U.S. SALES MANAGERS INDEX
JANUARY SALES DATA REVEALS RENEWED U.S. GROWTH, BUT PRICES ARE RISING FAST, AND THE JOB MARKET STAYS WEAK
Sales facing Indexes were more positive this month. Business Confidence rose to an 11-month high in January and is now well over the crucial 50 “no growth” level. Panelists are clearly feeling more confident and the first half of 2021 should see some return to normality. The Market Growth Index rose to a 15-month high, with a sharp jump up from the “no growth” levels recorded in late 2020. As this question asks panelists about the level of absolute growth in their markets, and not with reference to the previous month, the increase is likely to reflect a significant positive movement.
The Staffing Levels Index however did not provide welcome news. The Index reversed direction and plunged back below the 50 no growth level. Given the increasing activity levels this means employers continue acting with considerable caution.
The most serious negative to emerge from the January survey was the continuation of the widespread price rises seen since November. It is looking increasingly likely that the US will see the re-emergence of significant price inflation in 2021.
UNITED STATES: PRICES CHARGED SALES MANAGERS INDEX
Markit’s Flash PMIs are out tomorrow.
Inflation Rippling Through Markets Is Just What Fed Wants to See Market indicators of inflation have all pushed higher in recent weeks.
(…) Five-year forward swap contracts on consumer-price inflation have risen above 2.3%, and currently hold just below the highest since 2018. Adjusting for measurement differences between CPI and the Fed’s preferred measure, that puts longer-run inflation pricing right around 2%. (…)
“To get actual inflation that leads to higher inflation, which is what central banks are vigilant against, you need wages to rise,” said James Athey, a London-based money manager at Aberdeen Standard Investments, which oversees assets of over $560 billion. “And with unemployment where it is now, I struggle to believe you are going to get wide-based wage growth.” (…)
Ned Davis Research has an Inflation Timing Model which just hit 10.5, a level above which the DJIA has returned -5.03% per annum on average since 1962 according to NDR (via CMG Wealth).
Housing Market Stays Tight as Homeowners Stay Put Supply crunch pushes prices near record highs
(…) A fear of strangers entering their houses during the pandemic prompted some people to cancel or delay their plans to list their homes, real-estate agents say.
Those thinking of selling have also been reluctant to act for other reasons, from concerns about finding a new house in a competitive market to ultralow interest rates that make it appealing to refinance and stay put.
Homeowners staying in their residences longer is contributing to the worsening shortage of homes on the market. The 1.28 million homes for sale at the end of November was down 22% from November 2019, according to the National Association of Realtors, and inventory sits near its lowest level in decades. At the current sales pace, there was a record-low 2.3-month supply of homes on the market at the end of November.
The shortage of homes for sale and near-record-low borrowing rates are pushing up prices and stoking competition among buyers. The median existing-home price last year topped $300,000 for the first time. In November, it stood at $310,800, up 15% from a year earlier, NAR said. (…)
U.S. Housing Affordability Improves During November
The National Association of Realtors reported that its Fixed Rate Mortgage Housing Affordability Index rose 0.7% (-0.7% y/y) to 168.2 in November from 167.0 in October, revised from 167.2. Despite the increase, affordability remained 7.9% below its April high.
Declines amongst index components were widespread in November. Payments as a percent of income slipped to 14.9% from 15.0% as principal & interest payments declined 1.5% (+2.4% y/y) to $1,040. The effective mortgage interest rate declined to a record low of 2.82% in November (figures date back to 1981). The median sales price eased 0.7% (+15.1% y/y) to $315,500 from October’s record high of $317,800. These declines offset a 0.8% fall (+1.7% y/y) in median family income to $83,977.
From Bloomberg:
You have to be quick to buy a home in Greenwich. At the end of December, there were just 317 single-family houses listed for sale in the Connecticut town, 32% fewer than a year earlier, according to Miller Samuel and Douglas Elliman. You’ll also need deep pockets. Of all purchases in the fourth quarter, almost 14% were above the seller’s asking price, compared with 2.6% a year earlier.
New York City Top Earners Face Highest Income Tax in U.S. Under Cuomo Proposal Governor proposes raising the state’s top income-tax rate by two percentage points as part of $193 billion budget for fiscal year
He said the increase would raise around $1.5 billion in tax revenue, and would be coupled with federal aid and operating cuts to cover a projected $15 billion deficit in the current and coming fiscal years.
New York’s top income-tax rate would rise to 10.82% from 8.82% under the proposal, state officials said, adding that they would create five new tax brackets that would last for three years.
The new surcharge would apply to all New Yorkers whose returns report more than $5 million in income, and the top rate would apply to income that exceeds $100 million.
Currently, single filers pay an 8.82% state tax rate on income over $1.08 million.
New York City’s top income tax is 3.88%. That means some city residents could face a combined state and city income tax of 14.7% under Mr. Cuomo’s proposal. California currently has the highest top income-tax rate, 13.3% on income over $1 million.
CONSUMER WATCH
Restaurants Get Sales Lift From Latest Stimulus Checks Restaurants including McDonald’s, Church’s Chicken, Checkers and TGI Friday are getting a sales bump as consumers receive the latest stimulus checks, but sales patterns show the boost can be fleeting.
