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Random Gleanings: Goin' to Jackson Thumbnail

Random Gleanings: Goin' to Jackson

Random Gleanings

In the 1967 Johnny Cash country romp, Jackson, June Carter dares Johnny to "Go play your hand you big-talkin' man".  Markets are currently daring Jay Powell to do the same in Jackson (Hole, WY) this week.  Carter's dare though comes with a prediction for her "big-talkin" husband when she follows with, "Make a big fool of yourself."  

Jay Powell is unlikely to make a big fool of himself in Friday's comments, but he will be walking a tightrope of communicating a desire to stay hawkish on the inflation fight while not too hawkish so as to push the economy into certain and difficult recession.

This week, Chris & Jesse offer some thoughts on Jackson Hole, the slowdown in housing, the effects of Dollar strengthening (and eventual opportunity (?) of dollar weakening), and the inflationary effect on tailgating to help you prep your menu before football starts!

We hope you'll Enjoy, Share & Subscribe! Send us your questions or comments to info@proplanwealth.com

Charts & Transcript below...

Hey there. Welcome back to Random Gleanings - he's Chris, I'm Jesse. 

Chris - Jackson Hole! You've been there.

Chris: Cool place. Very cool place. Probably you probably cooler without economists I would think.

Jesse: Did you reassess constraints on the economy and politics while you were there?

Chris: No, I probably had a beer, but the place they’re staying is super cool there. Arts and crafts building - really, really cool. 

Chris: And in the second picture here, outside with Jay Powell, that's a Bank of England governor that's just right outside the big bay window. So highly suggest checking out Jackson Lake Lodge, I think is the name of it.  What what do you think the Bank of England governor is saying to Jay right there?

Jesse: I mean, it's beautiful scenery. I've got to imagine. He's probably talking about that.

Chris: I think he I think he's saying, “Jay, rates need to go higher.”

Jesse: They need to do that over in England too!

Chris: Yeah, they do. But they've got their own set of problems with energy and whatnot. And that leads to some other things we're going to talk about in a minute. 

Chris: So, you know, we've got Jay here in the picture looking over is his glasses. Jay's got some ‘splainin’ to do from last month. Did you get that “I Love Lucy” reference?

Jesse: I got it.

Chris:  Okay. Just making sure. So, Jay last month said some things that sounded to or the market interpreted like they may pivot, meaning go from raising interest rates to lowering interest rates again. And we talked about this last week. All the Fed governors came out real quick and said, “Not so fast.”  And so the notion of a pivot wasn't so much a pivot to the downside, but more a pause potentially going into the first the next year or so.  So Jay and Crew are hanging out in Jackson Hole, and they're going to talk about what they think is going to happen from here. And that's on, what, Friday, isn't it?

Jesse: It is Friday that he'll speak. So, yeah, it will. Everyone will be paying attention to that, there's no question.

Chris: So let's talk about whether their policies are working or not. Let's look at single family homes. We seem to be in a slowdown.

Jesse: Yeah, I mean, no question about that. I think your chart here shows that what houses sold at the slowest rate since 2016. Yep. This past month. And you know, housing is such a critical part of the economy that that becomes a little bit of a signal.

Chris: Right. A little over 40% of CPI.  So that part you would think I mean, there's rents in there as well as single family homes in the inflation measurement. So you would think at least the housing part of the 40% from housing or at least the single family home side is, you know, it's slowing.


Jesse: I've done some reading on that topic and home prices, just like buying a home is such an emotional thing. And if you've been looking at Zillow and seen your home go up, you know, 40% in value, you think that you deserve that, right. And unless you have to move, you can kind of sit there and just demand that price.  At some point that will start to tick down. If you desire to move. And of course, if you have to move, there's a new reality out there, right? 

Chris: Yeah. It's going to mean, not only are you going to have to - you may buy your house at a cheaper price, but you're going to have to pay more towards your mortgage, etc.

Chris: So let's look at new home sales in a different chart, but the same kind of deal. What, what you'll see here in this chart is, this level of pullback in new home sales decline usually has been at or near the beginning of a recession.

Jesse: Yeah, and again, technical recession to, you know, negative quarters of GDP, actual recession is now I think how they're kind of framing what is maybe still anticipated the idea of a soft landing is maybe increase a little bit. But this is not a good sign for avoiding recession.

