What Real Rates Are Saying About Economy

As you can see in the chart below, yearly sales were -4.1%.

The chart suggests sales will be strong in the spring because mortgage rates are falling. That doesn’t even take into account the strong wage growth and weak housing price growth. Median new home prices fell 0.6% monthly and 3.8% yearly to $317,000. Supply fell 1.5% which pushed inventory up from 6.3 months to 6.6 months.

Passive Market

Growth in passive funds is dominating active funds which is why passive funds are stealing market share. At the end of 2018, in America, there was $5.7 trillion in passive funds and $7 trillion in active funds. As you can see from the chart below, passive funds are 31.8% of the market and are set to pass active funds in 2021. The percentage of passive ownership in the S&P 500 float is 15%. It was slightly below 5% in 2008.

The next crisis could be interesting because of the high passive ownership. Investing in stocks has become like a public utility in the sense that 7% gains per year are expected and access is easier than ever. You can get a diversified portfolio from your phone if you have any amount of savings. Net worth as a percentage of disposable income is near a record high which is why it has become more politically important to keep the stock market up. If you are invested in a passive strategy don’t sell during a crisis.

Great Returns

The S&P 500 probably just lapped its best 10 year return period in a while because the stock market bottomed in March 2009. Because the S&P 500 has returned 16.7% annualized in the past 10 years, some passive investors are going all in on the index. We don’t believe that is a passive strategy. It’s a country-specific play with some international exposure. If you live in America and your paycheck is determined by the health of the American economy, it’s not great diversification to only invest in American stocks.

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