U.S. Pending Home Sales Rebound (+7.5% MoM) To Highest Level Of The Year, BUT 5th Straight Month Of Negative YoY)

A forward-looking gauge of U.S. home purchases rebounded in October to a 10-month high, signaling steady housing demand despite growing affordability concerns among many prospective buyers.

The National Association of Realtors’ index of pending home sales increased 7.5% from a month earlier to 125.2, according to data released Monday. The median estimate in a Bloomberg survey of economists called for a 1% advance.

But it is the fifth straight month of year-over-year declines.

Low mortgage rates and solid job growth have supported housing demand this year as pandemic-weary buyers seek more spacious accommodations. Existing home sales are on track to exceed 6 million in 2021, which would be the strongest in 15 years, Lawrence Yun, NAR’s chief economist, said.

Yes, humongous stimulus from The Federal Reserve will help push existing home sales to exceed 6 million in 2021.

Still, competition over a scant number of listings — particularly on the lower, more affordable end of the resale market — has pushed prices out of reach for many prospective buyers. Builders have struggled to fill the void as supply-chain delays and labor shortages upend construction schedules, exacerbating the inventory crunch.

Yes, inventory of homes available for sale is almost 1/3rd of the homes available in 2010.

Ten years after ... and we have progressively less inventory available.

Bitcoin Retreats 20% From All-Time High as Risk Assets Slump (Dow Retreats Almost 1,000 Points, Gold Advances)

It has been a grim Friday. The Dow fell 900 points, 10Y Treasury yields fell 16.1 basis points and West Texas Crude fell to $68.17.

Bitcoin tumbled 20% from record highs notched earlier this month as a new variant of the coronavirus spurred traders to dump risk assets across the globe.

The world’s largest cryptocurrency fell as much as 8.9% to $53,624 on Friday during London trading hours. Ethereum, the second-largest digital currency, dropped more than 12%, while the wider Bloomberg Galaxy Crypto Index declined as much as 7.5%. On the other hand, gold rose as cryptos fell, then retreated as cryptos rebounded.

A new variant identified in southern Africa spurred liquidations across markets, with European stocks falling the most since July and emerging markets also slumping.

The Dow is down around 900 points … and look at Europe!

The 10-year Treasury yield is down 16.1 basis points. Most of Europe is down around 8-9 basis points while the UK is down 14.5 BPS.

And West Texas Intermediate crude futures are down to 68.17 from 78.39. No Jen Paski, this isn’t due to Cousin Eddie (Biden) releasing the Strategic Petroleum Reserve (SPR).

Maybe it was all the tryptophan released by eating turkey.

A day to remember.

Post-Thanksgiving Indigestion: Inflation And Another COVID Scares Spooking Markets (Dow Futures Down 777 Pts, US Treasury 10Y Yield Down 11 BPS, Oil Drops 7%)

Thanksgiving has come and gone. But Americans have a lot to be scared about: inflation (turkey prices were up 24% according to the Farm Bureau and a new COVID outbreak B.1.1.529 — has been identified in South Africa.

Gut-wrenching inflation is already priced in, but yet another COVID outbreak (and the possibility of more economic shutdowns, more vax mandates and more stern lectures from Anthony Fauci) are spooking markets.

Down Futures are down 777 as I write this note.

The 10-year Treasury yield is down 11.2 basis points.

And West Texas Intermediate crude prices are down 6.62%.

Joe Biden: “Save the neck for me Clark!”

Treasuries Curve Flattens Sharply After Data Dump, Fed Minutes (Market Update)

Its Thanksgiving in the USA! Confession: I don’t like turkey. Prime rib with horseradish sauce? You bet!!

Anyway, Treasuries ended mixed Wednesday with the yield curve sharply flatter after a raft of U.S. economic data and minutes of the November FOMC meeting bolstered expectations for an earlier start to Fed rate increases. Two- and 5-year yields reached YTD highs, and 5s30s spread reached narrowest since March 2020.

Over the past week, the Treasury actives curve rose 13.85 basis points at the 2 year tenor.

Yields ended richer by ~6bp across long-end of the curve, while front-end cheapened almost 3bp; 2s10s flattened more than 5bp, 5s30s more than 6bp; 10-year yields shed ~3bp to ~1.635%
Release of Nov. 2-3 FOMC meeting minutes drew minimal market reaction, as flatter curve held its shape.

The US Dollar Swaps curve rose from the previous week as well.

