Louis Navellier says the Fed is done hiking rates this year … will rates go “meaningfully higher” next year? … more data about a key commodity shortage … troubling news about mortgages

 

After last week’s Federal Reserve policy meeting, the big question now is “will the Fed raise rates again?”

Legendary investor Louis Navellier says they’re done here in 2023.

Let’s jump to his recent Growth Investor Weekly Update:

It’s important to note that seven of the 19 FOMC members don’t think another rate hike is necessary this year – and Wall Street currently puts the odds of another rate hike at less than 50%.

With inflation cooling and unemployment set to rise to 4% in the wake of the United Auto Workers (UAW) strike, I also think the Fed is done raising rates this year.

The fact is that our central bank is giving itself a little wiggle room if inflation heats up in the final quarter of the year, so it wouldn’t be a shock if it decides to raise rates again.

The Fed is also trying to tamp down any expectations for rate cuts this year – and the Fed’s dot plot certainly crushed a lot of investors’ hopes for a rate cut in the near future…

 In my opinion…there will not be any more rate hikes this year if inflation continues to cool.

On the other hand, we have Minneapolis Fed President Neel Kashkari

For Kashkari, the question seems to be less about whether rates will climb higher, but more about whether they’ll climb “meaningfully” higher.

From Kashkari’s essay titled, “Policy Has Tightened a Lot. Is It Enough?” which published earlier this week:

…Most of the disinflationary gains we have observed to date have been due to supply-side factors, such as workers reentering the labor force and supply chains resolving, rather than monetary policy restraining demand…

Once supply factors have fully recovered, is policy tight enough to complete the job of bringing services inflation back to target?

It might not be, in which case we would have to push the federal funds rate higher, potentially meaningfully higher.

Today I put a 40 percent probability on this scenario.

What’s unclear is the distinction between “higher” and “meaningfully higher”

Is Kashkari to mean that another 25-basis-point hike is not “meaningful,” making it more likely to happen regardless? Are the 40% odds of a “meaningfully higher” hike referring to something like another 75 basis points?

If that size of a hike seems outrageous – trigger warning – stop reading now.

On Tuesday, The Times of India interviewed JPMorgan CEO Jamie Dimon, who pointed toward a fed funds rate of 7%.

From CNBC:

Dimon said…that the Fed’s key borrowing rate could rise significantly from its current targeted range of 5.25%-5.5%.

He said that when the Fed raised the rate from near zero to 2%, it was “almost no move,” while the increase from there to the current range merely “caught some people off guard.”

“I am not sure if the world is prepared for 7%,” he said, according to a transcript of the interview. “I ask people in business, ‘Are you prepared for something like 7%?’

The worst case is 7% with stagflation. If they are going to have lower volumes and higher rates, there will be stress in the system. We urge our clients to be prepared for that kind of stress.”

If your portfolio isn’t prepared for “that kind of stress,” here’s one way to fix that

What type of asset will perform well in a stagflationary environment?

Well, you’d want something with robust demand, enabling it to overcome the “stagnant” aspect of stagflation. As to the “inflation” aspect, you’d want this asset’s price to be able to ride atop the swells of higher economic prices.

What asset fits the bill?

Here’s a hint…

Recent reports from S&P Global, Wood Mackenzie, and the International Energy Agency have all concluded that demand for this commodity could nearly double by 2035.

Congrats if you guessed “copper.”

From CNBC yesterday:

Naturally conductive copper is one of the critical minerals — along with lithium, cobalt and nickel — in the manufacturing of electric vehicles, EV batteries, solar panels, wind turbines and the power grids that connect renewable sources to homes and businesses.

Yet the prognosis for the industry to supply enough copper to meet that rapidly growing demand is not particularly rosy…

…while demand for copper could nearly double by 2035, mining companies are having a hard time keeping up.

Our macro expert Eric Fry has been urging readers to invest in top-quality copper plays for years. Two years ago, his early identification of copper’s growth story enabled his Speculator

subscribers to lock in a 1,400% return from mining giant Freeport-McMoRan. He’s had a handful of other triple-digit commodity winners in the past 36 months.

