The countdown has begun. Just 13 days to the start of the Collegiate Football season. This past week AP put out its top 25 poll. Pretty much picking up where the last season ended, the top four teams are Alabama number one, Oklahoma in second, Clemson holding third and Ohio State rounding out the four. Other sources shuffle the top four but they all are represented. Always the Sooner fan, it will be quarterback Spencer Rattler who will make or break the fortunes of the OU squad. Personally, I am not sure he is of the timber of his predecessors. OU could be out of that top four by October. Let’s face it the Big 12 does not provide the toughest of competition and the OU schedule is not chock full of top teams until October. If they were to lose to someone like Nebraska, they could easily fall out of the top 10. They will take the Big 12, but that is not saying much. The big question again this year, who can hold a candle to Alabama? University of Minnesota? Not hard rowing the boat when you’re on a river, going with the current—toward a water fall. Who thought it was a good idea to play Ohio State in your first game?
The numbers for August continue to show a flattening of the growth in the economy. Part of this is a math problem. Month over month growth is based on the last months level. As we have reopened, the initial monthly numbers were great. Now that we have reached a certain cruising altitude the growth levels flatten. The key is remembering we are still well above levels from earlier this year.
An example of the above paragraph is the NY Empire State manufacturing index. In July the number soared to 43. That is a tough number to top. For August the number came in at 18.3. That flattening of the growth level was due to a number of factors beyond just the high July level. Supply chain issues held back growth. Inventories were only slightly higher than July indicating that companies are reaching a comfortable level of cushion to support sales. The average work week increased modestly indicating that capacity is still being absorbed. A concern was that prices continue to rise which could preclude future unit production growth. Something to watch for in coming reports.
Housing prices and a rise in rates are pummeling the mortgage market. The marginal housing buyers are backing off, recognizing that between the price and the rate, it makes no sense to buy right now. A major influencer here are SPAC’s and Investment Funds competing for single family housing against owner occupied buyers. The investment side of the market are flush with cash and seem not to be making very good decisions on assessing the cost/return of the offers that are being made. While the focus for the investors is long term cash flow for their return, they are missing the cost of funds to invest in the properties. If investors want 11 to 13% return, you will not see that from the cash flow of the properties. At the current prices, it is unlikely that the ultimate sale of the asset will produce the return on an annual basis that the investors desire. Real Estate Investment Trusts have been a fickle investment. It could be in three to four years when the investors pull their investment, we could see a large number of houses hit the market all at once. We are in a housing bubble right now; the question is, when will it burst?
While the price of oil is declining, having its worst week since 2019, the actual inventory numbers of crude oil, gasoline, and fuel oil are not currently showing any massive surpluses. In fact, the markets this week were all pretty much in balance as far as inventory goes. The concern is demand. We are finishing the vacation travel season. Once September hits, airline travel is expected to plummet. The Delta Variant is causing less traffic as people are staying home and many companies are delaying a return to the office. All of this builds the expectation that supply will again start to pile up in the coming months. We can expect gas prices to fall below $3.00 a gallon shortly.
Thursday of this week will be the start of the Jackson Hole Economic Policy Symposium. We will all be watching this meeting carefully. The Federal Reserve Chairman Powell will be sharing at the conference. What he says about the policy toward the Fed’s taper will impact the markets. Watch for the information on CNBC and Bloomberg.
Have a great week
