WaFd Bank President and CEO Brent Beardall presented the mid-year economic forecast at the Bellevue Chamber’s fourth annual luncheon on Thursday.
During the event, which was held both virtually and in person at the W Hotel in Bellevue, Beardall provided a global and local mid-year update on changes and growth in the region and the reaction of the economy.
Contrary to forecasts from the previous year, Beardall spoke less about the fallout of the COVID-19 pandemic to focus on more forward-looking topics. The main reported concern was the rate of inflation, which he said is seeing its biggest increase in more than 40 years.
“Toto, I feel like we’re not in Kansas anymore,” Beardall joked of the drastic push. “The world has changed – it has changed dramatically, and it has changed rapidly.”
Consumers are certainly feeling the pressure at the gas pump, but also at the dealership where Beardall said 82% of new vehicles are sold above list price. The pressure is felt elsewhere too. Overall, Beardall said inflation hit 8.6 last week – the highest since the early 1980s.
“Part of the reason for that,” he said, “is that Federal Reserve officials were sadly mistaken when they saw the first signs of inflation. They said it was transitory. , that it would not be sustainable. And they were unfortunately wrong, at least in the short term.
Beardall also cited an imbalance of supply and demand, labor shortages, record early retirements, a lower influx of immigrants and a declining birth rate in the society as additional factors of sudden compression.
Turning to real estate and using the example of a $1.6 million Bellevue home – the average home price in the city according to Beardall’s data – he explained the increases in mortgage rates thus: In December of last year, the interest rate was around 3.5% and your monthly payment was $5,748. Think about what will happen if you’re just willing to pass the interest rate increase on to your mortgage. This means your mortgage goes from $5,700 to $7,700, which is a 35% increase in your mortgage payment to buy the same house.
If a buyer wanted to increase their down payment to offset that rate increase, Beardall said they would have to shell out $334,000 up front. For some consumers, Beardall said up to 70% of their income could just be spent on housing in today’s market.
“If you were to ask me, ‘Brent, are you nervous about home values when you have $6 billion in single family loans on your books?’ Of course I’m nervous about home values,” he told the hybrid audience. “But do I think it’s a bubble? No. Because if you’re in an environment inflationist, what do you want to own? Real goods.”
In equity markets, Beardall reported that last week markets entered bearish territory, generally defined as a 20% decline from its peak.
“I like to look at not just the absolute level of stocks in the market, but I like to look at price versus earnings,” he said. “How are stocks valued relative to what they earn? We went up to about 40x price versus earnings on the S&P 500. It fell quite dramatically, down to just over 20x. I think the long-term average is around 15 times price to earnings. So there is still a long way to go.
Too many speculators and not enough investors are part of the problem, according to Beardall.
“What is the speculator? Someone who invests blindly, who doesn’t understand the fundamentals,” he said. “I think fundamentals are important and over time this will play into the impact of programmatic buying and selling increases. We’ve seen that more and more. I think a 20% correction provided valuable opportunities.
Moving on to cryptocurrency, Beardall showed a screenshot of a Crypto.com ad featuring Matt Damon that aired during the Super Bowl earlier this year, in which Damon sings the “four simple words that have been whispered by the fearless since the days of the Romans: Fortune smiles on the brave” .
The cryptocurrency’s valuation at the time the ad aired was just under $60,000, according to Beardall. Today the value is around $21,000. Citing these numbers, Beardall recalled previous economic forecasts, during which he called for caution regarding crypto.
“It’s good to finally be right if you’re stubborn enough like me,” he said with a laugh. “For those of you who have heard me over the past few years, I have said that cryptocurrencies are the biggest Ponzi scheme of my life. And I think it is coming to fruition.
The crypto is so volatile because it doesn’t have a redemption source, “unless there’s a bigger sucker than you,” Beardall said.
He went on to point out that at the start of this year, the cryptocurrency market had a market capitalization greater than all the banks in the United States combined. “Let it sink in,” he said. “Now there is a reason to come to market.”
Other topics discussed at the event centered on banking, jobs and the recession – the latter of which Beardall said could be a healing moment for economic recovery.
Over the coming year, Beardall foresees several reasons for optimism, including substantial job growth coupled with a talented regional workforce, an “unheard-of” economic surplus for the city, and the state, the advent of new automation technologies and the general entrepreneurial spirit of the population. .
The economic forecast event was the last of the Chamber events for the season, according to Chamber President and CEO Joe Fain, who came to close the program.
“It’s a bit tough to finish, but definitely one that sends us a bit more prepared out into the world to see what happens,” Fain said.
Visit the Chamber online for future events.