I spent part of my night last night looking up home and auto sales ahead of this morning’s CPI announcement. This is either going to be a really good day for people’s retirement accounts or a really bad day.
It’s difficult telling which way the wind blows, and that is all investing is, or the part of investing that is about guessing which way the wind is blowing. There are other parts, more important parts, and those parts are about steady habits and not trying to guess the market.
One important thing to realize is how much people overreact to bad news and underreact to good news. It is human nature. Watching the market this year you might think it is the opposite, but human nature doesn’t change. Friday’s sell-off was crazy to watch and at the end of the day if mortgage rates went up by the estimated 0.25% people would pay something like $15 extra a month per $100,000.
6.5% on a 30 year fixed conventional loan on the median home price of $450K is a monthly payment of $2,275.44. At 6.75% interest that becomes a whopping $2334.95, a difference of $59.51 a month.
It’s not nothing. It’s a third of a week of grocery’s, 3/4 of a tank of gas, enough to treat five people to McDonald’s, or to eat out by yourself in a nice restaurant. Add it up for a full year and consider what else the money could be doing and it would help, but the bigger issue with housing isn’t an extra 0.25% on a loan. It is that the average home price is around $450K and the average household median income is around $83K. That creates a bit of a problem.
That wasn’t what the market reacted to Friday or why everyone sold yesterday to have cash reserves heading into this morning’s CPI report. People are waiting to see where to put all this cash, and this morning’s report is going to tell them and then they’re either going to be chasing a rising tide or jumping off what they perceive to be a sinking ship.
The biggest issue with the American economy right now isn’t inflation or any of the regular economic factors. It’s that we’re living in two economies. There is the one at the top that can do stuff like shift the market by pulling out Friday and Tuesday so they can take advantage of what they see as a downward trend coming today and another that doesn’t even have the opportunity to enter the game.
David Huzzard Writes 