News with No Action
The market seems to be missing the point on some of the big news items of last week. We saw the market shoot up on Friday because of positive news with the China trade front. There was an announcement that there was a preliminary agreement for the future, which seemed very positive. However, over the weekend it came out that China was backing off that agreement which made the markets go back down again. That topic seems to be the only thing the market is focusing on and in turn, causes it to be up one day and down the next. It’s essentially being whipped around based on the news but no action.
We mentioned in the vlog last week that Thursday was a big day for the Fed due to the voting to lessen the restrictions on large banks. With one dissent, that passed. As a result, what you’ll see down the road is credit will be cheaper for both corporations and individuals because, simply put, with fewer regulations, you’re going to have more competition for the consumer and commercial borrowers. Credit is going to be cheaper and more cash flow will be generated. We feel that it is going to be big but has been kind of off the headlines. It’s going to make a lot of difference over the next year or two. Coming up this week on Wednesday, the Fed will release what they call the Beige Book. The book is basically showing a broad look at every federal region in the country and shows how the underlying companies in those regions are doing. It’s a lot of good data and will be beneficial to see. The Philadelphia Fed will release its Manufacturing Index Friday. That will be important because it shows the Northeast, which is a heavy industrial area. There’s a lot of variety in that region and big companies that supply others from that area so, we’ll be watching out for that.
Dramatic Refinance Increase
The Fed announced that they are going to be expanding their balance sheet, which used to be headline news because that has such a large impact on interest rates. Lower interest rates are helping the U.S. consumer right now. The housing market consumer sentiment was down in August but on the other side of that coin, refinance demand is rising. Rate-sensitive refinance applications were up 10% last week, week over week, which is a big increase. From last year at this point, that number is up 163%, which is huge. It’s is important because the unemployment rate is the lowest it’s been in 50 years. Income is rising so that means household savings is increasing. As an economy we are struggling in areas such as retail sales. With the holidays coming up, we might see some of those savings being put back into areas such as that and also being put back into the markets. So, with refinancing demand rising, it’s important to look and see where these savings are going and see how the consumer is going to react. We could see a shift in consumer sentiment. Realistically you don’t refinance your mortgage if you’re not going to save money. Refinancing provides monthly savings and with a reduced expense that will go directly to the bottom line of the consumer and then to retail sales right before the holiday season. Also, with housing, when you look at it out of the backside of the financial crisis, that’s a major leg to the U.S. economic stool and we have been missing that leg for a long time.
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