(…) The first round of stimulus checks that went out in April helped boost sales for major restaurant chains by 3% to 12%, according to industry research firm Revenue Management Solutions, which said some restaurant companies are also getting a bump after the most recent checks went out.
However, weekly sales from several casual-dining chains showed the initial sales improvement faded quickly after the first checks in April, according to company figures. (…)
“I have been saving my money during the pandemic but this time, I thought it might be good to treat myself,” Ms. Alves said. (…)
Kimberly Dines, a 42-year-old Monroe., Mich., resident who is unemployed, said she and her husband treated themselves to a McDonald’s dollar meal with stimulus money in the spring but don’t feel they can now.
“I don’t see the ability arising for us to be able to eat out,” she said. “Our struggles have been so overwhelming.”
Procter & Gamble Gets Shoppers to Pay Up The company’s sales surged in the most recent quarter, fueled in part by demand for high-end household products from pricey dish soap to a $300 electric toothbrush.
(…) Despite a tough economic picture and high unemployment, the maker of Gillette razors and Pampers diapers said consumers are increasingly willing to pay more for products. (…)
Consumer spending on food and household products considered either premium or super premium rose more than spending on mainstream, value-oriented and private-label products, according to data from market-research firm IRI, which looked at online and grocery purchases for the 12-week period ended Oct. 4, compared with a year earlier. Premium soap, household cleaners and paper towels saw the most growth, according to the study. (…)
The Cincinnati company’s organic sales increased 8% to $19.75 billion in the quarter ended Dec. 31. P&G raised its estimates for full-year organic sales growth to between 5% and 6%, up from the previous range of 4% to 5%. (…)
Mr. Moeller said P&G has been able to spend more on new products and advertising while also boosting margins. (…) Sales volumes rose along with price increases, offsetting pandemic-related sales losses. (…)
CFIB raises forecast of how many small businesses may vanish
The Canadian Federation of Independent Business is warning that more than 239,000 businesses could vanish because of COVID-19 as the new wave of restrictions and lockdowns leave a growing number of entrepreneurs considering giving up.
New research from the small-business lobby group based on a survey of 4,129 of its members last week found that nearly 18 per cent were considering bankruptcy or shutting their business down for good. Extended across the country’s 1.1 million businesses – the vast majority of which are small or medium-sized – the federation said that 181,000 firms could be under threat, according to adjusted projections. That’s in addition to the 58,000 fewer active businesses that Statistics Canada found in September, 2020, compared with September, 2019, according to its most recent business closing estimates. (…)
The CFIB also said Thursday that the potential business closings could leave as many as 2.4 million Canadians’ jobs at risk – one-fifth of all private-sector employment – according to projections from its survey data.
- Nearly half (49%) of all minority small business owners and a third (33%) of all small business owners were unable to pay their rent this month, according to the latest survey from Alignable.
More Americans Face Retirement Insecurity A Boston College study shows the pandemic worsens an already grim trend
According to the study, 51% of U.S. households are now at risk of being unable to maintain their standard of living in retirement. That is up from 49% in 2019. (…)
In 2007, only 40% of U.S. households were considered at risk of falling short in retirement, down a tick from 41% in 2004, when Boston College began publishing the calculation. The percentage has hovered around 50% for the past decade, reflecting the effects of the financial crisis. (…)
COVID 19
Data: The COVID Tracking Project, state health departments. Map: Andrew Witherspoon/Axios
Experts say a more contagious variant of the coronavirus will soon become the dominant strain in the U.S., allowing the virus to spread even more easily. As the winter surge peaks, “we may see 3-4 weeks of declines in new cases, but then new variant will take over,” former FDA Commissioner Scott Gottlieb tweeted.
“It’ll double in prevalence about every week. It’ll change the game and could mean we have persistent high infection through spring until we vaccinate enough people.” (Axios)
TECHNICALS WATCH
13/34–Week EMA Trend Chart (CMG Wealth):
Companies Revisit Financial Forecasts Ahead of Potential Tax Changes Higher tax rates, new incentives and penalties could impact business costs under the incoming Biden administration
Mr. Biden suggested raising the corporate tax rate to 28% alongside other measures such as an alternative minimum tax of 15% on businesses generating profits of $100 million or more.
He also plans to raise tax rates on income earned by foreign subsidiaries of American businesses and proposed a 10% tax penalty for U.S. companies with offshore production that sell to customers at home, along with a tax credit for businesses that create new jobs in the U.S. (…)
A higher corporate tax rate would affect companies across sectors and appears to be a core concern for executives, said Matthew Mullaney, a partner at Anchin, Block & Anchin LLP, an accounting firm.
Democrats have a narrow majority in the House, and the tiebreaking vote of Vice President-elect Kamala Harris will give them the edge in the Senate. Because of that, lawyers expect there might be a successful proposal to raise the statutory tax rate to about 25%, up from 21%, but not as high as the 28% Mr. Biden had campaigned for, said Eric Sloan, a partner at the law firm Gibson, Dunn & Crutcher LLP.
