Another week, another major storm. While Florida and Texas recovered from natural disasters, stocks also recovered and hit record highs, while bonds fell. In fact, according to Lance Gaitan, Dent Research, the 10-year Treasury rose from a 2017 low of 2.06% to 2.20% in four days! That’s a big move.
It seems that with the hurricanes behind us, all is well again, barring serious military action, and now it’s risk on.
Thanks to Dent Research, provided here is our weekly information roundup ending the week of September 15, 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.
Irma Tears Up Florida, But It Could Have Been Worse... The storm damaged the Florida Keys before coming ashore in Naples. From there it moved inland a bit, sparing the west coast of Florida from storm surge damage.
What it means – Irma destroyed 25% of the homes in the Keys, and 65% suffered major damage. As of Wednesday, there were still millions without power, and streets in Jacksonville, in the north of the state, remained flooded. Florida might have been spared the worst possible outcome, but Irma still inflicted significant damage. The cleanup and rebuilding, like with Hurricane Harvey, will be expensive.
Hotel chains across the region will take a beating, but Home Depot and Lowe’s will do well, as will the automakers. Thor Industries, which makes RVs and travel trailers, also stands to benefit. Floridians need to have the welcome mat out when the snowbirds descend later this year. It will be a rush to get things back to normal before the first of December.
Consumer Prices 0.4% Higher in August... Lodging and energy drove the number up. Core prices rose only 0.2%.
What it means – Headline inflation touched 1.9%, near the Federal Reserve’s 2% target, but core inflation was only 1.7%. The move had Hurricane Harvey’s footprints all over it. Gasoline shot higher, as did lodging, which is a subset of housing. These numbers will remain out of whack for another month or two.
Retail Sales Dip 0.2% in August, Up 0.2% Excluding Autos... Hurricane Harvey clipped the tail end of August, so its full effect is not included.
What it means – These numbers keep the general theme of 2017 alive. Consumers are spending, but not a lot, and they are buying fewer cars. But as I noted above about the effects of the hurricanes, I think this will change.
Carmakers should have a pretty good September and a great fourth quarter, as will furniture and home furnishing stores. While insurance will pay for many of the cars and some of the homes, it won’t pay for all of it. Which means consumers will cut back in other places, such as restaurants and clothing.
All Three Major Stock Indices Hit New Highs... The markets rallied in relief after Irma spared Florida from the worst-case scenario and Kim Jong-Un did not launch another missile.
What it means – Well, we’re still here, things must be awesome! That seems to be the sentiment. It’s hard to find a reason for the markets to keep climbing, but they are.
Maybe it’s because no one wants to buy bonds when the 10-year Treasury pays just 2.17%, and people are worried about real estate at record prices as well. There is definitely a broad sense of TINA, There Is No Alternative. We have to save for retirement. If we want the funds liquid, what choice do we have?
Median Household Income Rises 3.2% in 2016, Surpasses 1999 Level... Median household income, adjusted for inflation, reached a new record high for the first time this century.
What it means – There is less here than meets the eye. On the face of it, median income jumped to almost $60,000, after posting the best gain on record, 5.2%, last year. But the Census Bureau has one tiny qualification. They measure income differently after 2013. The new approach includes more retirement account withdrawals, which they count as income, and also allow the surveyors to provide a range of income for respondents to choose from. These changes boost income substantially compared to the old questionnaire, which makes a comparison with historical data impossible.
But I’m sure the press won’t let the details get in the way. The New York Times and other news outlets have already run headlines about record incomes, burying any mention of changed methodology far down in the articles.
Chinese Government Cracks Down on Cryptocurrencies... The Chinese government announced it would ban cryptocurrency exchanges by the end of the month, halting the organized trading of bitcoin, ethereum, zcash, and others.
What it means – A Chinese newspaper controlled by the government pointed out that speculation was bad for the financial system, but that the crackdown would exclude exchanges between individuals.
It sounds like the Chinese want to tamp down the growth of the currencies and take some of the air out of the bubble, but not completely outlaw them... for now. Leave it to the Chinese to manage the decline in value, so as not to cause a panic or anyone’s financial ruin.
But the writing on the wall seems clear enough. The government is not interested in the population moving their funds away from traditional banks and arguably feeding a speculation frenzy in the process. The price of bitcoin dropped more than 35% in China after the news, but rebounded a bit at the end of the week.
Austria Sells 100-Year Bond at 2.1%... The small European country sold $3.5 billion of bonds that mature in 2117.
What it means – It defies logic that someone would buy such bonds. With such a small interest rate and long maturity, the bonds are very sensitive to interest rate changes. If rates move up just 1%, bondholders will suffer ugly losses. It’s hard to imagine a scenario in which we don’t experience higher rates, and possibly much higher rates, in the next 15 years, much less the next 50 years or so.
But at least the owners can rest assured that other people covet what they have. The deal was oversubscribed by more than three times. The greater fool theory is alive and well abroad as well as here.
Next Week – The third week of September could be one of the most important of the year when it comes to economic data. The Federal Reserve holds its regularly scheduled meeting, and is expected to detail a timetable for reducing its balance sheet. We also get data on existing home sales and housing starts.
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