September 11, 2024 | Premium Service | Neither of the candidates in last night’s presidential debate spoke about the budget deficit and barely mentioned inflation. Meanwhile, underlying inflation in the US accelerated to over 3% in August, eroding arguments for a half-point rate cut by the FOMC later this month. Below is our hit on YahooFinance yesterday with Seana Smith and Brad Smith (starts at 26:30).
In her new administration, VP Kamala Harris wants to continue the tradition of President Joe Biden, giving away hundreds of billions of dollars funded with debt, a recipe for higher inflation. President Donald Trump, on the other hand, wants to extract more from the world, with higher tariffs for China and other unfriendly states, and mass deportation of illegal aliens. Harris is clearly the inflation threat in terms of expanding the federal deficit, while Trump may bring us some 19th Century deflation if he's not careful.
As we noted in our latest column in National Mortgage News: “Democrats love to talk about helping low-income families buy a home, but most progressive schemes (including lower interest rates from the Fed) boost demand for existing housing. Demand-side policies merely push up prices. But if you look at the zoning restrictions in blue states, they are among the most formidable.”
Net, net, if you want to see more homes built in the US, vote Trump. With Harris and the Democrats, there is zero possibility of restraining federal spending or inflation. Our regular monthly discussion with Julia LaRoche earlier this week is below:
Meanwhile, the credit markets are already pricing in at least a quarter point cut in the target for federal funds and are also pushing down the long end of the curve, with 2 year Treasury notes below 4% and 10s closing in on 3.5%. A half point cut says that the Fed is worried about the economy and may provoke an equity market selloff. But that negative core inflation print over 3% for August has certainly calmed the urgent demand for rate cuts.
The big story nobody is discussing is the fact that large banks continue to sell off. Warren Buffet has sold more Bank of America (BAC) and JPMorgan (JPM) is down more than 10% in September with volume almost 3x average yesterday. Below we take a look at our large bank test group for the WGA Bank Top Indices and try to parse just why some of these names are performing so well as the large caps drop like a stone. Below is the YTD for the WGA Bank Top 25 and the Invesco KBW Bank ETF (KBWB).
WGA Bank Top 100+