With the Santa Claus Rally on pause it will be interesting to see how the march toward DOW 20,000 unfolds. Central banks around the world may be discovering that Quantitative Easing is failing and new promises for fiscal stimulus could be too little too late. We all enjoy watching new highs in the markets, but what we need to be more prepared for is how low could it go.
Thanks to Dent Research, provided here is our weekly information roundup ending the week on December 29, 2016. 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.
CoreLogic Case-Shiller Home Price Index Rose 0.6% in October, Up 5.1% Over Last Year… Real estate prices remained on track in October, with annual gains hovering around 5% for most of 2016.
What it means – The index is released on a two-month lag, so the numbers reflect prices through October. I’d expected softer prices as we moved farther from the summer, but so far that hasn’t happened. A Trump presidency and higher interest rates have thrown the residential market into turmoil.
Will buyers balk at higher payments, or will confidence give people the push they need to buy at these prices? I think it will be both, with more sales as people try to beat higher rates, but then a slowdown when change doesn’t happen in Washington as quickly as we all wish it would.
Japanese Consumer Prices Flat in November, Up 0.6% Over Last Year… Excluding food and energy, prices are 0.1% higher than last year.
What it means – These numbers are just a bit shy of the government’s 2% inflation target… and yet, they’re the highest figures of the year. The yen has weakened substantially since the U.S. election, so chances are that Japan will get a bout of inflation in the months ahead.
Unfortunately, that will just drive up the cost of living, because wages remain flat. The Japanese government has proven once again that engineering growth is very difficult. You need young people to keep an economy thriving, and that’s a commodity in short supply in the Land of the Rising Sun.
Bitcoin Nears $1,000… The digital currency is up 125% for the year.
What it means – The price of bitcoin didn’t do much in 2016 until the Chinese government tried to stem the flow of capital leaving the country. As new regulations popped up on transferring cash, bitcoin jumped in price. Then Donald Trump won the election, all but assuring a trade war. If trade slows down, Chinese importers will have fewer ways of getting cash out of the country, since they commonly inflate their foreign payables to hide international transfers.
None of this changes the problem with bitcoin – it embodies everything governments don’t like, including ease of transfer across borders and anonymity. There will be a crackdown, and the price will plummet. The only question is when.
Next Week – The first week of 2017 starts with a market holiday on Monday, and then brings reports on factory orders and the U.S. Employment Situation, as well as the minutes of the last Fed meeting.
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