Chris: You've got the Fed over here dealing with a completely overstimulated labor market. I mean, you put all this money out there from 2010 basically coming out of the great financial crisis until now, we're just going to keep stimulating, stimulating, stimulating. And no, we don't expect inflation! (SARCASM)

Jesse: Homes are just one of those assets that obviously inflated dramatically. Yeah. Because of free money and fast flowing.

Chris: If you have free money, there's no way equities don't potentially get a little long in the tooth. There's no way home sales don't get maybe a little long in the tooth.

Jesse: And I don't think we have this chart. But you know, something that I read and I know we talked about a little bit is of home purchases over the last 12 months or maybe it was in 21, 33% were bought by investors. Yeah. So I mean, to your point, free money means also no deposit interest rate at the bank.  If you've got a stash of cash, you can go buy it and Airbnb it or whatever. So some of the dynamics of housing have changed dramatically in the last couple of years.

Chris: I think the level of stimulus has led us potentially from…you know, we talk about first world problems sometimes and, I think we've maybe gotten into some super first world problems, meaning what you've had in the real estate market, for example, investors buying up properties - I mean, you said a third of properties with no intention of ever living in them, right?  Renting them, Airbnb in them, I mean VRBO’ing them. All sorts of different mechanisms. But with a housing shortage, that doesn't help.

Jesse: And the housing shortage obviously, again, compounded by the idea that that from 2010 to 2020, fewer homes were built in that decade than any decade since 1950. So we're just kind of behind. So, I mean, affordability right now is really down. 

Jesse: And a guy that we've looked at a couple times before, Charlie Biello, has an interesting tweet on this topic.  In January 2021, the 30 year mortgage rate was 2.65, and average new home price in the US was 401 $700. Today, the 30 year mortgage rate is 5.65 and average new home price is $547,000, assuming a 20% down payment. That's a 95% increase in the monthly payment. And then you can see his next thing doesn't even include, you know, kind of the escrow stuff, you know, insurance and taxes and whatnot.   So effectively $1300 dollars more a month. Okay. I mean, for most people, that's just not I can't swing it.

Chris: Right. And from a and from a trade up standpoint, you know, the thing is, if there's a silver lining to all this, it's that if you have a mortgage, a fixed rate mortgage or no mortgage that's set in place, then that level of inflation or that aspect of inflation really isn't touching you.

Jesse: I've got some stats on that. In 28, 50% of homeowners had a adjustable mortgage. Right now, 95% of homeowners have a fixed rate mortgage. So and I think it's 73% of homeowners have a mortgage under 4%. So to your point, there is some silver lining in homeownership right now if you own a home, because that cost is fixed, if you get increases in wages and everything else along the way, you have more discretionary income. And so that's a good thing. It's more on the new homebuyers and that's tough. 

Chris: Okay. So we have got some interesting things coming from Uncle Sam, from President Biden, the Inflation Reduction Act, as you can see here, Joe, say an Inflation Reduction Act does many things. Does it cure inflation?


Jesse: There are some there's going to be some debate on that for sure.

Chris: What I've read says it cures things, you know, from a green standpoint, more, you know, 2023 to 2025. I have some friends in the construction industry that share that that that's a little bit optimistic in terms of time. And the challenge is what gets adjusted under the surface. The initial estimates I've read, though, say that it raises about $740 billion in new revenues to the IRS.

Chris: But next picture - it appears we may be on the verge of student loan forgiveness at, what, $10,000 per person? That is is a $300 billion cost. So I guess we're netting a little bit to the positive as a country. I guess from a revenue standpoint, that's a good thing.

Jesse: Yeah. I mean, obviously they aren't producing anything. So revenues come from taxes, right?

Chris: Having been a part of paying off a couple of student loans, I hope I retroactively get to deduct a couple of $10,000 payments or at least one. I’d like to take at least one claim on a $10,000 deduction.  You know, you pay off your loan. Never mind. I'm moving on.  

Chris: All right. Here's a good stat, though, from a college in point. College tuition prices don't seem to be going up quite as much as inflation itself. It's first time that's happened.

Jesse: Yeah, at least in the last year. That's pretty wild. Maybe schools have decided if the government's going to pay for it, they've got to get some money while they can and they'll they're lower in their prices. I don't know.

Chris: Our buddy Willie Delwiche posted this, which noted that inflation is so hot that not even college tuition prices can keep up with it. That's pretty wild. 


