The Fed, Wall Street and Sesame Street

Please repeat after me….The Fed does NOT control the level of long-term interest rates….the Fed does NOT control the level of long-term interest rates…..the Fed does NOT control the level of long-term interest rates. The Fed IS able to change the rate of the overnight Fed Funds rate and today lowered the rate by 50 basis points to 3.00%. The overnight Funds rate is very important to banks as it represents the price of money borrowed from other US banks for one night. In the past 8 days the Fed has lowered this rate by 125 basis points from 4.25% to today’s level of 3.00%. Unfortunately for corporate and individual borrowers the 10-year US Treasury rate has risen in the same 8 day period with a move of 20 basis points from 3.44% to today’s level of 3.64%. I’m sure the Fed would rather have long-term rates following the Funds rate lower but long rates are influenced by inflationary expectations NOT the overnight Fed Funds rate. This is frustrating and confusing for the typical mortgage borrower as press reports of Fed action always lead to expectations of lower long-term rates.

The long end of the US government bond market was judge and jury for the Fed in the early 80’s when the Fed was lead by inflation slayer Paul Volcker. At today’s rate of 3.64% the 10-year is composed of an inflation expectation component of 2.31% and a real expected growth rate of 1.33%. On the surface these rates seem normal but when we review the last few weeks of market activity it becomes obvious there is a growing problem that the Fed will soon face when deciding upon future changes in the Funds rate. On December 26th with the stock market at much higher levels the 10-year was trading at 4.28% with the inflation component at 2.35%. Today we are 64 basis points lower but the inflation component has fallen only 4 basis points. The stock market is lower, the Fed has cut the Funds rate by 125bp but inflation expectations are unchanged. Would former Chairman Greenspan have eased this much in such a short period of time? With the Funds rate at 3.00% the Fed doesn’t have much more room to maneuver and the closer we get to 0.00% the more the markets will begin to worry that the Fed’s ammunition no longer has the effect on the economy it had in the past 25 years.

The yield curve

Three weeks ago I wrote about my best bet for 2008 with the spread between the interest rate on the 2-year versus the 10-year widening to much higher levels. On January 7th this spread was 108 basis points. Today that spread is at a new high of 151 bp for the year with the 2-year at 2.13% and the 10-year at 3.64%. This spread will widen dramatically if inflationary expectations continue to rise while the Fed continues its easy money policy. The Fed has a dual mandate of economic stability and low inflation but they seem to be focused entirely on an impending economic contraction. I am very concerned that the Fed has lost its leadership role and is now playing a game of “follow the leader” as it changes the Funds rate based on declines in the stock market. It reminds me of the popular PBS children’s show “Sesame Street” where Big Bird leads the neighborhood children on a merry march to visit his pals. Of course everyone is happy and singing and that seems to be where Big Ben sits tonight as the stock market leads the Fed to the destination (lower Funds rates) it desires. While Wall Street leads the Fed, the bond market has begun to bristle because lending money to the government is only a good investment if the interest rate is higher than inflation until final maturity. The Fed is totally focused on improving banks profitability so balance sheets can grow enabling banks to lend money again to its best borrowers.

Jobs are growing?

Friday’s jobs number is important because last month’s weak number sent the stock market tumbling and bond prices soaring and forced the Fed into panic mode. Expectations (based on today’s ADP report) are for an increase of 150,000 which would send those predicting an imminent recession back into the hole they were hiding in before last months report. The government is notorious for huge revisions to these reports but Friday’s report is for January and that has been the one month of the year where the seasonal adjustment number (birth/death model) has been negative. The markets are not set up for a disappointment in the number and I would use any decline in the 10-year towards the 3.50% level to lock any loans (for mortgage players). The weather in January was unusually warm in most parts of the country but this shouldn’t have too much positive effect on the jobs number.

The British Pound

The Pound continues to act weak considering the Fed is easing and thus widening the spread between British and US short-term rates. A few minutes before today’s FOMC announcement the Pound was at 1.9854 and now is trading at 1.9850 after bouncing to 1.9950 after the Fed’s announcement. A great rule that has stood the test of time is….When a market doesn’t rally on good news (Fed cut) it is going to fall fast on any other news and I continue to expect a dramatic fall for the Pound this year to the 1.80 level.

