The Buzz on Business for August 21st, 2024

Consider the market for widgets. Widgets are a necessity, have been in short supply and their price has increased by about 25% in recent years and now stands at around $10.00 each. Of course, this is good news for existing widget owners, but the political and chattering classes have declared a widget crisis and that something must be done.

So, the government has decided to give everyone one dollar to help them buy a widget. Now, it must be said, at this point in our hypothetical story that the government doesn’t have a dollar to give but must either take a dollar from some to give it to widget buyers or, the more likely scenario, borrow in order to give the dollar to widget buyers.

The immediate effect of the $1 subsidy is to increase the demand for widgets. All things being equal, and granted, they seldom are, but all things being equal subsidizing the price of widgets will increase the price of widgets.

And, again, all things being equal, the borrowing necessary to fund these subsidies will expand the money supply and, at the margin, anyway, increase the general price level, otherwise known as inflation.

This in a nutshell would be the effect of Vice President Harris’ housing policy. It would add to inflation, particularly housing inflation. This is why we oppose her policy and believe it would, on net, be counterproductive.

So, what would a sound housing policy look like? A couple of ideas.

• First, support the fight on inflation, which would promote lower interest rates. Much of the political class, particularly, it seems to us, members of the Vice President’s party have been critical of the Federal Reserve’s efforts to fight inflation, some even suggesting that the 2% inflation target should be abandoned to allow interest rates to fall. This is monumentally dumb. Higher inflation always and necessarily leads to higher interest rates. Always.
• Constrain Federal spending. Rather than spending huge sums to subsidize home purchases, cut spending. Even a small, symbolic cut in spending would make a huge difference in inflation expectations and in interest rates, especially at the long end of the curve.
  • There are few industries that are as sensitive to interest rates as construction. Lower rates means more houses.
• Cut red tape. Let me give you an example. There was a news story, not too long ago, about a couple who bought and renovated a condo in NYC. They filled out all the forms, checked all the boxes, dotted all the “i’s” and crossed all the “t’s.”
  • And then they decided to change the style of dishwasher they planned to install in the kitchen. No change in plumbing. No electrical charges. No changes in anything.
  • But the paperwork and approvals took over two years. In the meantime, a house they planned to live in was vacant and contributed to the housing shortage. This is crazy.
  • Even if you believe there is a place for rules and regulations controlling the design and construction of houses, the style dishwasher a homeowner chooses is a bridge too far.
• Finally, the Federal government sends hundreds of billions of dollars to the states every year to support housing policy. One idea might be to make some portion of this money contingent on the elimination of restrictive zoning and other land use laws.

There is one and only one way to make housing cheaper. Let builders build.

Stock Market Report

Stocks fell slightly on Tuesday after eight straight winning sessions that saw the S&P 500 rally almost 8%.

• The Dow Jones Industrials gave back 62 points, a bit less than 0.20% and closed at 40,835.
• The S&P 500 was likewise down 0.20%. That’s 11 S&P points and it settled at 5,597.
• The NASDAQ Composite was off 0.30%, that's 60 points and it closed at 17,816.
• But the small caps got the worst of the selling. The Russell 2000 was off 1.20%. That’s 25 points and it opens this morning at 2,142.

Bond Market Report

Rates were down across the board yesterday.

• The yield on the 2-year treasury was off 8 basis points and it closed back below 4.0% at 3.994%.
• The 20-year was off 5 ticks, and it closed at 4.182%,

Oil, Gold, and Bitcoin

• Oil continued its recent sharp downtrend. It lost another $0.44, and a barrel now changes hands at $73.22.
• Gold marched to another all-time high. It was up $9.30, and a troy ounce will now set you back $2,553.20.
• And Bitcoin was up $561.67 and at 4:00 PM ET stood at $59,557.28.

Beyonce Enters the Luxury Whiskey Market

We’ve had very little earnings or economic news in recent days. Only four companies reported 2^nd quarter numbers on Tuesday. All exceeded expectations for earnings. Two missed top line objectives, including home improvement retailer Lowes, which traded down during the day but on a down day generally for stocks.

There’s really nothing expected out of the earnings or economic calendars today either.

We did take note that Beyonce is releasing her own brand of whiskey, entitled Sir Davis, named for the singer's great grandfather who, apparently, was a bootlegger. 51% rye and 49% malted barley Beyonce’s entre into the luxury spirits market will be aged in sherry casks, creating, we are told, a profile of “bold sophistication.”

At $89 a fifth, bold, seems to be precisely the right word!