US Stocks, Bonds, and Real Estate Most Expensive in History
After seeing the tax reform inspired to jump in small business optimism from the NFIB, today the Duke CFO survey optimism index rose the to the best level since June 2004. Also, it was driven by tax reform. This is though coming with building inflation pressures as the survey “also finds the difficulty that companies are having hiring and retaining qualified employees is at a 20 yr high, and that in part will lead to higher wages.” The survey said CFO’s expect “median wage growth of about 3% over the next 12 months.” Hopefully, higher productivity can offset this as opposed to companies passing that on in higher prices. There is also healthcare inflation that is a worry as expectations are for an 8% rise next year. “Nearly half of US companies indicate that the cost of employee health benefits crowds out their ability to spend on long-term corporate investment.” Like I said before, embrace lower corporate taxes but don’t assume all else equal.
There was a slight ebbing of bullish enthusiasm according to Investors Intelligence. Bulls fell to 61.9 from 64.2 while Bears ticked up a hair to 15.2 from 15.1. The spread between the two of 46.7 is a 3 week low but is just 3.3 pts from a 30 yr high. Since bulls got back to 60 on October 11th, the Value Line Equal Weighted Geometric index is up 2.2%. A lot of tax reform generated optimism, along with better global growth will meet faster monetary tightening next year. The former certainly won that battle in 2017 also helped by $2 Trillion of ECB and BoJ largesse. That largesse changes dramatically in 2018 but markets are clearly betting on the soft landing scenario, aka a free lunch.
The MBA said mortgage applications to buy a home fell 1.1% w/o/w but are still up 10.2% y/o/y. Refi apps fell 2.5% w/o/w and are down 9% y/o/y as comparisons have gotten much easier. While this data is seasonally adjusted, don’t pay much attention this time of the year as buying a home and refinancing take a back seat to holiday planning. Likely due to the persistent rise in short-term interest rates, the percentage of loans taken as adjustable rate mortgages shrunk again.
Before the FOMC statement, we will get to see November CPI after yesterday’s PPI upside surprise. The US 10 yr inflation breakeven yesterday did close at the highest level in 7 months at 1.92%. As the FOMC members will hem and haw over their nonsense 2% inflation target, here is an updated chart of the most recent data from the Fed Flow of Funds statement for Q3 out last week. It’s net worth (stocks, bonds, homes, etc…) as a percent of disposable income and a good measure of asset price inflation.