Good Tuesday AM,
Equities started the day rebounding from yesterday’s selloff. The rebound actually started before the end of yesterday’s trading session but since about 7:30 am, has since petered out with equities flattish. Bonds also flattish but will be under pressure if equities make a run up through the session. Data today (housing starts and permits) were both very strong. Certainly leads to the expectation that builders see home prices continuing to increase. Demand, regardless of what we hear, is remaining strong and inventory does not meet it. With that, home prices are destined to increase (albeit at a slower pace). Today’s likely outcome is the market hits the pause button to brace itself for tomorrow’s Fed announcement and subsequent Powell Q&A. Many believe he will discuss tapering in November and some believe he will not due to fear of a collapse in the stock and perhaps bond market. The economy is fragile right now and with China heading toward a possible recession, that is now more likely given the collapse of Evergrande, our Fed needs to be even more mindful of what tapering could do. We are already witnessing a flattening of the yield curve and a correction in the stock market. If the Fed (and Powell) does discuss tapering, there is a chance that the market rallies. This happens often. As the saying goes, “Buy the news and sell the rumor.”
In a not so atypical ‘first aim, then shoot’, after the CDC prevented evictions through a moratorium (which the Supreme Court blocked last month), the CFPB just released a report examining the financial conditions of renters before and during the pandemic. It shows that renters’ credit scores increased by 16 points during the pandemic compared to 10 points for homeowners with mortgages. Credit scores increased even more for renters with children (25 points) and those earning less than $40,000 (18 points). Survey measures of renters’ “Financial Well-Being” also improved between June 2019 and June 2020 even as unemployment spiked. Meantime, fewer renters fell behind on non-rent payments and bills. The share of renters with a credit delinquency fell to 28% in April 2021 from 33.3% in December 2019. “As of spring 2021, renters’ finances appear to have been in a stronger position than they were before the pandemic.” Remind me again why the moratorium was in place, initiated by a government agency that can’t explain the origin of the pandemic or agree on the best safety measures (as their name would imply) is their reason for being “Center for Disease Control,” but instead clearly has the economic competency to manage the largest industry in the US: housing?
Please remain safe and healthy, make today great.