Mr. Freeze? US Existing Home Sales YoY Fall For 7th Consecutive Month (-4.10% In September), Median Price YoY Continues To Cool

Well, ain’t this a kick in the head.

US existing home sales YoY fell for the seventh straight month, -4.10% in September.

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Existing home sales median price YoY has cooled to 4.2% YoY while inventory remains below the long-run average.

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Is Fed Chair Jerome Powell really Mr. Freeze?

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Fear! Dow “Smart Money” Index Drops To Lowest Level Since April 2009

The Dow “Smart Money” Flow index has dropped to its lowest level since April 2009.

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The Smart Money Flow Index is calculated by taking the action of the Dow in two time periods: the  first 30 minutes and the close. The first 30 minutes represent emotional buying, driven by greed and fear of the crowd based on good and bad news. 

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The Mist! US Housing Starts Plunge Under Rising Interest Rates (Hurricanes Florence and Jerome)

There is little doubt that Federal Reserve policies have resulted in mispriced risk and massive distortions in the economy. Fed Chairs Bernanke and Yellen were masters of distortion (keeping rates too low for too long) while Fed Chair Powell (Hurricane Jerome) is raising rates rapidly in the face of little-to-no inflation. Throw in Hurricane Florence and we have “The Mist” where fear changes everything.

Housing starts for September were released yesterday and, as expected, the numbers were down across the board (except for the West where it is seemingly always sunny).

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1-unit starts (aka, single family detached) are still below 2000 levels thanks, in part, to The Federal Reserve dropping their target rate like a hammer to 1%. We got a massive construction response. That blew up, so The Fed dropped their target rate like a hammer … again from which Hurricane Jerome is only recently begun raising.

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But it is with multifamily (5+ unit starts) that Fed rate increases are being daunting.

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In a sense, The Fed destroyed the single family detached housing market (along with other misguided Federal programs) and now The Fed is applying its mist to the multifamily market.

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Courtesy of the great Jesse’s Cafe Americain!

Gold Man! Net-shorts In Gold Futures/Options Largest Since 2006 (But Will It Continue After Last Week’s Bloodbath In Equities?)

Too bad Black Sabbath didn’t sing Gold Man.

Hedge funds and other large speculators increased their net-short position in gold futures and options in the week ended Oct. 9 to the most in data going back to 2006, surpassing a record reached last month, according to a government report released Friday. The wagers came days before turmoil in equity markets sent investors flocking back to the metal, pushing prices to the biggest gain since 2016 on Thursday after six straight monthly losses.

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Let’s see if gold shorts continue with the reversal of fortune in the S&P 500 index and gold.

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Bazooka Bubble! Dow Drops Another 546 Pts (Over 1,370 Pts In 2 Days) On Falling Expected Earnings And Fed Rate Hike Fears

Another day, another tank in the Bazooka Bubble economy.

The Dow fell 546 points on Thursday on top of  831 points on Wednesday.

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The culpriits? The Federal Reserve rate hiking and declining Earnings Per Share growth after a blistering first half of 2018.

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Yes, this is the Bazooka Bubble.

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Here is Janet Yellen in her asset bubble outfit.

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When The Fed Comes Marching Home: Mortgage Refinancing Applications Killed By Fed Rate Hikes (Purchase Applications Stalled)

When The Fed Comes Marching Home … to normal interest rates.

It was inevitable. Federal Reserve rate hikes and balance sheet shrinkage is having the predicitve effect: killing mortgage refinancing applications.

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And mortgage purchases applications SA have stalled in terms of growth with Fed rate hikes and balance sheet shrinkage.

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WASHINGTON, D.C. (October 10, 2018) – Mortgage applications decreased 1.7 percent from one week earlier, according to data from the Mortgage Bankers Association’s (MBA) Weekly Mortgage Applications Survey for the week ending October 5, 2018.

The Market Composite Index, a measure of mortgage loan application volume, decreased 1.7 percent on a seasonally adjusted basis from one week earlier. On an unadjusted basis, the Index decreased 2 percent compared with the previous week. The Refinance Index decreased 3 percent from the previous week. The seasonally adjusted Purchase Index decreased 1 percent from one week earlier. The unadjusted Purchase Index decreased 1 percent compared with the previous week and was 2 percent higher than the same week one year ago.

The refinance share of mortgage activity decreased to 39.0 percent of total applications from 39.4 percent the previous week. The adjustable-rate mortgage (ARM) share of activity increased to 7.3 percent of total applications.

The FHA share of total applications increased to 10.5 percent from 10.2 percent the week prior. The VA share of total applications remained unchanged at 10.0 percent from the week prior. The USDA share of total applications increased to 0.8 percent from 0.7 percent the week prior.

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Yes, The Fed has begun its bomb run.

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Fear? One of Traders’ Worst Fears Realized as VIX Curve Inverts

One must vanquish fear! Or at least the fear index, VIX. 

