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8-Weird Tricks to Crash the Real-Estate MarketSo one of my daily rants got long enough to warrant a Medium post. Whether you agree with it or not, I think I do have a plan mapped out for myself, at least financially speaking. The tl;dr is that underlying trends don't really look good for the US real-estate market right now, despite record high gains in the last few years. Or maybe it's more accurate to say that the record gains is what *is* going to cause it to crash later on. Just like with #crypto, except more unpleasant, because it's tied to so many more things, and people. When, I don't know. But "if" is no longer a question for me anymore. ryangtanaka.medium.com
COINBASE:ETHUSDLong
by RyanTanaka
Housing - Bubble PopIdea for Housing/REITs (VNQ): - The Housing Market will crash. I am short REITs. - Lumber rose 400% in a year during a global crisis and then dropped 50% in a month... This is not a correction, but a bubble pop. - China reining in commodity prices. They announce that they will soon release state stockpiles of metals: www.bloomberg.com - State firms ordered to curb overseas commodities exposure. - Fed continues MBS purchasing with QE, despite RRP skyrocketing. Why? The MBS and Housing bubble is critical, and it is ready to collapse. - Homebuyer sentiment drops to 10 year low: finance.yahoo.com - Homebuilder sentiment declines to reach a 10 month low (NAHB): news.yahoo.com - Housing prices being speculated such that locals are priced out of the market. Institutional investors and State-backed institutions buy up neighborhoods as they seek yield in an overheated global market. - The Credit Cycle has turned down, and the liquidity flows have been shut off. Institutions can no longer bid up their own assets. - As commodities prices crash, it will become cheaper to build a house than to buy one off the market, leading to increasing supply and decreasing demand. - When housing no longer provides yield, institutions will dump their assets onto the market and prices will crater. - MBS's and Lumber leading the crash, the REITs will soon get the hint. GLHF - DPT
Editors' picks
AMEX:VNQShort
by UnknownUnicorn1043646
41
EURUSD 8-1 Long- Continued US InflationHere is trade set up on EURUSD based on current US numbers. With job numbers shrinking and an increase in wages and CPI the US dollar will likely continue to suffer. Furthermore, a stalled housing market and retail participation is concerning for the economy. I expect that these domestic changes will cause some more upside momentum for EURUSD. Add the seasonality index of the US dollar to this and this seems to be a good 1-2 week trade with plenty of upside potential.
Long
by crawfordpaul
Home Depot Undercuts and Holds Recent LowHousing stocks like Home Depot pulled back hard in May as the real estate market slowed. However, the bears may be throwing in the towel. The main pattern of interest on this chart is support materializing around $310. This was near the low on May 19, the same session that HD bounced at its 50-day simple moving average (SMA). It’s also near a price gap on April 5, immediately after the long Easter weekend. While this price area isn’t very obvious, stabilization here could be bullish. After all, HD just broke support at its 50-day SMA. That should be bearish, but where are the sellers ? Perhaps there are none. Next, housing stocks were overbought a month ago and had a sharp pullback. (HD’s 7.1 percent crash on May 11-12 was its worst two-day drop in over a year.) But now volatility is ebbing. Finally, stochastics have been in oversold territory. The overall macro environment remains positive for housing. Interest rates have calmed and the economy continues to improve. Numbers like starts and sales were very weak in April, but the underlying supply/demand balance remains favorable. That may draw more buyers to HD in coming weeks if it remains above the $310 area. TradeStation is a pioneer in the trading industry, providing access to stocks, options, futures and cryptocurrencies. See our Overview ​for more.