Changes to rules on global intangible low-taxed income, or GILTI, also could result in a higher tax burden for companies. Under GILTI, companies tabulate their tangible foreign assets and don’t have to pay taxes on 10% of the total. Above that threshold, GILTI creates a 10.5% floor through 2025 on what U.S. companies pay in foreign taxes and lets them get some foreign tax credits.
Mr. Biden has suggested raising the GILTI rate to 21%. Combined with the proposed reintroduction of an alternative minimum tax, which was taken away in the 2017 Tax Cuts and Jobs Act, such proposals could result in “significant increases,” said George Salis, principal economist and tax policy adviser at Vertex Inc., a compliance software and services company. (…)
SENTIMENT WATCH
Fund managers are taking a record level of risk
Each month, Bank of America posts a survey to its clients, covering around $560 billion under management.
We’ve looked at the survey many times in the past, with the conclusion that it tends to have a slight, and inconsistent, contrary bias. This may be very smartest of money, but extremes in group-think among any population can be an issue. (…)
About 20% of respondents said they were taking a higher than normal risk, a 20-year high.
We’ve superimposed that measure against a chart of the S&P 500. It’s not perfect but is enough to give us a sense of whether we should be concerned about this level of confidence.
From the chart, the conclusion seems to be, “kind of.” Many of the forays into higher-than-normal risk preceded times when the S&P was near a peak or at least a multi-month plateau. It was a complete fail in 2013 as stocks entered a creeper uptrend, but other than that was a pretty effective warning sign.
Another one of their popular visuals is which market these managers feel is the most crowded trade. This month, it was being long bitcoin.
That market was chosen as the most crowded twice before, in September and December 2017. NOTE: This was edited after initial publication to add the September 2017 date.
In September, we looked at how effective it would have been to take the opposite side of the most crowded trade every month, going back about 8 years. The conclusion was “not very,” as there was a modest tendency for the most crowded trade to get even more crowded in the months ahead. That previous pick of bitcoin stands out as the all-time best fade among all the picks, but overall it has not been profitable to fade a market just because these managers thought it was the most one-sided market. (…)
There are plentiful signs of speculation in stocks right now, the setup for a coming fall. We’re just not yet seeing the kinds of internal deterioration within indexes or high-yield bonds, or a turn in risk appetite, that typically act as imminent warning signs.
Baupost’s Seth Klarman compares investors to ‘frogs in boiling water’ Value investing guru says the Federal Reserve has broken the stock market
“As with frogs in water that is slowly being heated to a boil, investors are being conditioned not to recognize the danger.”
Retail investors’ participation in U.S. equity order flows increased to nearly 20% in 2020 from 15% in 2019, while orders from long-only funds fell to 6.4% last year from 9.7% in 2019, data from UBS showed. (Reuters)
New Bitcoin Investors Explain Why They’re Buying at Record Prices Some are being inspired by rapper Megan Thee Stallion, others want to give it to their children, while a few are just hoping they’ll be millionaires.
(…) Israeli-British investing platform eToro Ltd. says it saw more than 530,000 new registrations in the first 17 days of 2021. To date, the platform has seen over 100% growth in new users invested in crypto as their first action compared with 2020 and 55% growth compared with 2019. (…)
“A lot of my friends are starting to invest in Bitcoin,” said Will Scott, 23, of Bowling Green, Kentucky. (…) He described his knowledge of the digital currency as “minimal,” though he did do some research. With bank interest rates so low, he’s thinking of putting half of his savings into Bitcoin. “I feel like it’s a very lucrative investment,” he said. (…) Scott bought some though Cash App, a service that he already used. “It was right at my finger tips,” he said.
Wells of Atlanta — like many new Bitcoin investors — says she was influenced by social media to finally dive in. (…) “The world is changing,” Wells said. “America could literally flip to crypto tomorrow, and I don’t want to not have any crypto to my name.” (…)
“I didn’t do too much research. I was just thinking, ‘Let me just get in there any way I can,’” she said. “I just wanted to be a part of it.” (…)
BlackRock to add bitcoin as eligible investment to two funds BlackRock Inc is adding bitcoin futures as an eligible investment to two funds, a company filing showed, in a move to bring the world of cryptocurrency to its clients.
(…) Chief Executive Officer Larry Fink had said at the Council of Foreign Relations in December that bitcoin is seeing big giant moves every day and could possibly evolve into a global market. (bit.ly/2XXFHrB)
Saudi Arabia Delays Release of Sensitive Jobless Data Four Times
The kingdom’s labor market report for the third quarter of 2020 was meant to be published in late December, but was rescheduled several times before officials simply removed the release date from the website of the Saudi statistics authority, saying they needed more time “due to the importance of the target period.” (…)
Creating enough jobs for the kingdom’s youthful population is one of the biggest challenges facing Saudi Crown Prince Mohammed bin Salman as he tries to diversify the economy of the world’s largest crude exporter. He aims to reduce unemployment among citizens to 7% by 2030, but it hit a record high of 15.4% in the second quarter, when the pandemic and lower oil prices struck businesses. (…)