As my friend Jeff Booth always says, the natural state of the free market is deflationary, right. And you know, we are getting to a point with AI and all the various other factors combined with that like robotics where we are going to see very strong deflation and you know a deflationary environment combined with a very big debt burden is very dangerous as as Japan has suffered for 30 years and will attest. I think it's really really important to know that that Trump sitting in that seat is going to be putt ...

Core Insights - The private equity market is facing significant challenges, including overvaluation of companies and a decline in fundraising, which has dropped sharply in 2023 compared to previous years [1][2][3][10] - Institutional investors are becoming more cautious, pulling back on investments due to the lack of cash returns from private equity funds [4][10][19] - The high interest rate environment, which has seen rates rise by over 5% from March 2022 to July 2023, is exacerbating the difficulties in selling overvalued companies [6][12] Fundraising and Investment Trends - Fundraising for private equity has been declining annually, with 2023 showing a particularly steep drop, leading to a concentration of capital among the largest firms [2][7][10] - The inability to sell portfolio companies is resulting in limited cash returns to investors, which in turn affects their willingness to reinvest in new funds [4][7][19] - The trend of "zombie funds," where companies remain unsold for over a decade, is prevalent, indicating a long-term issue within the industry [4][5] Economic Environment and Future Outlook - While interest rates have decreased from their peak, they remain high compared to the zero-interest rate environment that private equity typically thrives in [11][12] - There is cautious optimism for 2026, with expectations of a relatively strong economy, but the backlog of unsold companies is likely to persist for several years [12][19] - The potential inflow of cash from alternative investments may help the industry, but concerns remain about the quality of funds available to workers [14][15][18] Risks and Financial Engineering - Private equity firms are engaging in financial engineering to return cash to investors, which may increase risks for those investors while benefiting the general partners [19][20] - The reliance on continuation vehicles, which prioritize returns for general partners, raises concerns about the long-term sustainability of these strategies for limited partners [20]

Market Overview - Futures have reversed modest overnight gains, with S&P futures down 0.1% and Nasdaq futures down 0.3% as small caps outperform for a record 12th day in a row [1] - The market mood remains shaky, with a significant drop in liquidity as top of book collapsed 60% overnight [4] - Gold continues to hit new highs, approaching $4,900 per ounce, while bond yields are 1-2 basis points lower [1][8] Corporate News - Biohaven (BHVN) rises 3% after an upgrade to outperform by RBC due to supportive data [5] - Halliburton (HAL) climbs 2% after reporting fourth-quarter adjusted earnings per share that beat analyst estimates [5] - Kraft Heinz (KHC) declines 5% as Berkshire Hathaway may sell some or all of its stake in the company [5] - Nathan's Famous (NATH) rises 8% after Smithfield Foods agreed to buy the company for $102 per share [5] - Netflix (NFLX) falls 7% after forecasting first-quarter earnings below analyst estimates and pausing share buybacks [5] Economic Indicators - The US economic calendar includes October construction spending and December pending home sales, with expectations of a 0.1% increase and a 0.25% decrease respectively [18][38] - Inflation in the UK rose to 3.4% in December, slightly above expectations, driven by higher tobacco prices and airfares [27] Geopolitical Developments - President Trump's speech at the World Economic Forum is anticipated to address various topics, including trade and tariffs, amid ongoing tensions regarding Greenland [6][30] - The Supreme Court is set to hear arguments regarding Trump's ability to fire Federal Reserve Governor Lisa Cook, coinciding with a criminal investigation into Fed Chair Jerome Powell [11][25] Sector Performance - European stocks drifted lower, with the Stoxx 600 down 0.6%, weighed down by financials and tech, while materials and luxury names outperformed [13][26] - The Russell 2000 is outperforming the Magnificent Seven by more than 10% year-to-date, indicating a rotation in market leadership [9]