Housing and mortgages

Yesterday the House passed a bill that would raise the conforming limit from $417,000 to as high as $729,750 in expensive home areas. This increase would expire on December 31, 2008. The Senate has yet to pass anything and I remind everyone that there will be a conference committee that will ultimately decide the fate of this provision or initiate a completely different limit level. I’m sure mortgage brokers, real estate agents and home owners are dreaming of a big pay day or lower mortgage payments but be careful because long-term rates may be higher and the value of many houses have fallen to levels that make it impossible to refinance. The key to a housing bottom is NOT interest rates; rather the availability of credit and a perception that prices have stopped falling.

Watch the flag

The yellow flag is flying as a cautionary sign to everyone that 2008 will not be an easy one for those who need long-term interest rates to hit new lows. The Fed is done for now but unless Big Ben stops following Big Bird long rates will rise thus increasing the spread between long and short-term interest rates. This is great news for banks (big profits) but bad news for an economy that needs the oxygen of credit to have any chance of avoiding the worst economic contraction since 1932.

Ben Bernanke goes fishing – part 2

The Fed’s early Tuesday cut in the overnight Fed Funds rate by 75 basis points to 3.50% was a direct result of panic that hit worldwide stock markets on Monday. Although the markets are expecting further cuts at next week’s FOMC meeting I disagree as long as the stock market continues the short-term rally that began on Wednesday afternoon. The Fed has NOT completed its easing and will continue to lower the Funds rate in steps throughout the remainder of this year. The Fed can control overnight interest rates but long-term rates are always a function of inflationary expectations and an expected real rate of economic growth. At today’s close of 3.71% the US 10-year is made up of an inflation component of 2.25% and a real rate of 1.46%.

The bell has rung…

How did I know that long rates had bottomed yesterday & 2 hours before it actually occurred? It is often said that when you study something one hour a day for a year you are an expert. I have studied and observed interest rate movements 12 hours a day for the past 40+ years and much like any other business person you develop “gut instincts” and after watching the move down in the 10-year from 4.28% on December 26th to yesterday’s low of 3.31% it was an easy call. A move down of 97 basis points is enormous but when it occurs with only a 13 basis point improvement in inflation expectations it’s time to head for the exit door. Do you remember May/June 2007 (see archives May 2007, June 2007) when the experts were predicting a strong economy, no Fed easing and much higher long-term rates? I wrote that the economy was slowing and the rise in the 10-year to 5.26% in early June was NOT followed by an increase in its inflation component. It was another easy call but one that was missed by everyone except EWW readers.

Next weeks Fed meeting

There are hundreds of pieces that make up my forecasting model and one important part comes from interest rate movements in the five days before and after each FOMC meeting. It is a foreign language to most but I find the market’s expectations of Fed policy to speak volumes about the direction of long-term interest rates. The long end of the market is much like a judge and jury for the Fed and in 2007 the five days before each meeting showed a cumulative increase of 44 basis points while the five days after showed an increase of only 24 basis points. The market’s verdict was uncertainty before each Fed decision and then a realization after each meeting that the Fed was operating monetary policy in a way the markets could understand and use for future business and investing decisions. I know this is very complicated but educating my readers is my top priority, if readers understand why something is happening and then take action counter to the majority then I have done my job. I read 27 newspapers from around the world each morning because it’s important to know what everyone is thinking….The first two days of this period before next weeks Fed meeting are showing extreme uncertainty as the 10-year has risen 23 basis points following the similar trend of the past 12 months. I do NOT expect any change in the overnight rate from the Fed next week unless the stock market resumes its sharp decline that ended on Wednesday. The 3-month Libor rate is at 3.24% which is 26 basis points below the Funds rate and is clearly anticipating more Fed cuts this year and giving adjustable rate borrowers much relief with lower mortgage payments.

