The USA re-opening was in full force for the Independence Day weekend with reports that the holiday travel was the heaviest in years.
Politically speaking, in Congress, there's always a constant need to spend and bring home the bacon. (Read: Get re-elected)
But there should be no primal need to do the same at the Fed.
Congress will try and likely extend additional spending and they will pretend it is needed,
But the Fed now sees clearly that their policy must be adjusted to the reality of a much-improved economy & an overheated real estate market.
It’s becoming obvious even to the most casual observer.
Throughout the pandemic, the Federal Reserve has been a clear supporting force of the economy via its $120 billion per mo. asset purchases.
The massive buying program has kept the liquidity flowing in Treasuries, Mortgage-Backed Securities and Corporate bonds
The result has been a steady diet of liquidity and a free flow of money rarely if ever seen before.
Can the Fed shut off or taper their infusions of cash into the system and strike the right balance?
As addressed in this space recently, investors are skittish about rising inflation and wondering when and if the bubble will burst.
In June, the Fed announced in an ever so slight change in policy, that it was making its de minimis corporate bond portfolio available for sale.
On the surface, this was a minor shift in its stance, but the fed was now selling assets, and investors took notice.
Even that slight adjustment in policy appeared to bring out sellers for a short period of time in the stock market.
However as in all bull markets, it’s just not time yet, trends can be that way.
But is the market whispering something- or will it be shrugged off?
Let's look at housing.
At the present time, there exists an eviction/foreclosure moratorium which has prevented the typical real estate market from clearing inventory.
The potential hardship of eviction is awful, but these homes become non-performing assets that would otherwise be available for sale.
Combined with that, another factor that has become more evident & gaining press coverage is the institutionalization of US residential housing.
As more and more homes are being snapped up for cash by behemoth asset managers, they are pricing out the middle class.
Home Ownership has been one of this nation’s long time goals and also among the most reliable wealth-generating investments.
A nation of renters will have no asset at the end of their lives to draw upon.
Small homes are now big business.
The Fed clearly has exacerbated the problem by causing bubble like prices in real estate with its extensive MBS purchases.
The Fed's recent funding recipe included asset purchases (per month) of $80 billion in Treasuries and $40 billion in MBS.
Several Fed governors recently have been asked why their policy of support for the mortgage market is continuing given the current conditions.
The real estate market clearly needs normalization & the longer the Fed waits to adjust policy, the greater the likelihood of a runaway problem.
Remember it was the crazy real estate market and the Fed’s willful blind eye to the problem which led to the 2007-2009 real estate collapse.
A domino effect that started in over-influencing housing -and then almost took down the entire world’s financial system.
One sector to keep an eye on for clues to any air escaping the bubble are the home builders.
The housing stocks have had spectacular runs from their pandemic lows of March 2020, and now appear to have topped, at least for now.
An old Wall Street maxim: “When people are crying, you should be buying & when they’re celebrating you should be selling.”
 
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