NYSE:HD
by TradeStation
Normalization Places Fresh Pressures on the Spring Selling Seaso{repost from my blog which includes screenshots and charts} Housing Market Intro and Summary The Spring selling season looked like it started strong for new home sales. The data for April reveal a story evolving differently. Absolute inventories rose for both existing and new homes and yet sales declined. Housing starts also suffered a setback. Median prices of homes soared, especially for new homes, as sales skewed more toward the higher end of markets. Home builders face increasing cost pressures and buyers lament affordability challenges. The stocks of home builders also felt the pressure in May during a sharp 2-day pullback. Yet, with mortgage rates still near record lows, sentiment remaining high among home builders, and the tailwinds of strong housing demand still blowing, the current “cooling” resembles an overdue normalization of the housing market. Important trends continue to point upward for now. Housing Stocks The iShares Dow Jones US Home Construction Index Fund (ITB) fell 1.8% in May for a rare down month. I finally brought my seasonal trade on home builders to an end given the sharp pullback in May and the softening housing data. ITB remains in a strong uptrend given support at its 50-day moving average (DMA) (the red line below) remains intact. However, I concluded the risk/reward no longer favors the seasonal trade with normalization placing fresh pressures on the Spring selling season. I made one last trade in ITB June call options during the May dip. Per the seasonal trade, I now look toward October/November to get aggressive on trades in housing-related plays. The iShares Dow Jones US Home Construction Index Fund (ITB) lost 1.4% as it continues to pivot around its 50-day moving average in an extended trading range. {The iShares Dow Jones US Home Construction Index Fund (ITB) survived its sharp May pullback with a successful test of 50DMA support.} Toll Brothers (TOL) joined the ranks of stronger home builders with a solid 3.8% post-earnings bounce. TOL looks poised to challenge its all-time high set in early May. {Toll Brothers (TOL) only closed below 50DMA support once during the May pullback. The overall uprtend looks well intact.} Century Communities, Inc. (CCS) held onto its post-earnings momentum through the May pullback. CCS even ended the month hitting a new all-time high. {Century Communities Inc (CCS) maintained a firm hold of its uptrend as defined by the 20DMA (the dotted line above).} Lennar Corp. (LEN) is one of the home builder stocks that suffered most from the May pullback. LEN lost 7.1% on the day it sliced through 50DMA support. The stock traded down to a 2-month low before bottoming. The stock now faces overhead resistance converged at its 50DMA and downtrending 20DMA. While a fresh 50DMA breakout would suggest new light for the home builder trade, I will stay neutral even at that point. {Lennar Corp. (LEN) is still trying to recover from the May pullback which plunged the stock into a 50DMA breakdown.} Housing Data New Residential Construction (Single-Family Housing Starts) – April, 2021 The February data showed softening for single-family housing starts. Starts normalized and returned to the year ago levels and the existing uptrend. March starts bounced smartly off the uptrend, but April starts dropped right back to February levels. While the monthly drop seems alarming, I continue to interpret the data as part of a process of normalization. Starts soared well above trend last year and are now returning to trend. Single-family home sales dropped to 1,087,000 which was 13.4% below March’s 1,255,000 starts (revised slightly upward from 1,238,000). Starts were 58.7% above last year’s pandemic impacted starts. The rate of year-over-year change has remained positive for ten straight months. {Source: US. Bureau of the Census, Privately Owned Housing Starts: 1-Unit Structures , first retrieved from FRED, Federal Reserve Bank of St. Louis, May 30, 2021.} The Northeast led all regions with year-over-year gains. Housing starts in the Northeast, Midwest, South, and West each changed +247.8%, +44.7%, +43.6%, +81.5% respectively year-over-year. Existing Home Sales – April, 2021 The report on existing home sales included the classic signs of a housing slowdown: an increase in inventory accompanied by a decline in sales. So far, I have yet to read a satisfactory explanation for this divergence (for example, did California’s jump in inventory and sales skew the numbers?). Existing home sales dropped to levels last seen July, 2020 and have yet to respond to the start of the Spring selling season. The seasonally adjusted annualized sales in April of 5.85M decreased 2.7% month-over-month from the downwardly revised 6.01M in existing sales for March. For the second month in a row, the National Association of Realtors (NAR) blamed the monthly drop in sales on insufficient inventory despite an increase in absolute inventory. The NAR looks forward to more inventory with “the falling number of homeowners in mortgage forbearance”; a looming an unwelcome event for many households. Year-over-year sales increased 33.9% over last year’s lockdown-impacted sales. Normalization for existing home sales includes a topping pattern. {Source: National Association of Home Builders (the NAHB’s record of the NAR existing homes data)} The absolute inventory level of 1.16M homes increased by 0.09M from March. Inventory dropped 20.5% year-over-year (compare to March’s 28.2%, February’s 29.5%, January’s 25.7%, December’s 23%, November’s 22%, October’s 19.8%, September’s 19.2%, August’s 18.6%, July’s 21.1%, June’s 18.2% year-over-year declines, unrevised). The inventory situation is finally improving ever so slightly even though the NAR did not recognize it as such. “Unsold