Author: George Yacik

Is More Stimulus A Slam Dunk?

Posted on by George Yacik

If there were any doubts about whether more federal helicopter money would be falling from the sky, those doubts should have been erased by several major events that happened last week.

The latest event—which likely sealed the deal—was the December jobs report, which showed the economy losing 140,000 jobs, the first drop in payrolls since last April. If Congress needed another reminder of how many people are still suffering out there and that more help is needed, that should do it.

The second event was the Democrats prevailing in the special elections for Georgia's two Senate seats, giving the party an effective majority in that body to continue holding on the House. On paper, of course, both parties have 50 seats in the Senate. But let's not forget that Vice President Kamala Harris will hold the tie-breaking vote.

But her vote probably won't be needed in the current political environment. While the Democrat majority seems razor-thin, if existent at all, we can be fairly certain that votes in favor of more stimulus will be much greater than that and bipartisan, thanks to the riot on Capitol Hill on Thursday. In light of what happened, how many Republicans do you think will be brave enough to vote against the Democrats on just about anything, particularly more stimulus checks, which many of them already favor? Continue reading "Is More Stimulus A Slam Dunk?" →

The Fed Warms To Climate Change

Posted on by George Yacik

The politicization of the Federal Reserve continues apace. And no, President Trump isn’t trying to pull some grand last-minute gesture before he leaves office, like trying to fire Jerome Powell or something like that.

Last week, as expected, the Federal Reserve formally joined the Network of Central Banks and Supervisors for Greening the Financial System, the “lone holdout” among the world’s major central banks to join this “forum for central bankers and regulators to come together and discuss how their institutions can ensure their financial systems don’t worsen climate change risks, and how financial institutions might be able to lower those risks,” as the Wall Street Journal described it.

As innocuous as that may sound, it injects the Fed solidly in the middle of what has become increasingly political, namely which companies – and probably, individuals eventually– banks should or shouldn’t lend money or offer their services to.

As we know, several large international banks have been under increasing pressure from shareholder activists to stop making loans to companies in the “fossil fuels” business, namely oil and coal companies and pipeline operators, and the like. And the banks have dutifully buckled under, albeit with a long lead time as to when they will actually cease doing so. Now the Fed will be providing added pressure on the banks to make loans only to those companies favored by the Washington and New York elites – or at least will feel added pressure to do so. Continue reading "The Fed Warms To Climate Change" →

Is Fed "Independence" Dead?

Posted on by George Yacik

For the better part of the past four years, we've had to listen to the chattering classes defending the sanctity of the independence of the Federal Reserve. President Trump was routinely lambasted for constantly criticizing Jerome Powell, while several of his other nominees to the Fed, such as Herman Cain and Steven Moore, were deemed to be too cozy to Trump to warrant consideration. Both of them withdrew their nominations for other reasons, but it appeared that their nominations were DOA. For the same reason, the confirmation of the "controversial" Judy Shelton looks like it is going to die on the vine because she's been portrayed as Trump's lackey.

Yet now we have the prospect of Janet Yellen, the former chair of the Fed, being nominated as Joe Biden's Secretary of the Treasury. If nothing else, that will basically put the nail in the coffin of the notion of Fed independence. Does anyone seriously doubt that the Treasury and the Fed will be joined at the hip when the two most recent Fed chairs head those two agencies?

Yet that prospect probably won't be an impediment to her being confirmed by the Senate—on the contrary. The markets greeted Yellen's nomination with absolute euphoria, as well they should. The prospect of the Treasury and the Fed working more closely together in a time of crisis is certainly a reason for optimism. And it's certainly good for my portfolio, so I'm not complaining. But lost in all of the jubilation is that the idea of Fed independence has gone by the wayside, and nobody seems to give a hoot.

This is certainly not a bad thing. The whole idea of Fed independence was always suspect. The Fed is no more independent than the FBI or the Energy Department. It's just another branch of the government that arguably should always work in tandem with the Treasury for the betterment of the U.S. economy and usually does. Yet someone created this fiction that the Fed is somehow the moral equivalent of the Supreme Court and above politics. Continue reading "Is Fed "Independence" Dead?" →

Is There A Housing Bubble 2.0?

Posted on by George Yacik

If you're looking at the stock market to sniff out a potential asset bubble, you may be looking in the wrong place. It may be right in front of your face.

When the millennial generation came of age, we heard all about their preference for renting – not out of any love for renting necessarily but because many of them were priced out of the housing market – and their supposed desire to live in urban areas with all the cultural offerings they provide.

Along comes the Covid-19 pandemic, and suddenly nobody wants to live in cities anymore. Instead, everyone it seems is moving to the suburbs, enabled by low-interest rates and the necessity of working from home. That has driven up the price of homes just about everywhere. Indeed, the National Association of Realtors announced last week that in the third quarter, every single one of the 181 metro areas it tracks showed a year-over-year price increase, something that's never happened before. Moreover, 65% of them – or 117 – rose by double-digit percentages, led by a 27.3% jump in Bridgeport, CT, the county seat of Fairfield County, which includes Greenwich, CosCob, Darien, and other New York City bedroom communities.

Needless to say, the runup in home prices nationally increases the income needed to afford a home. The median price of an existing single-family home nationally jumped 12% on a year-over-year basis, to $313,500, the NAR reports. At the same time, the monthly mortgage payment on a typical single-family home rose Continue reading "Is There A Housing Bubble 2.0?" →

What To Expect Under A Biden Presidency

Posted on by George Yacik

Now that the Associated Press has declared Joe Biden the winner of the 2020 Presidential Election let's take a look at what we might expect from the presumed 46th president and the kind of economy he will inherit – and what he plans to do with it.

Thanks largely to his predecessor, Biden starts off with an inherently strong economy, even as it continues to heal and deal with Covid-19. Assuming that Biden doesn't follow his own comments and some of his advisors about imposing another lockdown, we can probably expect that the economy will eventually get back to the 2-3% annual growth rate we enjoyed before the pandemic.

Biden will also likely benefit from the recently announced introduction of a Covid-19 vaccine, although a lot needs to be done first, like manufacturing and then distributing hundreds of millions of doses worldwide, which will take some time. But assuming the vaccine is as efficacious as Pfizer says it is, that will be a further elixir for economic growth.

It's hard to imagine a Federal Reserve friendlier to the financial markets than the current one, so Biden will benefit from that as well. Biden is also not likely to be a thorn in Jerome Powell's side as much as the current White House occupant. Continue reading "What To Expect Under A Biden Presidency" →