Core Insights - Home equity lines of credit (HELOCs) and home equity loans (HELs) are largely unaffected by bond market volatility, with rates driven by the prime interest rate, which is currently at its lowest since late 2022 [1] Group 1: Current Rates - The national average monthly HELOC rate is 7.25%, while the average rate for a home equity loan is 7.56%, based on applicants with a minimum credit score of 780 and a maximum combined loan-to-value ratio of 70% [2][11] - FourLeaf Credit Union is offering a HELOC rate of 5.99% for 12 months on lines up to $500,000, which will convert to a variable rate of 7.25% later [8] Group 2: Home Equity Insights - Homeowners have approximately $34 trillion in home equity as of Q3 2025, just below a record high, and with mortgage rates near 6%, many homeowners are unlikely to sell their homes or pursue cash-out refinancing [3] - Accessing home equity through a second mortgage can be a viable alternative for homeowners looking to utilize their home’s value [3] Group 3: Pricing Mechanism - Home equity interest rates differ from primary mortgage rates, being based on an index rate plus a margin, often the prime rate, which has recently fallen to 6.75% [4] - Lenders have flexibility in pricing second mortgage products, and rates can vary significantly based on credit score, existing debt, and the credit line relative to home value [5] Group 4: Considerations for Borrowers - It is advisable for borrowers to shop around for the best HELOC or HEL lenders, focusing on low fees, fixed-rate options, and generous credit lines [7] - The best home equity loan lenders may be easier to identify due to the fixed rate lasting throughout the repayment period, providing a single rate to consider [8] Group 5: Payment Structure - For a $50,000 home equity line of credit at a 7.50% interest rate, the monthly payment during the 10-year draw period would be approximately $313, but the variable nature of HELOC rates means payments may increase during the 20-year repayment period [13]

Economic Indicators - December pending home sales are expected to decline by -0.5% month-over-month [1] - Initial weekly unemployment claims are projected to increase by +12,000 to 210,000 [1] - Q3 GDP is anticipated to remain unchanged at +4.3% quarter-over-quarter annualized [1] - November personal spending is expected to rise by +0.5% month-over-month, while personal income is projected to increase by +0.4% month-over-month [1] - The November core PCE price index is expected to rise by +0.2% month-over-month and +2.8% year-over-year [1] - January S&P US manufacturing PMI is expected to increase by +0.2 to 52.0 [1] - The final University of Michigan January US consumer sentiment index is expected to remain unchanged at 54.0 [1] Stock Market Movements - US natural gas-producing stocks surged over +25% to a three-week high, with companies like Coterra Energy up more than +3% [2][15] - Gold and silver mining stocks are climbing as prices reach all-time highs, with Newmont Mining up more than +3% and Barrick Mining up more than +2% [2][14] - The S&P 500, Dow Jones Industrials, and Nasdaq 100 indexes fell to two-week lows, with declines of -1.23%, -1.07%, and -1.36% respectively [4] - The Magnificent Seven technology stocks are experiencing declines, with Nvidia and Tesla down more than -2% [12] - Cryptocurrency-exposed stocks are also down, with Bitcoin falling more than -2% [13] Earnings Reports - 88% of the 33 S&P 500 companies that have reported earnings so far have beaten expectations, with S&P earnings growth expected to climb by +8.4% in Q4 [5] - Excluding the Magnificent Seven, Q4 earnings are expected to increase by +4.6% [5] - 3M Co. is down more than -7% after forecasting 2026 adjusted EPS below consensus [16] - Fastenal reported Q4 net sales of $2.03 billion, below the consensus of $2.04 billion, leading to a decline of more than -4% [16] Bond Market - The 10-year T-note yield rose to a 4.75-month high of 4.31%, influenced by rising bond yields and concerns about an independent Fed [3][8] - Rising inflation expectations are bearish for T-notes, with the 10-year breakeven inflation rate climbing to a 3.25-month high of 2.342% [8] - European government bond yields are also increasing, with the 10-year German bund yield rising to a two-week high of 2.894% [10]

Core Viewpoint - Bank of America Corporation (NYSE:BAC) has shown strong performance with a 13% increase in shares over the past year, and recent earnings exceeded analyst expectations, indicating positive momentum in the banking sector [2]. Group 1: Stock Performance and Analyst Ratings - Bank of America Corporation's shares increased by 13% over the past year [2]. - TD Cowen raised the share price target for BAC to $66 from $64, maintaining a Buy rating, anticipating strong performance in the banking sector during the upcoming earnings season [2]. - HSBC upgraded BAC's rating from Hold to Buy and set a price target of $50, suggesting that a pullback in shares could present a buying opportunity [2]. Group 2: Earnings Report - In its fourth quarter earnings report, Bank of America posted $28.53 billion in revenue and earnings per share of $0.98, both surpassing analyst estimates of $27.94 billion and $0.96 respectively [2]. - Following the earnings report, BAC's stock closed 3.8% higher, reflecting positive market reaction [2]. Group 3: Interest Rate Commentary - Jim Cramer noted that Bank of America would benefit from higher interest rates, suggesting a potential conflict with the President's stance on rates [3].