The Fed must continue to lower the Funds rate

Fed Chairman Bernanke has very little choices remaining in his attempt to stimulate the US economy. Much like the fisherman out to sea for days, it’s a matter of catching fish or not eating. The Fed must find a way for US banks to replenish their capital and the best way is to rapidly increase profits from lending. Because the securitized market for loans is frozen corporate and personal borrowers are flooding banks with loan applications with lenders funding only the best quality proposals due to swollen balance sheets. The biggest banks are selling new shares to raise capital which is not very comforting to current shareholders (dilution). Smaller banks don’t have the same opportunities available and many have found their traditional outlets (originate to distribute) no longer able to purchase their loans. It’s not a quick answer but probably the only solution and the Fed can control part of the equation. By lowering the overnight Funds rate the Fed effectively reduces the cost of funds for all banks and because we have a positively sloped yield curve (short rates lower than long rates) banks are able to increase their profits by borrowing at low rates and lending at much higher rates. It won’t happen overnight but is a much better way to increase capital than selling pfd. equity or debt at high rates. When and where does the Fed stop? When the fish start biting….when bank balance sheets begin to improve….when corporate borrowing begins to pick up because of expansion plans…..we are a long way away but at least the Fed has begun the process….

Our best bet for 2008 is a HUGE winner

On January 7th (see archives) I wrote that the best bet for 2008 was a widening yield curve where the spread between the US Treasury 2-year and 10-year would increase dramatically as the Fed continued to lower the overnight Funds rate. The spread was 108 basis points on the day of my recommendation and tonight is at 140 basis points for a profit of 32 bp in just 2.5 weeks. Of course there are no guarantees but the only way this spread narrows is if the Fed raises the Funds rate and the chances of that are probably near zero in 2008. I do NOT see long rates (10-year) moving up dramatically over the next few months because a low Funds rate will act as an anchor on the long end but we probably have seen the lows for the year (3.31%) on the 10-year.

The British Pound is getting ready to tumble

My 2nd best bet for 2008 was a dramatic fall in the value of the British Pound against the US dollar. Trading at 1.9760 tonight it should see serious resistance at the 1.98-2.00 level where it looks like a great sale for a move to the 1.80 level before the end of this year. The Bank of England will soon be forced to ease short-term interest rates as it follows the Fed and tries to slow the descent of consumer spending, housing prices and mortgage problems.

Real estate prices and mortgage rates

Do you remember last year when I continually wrote: “Strap on your seat belts for a bumpy ride that won’t end soon”? We only see life from our own experiences and since real estate prices always rebounded in the past to new highs the phrase “it’s always a great time to buy real estate” was born because it was always true. This period in economic history will be remembered for the destruction of financial wealth that occurred because investors believed that history always repeats. 2008 will bring a counter cyclical rally in the economy, stock market and real estate with many believing the worst is over. Unfortunately history will not repeat when it is needed and 2008 will prove to be a ledge that breaks in 2009-2010 and preserving wealth will be the biggest winner rather than trying to take risks that worked so well in the past 20 years. Enjoy the brief respite this year as the worst part of the credit contraction cycle remains ahead of us…..

Ben Bernanke goes fishing – part 1

I have often written that the only advantage of old age is experience and that has surely been of benefit to my readers in the first couple of weeks this year. This morning the Fed announced a 75 basis point cut in the overnight Fed Funds rate to 3.50%. It was almost 24 years ago when the Fed last changed the Funds rate in between meetings of the FOMC and 27 years ago the change was 75 bp. I have vivid memories of late 70’s/early 80’s when market interest rates would change 50bp in a few hours. It is often said that history repeats itself…but I add “not when you are expecting.” It is painfully obvious to everyone in the financial markets that the Fed is following the stock market and not leading as we witnessed under the Greenspan era.

The past, present and future

It’s important to review the past to understand the present situation and forecast the future of the economy and interest rates. 2007 saw the Fed misread signals of impending weakness from the housing sector and then compounded their mistake by announcing the weakness would not spread to other parts of the economy. The interest rate market bought into Fed talk taking the 10-year to a high of 5.26% on June 12th. With the US stock market using every decline to fuel the next advance to new highs the Fed became confident that they were meeting their dual mandate of a strong economy and low inflation. As we wrote numerous times last year, the 2nd half of the year would begin to see a bleeding through of housing problems into the mortgage security area. This Fed has used the stock market as its barometer of economic health and with new highs reached in October the Fed saw it continued its policy of slow declines in the Funds rate.

The Fed should have been watching the yen/dollar rate as it would have been given advance notice that something was terribly wrong in financial markets. The yen was used for a massive “carry trade” for hedge funds and other institutional investors who were able to borrow in Japan at rates under 1% and invest the proceeds in higher yielding instruments and currencies that included the US stock market. The key indication that something had changed occurred in mid-October when the US stock market rallied to new highs but the Japanese yen came nowhere near its lows for the year.

