U.S. Doing Well, China Not Doing Well...and Investors Don't Like It

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August 20, 2023

HOUSING BECOMING LESS AFFORDABLE: According to Freddie Mac, the average rate on a 30-year, fixed-rate mortgage hit 7.09% last week. Although this number briefly hit 7.08% in late 2022, it has not been this high in 21 years. According to Mortgage News Daily, the average 30-year fixed rate hit 7.37% last week. Three years ago, a $2,500 monthly mortgage combined with a 20% down payment could get you a $750,000 home. Now, the same monthly payment would get you a $440,000 home (if you can find one at that price).

BUT THE U.S. ECONOMY STILL ROLLING ALONG: According to the Atlanta Federal Reserve, the U.S. economy is likely growing at a 5.8% annualized clip in the third quarter. It is quite possible that this number decreases as more data comes in, but this is still a surprisingly robust projection. Deutsche Bank increased its inflation-adjusted projection for third quarter growth from 1.5% to 3.1%. Bank of America just increased its estimate from 2.0% to 2.7%. Despite high costs of housing, single-family homebuilding surged in July and factory output numbers for July showed an increase.

U.S. INDUSTRIAL PRODUCTION UP: After two months of declines, industrial production in the U.S. increased by 1.0%. One piece of industrial production, manufacturing, rose by 0.5%. Mining was up 0.5%. Utilities rose 5.4% due largely to high temperatures and the demand for cooling.

RETAIL SALES UP: Consumers kept adding juice to the economy by spending. Retail spending was up 0.7% from the prior month, and up 3.2% from a year earlier.

STOCKS FALL AS THE BOND MARKET REACTS TO A STRONG ECONOMY: The U.S. economy refuses to slow down enough for the Fed. This has caused the investing public, and last week bond investors in particular, to believe the Fed is not done raising rates, and at the very least will keep rates higher longer. As a result, the values of bonds decreased last week (yields rose) because of a general belief that rate hikes are not over. Higher interest rates from the Fed, and higher interest rates triggered by a rise in bond yields, scared stock investors last week as well. A lot of money is going from stocks and bonds to money markets and government bonds as they are now paying a meaningful return.

LONGER-TERM PERFORMANCE: Below are the annualized three-year and five-year numbers for these same indices.

LOTS OF NEW HOUSES STILL UNDER CONSTRUCTION: The biggest problem in the housing market is lack of inventory. Even if people can afford the price and the increased mortgage rates, there are not enough homes. About a year ago, after a steady rise, the amount of new, single family homes under construction peaked, but remains at a high level. Multi-family units is another story. There are currently 1,003,000 multi-family units under construction, the highest on record. Combined, there are 1.682 million units under construction.

MORE EVIDENCE OF A TROUBLED CHINESE ECONOMY: China Evergrande Group, one of China’s largest real estate developers, filed for Chapter 15 bankruptcy (a type of bankruptcy filing for foreign corporations in the U.S.) in New York last week to shield itself from U.S. creditors while it tries to restructure $300 billion (with a ‘b’) in debt. Evergrande’s troubles have been known for awhile. It defaulted on paying a dollar-denominated bonds back in December 2021. Country Garden, another massive Chinese developer, has been struggling to make payments on its dollar bonds and is trying to restructure its debt. Meanwhile, large financial institutions are lowering their growth expectations for China. Nomura Holdings (Japan’s largest investment bank) just lowered its forecast for China’s 2023 growth to 4.6%, down from 5.1%, and below China’s 5% target. Morgan Stanley just lowered its prediction to 4.7%, and JPMorgan Chase did the same, lowering its projection to 4.8%.

INFLATION CHANGING HABITS: With inflation raging, second hand goods have gained in popularity. In the U.S., the amount of people that say that have made at lest one second-hand purchase in the past year went from 49% to 60%. We are not alone, the U.K. went from 50% to 61%, France from 40% to 57%, and Germany from 41% to 55%.

BOOKS: Two weeks ago I asked readers of this email what five books have been most influential in their lives. Here is an exhaustive list of all the titles sent to me by many of you. Several were named more than once, especially the first one. I have only read 18 of these titles below, and I have to admit that I had not heard of a few of them.