inventory sits at a 2.4-month supply at the current sales pace, slightly up from March’s 2.1-month supply and down from the 4.0-month supply recorded in April 2020. These numbers continue to represent near-record lows.” Given the slow start to the Spring selling season, I now fully doubt that the NAR’s optimistic forecast for an 8.2% year-over-year increase in single-family existing home sales will bear fruit. The tough comps coming later this year will wipe out the strong year-to-date, year-over-year gain of 20%. Affordability problems present more and more challenges to buyers. Yet, the NAR remains steadfastly optimistic that coming inventory will cool down price appreciation: “The additional supply projected for the market should cool down the torrid pace of price appreciation later in the year.” The average 17 days it took to sell a home set a new all-time record low that slipped by the record of 18 set in March (once again, the NAR did not acknowledge the new record). The on-going year-over-year decline in inventory is on a 23-month streak. The median price of an existing home soared to $341,600 and set a fresh record high. Prices have increased year-over-year for 110 straight months, and April’s was a 19.1% year-over-year gain. The percentage gain was also a new all-time record surpassing the 17.2% record from the previous month. The median price increased from March by 4.7%. Soaring prices are still not slowing down first-time home buyers as a share of all buyers. First-time home buyers took a 31% share of sales in April down just slightly from March’s 32%. The NAR’s 2017 Profile of Home Buyers and Sellers reported an average of 34% for 2017, 33% for 2018, 33% for 2019, and 31% for 2020. Investors picked up the slack with 17% share of sales, up from March’s 15%, up from 10% a year ago. The West towered above all other regions for existing home sales. The regional year-over-year changes were: Northeast +16.9%, Midwest +0.8%, South +15.9%, West +15.5%. All regions registered strong year-over-year price gains. For April: Northeast +22.0%, Midwest +13.5%, South +15.8%, West +19.9%. Single-family home sales decreased 3.2% from March and increased on a yearly basis by 28.9%. The median price of $347,400 was up 20.3% year-over-year. California Existing Home Sales – April, 2021 Unlike the country overall, existing home sales in California are responding to the Spring selling season. An expanding set of records are staving normalization. These sales increased for the third month in a row (after revisions). A monthly 7.4% increase in inventory helped support red hot demand in the state. For April, the California Association of Realtors (C.AR.) reported 458,170 in existing single-family home sales for California. Sales increased 2.6% from March and increased 65.1% year-over-year. At $813,980 the median price jumped 7.2% month-over-month and 34.2% year-over-year. California set yet more records for existing sales in April. $813,980 median price (broke March’s record) $383 per square foot 65.1% year-over-year price increase (from pandemic-impacted levels) The share of homes sold above asking price The sales-to-list price ratio 7 median number of days to sell a single-family home (down from 13 days a year ago and down from 8 in March). The increasing price pressures prompted C.A.R. Vice President and Chief Economist Jordan Levine to doubt the durability of California’s housing market: “Not only do skyrocketing home prices threaten already-low homeownership levels and make it harder for those who don’t already have a home to purchase one, it also brings to question the sustainability of this market cycle.” In other words, the Californian housing market is overdue for normalization. Inventory dropped to 1.6 months of sales in April from 1.7 in March (revised upward). Active listings dropped over 50% year-over-year for the fourth month in a row. San Francisco sat alone as California’s only county that increased listings (22.7%). Still, the county recorded a healthy 165.7% year-over-year increase in sales with the 2nd smallest increase in median price in California at 5.9%. Clearly, buyers are finding relative “bargains” in San Francisco. The sales activity now flies directly counter to the exodus narrative. San Mateo became the first Californian county to crack the $2M median price mark. California experienced a stark skew in sales toward higher-priced markets: “The million-dollar segment increased in demand by more than 200 percent year-over-year, with sales of homes priced $2 million and higher surging over 300 percent from a year ago. Sales of properties priced below $300k, on the other hand, continued to fall precipitously, with the year-over-year growth rate dropping 34 percent in April. Tight housing supply continues to be the primary constraining factor for sales in the lower price segment.” New Residential Sales (Single-Family) – April, 2021 The path to normalization for new single-family home sales includes a peak that stretches out from July, 2020 to January, 2021. New home sales in February dropped to the lowest point since June, 2020. After what looked like a strong start to the Spring selling season for new home sales, April undermined the narrative with a monthly decline of 5.9%. April sales increased 48.3% year-over-year from the pandemic trough. March sales were revised significantly down from 1,021,000 to 917,000. {Source: US. Bureau of the Census, New One Family Houses Sold: United States , first retrieved from FRED, Federal Reserve Bank of St. Louis, May 30, 2021.