OK, so the demure, stately, reserved Janet Yellen didn’t actually yell during her testimony to Congress last week, but it was just so obvious a headline that I couldn’t resist. With all the chatter about a potential interest rate hike, we decided to do our own research and share our thoughts on this hot topic. The Chairwoman of the Federal Reserve Board may not be “yelling,” but she did spill several tons of beans to the Joint Economic Committee and they’re still trickling down the marble steps of Capitol Hill.
On the Interest Rate subject, minutes from the Fed’s November 1-2 meeting were some of the most insightful beans because it was held before the Huge Election. Among other things, the minutes leaned to raising rates at the next meeting, December 13-14, barring no major upset in the economy. The reasons for the optimism at the November meeting were sparse and volatile – inflation was just creeping up a tad, jobs increased somewhat (although some observers called overall employment figures flat). The tone showed that a majority of Fed members wanted to wait a bit longer to see more evidence of progress toward its objectives before raising the interest rate. Indications were that if things improved just a bit more, they’d vote an increase at the December meeting.
Then the bomb exploded. Trump wins. On election night in the financial district there was a noticeable aroma of Rolaids and ulcer medicine permeating the cloud hanging over the ticker tapes. (Alright, I know there are no more ticker machines, but it’s a better image then a computer monitor.) All the Futures indices fell like my mother-in-law’s concrete corn bread into a soggy bowl of pinto beans. The foreign futures tanked even worse than our domestic ones. OMYGOSH WE ARE NOW SO UNCERTAIN WHATEVER SHALL WE DO?! EVERYONE KNOWS WE CAN’T BEAR UNCERTAINTY!!
Then the Investor Types sobered-up, world-wide. At around 2:00 a.m. commentators started realizing that this, like most dramatic drops, can often be seen as proverbial Buying Opportunities. Lou Dobbs and Maria Bartiromo noted that after the Trump win was official, the sky had not fallen and the earth continued to rotate. The floodgates opened and the Futures indices reversed, rose out of the sell abyss and ascended, and ascended. That was Election Night. The next morning when the markets opened all the indices spiked toward records. As of Thanksgiving Eve, they are still rising. On November 22nd the three majors simultaneously hit new record highs, a conjunction that had never happened in the history of the markets. How happily ironic that this happened on the day we pause to remember the tragedy of JFK, one of the most fiscally conservative American Presidents!
With all these amazing events happening we must keep the underlying reasons in sight: the Money People who live their professional lives by sizing up economic conditions have emphatically pronounced that an Age of Prosperity is at hand. Trump just needs to deliver his promises that are ambitious but, as we can see already, achievable: lower general taxes that will stimulate spending; lower corporate taxes that will automatically create jobs; repatriate American companies’ foreign cash via a one-time 10% rate; responsibly lessen regulations on energy production to make us energy-independent; and tackle the crippling National Debt via a long list of revenue-producing plans. We’ll have to wait and see about his promises to re-negotiate trade deals since there are a plethora of factors at play and plenty of disagreement among economists, but Trump’s pragmatism and obsession for achieving goals may win out, somehow.
As for the Fed’s decision to raise rates at their December meeting, it is clear that if the members were close with the meager indicators a few weeks ago, just think what a slam-dunk it will be for them now. Wall Street has spoken, Apple is looking for domestic suppliers, Ford decided to keep its plant in Kentucky and cancelled its move to Mexico. On and on it goes. Yes, I’d say we’re going to see Janet Yellen pull the trigger.
Normally we scream and cry when the Fed moves up because mortgage rates follow, and we’ve all said a hundred times that every time mortgages move a point up, thousands of buyers are knocked out of the buying market. True enough, but just think about all the spectacular news in just the last couple weeks: new housing starts hit a record, existing home sales hit a record… the economy is waking up! And keep in mind that for all the thousands bumped out of affordability, there are thousands more entering into affordability with new or better paying jobs.
I sincerely hope all of us can really enjoy the coming year – my Hunch Barometer says we’re going to write a whole lot of good business, helping more families than ever get into the homes they need and desire.