Here is an excerpt of a summary I have to do for work. Forgive the broken grammar.
If I were a betting man, the stock markets for 2021 is going to be a very slow year.
Household Evictions & New Home Buying
an extension in the CDC order on pausing evictions for 3 months starting January 2021. Depressed rates are allowing homes to refinance their mortgages and access cheaper home equity, providing them with ability to payoff short term debts. The mortgage debt service ratio has fallen to its lowest in a decade around 3.0% with the average 30-year M-Rate hitting a low of around 3.0% as well.
Geo-preferences are shifing new home buying away from urban city centers to sub urban properties, this is expect to continue well into 2021 as low rates feed consumer appetite for new homes. Homebuilder’s outlooks continue to peak at all time highs with expectations mimicking behaviors in 30-year mortgage yields.
Average household debt has fallen to levels not seen since 1980 to around 13.0. However, we expect this figure to rise going forward, alongside the modest and sequential increases in inflation and taxes.
Inflation
Inflation will continue to remain artificially depressed as companies have yet to transfer COVID-19 related costs onto the consumer in a meaningful manner. Fiscal and monetary interventions have proven effect in cancelling additional costs to businesses however, these hidden burdens are expected to extend well beyond next the business cycle.
Inflation has remained stubbornly sticky below the 2.0% target prior to COVID-19 as factors of production remain easily transferable across borders. This dynamic is expected to change going forward, as supply chains shift homeward and as business diversify these chains away from China.
With the larger a than anticipated monetary intervention into capital and lending markets, investors will observe sequential increases in the normal and new form of inflation hedging which includes gold, commodities and cryptocurrencies.
State Taxation
Budgetary shortfalls for all 50 states are noticeably higher this year because of COVID-19. States with the largest exposure the virus and the subsequent lock-down policy are expected to raise taxes by an average consensus of 0.8% -1.0% per current amount. The federal reserve has extended its MLF program which includes adjust the duration of the bonds under it purview. Credit spreads have historically remained relatively tight in the muni market with only 9.0% of municipal bonds failing into the lowest grade. This relationship is however expected to change as local governments battle the rising social costs associated with lock downs. While the Federal Reserve is expected to continue is MLF program, its scope is limited with the expected raise in inflation.
