Swamponomics: All Quiet on the Wall Street Front?


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Volatility and trading volumes in the U.S. financial market have been as quiet as a church mouse as of late. It is hard to believe that investors have been pouring about half a trillion dollars in the last five months than they have in the previous decade or so. But when cheap money is flooding the marketplace, what are you going to do? Put the cash in a savings account yielding 0.05% per month?

Calm Before the Storm?

According to new data from the Bank of America, equity funds have received $576 billion from traders since November, exceeding the inflows of the previous 12 years. The financial institution compared the influx, buoyed by the Federal Reserve‘s unprecedented and extraordinary stimulus and relief efforts, to a “melt-up” in the stock market.

But the next analysis could show a slowdown in inflows as various signals are pointing to a top in the market. The S&P 500 is traveling in overbought territory. The relative strength index (RSI) is hovering at 70 – zero is bullish and 100 is bearish. Retail investor surveys are expressing profit-taking vulnerability.

In the U.S., the leading indices – the Dow Jones Industrial Average, the S&P 500, and the Nasdaq Composite Index – are trading at or near all-time highs. And the money keeps flowing into these benchmarks, driving up their valuations.

While financial analysts are discussing traditional signals and information, it is crucial to remember that these are not conventional times. From changing investor trends to the amount of margin debt to the Fed no longer allowing a crash to occur, many factors at work can be challenging to use history as a barometer.

Where Will the Mallrats Loiter?

Even before the coronavirus pandemic, the shopping mall industry was hanging on by a thread, decimated by the retailpocalypse. But as more shoppers than ever before head online and many states are still paralyzing the private sector with COVID-19 restrictions, the final nails in malls’ coffins are being hammered.

A new study by Moody’s Analytics commercial real estate division found that the vacancy rate for regional malls in the U.S. hit 11.4% in the first quarter of 2021, up from 10.5% in the fourth quarter of last year. The 90-basis-point spike was the highest gain on record, surpassing the previous 80-basis-point increase in the first quarter of 2009. Victor Calanog, head of the commercial real estate economics division within Moody’s, told CNBC:

“Malls are absolutely still on the ropes. They were on the ropes even before Covid. … It’s almost passe now to say that we have a record vacancy rate for malls because we’ve been breaking that record all year.”

It is not only the roughly 1,000 malls taking a beating. Office space and retail stores (not malls) have witnessed soaring vacancy rates and declining rents. The only aspect of the commercial real estate market that has seen growth is industrial property, driven by demand for warehouse space to store goods and execute online orders. The 1995 film Mallrats will undoubtedly be an ancient artifact for future generations accustomed to buying stuff online.

Saving Loonies and Toonies

It is tough to be Canadian these days. MNP LLP, a full-service chartered accountancy and business advisory firm, released the results of a new poll – and the numbers did not elicit confidence in the financial future for many residing in the Great White North.

According to the survey, 53% of Canadians said they are $200 or less away from insolvency, up 10% from December. Thirty percent admit that they already cannot meet their monthly bills and debt obligations, climbing to a five-year high. The study also discovered that one-quarter of respondents admitted to taking on more debt to pay their bills, and a fifth tapped their savings because of job loss, wage reductions, or trying to keep their small businesses open.

The anxiety that many Canadians are feeling today could have long-term ramifications since they are at risk from higher interest rates, says Grant Bazian, president of MNP:

“The anxiety Canadians are feeling about making ends meet – or already unable to do so – tells us we may eventually see an avalanche of households falling behind on payments or defaulting on loans, mortgages, car payments or credit cards. Those taking on more debt are becoming increasingly vulnerable to interest rate increases in the future. They might find that their debt becomes unaffordable when that happens.”

As Liberty Nation recently reported, the Bank of Canada (BoC) announced that it would be curtailing its weekly $4 billion government and debt purchases. It is unclear as to when the central bank could begin to raise interest rates, but market analysts think that Ottawa could become the first G20 economy to pull the trigger on a rate hike. This would be an interesting dichotomy: the U.S. is returning to some semblance of normalcy because of vaccines, but Canada could see policy tightening amid growing coronavirus infections. What would you prefer: vaccines or monetary policy normalization?


Read more from Andrew Moran.

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