Chris: Okay, next chart. So the dollar has been on fire. Other than the fact that there may be blackouts in Europe this winter, sure does look like a good time to consider maybe crossing the pond now that we have the dollar eclipsing the euro.  It's been about 20 years since that last happened. In fact, it is €99.997 to the $USD right this minute. I saw a tweet on Twitter that said, okay, Europeans, it's called soccer instead of football.  

Chris: Okay, so when the dollar's rising, that's a headwind for stocks. If the dollar's falling, it's generally better for U.S. stocks.  And so the big question is, is this move unprecedented? 

Chris: And next chart, the answer is no, it's not. You can see that the dollar's kind of gone parabolic this year, but just like so many things in finance, if you're comparing to assets relatively, the question isn't just is ours worth more?  The question is, is theirs worth less? Right now with Europe dealing with Ukraine and Russia, I mean, there are a lot of challenges.

Jesse: There's a lot of challenges. And they are closer to recession. You know, if either is not in recession at this point, they're definitely closer to recession than we are.

Chris:  Look at now in relation to back in 2000, 2001, the dollar relative to the euro peaked about 12% higher than it is right now.

Jesse: So, in always trying to look for opportunity, I think we've got another chart. So, the rising dollar effect is a result of U.S. having such a global footprint, at least the largest businesses in this country, correct? That's where a strong dollar is pressure on stocks because the exports now are almost untenable for those that are buying outside of this country.

Chris: Right. And so what does that mean in regards to markets? It may be that there's opportunity beyond our shores.


Jesse: Yeah. So silver lining on all this coming out of at least 2001-02 time period. If you look at the performance of non-U.S., which, by the way, the U.S. has outperformed the rest of the world for 13, 14 years straight now. And that that hasn't always been how it's worked. In fact, this chart shows a period of time from basically the beginning of 2002 to until, you know, call it the end of 2007 about I think this chart goes through Halloween 2007 where the rest of the world outperformed the United States. Okay. So in purple, the MSCI ACWI – the All Countries World Index – meaning, purple is just everything else in the world besides the US. So the ACWI ex-US was up 132% in that call it five year time period, five, six years.  And the United States was up 35%.  So 35% divided by five years. I mean, that's that's 7%. Right: But, you know, 132% divided by five is a pretty slammin’ number.

Jesse: And it turns out pretty nicely with a weakening dollar against those other currencies. So, you know, you just said if Europe's not in a recession right now, they're probably pretty close. Right? I'm not saying we're there yet. But, you know, the opportunity will present itself at some point that says or at least likely shows favor in those other or other domiciles.

Chris: There were some interesting things going on in Asia during this time period. I mean, China was spending a boatload of money in this time period. So that's worth some part of this chart right in purple. But still.

Jesse: You see these pendulum swings beyond this this time sample, though, too. I mean, there's just been some big pendulum swings where U.S. absolutely dominates. And then times when, you know, outside the U.S. beats the U.S. and both can be positive, as is the case in this example.

Chris: That's right. Yeah. Okay, football's back.

Jesse: There's your boy.

Chris: It is my man. Dabo, go Tigers! 


Chris: And with the inflation side of things, our friend J.C. Parets from All-Star Charts was talking about chicken wings. You know, one of the things we've heard a lot from one of our strategists up in the Northeast is that food prices are dropping. And as I mentioned before, talking to my Chick-Fil-A friends, my speaks friends that I mean, they're shaking their head NO.

Jesse: No, chicken's not dropping in price. JC's pulling out this chart from the DOL and Wells Fargo saying chicken is up 17% year over year. But look at pork ribs in the very bottom.

Chris: Let's get our ribs on.  And look - liquor, too. Liquor and wine and beer are among the least inflated items over the last year. How about that? And the hot dogs, even vegetables are below CPI. So maybe we should get our vegetable on, not just our pork ribs, right?


Jesse: I'll need to counter balance the ribs with at least something green. So there's no question. But, I'm excited about football season. I know you get fired up about it. And I'm not sure that Jay Powell is going to address chicken wings at   Jackson Hole. But, yeah, maybe change your recipes for tailgating this season, right?

Chris: That’s right!   All right, friends, thanks so much, as always. Please do hit the subscribe button. Please share if this is of interest to you or if you think we can help somebody along the way to share some good information. Thanks a bunch as always, for watching and we'll see you soon.