It’s been a tumultuous week as investors are playing a game of tug-o-war between the momentum that carried us into 2020 and the fear of the potential fallout from the coronavirus. Earlier in the week the Dow Jones Industrial Average flirted with 30,000 which just five years ago seemed impossibly high and ten years ago seemed crazy. I don’t know where the last ten years have gone, but here we are.
In his semi-annual testimony in Congress, Fed Chair Jerome Powell told lawmakers this week that it’s more important now that they use fiscal measures to support U.S. economic growth as low interest rates limit the central bank’s ability to cut rates in a downturn. Let that sink in. At a time when the U.S. is running $1 trillion annual deficits, the head of the Federal Reserve is saying, “we can’t do much more without using what limited power we have left. We need the government to spend more.” His prepared statement gives no indication of the FOMC’s (Federal Reserve Bank Open Market Committee) next move, but analysts now give it an 80% chance we’ll have another rate cut before the end of this year.
Since I touched on this a couple weeks ago, I’ll make this next point brief. It’s not just the government that is taking on unprecedented debt. Household debt rose 1.4% to $14.15 trillion in the fourth quarter last year. This marks the 22nd straight quarterly increase. Total household debt is now $1.5 trillion higher, in nominal terms, than the pre-recession peak of $12.68 trillion in 2008. Also worth noting, mortgage originations rose 42% in the quarter to reach $752 billion, driven in large part by refinancing. This marks the highest volume since Q4 2005.
You can tell this is a presidential election year because the promises have started trickling out. Free college tuition? Check. Student loans forgiven? Check. Free healthcare? Check. Free daycare? Check. Reduced drug costs? Check. But this is not just something only one party does. Today we learned President Trump is floating several ideas including making the 2017 tax cuts permanent (for individuals), a 10% middle-class tax cut, and perhaps even making a percentage of earned income tax-free for investing purposes (not clear how this is different than a traditional IRA, Roth, or 401k?). All I can say is buckle in because the promises are going to start flying and we’re only in February.
In closing, I wanted to let you know it just got more expensive to visit Walt Disney World. If your kids are already grown, you can breathe a big sigh of relief. For those of you with young ones, you may want to start budgeting now. Some one-day passes now exceed $200 for the first time ever. Several years ago, the company moved to a new pricing schedule that varied ticket prices based on the day of week and time of year. With ticket prices rising 5% this year, the lowest-demand days are now $159 with the peak days reaching $209. Let’s not even mention the cost of food and lodging. Now you know.
P.S. Happy Valentine’s Day!
Bruce J. Mason, MBA