Fed Reserve Is In The Spotlight for This Week on Wall Street

[CLICK HERE JOIN OUR LIVE TRADING & TRAINING SESSIONS]( Hello investor, Fed Reserve Is In The Spotlight for This Week on Wall Street What will the Fed Reserve officials say this week? That’s the ultimate question, as the central bank will meet this Wednesday. It doesn’t expect to hike rates, but Fed Chair Jerome Powell will host a press conference and reveal his latest thinking on his battle against inflation. Wall Street expects him to sound slightly hawkish and insist that the central bank may not be done with hiking rates. - “The Fed will be sufficiently hawkish so that markets don’t think it is done hiking,” said Win Thin, global head of currency strategy at Brown Brothers Harriman & Co. Win Thin also thought that the current conditions will require more hikes. - “...simply put, current conditions warrant further tightening, period,” said Thin. Win Thin, global head of currency strategy at Brown Brothers Harriman & Co. (Photo: Bloomberg) So, Wall Street will analyze Fed officials’ comments closely for any clues on how they would move forward in their November and December meetings. - “How the Fed delivers the pause is crucial for November and December rate expectations, but whether it’s presented with a dovish or hawkish tilt is what matters most for financial markets,” said Quincy Krosby, chief global strategist for LPL Financial. And Krosby is worried that higher wages from the UAW negotiation with carmakers could put more pressures on prices. - “Given the UAW strike with the potential for a substantial pay package, coupled with labor’s recent successful negotiations, underpinning a broad swath of higher wages, the FOMC is faced with a likelihood of resulting higher prices,” said Krosby. Besides the Fed Reserve’s meeting, there is relatively little economic data other than the US S&P Global Manufacturing PMI due to be released on Friday. So, expect a quiet week on Wall Street except for Wednesday’s Fed Reserve meeting  The Sneaky Play On The New Megatrend of Real Estate Have you heard about private mortgage insurance? Let me share an interesting backstory to this industry. First of all, the regulations require lenders to accept a 20% deposit from a homebuyer to take out a mortgage. This reduces the risk of undisciplined lending that could harm the economy. However, there’s a problem. Not all Americans can afford a 20% deposit, and it would be unfair to deprive them of the wise investment of buying a home. As long back as the pre-Depression era, Federal Housing Administration (FHA) offered insurance for lenders for any deposit that’s under 20 percent. Here’s how it works: If your deposit is under 20%, you would need to pay a monthly premium to the FHA. This is the same as your car insurance. If you default on the mortgage, the FHA will cover the lender’s losses. This goes on until your equity in the house is above 20%, then you’d need to refinance to stop the insurance payment. But like nearly anything that the government touches, the process was painfully bureaucratic, time-consuming and inefficient for lenders. In 1957, Max Karl decided to create a new industry of private mortgage insurance with his new company called Mortgage Guaranty Insurance Corporation (MGIC). MGIC saw a smashing success, and the PMI market immediately attracted new entrants. PMI ballooned from $0.3 billion in 1960 to $63 billion by the late 1970s. A new industry was born. However, the financial crisis was ugly. The PMI industry became undisciplined, insuring high-risk loans and not holding enough capital in reserves. As soon as the housing bubble burst, the PMI industry nosedived into near death. In the graph below, you’ll see how PMIs took market share from FHA and Veteran Affairs guarantees from 1972 to 2007 and nearly lost 60% of its market share: (Source: Urban Institute) The PMI industry’s operating income also lost money for six years straight after the housing crisis: (Source: Urban Institute) Surely, it was a traumatic experience for the PMI industry. It took a while for it to recover. But it was a huge lesson learned. The biggest mindset change was adding capital to its reserves to cushion any potential crisis. Banks did the same after the crisis, as well. Now, the industry is growing again. The biggest thing is that homes have become unaffordable for most Americans. The median price is about $417,000 – despite the recent decline. This means an American must make a deposit of $83,400 to meet the 20 percent deposit threshold. Clearly, that’s out of reach for many Americans. (Source: Federal Reserve) This means a lot of new business for the PMI industry. And it completely dominates the attractive segment of mortgage insurance. For any borrower’s credit score above 680, PMIs hold a clear advantage over FHA and VA. You can see the graph below: (Source: Urban Institute) None is better than NMHI as the ultimate pick to bet on the booming private mortgage insurance industry. Today’s Pick: NMI Holdings ([NMIH]() NMI Holdings was a new entry in 2011 right after the housing crisis. Quickly, it soared to become a major player in this industry. I’ve been holding back this honey from you… The economies of the PMI industry is lucrative, lucrative, lucrative. First, the industry is growing with a projection to hit $1.7 trillion in 2025: (Source: NMIH) And NMIH wholeheartedly dominates this industry. There’s virtually no serious competitor in this space. NMIH (blue line) has a growth rate of 52%, while most of the industry peers grow at 20% or less: (Source: NMIH) Does it mean NMIH is taking on more risk than other peers? The data says no. Remember the COVID peak? It was a nightmare for any insurance company. Regardless, NMIH showed nearly two times lower default rates than its peers: (Source: NMIH) What’s more, NMIH is far more efficient in its operations. It has the lowest number of employees and operating expenses: (Source: NMIH) Not only does it grow extremely fast, but it can also invest the “float” from premiums to generate returns. This is the same as a typical insurance company. And it always has been a lucrative business. NMIH typically generates very high 15-20% ROE over the years. And ROE has been accelerating in the last few quarters. You can see it in its latest presentation which was back in the third quarter of 2022. In other words, it is a classic compounding stock: (Source: NMIH) We have a double whopper here: (1) NMIH generates high returns on its capital and (2) its premiums grow at a breathtaking pace. You don’t see this combination often in the stock market. Clearly, the market appreciates this one-two punch. NMIH’s stock price soared by 320% from 2016 to now. And it is C-H-E-A-P now. The stock is trading at 7.28 P/E, so that’s a low-risk, high-reward way to get in the booming industry. Bottom line: With homes quickly becoming unaffordable for Americans, more lenders will need PMI to lend mortgages to those Americans who can’t meet the 20% deposit threshold. And NMIH is a clear-cut winner in this industry. It grows three times faster than competitors and still has as much as three times lower in overheads. NMIH is a wonderful, highly lucrative business that must be added to your portfolio. [CLICK HERE JOIN OUR LIVE TRADING & TRAINING SESSIONS](       © All Rights Reserved, Trade Alliance If you no longer want to receive these messages, you may [click here]( to unsubscribe.