} Median home prices ended a two month decline and rebounded sharply just short of the all-time high. The 11.4% increase was the second highest since on record (since 1963). Last Fall’s breakout to all-time highs now looks sustainable. April featured a strong skew to higher-end home sales, likely driven by California’s strong performance. The 19% of sales in the $500,000 to $749,999 price range could be a major high (I reviewed the reports as far back as 2014). The share of sales above that price range nudged up from 6% to 7%. The share of sales in the $200,000 to $299,999 price range plunged from 35% to 25%. The monthly inventory of new homes for sale rebounded from March’s 3.6 months of sales to 4.4 months. The absolute inventory level of 316,000 was an increase from March’s 306,000. So, just as with existing home sales, my red flag went up seeing sales decline despite the increase in inventory. The West lagged all regions for a second month in a row for year-over-year sales changes despite being the only region with a month-over-month gain. The Northeast soared triple digits again, this time 100.0%. The Midwest increased 46.7%. The South increased 61.2%. The West increased 11.6%. New home sales in the West remain well off their pandemic highs and are marginally off the pandemic lows. If not for California’s strong performance, the West may well be right back to pandemic lows. {U.S. Census Bureau and U.S. Department of Housing and Urban Development, New One Family Houses Sold: United States , retrieved from FRED, Federal Reserve Bank of St. Louis, May 30, 2021} Home Builder Confidence: The Housing Market Index – May, 2021 The National Association of Home Builders (NAHB) reported no change in the NAHB/Wells Fargo Housing Market Index (HMI) from April’s 83 level. In April, the NAHB pointed to strong demand as a driver boosting confidence despite supply chain issues. May’s report focused on soaring construction costs: “Policymakers must take note and find ways to increase production of domestic building materials, including lumber and steel, and suspend tariffs on imports of construction materials. In recent months, aggregate residential construction material costs were up 12 percent year-over-year, and our surveys suggest those costs are rising further. Some builders are slowing sales to manage their own supply-chains, which means growing affordability challenges for a market in critical need of more inventory.” Accordingly, the NAHB projects more price increases ahead for new homes. The components of the Housing Market Index (HMI) barely budged from April to May while consumer sentiment suffered a large setback. {Source for data: NAHB} While the aggregate HMI remained flat, regional HMI’s moved all over the place. The Northeast plunged from 84 to 77. The Midwest pulled back from 75 to hit 72, a new low for 2021 and the lowest point since August, 2020. The South nudged upward from 84 to 86 for a new high for the year. The West remained at its lofty level of 91. These high levels stand in stark and surprising contrast to the relatively low levels of new home sales. For more consistency, I want to see the West’s new home sales move much higher from the pandemic lows. Home closing thoughts Housing On A Sugar High? Demand and prices in the housing market are both strong. Yet, the Federal Reserve continues its furious pace of purchasing Mortgage Backed Securities (MBS). The traders on CNBC’s Fast Money cannot explain why. As a result, they mused over whether the housing market is feeding off a “sugar high”, a high that inevitably comes crashing down. Is it possible the MBS market remains broken? Insufficient buyers? Whatever the reason, the support for MBS’s is helping to support a high velocity of housing activity. My favorite investment in the MBS recovery remains AGNC Investment Corp (AGNC). I made the case for buying AGNC in the immediate wake of the collapse of the MBS market. {The remarkably consistent uptrend for AGNC Investment Corp (AGNC) looks like a direct beneficiary of support from the Federal Reserve.} Lumber Watch Lumber prices finally cooled off in May. Futures for lumber are still in a strong uptrend as demonstrated by the 50DMA. While this pullback brings some relief to the industry, the accompanying drop in housing sales and starts make me wonder whether cooling lumber prices signal a cooler housing market ahead. This decline could at minimum represent a reluctant slide into normalization. Lumber futures cooled off in May. Earlier in the month, the NAHB posted alarming info on soaring material costs for home builders. Building materials prices are setting new records in aggregate. Chart after chart in this article show soaring prices for steel mill products, softwood lumber, gypsum products, and on-going price increases in ready-mix concrete. Be careful out there! Full disclosure: long ITB call options
CBOE:ITB
by drduru
Black Swan - The Housing BubbleSpeculative Idea for MBB (Mortgage-Backed Securities ETF): - Why is there a speculative housing bubble in the middle of a crisis? - "A major catalyst of the general financial crisis of 2008 was the subprime mortgage crisis of 2007, when a rising wave of defaults on home mortgages sent the value of mortgage backed securities plunging." - "They're in trouble right now," as Colleen Denzler, an investment manager at Smith Capital Investors, which has about $350 billion in assets under management (AUM), and who previously was the global head of fixed income at Janus Henderson, told BI. She is now underweight MBS. "Bubbles get popped when things turn around either through some sort of crisis or through a change in what caused them," she said. "This could be a while, and that's how we're positioned," she added. - "Other complex debt securities whose plunging values were a catalyst for the 2008 financial crisis are rising in popularity today. The synthetic CDO, a pool of derivatives linked to various categories of debt, is among them. Pessimists fear that history may be set to repeat itself, and that cautious investors should take cover." - NY Fed Report: Total household debt rose by $85 billion to $14.64 trillion. GLHF - DPT
