Coloradans would have much to lose if mar­kets tank

The Denver Post - - FRONT PAGE - By Aldo Svaldi

The Dow Jones in­dus­trial av­er­age dropped more than 780 points early on Thurs­day, set­ting the stage for a re­peat of Tues­day, when it plunged 799 points. That was un­til buy­ers stepped in and shaved the loss to 79 points.

The kind of gy­ra­tions seen in the mar­ket since Oc­to­ber, which have nearly wiped out gains for the year, are of­ten, although not al­ways, as­so­ci­ated with a pend­ing re­ces­sion.

The ques­tion is an im­por­tant one for Colorado’s Front Range, which has raced to the front of the pack dur­ing the long-run­ning re­cov­ery this decade and has more to lose if it comes crash­ing to an end.

“You had bet­ter get used to days like the ones we have had. Volatil­ity will in­crease as

in­ter­est rates move higher,” Axel Merk, chief in­vest­ment of­fi­cer at Merk and Co., said on a we­b­cast dis­cussing the mar­kets.

Con­cern that the econ­omy is slow­ing down is weigh­ing on in­vestors, who are on the look­out for slower cor­po­rate earn­ings growth, higher in­ter­est rates and a wors­en­ing trade war with China.

Higher in­ter­est rates are hit­ting Den­ver’s hous­ing mar­ket, which has en­joyed some of the strong­est price gains in the coun­try this decade. Prices are down from a peak reached this sum­mer, sales are slow­ing sharply and the in­ven­tory of un­sold homes is ris­ing.

A rea­son pro­vided for Thurs­day’s ini­tial drop in the mar­ket was the ar­rest in Canada of Meng Wanzhou, the chief fi­nan­cial of­fi­cer of Huawei Tech­nolo­gies Co., an im­por­tant Chi­nese tele­com com­pany. U.S. of­fi­cials ar­gue Huawei is vi­o­lat­ing sanc­tions on Iran and they want to ex­tra­dite Meng.

That did lit­tle to calm con­cerns that trade talks be­tween the world’s two largest eco­nomic pow­ers, agreed to over the week­end, were head­ing south be­fore they even started.

“Did Pres­i­dent Trump and Xi Jin­ping re­ally agree to any­thing?” is a ques­tion in­vestors are ask­ing, said Stu Hoff­man, se­nior econ­o­mist with PNC Bank, who was vis­it­ing Den­ver on Thurs­day.

Hoff­man be­lieves the mar­ket down­turn doesn’t fore­cast a re­ces­sion.

The mar­ket drop, along with some softer in­fla­tion data be­cause of fall­ing en­ergy prices, will give the Fed a way to back off on fu­ture rate hikes with­out look­ing like it is cav­ing to po­lit­i­cal pres­sure from Pres­i­dent Don­ald Trump, he said.

With do­mes­tic oil prices near­ing $50 a bar­rel, con­sumers should see big sav­ings at the gaso­line pump. Ev­ery 1-cent drop in the price of a gal­lon of gaso­line trans­lates into $9 bil­lion in ad­di­tional in­come for con­sumers, Hoff­man adds.

But the price of oil is high enough to al­low U.S. pro­duc­ers to keep pump­ing, good news for Weld County and the re­gion, he said.

Merk doesn’t see a re­ces­sion next year ei­ther. Credit con­di­tions haven’t de­te­ri­o­rated in the way they usu­ally do be­fore a re­ces­sion. But un­like Hoff­man, he doesn’t think the Fed will ease up on its push to con­tain in­fla­tion. And that could prove a prob­lem for Den­ver’s hous­ing mar­ket.

“The point of rais­ing rates is to tighten fi­nan­cial con­di­tions. The Fed is far from be­ing done,” he said. “I am very con­cerned that in­fla­tion­ary pres­sures will in­crease.”

Colorado’s un­em­ploy­ment re­mains his­tor­i­cally low and in­comes are ris­ing faster than in­fla­tion for the first time in years, said Richard Wobbekind, an as­so­ciate pro­fes­sor of eco­nomics at the Univer­sity of Colorado.

Eco­nomic re­cov­er­ies don’t die of old age, and it is hard to see what will fin­ish off this one, he said. But it is also hard to see what will keep it from slow­ing next year. He doesn’t fore­cast a down­turn un­til 2020.

But Sam Jones, pres­i­dent of All Sea­son Fi­nan­cial Ad­vi­sors in Den­ver, said the hour may be later than most peo­ple re­al­ize. He ar­gues the mar­ket is fir­ing off warn­ing flares that a re­ces­sion is on the hori­zon, one that could show up in the sec­ond half of next year.

Newspapers in English

Newspapers from USA

© PressReader. All rights reserved.