Yellen is back at it. The market is struggling a bit today because of the "Expected" news. Retail Sales. CPI. "Waiting too long to accommodate would be unwise", she said. She told us that "every meeting should be Live". March is back on the table? That's not in the Market. The 10-year yield rose to 2.47%. The WSJ USD Index to 91.26. Jobs are being created at a pretty good clip. Global Inflation is rising. The US PPI was +0.6% yesterday. Expect that to continue. The Economy is doing better than many expected. Deja Vue 1994. Markets got it. The FED was raising because the Economy was doing better.
Central to our Bullish case has been Housing. People had been borrowing against their houses at a $350B per annum rate during the run up in 2003 to 2007. Between 2008 and 2010 that went to Net Zero. Households Delevered. They reduced their household debt by $1.5 T. That was part of the reason for such a slow Recovery. House prices have risen 40% since the 2012 lows. They're now close to the 2005 Peak. As we wrote yesterday, only amongst the over 60 crowd is debt higher than before. People got burned. Many entered the Housing market that should not have. They don't want to risk it again. The SCE Credit Access Survey shows a large unmet loan demand. Rejection rates are high. Credit standards are too high for many. Combined Loan to Value, CLTV, is under 80%. Excess Value is down for the under 60 crowd. Those over 60 have seen that grow by 50%.
Bottom line: Housing Starts are running at half their Normalised levels. Lots of Upside.
The Market is moving on Momentum. Not Hikes. Not Trump. Not Congress have stopped it. Trump is Pro Business. He's for DeRegulation. Emerging markets have done better than the Dow. Yet the U.S. Economy is doing better that the Rest of the world.
Invest the Money.
Do you remember today in 1971? It was the last day of Pounds, Shillings and Pence.
Edward Pennock CFA, Founding Partner
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