NASDAQ:MBBShort
by UnknownUnicorn1043646
1
Black Swan - US Government Bonds 10 YRSpeculation for US Government Bonds: "If you want to learn how to trade, go down to the beach and watch the waves." - Ed Seykota After reading this, I went down to the river and watched the waves for a bit, and came up with this model. If you think of a river, the riverbanks are made of sand and pebbles... Each pebble and grain of sand are underlying conditions. Together, they create a hard boundary, that the waves cannot traverse and bounce off of. There are unknowns beneath the surface, which can only be detected with signals and indicators, from the behavior of the waves. The waves bounce off each other to create ripples, and sub-waves in the opposing direction, at the middle, they form a stalemate, this is the Line of Least Resistance (LLR). There is a current, coming from upstream, and all the way down to the sea, which ultimately cannot be resisted. However, there are large objects - stones usually, that break out of the surface and create ripples of their own as the current bounces off of them. These are typically large events. It is interesting to watch little whirlpools of volatility form as energy is trapped in between such ripples! The trader is the bird, who lands in the river and gets swept to another location. It is up to the bird's judgement to predict where it will take them. Perhaps they will be swept to danger, or a prize beneath the surface. Housing: - Commodities and building materials are being speculated to unprecedented rates. Lumber almost $1700 for the forward contract. - Fed maintain that inflationary effects are “transitory” and remain dovish on monetary policies. It can be speculated that such the inflationary effects will continue in commodities if such dovish monetary policies are maintained. - Commodities being speculated to such prices affects house prices due to the scarcity of resources. It also erodes price margins of house-builders. Cryptocurrency: - Cryptocurrencies have served as a faithful indicator for real inflation perceived by investors. Semiconductors: - There is a global semiconductor shortage. - China is the greatest importer of semiconductors. - US trade sanctions have cut their supply of this most vital component. - However, US's largest imports are capital goods, followed by consumer goods and industrial supplies and materials. - China was the largest provider of foreign goods to the US supplying 18.6% of all US imports in 2020. - "Europeans found the Chinese amusing for their rejection of paper money... People presumed that the Chinese were five generations behind us - In reality they were a generation ahead of Europe. Under the Mongol emperors they had experienced a boom in which paper billions were issued to finance military conquests and vast public works, only to go through the bitter deflationary consequences - and the impression of all this had lasted through many subsequent centuries." - Jim Rickards Bonds and Interest Rates: - Investors are euphoric, reciting the mantra of "don't fight the Fed," however, when Janet Yellen cracked and let a neutral comment slip, the markets tumbled. Institutional investors are wary, and prepared to exit at the first sign of trouble. Risk is great in a vertical market, especially in a speculative bubble. - It is believed that bears are praying for a black swan event to crash the market... I beg to differ. To me, it seems like the bulls are praying for a black swan... The possibility of QE being extended forever. "There is no inflation. Interest rates won't be raised. QE tapering won't happen. It will be different this time!" - Inflation must be maintained at all costs in the Fed's mind. Inflation erodes debt. - The US is the largest debtor nation in the world... It cannot endure deflation. Deflation raises the real value of debt. - However, when inflation rises, bond holders will sell their long-term bonds, as inflation corrodes their value, so interest rates must be raised. Typically, higher inflation leads to higher yields, which translates to higher interest rates. - Now, the Fed simply buys their own bonds. They buy their own debt with fabricated money to create artificially higher bond prices, keeping yields controlled, therefore signaling that inflation is not rising, so they do not have to raise interest rates. - This is a false impression of demand, and it debases the currency against real commodities and assets. It inflates the everything bubble with cheap money. Everything is to manipulate interest rates, which is the signal for economic health. - Low interest rates stimulate economic growth due to easy lending, and inflation does indeed translate to higher levels of spending. Speculation: - In retaliation to the semiconductor shortage, China is squeezing the global commodities market. - COVID-19 is squeezing global production. - House builders will be priced out and abandon projects, and eventually home-buyers too will be priced out of the market. Then - when there are no more buyers, real estate investors will flood the market with their assets which are no longer appreciating in value, having obtained a cool 70% profit in a year (XLRE). Tangible real estate likely yielded much more. - Cryptocurrencies' speculative bubble will pop, as blockchain technology has fully been harvested. It's speculative prices are not needed for it to function. - There are 2 paths that I see for the Federal Reserve: (A) QE Infinity, YCC, etc. Printing more and keep the game going until it cannot. (B) Naturally allow bonds to return to true price, completely destroying the everything bubble. - There exists a $1.5 quadrillion USD derivatives overhang, in addition to the "everything bubble". It is possible that the Fed can no longer opt for option B. As we saw with