Inflation Cause and Effect, Debt Ceiling, and Social Security Reform, Ep.#168

2023-03-09

This week on The Capitalist Investor, wealth advisor Dave Abate was invited to discuss current news and events related to the economy. He shared his perspective as an adviser and a planner, offering insight into how the current economic climate could affect clients. Dave discussed the testimony of JP Powell and the fallout from it, the debt ceiling and Social Security being directly related to the talk. Tony the Tiger was also present to offer insight and humor. Dave discussed the continuing rate hikes, saying that a pivot is not likely anytime soon and that it'll have to be a quick one when it does happen.

The conversation delved into the surprise that the market has in reaction to Federal Reserve chair Jerome Powell every time he speaks. This is because he has been repeating the same message for the past six months, that interest rates will stay higher for longer. Senator Elizabeth Warren called out Powell for wanting to increase unemployment by 1% in order to increase inflation. The discussion then shifted to the mortgage industry, which will feel the impact of the higher interest rates, as the cost of a 30-year mortgage has since increased by 60% from 18 months ago. The conversation ended with a reminder of how rising interest rates make it difficult for people to own a home, as the cost of a $1500 mortgage is now $2400.

The conversation centers around the real estate market and how it has been impacted by the pandemic. It is noted that 18 months ago, a $400,000 house would have been reduced to $250,000 in order to have the same monthly payment. It is also noted that the mortgage industry makes up 15% of the GDP and it is likely to take a hit in the coming months. The speakers discuss the potential of finding distressed sellers in the market, as well as the possibility of taking advantage of the current low-interest rates. They also consider the potential of the Fed's terminal rate rising to 6 or 7%, which would further impact the real estate market. Ultimately, the conversation concludes that the real estate market is likely to see a downturn in the coming months due to the pandemic.

The conversation is discussing the unknowns of the mortgage industry and whether or not the Fed will overshoot the rate. The consensus rate has been creeping up for 6-12 months, starting at 4.5 and now at 5.6. The conversation then shifts to how the pandemic has affected the consumer, with many people only buying necessities such as food and not super discretionary items like bikes and TVs. The conversation concludes with the idea that the Fed may overshoot the rate and then quickly pivot to reduce it, likely in the next meeting.

0:00:00

"JP Powell's Testimony and the Impact on the Economy: A Discussion with Wealth Advisor Dave Abate"

0:02:32

Analysis of the Impact of Rising Interest Rates on the Mortgage Industry

0:04:29

Heading: Impact of the Housing Market on Affordability and the Mortgage Industry

0:08:43

Discussion on the Potential Impact of Rising Interest Rates on the Economy

0:10:56

Discussion on the Potential Impact of the US Debt Ceiling Crisis

0:13:06

Discussion on US Treasury Bond Market and US Defense Spending

0:16:19