Morning Report: Small Business Optimism falls

Vital Statistics:

S&P futures38117.3
Oil (WTI)51.670.94
10 year government bond yield 1.01%
30 year fixed rate mortgage 2.88%

Stocks are higher this morning on hopes of a stimulus package. Bonds and MBS are flattish.

Joe Biden revealed a $2 trillion stimulus package. It will include $2,000 payments, aid for state and local governments and extended unemployment benefits. Separately, Mitch McConnell moved the impeachment trial for Trump until after Joe Biden takes office.

New York City renters owe $1 billion in back rent, according to one survey. It probably is closer to $2 billion. According to one housing advocate, the government could wipe that amount out with aid to the New York City. “It’s not an insurmountable amount,” Mr. Martin said. “The numbers tell us that, probably, if we could get an additional billion or two dollars in the city, we could probably pay off every single renter’s arrears in the entire city of New York over the last year of the crisis.” This may be where the government is headed, with the government making rent payments until the crisis is over. This is a risky course of action, as it will encourage a stampede of rent defaults with the government writing checks and asking questions later. Also, it has to be bearish for apartment pricing in the City as well. I don’t know how you account for potentially unenforceable rent contracts in your cap rate assumptions.

The National Federation of Independent Businesses reported that sentiment fell dramatically in December. “This month’s drop in small business optimism is historically very large and most of the decline was due to the outlook of sales and business conditions in 2021,” said NFIB Chief Economist Bill Dunkelberg. “Small businesses are concerned about potential new economic policy in the new administration and the increased spread of COVID-19 that is causing renewed government-mandated business closures across the nation.”

The plus side for the economy going forward is more government aid, and a robust housing market. The downside is more government regulation and general anti-business sentiment.

Mortgage Applications rose 16.7% in the first week of January as purchases rose 8% and refis rose 20%.

Initial Jobless Claims are headed in the wrong direction, with the number of newly unemployed increasing to almost 1 million.


Author: Brent Nyitray

In the physical sciences, knowledge is cumulative. In the financial markets, it is cyclical

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