(Bloomberg) — The scariest Halloween costume imaginable pales in comparison to a Friday inversion of the VIX futures curve.

A severe sell-off in technology stocks has pushed the front-month VIX futures contract to a premium relative to the second-month contract.

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VIX futures are based off the Cboe Volatility Index, a measure of 30-day implied volatility for the S&P 500 Index that’s often called the “fear gauge.”

Typically, the curve is in contango — that is, upward sloping — because the outlook for U.S. equities is more uncertain over longer time periods than shorter ones. The historical pattern of realized volatility shows it’s prone to outsized spikes but generally trades in a modest range.

A curve that’s in backwardation — the opposite of contango — indicates traders are acutely concerned with the near-term outlook for equities. This structure also provides a tailwind to investors looking to go long volatility through exchange-traded products.
The same situation happened on a pair of inauspicious Fridays. The VIX futures curve inverted on Aug. 21, 2015 and Feb. 2, 2018.

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Yes, tech stocks took a beating last week (as can be seen in the FANG+ chart).

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Yes, the VIX is up slightly today after a large surge on Friday.

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Yes, one must vanquish fear!

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If Real Wages Aren’t Rising, How Is Household Income Going Up? (Brookings Ignores The Federal Reserve Effects)

The prestigious Brookings Institute (home of former Fed Chairs, Ben Bernanke and Janet Yellen) has an interesting albeit misleading piece on the on why household income is rising while real wages are not.

The authors focus on 2015-2018 to highlight the Obama years (2015-2016) and the Trump years (2017-2018). Brookings makes it look like hours are up under Trump while wage growth has shrunk to the size of Melania Trump’s waist.

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An alternative view of what is happening is presented here:

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Yes, if you believe the real hourly earnings numbers, they have declined in terms of growth under the Trump Administration while real median household income has exploded!

Two tibits. 1) real hourly earning YoY are still higher in 2017-2018 than in 2009-2013. 2) Brookings ignore the pre-2014 era.

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Real median household income ({RMINC) looks far better from 2014 to 2017 than it did from 2007 to 2012 (orange line). Yes, that declining RMINC line looks pretty bad if you are trying to convince voters that the economy is doing well. Particularly with average hourly earnings plummeting and remaining stagnant until 2015.

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So, in 2013, President Obama’s Administration and the US Census Bureau decided to change the way RMINC was measured.

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Starting in 2013 with a partial phase-in, which was fully implemented in 2014, Census changed the questions and the methods in calculating household income.

For example, Census, starting in 2014, began to “collect the value of assets that generate income if the respondent is unsure of the income generated.

Also, the government started to use “income ranges” as a follow-up for “don’t know” or “refused” answers on income-amount questions.

Okay, so guess the assets that you have that are generating income. The fact that the US has experienced massive growth in stock and housing prices thanks, in part, to The Fed’s highly accommodating monetary policies, particularly since wage growth has been so stagnant since 2009.

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Not only did Brooking leave out the “wealth effect” generated by Federal Reserve monetary accomodation, they also left out that nominal average hourly earnings growth YoY is higher than anytime since 2009; it is only since The Fed began raising its target rate that real hourly earning growth has plunged.

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Brookings deserves the Three Pinocchios rating for a grossly misleading analysis.

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Hi-Diddle-Dee-Dee, a Brookings analyst life for me!

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Are Treasury Yields Rising TOO Fast? MOVE And Tyvix Spike (Do The Fed Tighten Up?)

Bridgewater Founder Ray Dalio said back in January 2018 that “A 1 percent rise in bond yields will produce the largest bear market in bonds that we have seen since 1980 to 1981.” 

Well, we are still in a higher bond duration section of the Price/Yield curve where further increases in yield shifts can clobber Treasury prices.

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Like the recent decline in 10-year Treasury Note prices.

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Given that the US economy is exposed to an all-time high in interest rate senstivity, it would behoove The Fed to “take it easy.”

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Merrill Lynch’s Option Volatiltiy Estimate (a yield curve weighted index of the normalized implied volatility on 1-month Treasury options which are weighted on the 2, 5, 10, and 30 year contracts) and the TYVIX 10-year volality index both spiked recently.

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So let’s see how far The Fed will keep on pushin’, perhaps too hard on equities.

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But fixed-income (bond) funds have been getting beaten since Yellen announced the end of QE in 2014, the beginning of “The Tighten Up.”

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Yes, Jay Powell & the Drecks from Washington DC are doing the “tighten up.” But should they slow down?

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Rum Ham! 48 Year Low US Unemployment Rate Sends 10-Year T-Note Yield To 3.219%

A large revision to the August nonfarm payrolls (to 270k) offset that hurricane-impacted September change of only 134k.

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With the U-3 unemployment rate hitting a 48-year low, the 10-year T-Note yield continued its rise to 3.129%. 30-year mortgage rates will follow.

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To commerate the lowest unemployment rate in 48 years, I am going to have a ham sandwich for lunch. Instead of Rum Ham, we can call it Trump Ham.

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