Archegos/Credit Suisse and Robinhood/Citadel, there are massively overleveraged funds that are pricing in a QE hard floor, with liquidations just beneath the surface. - If you think that these hedge funds learned their lesson from Archegos, you are wrong. Institutional trend traders - how do they make money? They buy the dip until it doesn't work. Market maker quant firms like Citadel - how do they make money? They use monstrously leveraged positions to capitalize on miniscule bid-ask spreads. They will easily be swept by an unexpected and volatile move. It is the private investor only that dares to go against the trend. There are business fundamentals trading funds. They too will capitulate when nothing is going their way. How telling it was when every major broker locked down to prevent a mere $80~ billion liquidation during Gamestop's first rise! - It is likely that eventually, the Fed will lose control, and there will be an inflationary shock. How the Game Ends: - What is truly fascinating is that if you think about it... the Fed can indeed "print money" forever. They are the world reserve currency. - There is but one way the game ends... China will release their blockchain backed digital currency (DCEP/CBDC), while accumulating real commodities and capital goods. - CBDC's are favored by the G20, IMF, BIS et al. (financial elite), as they address tax evasion. There is an estimated $36 trillion in corporate tax havens (as of 2016). A global sanction of China is unlikely. - China and the eastern bloc will simply exit the western Federal Reserve System, they will capitulate on the US Dollar, and demand commodities and real assets. When the Bretton Woods Agreement was abandoned, a potential crisis caused by a run on gold was averted, but this time, there is no escape. - Soon, the world will have to choose between money backed by military power and money backed by tangible goods. My friends, it is possible that the river has at last found its way to the wide ocean... The possibilities are infinite. "Allies — the strongest and truest in the world: underlying conditions" - Jesse Livermore GLHF, DPT Disclaimer: We absolutely do not provide financial advice in any shape or form. We do not recommend investing based on our opinions and strongly cautions that securities trading and investment involves high risk and that you can lose a lot of money. Loss of principal is possible. We do not recommend risking money you cannot afford to lose. We do not guarantee future performance nor accuracy in historical analyses. We are not registered investment advisors. Our ideas, opinions and statements are not a substitute for professional investment advice. We provide ideas containing impersonal market observations and our opinions. Our speculations may be used in preparation to form your own ideas.
TVC:US10Short
by UnknownUnicorn1043646
6
Think differently about inflation to recognize opportunitiesCredit to Lyn Alden on Twitter for the idea for this chart. As she quipped when she posted a similar chart, inflation is low... as long as you don't buy food, or a house, or commodities. CPI inflation has been unusually low for the last decade From 2010 to 2019, CPI (the Consumer Price Index, a popular measure of inflation) averaged 1.73%. That's a historically low inflation rate. Since 1913, CPI inflation has averaged about 3.1% per year. The Federal Reserve's target inflation rate is about 2% per year. The last decade's low CPI inflation rate puzzled economists and gave rise to a new economic theory called "Modern Monetary Theory," which argued that the US government needed to increase its deficit spending in order to hit its 2% inflation target. According to MMT, the limit on government spending is inflation, not revenue. In times of crisis, CPI inflation can get much higher During certain historical periods-- usually periods of crisis, such as wartime-- CPI inflation got much higher. In the WWI / Spanish Flu decade it averaged nearly 10%, and in the WWII decade it averaged nearly 5%. In the Vietnam War decade the average exceeded 7%. High inflation during times of national crisis seems to result from "loose" monetary policy and enormous deficit spending. When inflation gets this high, the Central Bank typically has to "tighten" monetary policy in order to control it. That means raising taxes, raising interest rates, and reducing deficit spending. "Tight" monetary policy can cause prolonged recessions. It took over a decade of high interest rates to get Vietnam War-era inflation under control. Could the massive deficit spending and loose monetary policy of the Covid-19 crisis usher in a new era of high CPI? Presently, economists don't expect it. The Federal Reserve forecasts about 2.5% inflation this year, to fall to 2% in 2022. But the Fed also doesn't have good models of inflation, so to some extent these projections are a shot in the dark. Is CPI a broken measure? CPI includes several components, including food, energy, apparel, and rent. Several factors have conspired to keep CPI low. Thanks to technological changes such as automation and renewables, apparel and energy costs have trended downward over the last couple decades. And rents are kept artificially low in many areas of the country by rent controls that limit how much landlords can increase rent. Purchase prices for single-family homes are not included in CPI, and purchase prices have grown much faster than rents: imageproxy.themaven.net Obviously CPI also doesn't include stocks, bonds, and other investment assets, which have inflated to pretty astronomical levels. It also doesn't include the cost of healthcare, which grew about 3.7% per year over the last decade and are projected to grow nearly 5% per year over the next decade. So there's a case to be made that "real" inflation in the economy may actually be higher than the