Minutes said participants considered elevated inflation as likely transitory, “but judged that inflation pressures could take longer to subside than they had previously assessed”

Earlier, front-end and belly sold off after a heavy slate of U.S. economic data including the lowest initial jobless claims tally since 1969

Also during U.S. morning, Fed’s Daly said she would support accelerated tapering of asset purchases, which added to pressure across front-end Treasuries

Subsequently, eurodollars traded heavy over the session as rate-hike premium continued to ramp up in 2022 and 2023; overnight index swaps showed 30% chance of a March hike, while around three hikes — or 75bp — were priced in by the end of next year

Wishing you a happy Thanksgiving! In my dreams!

US New Home Sales Decline 23.1% YoY In October As UMich Home Sentiment Plummets

While some economists are cheering the post-COVID economic recovery, I am not among them. Rampant inflation and bad economic policies are plaguing the non 1% of the population.

For example, new home sales dropped -23.1% YoY in October. As consumer sentiment for housing crashed to 63 (baseline of 100).

Why are consumers bummed-out about buying housing? How about rapidly accelerating new home prices???

Renter Misery Index At 17.42% With Traditional Misery Index At 10.80% (Biden Says $5 TRILLION “Build Back Better Boondoggle” Will Relieve Inflation Over 10 Years)

Renters in the US are getting clobbered by inflation.

The US Zillow Rent Index All Homes YoY + CPI YoY is one measure of renter misery.

The classic misery index (CPI YoY + U-3 unemployment rate) is 10.80%.

Then there is inflation in food prices, gasoline, heating oil, natural gas, etc.

While Biden is releasing the Strategic Petroleum Reserves (SPR) in order to mitigate the problem that he created by terminating the energy pipelines and oil/natural gas drilling permits in the name of “Going Green!” But on the announcement of tapping the SPR, crude oil futures actually rose.

But never fear! Biden claims that his $5 TRILLION Build Back Better Boondoggle (BBBB) will ease inflation … over 10 years. And he claims that “17 Nobel Prize winners in economics have said that my plan will “ease inflationary pressures.”” I sincerely doubt that any of them actually read the 2,500 page BBBB. Rather, they likely just read the White House talking points and said “Hey, that sounds good!” Mo money, less problems?

Here is Joe Biden breaking the legs of America’s renters. Or is that multi-millionaire Nancy Pelosi?

Securitization Frenzy! Wall Street Repackaging Of Loans, Franchise Agreements, Royalties Surging As Alarm Sounds For Commercial Retail

Alarm!

I remember the surge in securitization of loans, receivables, etc during the housing bubble of the mid-to-late 2000s. Today seems like 2007 all over again.

(Bloomberg) — Bankers are repackaging everything from fast food franchises to fitness-center fees into bonds at the fastest clip since the global financial crisis as investors chase yield and inflation protection.

This year’s sales of U.S. asset-backed securities have already surpassed $300 billion, according to data compiled by Bloomberg — and more is expected by year-end. Post-crisis issuance records have also been set in private-label commercial mortgage bonds and collateralized loan obligations, which are also seen accelerating.

“Solar, consumer loans, container lease and whole business transactions to some degree all offer attractive yields and spreads,” said Dave Goodson, head of securitized credit at Voya Investment Management. “These so-called esoteric sectors remain well supported with plenty of money to invest.”

On Monday, Self Esteem Brands, a franchiser of businesses including its flagship gyms Anytime Fitness, priced a $505 million ABS that was backed by franchise agreements, royalties and fees. In whole business securitizations like these, companies mortgage virtually all their assets.

Last month, fried chicken restaurant chain Church’s Chicken sold a $250 million securitization backed by franchise and royalty collateral. Golden Pear Funding recently securitized litigation fees related to financial settlements on everything from personal injury cases to wrongful convictions. And Oasis Financial priced a similar deal linked to payments on medical liens.

Then we have this headline that will send chills through the CMBS market for retail space, particularly at a time when commercial real estate (particularly RETAIL) are trying to recover from COVID lockdowns and the growth of online shopping.

“Retailers Sound Alarm on Organized Theft as States Warn of Rise”

Retailers say shoplifting is getting more brazen in the U.S.: A California Nordstrom store was recently hit by a flash mob of more than 80 people who made off with designer goods, while more than a dozen people pilfered from a Louis Vuitton location in a suburb of Chicago.

On Tuesday, the impact of shoplifting reached Wall Street, with Best Buy Co. shares plunging after the electronics retailer said widespread theft contributed to a decrease in one gauge of profitability. Last month, Walgreens said it would close five San Francisco stores after theft rates there spiked.

Seemingly, no one learns from history. Or as the zen master Yogi Berra once said “It’s like déjà vu all over again.”

Or “You better cut the pizza in four pieces because I’m not hungry enough to eat six.”

