Happy 250th America…Let’s Celebrate all year long!!
March nonfarm payrolls increased by 178,000…The 3-month average for total nonfarm payrolls increased to 68,333 from 6,000.
What does it mean – March nonfarm payrolls increased by 178,000. March private sector payrolls jumped by 186,000, the consensus was 51,000. The March unemployment rate also came in at 4.3% versus 4.4% in February.
Factory orders beat the consensus estimate by a full percentage point in March…Factory orders increased 1.5% month-over-month in March (Briefing.com consensus: 0.5%) following an upwardly revised 0.3% increase (from 0.0%) in February.
What does it mean – In level terms, factory orders excluding transportation have surged this year. Driven by widespread strength that was punctuated by a big increase of 3.4% in new orders for non-defense capital goods excluding aircraft.
The median list prices of homes were down 1.4% year over year…Marking a sixth straight annual decline and signaling continued seller price adjustment in a more buyer-friendly market.
What does it mean – While the Fed lowered rates right before the election they have held steady. Debt to Income (DTI) is still too high and in some cases there are now loans that will lend as high as 50% DTI.
America is becoming a cashless society…Bank of America’s data show card spending per household rose 7.2% year over year in the week ending April 25.
What does it mean – The banks know everything and you are the product. Have you ever wondered how your spending is compared to the rest of America. Better yet, have you ever wondered how you keep getting the same ads on your phone through your email or text message. Every time you use your credit regardless of venue you create a digital footprint designed to exploit your habits, create urgency and manipulate your spending habits. Look at the chart below. It will also give you insight into how your fellow citizens are spending their money and may get you thinking about your personal habits and how you are spending your money and time.
New Fed Chairman – Kevin Warsh has been selected as the new Fed Chairman.
What does it mean – For those in congress, you may have to actually pass a real budget. And for some, they will actually have to learn how our economy really works.
For far too long DC and its band of blabbermouths, your elected officials, have created a cozy environment shielded from reality and propped up by fear mongers and bureaucratic paper pushers. They have been able to rely on the Federal Reserve that has been more than willing to accommodate lose monetary policy to cover outrageous spending, massive printing of money and enriching banks without ever having to actually work for their keep.
According to Warsh, a few things that he would love to accomplish are the following:
- Shorten up the maturity structure of the Fed’s assets, getting it out of the business of holding longer-term securities.
- Focus on Treasury securities only. This means getting away from holding mortgage-backed securities. Banks better get ready to actually get back to banking.
- Unwind Quantitative Easing. Warsh supported this in 2008-09 during the so-called Global Financial Crisis. He later came to oppose it. Could it be, we, the voters, through our “uniquely qualified” elected officials allowed the Fed without any oversight make the Emergency Economic Stabilization Act of 2008 permanent policy, further sheltering the elected from reality and creating a massive buffer, diverting responsibility from Congress and adding more responsibility to an unelected, unaudited and unaccountable agency?
His statements are clear. He opposes to the extent the Fed has made The Emergency Economic Stabilization Act of 2008 a permanent feature of monetary policy rather than a temporary measure as voted on in 2008.
For taxpayers and US Citizens the greatest benefit to unwinding QE is that it may force the Fed to end what is the worst policy in the “History of Banking” in America. Due to the passing of the Emergency Economic Stabilization Act of 2008, it allowed the Fed to pay banks interest on their reserves for the first time in the history of our country. This alone has cost our country $billions every year and has contributed to the destruction of capital creation, destroying competition in the banking industry and ruining small banks. Under a Warsh chairmanship, we can hope his policies will end the gravy train for banks and actually require them to compete for your business and evaluate risk. The fear of “too Big to Fail” has created a three headed monster (elected officials, The Federal Reserve, and “Too Big to Fail” Banks) all reliant on lose money and a fearful and dependent citizen guilty of apathy, or maybe a lack of interest or concern or just not concerned or interested in understanding the components and innerworkings of free markets and capitalism. We can all pray that under Warsh, once fully in charge, he will eventually be taking us back to a monetary system where policy is implemented through scarce reserves rather than abundant reserves.
Homeownership is falling across all age cohorts…A perfect segway for how the above rant affects everyone of us.
What does it mean – When banks do not have to analyze risk, hold that risk, and are buoyed by lose money and government policy that promotes lending to people who might not be able to afford the loan, it makes it far easier to lend more when you can offset all the risk on the back of the taxpayer.
All the above leads to artificially high home prices, low interest rates, more risk for the market, and putting off the ability to purchase because the government front loaded reality with a false sense of economic security and wellbeing. It creates artificial demand and outstripping supply. It is the epitome of what our culture has become through a mind set of “buy now pay later.”
It reminds me of the show Poppey and his buddy Wimpy, who is famous for saying, “I will gladly pay you Tuesday for a hamburger today.” Wimpy may have been the first to self-finance his day-to-day living. He was the OG of “Buy Now Pay Later”.
Demographic research on spending and purchasing and the study of human behavior as it is associated with how people spend and at what stages they spend on certain items has been very consistent for decades in America and for most of Western Civilization. Unfortunately, government gets too big and insists that equality of outcome is far superior to equality of opportunity. As seen in the housing market and the advent of policy requiring banks to make certain loans and the government to shift the burden from the payer to the taxpayer has lead to massive increases in home costs that have far outpaced wage growth and the governments response to the problem they created was to first lower rates through an accommodating Federal Reserve. This initially helped keep homes more affordable but then led to higher prices as human nature kicked in buyers stretched themselves as they realized they could afford a larger home at a 5% mortgage vs a 7% mortgage, further driving up demand and the costs of all homes. This diet of low interest rates led to more demand and out of control housing prices.
The chickens have come home to roost. Today the housing market suffers from the effects of a short-sighted policy put in place by your elected and unelected bureaucrats.
In 1980, 60% of 30-year-olds owned their first home. By 2000 it was not until roughly age 36 that 60% of that age group owned their own home. In 2025 the age jumps to 45 before 60% of that age group can afford to buy their own home. For nearly 70 years the average American got married in their mid-20’s and bought their first home around age 30. Then government got involved and all hell broke loose destroying the formation of families and putting off growing up because life got to expensive and we traded saving and responsibility for a life like Wimpy. Now we have terms like unsheltered, unhoused and basement babies.
There is no time like the present. Tell your kids and grandchildren to get married and have lots of kids. It will solve their complacency and fear. As us old folks can attest, it will motivate them in ways they never dreamed. As Plato once said, “necessity is the mother of invention.” Born out of necessity, man will adapt, innovate, and solve problems. Forced to face challenges, necessity helps us persevere and become better problem solvers. The government is not your solution. You are. We got this!!
Let’s roll America!!
Doug De Groote, CFP®, MBA, CTC
Managing Director
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