Housing Starts Jumped 6.5% in September, Housing Permits Fell 5.0%... Following a 1.7% decline in August, overall housing starts rebounded sharply. However, the gains were almost entirely in the multifamily segment, which was up 18.3%. Single-family housing starts rose a modest 0.3%.
What it means – With millions of millennials needing a place to live and rents zooming to the moon, analysts project housing to shoot higher. Instead, the sector keeps plodding ahead, making steady, if not stellar, gains. That said, the plateau in recent months masks the fact that housing starts rose 17.5% over last year.
Existing Home Sales up 4.7% in September, up 8.8% Over Last Year… Recovering most of the 5.0% drop in August, existing home sales clocked the second best annual sales rate (5.55 million units) since the crash.
What it means – Unlike in housing starts, most of the gains in existing home sales were in single-family units. The median sale price was off a bit for the month, but still up more than 6% for the year.
The weird part of existing homes sales is that inventory remains thin at less than five months’ supply of homes on the market. This implies that potential sellers anticipate higher prices, which is bad for cash-strapped millennials. The impasse keeps many people in rentals, where rates are climbing.
European Central Bank (ECB) Holds Rates Steady, Will Review QE in December… Deposit rates remain at negative 0.20%. The central bank did not change its monthly 60 billion euro QE program, but said it's open to adjustments in the future.
What it means – Europe still sucks. That’s not a technical term, but it definitely describes the economic mood on the continent. With inflation below zero (which is, by the way, deflation), retail sales slowing down and industrial production dropping, the ECB will try anything to turn the tide. Unfortunately, their chosen tools of printing euros and punishing savers with low interest rates are proven losers. Yet they intend to do more of the same. The biggest outcome will be a weaker euro, which will boost the U.S. dollar again.
The European Union High Court Declares Bitcoin Free from Value-Added Tax… Owners can freely exchange the digital currency for other currencies without paying the tax, easing the way for more transactions.
What it means – This was definitely good news for bitcoin, which shot up in value with the announcement. But don’t get too excited about what’s in your (digital) wallet. Just because the currency is free from a tax doesn’t mean it will be free from all government scrutiny and oversight. We still expect governments around the world to clamp down on bitcoin and its virtual rivals. When money leaves the official banking system it deprives governments of control and taxation, which are two things they can’t live without.
Chinese Third-Quarter GDP up 6.9%, Just Shy of the 7.0% Official Forecast… Looking through the numbers, the government counted 0.8% of deflation, which boosted the official rate from nominal growth of 6.2% to inflation-adjusted growth of 6.9%.
What it means – This one’s hard to figure out. China posted 1.7% inflation last quarter, higher than the 1.3% rate of inflation during the second quarter. Obviously, both of these numbers are positive. How is it that China had to adjust GDP up for deflation in the third quarter, but down for inflation in the second quarter? The Producer Price Index (PPI) was negative, but it’s been that way for almost four years. We could spend a lot of time parsing this out, or simply look at the big picture. The Chinese economy is slowing down. None of the monetary or fiscal policy attempts to change that have worked.
Sinosteel, a Large Chinese Steel Producer, Barely Avoids Default… The second largest importer of iron ore pushed back the date that investors could redeem their bonds from October 20 to November 20.
What it means – The company wrote to investors asking that they not demand repayment, instead allowing their bonds to roll over. Last weekend, the company changed its communication, now informing investors that they cannot sell back their bonds for another month. This move has government intervention written all over it. Officials don’t want to see more bankruptcies. That’s bad for business. So they play the extend-and-pretend game, pushing out maturities and hoping companies come up with the needed cash. There’s no word on what will happen in a month when the bonds are due and there’s no money. This is just one example of the huge debt problem in China. The county needs to let deleveraging happen. Pushing it out only makes the financial pain worse. Better to flush it through the system and then get on with the business of rebuilding from a stronger base.
China Cuts Interest Rate by 0.25%, Cuts Reserve Rate by 0.50%... In a nod to its growth problems, the Chinese government cut key interest rates, hoping the move will spark more borrowing and spending at both the corporate and retail level.
What it means – This is another misguided attempt to influence the business cycle with cheap cash. China’s problem isn’t that interest rates are too high, or that loans are too restrictive. It’s that their clients – other countries and domestic consumers – don’t want as much stuff. The moves might boost lending a bit, but that only sets up bigger defaults down the road.
Earnings Crater for Most, with a Few Bright Spots… As expected, earnings for the major financial institutions like JPMorgan and industrial concerns such as Caterpillar dropped.
What it means – The results highlight the precarious state of the U.S. economy in a slowing global market. However, there were a couple of bright spots. McDonald’s surprised to the upside, as did Amazon and Google.
A weird one was Microsoft. The company, which now gives away its signature product (Windows 10) for free, posted a drop in earnings, but investors cheered its push into cloud computing. We’re not sure why that translates into good news. Energy companies are still on the ropes, but that’s no surprise.
Next Week – The last week of October includes the release of the S&P/Case-Shiller Home Price Index and the first estimate of U.S. third-quarter GDP. The biggest announcement of the week will be the Fed’s policy decision, which comes out Wednesday.Securities and advisory services offered through National Planning Corporation (NPC), Member FINRA/SIPC, a Registered Investment Adviser. Investors Advantage, HS Dent and NPC are separate and unrelated companies. The information presented here has been provided by HS Dent. HS Dent is an economic research company that uses various techniques to study the potential impact of various changes in demographic trends on our economy. No one person or strategy can accurately predict market movements. Certain statements contained within are forward-looking statements including, but not limited to, statements that are predictions of or indicate future events, trends, plans or objectives. Undue reliance should not be placed on such statements because, by their nature, they are subject to known and unknown risks and uncertainties. This information is general in nature and should not be construed as comprehensive financial, tax, or legal advice and the opinions expressed are not endorsed by NPC. To determine which investments may be appropriate for you, consult with your financial, tax or legal professional. Please remember that investment decisions should be based on an individual’s goals, time horizon, and tolerance for risk. NPC is not to be held responsible for and may not be held liable for the adequacy of the information available.