jerome Powell commented last week that “We’re running big structural deficits, and we’re going to have to deal with this sooner or later, and sooner is a lot more attractive than later.” He encouraged his audience to read the recent Congressional Budget Office (CBO) reports on the nation’s fiscal condition. “Everyone should be reading the things that they’re publishing about the U.S. budget deficit and should be very concerned that this is something that elected people need to get their arms around sooner rather than later.”
The CBO estimates that our nation’s debt compared to GDP will rise to “an amount greater than any point in the nation’s history.” The agency forecasts a $1.6 trillion shortfall in fiscal 2024, and will balloon to $2.6 trillion by 2034. As a share of GDP, the deficit will grow from 5.6% in the current year to 6.1% in 10 years. Since the Great Depression, deficits have exceeded that level only during World War II, the 2007-2009 financial crisis, and the coronavirus pandemic. European Union member nations are required to keep deficits to 3% of GDP.
JPMorgan Chase CEO Jamie Dimon said during an interview last week: “America should be quite aware that we have got to focus on our fiscal deficit issues a little bit more. At one point it will cause a problem and why should you wait? The problem will be caused by the market and then you will be forced to deal with it and probably in a far more uncomfortable way than if you dealt with to start.”
This is an escalating problem for our stock and bond markets as well as our entire economy. Our spendthrift elected officials have put our national debt on an unsustainable upward trajectory. IMHO, it’s not if, but when, the great reset arrives.?
FOMC MINUTES?
Federal Reserve officials grew more concerned at their most recent meeting about inflation, with members indicating that they lacked the conviction to move forward on interest rate reductions. The minutes also showed “various participants mentioned a willingness to tighten policy further should risks to inflation materialize in a way that such an action became appropriate.” “The recent monthly data had showed significant increases in components of both goods and services price inflation.”
HOUSING DATA
Homebuilders have the most inventory since May 2008…BIG discounts are coming.?
Speculative building, measured by started but unsold housing inventory, is at the highest level in sixteen years, and builders will have to offer steep discounts to unload these units. Here are the stage of construction details:?
?New home sales are sinking fast. Sales of newly built homes dropped 4.7% in April compared to March, and fell a larger 7.7% from the prior year, according to the U.S. Census report released last Thursday. It was a “double whammy”, with mortgage rates rising sharply from the high 6%’s in March to over 7.50% in April, while the median price of a new home sold in April rose to $433,500, 4% higher than it was in April 2023.?
Existing-home sales dropped 1.9% in April to a seasonally adjusted annual rate of 4.14 million. Sales also dropped 1.9% from one year ago. The median existing-home sales price rose 4.8% from March 2023 to $393,500 - the ninth consecutive month of year-over-year price gains and the highest price ever for the month of March.?
The Case-Shiller national home price index hit a new all-time high in February. That is the latest data available. Take note: Economists, including the Federal Reserve, don’t count housing prices in their inflation calculation. They consider homes a capital expense, not a consumer expense. Go figure!
领英推荐
THE STOCK MARKET
The S&P 500 closed higher for the fifth consecutive week, its longest such run since early February. Prices came very close to our next upside target of 5350, with a new all-time high at 5341 on Thursday. After reaching that new high, prices reversed sharply dropping 85 points to 5256, before closing-out the week at 5304, up just one point.
Technically, I am going to focus on a 100-point range - with resistance above at 5356 and support below at 5256. I continue to view this market as being in the final rally phase of the bull market that began in 2009. As such, other than some precious metal and energy equities, I am mostly out of the stock market. Short-term Treasuries and precious metals makeup the bulk of my investment portfolio. A bearish impulsive structure below 5256 will get my attention to possibly initiate some bearish positions.?
As a side note: “Wall Street’s last bear”, Mike Wilson, turned bullish last week! Sigh!
THE BOND MARKET
The 10-year Treasury yield traded in a range of 4.39% to 4.50% last week, and finished at 4.46%, up 4 basis points. There seems to be a growing sense of uncertainty over expected interest rate cuts by the Federal Reserve. The latest FOMC minutes, coupled with hawkish commentary from several Fed speakers and some unfavorable economic data, has put a dent in the bullish sentiment.?
As readers of this report are well aware, we have been preaching the “higher for longer” interest rate scenario for many months now and plan to continue with that storyline until after the election. BTW, for those of you who might be counting, the Fed has paused their interest rate policy at “higher for longer” for ten months now, and still counting.?
Technically, I see the 10-year Treasury trading in a range of 4.30% - 4.75% for the time being. I recently picked up some 2-year Treasuries at 5%, and rolled some 3-month T-Bills at 5.40%. After many years, it sure is nice to be able to earn a decent risk-free rate of return in the Treasury market.?
BIG news this Friday: The Fed’s preferred gauge of inflation, the PCE (Personal Consumption Expenditures) should be watched closely. For the last 12-months, the PCE has averaged 2.8%, whereas the Fed’s target for this is 2.0%. The April reading for this data point will be very important for the Fed.
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Have a great week!
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Jeff Trusheim is the CFO of Mortgage Solutions Financial. Jeff is a 30+ year veteran in the Wall Street arena, with a background in economics, risk assessment and finance (banking and mortgage). He has previously worked in Fortune 500 companies in growing their portfolio and economic footprint.