CPI numbers suggest. Ben Bernanke once said that "inflation is always a monetary phenomenon." If so, then CPI isn't a very good measure of inflation, because CPI is influenced by all sorts of non-monetary phenomena like supply and demand shocks, technological changes, price manipulation, and government regulations. CPI is a crude approximation at best, and at worst a broken metric. What if there's not just one inflation rate? The reality is that different categories of prices "inflate" at different rates. For instance, large increases in the money supply often cause inflation in asset prices, but not in consumer prices. It's partly a function of how the newly created money is distributed. If it goes into the pockets of the wealthy, they will use it to speculate on stocks and real estate. You will see asset price inflation, but not consumer price inflation. But if you put it into the pockets of regular people, then you may see consumer prices start to rise. And even within the broad categories of "consumer goods" and "assets," there are loads of subcategories. During a pandemic, socially distanced assets (like suburban housing and food at home) will be in high demand, while non-socially distanced assets (like urban housing or commercial real estate or restaurant food) will not. Thus, urban home prices might deflate even as suburban home prices inflate. Once you start to see inflation as lots of different numbers rather than as a single number, you will start to recognize new investment opportunities. You want to own asset categories where inflation will run hotter than CPI, not asset categories where it will run cooler than CPI. It's extremely valuable to understand the forces that influence some categories to inflate faster than others, and to be able to recognize turning points where a category's inflation rate will change. That's how fortunes are made.
Editors' picks
E
by ChristopherCarrollSmith
51
Home Depot should be in your WatchListThere is a macro narrative underway that is wildly bullish for Home Depot. The fuse being lit here under a MASSIVE bull run evident within the latest WSJ article. Get ready for a flood of improvements and investments in homes. Keep in mind how cash flush consumers are, and how pent up they have been in their homes. The WSJ certainly made the case when they said: "The estimate represents a 52% rise in the nation’s home shortage compared with 2018, the first time Freddie Mac quantified the shortfall." “We should have almost four million more housing units if we had kept up with demand the last few years,” Mr. Khater said. “This is what you get when you underbuild for 10 years.” Housing my friends is about to get red red hot. www.wsj.com Let's also take a peek at flatbed capacity folks. Flatbeds provide capacity for the construction sector and massive commodities within the logistics sector. New truck sales are up ...gulp 424% in march! www.ttnews.com Demand is wild, but who are going to drive all of these trucks with a driver shortage underway at exactly the same time? Load postings (loads shippers need transported) are up +129.9% Y/Y Truck postings (trucks available to haul loads) -6.9% Y/Y -Stats provided by DAT Let's drill in a bit further folks! This upcoming ratio is a bit like saying... the average temperature in North America is 70.7 degrees Fahrenheit, or 21.5 degrees Celsius for our friends across the pond. Not very helpful if you are trying to zero in to the Florida market vs the Alaska market. But regardless this data is stunning as the current load-to-truck ratio for flatbed is over 80 loads per trucks. In some very hot markets it is well over 120 loads per truck. Think about what that means! The average driver has over 80 loads to select from before hauling his freight. This enables him to bid himself much higher. Obviously this cost to manufacturers and distributors or even those providing raw goods in lowlier verticals all can not just shoulder this costs - it must get passed on to consumers. Clearly this will result in further inflation pressure. It is stunning if you think of it that Dr Michael Burry predicted that the inflation pressures would be observed initially within supply chains...and yes he nailed it. Citation of chart displaying Load-to-truck ratio: www.facebook.com There are many ways to monetize the current situation. And I recommend a plethora of strategies to diversify risk. And this includes exposure to transportation equity products, building materials, commodities, construction starts, and yes Home Depot. The final comment I have - and please keep in mind I do not subscribe to political tribalism, I play it monk like focused on how we can be opportunistic in any environment-if Biden passes the infrastructure package again this would lead to a massive supply crunch in many of the areas outlined above. Especially flatbed capacity. Keep in mind flatbed seasonality typically does not kick up until May-June when housing and construction starts are heating up. As always dear traders if you found this content helpful please be sure to like, share, and perhaps tell me what I may be missing in my content here. Final content share that is a MUST READ. Manufacturing PMI is at 64.7% ... So for those unfamiliar with what that means if the PMI index is under 50 we are in a state of contraction, growth mode is evident with numbers above 50. A reading of 64.7% is frankly remarkable. www.ismworld.org Pivot Points Bollingers/EMA/Volume Can you see the trend friends? Home Depot is great as well because keep in mind on days equities sold off in the broader market, they continued to march higher as well. Let the roaring 20's commence! And please be sure to follow me on TradingView as I will let you know any helpful content I can find as we navigate through the rest of this decade. Good fortunes to you dear traders!
