Defecit Spending

Here is a breakdown of the sectors producing our $192B trade deficit.  As a country, we are purchasing more than we are producing.  I honestly don’t understand all of the implications to our country, but I do understand what happens to a family when you spend more than you make, and the repercussions are disastrous.

Looking at the financial markets, the large majority of investors are of the opinion that the stock market will continue to go up, while a slim minority believe that they are overbought and ready for a decline.  Fundamentally, if most investors have their money already in a particular market, that doesn’t leave much capital available to drive prices higher; consequently, prices will stagnate.  That’s what’s happened with the stock market rally and all the excitement over the DOW reaching 20,000.  There is no more momentum to drive prices higher because is no more money shifting into stocks.  Should enough people get nervous and look to protect their stock-heavy portfolio, the market will correct and a lot of money will come out of stocks and into bonds, lowering the collective price of stocks and driving interest rates back down as bonds are scooped up for their perceived safety.  I’m not saying that it’s going to happen, but there appears to be a possibility.  And possibilities are what dreams are made of–in my case, that’s low rates. Plus, I want to buy me one of those foreign-made cars.   🙂     

Running of the Bulls?

I am home with my wife, who is recovering from surgery this week, and it’s tough to want to write about the financial markets.  But when the DOW trades above 20,000 for the first time ever, it’s worth a word or two.  Typically after the DOW has hit *000 levels over the last 40 years, the index has risen higher, more quickly, than just before the thousand-level was broken.  This will pull money out of other assets, like bonds, as traders seek to join the throngs cashing in on the bullish move.  That rush to ride the bull wave will take its toll on rates.  Watch for in increase over the next week. That’s my prediction.  

Leading the Charge

No news out today.  The DOW just hit a new all-time-high at 19,258 and money is coming out of bonds to fuel that fire.  A few Fed Governors are out speaking today ahead of the next FOMC meeting next week.  William Dudley said this morning that he favors gradual rate hikes, which will increase more quickly under the Trump Administration.  This is how I see that he sees the next president.

How Durable are the Goods?

We will need to wait until October to see how selling $3B in iPhone 6 on just the first day of availability sways the numbers; today though, August’s Durable Goods Orders (purchases of wares that are expected to last at least a year) took a record plunge of 18.2%.  Getting “sold on the sizzle” of decreased sales, traders have pulled their positions causing the DOW to plummet over 200 points so far this morning.  I anticipate that in a few hours investors will remember that July’s Durable Goods Orders were UP a record 22.5% as a result of ginormously expensive aircraft contracts, making today’s decline in reality an increase of 4% from June.  So don’t go cashing in your 401(k) just yet.

Up against a ceiling of resistance, Mortgage Bonds are flat, so all of the funds from the sale of equities are going into cash accounts.  Translation: it’s a good day to lock in the interest rate on your loan if you haven’t already done so.

Stocks are up; Fire up the grill.

A surge in manufacturing on the United Kingdom and China helped the DOW and S&P to both close at record-highs today.  The move comes at the expense of bond sales, which drops prices and in turn threatens to pushes interest rates upward.

Anticipating that every red-blooded American will be firing up the grill this upcoming weekend, prices of beef, pork, and cheese are all up over 13%, though ketchup is down 12%.  No reports on the price of catsup.