America Is Back: Economic Model Update

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What a crazy week we just had in America. We had some good news on the economic front that I thought once again, we should take a look at the AB ( America is Back) Economic Model Update.

First, two things we should try to avoid.

1. Don’t focus on the shape of the recovery right now, this kind of talk draws too much energy away from tracking early-stage recovery data. This is why I made sure to write this down as part of the economic model to not focus on the shapes of the recovery now.

2. Don’t focus on the fact that we are nowhere close to having the same type of solid economic data lines that we enjoyed in January and February of 2020. The BC ( Before Coronavirus) economic data was expansionary, as I showed here.

https://loganmohtashami.com/2020/04/12/2020-economic-data-before-coronavirus-bc/

However, it’s going to take a lot of time to get back to those data lines.

The AB economic model was introduced on April 7th, 2020, on Housing Wire. I believe that due to the deep contraction that the virus did to our economy, it was crucial to separate 2020 into 3 different segments.

BC (Before Coronavirus)
AD ( After the Disease) 
AB  ( America is Back) 

5 things I needed to see to get back to full AB stage and we have made progress for sure

5 indicators that will show when the housing market is rebounding from COVID-19

1. Flattened Curve 

“It is from this data that I have based my virus turnaround thesis, which is that by May 18 or sooner, we will see a flattening of the new infection curve, and by September 1, we will be at a much higher capacity to fight this virus.”

We have a lot of anxiety about the virus, as over 105,000 Americans have died from this horrible disease.

On a progress point, we have flattened the curve!

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Risk: A significant increase in the new cases and the 2nd wave is a lot worse than anyone imagined forcing the government to make hard choices on what to do.

As we are re-opening the economy, just be mindful that we still have a virus that is killing Americans every day.

2.  End Stay At Home Orders 

We are in the early stages of this happening, and this very event will draw in more demand for labor as more and more Americans will be needed to work. Also, our savings glut should come down as we have more choices about where to spend our money in time. I know just myself I have roughly $7,000 of credit on Apps just waiting to be used outside a savings glut. Remember, we still have over 133,000,000 Americans working and getting paid—also, fiscal support for those who have received their jobless benefits plus the $1,200 check.

From Doug Short:
https://www.advisorperspectives.com/dshort/updates/2020/05/29/real-disposable-income-per-capita-in-april

June Saving rate per event

3. 10-year yield goes above 1%

As you can imagine, when it looked it this week that the 10-year yield wanted to breakout higher, I got giddy.

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Now we aren’t above 1% just yet. However, the bond market and other indicators were telling us things we getting better from a horrific contraction that hopefully created the lowest bar to work from ever recorded.  Before the 10-year yield broke under 1%, I talked about this on BankRate.com that I believe recessionary yields would be between -0.21% and 0.62%. The fact that we were above 0.62% a lot during this recent downturn told me that the bond market in its own odd way was telling us things were going to be better in Q3 and Q4. Everyone has their own take on the bond market, and that was mine. Our real goal is to get into a new range between 1.33% -1.60%. We still have a way to go, but better news did drive yields higher for now.

10 year yield www

Risk: Bad vaccine headlines, bad virus data, any stock market pullback will draw money into bonds. Also, be mindful of China and tariff headlines. I know the tap dance still continues, but it’s getting closer to the election, so the bark will be louder than the actual bite.

4. Decline In Credit Stress And Jobless Claims 

1 out 2 here. However, the inverse V shape recovery in St. Louis Financial Stress Index is very much welcomed even though I feel like I am the only person who ever talks about this data line. Jobless claims in time should fall, and like I said early on with these data lines when they get better to go with it. Please don’t fall back to the crazy conspiracy theories that rotten the minds of Twitter and Facebook users during the longest economic expansion ever recorded in history.

64 Stress Index
64 Stress Index MAX
ST Louis Breakdown 2 model

We still have a lot of work here to do here on Jobless Claims. Just like when this breaks higher, we are in a recession. Don’t make a mistake on not believing this data line when it starts to go down. However, jobless claims still negative.

From Doug Short:
https://www.advisorperspectives.com/dshort/updates/2020/06/04/weekly-unemployment-claims-1-88m-down-249k-from-last-week

64 Jobless 1

64 Jobless 264 Jobless 3

5. Data from the hardest-hit sectors start to trend upward. 

This ship has already sailed off, and we are only in the early stages of re-opening the economy.  Bar patronage, auto sales, driving, and domestic flying should have better days ahead. Purchase application data, as we all know now, had the best rate of growth year over year this week. Just be mindful we are working from a government virus shutdown low, so please keep the moves in context.

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From MBA: https://www.mba.org/news-research-and-resources/newsroom

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Notice nothing about the stock market here, even though we have made a robust comeback as the stock market has rebounded as the dollar and the financial stress index has fallen. This is a separate beast all to itself.

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I say this still not trying to hate on the stock market as I have had a great year trading stocks. However, the velocity of this economic downturn due to the virus is creating waterfall economic charts in the wrong way and parabolic bad ones as well.

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We still have a lot of work to do as a country to get back to the B.C. data, just remember this time around when the data gets good, go with it. However, be mindful of how fast this virus shutdown the longest economic expansion ever recorded in history. Also, be mindful we still need significant fiscal and monetary support. The permanent job loss story is a real one, and not all companies are coming back. What we always want is to strive for a tighter labor market.

I leave with what I wrote on April 7th, 2020

“I believe the months of April and May are going to tell an epic story of America’s start in defeating this virus.  If we do this right and document the cause and effect of our efforts, future generations will be able to look to this period in time for how to handle a global pandemic. My faith in America winning has never let me down because I always believe in my people and country. I can tell you now, this virus isn’t changing my view on that.”

Don’t forget, love, and take care of each other. Darkness and division are the devil’s favorite drinks, it is poison to all countries who drink both. We have been through a lot in the past few months, be kind to each other, and hope for everyone to succeed.

Logan Mohtashami is a housing data analyst, financial writer and blogger covering the U.S. economy with a specialization in the housing market. Logan Mohtashami, now retired, was a senior loan officer at AMC Lending Group, which has been providing mortgage services for California residents since 1987. Logan also tracks all economic data daily on his facebook page https://www.facebook.com/Logan.Mohtashami and is a contributor for HousingWire.