By Robert Wiedemer

February 24, 2024

Not to worry. Even if US and foreign investors are running out of money to fund the deficit we can always turn to our friend, the Fed. They have plenty of money and will be forced to use it to fund the deficit.

But let’s take a step back. Why do I think the US is running out of money to fund the deficit? It’s actually quite simple, but the technicalities are complex and opaque. Let me shed some light on it.

By Robert Wiedemer

February 22, 2024

Yesterday, we got just about the best news the stock market could get. I’m not referring to NVIDIA’s spectacular earnings announcement, although that was pretty amazing. NVIDIA’s GAAP earnings were up 765% from a year ago. That’s fairly unbelievable for a company that is 30 years old and not coming out of a big economic downturn.

January 30, 2024

My outlook for 2024 is based on the two most important drivers of the economy and the stock market: Government stimulus and interest rates.

December 13, 2023

As we have told our clients, after the November rally, the next big market move will be a run for the record. That was set in January of 2022 when the S&P 500 hit 4819. We are at 4707 now (as of the close on December 13) – not that far away from the all-time high.

November 29, 2023

Looking for Volckerization

When the Fed started raising rates last year, many investors thought it would be a repeat of the rate raising efforts of Fed Chair Paul Volcker in the early 1980s. People are always more comfortable with a repeating pattern since it is easier to understand.

However, nothing could be farther from the truth.

November 17, 2023

The decline in the 10-year rate has been fueled in part by the Fed meeting on November 1 where Fed Chairman Jerome Powell announced he was not raising the overnight interest rate. He further cheered the market by indicating he did not expect much in the way of rate increases in the future.

By Dr. David Wiedemer

September 30, 2023

Economic Growth

As for the economy, according to Blue Chip Economic Indicators, a survey of business economists, the US is heading for 3% growth this year. Even if it is less, economic growth is fine. The US typically sees about 2.5% growth. We basically agree with the Blue Chip forecast.

The Stock Market

As for stocks, FactSet, a company that surveys stock analysts, says its most recent survey on September 21, shows analysts are expecting a 19% increase in the S&P 500 over the next 12 months. We agree with the FactSet survey and think it might even be a little low.

By Robert Wiedemer

September 11, 2023

Only a few months ago I wrote that part of the reason our economy was staying out of recession is that the amount of money the government is borrowing this year is up 50% from last year. Well, only a few months later, it looks like the deficit is going to be up ONE HUNDRED PERCENT from last year. Going from $1 trillion last year to almost $2 trillion this year.

Again, no wonder the economy is doing just fine. All this borrowing is just one big stimulus to the economy.

August 24, 2023

The market has seen a pullback in August. That’s not unexpected given that the market has been on a tear since June after the Fed paused its rate increases and the debt ceiling was raised.

However, another problem has been added to what is a normal market pullback – rising interest rates for the 10-year bond. The rate hit a high of 4.3% last week before falling back slightly.

July 11, 2023

There’s been a sharp increase in interest rates in June from 3.5% to 4% on the 10-year government bond.

That’s a big increase, especially in a month where the Fed paused its overnight lending rate increases for the first time in over a year.

Why the big increase?

June 13, 2023

This year marks a half century since the bestselling book, A Random Walk Down Wall Street, by economist Burton Malkiel, first warned investors in 1973 that the stock market is, by nature, unpredictable and that trying to beat the market with “smart” stock picks is futile. In fact, compared to simply investing in a variety of randomly chosen stocks, most highly analyzed portfolios of carefully chosen stocks, on average, fail to match the growth of the overall market over time.

In other words, almost every amateur and professional investor would be better off just buying a low-cost S&P 500 index fund than trying to pick winners.

May 10, 2023

As I discussed in “A Look Ahead at 2023 – Part II” in February, the debt ceiling crisis will be solved and will be a buying opportunity. That’s because not raising the debt ceiling means we default on our debt. Of course, defaulting on our debt would cause a massive decrease in spending because the government couldn’t borrow anymore. But it also means the total collapse of our stock, bond and real estate markets and a pretty quick 25% to 50% contraction in our economy.

May 5, 2023

After jumping over 4% in November of last year, the rate on the 10-year Treasury bond has not seen 4% again, except for a brief pop over 4% in March. More recently it has been bouncing around the 3.5% range.

March 23, 2023

As I mentioned in my earlier newsletter on the Banking Crisis, this crisis may turn out to be a positive turning point for the stock market. It may cause the Fed to reverse its recent policy of selling bonds to increase interest rates and, instead, forces them to buy bonds which will lower rates. And guess what? It has!

We got a lot of comments on my recent article on the collapse of Silicon Valley Bank. Most of which were positive. But I think it’s worth responding to the negative comments as it is really important to understand the points I was trying to make.

One of the big complaints is that I didn’t blame Silicon Valley Bank for the collapse. And, frankly, in most bank collapses, the bank IS the problem. Banks make bad loans and go under – and sometimes those loans were made for illegal and corrupt reasons. This wasn’t the issue with Silicon Valley Bank. Their loans were good.

Scary? Yes. A big problem for banks and stocks? No, in part because the Fed can easily bail out Silicon Valley Bank, the bank that just went under. How? The Fed can offer to buy Silicon Valley Bank’s Treasury bonds for par value. No discount. That way the depositors can get all their cash back whether they are insured or not insured by the FDIC.

In the first part of our look ahead at 2023 which we published on January 29, we focused entirely on interest rates. That’s for good reason: Interest rates have been, and will continue to be, the dominant factor affecting the stock market. But it’s certainly not the only factor. The threat of a recession and a possible debt ceiling crisis in July will also have an effect on the stock market.

The Fed will continue to raise overnight interest rates at its February 1 meeting and likely at its March 22 meeting, as well. However, it will likely only be a rate increase of 0.25% as opposed to the 0.5% rate hike in December. That will bring the overnight interest rate to 4.5 to 4.75%

Raising the overnight interest rate is never good for the stock and bond markets because it can push up long term interest rates, which are very important to the markets. Strangely though, in the last two months, just the opposite has happened, which has been a big source of support for both markets.

In last week’s Alert, we discussed current threats to the real estate market due to the Federal Reserve raising interest rates and put today’s higher mortgage rates in the broader context of how we got here (Stage One) and where we are today (Stage Two).

Now it’s time to delve into what is likely ahead for the evolving real estate market, both in the near term (Stage Three) and the longer-term future (Stage Four) – and more importantly, what to do about it.

What a difference a few months make. In January, the average 30-year fixed-rate mortgage was just above 3%. Now – after multiple interest rate hikes by the Federal Reserve – mortgage rates have not just moved up, they’ve more than doubled to 7.3%

In practical terms that means if you get a 30-year-fixed mortgage to buy a $400,000 home, your monthly payment will now be roughly $1,000 higher than if you bought the same home last January. Ouch!