You would think that the trauma in Greece, collapse of the Chinese equities markets, and serious prospects of a rate increase from the Fed would be enough to throw a wrench into the US economy. But, apparently, you would be wrong. Despite all of these things, and any number of other global concerns, the US economy and domestic equities markets seem to be taking it all in stride.

This is not to say that none of these events has had any impact on the economy or the markets. After peaking above 18,300 in mid-May, the Dow Jones is now down to under 17,700 with a few peaks and valleys along the way. The turmoil in Greece and the volatility in the Chinese equities markets have both had an impact on a global economy that is ever more inter-connected.

Ironically, some of the problems abroad have proven to be beneficial domestically. Perhaps the most obvious example of others' pain translating to our gain is commodity prices. They are almost uniformly down, due to slowing economic growth in Asia and the turmoil in the Eurozone. Crude oil is once again trading for less than $50 per barrel which has resulted in lower gas prices for the American consumer and additional buying power elsewhere. Slowing industrial production in China has pushed down prices for basic commodities everywhere, hurting such commodity-dependent countries as Brazil, Australia and even Canada. But in the United States, at least outside of the Oil Patch and Mountain West, lower commodity prices mean lower costs for manufacturers and higher profit margins on manufactured goods.

A strengthening dollar has been more of a mixed blessing. Imported goods have become less expensive as the dollar has strengthened relative to other major currencies, particularly the Euro and the Chinese Yuan. While cheaper imports are clearly beneficial to the American consumer, the same cannot be said for American manufacturers whose products are now more expensive on world markets.

But unlike many countries with large export sectors, the US is also a huge domestic market, still by far the largest on the planet. So, those US manufactured goods may now cost more in Germany and China, but they don't cost any more within the confines of the 50-states. The simple truth is that the US has more built-in economic resilience than any other economy.

So, what's next? One thing that seems pretty close to a sure bet is an increase in short-term borrowing rates. The Fed has held these rates near zero since the onset of the Great Recession. But that amazing run appears to be about to end. There are three more FOMC (Federal Open Market Committee) meetings this year, in September, October and December. There is almost universal agreement that the Fed will use one of these meetings to hike rates. The continued growth of the American economy, and the prospects that this growth will finally start to create inflationary pressures as labor markets finally begins to return to some semblance of full employment, can no longer be ignored. Barring some new economic shock, you can pretty much count on the beginning of a higher rate environment.

So, what does all this mean for our RPBG members? One obvious conclusion seems to be – if you've been thinking about refinancing your property, now would probably be a very good time to get going. No one anticipates rates jumping up, but the trend seems clear. It's hard to imagine that the current low rates are going to persist very far into 2016. One final piece of advice – enjoy the rest of the summer. We never get enough in these parts, so take advantage of it while it lasts.

Steve Cain
RPBG Director

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