Economic Strength and Consumer Behavior - Recent economic data indicates growing strength on Main Street, with Americans' take-home pay increasing by 1.42% after inflation from January to December 2025, contributing to rising retail sales and home purchases [1] - Retail spending rose by 3.3% year-over-year in November and increased by 0.6% from the previous month, surpassing economists' expectations of a 0.4% rise [2] Housing Market Dynamics - Lower interest rates have led to a 5.1% increase in existing home sales in December, as reported by the National Association of Realtors [3] - The average 30-year fixed-rate mortgage fell to 6.19% in December, down from 6.24% in November and 6.72% a year ago, indicating improved housing market conditions [6] - Inventory levels in the housing market remain tight, with fewer sellers eager to move, but more inventory is expected to come to market starting in February [6] Inflation Trends - Inflation remained elevated at the end of 2025, with the consumer price index (CPI) showing a 0.3% monthly increase in December and a 2.7% rise year-over-year [9] - Core CPI, excluding food and energy prices, rose by 0.2% in December and is up 2.6% from the previous year [9] Employment and Federal Reserve Actions - The US economy added 50,000 jobs in December, contributing to a decline in the unemployment rate [10] - The Federal Reserve has cut its benchmark federal funds rate by 25 basis points in its last three meetings, indirectly contributing to lower mortgage rates [12] - Market expectations indicate a 95% probability that the Fed will maintain its current target range of 3.5% to 3.75% in the upcoming meeting [13]

Core Insights - Inflation has cooled, but costs for materials, labor, and financing remain elevated compared to pre-pandemic levels, leading to a slowdown in renovations. Homeowners may face higher costs if they delay improvements [1][2]. Group 1: Inflation and Construction Costs - Input prices for construction rose by 0.2% in June and are 2.1% higher than a year ago, indicating that while inflation has eased, construction costs are not decreasing [2]. - Nonresidential input price escalation has accelerated, with contractors remaining optimistic despite high interest rates and rising input prices. Prices are stable but not decreasing, suggesting that homeowners waiting for discounts may be waiting indefinitely [3]. Group 2: Interest Rates - Mortgage rates are significantly above pandemic lows, with 30-year fixed loans averaging 2.96% in 2021. Although borrowing costs have begun to ease, they remain elevated [4]. - Home-equity line of credit (HELOC) rates have decreased from approximately 9.8% in October 2024 to around 8.13% today, providing homeowners with more options for financing repairs or upgrades [5]. Group 3: Material Costs - Homeowners are delaying renovations in hopes of further drops in material prices, but this may be unrealistic [6]. - Lumber futures are trading around $540 per thousand board feet, with prices stabilizing at midrange levels rather than returning to pre-pandemic prices. Analysts expect material costs to remain stable but not at the lower prices homeowners might anticipate [7].

Core Insights - The housing market is experiencing confusion with high mortgage rates despite cooling interest rates, leading experts to suggest preparing down payments for future opportunities [1] - Mortgage rate forecasts for 2026 predict a gradual decline, with the 30-year fixed rate averaging between 6% and 6.5%, while home prices are expected to rise slowly between 1% and 2% [2] - The unpredictability of the Trump administration's economic policies could introduce volatility in the housing market, affecting mortgage rate forecasts [3][4] Mortgage Rates Outlook - Experts anticipate a slight dip in mortgage rates from 2025 highs, providing minor savings for potential homebuyers [2] - The Trump administration's influence on the Federal Reserve could lead to a more aggressive rate-cutting approach, potentially lowering mortgage rates [4] Economic Policies Impact - Tariffs on imported goods may increase inflation and homebuilding costs, keeping mortgage rates elevated due to the Fed's focus on price stability [5] - The One Big Beautiful Bill Act (OBBBA) could increase the U.S. government's debt burden, leading to higher yields on government debt and upward pressure on long-term interest rates and mortgage rates [6]

Core Insights - More homebuyers are opting for adjustable-rate mortgage (ARM) loans to maintain affordability, with a notable difference in average rates between ARMs and 30-year fixed-rate loans [1] Group 1: Current Market Conditions - The average rate for a 5/1 ARM is 5.51%, while the rate for a 30-year fixed-rate loan is 6.33%, resulting in approximately $210 monthly savings on a $400,000 loan [1] - The current interest rate environment suggests that ARMs may be beneficial, especially when rates are comparatively high [4] Group 2: ARM Structure and Benefits - ARMs start with a fixed interest rate followed by periodic adjustments; for instance, a 5/1 ARM has a fixed rate for the first five years before annual adjustments begin [2] - ARMs can save money if used strategically, particularly if the borrower plans to sell the home before the loan adjusts or can refinance before the adjustment [5][6] Group 3: Risk Management Tips - Understanding how points are applied is crucial, as the rate reduction typically only applies during the fixed-rate period of an ARM [7] - Borrowers should look for ARMs with a conversion option to switch to a fixed rate after a certain period, which may involve a fee but can save money in the long run [7] - It is advisable to accept only fully amortizing loans to ensure that both principal and interest are paid off by the final scheduled payment, avoiding balloon payments [7]