The beginning is the most important part of the work.
Rare Washington Compromise: A Modest Economic Positive
- Stocks sank as investors continue to worry about an earlier-than-expected Fed tapering.
- Although the new spending deal is a positive for the economy, we don’t think it will push the Fed to act quickly.
- Another factor that should help the economy is a pickup in consumer borrowing.
Stocks Stall, With Investors’ Eyes Focused on the Fed
Last week brought some good (and surprising) news in the form of a spending deal in Washington and signs that consumer borrowing picked up. Somewhat perversely, however, investors reacted negatively in a repeat of the “good news is bad news” theme we’ve seen for some time, since signs of improvement have been interpreted as increasing the possibility that the Federal Reserve would begin tapering its asset-purchase programs sooner rather than later. There is some logic to this view, and we do think the odds of a December taper have gone up. That said, the more likely timeframe is early 2014, a view supported by the fact that inflation continues to remain low, allowing the Fed more latitude.
For the week, the Dow Jones Industrial Average and S&P 500 Index both fell 1.7% to 15,755 and 1,775, respectively, while the Nasdaq Composite lost 1.5% to close at 4,001. In fixed income markets, Treasury yields were flat for the week (as were prices), with the yield on the 10-year Treasury beginning and ending the week at 2.86%.
Washington Surprises With a Spending Deal
In a rare act of negotiation and bipartisanship, leaders in the House of Representatives and Senate agreed last week to fund discretionary spending for the next two years. The deal moderately increases government spending and scales back the previously planned “sequester” cuts. The increased spending will be covered by increasing some government fees and changing pension contribution plans, as well as via some vaguely defined future spending cuts.
Assuming the deal is ratified by the Senate (and we believe it will be), it will accomplish two things. First, it will mitigate fiscal drag associated with the sequester. Second, it will remove a lingering uncertainty—the possibility of another government shutdown—that had the potential to undermine both business and consumer confidence. We would view the spending deal as a modest positive, with initial estimates suggesting it may add approximately 0.2% to gross domestic product in 2014. While any agreement is better than none, there is a lot that this deal does not tackle. It does nothing to address the debt ceiling, tax reform, long-term entitlement reform or the pending expiration of previously extended unemployment benefits. At the very least, we expect political wrangling over the debt ceiling to continue into 2014—especially as next year brings with it the backdrop of the midterm elections.
Increased Borrowing a Positive Sign for the Economy, and for Stocks
Outside of news from Washington, last week also saw some important developments in the consumer sector of the economy. Specifically, U.S. household debt increased at a 3% annualized pace in the third quarter, the largest increase since the first quarter of 2008. Consumers’ willingness to take on more debt is being driven by several factors, including a marginally better jobs market, rising household net worth and a low-interest-rate environment that makes borrowing more attractive.
Should this trend continue, we believe it could help support economic growth in 2014. Although we expect interest rates to increase next year, we are forecasting only a modest rise, and believe borrowing trends will continue to stabilize. To at least some extent, higher borrowing levels will help mitigate the impact of slow income growth and promote some increase in consumer spending. From an investment perspective, this would be a positive for stocks, but arguably a negative for bonds.
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Walter Unger CCIM, CCSS, CCLS
I am a successful Commercial Investment Real Estate Broker in Arizona now for 15 years and I worked with banks and their commercial REO properties for 3 years. I am also a commercial landspecialist in Phoenix and a Landspecialist in Arizona.
WHETHER YOU LEASE OR OWN
NOW IS THE TIME FOR YOU TO EXPAND, UPGRADE OR INVEST.
we are at on the a rise of the cycle in Commercial Real Estate. so there is only one way and it’s called we are going up and now is the time for you to expand, upgrade or invest in Commercial Properties in Phoenix. The prices on deals I may get you will not be around forever.
WAITING TO SELL YOUR LAND ? TIMES CHANGE / IT’S TIME
We barely could give land away the last few years, but times are changing. Even in those meager years, I sold more land across the state than most other brokers. Before the real estate crash I was a land specialist in Arizona with millions of dollars of transactions, but then I had to change and also sell other commercial investment properties, which was fun, but I am a Commercial Landspecialist in Arizonal, a Commercial Land Specialist in Phoenix and love to sell land, one acre to thousands of acres.
If you have any questions about Commercial Investment Properties in Phoenix or Commercial Investment Properties in Arizona, I will gladly sit down with you and share my expertise and my professional opinion in Commercial Properties in Phoenix or Commercial Properties in Arizona with you.Obviously I am also in this to make money, but it could be a win-win situation for all of us.
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Walter Unger CCIM
Kasten Long Commercial
2821 E. Camelback Road, Suite 600
Phoenix, AZ 85016
Office : 602-445-4141
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