Are Housing Prices Really Schrödinger’s House Cat? We Won’t Know Until The Fed Stops Manipulating Risks And Prices (Home Flipping Has Stalled)

Schrödinger’s cat is a (hopefully) unperformed experiment in quantum physics.


Schrodinger’s Equation For A Single Particle In Three Dimensions (Simplified)

We don’t know if the cat in question is dead (due to poisoning) or alive or DEAD AND ALIVE … UNTIL we open the box.

Just like housing prices. We won’t know if housing prices are dead until The Federal Reserve stops pumping accelerant into the housing box.

If we look at the spread between major housing markets (Case-Shiller 20 Metro YoY) and a broader index (FHFA’s Purchase-only Home Price Index YoY), you can see that the major market “bubble” ceased when The Fed stopped QE3.


Another sign is the decline in houses begin flipped YoY.


Since The Fed seemingly is pumping accelerant into the housing market, we can only guess as to the status of Schrödinger’s House Cat.



Breaking Bad! Pound, Dow Get Pounded After UK PM May Delays Brexit Vote (UST 5Y-3Y Curve Inverts, 5Y Breakeven Inflation Rate Collapsing)

Its a wonderful day in the financial markets.  …. NOT. In fact, financial markets are breaking bad.

Where to begin?

U.S. equities extended a sell-off and the pound tumbled as traders took a grim view of the outlook for global growth and trade after UK Prime Minister Theresa May delayed a crucial Brexit vote.


Meanwhile, the Great Britain Pound got pounded.


And the 5Y – 3Y Treasury curve inverted.


And the US Breakeven 5 Year Inflation Rate is collapsing.


Yes, financial markets are breaking bad.


Monsters In The Gelatin! Fed’s QE Unwind Reaches $364 Billion As Fed Funds Rate Continues To Climb (Volatility Express!)

Since the beginning of the QE unwind — or “balance sheet normalization,” as the Fed calls it — in October 2017, the Fed has now shed $364 billion.


Of course, The Fed still have a long way to go to unwind its $4 trillion balance sheet. But The Fed is, at the same time, raising its target rate (although through confusing messaging).


The S&P 500 index and the NAREIT All Equity (Real Estate Investment Trust) indices are soaring along nicely with The Fed’s balance sheet expansion (aka, low interest rates), but are experiencing rather dramatic volatiity in the face of a shrinking balance sheet and rising Fed target rate.


And yes, volatility is increasing with Fed unwind and target rate increases.


SMART Money Flow Index? The decline coincides with The Fed’s unwinding on its Treasury positions.


Bubble you ask? Instead of “bubble” or “collapse,” the Fed uses “valuation pressures” and “broad adjustment in prices.”

To quote the late, great Isaac Hayes from Reindeer Games, “There are monsters in the gelatin!!”


Cold, Cold Feeling! Fed Interest Rate Policies and The Natural Rate of Unemployment (Rising Wage Growth, Slowing Corporate Debt Growth)

As the late Albert Collins once sang, he has a “Cold, Cold Feeling.”

Or feeling hot, hot, hot, depending on which measure you are looking at.

Take NAIRU, the natural rate of unemployment for the USA (white line). Historically, when the U-3 unemployment rate (orange line) falls below the natural rate of unemployment, the economy is growing “hot, hot,hot” and  The Fed raises their target rate. Check out the green boxes.

What is happening now? The U-3 employment rate has fallen below the natural rate on unemployment (see pink box). But this time around, The Fed began raising their target interest rate BEFORE this happened.


The Fed is raising rates as US Average Hourly Earnings All Employees Total Private Yearly Percent Change SA exceeds 3% for the first time since 2009.


While wage growth is relatively hot, hot, hot, housing is getting that cold, cold feeling.


How about corporate debt growth (blue line)? Cold.


Getting cold enough?


Goin’ Down! CMBX BBB- Going Down Along With Smart Money Flow Index And SPX and NASDAQ Composite Indices

As Bruce Springsteen once mumbled, financial markets are goin’ down.

Equity market indices like the S&P 500 and the Dow Jones Industrial Average have been pummelled over recent months along with the NASDAQ Composite Index and the SMART Money Flow Index.


And we know that housing in the form of existing home sales have declining YoY for the last 8 months.


But also goin’ down is Markit’s CMBX BBB- index. Note that the CMBX BBB- index started declining back in July. CMBX is a series of indices, designed to reflect the creditworthiness of commercial mortgage-backed securities (CMBS).


Housing And The Blues: Interest Rate Increases Causing The Blues For Builders (Surprise Index Lowest Since 2010)

Housing and the Blues. 

Yes, the hard data for housing has been soft as The Fed keeps raising rates. Today, the National Association of Homebuilders index of homebuilder optimism took a large drop to 60.


But take look at the Real Estate Market Surprise Index. It is now at the lowest level since 2010.

Housing and the blues.


Are You Ready? PG&E Wasn’t! Paradise, CA Firestorm Disaster

Are you ready? PG&E wasn’t ready for the Paradise, CA firestorm. That allegedly started around PG&E high tension wires.

(Bloomberg) — Even the typically calm municipal-bond market can’t withstand the crisis that’s enveloped PG&E Corp., California’s biggest utility, since the outbreak of the state’s devastating wildfires.

As authorities investigate PG&E equipment as a possible cause of the deadly Camp fire, the value of some of company’s more than $700 million in debt sold through government agencies is slumping. The company’s municipal bonds were among the most actively traded municipal securities Wednesday.


A security with a mandatory put option in 2022 traded Wednesday at a price of 86.6 cents on the dollar, down from 94 cents when it last changed hands on Oct. 15, data compiled by Bloomberg show.


And PG&E’s stock took a beating as well, down almost 50% today from yesterday.