Like last week, stocks crept higher until Thursday and again failed to make new highs while interest rates continued their fall, pricing in more risk. Whatever the action, our editors uncovered new opportunities this past week
Thanks to Dent Research, provided here is our weekly information roundup ending the week on January 13, 2017. We start each subject with what you hear in the news and finish with what that information means to you. We hope this information will help you separate the noise from the news.
December Retail Sales Up 0.6%, Flat Excluding Cars and Gas… The consensus estimate was for retail sales to grow 0.7% overall, and expand 0.3% excluding autos and fuel.
What it means – The report is disappointing on two levels. Cutting through all the hype of confident consumers spending with abandon at the end of last year, retail sales proves that it just didn’t happen. We might feel a bit better about our future, but we still have the same jobs, with the same income, and the same circle of healthcare costs and retirement funding that we can’t square. And the part of the report that showed growth — auto sales — comes with a caveat. Automakers are now offering the same level of incentives that they did in the mid-2000s, in addition to stretching payments for five, six, and even seven years. They are essentially bribing consumers to buy cars.
The Atlanta Fed’s GDPNow forecast for the fourth quarter recently ticked up to 2.9%. I expect it to drop based on disappointing retail sales. We’ll get the first estimate of fourth-quarter GDP in the last week of January.
U.S. Senate Votes to Allow Partial Repeal of Affordable Care Act (ACA) by Simple Majority... The Senate voted to include repeal of some parts of the ACA through budget reconciliation, which only requires 51 votes.
What it means – This is the first step in repealing the ACA. Some people are upset that the Senate, and likely the House, would use budget reconciliation to make such a move, but it’s worth remembering that this is how we got the ACA in the first place. In 2010, the Senate used budget reconciliation to pass the landmark legislation with just a simple majority of 51 votes.
The big question is, “What comes next?” While there are several competing plans from Republicans, including detailed plans from Representatives Price and Ryan, so far neither congressional Republicans nor the incoming administration have put forth a comprehensive blueprint for future legislation. It could take months before such a document emerges, which means we should expect a lot of lofty claims and loud laments between now and then.
Mortgage Purchase Applications Down 18% from Last Year… Home buyers appear cautious in response to higher rates since last fall.
What it means – Last September, home buyers could get a 30-year loan at 3.65%. Today, that number has jumped to 4.3%. In the grand scheme of things, snagging a loan for 30 years at less than 5% is fabulous deal. But it sure looks bad when compared to recent history. It’s too soon to tell if the housing market will slow down appreciably due to slightly higher rates. We’ll have to get into the prime selling season this spring before we know for sure.
On a related note, real estate company Trulia just reported that failed sales – where contracts are signed but are not completed – almost doubled from the fourth quarter of 2015 to 4.3% in the same period last year.
Yuan Weakens Back Near 7 Per U.S. Dollar… After strengthening to 6.75 per dollar, the yuan dropped again, nearing the psychologically important 7 per dollar level.
What it means – Chinese officials are struggling to keep their currency from crashing. Having already spent $1 trillion to stem the tide of capital flowing out of their country, they now rely on a host of capital controls. It’s not working.
Consumers, business owners, and investors want to convert their cash to dollars and euros before the yuan falls further, and they’re doing their best to circumvent the new currency rules.
In the last week, the Chinese government announced new rules aimed at people using bitcoin to move cash. The announcement sent bitcoin down another 10%, following its 20% dive the week before. The government’s efforts won’t work. As the Chinese economy slows down, capital will seek higher returns. I still think the yuan will fall through (go above) 7 per dollar in the near future.
It Costs $233,000 to Raise a Child… The U.S. Department of Agriculture released its 2015 cost estimate for raising one child, from birth to age 17, in the U.S. The figure includes shelter, food, transportation and childcare among other things, but does not include college costs.
What it means – There are a few big things to note in this report. Almost a quarter of million dollars is a lot of money, but it’s actually $12,000 less than the 2015 total. Child care costs are growing, which is no surprise to parents with young kids. And while having kids is expensive, the numbers aren’t as bad as they seem. A full 29% of the cost goes to shelter. For those of us who own our homes, this isn’t exactly an expense item, it’s more like an investment, since we get to keep the asset after the kids leave.
Chicago Mayor Emmanuel Pressures Rating Agency Moody’s to Lift the City’s Junk Rating… Before the city issues $1.2 billion in new debt, the mayor wants Moody’s to upgrade its rating so that Chicago will pay less interest.
What it means – Give the mayor props for audacity, although chutzpah seems more appropriate. Chicago might have raised taxes a bit, but the city still has a $5.4 billion deficit when it only generates $9 billion in revenues. That’s like spending $144,000 per year when you only make $90,000, and then being mad when a credit card company turns down your application.
The city’s pensions are underfunded by $22 billion, with a funding level of just 31%. If recent history in Detroit and Puerto Rico have taught us anything, it’s that investors holding Chicago’s general obligation debt are about to get robbed of their investments, and Moody’s is right to hold the line. Chicago general obligation bonds are junk, they just haven’t been taken to the dump yet.
Next Week – The week of January 16 includes economic reports on consumer prices and housing starts. The week ends with the presidential inauguration on Friday.
We are on a mission to save your assets.
200 N. Westlake Blvd., Suite 109
Westlake Village, California 91362-3783
805.495.2077 800.266.2077 888.WHY.BEPOOR
Securities and advisory services offered through National Planning Corporation (NPC), Member
FINRA/SIPC, a Registered Investment Adviser. Investors Advantage and NPC are separate and unrelated companies.