S&P 500 And Margin Accounts Near All-time High (Will Fed Rock the Boat??)

The S&P 500 stock market index is near an all-time high. But then again, margin accounts at NYSE firms are also at all-time highs.

spxcall.png

Meanwhile, brokerage call money loan rates on margin accounts continue near the all-time low (despite recent increases in The Fed Fund Target rate).

bclfed

Will The Fed’s proposed 25 basis point increase at the December FOMC meeting (which would result in the call money rate rising to 3.25%) result in a slowdown of margin borrowing? Probably not.

Party on Stan, Party on Janet! 

wayneandgarth.jpg

 

Advertisements

Inflation Warning: US Import Prices Rise 2.7% YoY In September (US Export Prices Rise 2.9% YoY)

If you are looking for inflation that is seemingly missing, try the US import and export prices. US import prices by end use rose 2.7% YoY in September and US export prices by end use rose 2.9% YoY.

impexpyoy

Since John Taylor is being considered from The Fed  Chair, let’s take a look at The Taylor Rule which uses Core PCE price growth YoY as its measure of inflation.

trrude101717

Since Core PCE Price growth YoY roughly follows import prices YoY, let’s see if we get that turnaround in Core PCE Price growth that has been hovering.

corepcvimp

Bear in mind that gasoline and diesel prices rose quite a bit in September with gasoline prices falling in October. The Fed doesn;t consider energy prices in their inflation calculations.

regdes

Take import prices. Once we remove petroleum prices, import prices YoY grew at only 1.2%.

impyoyex.png

Yes, inflation (if you ignore energy) is still MIA (missing in action).

“I’ll just erase inflation but taking out energy prices.”

yellenerass

 

US Treasury 30Y-5Y Slope Flattens To Lowest Since Mid-Nov ’07 As M2 Velocity Hits All-time Low

The US Treasury curve slope (30Y-5Y) continues to flatten and has just hit the low point since mid-November 2007, nearly a year before The Fed’s annoucement of QE1 (their first round of asset purchases).

t30m5m2v.png

And as of Q2 2017, M2 Money Velocity has sunk to its all-time time low.

Here is photo of The Fed announcing their QE1 asset purchase program.

titanic-leaving-belfast (1)

And here is The Fed signalling a rate increase at their December FOMC meeting.

sinking-of-rms-titanic

Trump’s Tax Proposal And Housing: Did The Middle Class Just Get Jammed? (Largest Plunge in Renter Occupied Housing YoY Since 2003)

The Trump/Republican tax proposal sketch is out. 360061522-Republican-Tax-Plan

While the hope is that lowering marginal tax rates will stimulate the economy (creating more jobs and tax revenue for Uncle Sam), the impact on housing and the mortgage market is ambiguous at best.

Let’s run through the numbers, that we know about.

Currently, the standard deduction for an individual is $6,350 and $12,700 for a couple. So, the first $12,700 of mortgage interest and property taxes is essentially thrown away. On top of the standard  deduction, however, a of four can also claim personal exemptions of $4,050 per person for a total of $16,200. That puts that break point at $28,700 for a family of four. Below that point, the family of four would prefer to rent since they would literally be throwing away their mortgage interest and property tax deductions (assuming that the mortgage interest deduction is $8,000 and the property tax deduction is $4,000 for illustrative purposes). So, $12,000 in mortgage interest and property tax deductions is below the standard deduction for a couple for $12,700.

Under the proposed tax reform plan, the standard deduction would be raised to $12,000 for individuals and $24,000 for a couple. At the same time personal exemptions and property tax deductions would be eliminated. This will lead to more households renting rather than owning, holding all else constant.

But President Trump’s tax reform framework calls for collapsing the current seven tax brackets into three, with marginal tax rates of 12 percent, 25 percent and 35 percent. A decline in the marginal tax bracket lowers the value of the mortgage interest deduction resulting in fewer households having an incentive to buy home.

Depending on how the marginal tax brackets are finally decided, renters (generally in the lowest marginal tax bracket) could actually see a lower tax bill (say, tax savings of $500). It becomes muddled for the middle class since the loss of itemized deductions (other than mortgage interest deductions) could actually overwhelm the lowest marginal tax rate resulting in HIGHER taxes for the middle class (say, +$500-$1,000).

There are lots of moving parts on the mortgage side, including future interest rate hikes and housing finance reform. So I hope that Congress carefully weights its options in determing the slashing of deductions in exchange for low marginal tax brackets.

Remember, the US homeownership rate has fallen back to level where it began with President Clinton’s National Homeownership Strategy from 1995.

howntoday

But here is some food for thought. The inventory of renter occupied housing units as of Q2 2017 experienced the largest YoY plunge since the mid-2000s while owner-occupied inventory experienced the largest YoY gain since the mid-2000s.

rentownunits

I am just hoping that the passable version of tax reform doesn’t result in a Jeremy Jamm moment for middle-class homeowners and taxpayers.

jammed

 

 

 

 

Goin’ Down! UK Banks Suffer Credit Collapse (Similar to USA)

As New Jersey rocker Bruce Springsteen crooned, we’re Goin’ Down.

According to the Bank of England, household unsecured credit availabilty sank to its lowest level in 10 years.

20171012_boe

While household secured credit availability was also in negative territory, it was not as bad a unsecured credit availabilty. The reason? Consumer lending curb to slowdown a hot market.

The US bank credit market is slowing as well.

uscreditmks

The USA does have some similarities with the UK other than clocks.

ronswansonbigben.jpg

Inflation Friday: Despite Hurricane Hoopla, “Inflation” Remains Subdued (Real Wages YoY Decline)

Listening to CNBC and Bloomberg TV, you might have gotten the impression that Hurricanes Harvery and Irma created such extensive damage (they did) that there would be labor shortages and a big rise in real wages.

Actually, both real hourly earnings and real weekly earnings YoY fell to under 1%.

realearnings

There was a small pick-up “inflation” with core inflation remaining the same as in August: 1.7% YoY.

inflationfriday

Even with two destructive hurricanes, all we can generate is 1.7% YoY?

corecprisept17

But  as expected, auto sales were elevated with households and businesses replacing their water-damaged vehicles.

Why did they name the hurricane Jose? Hurricane Janet would have been more appropriate.

hurrjanet

janet-yellen-just-gave-banks-a-secret-hint-to-pay-out-100-billion-in-dividends

Bitcoin Hits All-time High (Market Cap Almost As Big As Goldman Sachs)

The crypto currency Bitcoin just hit another all-time high, reaching 5,606.

bitcoinrlly

Here is Bitcoin relative to gold.

Bitcoin’s market cap is now $93.5 billion.

Making Bitcon almost as large as Goldman Sachs in terms of market capitalization.

While not quite bigger than Goldman Sachs, Bitcoin is on its way.

But unlike Goldman Sachs, Bitcoin is NOT Too-big-to-fail (TBTF).

Here is Lloyd Blankfein, Goldman Sach’s CEO, doing his best Hyman Roth impression from The Godfather 2.