By the end of last year the US stock market was holding on by a thread with the hope that the first few weeks of the new year would bring new investors and capital like had happened almost every year. Friday January 4th was a sea change for almost all worldwide markets with an employment report that clearly showed a slowing in the most important part of the economy. If you lose your job it’s doubtful you will be able to spend at the rate you did when you were employed. The refinance boom in home mortgages ended last year as lenders found the originate to distribute model was broken and couldn’t be fixed. Jumbo rates rose to much higher levels than conforming (417M) and lending became more difficult for all but the most credit worthy borrowers. Needing liquidity and fearful the economy had entered a recession investors ran for the exits and stock markets fell hard with the deepest declines occurring the last two days. The Fed was caught flat footed and had no choice but to take action this morning. Next week’s FOMC meeting should see no further action by the Fed unless the US stock market continues its steep fall another 5%. It’s doubtful we saw a strong intermediate low today but it was a good first step toward the slowing of the decline and a better bottom should be seen after the jobs number on Friday February 1st.

Can the Fed catch the big fish?

Today’s cut in the Funds rate by 75 basis points is similar to a fisherman adding a few poles and changing bait in his attempt to land the big one. The key to a growing economy is credit and its availability to borrowers. Price (interest rates) is irrelevant if lenders can’t expand their balance sheet due to having too much “junk” that they had to take back from their originate to distribute model. The Fed has only one tool (short term interest rates) that can influence economic activity and has no idea if they need to lower the funds rate to 3%, 2% or 1% or even 0.01% (Japan). They can only hope and pray that corporate borrowers will want to grow and expand their businesses enough to need credit. The fear level at the Fed will increase with every Funds rate cut that does NOT stimulate demand from borrowers……..

What’s ahead for 2008 is in part 2 to be published on Thursday, January 24th.

2008 begins weak but should end strong

Our publishing schedule for 2008 has been changed to each Monday at 5pm. The daily e-mail will continue to be sent Sunday through Thursday evening at 10pm and covers issues that are important for those with a shorter time frame. For subscription details … I will be teaching four interest rate classes this year with dates in February, May, September and November. Each class will be held from 6pm-9pm. Details in next weeks EWW.

Last week the EWW announced its 2008 forecast and our #1 surprise for the year was that the spread between the 2-year and 10-year Treasury would increase due to Fed easing. One week ago this spread was 208 basis points and now stands at 222 bp as the widening trend accelerated due to the market’s realization that the Fed is behind the curve and will lower the overnight rate many times before the end of this credit cycle. The key word is “realization” as markets move in three distinct phases of anticipation, realization and then reaction. The anticipation stage can be the most frustrating for investors as the time frame usually requires extreme patience as one waits for what appears to be obvious to begin…..much like what we experienced in 2007. The EWW warned readers in late 2006 and early 2007 that we were headed for a severe economic contraction. When the “experts” were telling everyone that it was just a sub-prime problem we stood our ground and now many months later see the realization phase of the cycle beginning with the jobs report that was released 10 days ago. The unemployment rate rising to 5.0% sent most eternal optimists seeking shelter and investors running for the crowded stock market exit door. The realization stage will not end quickly as many more months of sour economic statistics will confirm what we knew last year, a recession has begun and won’t end soon. Finally we will see the reaction stage where frustration increases and many begin to believe that the economy will never recover. We are nowhere near that final phase when markets begin to discount the future and not react negatively to bad economic news. So get comfortable as it is going to be a very long and bumpy ride with very few arriving in one piece at the station.

California’s fall picks up speed

The State Controller’s office this afternoon announced tax collections for December dropped dramatically led by a fall in corporate income taxes. Sales tax collections were $40 million lower than a year ago and corporate taxes were $649 million lower than December 2006. Overall tax receipts were $545 million lower than the most recent budget estimate and that will send the governor and legislature into a panic over much needed but politically painful spending cuts. The good news is the realization phase of the cycle almost prohibits a legislature from raising taxes as they attempt to find a way to stimulate consumer spending.

