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US Economic Reality Check

Alexis: Hey, everybody! Welcome back to the Mortgage Rundown. My name is Alexis Quinney, and I'm here with Jason Obradovich, CIO of New American Funding. So, to get started, I wanted to talk today about the stock market. So, Jason, it looks like the stock market is creeping up a bit. So, what can we expect from that? Are there going to be more increases or what's going on there?

Jason: Yes. So, the stock market is kind of an anomaly, right? We're in the middle of this global pandemic and these stock indexes, like the S&P, the Dow is hitting all-time new highs in the middle of a pandemic. And so, it's confusing, right? You're trying to understand what's happening with the economy. But I wouldn't really follow the stock market. The stock market is in the middle of this kind of redistribution. Investors are pulling money from certain stocks and putting it in other stocks. So, the tech sector is just getting a ton of money poured into it. Right? Investors don't want to put money into bonds that earn next to zero percent interest. So, they want to put their money somewhere. And you know what the soup de jour, the thing that's most popular today, is really the tech sector. So, money is just piling in there and just driving those prices, which is pushing the indices up a lot more.

Alexis: OK. It also seems like the stock market continues to reach new highs. So, does this mean that the economy is starting to get back on track? Or what does that really mean?

Jason: You know, it's a little bit of a false positive. You know, I'll try to put up on the screen what's happened with GDP, right? GDP is a function of the amount of product our country produces in any given month, quarter. And most of the indices that we follow really quarterly. So, we won't get the third quarter until the end of October. But what you'll see on the screen is just, you know, we kind of hum along at a 2% growth rate. And then the second quarter when COVID came and everything just came grinding to a halt. So, we don't really know what the third quarter is going to look like. Yeah, there's a lot of positivity in the stock market. That's great for investors. But what's happening for the people that aren't in stocks or the people who've had small businesses that went under, or people who've lost their jobs, or people that are in forbearances. Right? There's so much dislocation going on. So, once we look at the GDP number, which unfortunately as I said is not until the end of October, we'll get a better sense of what economic activity has been like.

The other thing to look at, really, is unemployment. The unemployment rate hit record lows. It sat at record lows for a long period of time and then you had that huge spike. And so, as you can see on your screen, there is a ton of unemployment that's come. And so, what's going to happen? Does it spike up you where the unemployment rate reaches these highs and now we've come way off it? You know, what's that curve going to look like? Things have not returned to normal at all. Can you go to a restaurant and dine indoors? No, you can't. How many people are traveling on an airplane? Not very many. Can you go outside? Yes, you can, but there are a lot of limitations. So, it's not like things are back to normal. So, as I said, the stock market is not the indicator that all is well.

Alexis: OK, that makes sense. So aside from the stock market and maybe aside from unemployment, are there any other pieces of data we can look at to get a better idea of where our economic health is going to go in the future?

Jason: Really, you do want to look at GDP. Unfortunately, it is a lagging index. I know people will look at it like inflation.

Inflation is a little bit dangerous, too, because the, you know, the Fed is pumping all this money into the economy. Right? You have the government pouring money into the economy with all these unemployment checks and a lot of stimulus packages and stuff. And sometimes that might actually push prices up or keep prices from going down, which is what their intention is. It doesn't necessarily mean the economy is doing well. It's just a lot of money is just getting shoved into this system in the short term. So really, what is the long-term impact? So, I think that's we have to look at the trends of GDP and unemployment. I think those will give you a better barometer of what's happening with the economy.

Alexis: OK. That all makes sense. It sounds like there's just a lot going on and time will tell what the future holds for the market.

Jason: Now, I want to make one important comment. You know, we haven't talked much about interest rates and so people had seen recently interest rates are starting to move higher and higher. And by higher, I mean, it's moved up, you know, an eighth and a percentage point in rate—not very much. Rates had come down and down and down since December and then have moved up just a hair. But a lot of that is just, you know, you can't just keep dropping down and down, down forever. Right?

We have to have a point where things start to level off and we're just at that leveling off point. And I think we'll sit at this leveling-off point until we really know what's happening with the economy. If the economy starts roaring back, which, you know, I hate to say I'm a pessimist, I don't think it roars back. But as the economy starts coming back, then you might see rates gradually go up over the course of years, not days or months. But you know what? If we get third-quarter GDP and it looks really bad at the end of October, then you might see rates come down more, and we might need the Fed to step in and provide additional stimulus. So, I don't think people need to react too heavily over interest rates, making some short-term moves as they have in the last month.

Alexis: All right, great. So those are the only questions I have for you today. This was a lot of great information for our viewers. So, I just want to thank you for taking the time to educate us all today. I appreciate it.

Jason: Absolutely. I enjoyed it. Thanks so much, Alexis. Hope you’re doing well.

Alexis: Yeah, you, too. I'll talk to you later.

Jason: Bye, everyone.

Alexis: Bye.