Eq: Total Market
(Washington)
President Trump has just sent a strong message to overseas investors: that US tech is not for sale. The president rejected Broadcom’s hostile takeover of Qualcomm. Although Broadcom is based in Singapore, the prospect of China, which loomed over the deal, was enough to get the White House to block the hostile takeover. American Qualcomm is in a heated race with overseas rivals, including Huawei, to build next-generation wireless technologies, and the US is warned about its strategic interests.
FINSUM: The US is right to worry about this, and we think blocking the deal was a great move. China runs its companies like China Inc., which puts the US at a bit of a structural disadvantage (because our firms don’t share as much info). Therefore, Washington needs to be very careful.
(New York)
While some see the housing market as being in the middle of a long push upward, some see a lot of risks on the horizon as rates rise. In particular, mortgage rates look set to move strongly higher as the Fed keeps hiking rates. 30-year mortgage rates just hit a four-year high and are already hurting refinancings. Not only will the rates hurt new buyers, but they also keep people from moving, which could create bottlenecks in the system. The rise in rates is also challenging because home prices have risen sharply.
FINSUM: So the big point which counteracts all this negativity is that Millennials are entering their home-buying years, so there is a large pool of demand to support prices. The higher end of the market may be where things are weakest.
(New York)
Over the last several months there has been a lot of doom and gloom about commercial real estate. Everyone had been expecting a surge in defaults in 2016 and 2017 given that many mortgages issued in 2006 and 2017 were coming due. However, the delinquency rate on commercial mortgages has been falling for 8 consecutive months and is currently at 4.51%, compared to 5.31% this time last year and 10.34% in 2012. Many borrowers have been able to readily refinance their debts given high liquidity in the market.
FINSUM: The market for commercial mortgages looks to be in much better shape than many feared.
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(New York)
With rates looking likely to rise there are increasing concerns that the US housing market might be in for a rough patch. Rising rates mean more expensive mortgages, and combined with the lowering of the interest deduction threshold in the new tax package, real estate could be in for a rough ride. However, the opposite may be the case. The reality is there is low inventory and little new construction, leaving many buyers chasing a shortage of homes. Prices have risen steadily since the Crisis, but with the exception of a few coastal markets, have not surged, meaning pricing still looks reasonable. “Housing is in the third or fourth inning of a nine-inning game”, says one portfolio manager.
FINSUM: All the risk is in mortgage rates. If the Fed hikes very aggressively then it will hurt the market, but if things keep moving at this leisurely pace, housing will likely do just fine.
(New York)
Bonds have stopped their losses and there is a clear reason why—the market does not believe that the Fed is going to be as hawkish as many feared. The Fed’s January minutes were not as aggressive on raising rates as many suspected, and now bond traders are afraid that inflation may run quite hot without the Fed doing anything about it. Therefore, there is upward pressure on yields, but that force is being contained by the fact that rates are unlikely to be hiked aggressively. The current consensus, based on Fed comments, is that inflation could run to 2.5% before the central bank would become concerned.
FINSUM: The economy is doing quite well at the moment and the Fed doesn’t want to disrupt that by hiking too early.
(Washington)
Labor unions have long been a hallmark of developed economies. While their power has been on the decline for decades in the US, they are still a principle part of the labor market. Now, with their grip already in decline, they might be dealt a death blow by the Supreme Court. The court is about to hear a case on whether it is constitutional for labor unions to require government workers to fund the unions which represent them. Because of the decline in private sector unions, about half of all US union membership is now held by government employees, so a ruling against mandatory union dues could likely spark the end of American unions as we know them.
FINSUM: The decline of unions has been a complex and long-term affair. Aside from this case, we wonder if the power of unions might increase or decrease as automation takes further hold of the workplace.