The $417,000 debate

Mortgage brokers, real estate agents and homeowners will want to read today’s report from OFHEO (Federal Housing Authority) which argues against raising the conforming limit ($417,000) for one year. The report does acknowledge the wide spread between conforming and jumbo loans but only discusses the risks to Freddie and Fannie Mae instead of the benefits to the economy. I wouldn’t expect anything else from a government agency but because it’s an election year I expect Congress to step up and raise the limit to 1MM for at least six months. The day this occurs there will a BIG party held by those in the real estate business.

The Fed head visits Congress

Mr. Bernanke will testify before the House Budget Committee on Thursday, January 17th at 7am. The Fed has spent the year catching up to the interest rate market and Big Ben must show the world financial markets that the Fed will use its most powerful tool (Fed Funds rate) to attempt to offset the credit contraction that begin just over six months ago. The next FOMC meeting on January 30th should produce a 50 basis point decline in the overnight rate (currently 4.25%) and the Fed will continue the easing until we drop to at least 3.0%. It is important to note that the three month Libor rate closed at 4.06% rate today and that is 19 basis points lower than the current Funds rate. Of course the Libor market is discounting the next Fed move but that would leave Libor only 31bp above a 3.75% overnight rate which is down considerably from what we saw in December. The Fed’s TAF (Temporary auction facility) has worked well to lower the Libor/Funds spread as they have sold T-bills and replaced them with bank borrowings in their own Fed portfolio.

Inflation, retail sales and housing

The next four days will produce much economic news beginning with tomorrow’s wholesale inflation and retail sales reports. Wednesday we will see retail inflation and Thursday housing starts and building permits. The news is important but the markets are so far ahead of the news that it will produce relief that there are no surprises. With massive monthly revisions from most government news reports (jobs, etc.) the markets have become their own barometers of economic weakness. The stock market’s decline is clearly overdone and the financial sector has discounted more than will actually occur in the next few months. Watch for rallies on bad news for a sign that the worst is over for now. Tomorrow Citibank is expected to announce massive job cuts, losses in mortgage securities and a dividend cut. This is not an investment newsletter and is not a recommendation but one has to wonder if the news occurs as expected will there will be anyone left to sell???

Summary

Today the 10-year T-Note reached a new low of 3.77% but appears to need a rest before making the next move lower (later this year) towards the low 3% range. The markets have done an excellent job of discounting the bad economic news that we have seen in the first two weeks of this year. The realization phase has begun and for many who boarded the train early it may be time to take a few profits and wait for the next train on this long economic journey.

2008 – A year of uncertainty

Our publishing schedule for 2008 will be changed to each Monday at 5pm. The daily e-mail will continue to be sent Sunday through Thursday evening at 10pm and covers issues that are important for those with a shorter time frame. For subscription details …

The first issue for 2008 is important because so many markets appear to lack a sense of direction as we begin a new year. Normally I keep my remarks to the economic arena but the apparent dramatic change in the leadership of BOTH political parties may have had an impact on last Friday’s stock market action. The low jobs and high unemployment report created most of the headlines but beneath the surface it’s uncertainty that has so many investors rushing to the sidelines or into the safety of US Treasury bonds.

The song doesn’t remain the same

Last year the EWW projected early that long-term interest rates would begin a dramatic fall after June 30th to a projected level of 3.70% (10-year). Rates did plunge in the second half of the year to a low of 3.84% on November 26th. This year the path won’t be as smooth and will have many twists and turns that will make timing an important part of any interest rate strategy. The inflation fears that have the Fed and commodity players worried will be replaced in the second half of the year with the realization that the economic contraction that began in 2007 has brought a lessening of consumer demand and a deflationary trend not seen for over 25 years. The strong seasonal pattern of rising rates in the first six months of the year followed by declining rates in the second half of the year will be offset by an economy suffering from a lack of credit similar to the Japanese economy in the early 90’s. For many borrowers the availability of funds will be a more important issue than the timing of rate cycles as bank balance sheets become the determining factor for loan programs. Although we have seen a sharp increase in both commercial and real estate loans made by banks in the past few months this is NOT an indication of a growing economy but rather stress in the lending arena as many players try to stay afloat. Friday’s Fed H.8 report showed in purchased deposits and borrowings from banks that must raise capital quickly or cease to exist as normal lenders to the businesses they normally service in their communities. I would strongly urge business owners to have their current bank reaffirm outstanding credit lines and be open to proposals from lenders that have available $$$ for future needs. This year long-term interest rates will fluctuate in a downward sloping range but availability will be much more important than rate to all but AAA borrowers.

