Outside of the White House, it’s been an uneventful week, especially since Fed officials are in their quiet period ahead of next week’s policy meeting.
Stocks continued to climb despite low volume and mixed earnings reports. Interest rates moved cautiously lower and 10-year Treasury notes moved below 2.25%, submits Rodney Johnson, Dent Research.
Thanks to Dent Research, provided here is our weekly information roundup ending the week of July 21, 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.
Housing Starts Bounce Back, Up 8.3% in June… After several disappointing reports from the real estate sector, housing starts showed strength last month.
What it means – Starts climbed back above 1.2 million annually, with single-family starts up 6.3% last month and multifamily starts up 13.3%. Permits were also strong, up 4.1% for single-family homes and 13.9% for multifamily units. For the second quarter, housing starts averaged 1.164 million, which is less than the first-quarter average of 1.238 million.
This report puts the housing market right back where it was, with low inventory compared to historical averages but for now, enough supply to keep sales rolling and prices high.
Bank of Japan (BoJ) Lowers Inflation Forecast… Bowing to reality, the BoJ lowered its inflation estimate from 1.4% down to 1.1%.
What it means – Who are you going to believe, me or your own eyes? That pretty much sums up the BoJ’s worldview.
The Japanese central bank has issued rosy economic estimates for years, looking for higher GDP and inflation. But reality always comes knocking, and the BoJ has to admit that things aren’t quite as good as they’d hoped, no matter how many trillions of yen they’ve printed. Now the central bank expects to meet its inflation target of 2% somewhere around 2019, which is the sixth time the goal has been pushed back since they started QE in 2013. I’m starting to see a pattern.
ECB President Mario Draghi Notes QE Will Run Through At Least December… He reported that the ECB bond-buying program will run until inflation picks up.
What it means – Draghi took a much more dovish stance than the markets expected. In addition to the comments above, he also said that current rates, which sit at minus-0.40% for central bank deposits, will remain in effect long after the bond-buying program concludes. Then he told reporters that the ECB stands ready to expand the program, if necessary.
All of this is directly the opposite of Draghi’s comments from last month, when he pointed out that the Eurozone markets appear to be moving toward normalization. The news took down interest rates on European bonds and slammed the euro.
I’m not sure why there’s been such a strong reaction, both to Draghi’s hawkish term last month and now to the more dovish stance this week. He’s just trying to talk the markets in his direction, all the while drawing attention away from the fact that GDP growth remains muted and inflation is well below the ECB’s target, even though the central bank is printing roughly $68 billion a month to buy bonds.
Just like the BoJ, nothing says failure quite like spending billions of dollars and still not getting the desired outcome.
Greek Statistician to Face Trial for Reporting Country’s Deficit… In 2010, the Greek government brought in Andreas Georgiou to assess the country’s books. Because he reported a much higher deficit than previously known, prosecutors accused him of defaming the country and pushing austerity measures on the population.
What it means – Apparently in Greece, they don’t shoot the messenger, they bring him up on charges of telling the truth. Georgiou analyzed the books according to EU accounting standards, as required of all Eurozone member countries. The statistics arm of the EU has audited, and approved, his results. But to his countrymen, that’s of no consequence.
Georgiou said things were bad, then the country had to endure budget cuts. Clearly, it’s his fault. Two appeals courts have dismissed the charges, but prosecutors are back for more. Now the Supreme Court has ordered him to stand trial… again. If found guilty, he could be sentenced to life in prison. Remind me again why anyone wants to lend this country money?
Uruguay Legally Sells Pot… The small South American country became the first nation to legalize and control the growth and distribution of recreational marijuana.
What it means – Former President Jose Mujica started the movement in 2013, hoping to set the price low enough to drive out illegal drug dealers. The drug is sold through pharmacies, which claim the price is barely high enough to cover their costs. Customers must be citizens or resident aliens, and have to register with the state. Purchases are limited to 10 grams per week.
The move is too new to determine if it will curb illegal pot as desired. Interestingly, more than 60% of residents don’t approve of the government’s involvement. The sentiment seems to be that the government should decriminalize the drug, but not be its supplier.
Florida Man Shoots Out Tires of AT&T Trucks in Front of his Home… The Hialeah resident told the AT&T workers to move their vehicles. When they didn’t, he retrieved a handgun and shot out the tires.
What it means – Every state has variable weather and crazy residents, but for some reason Florida seems to show up in the news more often. In this case, there’s cellphone video of 64-year-old Jorge Jove calmly walking around the AT&T vans and shooting the tires. But we don’t know exactly what Mr. Jove hoped to accomplish. If the goal was to encourage the workers to move their vehicles, shooting the tires seems like a bad move. Maybe he’ll give a better explanation in court.
Next Week – The last week of July includes some big economic items. We’ll get reports on new and existing home sales, as well as durable goods and the S&P CoreLogic Case-Shiller Home Price Index. But the market movers will be the outcome of the Fed’s July meeting and the first estimate on second-quarter GDP.
The proof is in the planning.
200 N. Westlake Blvd., Suite 109
Westlake Village, California 91362-3783
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 in 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 place on such statements because, by their nature, they are subject to known and unknown risks and uncertainties.
The opinions in this article are for general information only. They are not intended to provide specific advice or recommendations for any individual and do not constitute an endorsement by NPC. To determine which investments may be appropriate for you, consult with your financial professional. Please remember that investment decisions should be based on an individual’s goals, time horizon, and tolerance for risk.
Indices are unmanaged measures of market condition. It is not possible to invest directly into an index. Past performance is no guarantee of future results. In general the bond market is volatile, and fixed income securities carry interest rate risk. (As interest rates rise, bond prices usually fall, and vice versa. This effect is usually more pronounced for longer-term securities.) Fixed income securities also carry inflation risk and credit and default risks. Any fixed income security sold or redeemed prior to maturity may be subject to a substantial gain or loss.
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.