June 05, 2013 | By Scott Minerd
“Volatility is rising and asset prices are highly vulnerable to all incoming news. Recent sell-offs in stocks and bonds indicate that the current uptrend could uncoil before the end of quantitative easing (QE). The amount of attention paid to rumors about QE highlights how vulnerable the U.S. economy is to the prospect of a tapering in asset purchases or a rise in interest rates.
This is largely because the current economic expansion is dependent on further gains in housing, which would be adversely affected by a material rise in mortgage rates. Between one and two percent of GDP growth is coming from housing activity. The sluggishness in the rest of the economy is evident if you remove that number from the latest reading of 2.4 percent GDP growth for Q1. This dynamic underpins the Federal Reserve’s current dilemma over how to normalize monetary policy. I do not anticipate an easy ride for policymakers or investors over the coming months.”
U.S. mortgage applications, a key indicator of housing activity, rose substantially over the past two years due to decreasing mortgage rates engineered by the Federal Reserve. However, since the start of 2013, mortgage rates have begun to climb as economic activity has picked up. As a result, mortgage applications in the first quarter were 5% lower than in the previous quarter. With rates continuing to climb substantially over the past month, there may be headwinds for mortgage applications and housing sales in the coming months.
Source: Bloomberg, Guggenheim Investments. Data as of 3/31/2013. *Note: The 30-year mortgage rate is the Fannie Mae 30-year fixed commitment rate.
This article is distributed for informational purposes only and should not be considered as investing advice or a recommendation of any particular security, strategy or investment product. This article contains opinions of the author but not necessarily those of Guggenheim Partners or its subsidiaries. The author’s opinions are subject to change without notice. Forward looking statements, estimates, and certain information contained herein are based upon proprietary and non-proprietary research and other sources. Information contained herein has been obtained from sources believed to be reliable, but are not assured as to accuracy. No part of this article may be reproduced in any form, or referred to in any other publication, without express written permission of Guggenheim Partners, LLC. ©2014, Guggenheim Partners. Past performance is not indicative of future results. There is neither representation nor warranty as to the current accuracy of, nor liability for, decisions based on such information.
Investors should stay guarded for exogenous shocks that could pull the next recession forward and cause markets to reprice credit risk.
If you want to see who the real victims of tariffs are, go look in the mirror.
Shortening duration, maintaining an investment-grade portfolio, and generating attractive yields do not have to be competing investment objectives for core fixed-income investors.
Global CIO Scott Minerd and Head of Macroeconomic and Investment Research Brian Smedley provide context and commentary to complement our recent publication, “Forecasting the Next Recession.”
In his market outlook, Global CIO Scott Minerd discusses the challenges of managing in a market melt up and highlights several charts from his recent piece, “10 Macro Themes to Watch in 2018.”
You are now leaving this website.Guggenheim assumes no responsibility of the content or its accuracy.
Your browser does not support iframes.
2018 Guggenheim Partners, LLC. All rights reserved. Guggenheim, Guggenheim Partners and Innovative Solutions. Enduring Values. are registered trademarks of Guggenheim Capital, LLC.