Saturday, November 19, 2016

MAD Economic Review 11/19/16

We had a nice calm week for the markets and worldwide events. Hopefully this transitions to a nice quiet week for Thanksgiving so we can all enjoy some nice relaxation, great food, and company! Of course many will be heading to shopping malls and binging on internet sales this week.

If you are, keep in mind my Holiday Spending Tips, which is full of great ideas and money saving tips! Here at MAD Consulting we will #OptOutside with REI which is becoming something of annual tradition. I'll post some pics to Twitter, so be sure to follow!


Equity markets which get all the attention had their second straight week up. The S&P 500 is flirting with the idea of making an all time high and finally joining the Dow Jones.

Not to be outdone the little brother in the group, small caps via the Russel 2000, have put together quite an impressive rally themselves while hitting new highs. The index has rallied 13.7% in the last two weeks! That's more than a normal whole year's worth of gains! The explanation for that is we have a massive domestic infrastructure and manufacturing spree coming with Donald Trump. The idea is this will benefit smaller domestic companies more. We'll monitor how this continues to pan out.

No matter which way you slice it and dice it stocks have caught a huge bid along with rising bond yields(see below). That should put some fears to rest about bond yields competing with investor dollars. With the 10 Year Treasury now yielding more than the S&P 500 you'd think investors would be rotating out of stocks and into bonds. That doesn't seem to be the case yet.  In fact it seems higher inflation is coming(see further below)and that means stocks will generally perform well and investors are seeking some inflation protection through equities.

Just check out the YTD gains for the indexes. I can't believe some people tell me on a regular basis you can't make money in the market. Clearly a lot of people are.

                                            YTD % Gain
Dow Jones                                  8.3%
S&P 500                                      6.8%
Nasdaq                                        6.3%
Russell 2000                               16.0%

Bonds Big Move & It's Affect On Us

Not nearly talked about as much in normal social circles is the old cranky bond market.  This area has seen a lot of action the last two weeks as rates from the 5 to 30 year bond have all increased roughly 50bps. That's a huge move in this market.

Visit to see more great charts.

But what does this mean for us?

Unfortunately for a person living the debtor lifestyle this is horrible for you. The time of low rates to finance your credit cards, house, boat, and car are coming to an end. Interest rate costs will start to take up a bigger portion of your income, and the effect can hit you much quicker than you realize if you carry debt that adjusts periodically to market rates.

If you are looking to buy a home now is the time. The time frame for low mortgage rates is closing faster than people realize so if you are looking I'd get serious quick! I've discussed this in a few articles on the blog that rising rates will be a headwind for house prices, but that now would be the time to lock in a low mortgage rate if you are thinking of starting a family and settling down for awhile. For more info see my last real estate update here.  I'll be writing an article specifically on my real estate offerings, and in fact on all my services soon.

Mr. Economics

We had  total CPI rose 0.4% in October while core CPI, which excludes food and energy, increased 0.1%. On a year-over-year basis, total CPI is up 1.6% and core CPI is higher by 2.1%. The Fed watches inflation carefully and so do big investors. That's a strong number and even Janet Yellen stated this week a rate hike is appropriate "relatively soon".
Housing starts for October came in at a seasonally adjusted annualized rate of 1.323 million units,  up from a revised 1.054 million units in September.  Building permits for the same period came in at an adjusted 1.229 million in October from 1.225 million for September. Not a bad showing on that front and still nice to see overall activity staying brisk as it provides underlying economic support. 
Initial Jobless Claims from the latest report totaled 235,000. Continuing claims fell to 1.977 million from 2.043 million. I don't know what to keep saying about this since the numbers keep coming in at record lows.

The trends are in the right direction. This economy isn't killing it on all fronts, but it continues to be strong enough to keep the train moving. And judging by the moves in the market this week big institutions and investors see the writing on the wall and have put their money to work. Are you?

I'll keep posting light as the week progresses and there will be no Economic Review either. Remember to #OptOutside this Friday after you snag all the best money saving deals! Your lungs and memory will thank you one day!

Have a great weekend and HAPPY THANKSGIVING!


The MAD Consultant

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