Biden Picks Powell Over Brainard, 10-Year Treasury Yields Rise (10Y-3M Treasury Curve Rose From 83 BPS At End Of 2020 To 160 BPS Today)

President Biden nominated Jerome Powell for a second term as Fed Chair and nominated Lael Brainard as Deputy Chair to replace Richard Clarida. The US House of Overlords (aka, the US Senate) will hold hearings on the nominees (with Elizabeth Warren opposing Powell and supporting Brainard’s nomination).

Treasury yields jumped and U.S. index futures signaled a continued selloff in technology shares as traders pruned bets for a dovish-for-longer Federal Reserve after the renomination of Jerome Powell as its chair.

Contracts on the Nasdaq 100 Index fell 0.3% after Monday’s last-hour selloff in technology stocks. The subgroup was the worst performer in Europe Tuesday, sending the region’s benchmark to a three-week low. A currency crisis deepened in Turkey, with the lira weakening past 13 per U.S. dollar. Zoom Video Communications Inc. lost 9% in premarket trading on slowing growth.

Investors are reducing expectations for a deeper dovish stance by the Fed after Powell was selected for a second term. The chair himself sought to strike a balance in his policy approach saying the central bank would use tools at its disposal to support the economy as well as to prevent inflation from becoming entrenched.

Fed rate hike premium is added after Powell confirmed as next Fed Chair:

Change in Fed’s interest-rate target implied by overnight index swaps and eurodollar futures.

Fed Bank of Atlanta President Raphael Bostic said Monday the U.S. central bank may need to speed up the removal of monetary stimulus and allow for an earlier-than-planned increase in interest rates.

Translation: Markets are pricing in MORE hawkish Powell over uber-dove Brainard. The 10-year Treasury yield has risen from 1.52% to 1.65%

And the 10Y-3M Treasury curve has risen from 83 basis points at the beginning of 2021 to 160 basis points today. I will this the Biden Inflation Effect (BIE).

Let’s see if Powell & Company deliver on removing the excessive stimulus from the market, particularly with midterm elections approaching.

Home Sales Rose 0.8% MoM In October As Investors Rushed Into The Market (Inventory Remains Thin, Median Price +13.1% YoY)

Fools rush in … or at least investors rush into the US housing market. Investors made up 17% of existing home purchases in October.

Inventory of homes remains depressed and with investors picking up 17% of homes for sale, the median price of existing homes rose to 13.1% YoY.

While existing home sales rose 0.8% MoM, they fell -5.79% on a YoY basis as M2 Money slowed.

It is lonesome town for inventory. But it will be a poor little fool for those buying into this thin inventory market if home prices correct.

President Biden has decided to nominate Fed Chair Jerome Powell for a second term in an effort not to rock the boat. Lael Brainard is nominated for Deputy Chair.

Bernie’s & Biden’s Build Back Better Bill Balloons To $5 TRILLION From $2.4 TRILLION (More Than Biden’s Quote Of $0)

To quote Gomer Pyle USMC, “Surprise, surprise, surprise!”

The humongous spending bill awaiting Joe Manchin to sign off on it will cost almost double what the CBO said it would. Why? Because spending programs in Washington DC never get cancelled, they only grow.

The Committee For A Responsible Federal Budget estimates that the true cost of Build Back Better is $4.91 TRILLION, up from the stated $2.39 TRILLION. Once they assumed that the programs don’t sunset and get extended.

According to their analysis,

“We estimate the House Build Back Better Act includes roughly $2.4 trillion of spending and tax cuts along with roughly $2.2 trillion of offsets.However, the bill relies on a number of sunsets and expirations to keep the official cost down. If the plan’s temporary policies were made permanent, we find the cost would increase by as much as $2.5 trillion.As a result, the gross cost of the bill would more than double from $2.4 trillion to $4.9 trillion.

The Build Back Better Act relies on a number of arbitrary sunsets and expirations to lower the official cost of the bill. These include extending the American Rescue Plan’s Child Tax Credit (CTC) increase and Earned Income Tax Credit (EITC) expansion for a year, setting universal pre-K and child care subsidies to expire after six years, making the Affordable Care Act (ACA) expansions available through 2025, delaying the requirement that businesses amortize research and experimentation (R&E) costs until 2026, and setting several other provisions – from targeted tax credits to school lunch programs – to expire prematurely.

Excluding changes to the state and local tax (SALT) deduction, we estimate the Build Back Better Act would cost $2.1 trillion as written. We estimate making all of these temporary policies permanent would cost roughly $2.2 trillion, more than doubling the gross cost of the bill to $4.3 trillion through 2031.”

When asked about the Center for a Responsible Budget saying the bill could be twice as expensive, Manchin replies “it’s concerning. Sure. It’s concerning.”

Surprise, surprise, surprise! And it is certainly more expensive than the estimate Biden gave: $0.