NYSE:HDLong
by ZenMode
2
MACRO - Housing Double BottomModel Forecast for the Housing & Real Estate Market: Synopsis: Underlying Conditions: Federal Deficit: Debt needs to be paid. Household Debt Payments have bottomed. Household Debt Service Payments as a Percentage of Disposable Personal Income (TDSP): Business Inventories will fall: Housing Starts are falling, and can fall much lower before recovery: Housing Sales have very little business rising and will certainly fall: Supply: The price of lumber is at a top and will certainly fall by EOY: The supply of labor will increase - Employment has downside before recovery: Capacity Utilization has some downside: Demand: As real estate investors who bought the bottom in 2020, who have have enjoyed several 100% unrealized gains decide the real estate bull market is over, they will clean up house and leave retail holding the bag on the now worthless assets. Of course, at this time, banks will be accumulating them at the bottom to prepare for the next bull market! Targets for REIT Campaign: EQR - High-Value Residential: BDN - Suburban Offices - WFH culture is here to stay, and the demand for office-space will greatly decrease: RYN - Timberland Real Estate & Lumber - Double exposure to both lumber and Real Estate: SLG - Manhattan Commercial - I expect financial disruption as well, and the high value real estate there will crumble like a house of cards: Watching: Warehousing - Due to pandemic shipping backlog, warehousing real estate should see a boom, but as 3D printing & AV shipping improve, they will become fantastic short targets, as they become obsolete! GLHF - DPT
AMEX:XLREShort
by UnknownUnicorn1043646
10
DR Horton Is Bouncing After a PullbackHomebuilders have struggled lately as interest rates rose, but the longer-term prospects remain favorable. Today’s chart considers the pullback in DR Horton, the biggest name in the space. DHI hit a new all-time high of $84.41 on February 11 and pulled back. It’s now bouncing, which may create opportunities for buyers. Notice the high basing pattern between about $65 and $80. This consolidation was important because it established new support above the previous high from February 2020. Second is the downward-sloping trend line running from mid-October through mid-January. DHI broke that resistance last month and has remained above it since. Next, DHI consolidated between $75 and $78 January 28-February 4. It successfully retested that zone this week and is now bouncing. Finally, sellers tried to push the homebuilder lower today but were quickly rejected. Prices soon eclipsed Tuesday’s high, resulting in a bullish outside day. TradeStation is a pioneer in the trading industry, providing access to stocks, options, futures and cryptocurrencies. See our Overview for more.
NYSE:DHILong
by TradeStation
Still plenty of upside in Canadian lumber stocks.I recommended West Fraser Timer (WFT on TSX) some time ago. In November the company announced it would buy another lumber company, Norbord. Nov 19, 2020 | Posted in Corporate News, News West Fraser to Acquire Norbord, Creating a Diversified Global Wood Products Leader – Complementary OSB business expands product and geographic diversity – Greater scale and customer relevance unlocks and de-risks growth opportunities – West Fraser and Norbord shareholders to benefit from a stronger value creation platform The shortage of lumber due to a strong housing market continues, and the potential for a friendlier administration in the White House (elimination of duties?) is a distinct possibility.
W
by malvinspooner
Bullish Triangle(s) in Housing ETFOf all the non-technology corners of the market, housing has been pretty much the strongest group this year. Most people know the story: lean inventories, low interest rates, demographic trends and a post-Covid surge in suburban living. As often happens, this fundamental backdrop has played out technically. The iShares US Home Construction ETF barely pulled back as volatility swept the broader market this month. It also made a higher low last week when the S&P 500 and Nasdaq-100 made lower lows . That consolidation period is now turning into an ascending triangle, with resistance at the top around $56.50. This can be a relatively straightforward bullish continuation pattern. Looking at a shorter time frame this week, another smaller triangle is forming above the 8-day and 21-day exponential moving averages (EMAs). This has the potential to draw more buyers and sneak toward a breakout. TradeStation is a pioneer in the trading industry, providing access to stocks, options, futures and cryptocurrencies. See our Overview for more.
CBOE:ITBLong
by TradeStation
5