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No excuses

By Dwight Johnston on June 16, 2017 at 9:51 am

Unlike yesterday, the markets are calm in pre-opening trading. Dow futures are up about 30 points, and bond prices are close to unchanged.

Trying to make sense of it

May Housing Starts has been released and starts surprised to the downside. Economists were looking for an increase of 3.5% but starts fell by 5.3%. With builder optimism so high and demand for houses so strong, it’s hard to make sense of the last two weak months. Some of it has to do with builders struggling to find workers, but I don’t think that can explain it away completely. Perhaps builders have focused too much on higher-end homes, and that well is running dry. 

Stocks were hit hard in the first hour yesterday, but there was no panic to sell as traders realized that an investigation does not mean charges. In all likelihood the sellers yesterday were algorithmic programs, and the humans stepped in to calmed things down. But one thing is clear; this investigation will drag on for a very long time. The investigators keep finding new threads they must follow, regardless of whether or not they lead to dead ends.

While drawn out investigations delay progress in getting anything meaningful done on the Trump agenda, Congress might decide at some point to charge ahead. They have elections to think about next year, and they can’t go empty-handed to their electorates and put the blame on Trump. Trump has no detailed grand plan. His election merely sparked the push toward tax reform and regulatory relief. Congress has no excuses for failing to define and enact legislation on what many Trump voters voted for.

Overheating

In the meantime, the economy should be able to keep trucking along without any added fuel from D.C. I don’t see a trigger for a serious setback. The global economy is improving, the job market is solid, and consumers aren’t overly burdened with debt. We’re beginning the ninth year of recovery, and the slow arc of the recovery is one reason the recovery has extended so long and could continue quite a bit longer. A big V shape usually means some sector or sectors get over-heated in the process, which can lead to the next recession. But there is no over-heated sector of the economy. If anything is overheated, it’s probably the bond market.

Economic reports calendar

There is little of interest on the calendar next week other than the home sales reports. We do have eight Fed officials speaking next week, but those should get little attention so soon after Yellen’s press conference.     

Opening market reads

  • The 2-year is 1.35%
  • The 5-year is 1.77%
  • The 10-year is down 3/32s to yield 2.17%
  • The 30-year bond is off 7/32s to yield 2.79%

 

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