Welcome to our Friday mailbag edition!
Every week, we receive fantastic questions from your fellow readers. And every Friday, I answer as many as I can.
Up first today, a question from reader Ron on the 2023 market performance, the housing market, and the buying patterns of certain demographics…
There seems to be quite the tug of war with bulls and bears for the 2023 market. Do you think that the housing situation will lead or follow (cause or react to) the stock market performance? Do you think that demographic buying patterns from baby boomers and Gen Y will affect housing and the stock market in 2023? Will the “Next Move” articles be sent to current Rogue Economics subscribers?
– Ron V.
Hi Ron, thanks for those terrific questions and observations.
First of all, I agree. We’re certainly seeing a tug of war in the market so far this year. The bulls won January and the bears won February.
For example, in January, U.S. stock markets went up for the month. The Dow gained 2.9%, the S&P 500 increased by 6.3%, and the Nasdaq rose by 10.7%.
In February, the Dow dropped 4.2%, the S&P 500 declined by 3.6%, and the Nasdaq lost 3%.
At the end of the day, the market’s performance comes down to how the Fed will react to inflation or employment data. When inflation data shows a dip, the market expects the Fed to pivot from its harsh monetary policy or cut rates more quickly, and vice versa.
Meanwhile, the housing market is reacting to the same information. However, the housing market is slower to react, so the movements aren’t as amplified at any given moment.
As for the buying patterns of baby boomers and Gen Y (millennials), many baby boomers are sitting on sizable home values, assuming they’ve been in their homes for years. And most of them don’t seem to be selling, which is one reason that the lack of supply factored into the most recent surge in home prices (along with the post-Covid zero percent interest rates).
Gen Y have had to come up with more money for down payments than baby boomers for comparable homes. That should make demand slow because the down payment money isn’t there. And even though housing prices have dipped since the Fed began raising rates, it’s not clear that demand has dried up, only that it has slowed down a bit.
Next, reader Richard wants to know when we’ll see more money for infrastructure projects…
When are we going to see the money rolling out for the grid and infrastructure? I believe excessive regulation will slow it down and will have the same effect on onshoring. So the effects of supply chain shortages will continue to have a nagging impact on inflation.
As President Obama said, “Don’t underestimate Biden’s ability to screw things up.” He does not have a single competent cabinet head!
– Richard S.
Hi Richard, I wish I had the power to just make politicians stop the in-fighting and concentrate on getting things done.
And that goes for both sides of the aisle. Since I don’t, I can’t say when we’ll see all the money roll out for infrastructure projects, which are one of the five main focus areas impacted by the Great Distortion.
But here’s what I can do. I can follow where federal funds have been greenlit and see how they impact investment trends.
As for the money, President Biden signed the Bipartisan Infrastructure Law on November 15, 2021, which represents the largest-ever investment in infrastructure. It’s unfolding slowly – but still unfolding. From an investor’s standpoint, the key is to get in front of the money flows.
The White House says it’s already awarded $1.6 billion in funds for over 5,000 new clean transit vehicles and school buses, and they’ve also launched 2,800 bridge repair and replacement projects – out of a $120 billion allocated to that effort (they didn’t give the total percentage of that $120 billion, but we’ll keep an eye out for that).
As more of these things get announced, more workers will get hired to get things done, and private companies will augment these efforts with their expertise… And Wall Street money will stay in the mix.
I’ll keep you posted.
Finally, our last question this week is from Gary, who wants to know about an airline shutdown incident and its relation to crypto…
On January 11, the Federal Aviation Administration (FAA) shut down around 90,000 flights due to communications failure. Twenty-four hours after the U.S. shut down major flights, it happened again with Canada Airlines flights. The week before in the Philippines, there was a major flight shutdown due to communications, too.
I think the failure was due to a hacking incident or cybersecurity issue. In the past, hackers have always wanted to be paid in crypto. If that’s the case, then crypto stocks should go up, and they did, according to the timeline. What are your thoughts?
– Gary L.
Thanks for your question, Gary!
I’m not aware of any facts that would suggest these events actually happened because of cyberattacks. The FAA shutdown that you referenced was interesting. The agency didn’t immediately share a reason for the failure. This is exactly what led to speculation about a possible hack. It even prompted President Joe Biden to order a Department of Transportation (DOT) investigation.
That said, it seems that the actual cause behind it was far more pedestrian: someone deleted some files they shouldn’t have. It’s, of course, shocking that they didn’t have those backed up in the first place, but these things happen.
This isn’t exactly my area of expertise, but from what I know, hackers were not suspected in the other outages you mentioned.
That aside, I’m also skeptical about the idea of crypto stocks shooting up on the back of hackers moving around their ill-gotten gains.
First of all, hackers usually don’t get paid in bitcoin and other high-capitalization coins because they are traceable. And if they do, that’s just not enough volume to move their respective markets… let alone what you call crypto stocks.
Instead, hackers tend to choose more obscure crypto assets like the so-called privacy coins. But there are hardly any crypto companies involved with them.
The crypto stock rally you mentioned probably had to do with the fact that January was bitcoin’s best month since 2021. In fact, it was bitcoin’s second-best January in a decade. Ether, the world’s second most valuable cryptocurrency, fared well, too.
A rising tide lifts all boats, as the adage goes… So, my guess is that this more than anything else drove the January crypto-related stocks rally you observed. And what a rally it was. For instance, shares of cryptocurrency company Coinbase Global (COIN) jumped as much as 74% in that month.
And that’s all for this week’s mailbag. Thanks to everyone who wrote in!
If I didn’t get to your question this week, look out for my response in a future Friday mailbag edition.
I do my best to respond to as many of your questions and comments as I can. Just remember, I can’t give personal investment advice.
And if there are any other topics you’d like me to write about, I’d love to hear from you. You can write me at [email protected].
Happy investing… and have a fantastic weekend!
Editor, Inside Wall Street with Nomi Prins