The Capital Markets comprise just about anything; people, companies, nations, etc. want to invest in. Everything from stocks and bonds, mortgage backed securities, real estate, and venture capital opportunities, to name just a few. In the last several weeks, I’ve come to realize I either don’t understand much about the capital markets or the capital markets aren’t acting correctly.
The stock market appears to be doing incredibly well. And yet, there are millions of people out of work, the major driving force of the GDP which is consumer spending is down, the travel industry is decimated, the hospitality industry is decimated, and with all of the additional costs of Covid-19, the health care industry is on thin ice. Please tell me, I’m I missing something? Shouldn’t the stock market and investors recognize these factors and also be down? Is it because the electronically traded funds (ETF’s) are having a bigger impact on the stock market than the institutional or individual investors or is it the possibility of finding a vaccine for the pandemic?
Investors in mortgage backed securities must be purchasing at historically low rates of returns, probably around two and one-half percent (2.5%). And yet, there were an estimated 5 million home owner’s who have been receiving a forbearance of their mortgage payments in the last six months. Nearly 30% of renters did not pay their rent in August. Is it because the federal government is purchasing 4 billion dollars worth of mortgage backed securities each month to keep the mortgage interest rate low? Or is it that with all of the turmoil in our country, and around the world, mortgage backed securities are perceived as a safe investment?
I don’t track investments in commercial real estate these days but, to me, most office buildings and shopping centers don’t seem like a good investment. With a huge number of employees working from home, I expect companies will reduce the amount of office space they lease when their current lease expires. Until there is a vaccine for the coronavirus, many people will be avoiding in-person shopping except for the essentials. With the recent huge increase in people shopping on-line, I expect that to grow in the future. As more and more restaurants go out of business, it will be challenging for owners of those buildings to pay their mortgages or investors.
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