  1. The Bible
  2. The Practice of the Presence of God, Brother Lawrence
  3. There is Always Enough, Heidi Baker
  4. A Million Miles in a Thousand Years, Don Miller
  5. Intercessor, Rees Howells
  6. Flowers for Algernon
  7. A Prayer for Owen Meany
  8. Watership Down
  9. Pillars of the Earth, Follett
  10. Charlotte’s Web
  11. War and Peace
  12. A World Lite Only by Fire, Manchester
  13. The Key Master, Bacher
  14. 20th Century Journey, Shirer
  15. Moby Dick
  16. Hobbit
  17. Lord of the Rings Trilogy
  18. The Phantom Toolbooth
  19. The Voyages of Dr. Doolittle
  20. Return of the Gods, Cahn
  21. God’s Word Written in the Stars, Dunn
  22. Ancient Book of Enoch
  23. A Harmony of the Gospels, Thomas and Gundry
  24. Mere Christianity
  25. Pilgrims’ Progress
  26. Bully Pulpit, Kruger
  27. The Cost of Discipleship, Bonhoefer
  28. Robinson Crusoe
  29. Failure of Nerve, Friedman
  30. Shepherding a Child’s Heart, Friedman
  31. The Enneagram, A Christian Perspective, Rhor
  32. Love and Respect, Eggerichs
  33. Chronicles of Narnia
  34. Lucy Shaw’s poetry
  35. Until the Dawn Breaks, Patricia St. John
  36. Various missionary stories by Isobol Kuhn
  37. Louise Penny’s murder mysteries
  38. Kavalier and Clay, Michael Chabon
  39. Middlesex, Jeffrey Eugenides
  40. Poisonwood Bible, Kingsolver
  41. Commonwealth, Patchett
  42. Independence Day, Ford
  43. To Kill a Mockingbird
  44. Good to Great
  45. The Reason for God, Keller
  46. Atlas Shrugged
  47. 1984

IRONY: I was on my way to a meeting last week, and got caught in traffic on what is known locally as “The Blue Route.” I snapped this picture and texted it to the person I was to meet with (I ended up being about ten minutes late). I meant to just take a picture of the traffic. I did not realize the irony I captured.

Have a great week!

Our mission is to help you see the objective, find the path, and navigate past the obstacles to a more prosperous future.

Douglas R. MacGray, J.D., C.F.P. ®
Stonecrop Wealth Advisors, LLC

Direct | Cell | Fax
(610) 628 4545

“I am persuaded that in the case of elected officials, the overwhelming temptation is to conclude that it is more important for your constituents that you be reelected than that you deal honestly with them.” James L. Buckley, former U.S. Senator and Federal Judge, 1923-2023

“Blessed is the one who reads…” Revelation 1:3 (NIV)

MORE EVIDENCE OF A TROUBLED CHINESE ECONOMY: beehiiv.com AND https://www.bloomberg.com/news/articles/2023-08-18/nomura-cuts-china-s-growth-forecast-to-4-6-on-downward-spiral#xj4y7vzkg
HOUSING BECOMING LESS AFFORDABLE: Freddiemac.com AND YCharts.com AND beehiiv.com AND https://www.mortgagenewsdaily.com/
BUT THE U.S. ECONOMY STILL ROLLING ALONG: https://www.reuters.com/markets/us/atlanta-fed-model-lifts-us-third-quarter-gdp-view-58-2023-08-16/ AND https://www.calculatedriskblog.com/2023/08/q3-gdp-tracking-moving-up.html
LOTS OF NEW HOUSES STILL UNDER CONSTRUCTION: https://calculatedrisk.substack.com/p/july-housing-starts-record-number
U.S. INDUSTRIAL PRODUCTION UP: https://www.federalreserve.gov/releases/g17/Current/default.htm
RETAIL SALES UP: https://www.census.gov/retail/sales.html
INFLATION CHANGING HABITS: https://www.zerohedge.com/personal-finance/buying-second-hand-gaining-popularity

(c) 2023 A.D., Stonecrop Wealth Advisors, LLC, All Rights Reserved

*S&P 500: This is a measure of the performance of the 500 largest companies in the United States, and it a common index to track the performance of U.S. equity markets, especially the large cap markets.
*MSCI All Country World Index X US: This is a broad measure of the performance of worldwide equity markets excluding the United States.
*Bloomberg U.S. Aggregate: This is a measure of the U.S. bond markets.

Investment advisory services offered through Stonecrop Wealth Advisors, LLC, a Registered Investment Advisor with the U.S. Securities and Exchange Commission.




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    Doug MacGray

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    August 21, 2023


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