Is There A Housing Bubble 2.0?

If you're looking at the stock market to sniff out a potential asset bubble, you may be looking in the wrong place. It may be right in front of your face.

When the millennial generation came of age, we heard all about their preference for renting – not out of any love for renting necessarily but because many of them were priced out of the housing market – and their supposed desire to live in urban areas with all the cultural offerings they provide.

Along comes the Covid-19 pandemic, and suddenly nobody wants to live in cities anymore. Instead, everyone it seems is moving to the suburbs, enabled by low-interest rates and the necessity of working from home. That has driven up the price of homes just about everywhere. Indeed, the National Association of Realtors announced last week that in the third quarter, every single one of the 181 metro areas it tracks showed a year-over-year price increase, something that's never happened before. Moreover, 65% of them – or 117 – rose by double-digit percentages, led by a 27.3% jump in Bridgeport, CT, the county seat of Fairfield County, which includes Greenwich, CosCob, Darien, and other New York City bedroom communities.

Needless to say, the runup in home prices nationally increases the income needed to afford a home. The median price of an existing single-family home nationally jumped 12% on a year-over-year basis, to $313,500, the NAR reports. At the same time, the monthly mortgage payment on a typical single-family home rose Continue reading "Is There A Housing Bubble 2.0?"

What To Expect Under A Biden Presidency

Now that the Associated Press has declared Joe Biden the winner of the 2020 Presidential Election let's take a look at what we might expect from the presumed 46th president and the kind of economy he will inherit – and what he plans to do with it.

Thanks largely to his predecessor, Biden starts off with an inherently strong economy, even as it continues to heal and deal with Covid-19. Assuming that Biden doesn't follow his own comments and some of his advisors about imposing another lockdown, we can probably expect that the economy will eventually get back to the 2-3% annual growth rate we enjoyed before the pandemic.

Biden will also likely benefit from the recently announced introduction of a Covid-19 vaccine, although a lot needs to be done first, like manufacturing and then distributing hundreds of millions of doses worldwide, which will take some time. But assuming the vaccine is as efficacious as Pfizer says it is, that will be a further elixir for economic growth.

It's hard to imagine a Federal Reserve friendlier to the financial markets than the current one, so Biden will benefit from that as well. Biden is also not likely to be a thorn in Jerome Powell's side as much as the current White House occupant. Continue reading "What To Expect Under A Biden Presidency"

Put The Blame On Me

At least since the global financial crisis of 2008, Federal Reserve officials have, by and large, denied or downplayed the idea that their zero-interest-rate policies and mammoth bond purchases have artificially inflated financial assets even as the Fed is buying trillions – with a capital T – of U.S. Treasury and mortgage-backed securities markets and more recently corporate bonds. Now the presidents of a few of the Fed’s regional banks are suggesting that the Fed study whether its monetary policies are encouraging overly risky investor behavior.

Loretta Mester, the president of the Cleveland Fed, conceded that prolonged periods of low rates could incite “higher levels of borrowing and financial leverage, increased valuation pressures, and search-for-yield behavior.”

“While monetary policy that leads to a stable macroeconomy encourages financial stability, it is also possible that in an environment with low neutral rates, a persistently accommodative monetary policy could, in some cases, increase the vulnerabilities of the financial system,” she said.

Boston Fed President Eric Rosengren went even further, suggesting that the Fed “rethink” financial regulation – but apparently not monetary policy – to rein in speculative behavior. Continue reading "Put The Blame On Me"

Federal Reserve: Trick or Treat

Want to guess who Federal Reserve Chairman Jerome Powell is going as for Halloween? Based on his most recent speech on the economy, it’s got to be the Grim Reaper.

Even as reports continue to show the economy recovering pretty quickly following the government-mandated shutdown of the spring and summer – which several of his Federal Reserve colleagues have cited – Powell continues to paint the direst picture of the American economy. However, this time, he has gone beyond the bounds of the Fed’s independence, publicly politicking for a new federal fiscal stimulus package. If one doesn’t arrive soon, he warned, it will be “tragic” and “lead to a weak recovery, creating unnecessary hardship.”

“The recovery will be stronger and move faster if monetary policy and fiscal policy continue to work side by side to provide support to the economy until it is clearly out of the woods,” Powell said in a speech last week to the National Association for Business Economics.

I had been under the impression that the Fed was supposed to be “independent” of the government, or at least that’s what we were told repeatedly when President Trump went off on Powell for not doing what he wanted. However, it seems to be ok if Powell cedes that independence voluntarily and takes sides on a political debate.

This isn’t so much an example of charter creep, which just about every government agency and leader does, as much as a charter leap, with the Fed not only taking over more and more of the economy and financial markets but publicly lobbying for government action to make it so. Continue reading "Federal Reserve: Trick or Treat"

Do We Really Need More Stimulus?

As we speak, Republicans and Democrats are still wrestling over another coronavirus stimulus package. Everyone wants one, we’re told, and the economy needs one.

Don’t start spending that stimulus check just yet.

Despite what they claim, Democrats don’t really want a deal, no matter how big, at least not until after the election. Do you really believe that Nancy Pelosi and Chuck Schumer want to allow President Trump to play Santa Claus and send out $1,200 checks to American voters right before the election? Needless to say, the president would just love to have his name on those checks.

So don’t count on another stimulus package until after the election, if then. It’s a valid question of whether the country really needs another one. But never fear, the Federal Reserve will step in where Congress fears to tread.

At its September 15-16 monetary policy meeting – the last one before Election Day – the Fed updated and revised its prognosis upward for the U.S. economy, finally catching up with many other analysts and some of its own regional banks who are forecasting a much brighter picture than Fed Chair Jerome Powell and many other Fed officials have been painting over the past couple of months.

The Fed now expects U.S. economic growth to be negative 3.7% for this year, a big upgrade from its negative 6.5% projection in June. It also expects positive growth of 4.0% next year (down from 5.0%), 3.0% in 2022 and 2.5% in 2023. Regarding unemployment, it expects the jobless rate to fall to 7.6% this year from its June projection of 9.3%, declining further to 5.5% next year, 4.6% in 2022, and 4.0% – i.e., full employment – in 2023. Continue reading "Do We Really Need More Stimulus?"