Housing

The theme of this letter has always been “we only see life from our own experiences” and that means that most predictions of the future are a function of our past. Bear markets are rare in real estate and as we wrote last year tend to be long and painful affairs. The biggest difference from a bull market is that we don’t see a crash or sharp sudden drop in prices that is almost always followed by an increase in prices that finds new highs within a short period of time. We are in the early stages of a secular (not cyclical) real estate bear market which should see a flattening of house prices for the remainder of 2008 and then another leg down in 2009 washing out all but the bravest of speculators. Unfortunately real estate’s biggest negative is the fact that price discovery is not as easy to determine as that of the stock, bond, currency and commodity markets. This tends to stretch moves both to the up and downside as buyers and sellers move to the sidelines waiting for new information. The other major problem with real estate is that there is no effective way to sell short or bet on lower prices. Most traders of stocks, bonds, commodities, currencies, etc. doesn’t care which direction is next as long as they are on the right side. It places real estate in a position where everyone bets on higher prices and that makes it almost impossible for anyone to be objective about price levels. A familiar refrain from many real estate agents in early 2007 was: “Prices are the cheapest they have been in many months so it’s time to buy….at the end of the year it changed to: prices are the cheapest they have been in a couple of years……in 2009 this will change to: prices are the lowest in many, many years. Buyers in early 2007 are not happy that prices have fallen and if you must buy in the next couple of years it is imperative that your leverage be minimized. I expect the conforming loan limit (417M) to be raised in the next few months (1MM?) which will allow many to refinance their mortgages to lower monthly payments. The current mortgage mess is NOT about sub-prime or option arm resets but the fact that home prices are declining and will continue to slowly fall for a number of years. Many home purchases that were made at 80-90% loan to value are now at 100% or more and can’t be refinanced at any rate unless the lender allows the amount above 100% to effectively be non-collateralized.

Recession

The most often used word in 2008 will be recession. I’m not sure why anyone cares about whether we are in a recession or not….would you change your spending, saving, investment behavior if it was announced the US is in a recession? If yes, be very careful as the official source (NBER) makes the actual designation after we have come out of a recession and at that time it is irrelevant except to economic historians. If you are in the mortgage business it feels like a depression, if you are in the oil business your services are in demand and the average consumer’s confidence is more about their individual situation and the recent trend of the stock market. The recession talk has created uncertainty for investors and become a hot topic for those running for election. We will learn next year that the recession began in late 2007 but that does nothing to help forecast trends for this year.

This year’s surprises

3) Commercial real estate becomes a much bigger problem than residential as the government can influence lenders ability to make home loans. With home prices stabilizing we should see relief from the twins (Fannie & Freddie) who desperately need to increase their capacity to loan funds to home and apartment buyers. The commercial market is driven by the supply of available funds at competitive interest rates, 1031 tax advantaged transactions and foreign demand caused in part by a cheap dollar. The mortgage backed securities market which funds the majority of these transactions has been “frozen” for almost six months and I see a very slow thawing process that will halt many possible sales from being completed this year.

2) The dollar will surprise the majority and increase in value especially against the British Pound currently trading at 1.97. The lending and mortgage problems will soon have a dramatic effect on the British economy and the pound could easily fall to 1.80 in the next few months. With English short-term rates sure to decline, the differential between US and British rates will narrow thus driving funds back across the pond.

1) The best bet of the year comes from the US where a widening yield curve seems to be the only chance the Fed has of slowing the fall in economic activity. This will also give banks the opportunity to lend with cheap funds from the Fed. Mr. Bernanke will continue his easing policy and lower the Fed Funds rate to at least 3% before the end of the year. The 3 month T-Bill rate closed today at 3.24% and the ten year at 3.84% or a spread of 60 basis points. The 2 year/10 year spread is 108 basis points and a continued Fed ease should drive these spreads to much wider levels. Unless you believe the Fed is going to turn around quickly and begin to tighten (raise short rates) due to economic strength? The Fed’s monetary course for the remainder of this year is set. The direction of the curve is up and once in motion the yield curve tends to trend in the same direction for years.

This is a year where the biggest profits will arrive for those who take the least amount of risk. It’s time to get behind the Fed and its 2008 easy money policy and reap the rewards from the uncertainty of most other global markets.