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Welcome back to the Rambling Mind Newsletter. This is your Market Update.
Summary of Topics:
Inflation Holding FIRM
Biden Administration wants to give you cash to sell your house
$54 Million lost at tolls
Interest Rate Decision from Papa Powell
Reddit goes public
Man U won a game😮😲
Markets
Reality is coming back into the markets. For the second consecutive week, stocks went down. Investors got spooked as inflation showed it is not completely vanquished (more below).
Tale of the Tape
Economy
The news absolutely no one wanted to see. We are having a rematch of Biden v Trump for presidential elections. The second news no one wanted to see is inflation came in hotter than expected for February.
🔢By The Numbers: Consumer Price Index, CPI aka Inflation, rose 0.4% in February from January.
Year-over-year, inflation increased from 3.1% in January to 3.2%
Core CPI which removes food and gas prices. remained the same from last month and year-over-year.
💬In Their Words: Skyler Weinand, CIO of Dallas-based Regan Capital told Axios, "Inflation was able to decelerate from 9% to 3% rather quickly, but the path to the Fed's 2% target may take more time than expected."
Takeaway: This is not a good sign for any future interest rate cuts. Jerome Powell has been very clear on what he wants to see before making any rate changes. Two weeks ago, he went before Congress and said, "We're waiting to become more confident that inflation is moving sustainably at 2%. When we do get that confidence, and we're not far from it, it'll be appropriate to begin to dial back the level of restriction."
💭My Takeaway: Nerds like me, focus on the year-over-year changes in inflation. However, the common person cares about the actual change in the price when they shop not the overall change. An example is buying a bag of rice from 2021 to 2024:
2021 - $1
2022 - $1.10
2023 - $1.14
2024 - $1.17
My response to these prices is, "WOW, Inflation has come down SO MUCH!" However, when I go shopping my response is, "🤬 why the heck are prices so high!"
My view as an econ nerd, inflation is 3%. As a consumer, prices have increased 20%. We can all see the same thing but see it completely differently. This is the biggest conundrum when it comes to inflation. It is two conversations being held always. It is horrible for an incumbent leader, and wonderful for a challenger.
The Biden Administration is proposing a $10,000 tax credit for selling a house. It is a bid to try to encourage transactions in the housing market that have been at a standstill due to higher borrowing costs and higher sale prices.
🔍Details: The $10,000 credit is to incentivize people to sell their starter homes and upgrade to larger houses. The plan also comes with a mortgage relief tax credit of $5,000 for first-time home buyers. The plan is to aid with affordability.
Takeaway: Although this is meant to aid with affordability, this is like using vodka to put out a fire. Sure, it's a clear substance and looks like it will help, it just makes the fire much worse. The tax credit will increase buying demand which will cause prices to surge causing affordability to get worse. There is only one solution to help with housing affordability and it is simply to build more houses.
Thankfully this is not lost on the Biden Administration. As part of the tax plan, there is a $20 billion grant fund to incentivize local governments to remove barriers to new constructions aka remove "not-in-my-backyard" laws.
According to the White House, the combination of the tax credit and this grant will lead to 2 million more homes being built. About half of the homes needed to meet the housing shortfall.
💬In Their Words: Daniel Hornung, the White House deputy director of the National Economic Council said, "More supply, more inventory at the bottom of the market — along with the likelihood that mortgage rates come down over the next few years — could provide meaningful relief."
💭My Takeaway: It is one thing to have an idea and a completely different thing to make the idea a reality. The question is if this plan will pass through Congress as is. Highly unlikely.
Stats of the Week
The amount lost by New York, Dallas, and San Francisco's tolls. According to the Wall Street Journal, many individuals have discovered ways to avoid paying roadway tolls by obscuring their license plates.
Looking Ahead
Interest Rates
On Wednesday, Jerome Powell will announce the Fed’s decision on interest rates. It is largely expected that the Fed will keep interest rates unchanged. Investors will be waiting on every word Jerome Powell says, hoping to understand what the Fed is thinking and when a possible rate cut will come. Investors are especially interested in Powell’s remarks after last week's CPI results.
Government Shutdown
Congress has until Friday to pass a spending bill to fund the US government, or multiple government agencies will shut down. Last week congress passed a package to provide funding for some agencies but the budget was not completed then. 70% of the budget was left unfunded including education, health, military, and labor programs. Expect less of a finalized budget and another stop-gap measure. Congress has shown an inability to compromise on simple things.
Stocks
One brand new ticker will be hitting your stock trading platform of choice. Reddit is expected to go public this week with the ticker, “RDDT”. It is expected to be the biggest IPO in 3 years.
Sports I Love
I AM SHOOK
I cannot believe my eyes. MAN U beat Liverpool!! It is shocking! The game was shocking. This is the kind of game that makes me even more pissed because if you can play like this, then why do you suck every other week?!