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.


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


Is Fed Chair Jerome Powell really Mr. Freeze?


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.


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. 


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.


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.


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


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


Yes, one must vanquish fear!


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.


An alternative view of what is happening is presented here:


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.


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.


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


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.


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.


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


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


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.


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


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.”

OFR duration

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.


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


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


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


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.


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.


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.


Homebuilder Stocks Decline As Fed Hikes Interest Rates And Unwinds (Rez Construction Spending Growth Declining)

The bloom is off the rose for homebuilders. Yes, it had been a great run, fueled by The Fed’s zero-interest rate policy (ZIRP) and asset purchases (QE). But despite a roaring economy, SPDR S&P Homebuilders ETF have been falling since January as The Federal Reserve Open Market Committee (FOMC) sticks to their guns and keeps normalizing interest rates.


Yes, the Fed Dots Plot project indicates that there is still upside momentum to short-term interest rates.


And the Fed’s System Open Market Accounts (SOMA) show a declining inventory of Treasury Notes and Bonds to let mature.


So, let’s put on some groovy pants, put on Iron Butterfly, and chill.



The March Of The Federal Reserve! 10-Year T-Note Yields Top 10 Basis Points Today To 3.168% (71% Prob Of Dec Rate Hike)

Yes, The Federal Reserve helped keep interest rates low for a long time. Hence, they deserve their own march. The March of The Federal Reserve.

A positive jobs report and a roaring economy led to the US Treasury 10-year yield rising over 10 basis points today to 3.168%


As The Fed announced the end of QE3 in 2014 then began shrinking its balance sheet by allowing securities to mature, the 10-year T-Note yield has risen.


Fortunately, the US economy is running on all cylinders, so The Fed feels comfortable … for the moment .. to keep rates rising.


As a result, the US Treasury 10Y-2Y curve widened.


ADP Employment Survey Shows 230K Jobs Added In September, 10Y T-Note Yield Pierces 3.1% (Mortgage Refi Applications DEAD)

The ADP employment survey for September revealed a gain of 230,000 jobs. AND bartender/waitstaff jobs (a staple of the Yellen years) were small in comparison to other job categories.


On the news, the 10-year Treasury Note yield rose above 3.10%.


And The Dow rose triple digits … again.


And mortgage refinancing applications remain dead with rising Treasury yields.