Here’s Eric from all the way back in February speaking to copper’s supply/demand imbalance:

The copper supply is under extreme geological pressure; ore grades at the world’s major copper mines are declining.

Australian-U.K. resources company BHP Group (BHP) estimates that declining grades will remove around two million tons/year of global copper mine supply by 2030.

That’s no small matter. As ore grades decline, copper supplies do not merely become less plentiful; they also become more expensive to extract…

Bottom line: Robust future demand growth for copper is fairly certain, but the mining industry’s capacity to satisfy that growth is not.

That’s the sort of equation that should put upward pressure on the copper price for many years to come.

For a one-click way to play copper, check out the Global X Copper Miners ETF (COPX).  It holds miners including Freeport-McMoRan, Antofagasta, BHP Group, and Ivanhoe.

To join Eric in the Speculator for his commodity research and favorite copper recommendations, click here.

Returning to the Fed and the impact of interest rates, mortgage rates just hit levels not seen since 2000

In response, mortgage demand has sunk to a 27-year low.

According to the Mortgage Bankers Association’s seasonally adjusted index, total mortgage application volume fell 1.3% last week. It came in 25.5% lower than the same week one year ago.

So, where are mortgage rates today?

Here’s CNBC:

The average contract interest rate for 30-year fixed-rate mortgages with conforming loan balances ($726,200 or less) increased to 7.41%, from 7.31%.

For some perspective, one year ago, the same mortgage cost 6.52%. And just over two years ago, you could have locked in a 30-year fixed-rate mortgage for 2.78%.

As we’ve pointed out here in the Digest, the Fed’s rate hikes aren’t negatively impacting most existing homeowners. That’s because they locked in lower rates from several years ago.

But a troubling story is emerging about recent homebuyers who gambled on a purchase over the last year with the expectation of falling rates.

A recent study shows significant homebuying regret and a need for lower rates fast

If you’ve been hoping to buy a home yet haven’t been able to make the numbers work, you might view recent homebuyers with envy. Perhaps you assume they’re in better financial shape, enabling them to absorb today’s mortgage rates.

Perhaps not.

U.S. News just ran a nationwide survey of 1,200 Americans who had bought a home in the past year using a mortgage. It found that when contemplating a home purchase in light of today’s higher mortgage rates, many buyers were advised not to worry because they can always “buy now and refinance later” to a lower rate.

Here’s more from the survey:

Most recent homebuyers (82%) were assured they could “buy now and refinance later.”

They most often heard this from their mortgage loan officer (63%) and/or their real estate agent (60%).

But 13% say they won’t be able to keep making payments if they can’t refinance – among borrowers with an adjustable-rate mortgage, that figure is higher at 16%.

The vast majority (84%) plan on refinancing to a lower rate in the future…

Over half of recent buyers (55%) regret taking out a mortgage when rates were high…

Most homebuyers (78%) are at least “somewhat” stressed that rates are expected to stay elevated for the rest of 2023.

I genuinely feel sorry for these new homeowners, but elevated rates for “the rest of 2023” is the least of their worries

If we go by the Fed’s updated dot plot from last week, then we’ll see one more rate hike in 2023 and only a half-point of rate cuts in 2024.

(We’re ignoring Jamie Dimon’s reference to a 7% fed funds rate.)

Netting that out, these strained new homeowners are looking at 15 months of rates sitting at today’s level or maybe just barely lower.

It gets worse…

Due to the expense of a refi, these homeowners would require a significant drop in mortgage rates for a refi to make any sense

As a rule of thumb, you can expect to pay 2% to 5% of the loan principal amount in refi closing costs. So, for a $400,000 mortgage refi, your closing costs could range between $8,000 to $20,000.

To offset this expense, your new refi rate must be materially lower, not just slightly lower.

What are the odds we see the Fed slashing rates anytime soon barring an economic meltdown?

If we step back, technically, these loan officers and real estate agents were accurate – new homeowners can refinance their loans in the future.

But if there was any insinuation that a refi would happen relatively soon at dramatically lower rates, it raises serious questions about fiduciary responsibility.

If you’re buying a home today, make sure you can handle the debt service for as far as the eye can see.

Have a good evening,

Jeff Remsburg