Displaying items by tag: US
The Winners in the Trade War Panic are Starting to Show
(New York)
So the stock market is just about back where it was a month and a half ago at the bottom of its correction. This time the flare up has been driven by worries over a looming trade war being set off by the US and China. However, this recent rise in volatility has given insight into which stocks appear to be winners if a trade war does ensue. The answer is stocks that act like bonds, or yield stocks (alongside Treasuries and gold, the old safe haven standbys). Utilities and REITs have performed well, as have tobacco stocks, given that all three have strong yields to offer.
FINSUM: It is funny that just a few weeks ago everyone was worried about a bond bear market, and now everyone is pouring into fixed income and yield stocks.
Why a Recession is Coming
(New York)
Barron’s has just interviewed a prominent economist—Stephanie Pomboy—and she has some very interesting opinions about the economy. Rather than seeing the economy’s recent growth as a good performance, she analyzes the data to show that this pickup in growth is actually the last gasp of American consumers before a big recession. Digging into corporate spending data, she shows how the US consumer has been stretched by everyday expenses even as discretionary spending is weak. Consumers have had to pay for extra everyday costs, such as on food and energy, from savings or credit. Now that the savings rate is starting to rise, Pomboy thinks we are headed for a recession.
FINSUM: This is an entirely different way to read the tape, but may not be that far off the truth.
US and China Prepare for Full Blown Trade War
(Washington)
Markets have been on edge for weeks, and it appears with good reason. President Trump is reportedly putting the finishing touches on a major trade tariff package that is directed at China (to the tune of $50 bn). The focus of the tariffs are on metals. In response, China is planning its own set of tariffs on US agricultural exports, especially from Farm Belt states.
FINSUM: So the US is negotiating exemptions with top allies, but is starting a trade war with China a good idea? The politically difficult aspect for Trump is that China’s retaliation against US agricultural exports will hurt the states that helped elect the president.
The US Housing Crisis is Bottom Up
(Atlanta)
There is a very particular kind of housing problem currently affecting the US—a serious shortage of homes at the lower end of the cost spectrum. Not only is inventory thin, but the housing stock available for first time buyers is in poor condition and prices are rising quickly (10% in the last year). The average starter home on the market is 9 years older than it was in 2012 and is 2% smaller. That price growth is outpacing other categories.
FINSUM: So the big worry we have is that with all the price appreciation happening, prices are more primed to fall considerably as rates hit a tipping point where they start to curtail mortgage borrowing.
Keep an Eye on Mortgage Debt
(New York)
Those looking for signs of what will happen to the US economy would be wise to keep an eye on mortgage issuance. While the supply of homes is notoriously tight, many are worried that higher rates might doom the mortgage market. Well, despite several hikes in 2017, the year ended up being a very strong one for commercial mortgage issuance. Total commercial mortgage debt rose by $200 bn in the year to hit $3.18 tn total. It was the strongest year of mortgage debt growth since 2007.
FINSUM: This is one of the stats where you are not sure whether to be nervous or hopeful. On the one hand, it is good that issuance wasn’t dented by rate hikes, but on the other, the stats seem almost worryingly positive.